Tempur Sealy(TPX) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Tempur Sealy International, Inc. and its subsidiaries for the three months ended March 31, 2021 and 2020, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes on significant accounting policies, net sales, acquisitions, debt, leases, and segment information Condensed Consolidated Statements of Income Three Months Ended March 31, 2021 vs. 2020 (in millions) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $1,043.8 | $822.4 | $221.4 | 26.9% | | Gross profit | $458.9 | $357.1 | $101.8 | 28.5% | | Operating income | $188.4 | $105.3 | $83.1 | 78.9% | | Income from continuing operations before income taxes | $171.4 | $84.5 | $86.9 | 102.8% | | Net income attributable to Tempur Sealy International, Inc. | $130.5 | $59.7 | $70.8 | 118.6% | | Diluted Earnings per share | $0.62 | $0.28 | $0.34 | 121.4% | Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2021 vs. 2020 (in millions) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------------ | :----- | :----- | :--------- | :--------- | | Net income before non-controlling interests | $130.7 | $59.8 | $70.9 | 118.6% | | Other comprehensive loss, net of tax | $(10.8) | $(23.0) | $12.2 | -53.0% | | Comprehensive income attributable to Tempur Sealy International, Inc. | $119.7 | $36.7 | $83.0 | 226.2% | Condensed Consolidated Balance Sheets As of March 31, 2021 vs. December 31, 2020 (in millions) | Metric | March 31, 2021 | December 31, 2020 | Change ($) | Change (%) | | :--------------------------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $290.5 | $65.0 | $225.5 | 346.9% | | Total Current Assets | $1,214.3 | $968.4 | $245.9 | 25.4% | | Total Assets | $3,542.1 | $3,308.6 | $233.5 | 7.1% | | Total Current Liabilities | $895.7 | $974.8 | $(79.1) | -8.1% | | Long-term debt, net | $1,822.4 | $1,323.0 | $499.4 | 37.7% | | Total Liabilities | $3,214.9 | $2,795.1 | $419.8 | 15.0% | | Total Stockholders' Equity | $318.3 | $504.6 | $(186.3) | -36.9% | Condensed Consolidated Statements of Stockholders' Equity - Total Stockholders' Equity decreased from $504.6 million as of December 31, 2020, to $318.3 million as of March 31, 2021, primarily due to treasury stock repurchases of $299.8 million and dividends paid of $14.8 million, partially offset by net income of $130.5 million[24] Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2021 vs. 2020 (in millions) | Cash Flow Activity | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------------ | :----- | :----- | :--------- | :--------- | | Net cash provided by operating activities from continuing operations | $86.3 | $15.0 | $71.3 | 475.3% | | Net cash used in investing activities from continuing operations | $(24.4) | $(64.0) | $39.6 | -61.9% | | Net cash provided by financing activities from continuing operations | $168.9 | $188.1 | $(19.2) | -10.2% | | Increase in cash and cash equivalents | $225.5 | $132.1 | $93.4 | 70.7% | | Cash and cash equivalents, end of period | $290.5 | $197.0 | $93.5 | 47.5% | Notes to Condensed Consolidated Financial Statements Summary of Significant Accounting Policies - The Company designs, manufactures, and distributes bedding products (mattresses, foundations, adjustable bases, pillows, accessories) through Wholesale and Direct channels[30] - It also earns royalties from licensing Sealy® and Stearns & Foster® brands[31] - The Company holds 50% ownership in Asia-Pacific joint ventures and a UK joint venture for Sealy® and Stearns & Foster® products, accounted for using the equity method[32] Inventories (in millions) | Category | March 31, 2021 | December 31, 2020 | | :--------------- | :------------- | :---------------- | | Finished goods | $171.3 | $170.2 | | Work-in-process | $10.6 | $12.6 | | Raw materials and supplies | $136.9 | $129.3 | | Total | $318.8 | $312.1 | - Accrued sales returns increased from $44.9 million at December 31, 2020, to $48.2 million at March 31, 2021, with $36.7 million accrued and $33.4 million charged during the period[35] - Accrued warranty expense remained stable at $44.3 million at March 31, 2021, compared to $44.2 million at December 31, 2020, with $5.8 million accrued and $5.7 million charged during the period[39] - The allowance for credit losses increased from $71.6 million at December 31, 2020, to $72.5 million at March 31, 2021, reflecting $2.5 million accrued and $1.6 million in write-offs[41] Net Sales Disaggregated Net Sales for Three Months Ended March 31, 2021 (in millions) | Category | North America | International | Consolidated | | :------------------ | :------------ | :------------ | :----------- | | Channel: | | | | | Wholesale | $765.5 | $115.9 | $881.4 | | Direct | $117.8 | $44.6 | $162.4 | | Product: | | | | | Bedding | $830.3 | $121.7 | $952.0 | | Other | $53.0 | $38.8 | $91.8 | | Geographical region: | | | | | United States | $818.5 | — | $818.5 | | All Other | $64.8 | $160.5 | $225.3 | | Total Net Sales | $883.3 | $160.5 | $1,043.8 | Disaggregated Net Sales for Three Months Ended March 31, 2020 (in millions) | Category | North America | International | Consolidated | | :------------------ | :------------ | :------------ | :----------- | | Channel: | | | | | Wholesale | $624.7 | $97.7 | $722.4 | | Direct | $67.6 | $32.4 | $100.0 | | Product: | | | | | Bedding | $654.9 | $101.5 | $756.4 | | Other | $37.4 | $28.6 | $66.0 | | Geographical region: | | | | | United States | $632.5 | — | $632.5 | | All Other | $59.8 | $130.1 | $189.9 | | Total Net Sales | $692.3 | $130.1 | $822.4 | Acquisitions - On January 31, 2020, the Company acquired an 80% ownership interest in Sherwood Bedding for approximately $39.1 million cash, including $1.2 million cash acquired[44] - The acquisition resulted in $26.7 million in goodwill, primarily for private label product growth and synergistic manufacturing benefits[45] Goodwill Goodwill by Segment (in millions) | Segment | December 31, 2020 | March 31, 2021 | Change ($) | | :-------------- | :---------------- | :------------- | :--------- | | North America | $610.3 | $611.9 | $1.6 | | International | $156.0 | $153.3 | $(2.7) | | Consolidated | $766.3 | $765.2 | $(1.1) | Debt Debt Composition (in millions) | Debt Instrument | March 31, 2021 Amount | December 31, 2020 Amount | Maturity Date | | :---------------------- | :-------------------- | :----------------------- | :------------ | | 2019 Credit Agreement: Term A Facility | $398.4 | $409.1 | Oct 16, 2024 | | 2029 Senior Notes | $800.0 | — | Apr 15, 2029 | | 2026 Senior Notes | $600.0 | $600.0 | Jun 15, 2026 | | 2023 Senior Notes | — | $250.0 | Oct 15, 2023 | | Securitized debt | — | $33.9 | Apr 6, 2023 | | Finance lease obligations | $69.7 | $71.4 | Various | | Other | $5.0 | $5.9 | Various | | Total debt, net | $1,860.1 | $1,366.9 | | - The Company issued $800.0 million of 4.00% senior notes due 2029 on March 25, 2021[53] - These notes are unsecured senior obligations and are redeemable starting April 15, 2024[54] - The Company announced its election to conditionally redeem the $600.0 million 2026 Senior Notes in full on June 15, 2021, at 102.750% of principal, primarily funded by proceeds from the 2029 Senior Notes[57] - The remaining $250.0 million of 2023 Senior Notes were redeemed in Q1 2021, resulting in a $5.0 million loss on extinguishment of debt[58] - The revolving credit facility under the 2019 Credit Agreement was increased from $425.0 million to $725.0 million on February 2, 2021, with $724.9 million available as of March 31, 2021[51] - The Accounts Receivable Securitization limit was increased from $120.0 million to $200.0 million and its maturity extended to April 6, 2023, on April 6, 2021[52] Leases Lease Assets and Liabilities (in millions) | Category | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $294.1 | $304.3 | | Finance lease assets | $59.4 | $61.2 | | Total leased assets | $353.5 | $365.5 | | Total lease obligations | $397.1 | $407.5 | Lease Expense for Three Months Ended March 31 (in millions) | Type of Expense | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Operating lease expense | $19.4 | $18.0 | | Short-term lease expense | $3.9 | $3.2 | | Variable lease expense | $6.4 | $5.3 | | Amortization of right-of-use assets (Finance) | $2.8 | $2.2 | | Interest on lease obligations (Finance) | $1.1 | $1.2 | | Total lease expense | $33.6 | $29.9 | Stockholders' Equity - The Board of Directors authorized an increase of $211.4 million to the share repurchase program on February 11, 2021, and an additional $400.0 million on April 29, 2021[63] - The Company repurchased 8.4 million shares for $299.8 million during Q1 2021[63] - Treasury stock acquired from RSU/PRSU vesting to satisfy tax obligations amounted to $13.3 million in Q1 2021[64] Accumulated Other Comprehensive Loss (AOCL) - Foreign Currency Translation (in millions) | Period | Balance at beginning of period | Other comprehensive loss | Balance at end of period | | :-------------------------------- | :--------------------------- | :----------------------- | :----------------------- | | Three Months Ended March 31, 2021 | $(58.6) | $(10.8) | $(69.4) | | Three Months Ended March 31, 2020 | $(82.2) | $(23.0) | $(105.2) | Other Items Accrued Expenses and Other Current Liabilities (in millions) | Category | March 31, 2021 | December 31, 2020 | | :------------------------ | :------------- | :---------------- | | Taxes | $145.0 | $150.4 | | Wages and benefits | $68.1 | $102.5 | | Advertising | $61.3 | $74.4 | | Operating lease obligations | $61.2 | $61.0 | | Other | $210.6 | $196.8 | | Total | $546.2 | $585.1 | Stock-Based Compensation Stock-Based Compensation Expense (in millions) | Type of Expense | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | PRSU expense | $9.6 | $0.3 | | Option expense | $0.4 | $1.2 | | RSU/DSU expense | $5.1 | $5.8 | | Total | $15.1 | $7.3 | - PRSU expense significantly increased from $0.3 million in Q1 2020 to $9.6 million in Q1 2021, reflecting new grants and the probability of achieving performance targets[69][70] Commitments and Contingencies - The Company is involved in various legal and administrative proceedings but believes the aggregate outcome will not have a material adverse effect on its business, financial condition, liquidity, or operating results[71] Income Taxes Income Tax Provision (in millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------ | :-------------------------------- | :-------------------------------- | | Income tax provision | $40.5 | $23.5 | | Effective tax rate | 23.6% | 27.8% | - The effective tax rate decreased by 420 basis points from 27.8% in Q1 2020 to 23.6% in Q1 2021, primarily due to the elimination of GILTI from U.S. taxable income and the deductibility of stock compensation[72] - The Company is involved in a dispute with the Danish Tax Authority (SKAT) regarding royalty payments for tax years 2001 through current, with uncertain income tax liabilities totaling $180.4 million as of March 31, 2021[73][74] Earnings Per Common Share Earnings Per Common Share (in millions, except per share amounts) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Income from continuing operations, net of non-controlling interests | $130.7 | $60.9 | | Denominator for basic EPS - weighted average shares | 203.7 | 213.6 | | Denominator for diluted EPS - adjusted weighted average shares | 210.1 | 216.0 | | Basic earnings per common share for continuing operations | $0.64 | $0.28 | | Diluted earnings per common share for continuing operations | $0.62 | $0.28 | Business Segment Information - The Company operates in two segments: North America (U.S., Canada, Mexico) and International (Europe, Asia-Pacific, Latin America excluding Mexico)[80] - Segment performance is evaluated based on net sales, gross profit, and operating income[80] Segment Performance for Three Months Ended March 31, 2021 (in millions) | Metric | North America | International | Corporate | Consolidated | | :-------------------- | :------------ | :------------ | :-------- | :----------- | | Net sales | $883.3 | $160.5 | — | $1,043.8 | | Gross profit | $363.9 | $95.0 | — | $458.9 | | Operating income (loss) | $173.4 | $46.2 | $(31.2) | $188.4 | | Capital expenditures | $18.8 | $2.0 | $2.7 | $23.5 | Segment Performance for Three Months Ended March 31, 2020 (in millions) | Metric | North America | International | Corporate | Consolidated | | :-------------------- | :------------ | :------------ | :-------- | :----------- | | Net sales | $692.3 | $130.1 | — | $822.4 | | Gross profit | $281.2 | $75.9 | — | $357.1 | | Operating income (loss) | $101.6 | $26.4 | $(22.7) | $105.3 | | Capital expenditures | $21.6 | $2.1 | $2.5 | $26.2 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of the Company's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020, highlighting significant growth in sales and income, ongoing supply chain challenges, and strategic financial actions Business Overview - Tempur Sealy International is a global leader in bedding products, operating in North America and International segments, distributing through Wholesale and Direct channels[86] - Its brand portfolio includes Tempur®, Tempur-Pedic®, Sealy®, and Stearns & Foster®[87][88][89] - The bedding industry is structured for sustained growth driven by product innovation, consumer confidence, housing formations, and population growth[90] - The Company expects consolidated net sales growth to exceed 20% for the full year 2021[92] - The rapid increase in demand for bedding products, coupled with supply chain constraints (encased innerspring components and chemicals), unfavorably impacted Sealy and Sherwood sales growth in Q1 2021[93] - These constraints are expected to mitigate significantly by the end of Q2 2021[93] - Commodity costs unfavorably impacted gross margin in Q1 2021[94] - Pricing actions were implemented in Q4 2020 and April 2021 to mitigate these headwinds, with an expected negative impact of approximately $25 million on gross margin in Q2 2021[94] - The Company launched the Tempur-Ergo Smart Base Collection with Sleeptracker® technology in North America in Q1 2021 and is refreshing its Sealy portfolio, with the largest rollout in Sealy's history expected to complete in H2 2021[96] Results of Operations Key Financial Highlights for Three Months Ended March 31, 2021 vs. 2020 (in millions, except EPS) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Total net sales | $1,043.8 | $822.4 | $221.4 | 26.9% | | Gross margin | 44.0% | 43.4% | 0.6 pts | | | Operating income | $188.4 | $105.3 | $83.1 | 78.9% | | Net income | $130.5 | $59.7 | $70.8 | 118.6% | | Diluted EPS | $0.62 | $0.28 | $0.34 | 121.4% | | EBITDA | $230.1 | $134.5 | $95.6 | 71.1% | Net Sales - Consolidated net sales increased 26.9% to $1,043.8 million (25.1% on a constant currency basis)[99] - North America net sales increased 27.6% ($191.0 million), driven by a 22.5% increase in Wholesale and a 74.3% increase in Direct channel sales (primarily e-commerce)[104] - International net sales increased 23.4% ($30.4 million), or 13.8% on a constant currency basis, with Direct channel sales up 28.1% on a constant currency basis[109] Gross Profit Gross Profit and Margin for Three Months Ended March 31 (in millions, except percentages) | Segment | 2021 Gross Profit | 2021 Gross Margin | 2020 Gross Profit | 2020 Gross Margin | Margin Change | | :-------------- | :---------------- | :---------------- | :---------------- | :---------------- | :------------ | | North America | $363.9 | 41.2% | $281.2 | 40.6% | 0.6% | | International | $95.0 | 59.2% | $75.9 | 58.3% | 0.9% | | Consolidated | $458.9 | 44.0% | $357.1 | 43.4% | 0.6% | - Consolidated gross margin improved by 60 basis points to 44.0%[108] - North America's gross margin improved by 60 basis points due to brand and channel mix (140 bps), partially offset by supply chain operational inefficiencies (100 bps)[108] - International's gross margin improved by 90 basis points, driven by favorable mix (160 bps) and operational efficiencies (150 bps), partially offset by increased commodity costs (220 bps)[110] Operating Expenses Total Operating Expenses for Three Months Ended March 31 (in millions) | Segment | 2021 | 2020 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Consolidated | $277.2 | $251.6 | $25.6 | 10.2% | | North America | $190.5 | $179.6 | $10.9 | 6.1% | | International | $55.5 | $49.3 | $6.2 | 12.6% | | Corporate | $31.2 | $22.7 | $8.5 | 37.4% | - Consolidated operating expenses increased by $25.6 million (10.2%) but decreased by 400 basis points as a percentage of net sales[113] - North America's increase was driven by advertising investments, partially offset by decreased customer-related charges (Q1 2020 included $11.7 million for Art Van Furniture bankruptcy)[117] - International's increase was due to advertising and marketing investments[117] - Corporate expenses rose due to variable compensation[117] - Research and development expenses increased by $0.7 million, or 12.1%, to $6.5 million in Q1 2021[114] Operating Income Operating Income and Margin for Three Months Ended March 31 (in millions, except percentages) | Segment | 2021 Operating Income | 2021 Operating Margin | 2020 Operating Income | 2020 Operating Margin | Margin Change | | :-------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :------------ | | North America | $173.4 | 19.6% | $101.6 | 14.7% | 4.9% | | International | $46.2 | 28.8% | $26.4 | 20.3% | 8.5% | | Consolidated | $188.4 | 18.0% | $105.3 | 12.8% | 5.2% | - Consolidated operating income increased by $83.1 million, with operating margin improving by 520 basis points to 18.0%[118] - North America's operating margin improved by 490 basis points due to operating expense leverage, gross margin improvement, and reduced customer-related charges[118] - International's operating margin improved by 850 basis points, driven by improved Asia-Pacific joint venture performance, operating expense leverage, and gross margin improvement[123] Interest Expense, Net - Interest expense, net, decreased by $8.0 million, or 39.4%, to $12.3 million in Q1 2021, primarily due to reduced average outstanding debt levels and lower interest rates on variable-rate debt[119] Income Tax Provision - The income tax provision increased by $17.0 million to $40.5 million in Q1 2021, reflecting higher income before income taxes[121] - The effective tax rate decreased by 420 basis points to 23.6%, primarily due to the elimination of GILTI from U.S. taxable income and the deductibility of stock compensation[122] Liquidity and Capital Resources - As of March 31, 2021, the Company had $1,102.6 million in liquidity, including $290.5 million cash on hand and $724.9 million available under its revolving credit facility, plus $87.2 million under its securitization facility[145] - Net working capital improved significantly to $318.6 million as of March 31, 2021, from a deficit of $6.4 million at December 31, 2020[124] - Cash provided by operating activities from continuing operations increased by $71.3 million to $86.3 million in Q1 2021, driven by strong operational performance[126] - Cash used in investing activities from continuing operations decreased by $39.6 million to $24.4 million in Q1 2021, primarily due to the Sherwood Bedding acquisition in Q1 2020[127] - Cash provided by financing activities from continuing operations decreased by $19.2 million to $168.9 million in Q1 2021[128] - This included $800.0 million from 2029 Senior Notes issuance, partially offset by debt repayments ($1,148.6 million), treasury stock repurchases ($313.1 million), and dividends paid ($14.3 million)[128] - Total debt increased to $1,873.1 million as of March 31, 2021, from $1,370.3 million at December 31, 2020[131] - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA per credit facility was 1.95 times, well within the 5.00 times covenant limit[134][146] - The Company's capital allocation strategy focuses on supporting the business, returning shareholder value through share repurchases and quarterly dividends ($0.07 per share declared for Q2 2021), and opportunistic acquisitions[146] - It plans to repurchase at least 6% of shares outstanding in 2021[148] Non-GAAP Financial Information - The Company uses non-GAAP financial measures like adjusted net income, adjusted EPS, adjusted operating income, EBITDA, and adjusted EBITDA per credit facility to provide a clearer view of underlying operations and trends, excluding items that cause short-term fluctuations[149][150] Reconciliation of Net Income to Adjusted Net Income (in millions, except per share amounts) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $130.5 | $59.7 | | Loss from discontinued operations, net of tax | $0.2 | $1.2 | | Loss on extinguishment of debt | $5.0 | — | | Customer-related charges | — | $11.7 | | Incremental operating costs | — | $2.3 | | Accounting standard adoption | — | $1.5 | | Tax adjustments | $(1.1) | $(3.9) | | Adjusted net income | $134.6 | $72.5 | | Adjusted earnings per share, diluted | $0.64 | $0.34 | Reconciliation of Operating Income to Adjusted Operating Income (in millions, except percentages) for Three Months Ended March 31, 2020 | Metric | Consolidated | North America | International | Corporate | | :------------------------ | :----------- | :------------ | :------------ | :-------- | | Operating income (expense) | $105.3 | $101.6 | $26.4 | $(22.7) | | Customer-related charges | $11.7 | $11.7 | — | — | | Incremental operating costs | $2.3 | — | $2.3 | — | | Accounting standard adoption | $1.5 | $1.5 | — | — | | Adjusted operating income (expense) | $120.8 | $114.8 | $28.7 | $(22.7) | Reconciliation of Net Income to EBITDA and Adjusted EBITDA per Credit Facility (in millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $130.5 | $59.7 | | Interest expense, net | $12.3 | $20.3 | | Loss on extinguishment of debt | $5.0 | — | | Income taxes | $40.5 | $23.5 | | Depreciation and amortization | $41.8 | $31.0 | | EBITDA | $230.1 | $134.5 | | Loss from discontinued operations, net of tax | $0.2 | $1.2 | | Customer-related charges | — | $11.7 | | Incremental operating costs | — | $2.3 | | Accounting standard adoption | — | $1.5 | | Adjusted EBITDA per credit facility | $230.3 | $151.2 | - For the trailing twelve months ended March 31, 2021, Adjusted EBITDA per credit facility was $858.7 million[163] - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA per credit facility was 1.95 times[166] Critical Accounting Policies and Estimates - There have been no material changes to the Company's critical accounting policies and estimates in 2021[170] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily foreign currency exchange rates and interest rates, and its strategies for managing these risks Foreign Currency Exposures - The Company's earnings are exposed to foreign currency exchange rate changes due to global operations[171] - A strengthening U.S. dollar negatively impacts operating results upon translation[171] - Foreign currency exchange rate changes positively impacted adjusted EBITDA per credit facility by 1.7% in Q1 2021[171] - The Company hedges a portion of its foreign currency transaction exposure using foreign exchange forward contracts[172] - A hypothetical 10.0% adverse change in exchange rates would result in an estimated $6.8 million potential loss in fair value of these contracts, largely offset by gains from underlying assets and liabilities[172] Interest Rate Risk - As of March 31, 2021, the Company had approximately $403.4 million in variable-rate debt[173] - A hypothetical 100 basis point increase in interest rates would cause an estimated $4.0 million reduction in income before income taxes[173] ITEM 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2021, with ongoing evaluation of new ERP system controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2021[174] - A new ERP system was implemented in Q1 2021 for the Tempur U.S. distribution subsidiary, resulting in modified and new internal controls over financial reporting[175] - The Company is continuously evaluating the operating effectiveness of these controls[175] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 10, 'Commitments and Contingencies,' in the financial statements ITEM 1A. Risk Factors There are no new material risk factors to report for the current period ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the three months ended March 31, 2021, under its authorized share repurchase program Common Stock Purchases for Three Months Ended March 31, 2021 | Period | Total number of shares purchased | Average Price Paid per Share | Total number of shares purchased as part of publicly announced plans or programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------ | | January 1, 2021 - January 31, 2021 | 736,605 | $27.13 | 261,705 | | February 1, 2021 - February 28, 2021 | 1,982,779 | $32.95 | 1,980,528 | | March 1, 2021 - March 31, 2021 | 6,122,789 | $37.19 | 6,108,392 | | Total | 8,842,173 | | 8,350,625 | - The Board of Directors increased the share repurchase authorization by an additional $211.4 million in February 2021, and further to $400.0 million in April 2021[180] ITEM 3. Defaults upon Senior Securities There were no defaults upon senior securities during the reporting period ITEM 4. Mine Safety Disclosures This item is not applicable to the Company ITEM 5. Other Information No other information is required to be disclosed under this item ITEM 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including indentures, purchase agreements, amendments to credit and security agreements, compensation plans, certifications, and XBRL-formatted financial statements Signatures The report is duly signed on behalf of Tempur Sealy International, Inc. by its Executive Vice President and Chief Financial Officer, Bhaskar Rao, on May 6, 2021