SGI 10-K & 10-Q changes, risk factors and insider trading

Geopolitical developments, such as trade wars, the Russia-Ukrainewar conflict,in Ukraine conflicts in the Israel-Hamas conflict and wider Middle East developments (including disruptions to the Red Sea passage or such conflicts spreading further in the relevant regions), have adversely impacted and could continue to adversely impact, among other things, our raw material, energy and transportation costs, certain of our suppliers, distributors, customers and local markets, global and local macroeconomic conditions,conditions and cause further supply chain disruptions (including by delaying the delivery times of raw materials needed for our business or our products to customers).

From time to time, the Company considers and may make acquisitions, such as our acquisition of Mattress Firm. The success of such acquisitions will depend upon a number of factors, some of which may not be within our control. For example, the success of our acquisition of Mattress Firm will depend,depends, in large part, on our ability to realize the anticipated benefits from combining our business with Mattress Firm.businesses. Our ability to realize these anticipated benefits depends on the successful mergerintegration of ourMattress businessFirm with Mattressour Firm,businesses, which willhas bebeen complex and time-consuming. This mergerintegration willhas involveinvolved numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associatedassumed with the Mattress Firm'sFirm business.Acquisition. Difficulties in combining the business of Mattress Firm and our ability to manage the combined company may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related operating synergies and could have an adverse effect on our business and financial results.

Potential difficulties that may be encountered in the acquisition and merger process include, among other factors:

•the inability to successfully merge the businessacquired of Mattress Firm,business, operationally and culturally, in a manner that permits us to achieve the financial results anticipated;

•the inability to deliver on our strategy as a combined company, including the expansion of consumer touchpoints and acceleration of our U.S. omni-channel strategycompany;

•the inability to retain key employees and otherwise combine personnel from the twoacquired companies;

•performance shortfalls at one or bothany of the companies as a result of the diversion of management's attention caused by merging Mattressthe Firm'sacquired business' operations; and

•our ability to pursue, successfully integrate and capture the synergies from potential acquisition opportunities, such as the Mattress Firm acquisitionopportunities;

InEach year we invest significant time and resources in research and development to improve our product offerings and launch new products. For example, in 2026, we plan to launch an all-new collection of Stearns & Foster products in North America, and in 2025, we are launchinglaunched an all-new collection of Sealy Posturepedic® products in North America. This all-new collection of Stearns & Foster products 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. 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 that deliver superior support and exceptional comfort.

AsCybersecurity previously disclosed, we identified a cybersecurity event on July 23, 2023 affecting certain of our dataevents and IT systems, which resulted in the temporary interruption of our operations when we proactively shut down certain of our systems. This cybersecurity event, as well as any other breachbreaches of our network or databases, or those of our third-party providers, have resulted and may in the future result in the risks discussed herein.

As of December 31, 2024,2025, we had approximatelyover 12,00019,000 full-time employees. Our joint ventures also employ approximatelyover 1,5501,500 full-time employees. Approximately 16%14.7% of our employees are represented by various labor unions with separate collective bargaining agreements or government labor union contracts for certain international locations. Our North American collective bargaining agreements, which are typically three years in length, expire at various times during any given three-year period. Due to the large number of collective bargaining agreements, we are periodically in negotiations with certain of the unions representing our employees. We may at some point be subject to work stoppages by some of our employees and, if such events were to occur, there may be a material adverse effect on our operations and profitability. Further, we may not be able to renew our various collective bargaining agreements on a timely basis or on favorable terms, or at all. Any significant increase in our labor costs could decrease our liquidity and profitability and any deterioration of employee relations, slowdowns or work stoppages at any of our locations, whether due to union activities, employee turnover or otherwise, could result in a decrease in our net sales or an increase in our costs, either of which could decrease our liquidity and profitability.

We also face inherent business risks by operating physical stores that are open to the public. By opening retail stores, we have increased our exposure to premises liability claims. We maintain insurance against premises liability claims, but such coverage may not continue to be available on terms acceptable to us or be adequate for liabilities actually incurred. A successful claim brought against us in excess of available insurance coverage could impair our liquidity and profitability, and any claim or product recall that results in significant adverse publicity against us could adversely affect our reputation or result in consumers purchasing fewer of our products, which would also impair our liquidity and profitability.

Certain of our trademarks are currently registered in the U.S. and are registered or pending in foreign jurisdictions. Certain other trademarks are the subject of protection under common law. However, thosethere can be no assurance that the steps we take to protect our trademarks in the U.S. and foreign jurisdictions will be adequate to prevent third parties from copying or using our trademarks, including our retail and product brands, without authorization. Our rights to our trademarks could be circumvented, or violate the proprietary rights of others, or we could be prevented from using them if challenged. A challenge to our use of our trademarks could result in a negative ruling regarding our use of our trademarks, their validity or their enforceability, or could prove expensive and time consuming in terms of legal costs and time spent defending against such a challenge. Any loss of trademark protection could result in a decrease in sales or cause us to spend additional amounts on marketing, either of which could decrease our liquidity and profitability. We have made and continue to make significant investments to promote our retail and product brands. For example, in 2025, we launched a new "Sleep Easy" advertising campaign to promote our Mattress Firm retail brand. If our brands are copied or used without authorization, we may be unable to realize the benefits of such investments, and the value of our brands, their reputation, our competitive advantages and our goodwill could be harmed. In addition, if we incur significant costs defending our brands and other trademarks, that could also decrease our liquidity and profitability.profitability Incould addition,be adversely affected, and we may not have the financial resources necessary to enforce or defend our brands and other trademarks. Furthermore, our patents may not provide meaningful protection and patents may never issue from pending applications. It is also possible that others could bring claims of infringement against us, as our principal product formula and manufacturing processes are not patented, and that any licenses protecting our intellectual property could be terminated. If we are unable to maintain the proprietary nature of our intellectual property and our significant current or proposed products, this loss of a competitive advantage could result in decreased sales or increased operating costs, either of which would decrease our liquidity and profitability.

We depend on the continued services of our executive management team, whose average tenure with the Company is 17 years.team. Our executive team's leadership experience provides us with a competitive advantage, as the team sets clear initiatives for the organization and enhances high-performing teams by empowering them to act quickly, especially during challenging periods. The loss of key personnel could have a material adverse effect on our ability to execute our business strategy and on our financial condition and results of operations. We do not maintain key-person insurance for members of our executive management team.

Approximately 29.2%20.6% of our net sales were generated outside of the U.S. in 2024.2025. We conduct our business in a wide variety of currencies and are therefore subject to market risk relating to changes in foreign exchange rates. If the U.S. dollar strengthens relative to the Euro or other foreign currencies where we have operations, for example, there will be a negative impact on our operating results upon translation of those foreign operating results into the U.S. dollar. In 2024,2025, foreign currency exchange rate changes positivelynegatively impacted our net income by approximately 0.1%1.1% and positivelynegatively impacted adjusted EBITDA, which is a non-GAAP financial measure, by approximately 0.1%.0.4%. Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows. Except for the use of foreign exchange forwards contracts described immediately below, we do not hedge the translation of foreign currency operating results into the U.S. dollar.

•limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, such as the Mattress Firm acquisition,acquisitions and general corporate or other purposes;

Our international operations are subject to the customary risks of operating in an international environment, including complying with U.S. laws affecting operations outside of the U.S., such as the Foreign Corrupt Practices Act; complying with foreign laws and regulations, including disparate anti-corruption laws and regulations; and the potential imposition of trade or foreign exchange restrictions, tariffs and other tax increases, inflation, unstable political situations, labor issues and geopolitical conflicts (including the Russia-Ukrainewar conflict,in the Israel-Hamas conflictUkraine and widerconflicts in the Middle East developments). We are also limited in our ability to independently expand in certain international markets where we have granted licenses to manufacture and sell Sealy® bedding products. Fluctuations in the rate of exchange between currencies in which we do business may affect our financial condition or results of operations.

We, and our products, are subject to extensive regulation in the U.S. by various federal, state and local regulatory authorities, including the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission ("CPSC") and the U.S. Food and Drug Administration, and by similar international regulatory regimes.regimes, including the EU's General Product Safety Regulation. We are subject to various health and environmental provisions, such as California Proposition 65 (the Safe Drinking Water and Toxic Enforcement Act of 1986) and in our international jurisdictions we are subject to the medical devices regulatory authorities such as the Medicines and Healthcare products Regulatory Agency ("MHRA") and the International Chamber of Commerce Advertising and Marketing Communications Code. We are subject to laws and regulations both in the U.S. and internationally, relating to pollution, recycling, environmental protection and occupational health and safety, such as the Federal Water Pollution Control Act, and Registration, Evaluation, Authorization and Restriction of Chemicals ("REACH"), amongst others. As a manufacturer of bedding and related products, we are subject to regulations governing the environment. Any violation or failure to comply with any of these regulatory requirements may result in liability exposure and costly expenditures to remediate or pay for liabilities. For example, if a release of hazardous substances occurs on or from our properties or any associated offsite disposal location, or if contamination from prior activities is discovered at any of our properties, we may be held liable if there has been a violation of the regulatory requirement, and the amount of such liability could be material. Further, any of the rules and regulatory requirements we are subject to may change from time to time, or may conflict. For example, our operations could be impacted by a number of pending legislative and regulatory proposals to address greenhouse gas emissions in the U.S. and other countries, including the Kyoto Protocol.

Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we are authorized to repurchase shares of our common stock. The share repurchase program may be suspended or terminated at any time. From 2016 through December 31, 2024,2025, we had repurchased an aggregate of 55.3 million shares for approximately $2,388.9 million under our share repurchase program. For the year ended and as of December 31, 2024,2025, we did not repurchase shares under our share repurchase program and had approximately $774.5 million remaining under the share repurchase authorization. While the Mattress Firm acquisition was pending, we temporarily suspended our share repurchase program, and currently expect to allocate unused cash flows toward repayment of debt. Shares may be repurchased from time to time, in the open market or through private transactions, subject to market conditions, in compliance with applicable state and federal securities laws. The timing and amount of repurchases, if any, will depend upon several factors, including market and business conditions, restrictions in our debt agreements, the trading price of our common stock and the nature of other investment opportunities. Repurchases of our common stock pursuant to our share repurchase program could affect the market price of our common stock or increase its volatility. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program's effectiveness.

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, excludingincluding Mattress FirmFirm's unlessfinancial otherwiseresults noted.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, 20232024 and 2022,2023, 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 16,28, 2024.2025.

We are the world's largest bedding company, dedicated to enrichingtransforming people's lives throughhow the powerworld of a good night's sleep.sleeps. With superior capabilities in design, manufacturing, distribution and retail, we deliver breakthrough sleep solutions and serve the evolving needs of consumers in more thanover 100 countries worldwide through our fully-owned businesses, Tempur Sealy, Mattress Firm and Dreams.

InWe 2024, we operatedoperate in twothree segments: Mattress Firm, Tempur Sealy North America and Tempur Sealy International. These segments are strategic business units that are managed separately based on geography.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.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. Following the acquisition of Mattress Firm and beginning in the first quarter of 2025, we will operate in three segments: Tempur Sealy North America, Tempur Sealy International and Mattress Firm.

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. Our products allow for complementary merchandising strategies and are sold through third-party retailers, our company-owned and joint venture operated retail stores worldwide and our e-commerce channel.

We believe the bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth. TheIn 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.

In 2025, we expect the current macroeconomic environment to stabilize throughout the year. The global bedding industry was challenged in 20242025 due to certain macroeconomic pressures on the consumer. Ongoing geopolitical conflictsconflicts, 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.

WeOn expectMay to1, complete2025, we completed the previously announced divestiture of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which includesincluded 103 specialty mattress retail locations and seven distribution centers,centers to MW SO Holdings Company, LLC ("Mattress Warehouse"). inIn the secondyear quarterended December 31, 2025, we recorded a $13.9 million loss on disposal of 2025.business associated with the divestiture, net of proceeds of $9.0 million, which did not have a material impact on our results of operations.

In 2025, we will launchlaunched 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.

Omni-Channel Distribution Expansion

WeOur havewholesale distribution is comprised of a diversifieddiverse group of strong retail partners andwith amore rapidlythan growing20,000 directdoors, business.primarily The largest pillar of our omni-channel distribution strategy is our wholesale distribution across tens of thousands of third-party retail doors. This broad footprint ensures that consumers can easily find and experience our productsconcentrated in person.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 existing retail partners and to sell into certain key retailers that do not have our products on their floors today. We also have significant opportunity to expand our third-party retail distribution in our international business.

In addition to theoffering salea portfolio of oursome brandedof productsthe throughmost third-partyhighly retailers,recognized brands in the industry, we also offer non-branded products through our OEM business,business. includingThese 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. In the fourth quarter of 2024, we lost a significant portion of our OEM business as a result of a customer's acquisition which foreclosed on our OEM product sales to this customer. In 2025, we expect this distribution loss to have an unfavorable impact on our results. We continue to 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, we expect over 60% of our global sales will beare direct-to-consumer and no customer will representrepresents 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.

•Operating income increased 4.4%19.0% to $634.2$754.9 million as compared to $607.2$634.2 million in 2023.2024. Adjusted operating income, which is a non-GAAP financial measure, increased 3.8%41.2% to $721.3$1,018.7 million as compared to $695.1$721.3 million in 2023.2024. Both were primarily driven by the inclusion of Mattress Firm and realized sales and cost synergies.

•Net income increaseddecreased 4.4%0.1% to $384.3$384.1 million as compared to $368.1$384.3 million in 2023.2024. Adjusted net income, which is a non-GAAP financial measure, increased 6.9%24.2% to $455.1$565.3 million as compared to $425.6$455.1 million in 2023.2024.

•Earnings per diluted share ("EPS") increaseddecreased 3.8%14.8% to $2.16$1.84 as compared to $2.08$2.16 in 2023.2024. Adjusted EPS, which is a non-GAAP financial measure, increased 6.3%5.9% to $2.55$2.70 as compared to $2.40$2.55 in 2023.2024.

Net sales increased 0.1%51.6%, (includingand on a constant currency basis). increased 51.1%. The change in net sales was driven by the following:

•Tempur Sealy North America net sales decreased $66.6$1,087.7 million, or 1.7%.28.7%. Net sales in the Wholesale channel decreased $73.0$1,011.6 million, or 2.2%,30.9%, primarily driven by continueda macroeconomic29.8% pressuresdecline impactingfrom U.S.the consumerelimination behavior.of inter-segment sales to Mattress Firm of $976.2 million and the impacts of foreclosed distribution. Net sales in ourthe Direct channel increaseddecreased $6.4$76.1 million, or 1.3%.14.8%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters.

•Tempur Sealy International net sales increased $72.1$127.9 million, or 6.7%,11.2%, primarily driven by theexpanded success of new product launches.distribution. On a constant currency basis, our International net sales increased 5.8%.8.3%. Net sales in the WholesaleDirect channel increased 7.8%8.8% on a constant currency basis. Net sales in the DirectWholesale channel increased 4.6%7.6% on a constant currency basis.

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 inacross both our North America and Internationalall 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 geographiccountry 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.

•Tempur Sealy North America gross margin improved 501,250 basis points. The improvement in gross margin was primarily driven by favorablethe commodity costselimination of 100sales to Mattress Firm of 1,360 basis points and operational efficiencies.efficiencies of 100 basis points. These improvements were partially offset by theexpense unfavorable mixdeleverage of new OEM distribution of 5070 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 16030 basis points. The improvement in gross margin was primarily driven by operational efficiencies of 80 basis points and favorable commodity costs of 30 basis points.efficiencies.

•Tempur Sealy North America operating expenses increaseddecreased $24.3$33.9 million, or 2.7%,4.0%, and increased 100780 basis points as a percentage of net sales. The increasedecrease in operating expenses was primarily driven by incrementaldecreases in bad debt expense related to retailer bankruptcies and investmentsother inselling growthand initiatives,marketing, partially offset by decreasesinvestments in advertising.

•Tempur Sealy International operating expenses increased $30.0$40.9 million, or 6.8%,10.6%, and wasdecreased flat10 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 decreasedincreased $34.0$37.6 million, or 16.4%.21.8%. The decreaseincrease in operating expenses was primarily driven by decreasedincreased variable compensation expense and a one-time fair value remeasurement of $11.0 millioncosts related to a strategic investment in a product innovation initiative which was recorded in the priorMattress year.Firm Acquisition.

Operating income increased $27.0$120.7 million and operating margin improveddeclined 60280 basis points. The increase was driven by the following:

•InternationalTempur Sealy North America operating income increaseddecreased $24.0$58.8 million and operating margin improved 110430 basis points. The improvement in operating margin was primarily driven by the improvement in gross margin of 1601,250 basis points, partially offset by Asia joint venture performance of 50 basis points and operating expense deleverage.deleverage of 780 basis points. Additionally, we incurred a $9.8 million loss on disposal of business associated with the divestiture of Sleep Outfitters.

•Corporate operating expenses decreasedincreased $34.0$37.6 million, which positivelynegatively 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, increased $4.9$133.1 million, or 3.8%.98.7%. The increase in interest expense, net, was primarily driven by the incremental Term B Loan interest expense, net of $8.4 million, partially offset by reducedincreased average levels of outstanding variable rate debt.debt as a result of the Mattress Firm Acquisition.

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.

Our income tax provision increaseddecreased $15.2$22.9 million due to ana increasedecrease in income before income taxes. Our 20242025 effective tax rate increaseddecreased 170360 basis points as compared to 2023.2024. The 20242025 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.items, including the impact of the Mattress Firm Acquisition. The 20232024 effective tax rate,rate as compared to the U.S. federal statutory tax rate,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 aother benefitdiscrete related to the settlement of the Danish Tax Matter.items.

As of December 31, 2024, we had net working capital of $105.1 million, including cash and cash equivalents of $117.4 million, as compared to working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as of December 31, 2023. The amount of cash and cash equivalents held by subsidiaries outside of the U.S. and not readily convertible into the U.S. Dollardollar or other major foreign currencies is not material to our overall liquidity or financial position.

Cash used in investing activities decreasedincreased $91.1$2,927.6 million in 20242025 as compared to 2023.2024. The decreaseincrease in cash used in investing activities was driven by decreasedcash capital expenditures relatedused to ourpartially manufacturingfund capacitythe expansionMattress projectsFirm in 2023.Acquisition.

Cash provided by financing activities increaseddecreased $1,461.7$460.5 million in 20242025 as compared to 2023.2024. In 2024,2025, we had net borrowings of $1,246.4$849.8 million as compared to net repaymentsborrowings of $250.8 million$1,246.4 in 20232024 fromin ourorder creditto facilities, including $1,592.0 million of proceeds from the Term B Loan. The proceeds from the Term B Loan were funded into escrow and were released upon the closing offund the Mattress Firm acquisition.Acquisition. Additionally, weWe repurchased shares of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans for $43.8$132.4 million in 20242025 as compared to $36.0$43.8 million in 2023.2024. 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.

Capital expenditures were $97.3$166.9 million and $185.4$97.3 million for the yearyears ended December 31, 20242025 and 2023,2024, respectively. We currently expect our 20252026 capital expenditures to be approximately $250 million, including $50$75 million of one-time investments to refresh Mattress Firm stores.

Our total debt increased to $4,717.3 million as of December 31, 2025 from $3,844.5 million as of December 31, 2024 from $2,593.6 million as of December 31, 2023.2024. Total availability under our revolving senior secured credit facility was $1,189.2$638.7 million as of December 31, 2024.2025. Refer to Note 6, "Debt" in our Condensed Consolidated Financial Statements included in Part II, ITEM 8 for further discussion of our debt.

We manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities. While the Mattress Firm acquisition was pending, we temporarily suspended our repurchase of shares. In 2025,2026, we expect minimal share repurchases as we focus on debt repayment to reduce leveragereturn to our target ratioleverage range of 2.0 to 3.0 times.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.

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three and six months ended MarchJune 31,30, 2026, including the following topics:

As of MarchJune 31,30, 2026, we operated 2,8392,842 company-owned stores, including 2,1612,155 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.

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,purchases. whichWe positionsbelieve usthe wellbedding industry is structured for sustained long-term growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth. Due to our dedication to product innovation and other competitive advantages, we believe Somnigroup is well-positioned to take advantage of the industry’s long-term growth potential.

The global bedding industry was challenged in 2025 due to certain macroeconomic pressures on the consumer, which continued during the first quarterhalf 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.

The transaction is currently anticipated to close by year-endthe end of the third quarter of 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.

Mattress Firm operates as a separate business segment. Mattress Firm's financial results for the period April 1, 2025 through June 30, 2025 and February 5, 2025 through MarchJune 31,30, 2025 (the "stub period") are included in our Condensed Consolidated Financial Statements for the three and six months ended MarchJune 31,30, 2025.2025, respectively.

A summary of our results for the three months ended MarchJune 31,30, 2026 include:

•Total net sales increaseddecreased 12.3%3.0% to $1,801.5$1,823.5 million as compared to $1,604.7$1,880.8 million in the firstsecond 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.2025.

•Gross margin was 43.1%44.8% as compared to 36.2%44.0% in the firstsecond quarter of 2025. Adjusted gross margin(1)margin, which is a non-GAAP financial measure, was 43.6%45.1% as compared to 42.2%44.2% in the firstsecond quarter of 2025.

•Operating income increased 1,317.4%12.1% to $187.1$201.7 million as compared to $13.2$179.9 million in the firstsecond quarter of 2025. Adjusted operating income(1)income, increasedwhich 17.4%is a non-GAAP financial measure, decreased 3.5% to $214.6$216.6 million as compared to $182.8$224.4 million in the firstsecond quarter of 2025. Both were primarily driven by the inclusion of Mattress Firm and realized sales and cost synergies.

•Net income increased 414.8%12.0% to $104.2$110.9 million as compared to net loss of $(33.1)$99.0 million in the firstsecond quarter of 2025. Adjusted net income(1)income, which is a non-GAAP financial measure, increased 28.4%8.4% to $124.5$122.6 million as compared to $97.0$113.1 million in the firstsecond quarter of 2025.

•Earnings per diluted share ("EPS") increased 388.2%10.6% to $0.49$0.52 as compared to loss per diluted share of $(0.17)$0.47 in the firstsecond quarter of 2025. Adjusted EPS(1)EPS, which is a non-GAAP financial measure, increased 20.4%9.4% to $0.59$0.58 as compared to $0.49$0.53 in the firstsecond quarter of 2025.

THREE MONTHS ENDED MARCHJUNE 31,30, 2026 COMPARED TO THE

THREE MONTHS ENDED MARCHJUNE 31,30, 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:

Net sales increaseddecreased 12.3%,3.0%, and on a constant currency basis increaseddecreased 10.4%.3.3%. The change in net sales was driven by the following:

•Mattress Firm net sales increaseddecreased $292.2$26.6 million, or 49.2%,2.8%, primarily driven by thestore inclusionclosures. ofMattress netFirm same store sales forincreased a full quarterslightly as compared to the firstsecond quarter of 2025, which included Mattress Firm for the stub period.2025. All Mattress Firm sales are reported through the directDirect channel.

•Tempur Sealy North America net sales decreased $142.7$36.6 million, or 20.2%,5.7%, netprimarily driven by market conditions. Net sales to Mattress Firm increased 11.6% to $294.0 million as compared to $263.5 million in the second quarter of 2025. These sales are eliminated on a reported basis. Net sales in the Wholesale channel decreased $111.0$29.6 million, primarilyor driven by the accounting elimination of sales to Mattress Firm for a full quarter in 2026 as compared to the first quarter of 2025, which eliminated sales to Mattress Firm for the stub period.5.5%. Net sales in the Direct channel decreased $31.7$7.0 million, or 26.0%,6.7%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters in the second quarter of 2025.

•Tempur Sealy International net sales increased $47.3$5.9 million, or 15.5%, primarily driven by strong performance in key markets.2.0%. On a constant currency basis, International net sales increased 7.2%.1.3%. Net sales in the Direct channel increaseddecreased 7.5%1.6% on a constant currency basis. Net sales in the Wholesale channel increased 6.7%6.2% on a constant currency basis.

Our gross margin is primarily impacted by the relative amount of net sales contributed by our premium or value products. Our premium products have higher gross margins than our value products. An increase in sales of our premium priced products can positively impact gross margins, while an increase in sales of our value priced products can negatively impact gross margins across all segments. Our margins are also impacted by the relative amount of net sales contributed by each channel. Sales in our Direct channel have higher gross margins than sales in our Wholesale channel.

•TempurMattress Sealy InternationalFirm gross margin improveddeclined 140230 basis points. The improvementdecline in gross margin was primarily driven by favorableproduct mix of 100 basis points, consumer financing costs of 70 basis points and operationalinvestments efficiencies.in Mattress Firm's stores of 60 basis points.

Operating expenses increaseddecreased $23.3$17.8 million, or 4.1%,2.8%, and decreasedincreased 26010 basis points as a percentage of net sales. The primary drivers of changes in operating expenses by segment are explained below:

•TempurMattress Sealy North AmericaFirm operating expenses decreased $5.0$22.0 million, or 2.5%,8.1%, and increaseddecreased 630160 basis points as a percentage of net sales. The decrease in operating expenses was primarily driven by decreases in general, administrative and other expenses and otheradvertising selling and marketing,expenses, partially offset by investmentsincreases in advertising.other selling and marketing.

•Tempur Sealy InternationalNorth America operating expenses increased $14.8$3.6 million, or 14.4%,1.7%, and decreasedincreased 30260 basis points as a percentage of net sales. The increase in operating expenses was primarily driven by investments in growthadvertising, initiatives.partially offset by decreases in general, administrative and other expenses and other selling and marketing.

•CorporateTempur Sealy International operating expenses decreasedincreased $41.6$2.6 million, or 48.9%.2.5%, and increased 20 basis points as a percentage of net sales. The decreaseincrease in operating expenses was primarily driven by decreasedinvestments transactionin costsgrowth related to the Mattress Firm Acquisition.initiatives.

•Mattress FirmCorporate operating incomeexpenses increaseddecreased $26.6$2.0 millionmillion, andor operating margin improved 270 basis points.3.8%. The improvementdecrease in operating marginexpenses was primarily driven by operatingdecreased expensebusiness leveragecombination ofcharges 410related basis points, offset byto the declineMattress inFirm gross margin of 140 basis points.Acquisition.

•Tempur Sealy International operatingOperating income increased $13.8$21.8 million and operating margin improved 160150 basis points. The improvementprimary drivers of changes in operating margin was driven by improvement in gross margin of 140 basis pointsincome and operating expensemargin leverage.by segment are discussed below:

Our income tax provision increased $49.9$34.0 million due to an increase in income before income taxes. Our effective tax rate for the firstthree quartermonths ofended June 30, 2026 as compared to the prior year declinedincreased by 9202,210 basis points. The effective tax ratesrate as compared to the U.S. federal statutory rate for the firstthree quartermonths ended June 30, 2026 included the favorable impact of 2026other anddiscrete items. The effective tax rate as compared to the U.S. federal statutory rate for the three months ended June 30, 2025 included the favorable impact of the deductibility of stock compensation in the U.S. and a net unfavorable impact of other discrete items.