Guarantor/Non-Guarantor Financial Information

The $450.0 million and $600.0 million aggregate principal amount of 2023 Senior Notes and 2026 Senior Notes (collectively the "Senior Notes"), respectively, are general unsecured senior obligations of Tempur Sealy International and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by all of Tempur Sealy International’s 100% directly or indirectly owned current and future domestic subsidiaries (the "Combined Guarantor Subsidiaries"). The foreign subsidiaries (the "Combined Non-Guarantor Subsidiaries") represent the foreign operations of the Company and do not guarantee the Senior Notes. A subsidiary guarantor will be released from its obligations under the applicable indenture governing the Senior Notes when: (a) the subsidiary guarantor is sold or sells all or substantially all of its assets; (b) the subsidiary is declared "unrestricted" under the applicable indenture governing the Senior Notes; (c) the subsidiary’s guarantee of indebtedness under the 2016 Credit Agreement (as it may be amended, refinanced or replaced) is released (other than a discharge through repayment); or (d) the requirements for legal or covenant defeasance or discharge of the applicable indenture have been satisfied. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly-owned subsidiary guarantors and non-guarantor subsidiaries. The Company has accounted for its investments in its subsidiaries under the equity method.

The following supplemental financial information presents the Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2017 and 2016, the Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 for Tempur Sealy International, Combined Guarantor Subsidiaries and Combined Non-Guarantor Subsidiaries.

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Three Months Ended June 30, 2017

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	472.4		$	205.7		$	(18.8	)	$	659.3
Cost of sales	—			290.2			119.3			(18.8		)	390.7
Gross profit	—			182.2			86.4			—			268.6
Selling and marketing expenses	1.4			102.3			48.6			—			152.3
General, administrative and other expenses	4.9			45.5			18.6			—			69.0
Equity income in earnings of unconsolidated affiliates	—			—			(4.4		)	—			(4.4		)
Royalty income, net of royalty expense	—			(4.9		)	—			—			(4.9		)
Operating (loss) income	(6.3		)	39.3			23.6			—			56.6

Other expense, net:
Third party interest expense, net	14.9			6.4			0.8			—			22.1
Intercompany interest (income) expense, net	(1.2		)	3.0			(1.8		)	—			—
Interest expense (income), net	13.7			9.4			(1.0		)	—			22.1
Other expense (income), net	—			0.2			(0.5		)	—			(0.3		)
Total other expense (income), net	13.7			9.6			(1.5		)	—			21.8

Income from equity investees	34.7			16.3			—			(51.0		)	—

Income before income taxes	14.7			46.0			25.1			(51.0		)	34.8
Income tax benefit (provision)	7.0			(11.3		)	(8.8		)	—			(13.1		)
Net income before non-controlling interests	21.7			34.7			16.3			(51.0		)	21.7
Less: Net loss attributable to non-controlling interests	(2.8		)	—			(2.8		)	2.8			(2.8		)
Net income attributable to Tempur Sealy International, Inc.	$	24.5		$	34.7		$	19.1		$	(53.8	)	$	24.5

Comprehensive income attributable to Tempur Sealy International, Inc.	$	33.7		$	34.5		$	28.5		$	(63.0	)	$	33.7

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Three Months Ended June 30, 2016

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	628.3		$	190.8		$	(14.7	)	$	804.4
Cost of sales	—			376.9			105.3			(14.7		)	467.5
Gross profit	—			251.4			85.5			—			336.9
Selling and marketing expenses	0.9			126.1			45.8			—			172.8
General, administrative and other expenses	4.0			51.0			16.9			—			71.9
Equity income in earnings of unconsolidated affiliates	—			—			(3.4		)	—			(3.4		)
Royalty (income) expense, net	—			(4.7		)	0.1			—			(4.6		)
Operating (loss) income	(4.9		)	79.0			26.1			—			100.2

Other expense, net:
Third party interest expense, net	16.1			6.1			0.9			—			23.1
Intercompany interest (income) expense, net	(1.1		)	0.1			1.0			—			—
Interest expense, net	15.0			6.2			1.9			—			23.1
Loss on extinguishment of debt	34.3			12.9			—			—			47.2
Other expense, net	—			0.2			0.5			—			0.7
Total other expense, net	49.3			19.3			2.4			—			71.0

Income from equity investees	55.2			19.2			—			(74.4		)	—

Income before income taxes	1.0			78.9			23.7			(74.4		)	29.2
Income tax benefit (provision)	19.0			(23.7		)	(4.5		)	—			(9.2		)
Net income before non-controlling interests	20.0			55.2			19.2			(74.4		)	20.0
Less: Net loss attributable to non-controlling interests	(1.3		)	(1.3		)	—			1.3			(1.3		)
Net income attributable to Tempur Sealy International, Inc.	$	21.3		$	56.5		$	19.2		$	(75.7	)	$	21.3

Comprehensive income attributable to Tempur Sealy International, Inc.	$	18.0		$	57.0		$	15.4		$	(72.4	)	$	18.0

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Six Months Ended June 30, 2017

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations				Consolidated
Net sales	$	—		$	1,002.2		$	418.4		$	(39.2	)		$	1,381.4
Cost of sales	—			620.5			244.9			(39.2		)		826.2
Gross profit	—			381.7			173.5			—				555.2
Selling and marketing expenses	2.8			207.2			96.0			—				306.0
General, administrative and other expenses	8.9			89.8			36.8			—				135.5
Customer termination charges, net	(8.4		)	21.8			1.0							14.4
Equity income in earnings of unconsolidated affiliates	—			—			(7.1		)	—				(7.1		)
Royalty income, net of royalty expense	—			(9.7		)	—			—				(9.7		)
Operating (loss) income	(3.3		)	72.6			46.8			—				116.1

Other expense, net:
Third party interest expense, net	29.7			12.9			1.6			—				44.2
Intercompany interest (income) expense, net	(2.4		)	2.8			(0.4		)	—				—
Interest expense, net	27.3			15.7			1.2			—				44.2
Other income, net	—			(9.2		)	(0.3		)	—			—	(9.5		)
Total other expense, net	27.3			6.5			0.9			—				34.7

Income from equity investees	75.3			31.9			—			(107.2		)		—

Income before income taxes	44.7			98.0			45.9			(107.2		)		81.4
Income tax benefit (provision)	9.0			(22.7		)	(14.0		)	—				(27.7		)
Net income before non-controlling interests	53.7			75.3			31.9			(107.2		)		53.7
Less: Net loss attributable to non-controlling interests	(4.7		)	—			(4.7		)	4.7				(4.7		)
Net income attributable to Tempur Sealy International, Inc.	$	58.4		$	75.3		$	36.6		$	(111.9	)		$	58.4

Comprehensive income attributable to Tempur Sealy International, Inc.	$	75.9		$	70.6		$	58.8		$	(129.4	)		$	75.9

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Six Months Ended June 30, 2016

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,179.0		$	374.8		$	(28.4	)	$	1,525.4
Cost of sales	—			725.2			200.7			(28.4		)	897.5
Gross profit	—			453.8			174.1			—			627.9
Selling and marketing expenses	2.7			228.3			91.9			—			322.9
General, administrative and other expenses	8.8			102.0			32.8			—			143.6
Equity income in earnings of unconsolidated affiliates	—			—			(6.2		)	—			(6.2		)
Royalty (income) expense, net	—			(9.5		)	0.2			—			(9.3		)
Operating (loss) income	(11.5		)	133.0			55.4			—			176.9

Other expense, net:
Third party interest expense, net	36.2			6.9			1.4			—			44.5
Intercompany interest (income) expense, net	(2.2		)	—			2.2			—			—
Interest expense, net	34.0			6.9			3.6			—			44.5
Loss on extinguishment of debt	34.3			12.9			—			—			47.2
Other (income) expense, net	—			(1.4		)	1.1			—			(0.3		)
Total other expense, net	68.3			18.4			4.7			—			91.4

Income from equity investees	111.7			41.2			—			(152.9		)	—

Income before income taxes	31.9			155.8			50.7			(152.9		)	85.5
Income tax benefit (provision)	27.1			(44.1		)	(9.5		)	—			(26.5		)
Net income before non-controlling interests	59.0			111.7			41.2			(152.9		)	59.0
Less: Net loss attributable to non-controlling interests	(1.9		)	(1.9		)	—			1.9			(1.9		)
Net income attributable to Tempur Sealy International, Inc.	$	60.9		$	113.6		$	41.2		$	(154.8	)	$	60.9

Comprehensive income attributable to Tempur Sealy International, Inc.	$	71.8		$	114.2		$	51.4		$	(165.6	)	$	71.8

Supplemental Condensed Consolidated Balance Sheets

June 30, 2017

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)		Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS

Current Assets:
Cash and cash equivalents	$	0.2	$	6.5	$	31.8	$	—		$	38.5
Accounts receivable, net	—		41.5		314.7		—			356.2
Inventories, net	—		107.8		86.7		—			194.5
Income taxes receivable	247.5		—		—		(247.5		)	—
Prepaid expenses and other current assets	0.5		37.4		20.5		—			58.4
Total Current Assets	248.2		193.2		453.7		(247.5		)	647.6
Property, plant and equipment, net	—		350.0		74.8		—			424.8
Goodwill	—		500.2		227.4		—			727.6
Other intangible assets, net	—		583.3		89.6		—			672.9
Deferred income taxes	16.4		—		25.5		(16.4		)	25.5
Other non-current assets	—		47.2		165.6		—			212.8
Net investment in subsidiaries	2,328.6		110.5		—		(2,439.1		)	—
Due from affiliates	102.6		2,043.3		11.9		(2,157.8		)	—
Total Assets	$	2,695.8	$	3,827.7	$	1,048.5	$	(4,860.8	)	$	2,711.2

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	—	$	166.4	$	65.4	$	—		$	231.8
Accrued expenses and other current liabilities	6.9		153.0		67.6		—			227.5
Income taxes payable	—		245.0		12.4		(247.5		)	9.9
Current portion of long-term debt	—		35.2		33.2		—			68.4
Total Current Liabilities	6.9		599.6		178.6		(247.5		)	537.6
Long-term debt, net	1,041.1		691.4		60.7		—			1,793.2
Deferred income taxes	—		161.7		18.0		(16.4		)	163.3
Other non-current liabilities	—		45.9		144.1		—			190.0
Due to affiliates	1,620.7		0.5		536.6		(2,157.8		)	—
Total Liabilities	2,668.7		1,499.1		938.0		(2,421.7		)	2,684.1

Redeemable non-controlling interest	5.3		—		5.3		(5.3		)	5.3

Total Stockholders' Equity	21.8		2,328.6		105.2		(2,433.8		)	21.8
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity	$	2,695.8	$	3,827.7	$	1,048.5	$	(4,860.8	)	$	2,711.2

Supplemental Condensed Consolidated Balance Sheets

December 31, 2016

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS

Current Assets:
Cash and cash equivalents	$	—		$	7.9	$	57.8	$	—		$	65.7
Accounts receivable, net	—			197.7		147.4		—			345.1
Inventories, net	—			117.1		79.7		—			196.8
Income taxes receivable	234.2			—		—		(234.2		)	—
Prepaid expenses and other current assets	—			48.9		15.0		—			63.9
Total Current Assets	234.2			371.6		299.9		(234.2		)	671.5
Property, plant and equipment, net	—			346.9		75.3		—			422.2
Goodwill	—			500.2		222.3		—			722.5
Other intangible assets, net	—			589.8		88.9		—			678.7
Deferred income taxes	20.6			—		22.5		(20.6		)	22.5
Other non-current assets	—			41.7		143.5		—			185.2
Net investment in subsidiaries	2,207.4			77.7		—		(2,285.1		)	—
Due from affiliates	168.4			1,874.7		14.3		(2,057.4		)	—
Total Assets	$	2,630.6		$	3,802.6	$	866.7	$	(4,597.3	)	$	2,702.6

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current Liabilities:
Accounts payable	$	0.1		$	157.0	$	62.2	$	—		$	219.3
Accrued expenses and other current liabilities	6.8			172.6		70.7		—			250.1
Income taxes payable	—			235.9		4.1		(234.2		)	5.8
Current portion of long-term debt	—			34.4		35.9		—			70.3
Total Current Liabilities	6.9			599.9		172.9		(234.2		)	545.5
Long-term debt, net	1,040.4			776.5		0.9		—			1,817.8
Deferred income taxes	—			174.9		20.3		(20.6		)	174.6
Other non-current liabilities	—			43.3		126.0		—			169.3
Due to affiliates	1,587.9			0.6		468.9		(2,057.4		)	—
Total Liabilities	2,635.2			1,595.2		789.0		(2,312.2		)	2,707.2

Redeemable non-controlling interest	7.6			—		7.6		(7.6		)	7.6

Total Stockholders' (Deficit) Equity	(12.2		)	2,207.4		70.1		(2,277.5		)	(12.2		)
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ (Deficit) Equity	$	2,630.6		$	3,802.6	$	866.7	$	(4,597.3	)	$	2,702.6

Supplemental Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2017

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(27.9	)	$	226.9		$	(123.8	)	$	—	$	75.2

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	—			(20.8		)	(5.1		)	—		(25.9		)
Contributions (paid to) received from subsidiaries and affiliates	—			(107.0		)	107.0			—		—
Other	—			0.8			0.1			—		0.9
Net cash (used in) provided by investing activities	—			(127.0		)	102.0			—		(25.0		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long-term debt obligations	—			453.7			265.2			—		718.9
Repayments of borrowings under long-term debt obligations	—			(538.6		)	(207.3		)	—		(745.9		)
Net activity in investment in and advances from (to) subsidiaries and affiliates	70.3			(16.6		)	(53.7		)	—		—
Proceeds from exercise of stock options	1.9			—			—			—		1.9
Treasury stock repurchased	(44.1		)	—			—			—		(44.1		)
Payment of deferred financing costs	—			—			(0.4		)	—		(0.4		)
Other	—			0.2			(2.9		)	—		(2.7		)
Net cash provided by (used in) financing activities	28.1			(101.3		)	0.9			—		(72.3		)

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—			—			(5.1		)	—		(5.1		)
Increase (decrease) in cash and cash equivalents	0.2			(1.4		)	(26.0		)	—		(27.2		)
CASH AND CASH EQUIVALENTS, beginning of period	—			7.9			57.8			—		65.7
CASH AND CASH EQUIVALENTS, end of period	$	0.2		$	6.5		$	31.8		$	—	$	38.5

Supplemental Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2016

(in millions)



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(29.9	)	$	32.3		$	49.5		$	—	$	51.9

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	—			(19.4		)	(4.9		)	—		(24.3		)
Contributions (paid to) received from subsidiaries and affiliates	—			(40.1		)	40.1			—		—
Net cash (used in) provided by investing activities	—			(59.5		)	35.2			—		(24.3		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long-term debt obligations	600.0			830.1			5.2			—		1,435.3
Repayments of borrowings under long-term debt obligations	(375.0		)	(839.6		)	(15.8		)	—		(1,230.4		)
Net activity in investment in and advances from (to) subsidiaries and affiliates	45.7			(17.1		)	(28.6		)	—		—
Proceeds from exercise of stock options	6.0			—			—			—		6.0
Excess tax benefit from stock-based compensation	3.0			—			—			—		3.0
Treasury stock repurchased	(217.3		)	—			—			—		(217.3		)
Payment of deferred financing costs	(2.9		)	(3.3		)	—			—		(6.2		)
Fees paid to lenders	(6.0		)	(1.8		)	—			—		(7.8		)
Call premium on 2020 Senior Notes	(23.6		)	—			—			—		(23.6		)
Other	—			(1.0		)	1.4			—		0.4
Net cash provided by (used in) financing activities	29.9			(32.7		)	(37.8		)	—		(40.6		)

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	—			—			(3.0		)	—		(3.0		)
(Decrease) increase in cash and cash equivalents	—			(59.9		)	43.9			—		(16.0		)
CASH AND CASH EQUIVALENTS, beginning of period	—			119.7			34.2			—		153.9
CASH AND CASH EQUIVALENTS, end of period	$	—		$	59.8		$	78.1		$	—	$	137.9