(17) Guarantor/Non-Guarantor Financial Information

The Senior Notes 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 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 indenture governing the Senior Notes; (c) the subsidiary’s guarantee of indebtedness under the 2012 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 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 financial information presents Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, and the related Condensed Consolidated Statements of Income and Comprehensive Income and Cash Flows for the three months ended June 30, 2013 and 2012, for the Ultimate Parent, Combined Guarantor Subsidiaries and Combined Non-Guarantor Subsidiaries.

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Three Months Ended June 30, 2013

(in millions)

	Tempur Sealy International, Inc. (Ultimat e Parent)			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	―		$	478.7		$	186.7		$	(4.8	)	$	660.6
Cost of sales		―			315.8			94.7			(4.8	)		405.7
Gross profit		―			162.9			92.0			―			254.9
Selling and marketing expenses		0.7			100.1			39.0			―			139.8
General, administrative and other expenses		4.6			51.5			20.2			―			76.3
Equity in earnings of unconsolidated affiliates		―			―			(1.1	)					(1.1	)
Royalty income, net of royalty expense		―			(4.1	)		―			―			(4.1	)
Operating income		(5.3	)		15.4			33.9			―			44.0

Other expense, net:
Interest expense, net		18.0			16.8			0.9			―			35.7
Other expense (income), net		―			(0.6	)		2.2			―			1.6
Total other expense		18.0			16.2			3.1			―			37.3

Income from equity investees		13.7			23.1			―			(36.8	)		―

Income before income taxes		(9.6	)		22.3			30.8			(36.8	)		6.7
Income tax (provision) benefit		7.5			(8.6	)		(7.7	)		―			(8.8	)
Net (loss) income		(2.1	)		13.7			23.1			(36.8	)		(2.1	)
Less: net (loss) income attributable to non-controlling interest		(0.5	)		(0.5	)		―			0.5			(0.5	)
Net (loss) income attributable to Tempur Sealy International, Inc.	$	(1.6	)	$	14.2		$	23.1		$	(37.3	)	$	(1.6	)

Comprehensive income	$	(7.5	)	$	14.6		$	16.8		$	(31.4	)	$	(7.5	)

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Six Months Ended June 30, 2013

(in millions)

	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	―		$	738.7		$	323.5		$	(11.5	)	$	1,050.7
Cost of sales		―			466.5			152.4			(11.5	)		607.4
Gross profit		―			272.2			171.1			―			443.3
Selling and marketing expenses		1.4			152.7			72.1			―			226.2
General, administrative and other expenses		8.2			92.0			34.8			―			135.0
Equity in earnings of unconsolidated affiliates		―			―			(1.3	)					(1.3	)
Royalty income, net of royalty expense		―			(5.1	)		―			―			(5.1	)
Operating income		(9.6	)		32.6			65.5			―			88.5

Other expense, net:
Interest expense, net		30.7			31.8			1.1			―			63.6
Other expense (income), net		―			(0.3	)		3.4			―			3.1
Total other expense		30.7			31.5			4.5			―			66.7

Income from equity investees		38.5			46.2			―			(84.7	)		―

Income before income taxes		(1.8	)		47.3			61.0			(84.7	)		21.8
Income tax (provision) benefit		12.2			(8.8	)		(14.8	)		―			(11.4	)
Net (loss) income		10.4			38.5			46.2			(84.7	)		10.4
Less: net (loss) income attributable to non-controlling interest		(0.5	)		(0.5	)		―			0.5			(0.5	)
Net (loss) income attributable to Tempur Sealy International, Inc.	$	10.9		$	39.0		$	46.2		$	(85.2	)	$	10.9

Comprehensive income	$	(5.7	)	$	39.7		$	31.7		$	(71.4	)	$	(5.7	)

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Three Months Ended June 30, 2012

(in millions)

	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guaranto r Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	―		$	225.3		$	112.0		$	(7.8	)	$	329.5
Cost of sales		―			121.4			49.0			(7.8	)		162.6
Gross profit		―			103.9			63.0			―			166.9
Selling and marketing expenses		0.7			51.7			31.3			―			83.7
General, administrative and other expenses		2.8			23.5			9.4			―			35.7
Equity in earnings of unconsolidated affiliates		―			―			―			―			―
Royalty income, net of royalty expense		―			―			―			―			―
Operating income		(3.5	)		28.7			22.3			―			47.5

Other expense, net:
Interest expense, net		7.5			(3.5	)		0.1			―			4.1
Other expense (income), net		―			―			(0.5	)		―			(0.5	)
Total other expense		7.5			(3.5	)		(0.4	)		―			3.6

Income from equity investees		36.6			17.6			―			(54.2	)		―

Income before income taxes		25.6			49.8			22.7			(54.2	)		43.9
Income tax (provision) benefit		3.5			(13.2	)		(5.1	)		―			(14.8	)
Net (loss) income		29.1			36.6			17.6			(54.2	)		29.1
Less: net (loss) income attributable to non-controlling interest		―			―			―			―			―
Net (loss) income attributable to Tempur Sealy International, Inc.	$	29.1		$	36.6		$	17.6		$	(54.2	)	$	29.1

Comprehensive income	$	18.4		$	36.1		$	7.5		$	(43.6	)	$	18.4

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Statements of Income and Comprehensive Income

Six Months Ended June 30, 2012

(in millions)

	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	―		$	489.1		$	237.5		$	(12.7	)	$	713.9
Cost of sales		―			250.9			102.8			(12.7	)		341.0
Gross profit		―			238.2			134.7			―			372.9
Selling and marketing expenses		1.9			101.5			63.6			―			167.0
General, administrative and other expenses		6.3			44.6			21.4			―			72.3
Equity in earnings of unconsolidated affiliates		―			―			―			―			―
Royalty income, net of royalty expense		―			―			―			―			―
Operating income		(8.2	)		92.1			49.7			―			133.6

Other expense, net:
Interest expense, net		14.9			(6.9	)		0.2			―			8.2
Other expense (income), net		―			―			―			―			―
Total other expense		14.9			(6.9	)		0.2			―			8.2

Income from equity investees		102.6			41.0			―			(143.6	)		―

Income before income taxes		79.5			140.0			49.5			(143.6	)		125.4
Income tax (provision) benefit		5.8			(37.4	)		(8.5	)		―			(40.1	)
Net (loss) income		85.3			102.6			41.0			(143.6	)		85.3
Less: net (loss) income attributable to non-controlling interest		―			―			―			―			―
Net (loss) income attributable to Tempur Sealy International, Inc.	$	85.3		$	102.6		$	41.0		$	(143.6	)	$	85.3

Comprehensive income	$	79.9		$	101.7		$	36.5		$	(138.2	)	$	79.9

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Balance Sheets

June 30, 2013

(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	$	37.8	$	63.4	$	―		$	101.4
Accounts receivable, net		―		188.6		143.0		―			331.6
Inventories		―		129.5		50.1		―			179.6
Escrow Receivable		―		―		―		―			―
Income taxes payable		105.6		―		―		(105.6	)		―
Prepaid expenses and other current assets		0.5		35.1		15.2		―			50.8
Deferred income taxes		7.9		23.3		4.6		―			35.8
Total Current Assets		114.2		414.3		276.3		(105.6	)		699.2
Property, plant and equipment, net		―		340.1		75.0		―			415.1
Goodwill		―		583.6		164.3		―			747.9
Other intangible assets, net		―		335.2		428.8		―			764.0
Deferred tax asset		―		―		9.8		―			9.8
Other non-current assets		8.0		57.0		15.3		―			80.3
Net investment in subsidiaries		1,170.4		10.6		―		(1,181.0	)		―
Due from affiliates		844.1		2,219.3		0.9		(3,064.3	)		―
Total Assets	$	2,136.7	$	3,960.1	$	970.4	$	(4,350.9	)	$	2,716.3

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	―	$	112.2	$	37.9	$	―		$	150.1
Accrued expenses and other current liabilities		1.4		134.6		56.7		―			192.7
Deferred income taxes		―		―		0.5		―			0.5
Income taxes payable		―		116.6		7.4		(105.6	)		18.4
Current portion of long-term debt		―		36.3		3.1		―			39.4
Total Current Liabilities		1.4		399.7		105.6		(105.6	)		401.1
Long-term debt		375.0		1,528.3		―		―			1,903.3
Deferred income taxes		―		256.7		35.2		―			291.9
Other non-current liabilities		―		75.4		7.0		―			82.4
Due to affiliates		1,722.7		529.6		812.0		(3,064.3	)		―
Total Liabilities		2,099.1		2,789.7		959.8		(3,169.9	)		2,678.7

Redeemable non-controlling interest		10.8		10.8		―		(10.8	)		10.8

Total Stockholders’ Equity		26.8		1,159.6		10.6		(1,170.2	)		26.8
Total Liabilities and Stockholders’ Equity	$	2,136.7	$	3,960.1	$	970.4	$	(4,350.9	)	$	2,716.3

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Balance Sheets

December 31, 2012

(in millions)

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

Current Assets:
Cash and cash equivalents	$	―	$	19.2	$	160.1	$	―		$	179.3
Accounts receivable, net		―		57.1		72.7		―			129.8
Inventories		―		55.7		37.3		―			93.0
Escrow Receivable		375.0		―		―		―			375.0
Prepaid expenses and other current assets		86.2		26.4		15.0		(86.2	)		41.4
Deferred income taxes		11.7		―		2.6		(11.7	)		2.6
Total Current Assets		472.9		158.4		287.7		(97.9	)		821.1
Property, plant and equipment, net		―		132.7		53.3		―			186.0
Goodwill		―		89.9		126.2		―			216.1
Other intangible assets, net		―		42.9		20.2		―			63.1
Deferred tax asset		―		―		10.4		―			10.4
Other non-current assets		―		13.4		2.9		―			16.3
Net investment in subsidiaries		1,213.0		300.2		―		(1,513.2	)		―
Due from affiliates		28.0		1,460.0		3.4		(1,491.4	)		―
Total Assets	$	1,713.9	$	2,197.5	$	504.1	$	(3,102.5	)	$	1,313.0

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	―	$	60.0	$	25.8	$	―		$	85.8
Accrued expenses and other current liabilities		0.2		46.2		35.0		―			81.4
Deferred income taxes		―		37.6		0.6		(11.7	)		26.5
Income taxes payable		―		89.3		12.4		(86.2	)		15.5
Total Current Liabilities		0.2		233.1		73.8		(97.9	)		209.2
Long-term debt		375.0		650.0		―		―			1,025.0
Deferred income taxes		―		28.9		2.5		―			31.4
Other non-current liabilities		―		23.5		1.6		―			25.1
Due to affiliates		1,316.4		49.0		126.0		(1,491.4	)		―
Total Liabilities		1,691.6		984.5		203.9		(1,589.3	)		1,290.7

Total Stockholders’ Equity		22.3		1,213.0		300.2		(1,513.2	)		22.3
Total Liabilities and Stockholders’ Equity	$	1,713.9	$	2,197.5	$	504.1	$	(3,102.5	)	$	1,313.0

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2013

(in millions)

	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash from operating activities		(35.8	)		(7.0	)		31.3			―		(11.5	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired		―			(1,035.3	)		(137.6	)		―		(1,172.9	)
Purchases of property, plant and equipment		―			(14.0	)		(5.3	)		―		(19.3	)
Other		―			(66.3	)		68.4			―		2.1
Net cash from investing activities		―			(1,115.6	)		(74.5	)		―		(1,190.1	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 2012 Credit Agreement		―			2,368.8			―			―		2,368.8
Repayments 2012 Credit Agreement		―			(926.6	)		―			―		(926.6	)
Proceeds from issuance of Senior Notes		375.0			―			―			―		375.0
Proceeds from 2011 Credit Facility		―			46.5			―			―		46.5
Repayments of 2011 Credit Facility		―			(696.5	)		―			―		(696.5	)
Net activity in investment in and advances from (to) subsidiaries and affiliates		(804.9	)		857.8			(52.9	)		―		―
Payment of deferred financing costs		(8.3	)		(43.6	)		―			―		(51.9	)
Proceeds from issuance of common stock		5.5			―			―			―		5.5
Excess tax benefit from stock based compensation		3.5			―			―			―		3.5
Treasury stock repurchased		465.2			(465.2	)		―			―		―
Other		―			―			(0.2	)		―		(0.2	)
Net cash from financing activities		36.0			1,141.2			(53.1	)		―		1,124.1

Net effect of exchange rate changes on cash and cash equivalents		―			―			(0.4	)		―		(0.4	)
Increase in cash and cash equivalents		0.2			18.6			(96.7	)		―		(77.9	)
Cash and cash equivalents, beginning of period		―			19.2			160.1			―		179.3
Cash and cash equivalents, end of period	$	0.2		$	37.8		$	63.4		$	―	$	101.4

TEMPUR SEALY INTERNATIONAL, INC.

Supplemental Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2012

(in millions)

	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash from operating activities	$	(25.8	)		67.6			44.7			―		86.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired		―			11.8			(13.5	)		―		(1.7	)
Purchase of property, plant and equipment		―			(12.9	)		(7.7	)		―		(20.6	)
Other		―			(0.2	)		0.2			―		―
Net cash from investing activities		―			(1.3	)		(21.0	)		―		(22.3	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the 2011 Credit Facility		―			245.5			―			―		245.5
Repayments of the 2011 Credit Facility		―			(149.0	)		―			―		(149.0	)
Net activity in investment in and advances from (to) subsidiaries and affiliates		158.6			(156.7	)		(1.9	)		―		―
Payment of deferred financing costs		―			―			(0.1	)		―		(0.1	)
Proceeds from issuance of common stock		10.1			―			―			―		10.1
Excess tax benefit from stock based compensation		9.7			―			―			―		9.7
Treasury stock repurchased		(152.6	)		―			―			―		(152.6	)
Other		―			―			(2.3	)		―		(2.3	)
Net cash from financing activities		25.8			(60.2	)		(4.3	)		―		(38.7	)

Net effect of exchange rate changes on cash and cash equivalents		―			―			(2.7	)		―		(2.7	)
Increase in cash and cash equivalents		―			6.1			16.7			―		22.8
Cash and cash equivalents, beginning of period		―			10.8			100.6			―		111.4
Cash and cash equivalents, end of period	$	―		$	16.9		$	117.3		$	―	$	134.2