What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-05 · 305 added, 121 removed, 270 unchanged (61% of the section changed)

5 unchanged sentences

Our actual results may differ materially from those contained in any forward-looking statements.

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three months ended March 31, 2022, including the following topics:

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three and six months ended June 30, 2022, including the following topics:

• an overview of our business and strategy,

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We evaluate segment performance based on net sales, gross profit and operating income.

For additional information refer to Note 12, "Business Segment Information," included in Part II, ITEM 1 of this Report.

For additional information refer to Note 12, "Business Segment Information," included in Part I, ITEM 1 of this Report.

Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our non-branded offerings consist of value-focused private label and OEM products.

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Over the last decade, consumers have made the connection between a good night's sleep and overall health and wellness.

In recent years, this trend accelerated during the COVID-19 global pandemic.

As consumers make this connection they are willing to invest more in their bedding purchases, which positions us well for long-term growth.

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While we do not have any operations in Ukraine or Russia, the war in Ukraine has affected both international and domestic markets.

Internationally, the war has introduced elements of risk into the supply chain and is affecting consumer confidence in Europe.

consumer confidence has declined due to inflation and geopolitical uncertainty.

While we have taken actions that have largely mitigated our broader supply chain risk, declining consumer confidence is negatively impacting our order trends, which we expect to continue.

The war has introduced elements of risk into the supply chain and is affecting global consumer confidence.

While we have taken actions that we believe have largely mitigated our broader supply chain risk, the decline in consumer confidence is negatively impacting our order trends, which we expect to continue.

In the second quarter of 2022, we implemented our global enterprise resource planning ("ERP") system at all Sealy domestic manufacturing facilities.

This transition unfavorably impacted our results for the Sealy business in our North America segment, which we expect to improve in the second half of 2022.

The implementation of our common ERP system is expected to drive long-term efficiencies for our global operations, enhance cybersecurity, facilitate customer communications regarding order status and improve our direct-to-consumer capabilities.

The COVID-19 global pandemic continues to impact our global operations as variants appear in the markets in which we operate.

The recent variant in China and the resulting government mandated lockdowns are negatively impacting our wholly-owned and joint-venture operations in the region.

The recent COVID-19 variant in China and the resulting government mandated lockdowns may negatively impact our wholly-owned and joint-venture operations in the region.

Our recent actions to expand capacity, diversify our supplier base, increase our safety stock and improve vendor and customer communications have strengthened our supply chain, putting us in a more favorable position to meet consumer demand.

Though geopolitical and pandemic-related disruptions continue to create challenges, the many actions we have taken to further insulate our supply chain have largely mitigated their impact.

During the first quarter of 2022, commodity costs unfavorably impacted our gross margin and we implemented pricing actions to mitigate the dollar impact of these known commodity headwinds.

We now anticipate additional commodity cost inflation for the remainder of 2022 and expect to implement another round of pricing actions that will neutralize the effect of the incremental inflation on a full year basis.

Though geopolitical and pandemic-related disruptions continue to create challenges, we believe the many actions we have taken to further insulate our supply chain have largely mitigated their impact.

Product Launches

In 2022, we plan to complete the rollout of a complete refresh of our North American Sealy portfolio that began in 2021.

The updated Sealy portfolio features new models in our Posturepedic Plus TM , Posturepedic® and Essentials product lines.

We also expect to launch a complete refresh of our North American Stearns & Foster portfolio in 2022.

In the U.S., we plan to launch a Sealy-branded, eco-friendly mattress collection, as well as a Sealy mattress with a best-in-class pressure-relieving gel grid layer at a consumer-appealing, mid-market price point, in 2022.

In our International segment, we expect to launch an all-new line of Tempur® products in Europe and Asia-Pacific with the objective of reaching a new segment of international consumers.

In the second quarter of 2022, we completed the rollout of our North American Sealy portfolio featuring new models in our Posturepedic Plus TM , Posturepedic® and Essentials product lines.

We also launched our Sealy Naturals eco-friendly mattress collection designed with sustainability and environmental preservation in mind.

In the fourth quarter of 2022, we expect to launch a complete refresh of our North American Stearns & Foster® portfolio, as well as a Sealy mattress with a best-in-class pressure-relieving gel grid layer at a consumer-appealing, mid-market price point.

In 2023, we plan to introduce a new line of Tempur® Breeze products, along with a new line of adjustable bases with incremental consumer-focused features and benefits in our North America segment.

In our International segment, we plan to launch an all-new line of Tempur® products in Europe and Asia-Pacific with the objective of reaching a new segment of international consumers.

This new line of products will broaden Tempur®'s price range with the super-premium average selling price ceiling maintained and the floor expanded into the premium category.

In response to the current geopolitical uncertainty permeating the European market, we have elected to postpone the launch of the new international line of Tempur® products that was planned for 2022 to the first quarter of 2023.

Our global 2022 marketing plan is to aggressively support our innovative bedding products through investing significant marketing dollars to promote our worldwide brands and product launches.

Our global 2022 marketing plan is to support our innovative bedding products through investing significant marketing dollars to promote our worldwide brands and product launches.

Acquisition of Dreams

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Results of Operations

A summary of our results for the three months ended March 31, 2022 include:

• Total net sales increased 18.7% to $1,239.5 million as compared to $1,043.8 million in the first quarter of 2021.

On a constant currency basis, which is a non-GAAP financial measure, total net sales increased 19.8%, with an increase of 5.5% in the North America business segment and an increase of 98.6% in the International business segment, primarily driven by the acquisition of Dreams in August 2021.

• Gross margin was 42.2% as compared to 44.0% in the first quarter of 2021.

• Operating income increased to $188.6 million as compared to $188.4 million in the first quarter of 2021.

• Net income increased to $130.7 million as compared to $130.5 million in the first quarter of 2021.

Adjusted net income, which is a non-GAAP financial measure, was $134.6 million in the first quarter of 2021.

There were no adjustments to net income in the first quarter of 2022.

• EBITDA, which is a non-GAAP financial measure, increased 1.9% to $234.5 million as compared to $230.1 million in the first quarter of 2021.

• Earnings per diluted share ("EPS") increased 11.3% to $0.69 as compared to $0.62 in the first quarter of 2021.

Adjusted EPS, which is a non-GAAP financial measure, was $0.64 in the first quarter of 2021.

There were no adjustments to EPS in the first quarter of 2022.

A summary of our results for the three months ended June 30, 2022 include:

• Total net sales increased 3.6% to $1,211.0 million as compared to $1,169.1 million in the second quarter of 2021.

On a constant currency basis, which is a non-GAAP financial measure, total net sales increased 5.1%, with a decrease of 4.6% in the North America business segment and an increase of 68.2% in the International business segment, primarily driven by the acquisition of Dreams in August 2021.

• Gross margin was 41.0% as compared to 44.3% in the second quarter 2021.

Adjusted gross margin, which is a non-GAAP financial measure, was 41.7% in the second quarter of 2022.

There were no adjustments to gross margin in the second quarter of 2021.

• Operating income was $143.9 million as compared to $223.3 million in the second quarter 2021.

Adjusted operating income, which is a non-GAAP financial measure, was $159.9 million as compared to $227.2 million in the second quarter of 2021.

• Net income was $90.6 million as compared to $140.8 million in the second quarter 2021.

Adjusted net income, which is a non-GAAP financial measure, was $103.2 million as compared to $161.5 million in the second quarter of 2021.

• EBITDA, which is a non-GAAP financial measure, was $186.8 million as compared to $266.1 million in the second quarter 2021.

Adjusted EBITDA, which is a non-GAAP financial measure, was $203.4 million as compared to $270.3 million in the second quarter of 2021.

• Earnings per diluted share ("EPS") was $0.51 as compared to $0.69 in the second quarter 2021.

Adjusted EPS, which is a non-GAAP financial measure, was $0.58 as compared to $0.79 in the second quarter of 2021.

For a discussion and reconciliation of non-GAAP financial measures as discussed above to the corresponding GAAP financial results, refer to the non-GAAP financial information set forth below under the heading "Non-GAAP Financial Information."

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Refer to Part I, ITEM 3 of this Report for a discussion of our foreign currency exchange rate risk.

THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE

THREE MONTHS ENDED MARCH 31, 2021

THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE

THREE MONTHS ENDED JUNE 30, 2021

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

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except percentages and per share amounts) 2022 2021

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Loss on extinguishment of debt — — 18.0 1.5

Other income, net (1.3) (0.1) (0.3) —

Other expense (income), net 0.7 0.1 (0.1) —

Total other expense, net 24.4 2.0 37.9 3.2

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Net income before non-controlling interests 91.2 7.4 140.4 12.0

Net income attributable to non-controlling interests 0.2 — 0.2 —

Net income (loss) attributable to non-controlling interests 0.6 — (0.4) —

Net income attributable to Tempur Sealy International, Inc.

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Earnings per common share:

Earnings per share for continuing operations $ 0.72 $ 0.64

Loss per share for discontinued operations — —

Earnings per share $ 0.72 $ 0.64

Earnings per share for continuing operations $ 0.69 $ 0.62

Loss per share for discontinued operations — —

Earnings per share $ 0.69 $ 0.62

Basic $ 0.52 $ 0.72

Diluted $ 0.51 $ 0.69

Weighted average common shares outstanding:

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Diluted 178.8 204.1

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 2022 2021 2022 2021

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The change in net sales was driven by the following:

• North America net sales increased $48.1 million, or 5.4%.

On a constant currency basis, North America net sales increased 5.5%.

Net sales in the Wholesale channel increased $45.8 million, or 6.0%, to $811.3 million, as compared to first quarter of 2021.

Net sales in the Direct channel increased $2.3 million, or 2.0% to $120.1 million, as compared to the first quarter of 2021.

• North America net sales decreased $49.1 million, or 4.8%, primarily due to declining consumer confidence in the U.S., pandemic and geopolitical related disruptions and the unfavorable impact of our ERP system transition.

On a constant currency basis, North America net sales decreased 4.6%.

Net sales in the Wholesale channel decreased $43.0 million, or 4.8%, to $847.8 million, as compared to second quarter of 2021.

Net sales in the Direct channel decreased $6.1 million, or 5.0%, to $116.9 million, as compared to the second quarter of 2021.

• International net sales increased $91.0 million, or 58.6%.

On a constant currency basis, International net sales increased 68.2%.

Net sales in the Wholesale channel increased 3.7% on a constant currency basis.

Net sales in the Wholesale channel decreased 11.0% on a constant currency basis.

Net sales in the Direct channel increased 291.2% on a constant currency basis, primarily driven by the acquisition of Dreams in August 2021.

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change

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• North America gross margin declined 410 basis points.

The decline in gross margin was driven by price increases to customers without a margin benefit of 280 basis points and operational inefficiencies related to supply chain constraints of 120 basis points.

The decline in gross margin was driven by operational investments to service our customers of 370 basis points and pricing increases to customers without a margin benefit of 110 basis points.

Our gross margin was impacted as sales increased with no change in gross profit dollars, as our pricing actions have been neutralizing the dollar impact of commodities.

These declines were partially offset by favorable mix.

Additionally, we incurred $5.4 million of manufacturing facility ERP system transition costs and $2.5 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., which contributed to the decline in gross margin.

• International gross margin declined 670 basis points.

The decline in gross margin was primarily driven by the acquisition of Dreams of 200 basis points and price increases to customers without a margin benefit of 160 basis points.

The decline in gross margin was primarily driven by the acquisition of Dreams of 280 basis points, unfavorable mix of 220 basis points, and price increases to customers without a margin benefit of 140 basis points.

Dreams' margin profile is lower than our historical international margins as they sell a variety of products across a range of price points.

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

Three Months Ended March 31,

Three Months Ended June 30,

2022 2021 2022 2021 2022 2021 2022 2021

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The primary drivers of changes in operating expenses by segment are explained below:

• North America operating expenses increased $6.5 million, or 3.4%, and decreased 40 basis points as a percentage of net sales.

• North America operating expenses increased $11.7 million, or 5.6%, and increased 230 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by Stearns & Foster® advertising investments ahead of the expected fourth quarter product launch.

Additionally, we incurred $2.8 million of professional fees related to the manufacturing facility ERP system transition and $1.8 million of restructuring costs associated with headcount reductions.

• International operating expenses increased $41.1 million, or 72.9%, and increased 330 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by the acquisition of Dreams.

• Corporate operating expenses increased $0.5 million, or 1.3%, primarily driven by $2.1 million of restructuring costs associated with headcount reductions and $1.2 million of expenses related to manufacturing facility ERP system transition, offset by decreased variable compensation expense.

Research and development expenses for the three months ended June 30, 2022 were $7.7 million compared to $6.7 million for the three months ended June 30, 2021, an increase of $1.0 million, or 14.9%.

OPERATING INCOME

Three Months Ended June 30,

(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin Margin Change

North America $ 146.1 15.1 % $ 217.4 21.4 % (6.3) %

International 35.8 14.5 % 43.4 27.9 % (13.4) %

Corporate expenses (38.0) (37.5)

Total operating income $ 143.9 11.9 % $ 223.3 19.1 % (7.2) %

Operating income decreased $79.4 million and operating margin declined 720 basis points.

The primary drivers of changes in operating income and operating margin by segment are discussed below:

• North America operating income decreased $71.3 million and operating margin declined 630 basis points.

The decline in operating margin was primarily driven by the decline in gross margin of 410 basis points and Stearns & Foster® advertising investments ahead of the expected fourth quarter product launch of 180 basis points.

Additionally, we incurred $8.2 million of expenses related to manufacturing facility ERP system transition costs, $2.7 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

and $1.8 million of restructuring costs associated with headcount reductions.

• International operating income decreased $7.6 million and operating margin declined 1,340 basis points.

The decline in operating margin was driven by the decline in gross margin of 670 basis points, the decline in Asia joint venture performance due to COVID-19 related shutdowns of 340 basis points and operating expense deleverage of 330 basis points.

• Corporate operating expenses increased $0.5 million, which negatively impacted our consolidated operating margin.

The increase in operating expenses was primarily driven by $2.1 million of restructuring costs associated with headcount reductions and $1.2 million of expenses related to manufacturing facility ERP system transition, offset by decreased variable compensation expense.

INTEREST EXPENSE, NET

Three Months Ended June 30,

(in millions, except percentages) 2022 2021 % Change

Interest expense, net $ 23.7 $ 20.0 18.5 %

Interest expense, net, increased $3.7 million, or 18.5%.

The increase in interest expense, net, was primarily driven by increased average levels of outstanding debt.

LOSS ON EXTINGUISHMENT OF DEBT

On March 25, 2021, we issued our 2029 Senior Notes.

During the second quarter of 2021, we used the net proceeds from the 2029 Senior Notes to primarily redeem in full our $600.0 million 2026 Senior Notes.

As a result of the redemption, we recognized $18.0 million of loss on extinguishment of debt, which included a prepayment premium of $16.5 million and the write-off of $1.5 million of deferred financing costs.

INCOME TAX PROVISION

Three Months Ended June 30,

(in millions, except percentages) 2022 2021 % Change

Income tax provision $ 28.3 $ 44.7 (36.7) %

Effective tax rate 23.7 % 24.1 %

Our 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 foreign operations.

Our income tax provision decreased $16.4 million due to a decrease in income before income taxes.

Our effective tax rate for the three months ended June 30, 2022 as compared to the same prior year period decreased by 40 basis points.

The effective tax rate as compared to the U.S.

federal statutory rate for the three months ended June 30, 2022 included the net favorable impact of discrete items.

The effective tax rate as compared to the U.S.

federal statutory tax rate for the three months ended June 30, 2021 included the favorable impact of the elimination of global intangible low-taxed income ("GILTI") from U.S.

taxable income, the favorable impact of the deductibility of stock compensation in the U.S.

and included a net unfavorable impact of other discrete items.

SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE

SIX MONTHS ENDED JUNE 30, 2021

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

Six Months Ended June 30,

(in millions, except percentages and per share amounts) 2022 2021

Net sales $ 2,450.5 100.0 % $ 2,212.9 100.0 %

Cost of sales 1,431.2 58.4 1,235.8 55.8

Gross profit 1,019.3 41.6 977.1 44.2

Selling and marketing expenses 496.4 20.3 414.5 18.7

General, administrative and other expenses 199.9 8.2 164.6 7.4

Equity income in earnings of unconsolidated affiliates (9.5) (0.4) (13.7) (0.6)

Operating income 332.5 13.6 411.7 18.6

Other expense, net:

Interest expense, net 44.6 1.8 32.3 1.5

Loss on extinguishment of debt — — 23.0 1.0

Other income, net (0.6) — (0.4) —

Total other expense, net 44.0 1.8 54.9 2.5

Income from continuing operations before income taxes 288.5 11.8 356.8 16.1

Income tax provision (66.4) (2.7) (85.2) (3.9)

Income from continuing operations 222.1 9.1 271.6 12.3

Income from discontinued operations, net of tax — — (0.5) —

Net income before non-controlling interests 222.1 9.1 271.1 12.3

Net income (loss) attributable to non-controlling interests 0.8 — (0.2) —

Net income attributable to Tempur Sealy International, Inc.

$ 221.3 9.0 % $ 271.3 12.3 %

Earnings per common share:

Basic $ 1.24 $ 1.36

Diluted $ 1.20 $ 1.32

Weighted average common shares outstanding:

Basic 178.3 200.4

Diluted 183.7 204.9

Six Months Ended June 30,

2022 2021 2022 2021 2022 2021

(in millions) Consolidated North America International

Net sales by channel

Wholesale $ 1,863.2 $ 1,886.8 $ 1,659.1 $ 1,656.3 $ 204.1 $ 230.5

Direct 587.3 326.1 237.0 240.8 350.3 85.3

Total net sales $ 2,450.5 $ 2,212.9 $ 1,896.1 $ 1,897.1 $ 554.4 $ 315.8

Net sales increased 10.7%, and on a constant currency basis increased 12.0%.

The change in net sales was driven by the following:

• North America net sales decreased $1.0 million, or 0.1%, primarily due to declining consumer confidence in the U.S., pandemic and geopolitical related disruptions and the unfavorable impact of our ERP system transition.

Net sales in the Wholesale channel increased $2.8 million, or 0.2%.

Net sales in the Direct channel decreased $3.8 million, or 1.6%, compared to the six months ended June 30, 2021.

• International net sales increased $238.6 million, or 75.6%.

On a constant currency basis, International net sales increased 83.7%.

Net sales in the Wholesale channel decreased 3.6% on a constant currency basis.

Net sales in the Direct channel increased 319.5% on a constant currency basis, primarily driven by the acquisition of Dreams.

Six Months Ended June 30,

(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change

North America $ 718.2 37.9 % $ 789.3 41.6 % (3.7) %

International 301.1 54.3 % 187.8 59.5 % (5.2) %

Consolidated gross margin $ 1,019.3 41.6 % $ 977.1 44.2 % (2.6) %

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.

Gross margin declined 260 basis points.

The primary drivers of changes in gross margin by segment are discussed below:

• North America gross margin declined 370 basis points.

The decline in gross margin was primarily driven by operational investments to service our customers of 220 basis and price increases to customers without a margin benefit of 200 basis points.

Our gross margin was impacted as sales increased with no change in gross profit dollars, as our pricing actions have been neutralizing the dollar impact of commodities.

These declines were partially offset by favorable mix of 80 basis points.

• International gross margin declined 520 basis points.

The decline in gross margin was driven by unfavorable mix of 260 basis points, the acquisition of Dreams of 230 basis points, and price increases to customers without a margin benefit of 130 basis points.

Dreams' margin profile is lower than our historical international margins as they sell a variety of products across a range of price points.

These declines were partially offset by increased royalties of 160 basis points.

OPERATING EXPENSES

Selling and marketing expenses include advertising and media production associated with the promotion of our brands, other marketing materials such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials and sales force compensation.

We also include in selling and marketing expense certain new product development costs, including market research and new product testing.

Six Months Ended June 30,

2022 2021 2022 2021 2022 2021 2022 2021

(in millions) Consolidated North America International Corporate

Operating expenses:

Advertising expenses $ 222.3 $ 198.9 $ 185.6 $ 176.5 $ 36.7 $ 22.4 $ — $ —

Other selling and marketing expenses 274.1 215.6 141.2 138.8 122.9 64.0 10.0 12.8

General, administrative and other expenses 199.9 164.6 89.9 83.2 48.4 25.5 61.6 55.9

Total operating expenses $ 696.3 $ 579.1 $ 416.7 $ 398.5 $ 208.0 $ 111.9 $ 71.6 $ 68.7

Operating expenses increased $117.2 million, or 20.2%, and increased 220 basis points as a percentage of net sales.

The primary drivers of changes in operating expenses by segment are explained below:

• North America operating expenses increased $18.2 million, or 4.6%, and increased 100 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by advertising and other selling and marketing investments.

Additionally, we incurred $2.8 million of professional fees related to the manufacturing facility ERP system transition and $1.8 million of restructuring costs associated with headcount reductions.

• International operating expenses increased $96.1 million, or 85.9%, and increased 210 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by advertising and other selling and marketing investments, as well as the acquisition of Dreams.

• Corporate operating expenses increased $2.4 million, or 7.7%, primarily driven by ERP implementation costs.

Research and development expenses for the three months ended March 31, 2022 were $7.8 million compared to $6.5 million for the three months ended March 31, 2021, an increase of $1.3 million, or 20.0%.

The increase in operating expenses was primarily driven by other selling and marketing investments, as well as the acquisition of Dreams.

• Corporate operating expenses increased $2.9 million, or 4.2%.

Research and development expenses were $15.5 million for the six months ended June 30, 2022 as compared to $13.2 million for the six months ended June 30, 2021, an increase of $2.3 million, or 17.4%.

OPERATING INCOME

Three Months Ended March 31,

Six Months Ended June 30,

(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin Margin Change

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Total operating income $ 332.5 13.6 % $ 411.7 18.6 % (5.0) %

Operating income increased $0.2 million and operating margin declined 280 basis points.

Operating income decreased $79.2 million and operating margin declined 500 basis points.

The primary drivers of changes in operating income and operating margin by segment are discussed below:

• North America operating income decreased $89.3 million and operating margin declined 470 basis points.

The decline in operating margin was primarily driven by the decline in gross margin of 340 basis points, partially offset by favorable operating expense leverage.

The decrease in operating margin was primarily driven by the decline in gross margin of 370 basis points and operating expense deleverage of 60 basis points.

Additionally, we incurred $8.2 million of expenses related to manufacturing facility ERP system transition, $2.7 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

and $1.8 million of restructuring costs associated with headcount reductions.

• International operating income increased $13.0 million and operating margin declined 990 basis points.

The decline in operating margin was primarily driven by the decline in gross margin of 390 basis points and unfavorable operating expense leverage of 120 basis points.

• Corporate operating expenses increased $2.4 million, which negatively impacted our consolidated operating margin by 20 basis points, primarily driven by ERP implementation costs.

The decrease in operating margin was primarily driven by the decline in gross margin of 520 basis points, the decline in Asia joint venture performance due to COVID-19 related shutdowns performance of 260 basis points and operating expense deleverage of 210 basis points.

• Corporate operating expenses increased $2.9 million, which negatively impacted our consolidated operating margin by 10 basis points.

INTEREST EXPENSE, NET

Three Months Ended March 31,

Six Months Ended June 30,

(in millions, except percentages) 2022 2021 % Change

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The increase in interest expense, net, was primarily driven by increased average levels of outstanding debt.

LOSS ON EXTINGUISHMENT OF DEBT

On March 25, 2021, we issued our 2029 Senior Notes.

During the second quarter of 2021, we used the net proceeds from the 2029 Senior Notes primarily to redeem in full our $600.0 million 2026 Senior Notes, at 102.75% of their principal amount, plus the accrued and unpaid interest.

Additionally, in the first quarter of 2021, we recognized $5.0 million of loss on extinguishment of debt, which includes a prepayment premium of $3.5 million and the write-off of $1.5 million of deferred financing costs, associated with the redemption of the remaining amount outstanding of the 2023 Senior Notes.

INCOME TAX PROVISION

Three Months Ended March 31,

Six Months Ended June 30,

(in millions, except percentages) 2022 2021 % Change

1 unchanged sentence

Effective tax rate 23.0 % 23.9 %

Our 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 foreign operations.

Our income tax provision decreased $18.8 million due to a decrease in income before income taxes.

Our effective tax rate for the three months ended March 31, 2022 as compared to the same prior year period decreased by 110 basis points.

Our effective tax rate for the six months ended June 30, 2022 as compared to the same prior year period decreased 90 basis points.

The effective tax rate as compared to the U.S.

federal statutory rate for the three months ended March 31, 2022 included the favorable impact of the deductibility of stock compensation in the U.S.

federal statutory rate for the six months ended June 30, 2022 included the net favorable impact of the deductibility of stock compensation in the U.S.

and included a net unfavorable impact of other discrete items.

The effective tax rate as compared to the U.S.

federal statutory tax rate for the three months ended March 31, 2021 included the favorable impact of the deductibility of stock compensation in the U.S.

and included a net unfavorable impact of discrete items.

federal statutory rate for the for the six months ended June 30, 2021 included the favorable impact of the elimination of global intangible low-taxed income ("GILTI") from U.S.

taxable income, the favorable impact of the deductibility of stock compensation in the U.S.

and included a net unfavorable impact of other discrete items.

Liquidity and Capital Resources

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

As of March 31, 2022, we had net working capital of $117.7 million, including cash and cash equivalents of $116.3 million, as compared to a working capital of $222.2 million, including cash and cash equivalents of $300.7 million, as of December 31, 2021.

At March 31, 2022, total cash and cash equivalents were $116.3 million, of which $29.9 million was held in the U.S.

As of June 30, 2022, we had net working capital of $248.1 million, including cash and cash equivalents of $110.3 million, as compared to a working capital of $222.2 million, including cash and cash equivalents of $300.7 million, as of December 31, 2021.

At June 30, 2022, total cash and cash equivalents were $110.3 million, of which $53.1 million was held in the U.S.

and $57.2 million was held by subsidiaries outside of the U.S.

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The table below presents net cash provided by (used in) operating, investing and financing activities from continuing operations for the periods indicated below:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2022 2021

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Financing activities (110.2) (260.5)

Cash provided by operating activities from continuing operations decreased $0.7 million in the three months ended March 31, 2022 as compared to the same period in 2021.

The decrease in cash provided by operating activities was driven by operational performance in the period.

Cash used in investing activities from continuing operations increased $34.9 million in the three months ended March 31, 2022 as compared to the same period in 2021.

Cash provided by operating activities from continuing operations decreased $246.5 million in the six months ended June 30, 2022 as compared to the same period in 2021.

The decrease in cash provided by operating activities was driven by increased inventory investments, as well as the reduction of net income.

Our inventory increased significantly in the first half of 2022 as we increased our safety stock of Tempur-Pedic® finished goods, adjustable bases and raw materials to better support our customers.

Cash used in investing activities from continuing operations increased $71.2 million in the six months ended June 30, 2022 as compared to the same period in 2021.

The increase in cash used in investing activities was due to increased capital expenditures related to our manufacturing capacity expansion projects.

Cash used in financing activities from continuing operations increased $373.7 million in the three months ended March 31, 2022 as compared to the same period in 2021.

For the three months ended March 31, 2022, we had net borrowings of $312.1 million on our credit facilities as compared to net borrowings of $504.8 million, which included proceeds of $800.0 million from the issuance of our 2029 Senior Notes partially offset by net repayments under our credit facilities and 2023 Senior Notes in 2021.

During the three months ended March 31, 2022 and 2021, we repurchased $494.8 million and $313.1 million, respectively, of our common stock.

Cash used in financing activities from continuing operations decreased $150.3 million in the six months ended June 30, 2022 as compared to the same period in 2021.

For the six months ended June 30, 2022, we had net borrowings of $546.2 million on our credit facilities as compared to net borrowings of $153.8 million in the same period in 2021, which included proceeds of $800.0 million from the issuance of our 2029 Senior Notes partially offset by net repayments under our credit facilities and 2023 Senior Notes in 2021.

During the six months ended June 30, 2022 and 2021, we repurchased $612.0 million and $374.4 million, respectively, of our common stock.

Cash Used in Discontinued Operations

Net cash used in operating, investing and financing activities from discontinued operations for the periods ended March 31, 2022 and 2021 was not material.

Net cash used in operating, investing and financing activities from discontinued operations for the periods ended June 30, 2022 and 2021 was not material.

Capital Expenditures

Capital expenditures totaled $60.3 million and $23.5 million for the three months ended March 31, 2022 and 2021, respectively.

We currently expect our 2022 capital expenditures to be approximately $250 million to $280 million, which includes manufacturing capacity expansion and investments in our other growth initiatives.

Our total debt increased to $2,674.7 million as of March 31, 2022 from $2,353.2 million as of December 31, 2021.

Total availability under our revolving senior secured credit facility was $561.0 million as of March 31, 2022, which matures in 2024.

Capital expenditures totaled $130.2 million and $52.6 million for the six months ended June 30, 2022 and 2021, respectively.

We currently expect our 2022 capital expenditures to be over $250 million, which includes manufacturing capacity expansion and investments in our other growth initiatives.

Our total debt increased to $2,905.1 million as of June 30, 2022 from $2,353.2 million as of December 31, 2021.

Total availability under our revolving senior secured credit facility was $295.3 million as of June 30, 2022, which matures in 2024.

Refer to Note 5, "Debt" in the "Notes to Condensed Consolidated Financial Statements," under Part I, ITEM 1 for further discussion of our debt.

As of March 31, 2022, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, in accordance with our 2019 Credit Agreement was 2.25 times.

As of June 30, 2022, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, in accordance with our 2019 Credit Agreement was 2.67 times.

This ratio is within the terms of the financial covenants for the maximum consolidated total net leverage ratio as set forth in the 2019 Credit Agreement, which limits this ratio to 5.00 times.

As of March 31, 2022, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

As of June 30, 2022, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

Our debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends.

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Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we were authorized to repurchase shares of our common stock.

During the three months ended March 31, 2022, we repurchased 12.2 million shares under our share repurchase program for $449.2 million.

As of March 31, 2022, we had $951.5 million remaining under our share repurchase authorization.

During the six months ended June 30, 2022, we repurchased 16.6 million shares under our share repurchase program for $566.2 million.

As of June 30, 2022, we had $834.5 million remaining under our share repurchase authorization.

Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate.

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Future Liquidity Sources and Uses

As of March 31, 2022, we had $677.3 million of liquidity, including $116.3 million of cash on hand and $561.0 million available under our revolving senior secured credit facility.

As of June 30, 2022, we had $405.6 million of liquidity, including $110.3 million of cash on hand and $295.3 million available under our revolving senior secured credit facility.

In addition, we expect to generate cash flow from operations in the full year 2022.

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Our capital allocation strategy follows a balanced approach focused on supporting the business, returning shareholder value through share repurchases and quarterly dividends as well as opportunistic and strategic acquisition opportunities that enhance our global competitiveness.

Additionally, we have taken capital structure actions to optimize our balance sheet, through extending the maturities of our long-term debt and lowering our annualized interest expense.

The Board of Directors declared a dividend of $0.10 per share for the second quarter of 2022.

The dividend is payable on May 26, 2022 to shareholders of record as of May 12, 2022.

As of March 31, 2022, we had $2,674.7 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,559.7 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.25 times for the trailing twelve months ended March 31, 2022.

Additionally, we have taken capital structure actions to optimize our balance sheet through extending the maturities of our long-term debt.

The Board of Directors declared a dividend of $0.10 per share for the third quarter of 2022.

The dividend is payable on August 25, 2022 to shareholders of record as of August 11, 2022.

As of June 30, 2022, we had $2,905.1 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,795.9 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.67 times for the trailing twelve months ended June 30, 2022.

Our target range for our ratio of consolidated indebtedness less netted cash, which is a non-GAAP financial measure, is 2.0 to 3.0 times.

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Non-GAAP Financial Information

We provide information regarding adjusted net income, adjusted EPS, EBITDA, adjusted EBITDA, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, or an alternative to total debt as a measure of liquidity.

We provide information regarding adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, EBITDA, adjusted EBITDA, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, or an alternative to total debt as a measure of liquidity.

We believe these non-GAAP financial measures provide investors with performance measures that better reflect our underlying operations and trends, providing a perspective not immediately apparent from net income, gross profit, gross margin, operating income (expense) and operating margin.

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We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes below.

The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the three months ended March 31, 2022 and 2021:

The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the three months ended June 30, 2022 and 2021:

Three Months Ended

(in millions, except per share amounts) March 31, 2022 March 31, 2021

(in millions, except per share amounts) June 30, 2022 June 30, 2021

Net income $ 90.6 $ 140.8

Loss from discontinued operations, net of tax (1)

ERP system transition (1)

Restructuring costs (2)

Operational start-up costs (3)

Loss on extinguishment of debt (4)

Tax adjustments (3)

Overlapping interest expense (5)

Acquisition-related costs (6)

Loss from discontinued operations, net of tax (7)

Adjusted income tax provision (8)

Adjusted net income $ 103.2 $ 161.5

Adjusted earnings per share, diluted $ 0.69 $ 0.64

Adjusted earnings per common share, diluted $ 0.58 $ 0.79

Diluted shares outstanding 178.8 204.1

(1) In the second quarter of 2022, we recorded $9.4 million of charges related to the transition of our ERP system.

Cost of sales included $5.4 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $4.0 million, primarily related to professional fees.

(2) In the second quarter of 2022, we recorded $4.1 million of restructuring costs primarily associated with headcount reductions, including $0.2 million of other expense.

(3) In the second quarter of 2022, we incurred $3.1 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including $0.4 million of other expense.

Cost of sales and operating expenses included personnel and facility related costs of $2.5 million and $0.2 million, respectively.

(4) In the second quarter of 2021, we recognized $18.0 million of loss on extinguishment of debt associated with the redemption of the 2026 Senior Notes.

(5) In the second quarter of 2021, we incurred $5.2 million of overlapping interest expense during the period between the issuance of the 2029 Senior Notes and the redemption of the 2026 Senior Notes.

(6) In the second quarter of 2021, we recognized $3.9 million of acquisition related costs, primarily related to legal and professional fees associated the acquisition of Dreams.

(7) Certain subsidiaries in the International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the 2019 Credit Agreement.

Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes.

(2) In the first quarter of 2021, we recognized $5.0 million of loss on extinguishment of debt associated with the redemption of the remaining amount outstanding of the 2023 senior notes.

(8) Adjusted income tax provision represents the tax effects associated with the aforementioned items.

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

The following table sets forth our reported gross profit and reported operating income (expense) for the three months ended March 31, 2022.

We had no adjustments to gross profit or operating income (expense) for the three months ended March 31, 2022.

Three Months Ended March 31, 2022

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

The following table sets forth the reconciliation of the Company's reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended June 30, 2022.

Three Months Ended June 30, 2022

(in millions, except percentages) Consolidated

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Gross profit $ 496.5 41.0 % $ 365.8 37.9 % $ 130.7 53.1 % $ —

ERP system transition (1)

Operational start-up costs (3)

Total Adjustments 7.9 7.9 — —

Adjusted gross profit $ 504.4 41.7 % $ 373.7 38.7 % $ 130.7 53.1 % $ —

Operating income (expense) $ 143.9 11.9 % $ 146.1 15.1 % $ 35.8 14.5 % $ (38.0)

The following table sets forth our reported gross profit and reported operating income (expense) for the three months ended March 31, 2021.

We had no adjustments to gross profit or operating income (expense) for the three months ended March 31, 2021.

Three Months Ended March 31, 2021

ERP system transition (1)

9.4 8.2 — 1.2

Restructuring costs (2)

3.9 1.8 — 2.1

Operational start-up costs (3)

Total adjustments 16.0 12.7 — 3.3

Adjusted operating income (expense) $ 159.9 13.2 % $ 158.8 16.5 % $ 35.8 14.5 % $ (34.7)

The following table sets forth the Company's reported gross profit and the reconciliation of the Company's operating income (expense) to the calculation of adjusted operating (income) expense for the three months ended June 30, 2021.

The Company had no adjustments to gross profit for the three months ended June 30, 2021.

Three Months Ended June 30, 2021

(in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate

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Operating income (expense) $ 223.3 19.1 % $ 217.4 21.4 % $ 43.4 27.9 % $ (37.5)

Acquisition-related costs (4)

Adjusted operating income (expense) $ 227.2 19.4 % $ 217.4 21.4 % $ 43.4 27.9 % $ (33.6)

(1) In the second quarter of 2022, we recorded $9.4 million of charges related to the transition of our ERP system.

Cost of sales included $5.4 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $4.0 million, primarily related to professional fees.

(2) In the second quarter of 2022, we recorded $4.1 million of restructuring costs primarily associated with headcount reductions, including $0.2 million of other expense.

Cost of sales and operating expenses included personnel and facility related costs of $2.5 million and $0.2 million, respectively.

(4) In the second quarter of 2021, we recognized $3.9 million of acquisition-related costs, primarily related to legal and professional fees associated the acquisition of Dreams.

EBITDA, Adjusted EBITDA and Consolidated Indebtedness less Netted Cash

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Accordingly, we present adjusted EBITDA to provide information regarding our compliance with requirements under the 2019 Credit Agreement.

The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the three months ended March 31, 2022 and 2021:

The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the three months ended June 30, 2022 and 2021:

Three Months Ended

(in millions) March 31, 2022 March 31, 2021

(in millions) June 30, 2022 June 30, 2021

Net income $ 90.6 $ 140.8

Interest expense, net 23.7 14.8

Overlapping interest expense (1)

Loss on extinguishment of debt (2)

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EBITDA $ 186.8 $ 266.1

ERP system transition (3)

Restructuring costs (4)

Operational start-up costs (5)

Acquisition-related costs (6)

Loss from discontinued operations, net of tax (7)

Adjusted EBITDA $ 203.4 $ 270.3

(1) In the first quarter of 2021, we recognized $5.0 million of loss on extinguishment of debt associated with the redemption of the remaining amount outstanding on the 2023 senior notes.

(1) In the second quarter of 2021, we incurred $5.2 million of overlapping interest expense during the period between the issuance of the 2029 Senior Notes and the redemption of the 2026 Senior Notes.

(2) In the second quarter of 2021, we recognized $18.0 million of loss on extinguishment of debt associated with the redemption of the 2026 Senior Notes.

(3) In the second quarter of 2022, we recorded $9.4 million of charges related to the transition of our ERP system.

Cost of sales included $5.4 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $4.0 million, primarily related to professional fees.

(4) In the second quarter of 2022, we recorded $4.1 million of restructuring costs primarily associated with headcount reductions, including $0.2 million of other expense.

(5) In the second quarter of 2022, we incurred $3.1 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including $0.4 million of other expense.

Cost of sales and operating expenses included personnel and facility related costs of $2.5 million and $0.2 million, respectively.

(6) In the second quarter of 2021, we recognized $3.9 million of acquisition-related costs, primarily related to legal and professional fees associated the acquisition of Dreams.

(7) Certain subsidiaries in the International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the 2019 Credit Agreement.

Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes.

The following table sets forth the reconciliation of our net income to the calculations of EBITDA and adjusted EBITDA for the trailing twelve months ended March 31, 2022:

The following table sets forth the reconciliation of our net income to the calculations of EBITDA and adjusted EBITDA for the trailing twelve months ended June 30, 2022:

Trailing Twelve Months Ended

(in millions) March 31, 2022

(in millions) June 30, 2022

Net income $ 574.5

Interest expense, net 78.6

Overlapping interest expense (1)

Loss on extinguishment of debt (2)

Income tax provision 179.5

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EBITDA $ 1,013.8

Loss from discontinued operations, net of tax (3)

Earnings from Dreams prior to acquisition (1)

ERP system transition (2)

Restructuring costs (3)

Operational start-up costs (4)

Acquisition-related costs (5)

Loss from discontinued operations, net of tax (6)

Adjusted EBITDA $ 1,048.0

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Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 2.67 times

(1) In the trailing twelve months ended March 31, 2022, we incurred $5.2 million of overlapping interest expense during the period between the issuance of the 2029 Senior Notes and the redemption of the 2026 Senior Notes.

(2) In the trailing twelve months ended March 31, 2022, we recognized $18.0 million of loss on extinguishment of debt associated with the redemption of the 2026 and 2023 Senior Notes.

(1) We completed the acquisition of Dreams on August 2, 2021 and designated this subsidiary as restricted under the 2019 Credit Agreement.

For covenant compliance purposes, we included $15.1 million of EBITDA from this subsidiary for the one month prior to acquisition in our calculation of adjusted EBITDA for the trailing twelve months ended June 30, 2022.

(2) In the second quarter of 2022, we recorded $9.4 million of charges related to the transition of our ERP system.

Cost of sales included $5.4 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $4.0 million, primarily related to professional fees.

(3) In the second quarter of 2022, we recorded $4.1 million of restructuring costs primarily associated with headcount reductions, including $0.2 million of other expense.

(4) In the second quarter of 2022, we incurred $3.1 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including $0.4 million of other expense.

Cost of sales and operating expenses included personnel and facility related costs of $2.5 million and $0.2 million, respectively.

(5) In the trailing twelve months ended June 30, 2022, we recognized $2.3 million of acquisition-related stamp taxes associated with the acquisition of Dreams.

(6) Certain subsidiaries in the International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the 2019 Credit Agreement.

Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes.

(4) We completed the acquisition of Dreams on August 2, 2021 and designated this subsidiary as restricted under the 2019 Credit Agreement.

For covenant compliance purposes, we included $38.7 million of EBITDA from this subsidiary for the four months prior to acquisition in our calculation of adjusted EBITDA for the trailing twelve months ended March 31, 2022.

(5) In the trailing twelve months ended March 31, 2022, we recognized $6.2 million of acquisition-related costs, primarily related to legal and professional fees and stamp taxes associated with the acquisition of Dreams.

Under the 2019 Credit Agreement, the definition of adjusted EBITDA contains certain restrictions that limit adjustments to net income when calculating adjusted EBITDA.

For the trailing twelve months ended March 31, 2022, our adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2019 Credit Agreement.

The ratio of consolidated indebtedness less netted cash to adjusted EBITDA is 2.25 times for the trailing twelve months ended March 31, 2022.

For the trailing twelve months ended June 30, 2022, our adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2019 Credit Agreement.

The ratio of consolidated indebtedness less netted cash to adjusted EBITDA is 2.67 times for the trailing twelve months ended June 30, 2022.

The 2019 Credit Agreement requires us to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00:1.00 times.

The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of March 31, 2022.

The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of June 30, 2022.

"Consolidated Indebtedness" and "Netted Cash" are terms used in the 2019 Credit Agreement for purposes of certain financial covenants.

(in millions) March 31, 2022

(in millions) June 30, 2022

Total debt, net $ 2,882.6

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis