What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-09 · 132 added, 305 removed, 249 unchanged (64% of the section changed)

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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 and nine months ended September 30, 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 months ended March 31, 2023, including the following topics:

• an overview of our business and strategy;

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We are committed to improving the sleep of more people, every night, all around the world.

As a leading designer, manufacturer, distributor and retailer of bedding products worldwide, we know how crucial a good night of sleep is to overall health and wellness.

As a leading designer, manufacturer, distributor and retailer of bedding products, we know how crucial a good night of sleep is to overall health and wellness.

Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries.

Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our non-branded offerings include private label and original equipment manufacturer ("OEM") products.

We operate in two segments:

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Our International segment consists of manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico).

On August 2, 2021, we acquired Dreams Topco Limited and its direct and indirect subsidiaries ("Dreams").

Dreams is also included in the International segment.

Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results.

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For additional information refer to Note 11, "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.

Our products allow for complementary merchandising strategies and are sold through third-party retailers, our more than 650 company-owned and joint venture operated retail stores worldwide and our e-commerce channel.

Our distribution model operates through an omni-channel strategy.

Our products are sold through third-party retailers, our more than 700 company-owned stores and our e-commerce platforms.

We distribute through two channels in each operating business segment:

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

In the near term, we continue to see impacts on global consumer behavior from macroeconomic pressures, particularly from strong inflation and a sense of economic uncertainty.

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

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 has impacted 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 for the first nine months of 2022, which we expect to improve in the fourth quarter.

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.

COVID-19 variants in our Asian markets 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, we believe the many actions we have taken to further insulate our supply chain have largely mitigated their impact.

In the first quarter of 2023, global consumer spending continued to be unfavorably impacted by macroeconomic pressures, particularly from inflation and rising interest rates.

Product Launches

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 began a rollout of a complete refresh of our North American Stearns & Foster® portfolio, and launched the Sealy FlexGrid™ mattress line 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.

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

On August 2, 2021, we completed the acquisition of Dreams, for a cash purchase price of $476.7 million, which included $49.5 million of cash acquired.

The transaction was funded using cash on hand and bank financing.

As a multi-branded retailer, Dreams sells a variety of products across a range of price points with a margin profile lower than our historical International segment margins.

In 2023, we plan to complete the rollout of a complete refresh of our North American Stearns & Foster® portfolio that began in 2022.

The new line is designed to further distinguish our high-end traditional innerspring brand and includes superior technologies, clear product step-up stories and a new, contemporary look.

We also expect to launch a new portfolio of Tempur-Pedic® Breeze mattresses and Tempur-Ergo® Smart Bases in 2023.

The new lineup of Tempur-Pedic® Breeze products builds upon our successful legacy Breeze portfolio.

The updated collection features incremental innovation and technologies that were designed to be a solution to the most common causes of poor sleep, including aches and pains, sleeping hot and snoring.

The upgraded Tempur-Ergo® Smart Base assortment features improved ergonomic design with new, proprietary lumbar support, upgraded Sleeptracker-AI® technology and industry-leading relaxation modes, including Wave Form TM massage.

In our International segment, we are launching an all-new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors in 2023.

We expect this new line of products to broaden Tempur®'s price range, with the super-premium price point ceiling maintained and the floor expanded into the premium category to expand our global addressable market.

Definitive Agreement with Mattress Firm Group Inc.

On May 9, 2023, Tempur Sealy International and Mattress Firm entered into a definitive agreement and plan of merger (the "Merger Agreement") for a proposed business acquisition in which Tempur Sealy International, through a wholly-owned subsidiary, will acquire Mattress Firm in a transaction valued at approximately $4.0 billion.

The transaction is expected to be funded by approximately $2.7 billion of cash consideration and the issuance of 34.2 million shares of common stock, resulting in a total stock consideration value of $1.3 billion based on a closing share price of $37.62 as of May 8, 2023.

We expect the transaction to close in the second half of 2024, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals.

Following the close of the transaction, Mattress Firm is expected to operate as a separate business unit.

Results of Operations

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

• Total net sales decreased 5.5% to $1,283.3 million as compared to $1,358.3 million in the third quarter of 2021.

A summary of our results for the three months ended March 31, 2023 include:

• Total net sales decreased 2.5% to $1,208.1 million as compared to $1,239.5 million in the first quarter of 2022.

On a constant currency basis, which is a non-GAAP financial measure, total net sales decreased 0.5%, with a decrease of 1.2% in the North America business segment and an increase of 1.7% in the International business segment.

• Gross margin was 42.2% as compared to 42.5% in the third quarter of 2021.

Adjusted gross margin, which is a non-GAAP financial measure, was 42.5% in the third quarter of 2022.

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

• Operating income decreased 19.5% to $201.0 million as compared to $249.8 million in the third quarter of 2021.

Adjusted operating income, which is a non-GAAP financial measure, was $206.7 million as compared to $252.1 million in the third quarter of 2021.

• Net income decreased 25.2% to $132.7 million as compared to $177.4 million in the third quarter of 2021.

Adjusted net income, which is a non-GAAP financial measure, decreased 23.3% to $137.8 million as compared to $179.6 million in the third quarter of 2021.

• EBITDA, which is a non-GAAP financial measure, decreased 16.9% to $245.4 million as compared to $295.2 million in the third quarter of 2021.

Adjusted EBITDA, which is a non-GAAP financial measure, decreased 15.4% to $251.9 million as compared to $297.6 million in the third quarter of 2021.

• Earnings per diluted share ("EPS") decreased 13.8% to $0.75 as compared to $0.87 in the third quarter of 2021.

Adjusted EPS, which is a non-GAAP financial measure, decreased 11.4% to $0.78 as compared to $0.88 in the third quarter of 2021.

• Gross margin was 41.4% as compared to 42.2% in the first quarter of 2022.

Adjusted gross margin, which is a non-GAAP financial measure, was 41.8% in the first quarter of 2023.

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

• Operating income decreased 24.0% to $143.3 million as compared to $188.6 million in the first quarter of 2022.

Adjusted operating income, which is a non-GAAP financial measure, was $153.4 million in the first quarter of 2023.

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

• Net income decreased 34.7% to $85.3 million as compared to $130.7 million in the first quarter of 2022.

Adjusted net income, which is a non-GAAP financial measure, was $92.9 million in the first quarter of 2023.

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

• Earnings per diluted share ("EPS") decreased 30.4% to $0.48 as compared to $0.69 in the first quarter of 2022.

Adjusted EPS, which is a non-GAAP financial measure, was $0.53 in the first quarter of 2023.

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

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."

We may refer to net sales or earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure.

We may refer to net sales, earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure.

These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates.

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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 SEPTEMBER 30, 2022 COMPARED TO THE

THREE MONTHS ENDED SEPTEMBER 30, 2021

THREE MONTHS ENDED MARCH 31, 2023 COMPARED TO THE

THREE MONTHS ENDED MARCH 31, 2022

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 September 30,

Three Months Ended March 31,

(in millions, except percentages and per share amounts) 2023 2022

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Interest expense, net 32.8 2.7 20.9 1.7

Other (income) expense, net (0.9) (0.1) 0.1 —

Other expense (income), net 0.1 — (1.3) (0.1)

Total other expense, net 32.9 2.7 19.6 1.6

Income from continuing operations before income taxes 175.1 13.6 236.2 17.4

Income before income taxes 110.4 9.1 169.0 13.6

Income tax provision (24.5) (2.0) (38.1) (3.1)

Income from continuing operations 134.0 10.4 177.5 13.1

Loss from discontinued operations, net of tax (0.8) (0.1) (0.1) —

Net income before non-controlling interests 133.2 10.3 177.4 13.1

Net income attributable to non-controlling interests 0.5 — — —

Net income before non-controlling interest 85.9 7.0 130.9 10.5

Net income attributable to non-controlling interest 0.6 — 0.2 —

Net income attributable to Tempur Sealy International, Inc.

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Earnings per common share:

Earnings per share for continuing operations $ 0.78 $ 0.91

Loss per share for discontinued operations (0.01) —

Earnings per share $ 0.77 $ 0.91

Earnings per share for continuing operations $ 0.75 $ 0.87

Loss per share for discontinued operations — —

Earnings per share $ 0.75 $ 0.87

Basic $ 0.50 $ 0.72

Diluted $ 0.48 $ 0.69

Weighted average common shares outstanding:

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Diluted 176.8 188.5

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 2023 2022 2023 2022

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On a constant currency basis, North America net sales decreased 1.2%.

Net sales in the Wholesale channel decreased $73.1 million, or 7.4%, primarily driven by macroeconomic pressures impacting U.S.

Net sales in the Wholesale channel decreased $7.0 million, or 0.9%.

Net sales in the Direct channel decreased $4.8 million, or 4.0%.

These decreases were primarily driven by continued macroeconomic pressures impacting U.S.

consumer behavior.

Net sales in the Direct channel increased $10.8 million, or 8.4%, primarily driven by growth in our e-commerce channel and company-owned stores.

• International net sales decreased $12.7 million, or 5.3%, primarily due to unfavorable foreign exchange.

• International net sales decreased $19.6 million, or 6.4%, primarily driven by unfavorable foreign exchange rates.

On a constant currency basis, International net sales increased 1.7%.

Net sales in the Wholesale channel decreased 9.3% on a constant currency basis.

Net sales in the Direct channel increased 21.3% on a constant currency basis, primarily driven by the acquisition of Dreams in August 2021.

Three Months Ended September 30,

Net sales in the Wholesale channel increased 2.2% on a constant currency basis.

Net sales in the Direct channel increased 1.3% on a constant currency basis.

Three Months Ended March 31,

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

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• North America gross margin declined 40 basis points.

The decline in gross margin was primarily driven by operational investments to service our customers of 200 basis points.

Additionally, we incurred $2.3 million of manufacturing facility ERP system transition costs and $1.7 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.

These declines were partially offset by pricing actions to offset commodity inflation of 130 basis points and favorable brand mix of 110 basis points.

The decline in gross margin was primarily driven by operational headwinds of 150 basis points, expense deleverage of 80 basis points and product launch costs.

Additionally, we incurred $3.2 million of manufacturing facility enterprise resource planning ("ERP") system transition costs and $1.7 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.

These declines were partially offset by pricing actions of 260 basis points.

• International gross margin declined 130 basis points.

The decline in gross margin was primarily driven by unfavorable mix of 120 basis points and unfavorable foreign exchange.

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

The decline in gross margin was primarily driven by product launch costs of 190 basis points, partially offset by pricing actions of 50 basis points.

OPERATING EXPENSES

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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 September 30,

Three Months Ended March 31,

2023 2022 2023 2022 2023 2022 2023 2022

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• North America operating expenses increased $11.0 million, or 5.6%, and increased 140 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by investments in advertising and expansion of our company-owned store strategy.

Additionally, we incurred $0.4 million of professional fees related to the manufacturing facility ERP system transition.

These investments were partially offset by decreased variable compensation expense.

The increase in operating expenses was primarily driven by investments in advertising and product launch initiatives.

• International operating expenses increased $5.8 million, or 5.2%, and increased 440 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by the acquisition of Dreams in August 2021.

Additionally, we incurred $0.6 million of restructuring costs associated with headcount reductions.

• Corporate operating expenses decreased $0.9 million, or 2.4%, primarily driven by decreased variable compensation expense.

Additionally, we incurred $0.6 million of restructuring costs associated with headcount reductions.

Research and development expenses for the three months ended September 30, 2022 were $6.6 million compared to $6.7 million for the three months ended September 30, 2021, an decrease of $0.1 million, or 1.5%.

The increase in operating expenses was primarily driven by investments in advertising and product launch initiatives.

• Corporate operating expenses increased $3.3 million, or 9.8%, primarily driven by $5.2 million of restructuring costs associated with the acquisition of Mattress Firm.

Research and development expenses for the three months ended March 31, 2023 were $7.5 million compared to $7.8 million for the three months ended March 31, 2022, a decrease of $0.3 million, or 3.8%.

OPERATING INCOME

Three Months Ended September 30,

Three Months Ended March 31,

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

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• North America operating income decreased $19.4 million and operating margin declined 190 basis points.

The decline in operating margin was primarily driven by operating expense deleverage of 160 basis points and the decline in gross margin.

The decline in operating margin was primarily driven by operating expense deleverage of 140 basis points and the decline in gross margin of 40 basis points.

• International operating income decreased $22.6 million and operating margin declined 640 basis points.

The decline in operating margin was driven by operating expense deleverage of 480 basis points, the decline in gross margin of 120 basis points, and the decline in Asia joint venture performance due to COVID-19 related shutdowns.

• Corporate operating expenses decreased $0.9 million, which positively impacted our consolidated operating margin.

The decline in operating margin was driven by operating expense deleverage of 440 basis points and the decline in gross margin of 130 basis points.

• Corporate operating expenses increased $3.3 million, which negatively impacted our consolidated operating margin.

INTEREST EXPENSE, NET

Three Months Ended September 30,

Three Months Ended March 31,

(in millions, except percentages) 2023 2022 % Change

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INCOME TAX PROVISION

Three Months Ended September 30,

Three Months Ended March 31,

(in millions, except percentages) 2023 2022 % Change

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Our income tax provision decreased $13.6 million due to a decrease in income before income taxes.

Our effective tax rate for the three months ended September 30, 2022 as compared to the same prior year period declined by 140 basis points.

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

federal statutory rate for the three months ended September 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 September 30, 2021 included the favorable impact of the deductibility of stock compensation in the U.S.

Our effective tax rate for the three months ended March 31, 2023 as compared to the same prior year period declined by 30 basis points.

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

federal statutory rates for the three months ended March 31, 2023 and 2022 included the favorable impact of the deductibility of stock compensation in the U.S.

and included a net unfavorable impact of other discrete items.

NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THE

NINE MONTHS ENDED SEPTEMBER 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:

Nine Months Ended September 30,

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

Net sales $ 3,733.8 100.0 % $ 3,571.2 100.0 %

Cost of sales 2,173.4 58.2 2,017.0 56.5

Gross profit 1,560.4 41.8 1,554.2 43.5

Selling and marketing expenses 744.7 19.9 658.3 18.4

General, administrative and other expenses 296.6 7.9 254.9 7.1

Equity income in earnings of unconsolidated affiliates (14.4) (0.4) (20.5) (0.6)

Operating income 533.5 14.3 661.5 18.5

Other expense, net:

Interest expense, net 71.4 1.9 45.8 1.3

Loss on extinguishment of debt — — 23.0 0.6

Other income, net (1.5) — (0.3) —

Total other expense, net 69.9 1.9 68.5 1.9

Income from continuing operations before income taxes 463.6 12.4 593.0 16.6

Income tax provision (107.5) (2.9) (143.9) (4.0)

Income from continuing operations 356.1 9.5 449.1 12.6

Loss from discontinued operations, net of tax (0.8) — (0.6) —

Net income before non-controlling interests 355.3 9.5 448.5 12.6

Net income (loss) attributable to non-controlling interests 1.3 — (0.2) —

Net income attributable to Tempur Sealy International, Inc.

$ 354.0 9.5 % $ 448.7 12.6 %

Earnings per common share:

Earnings per share for continuing operations $ 2.01 $ 2.26

Loss per share for discontinued operations — —

Earnings per share $ 2.01 $ 2.26

Earnings per share for continuing operations $ 1.95 $ 2.18

Loss per share for discontinued operations — —

Earnings per share $ 1.95 $ 2.18

Weighted average common shares outstanding:

Basic 176.2 198.9

Diluted 181.5 205.9

Nine Months Ended September 30,

2022 2021 2022 2021 2022 2021

(in millions) Consolidated North America International

Net sales by channel

Wholesale $ 2,866.4 $ 2,986.0 $ 2,577.2 $ 2,647.5 $ 289.2 $ 338.5

Direct 867.4 585.2 376.6 369.6 490.8 215.6

Total net sales $ 3,733.8 $ 3,571.2 $ 2,953.8 $ 3,017.1 $ 780.0 $ 554.1

Net sales increased 4.6%, and on a constant currency basis increased 6.3%.

The change in net sales was driven by the following:

• North America net sales decreased $63.3 million, or 2.1%.

Net sales in the Wholesale channel decreased $70.3 million, or 2.7%, primarily driven by macroeconomic pressures impacting U.S.

consumer behavior and the unfavorable impact of our ERP system transition.

Net sales in the Direct channel increased $7.0 million, or 1.9%.

• International net sales increased $225.9 million, or 40.8%.

On a constant currency basis, International net sales increased 50.9%.

Net sales in the Wholesale channel decreased 5.4% on a constant currency basis.

Net sales in the Direct channel increased 139.2% on a constant currency basis, primarily driven by the acquisition of Dreams in August 2021.

Nine Months Ended September 30,

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

North America $ 1,138.9 38.6 % $ 1,236.4 41.0 % (2.4) %

International 421.5 54.0 % 317.8 57.4 % (3.4) %

Consolidated gross margin $ 1,560.4 41.8 % $ 1,554.2 43.5 % (1.7) %

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 170 basis points.

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

• North America gross margin declined 240 basis points.

The decline in gross margin was primarily driven by operational investments to service our customers of 160 basis points and price increases to customers without a benefit to margin of 160 basis points.

Additionally, we incurred $7.7 million of manufacturing facility ERP system transition costs and $4.2 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.

These declines were partially offset by favorable mix of 140 basis points.

• International gross margin declined 340 basis points.

The decline in gross margin was driven by unfavorable mix of 160 basis points, price increases to customers without a benefit to margin of 150 basis points and the acquisition of Dreams in August 2021.

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 110 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.

Nine Months Ended September 30,

2022 2021 2022 2021 2022 2021 2022 2021

(in millions) Consolidated North America International Corporate

Operating expenses:

Advertising expenses $ 337.4 $ 310.3 $ 285.3 $ 271.8 $ 52.1 $ 38.5 $ — $ —

Other selling and marketing expenses 407.3 348.0 212.5 214.2 179.7 114.5 15.1 19.3

General, administrative and other expenses 296.6 254.9 134.6 122.6 68.9 45.4 93.1 86.9

Total operating expenses $ 1,041.3 $ 913.2 $ 632.4 $ 608.6 $ 300.7 $ 198.4 $ 108.2 $ 106.2

Operating expenses increased $128.1 million, or 14.0%, and increased 230 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 $23.8 million, or 3.9%, and increased 120 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by advertising investments and expansion of our company-owned store strategy.

Additionally, we incurred $3.2 million of professional fees related to the manufacturing facility ERP system transition and $1.8 million of restructuring costs associated with headcount reductions.

These investments were partially offset by decreased variable compensation expense.

• International operating expenses increased $102.3 million, or 51.6%, and increased 280 basis points as a percentage of net sales.

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

Additionally, we incurred $0.6 million of restructuring costs associated with headcount reductions.

• Corporate operating expenses increased $2.0 million, or 1.9%.

The increase in operating expenses was primarily driven by $2.7 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 were $22.1 million for the nine months ended September 30, 2022 as compared to $19.9 million for the nine months ended September 30, 2021, an increase of $2.2 million, or 11.1%.

OPERATING INCOME

Nine Months Ended September 30,

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

North America $ 506.5 17.1 % $ 627.8 20.8 % (3.7) %

International 135.2 17.3 % 139.9 25.2 % (7.9) %

Corporate expenses (108.2) (106.2)

Total operating income $ 533.5 14.3 % $ 661.5 18.5 % (4.2) %

Operating income decreased $128.0 million and operating margin declined 420 basis points.

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

• North America operating income decreased $121.3 million and operating margin declined 370 basis points.

The decline in operating margin was primarily driven by the decline in gross margin of 240 basis points and operating expense deleverage of 120 basis points.

• International operating income decreased $4.7 million and operating margin declined 790 basis points.

The decline in operating margin was primarily driven by the decline in gross margin of 340 basis points, operating expense deleverage of 280 basis points and the decline in Asia joint venture performance due to COVID-19 related shutdowns performance of 190 basis points.

• Corporate operating expenses increased $2.0 million, which negatively impacted our consolidated operating margin.

INTEREST EXPENSE, NET

Nine Months Ended September 30,

(in millions, except percentages) 2022 2021 % Change

Interest expense, net $ 71.4 $ 45.8 55.9 %

Interest expense, net, increased $25.6 million, or 55.9%.

The increase in interest expense, net, was primarily driven by increased average levels of outstanding debt and higher interest rates on our variable rate debt.

LOSS ON EXTINGUISHMENT OF DEBT

In the first half of 2021, we issued our 2029 Senior Notes and we redeemed our 2023 Senior Notes and our 2026 Senior Notes.

Accordingly, we incurred $23.0 million of loss on extinguishment of debt in 2021.

INCOME TAX PROVISION

Nine Months Ended September 30,

(in millions, except percentages) 2022 2021 % Change

Income tax provision $ 107.5 $ 143.9 (25.3) %

Effective tax rate 23.2 % 24.3 %

Our income tax provision decreased $36.4 million due to a decrease in income before income taxes.

Our effective tax rate for the nine months ended September 30, 2022 as compared to the same prior year period declined 110 basis points.

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

federal statutory rate for the nine months ended September 30, 2022 included the net favorable impact of the deductibility of stock compensation in the U.S., which were offset by the unfavorable impact of other discrete items.

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

federal statutory rate for the for the nine months ended September 30, 2021 included the favorable impact of the deductibility of stock compensation in the U.S., which were offset by the 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 September 30, 2022, we had net working capital of $198.5 million, including cash and cash equivalents of $94.1 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 September 30, 2022, total cash and cash equivalents were $94.1 million, of which $23.9 million was held in the U.S.

As of March 31, 2023, we had net working capital of $247.8 million, including cash and cash equivalents of $91.0 million, as compared to a working capital of $214.0 million, including cash and cash equivalents of $69.4 million, as of December 31, 2022.

At March 31, 2023, total cash and cash equivalents were $91.0 million, of which $55.7 million was held in the U.S.

and $35.3 million was held by subsidiaries outside of the U.S.

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Dollar or other major foreign currencies is not material to our overall liquidity or financial position.

Cash Provided by (Used in) Continuing Operations

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

Nine Months Ended September 30,

Cash Provided by (Used in) Operations

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

Three Months Ended March 31,

(in millions) 2023 2022

Net cash provided by (used in) continuing operations:

Net cash provided by (used in) operations:

Operating activities $ 99.8 $ 85.6

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Financing activities (28.4) (204.8)

Cash provided by operating activities from continuing operations decreased $314.0 million in the nine months ended September 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 nine months 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 decreased $283.2 million in the nine months ended September 30, 2022 as compared to the same period in 2021.

The decrease in cash used in investing activities was driven by the Dreams acquisition in August 2021, which is partially offset by increased capital expenditures in 2022.

Cash used in financing activities from continuing operations increased $590.5 million in the nine months ended September 30, 2022 as compared to the same period in 2021.

For the nine months ended September 30, 2022, we had net borrowings of $468.8 million on our credit facilities as compared to net borrowings of $988.4 million in the same period in 2021, which included proceeds of $1.6 billion from the issuance of our 2029 and 2031 Senior Notes, partially offset by repayments of $250.0 million of our 2023 Senior Notes and $600.0 million of our 2026 Senior Notes in 2021.

During the nine months ended September 30, 2022 and 2021, we repurchased $637.2 million and $565.8 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 September 30, 2022 and 2021 was not material.

Cash provided by operating activities increased $14.2 million in the three months ended March 31, 2023 as compared to the same period in 2022.

The increase in cash provided by operating activities was driven by the reduction of inventory spend as compared to prior year, which was offset by the decline in net income and increased accounts payable spend.

Cash used in investing activities decreased $7.3 million in the three months ended March 31, 2023 as compared to the same period in 2022.

The decrease in cash used in investing activities was driven by decreased capital expenditures related to our manufacturing capacity expansion projects in 2023.

Cash used in financing activities decreased $176.4 million in the three months ended March 31, 2023 as compared to the same period in 2022.

For the three months ended March 31, 2023, we had net borrowings of $32.4 million on our credit facilities as compared to net borrowings of $312.1 million in the same period in 2022, driven primarily by reduced repurchases of common stock.

During the three months ended March 31, 2023 and 2022, we repurchased $35.7 million and $494.8 million, respectively, of our common stock.

Capital Expenditures

Capital expenditures totaled $216.0 million and $82.1 million for the nine months ended September 30, 2022 and 2021, respectively.

We currently expect our 2022 capital expenditures to be over $275 million, which includes spend for our new foam-pouring plant in Crawfordsville, Indiana, and other manufacturing and distribution capacity expansion and growth initiatives.

We expect our capital expenditures to decrease significantly in 2023 and return to normal levels of spend thereafter.

Our total debt increased to $2,824.7 million as of September 30, 2022 from $2,353.2 million as of December 31, 2021.

Total availability under our revolving senior secured credit facility was $425.4 million as of September 30, 2022, which matures in 2024.

Capital expenditures totaled $52.1 million and $60.3 million for the three months ended March 31, 2023 and 2022, respectively.

We currently expect our 2023 capital expenditures to be approximately $200 million, which includes investments to complete our manufacturing capacity expansion.

Our total debt increased to $2,862.6 million as of March 31, 2023 from $2,830.8 million as of December 31, 2022.

Total availability under our revolving senior secured credit facility was $374.4 million as of March 31, 2023, which matures in 2024.

Refer to Note 4, "Debt" in the "Notes to Condensed Consolidated Financial Statements," under Part I, ITEM 1 for further discussion of our debt.

As of September 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 2.77 times.

As of March 31, 2023, 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 3.24 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 September 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.

As of March 31, 2023, 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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Share Repurchase Program

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 nine months ended September 30, 2022, we repurchased 17.6 million shares under our share repurchase program for $591.2 million.

As of September 30, 2022, we had $809.5 million remaining under our share repurchase authorization.

Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we were authorized to repurchase shares of our common stock, and the Board of Directors has authorized increases to this authorization from time to time.

During the three months ended March 31, 2023, we repurchased 0.1 million shares under our share repurchase program for $5.0 million.

As of March 31, 2023, we had $774.5 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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We will manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities.

As a result of the proposed Mattress Firm acquisition, we expect to limit our repurchase of shares in advance of closing the transaction.

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," in the 2022 Annual Report.

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Future Liquidity Sources and Uses

As of September 30, 2022, we had $519.5 million of liquidity, including $94.1 million of cash on hand and $425.4 million available under our revolving senior secured credit facility.

As of March 31, 2023, we had $466.4 million of liquidity, including $91.0 million of cash on hand and $374.4 million available under our revolving senior secured credit facility.

In addition, we expect to generate cash flow from operations in the full year 2023.

We believe that cash flow from operations, availability under our existing credit facilities and arrangements, current cash balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures and debt service obligations.

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.

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

The dividend is payable on December 1, 2022 to shareholders of record as of November 17, 2022.

As of September 30, 2022, we had $2,824.7 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,731.9 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.77 times for the trailing twelve months ended September 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.

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 strategic acquisition opportunities that enhance our global competitiveness.

The Board of Directors declared a dividend of $0.11 per share for the second quarter of 2023.

The dividend is payable on June 6, 2023 to shareholders of record as of May 23, 2023.

As of March 31, 2023, we had $2,862.6 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,772.7 million.

Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.24 times for the trailing twelve months ended March 31, 2023.

We expect our leverage ratio to return to our target range of 2.0 to 3.0 times during 2023.

Our debt service obligations could, under certain circumstances, have material consequences to our stockholders.

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Non-GAAP Financial Information

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 provide information regarding adjusted net income, EBITDA, adjusted EBITDA, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, 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, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance, 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.

The adjustments we make to derive the non-GAAP financial measures include adjustments to exclude items that may cause short-term fluctuations in the nearest GAAP financial measure, but which we do not consider to be the fundamental attributes or primary drivers of our business.

We believe that exclusion of these items assists in providing a more complete understanding of our underlying results from continuing operations and trends, and we use these measures along with the corresponding GAAP financial measures to manage our business, to evaluate our consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes.

We believe that exclusion of these items assists in providing a more complete understanding of our underlying results from operations and trends, and we use these measures along with the corresponding GAAP financial measures to manage our business, to evaluate our consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes.

Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance with GAAP.

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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 September 30, 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 March 31, 2023 and 2022:

Three Months Ended

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

(in millions, except per share amounts) March 31, 2023 March 31, 2022

Net income $ 85.3 $ 130.7

Loss from discontinued operations, net of tax (1)

Restructuring costs and other (1)

ERP system transition (2)

Operational start-up costs (3)

Restructuring costs (4)

Acquisition-related costs (5)

Adjusted income tax provision (4)

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Diluted shares outstanding 176.8 188.5

(1) 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 third quarter of 2022, we recorded $2.7 million of charges related to the transition of our ERP system.

Cost of sales included $2.3 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $0.4 million, primarily related to professional fees.

(3) In the third quarter of 2022, we incurred $1.8 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

Cost of sales and operating expenses included personnel and facility related costs of $1.7 million and $0.1 million, respectively.

(4) In the third quarter of 2022, we recorded $1.2 million of restructuring costs primarily associated with headcount reductions.

(5) In the third quarter of 2021, we recorded $2.3 million of acquisition-related stamp taxes associated with the acquisition of Dreams.

(1) In the first quarter of 2023, we recorded $5.2 million of restructuring costs primarily associated with the acquisition of Mattress Firm.

(2) In the first quarter of 2023, we recorded $3.2 million of charges related to the transition of our ERP system, including labor, logistics, training and travel.

(3) In the first quarter of 2023, we recorded $1.7 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

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

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 September 30, 2022.

Three Months Ended September 30, 2022

The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended March 31, 2023.

Three Months Ended March 31, 2023

(in millions, except percentages) Consolidated

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Operating income (expense) $ 143.3 11.9 % $ 136.0 14.8 % $ 44.2 15.3 % $ (36.9)

Restructuring costs and other (3)

ERP system transition (1)

Operational start-up costs (2)

Restructuring costs (3)

1.2 — 0.6 0.6

Total adjustments 10.1 4.9 — 5.2

Adjusted operating income (expense) $ 153.4 12.7 % $ 140.9 15.3 % $ 44.2 15.3 % $ (31.7)

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 September 30, 2021.

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

Three Months Ended September 30, 2021

(1) In the first quarter of 2023, we recorded $3.2 million of charges related to the transition of our ERP system, including labor, logistics, training and travel.

(2) In the first quarter of 2023, we recorded $1.7 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

(3) In the first quarter of 2023, we recorded $5.2 million of restructuring costs primarily associated with the acquisition of Mattress Firm.

The following table sets forth our reported gross profit and 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

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

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Operating income (expense) $ 188.6 15.2 % $ 155.4 16.7 % $ 66.8 21.7 % $ (33.6)

Acquisition-related costs (4)

Adjusted operating income (expense) $ 252.1 18.6 % $ 237.0 21.2 % $ 52.6 22.1 % $ (37.5)

(1) In the third quarter of 2022, we recorded $2.7 million of charges related to the transition of our ERP system.

Cost of sales included $2.3 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $0.4 million, primarily related to professional fees.

(2) In the third quarter of 2022, we incurred $1.8 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

Cost of sales and operating expenses included personnel and facility related costs of $1.7 million and $0.1 million, respectively.

(3) In the third quarter of 2022, we recorded $1.2 million of restructuring costs primarily associated with headcount reductions.

(4) In the third quarter of 2021, we recorded $2.3 million of acquisition-related stamp taxes associated with 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 September 30, 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 March 31, 2023 and 2022:

Three Months Ended

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

(in millions) March 31, 2023 March 31, 2022

Net income $ 85.3 $ 130.7

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EBITDA $ 187.6 $ 234.5

Loss from discontinued operations, net of tax (1)

Restructuring costs and other (1)

ERP system transition (2)

Operational start-up costs (3)

Restructuring costs (4)

Acquisition-related costs (5)

Adjusted EBITDA $ 197.7 $ 234.5

(1) 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 third quarter of 2022, we recorded $2.7 million of charges related to the transition of our ERP system.

Cost of sales included $2.3 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

Operating expenses included $0.4 million, primarily related to professional fees.

(3) In the third quarter of 2022, we recorded $1.8 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

(4) In the third quarter of 2022, we recorded $1.2 million of restructuring costs primarily associated with headcount reductions.

(5) In the third quarter of 2021, we recorded $2.3 million of acquisition-related stamp taxes associated with the acquisition of Dreams.

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 September 30, 2022:

(1) In the first quarter of 2023, we recorded $5.2 million of restructuring costs primarily associated with the acquisition of Mattress Firm.

(2) In the first quarter of 2023, we recorded $3.2 million of charges related to the transition of our ERP system, including labor, logistics, training and travel.

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, 2023:

Trailing Twelve Months Ended

(in millions) September 30, 2022

(in millions) March 31, 2023

Net income $ 410.3

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ERP system transition (2)

Restructuring costs (3)

Restructuring costs and other (3)

Operational start-up costs (4)

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

(2) In the trailing twelve months ended September 30, 2022, we recognized $12.1 million of charges related to the transition of our ERP system.

(3) In the trailing twelve months ended September 30, 2022, we recognized $5.3 million of restructuring costs primarily associated with headcount reductions.

(4) In the trailing twelve months ended September 30, 2022, we recognized $4.9 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

(2) In the trailing twelve months ended March 31, 2023, we recognized $18.7 million of charges related to the transition of our ERP system, including labor, logistics, training and travel.

(3) In the trailing twelve months ended March 31, 2023, we recognized $15.2 million of restructuring costs primarily associated with the acquisition of Mattress Firm and headcount reductions related to organizational changes.

(4) In the trailing twelve months ended March 31, 2023, we recognized $8.2 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S., including personnel and facility related costs.

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 September 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 2.77 times for the trailing twelve months ended September 30, 2022.

For the trailing twelve months ended March 31, 2023, 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 3.24 times for the trailing twelve months ended March 31, 2023.

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

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

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, 2023.

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

(in millions) September 30, 2022

(in millions) March 31, 2023

Total debt, net $ 2,843.0

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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