TEMPUR SEALY INTERNATIONAL, INC.

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TEMPUR SEALY INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/05/2022 | 04:07pm EDT
The following discussion and analysis should be read in conjunction with the
2021 Annual Report, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in ITEM 7 of Part II of the 2021
Annual Report, and the accompanying Condensed Consolidated Financial Statements
and notes thereto included in this Report. Unless otherwise noted, all of the
financial information in this Report is consolidated financial information for
the Company. The forward-looking statements in this discussion regarding the
mattress and pillow industries, our expectations regarding our future
performance, liquidity and capital resources and other non-historical statements
in this discussion are subject to numerous risks and uncertainties. See "Special
Note Regarding Forward-Looking Statements" elsewhere in this Report, in the 2021
Annual Report and the section titled "Risk Factors" contained in ITEM 1A of Part
I of the 2021 Annual Report. 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:


•an overview of our business and strategy,
•results of operations, including our net sales and costs in the periods
presented as well as changes between periods;
•expected sources of liquidity for future operations; and
•our use of certain non-GAAP financial measures.

Business Overview

General

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. 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.


We operate in two segments: North America and International. These segments are
strategic business units that are managed separately based on geography. Our
North America segment consists of manufacturing and distribution subsidiaries,
joint ventures and licensees located in the U.S., Canada and Mexico. 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. 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.

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. We distribute
through two channels in each operating business segment: Wholesale and Direct.
Our Wholesale channel consists of third-party retailers, including third-party
distribution, hospitality and healthcare. Our Direct channel includes
company-owned stores, online and call centers.

General Business and Economic Conditions


We believe the bedding industry is structured for sustained growth, driven by
product innovation, sleep technology advancements, consumer confidence, housing
formations and population growth. The industry is no longer engaged in
uneconomical retail store expansion, startups have shifted from uneconomical
strategies to becoming profitable and legacy retailers and manufacturers have
become skilled in producing profitable online sales.

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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In the near term, there are various macro-economic factors impacting the
business. 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. Also, U.S. 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 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.

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.

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 PlusTM, 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. 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.

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.

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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.

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. These
references to constant currency basis do not include operational impacts that
could result from fluctuations in foreign currency rates. To provide information
on a constant currency basis, the applicable financial results are adjusted
based on a simple mathematical model that translates current period results in
local currency using the comparable prior corresponding period's currency
conversion rate. This approach is used for countries where the functional
currency is the local country currency. This information is provided so that
certain financial results can be viewed without the impact of fluctuations in
foreign currency rates, thereby facilitating period-to-period comparisons of
business performance. Constant currency information is not recognized under
GAAP, and it is not intended as an alternative to GAAP measures. Refer to Part
I, ITEM 3 of this Report for a discussion of our foreign currency exchange rate
risk.

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               THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE
                       THREE MONTHS ENDED MARCH 31, 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,
(in millions, except percentages and per share
amounts)                                                       2022                                      2021
Net sales                                      $      1,239.5               100.0  %       $ 1,043.8               100.0  %
Cost of sales                                           716.7                57.8              584.9                56.0
Gross profit                                            522.8                42.2              458.9                44.0
Selling and marketing expenses                          243.5                19.6              197.7                18.9
General, administrative and other expenses               97.6                 7.9               79.5                 7.6

Equity income in earnings of unconsolidated
affiliates                                               (6.9)               (0.6)              (6.7)               (0.6)
Operating income                                        188.6                15.2              188.4                18.0

Other expense, net:
Interest expense, net                                    20.9                 1.7               12.3                 1.2

Loss on extinguishment of debt                              -                   -                5.0                 0.5
Other income, net                                        (1.3)               (0.1)              (0.3)                  -
Total other expense, net                                 19.6                 1.6               17.0                 1.6

Income from continuing operations before
income taxes                                            169.0                13.6              171.4                16.4
Income tax provision                                    (38.1)               (3.1)             (40.5)               (3.9)
Income from continuing operations                       130.9                10.5              130.9                12.5
Loss from discontinued operations, net of tax               -                   -               (0.2)                  -
Net income before non-controlling interests             130.9                10.5              130.7                12.5
Less: Net income attributable to
non-controlling interests                                 0.2                   -                0.2                   -
Net income attributable to Tempur Sealy
International, Inc.                            $        130.7                10.5  %       $   130.5                12.5  %

Earnings per common share:

Basic
Earnings per share for continuing operations   $         0.72                              $    0.64
Loss per share for discontinued operations                  -                                      -
Earnings per share                             $         0.72                              $    0.64

Diluted
Earnings per share for continuing operations   $         0.69                              $    0.62
Loss per share for discontinued operations                  -                                      -
Earnings per share                             $         0.69                              $    0.62

Weighted average common shares outstanding:
Basic                                                   182.6                                  203.7
Diluted                                                 188.5                                  210.1



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                                   NET SALES
                                                       Three Months Ended March 31,
                                 2022           2021          2022         2021         2022         2021
      (in millions)                  Consolidated               North America             International

Net sales by channel

      Wholesale               $   924.1      $   881.4      $ 811.3      $ 765.5      $ 112.8      $ 115.9
      Direct                      315.4          162.4        120.1        117.8        195.3         44.6
      Total net sales         $ 1,239.5      $ 1,043.8      $ 931.4      $ 883.3      $ 308.1      $ 160.5


Net sales increased 18.7%, and on a constant currency basis increased 19.8%. 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.

•International net sales increased $147.6 million, or 92.0%. On a constant
currency basis, International net sales increased 98.6%. Net sales in the
Wholesale channel increased 3.7% on a constant currency basis. Net sales in the
Direct channel increased 345.3% on a constant currency basis, primarily driven
by the acquisition of Dreams in August 2021.


                                  GROSS PROFIT
                                                                      Three Months Ended March 31,
                                                            2022                                        2021
(in millions, except percentages)             Gross Profit          Gross Margin          Gross Profit          Gross Margin        Margin Change
North America                               $       352.4                 37.8  %       $       363.9                 41.2  %              (3.4) %
International                                       170.4                 55.3  %                95.0                 59.2  %              (3.9) %
Consolidated gross margin                   $       522.8                 42.2  %       $       458.9                 44.0  %              (1.8) %



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.

Our gross margin is primarily impacted by the relative amount of net sales contributed by our premium or value products. Our value products have a significantly lower gross margin than our premium products. If sales of our value priced products increase relative to sales of our premium priced products, our gross margins will be negatively impacted in both our North America and International segments.


Our gross margin is also impacted by fixed cost leverage based on manufacturing
unit volumes; the cost of raw materials; operational efficiencies due to the
utilization in our manufacturing facilities; product, brand, channel and country
mix; foreign exchange fluctuations; volume incentives offered to certain retail
accounts; participation in our retail cooperative advertising programs; and
costs associated with new product introductions. Future changes in raw material
prices could have a significant impact on our gross margin. Our margins are also
impacted by the growth in our Wholesale channel as sales in our Wholesale
channel are at wholesale prices whereas sales in our Direct channel are at
retail prices.

Gross margin declined 180 basis points. The primary drivers of changes in gross margin by segment are discussed below:


•North America gross margin declined 340 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. 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.

•International gross margin declined 390 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.
Dreams' margin profile is lower than our historical international margins as
they sell a variety of products across a range of price 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.

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,

                                  2022             2021             2022             2021             2022            2021            2022            2021
(in millions)                         Consolidated                      North America                    International                      Corporate
Operating expenses:
Advertising expenses           $ 103.2          $  90.9          $  80.9          $  79.4          $  22.3          $ 11.5          $    -          $    -
Other selling and marketing
expenses                         140.3            106.8             72.4             68.8             63.0            31.6             4.9             

6.4

General, administrative and
other expenses                    97.6             79.5             43.7             42.3             25.2            12.4            28.7            

24.8

Total operating expenses $ 341.1 $ 277.2 $ 197.0

      $ 190.5          $ 110.5          $ 55.5          $ 33.6          $ 31.2



Operating expenses increased $63.9 million, or 23.1%, and increased 90 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 $6.5 million, or 3.4%, and decreased
40 basis points as a percentage of net sales. The increase in operating expenses
was primarily driven by advertising and other selling and marketing investments.

•International operating expenses increased $55.0 million, or 99.1%, and increased 130 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%.

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                                OPERATING INCOME
                                                                        Three Months Ended March 31,
                                                              2022                                          2021
                                                                                             Operating
(in millions, except percentages)           Operating Income       Operating Margin            Income           Operating Margin        Margin Change
North America                               $       155.4                    16.7  %       $     173.4                    19.6  %              (2.9) %
International                                        66.8                    21.7  %              46.2                    28.8  %              (7.1) %
                                                    222.2                                        219.6
Corporate expenses                                  (33.6)                                       (31.2)
Total operating income                      $       188.6                    15.2  %       $     188.4                    18.0  %              (2.8) %



Operating income increased $0.2 million and operating margin declined 280 basis
points. The primary drivers of changes in operating income and operating margin
by segment are discussed below:

•North America operating income decreased $18.0 million and operating margin
declined 290 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.

•International operating income increased $20.6 million and operating margin
declined 710 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.

                             INTEREST EXPENSE, NET
                                                    Three Months Ended March 31,
  (in millions, except percentages)                2022                    2021       % Change
  Interest expense, net               $         20.9                     $ 12.3         69.9  %


Interest expense, net, increased $8.6 million, or 69.9%. The increase in interest expense, net, was primarily driven by increased average levels of outstanding debt.


                              INCOME TAX PROVISION
                                                    Three Months Ended 

March 31,

  (in millions, except percentages)         2022                         2021        % Change
  Income tax provision                $       38.1                     $ 40.5          (5.9) %
  Effective tax rate                          22.5   %                   23.6  %


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 $2.4 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.
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. 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.

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Liquidity and Capital Resources

Liquidity


Our principal sources of funds are cash flows from operations, supplemented with
borrowings in the capital markets and made pursuant to our credit facilities and
cash and cash equivalents on hand. 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. and $86.4 million was held by subsidiaries
outside of the U.S. The amount of cash and cash equivalents held by subsidiaries
outside of the U.S. and not readily convertible into the U.S. 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:
                                                                        Three Months Ended March 31,
(in millions)                                                             2022                  2021
Net cash provided by (used in) continuing operations:
Operating activities                                               $          85.6          $     86.3
Investing activities                                                         (59.3)              (24.4)
Financing activities                                                        (204.8)              168.9



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. 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 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.

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.

Indebtedness

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. 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. 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.


Our debt agreements contain certain covenants that limit restricted payments,
including share repurchases and dividends. The 2019 Credit Agreement, 2029
Senior Notes and 2031 Senior Notes contain similar limitations which, subject to
other conditions, allow unlimited restricted payments at times when the ratio of
consolidated indebtedness less netted cash to adjusted EBITDA, which is a
non-GAAP financial measure, remains below 3.50 times. In addition, these
agreements permit limited restricted payments under certain conditions when the
ratio of consolidated indebtedness less netted cash to adjusted EBITDA is above
3.50 times. The limit on restricted payments under the 2019 Credit Agreement,
2029 Senior Notes and 2031 Senior Notes is in part determined by a basket that
grows at 50% of adjusted net income each quarter, reduced by restricted payments
that are not otherwise permitted.

For additional information, refer to "Non-GAAP Financial Information" below for
the calculation of the ratio of consolidated indebtedness less netted cash to
adjusted EBITDA calculated in accordance with the 2019 Credit Agreement. Both
consolidated indebtedness and adjusted EBITDA as used in discussion of the 2019
Credit Agreement are non-GAAP financial measures and do not purport to be
alternatives to net income as a measure of operating performance or total debt.

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
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.

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. These repurchases may be funded by operating cash
flows and/or borrowings under our debt arrangements. The timing and actual
number of shares repurchased will depend on a variety of factors including
price, financing and regulatory requirements and other market conditions. The
program is subject to certain limitations under our debt agreements. The program
does not require the purchase of any minimum number of shares and may be
suspended, modified or discontinued at any time without prior notice.
Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to
be repurchased when we might otherwise be precluded from doing so under federal
securities laws.

We will manage our share repurchase program based on current and expected cash
flows, share price and alternative investment opportunities. 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 2021 Annual Report. Please also
refer to "Issuer Purchases of Equity Securities" in ITEM 2(c) of Part II of this
Report.

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. In addition, we expect to generate cash flow from
operations in the full year 2022. 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 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. 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 debt service obligations could, under certain circumstances, have material
consequences to our stockholders. Similarly, our cash requirements are subject
to change as business conditions warrant and opportunities arise. The timing and
size of any new business ventures or acquisitions that we may complete may also
impact our cash requirements and debt service obligations. For information
regarding the impact of COVID-19 on our business, including our liquidity and
capital resources, please refer to "Risk Factors" contained in ITEM 1A of Part I
of the 2021 Annual Report.

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 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. 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. These non-GAAP financial measures
should be considered supplemental in nature and should not be construed as more
significant than comparable financial measures defined by GAAP. Because not all
companies use identical calculations, these presentations may not be comparable
to other similarly titled measures of other companies. For more information
about these non-GAAP financial measures and a reconciliation to the nearest GAAP
financial measure, please refer to the reconciliations on the following pages.

Adjusted Net Income and Adjusted EPS


A reconciliation of reported net income to adjusted net income and the
calculation of adjusted EPS is provided below. 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.

                                       25
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  Table of Contents
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:
                                                               Three Months 

Ended

(in millions, except per share amounts)                March 31, 2022      March 31, 2021
Net income                                            $    130.7          $ 

130.5

Loss from discontinued operations, net of tax (1)              -            

0.2

Loss on extinguishment of debt (2)                             -                     5.0
Tax adjustments (3)                                            -                    (1.1)
Adjusted net income                                   $    130.7          $        134.6

Adjusted earnings per share, diluted                  $     0.69          $ 

0.64


Diluted shares outstanding                                 188.5                   210.1


(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 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.

(3) Adjusted income tax provision represents the tax effects associated with the

aforementioned items.

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