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What changed in SOMNIGROUP INTERNATIONAL INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SOMNIGROUP INTERNATIONAL INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+278 added−270 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-17)

Top changes in SOMNIGROUP INTERNATIONAL INC.'s 2023 10-K

278 paragraphs added · 270 removed · 201 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+10 added−11 removed34 unchanged
Biggest changeIn 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. This new line of products will 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.
Biggest changeThis new line of products will 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. Omni-Channel Distribution Our primary selling channels are Wholesale and Direct. These channels align to the operating margin characteristics of our business and our marketplace.
The following are some of the actions that we take to realize our commitment to equal opportunity employment: • Promote the consideration of a diverse slate of qualified candidates during the hiring process • Employ a uniform, global process for determining compensation based on experience and skill sets to remove potential biases • Conduct outreach with organizations in each of our local communities to increase the flow of minority, female, veteran and disabled applicants for employment • Analyze gender and minority pay equity regularly and adjust as warranted • Participate in external, community-based activities sponsored by local organizations, including those that assist women, minorities and veterans As part of ongoing efforts to provide transparency regarding initiatives to promote, track and measure our diversity, equity and inclusion efforts within our employee population, we disclosed additional metrics in our 2023 Corporate Social Values Report located on the Tempur Sealy Investor website at http://investor.tempursealy.com.
The following are some of the actions that we take to realize our commitment to equal opportunity employment: • Promote the consideration of a diverse slate of qualified candidates during the hiring process • Employ a uniform, global process for determining compensation based on experience and skill sets to remove potential biases • Conduct outreach with organizations in each of our local communities to increase the flow of minority, female, veteran and disabled applicants for employment • Analyze gender and minority pay equity regularly and adjust as warranted • Participate in external, community-based activities sponsored by local organizations, including those that assist women, minorities and veterans As part of ongoing efforts to provide transparency regarding initiatives to promote, track and measure our diversity, equity and inclusion efforts within our employee population, we disclosed additional metrics in our 2024 Corporate Social Values Report located on the Tempur Sealy Investor website at http://investor.tempursealy.com.
The Sealy Posturepedic® brand, introduced in 1950, was engineered to provide all-over support and body alignment to allow full relaxation and deliver a comfortable night's sleep. Sealy was voted America's most-trusted mattress brand by American shoppers in the 2021 American Brand Trust Study. Sealy is also the #1 best-selling mattress brand according to Furniture Today's 2021 Top 20 U.S.
The Sealy Posturepedic® brand, introduced in 1950, was engineered to provide all-over support and body alignment to allow full relaxation and deliver a comfortable night's sleep. Sealy was voted America's most-trusted mattress brand by American shoppers in the 2021 American Brand Trust Study. Sealy was also the #1 best-selling mattress brand according to Furniture Today's 2021 Top 20 U.S.
Sleep Outfitters is a specialty mattress retailer that serves consumers across a wide range of price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products. • Sleep Solutions Outlet TM - Sleep Solutions Outlet stores serve as a channel of high-quality comfort returns, as well as discontinued or factory close-out mattresses and bases.
Sleep Outfitters is a specialty mattress retailer that serves consumers across a wide range of price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products. • Sleep Solutions Outlet ® - Sleep Solutions Outlet stores serve as a channel of high-quality comfort returns, as well as discontinued or factory close-out mattresses and bases.
The addition of non-branded offerings expands our capabilities to service third-party retailers to capture manufacturing profits from bedding brands outside our own. Our portfolio of retail brands includes Tempur-Pedic® retail stores, Sleep Outfitters®, Sleep Solutions Outlet TM , Dreams®, SOVA and a variety of other retail brands internationally, which operate in various countries.
The addition of non-branded offerings expands our capabilities to service third-party retailers to capture manufacturing profits from bedding brands outside our own. Our portfolio of retail brands includes Tempur-Pedic® retail stores, Sleep Outfitters®, Sleep Solutions Outlet®, Dreams®, SOVA and a variety of other retail brands internationally, which operate in various countries.
Raw materials for Sealy® and non-branded products consist mainly of polyethylene foam, textiles and steel innerspring components that we purchase from various suppliers. In the U.S. and Canada, we source the majority of our requirements for polyurethane foam components and spring components for our Sealy and Stearns & Foster mattress units from key suppliers for each component.
Raw materials for Sealy® and non-branded products consist mainly of polyurethane foam, textiles and steel innerspring components that we purchase from various suppliers. In the U.S. and Canada, we source the majority of our requirements for polyurethane foam components and spring components for our Sealy and Stearns & Foster mattress units from key suppliers for each component.
Our distinct brands allow for complementary merchandising strategies at a range of price points. Our powerful 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 have a global manufacturing footprint with approximately 12,000 employees around the world.
Our distinct brands allow for complementary merchandising strategies at a range of price points. Our powerful distribution model operates through an omni-channel strategy. Our products are sold through third-party retailers, our more than 750 company-owned stores and our e-commerce platforms. We have a global manufacturing footprint with approximately 12,000 employees around the world.
For consumers that prefer to purchase directly from the manufacturer and are seeking a more personalized and educational sales experience, we have over 700 retail stores worldwide, including our retail stores owned through our international joint venture operations.
For consumers that prefer to purchase directly from the manufacturer and are seeking a more personalized and educational sales experience, we have over 750 retail stores worldwide, including our retail stores owned through our international joint venture operations.
Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. 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.
Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. These segments are strategic business units that are managed separately based on geography. Our North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico.
We derive income from royalties by licensing Sealy®, Stearns & Foster® and Tempur® brands, technology and trademarks to other manufacturers. Under the license arrangements, licensees have the right to use certain trademarks and current proprietary and/or patented technology. We also provide our licensees with product specifications, research and development, statistical services and marketing programs.
We derive income from royalties by licensing Sealy®, Stearns & Foster® and Tempur® brands, technology and trademarks to other manufacturers. Under the license arrangements, licensees have the right to use certain trademarks and current proprietary and/or patented technology in designated jurisdictions. We also provide our licensees with product specifications, research and development, statistical services and marketing programs.
We also routinely introduce new mattress models, launch new products and update our existing mattress products in each of our segments. In order to achieve our goal to improve the sleep of more people, every night, all around the world, one of our strategic initiatives is to leverage and strengthen our comprehensive portfolio of iconic brands and products.
We also routinely introduce new mattress models, launch new products and update our existing mattress products in each of our segments. 4 Table of Contents In order to achieve our goal to improve the sleep of more people, every night, all around the world, one of our strategic initiatives is to leverage and strengthen our comprehensive portfolio of iconic brands and products.
There are a limited number of stores across the U.S. that sell these products, which reduces our disposal costs, and helps reduce the volume of products disposed of via landfill, thereby favorably impacting the environment. 5 Table of Contents • Dreams ® - Dreams is the leading specialty bedding retailer in the United Kingdom ("U.K.").
There are a limited number of stores across the U.S. that sell these products, which reduces our disposal costs, and helps reduce the volume of products disposed of via landfill, thereby favorably impacting the environment. • Dreams ® - Dreams is the leading specialty bedding retailer in the United Kingdom ("U.K.").
For customers that prefer the convenience of making purchases online and having their bedding products delivered right to their front door, we have evolved our distribution model to include multiple online options to reach those that want to purchase our products without the need to go into a brick-and-mortar store.
For customers that prefer the convenience of making purchases online and having their bedding products delivered right to their front door, we have evolved our distribution model to include multiple online options to reach those that want to 6 Table of Contents purchase our products without the need to go into a brick-and-mortar store.
We also purchase a significant portion of our Sealy foundation parts from third-party sources. 7 Table of Contents Additionally, we source our adjustable bed bases and foundations from third-party manufacturers. These are purchased under supply agreements from a limited number of key suppliers. These products are dependent on components supply chains originating in China.
We also purchase a significant portion of our Sealy foundation parts from third-party sources. Additionally, we source our adjustable bed bases and foundations from third-party manufacturers. These are purchased under supply agreements from a limited number of key suppliers. These products are dependent on components supply chains originating in China.
We believe over time that sufficient alternate sources of supply for the same or similar products will be available outside of China from our current or alternate suppliers.
We believe over time that sufficient alternate sources of supply for the same or similar components will be available outside of China from our current or alternate suppliers.
This approach gives employees the opportunity to develop their skills through a combination of job experience (70%), mentoring (20%) and formal training (10%). Training at Tempur Sealy includes, but is not limited to, formal training programs, leadership development mentorships, professional and industry conferences, and education assistance.
We use the 70/20/10 learning and development model. This approach gives employees the opportunity to develop their skills through a combination of job experience (70%), mentoring (20%) and formal training (10%). Training at Tempur Sealy includes, but is not limited to, formal training programs, leadership development mentorships, professional and industry conferences, and education assistance.
Our website and its contents are not incorporated by reference into this Report. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our website and its contents are not incorporated by reference into this Report. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The website of the SEC is www.sec.gov.
As of December 31, 2022, we had 98 Tempur-Pedic® retail stores throughout the U.S. that provide a low-pressure environment to explore the comprehensive line up of our Tempur-Pedic® products. Each showroom features knowledgeable, non-commissioned Brand Ambassadors who educate potential customers on Tempur-Pedic® products in a relaxed, comfortable environment.
As of December 31, 2023, we had over 100 Tempur-Pedic® retail stores throughout the U.S. that provide a low-pressure environment to explore the comprehensive line up of our Tempur-Pedic® products. Each showroom features knowledgeable Brand Ambassadors who educate potential customers on Tempur-Pedic® products in a relaxed, comfortable environment.
The PIPL is widely considered one of the strictest data privacy laws in the world, with significant restrictions placed on businesses transferring personal information outside of China or use without separate citizen consent.
The PIPL is widely considered one of the strictest personal data protection laws in the world, with significant restrictions placed on the transfer of personal information outside of China or use without separate citizen consent.
Our proprietary Tempur material precisely adapts to the shape, weight and temperature of the consumer and creates fewer pressure points, reduces motion transfer and provides personalized comfort and support. Tempur-Pedic was awarded #1 in Customer Satisfaction for the retail mattress segment in the J.D. Power 2022 Mattress Satisfaction Report for the fourth year in a row.
Our proprietary Tempur material precisely adapts to the shape, weight and temperature of the consumer and creates fewer pressure points, reduces motion transfer and provides personalized comfort and support. Tempur-Pedic was awarded #1 in Customer Satisfaction for the online mattress segment in the J.D. Power 2023 Mattress Satisfaction Report.
Our website and the 2023 Corporate Social Values Report are not incorporated by reference into this Report. People Development and Training Our goal is to design and offer development opportunities that improve Company performance and meet employees' individual learning and development needs and ultimately strengthen our culture by reinforcing Company values. We use the 70/20/10 learning and development model.
Our website and the 2024 Corporate Social Values Report are not incorporated by reference into this Report. 10 Table of Contents People Development and Training Our goal is to design and offer development opportunities that improve Company performance and meet employees' individual learning and development needs and ultimately strengthen our culture by reinforcing Company values.
In the U.S., we are subject to federal, state and local laws and regulations relating to environmental health and safety, including the Federal Water Pollution Control Act, the Clean Air Act and the Resource, Conservation and Recovery Act. We believe that we are in compliance with all applicable international, federal, state and local environmental statutes and regulations.
In the U.S., we are subject to federal, state and local laws and regulations relating to environmental health and safety, including the Federal Water Pollution Control Act, the Clean Air Act and the Resource, Conservation and Recovery Act.
The website of the SEC is www.sec.gov. 4 Table of Contents Our Products and Brands We have a comprehensive offering of products that appeal to a broad range of consumers, some of which are covered by one or more patents and/or patent applications.
Our Products and Brands We have a comprehensive offering of products that appeal to a broad range of consumers, some of which are covered by one or more patents and/or patent applications.
Industry and Competition We compete in the global bedding industry. The bedding industry is comprised of mattresses and foundations, pillows and accessories. The mattress category is comprised of traditional innerspring mattresses and non-innerspring mattresses, which includes visco-elastic and foam mattresses, innerspring/foam hybrid mattresses, airbeds and latex mattresses. The foundation category is comprised of traditional foundations and adjustable foundations.
The mattress category is comprised of traditional innerspring mattresses and non-innerspring mattresses, which includes visco-elastic and foam mattresses, innerspring/foam hybrid mattresses, airbeds and latex mattresses. The foundation category is comprised of traditional foundations and adjustable foundations.
The Direct channel growth rate has surpassed the Wholesale growth rate over the last few years, and we anticipate the Direct channel will continue to grow as a percentage of net sales in future years.
Our Direct channel includes company-owned stores, online and call centers and represented 23.9% of net sales in 2023. The Direct channel growth rate has surpassed the Wholesale growth rate over the last few years, and we anticipate the Direct channel will continue to grow as a percentage of net sales in future years.
For the year ended December 31, 2022, our licensing activities as a whole generated royalties of approximately $31.8 million. Governmental Regulation Our operations are subject to international, federal, state and local consumer protection and other regulations, primarily relating to the mattress and pillow industry. These regulations vary among the states, countries and localities in which we do business.
For the year ended December 31, 2023, our licensing activities as a whole generated royalties of approximately $32.3 million. 8 Table of Contents Governmental Regulation Our operations are subject to international, federal, state and local consumer protection and other regulations, primarily relating to the mattress and pillow industry.
As a multi-branded retailer, Dreams sells a variety of products across a range of price points. In addition to operating over 200 brick-and-mortar stores and an e-commerce channel throughout the U.K., Dreams also manufacturers the majority of the bedding products it sells in-house. • SOVA - SOVA is a highly respected and well-established premium bedding chain in Sweden.
In addition to operating over 200 brick-and-mortar stores and an e-commerce channel throughout the U.K., Dreams also manufacturers the majority of the bedding products it sells in-house. 5 Table of Contents • SOVA - SOVA is a highly respected and well-established premium bedding chain in Sweden. Our stores are connected to the urban areas of Stockholm, Gothenburg and Malmö.
Several U.S. states have also recently introduced legislation offering similar protections to resident citizens to that provided under the GDPR, such as the California Privacy Rights Act ("CPRA") (which amends the California Consumer Privacy Act ("CCPA")), the Virginia Consumer Data Protection Act ("VCDPA"), the Colorado Privacy Act ("CPA"), the Connecticut Data Privacy Act ("CTDPA") and the Utah Consumer Privacy Act (“UCPA”) (together the "U.S. state privacy laws").
In recent years, several U.S. states have adopted legislation offering similar protections for resident citizens, such as the California Privacy Rights Act (which amends the California Consumer Privacy Act ("CCPA")), the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Act and the Utah Consumer Privacy Act (together the "U.S. state privacy laws").
We are not aware of any pending federal environmental legislation that would have a material impact on our operations, and have not been required to make, and do not expect to make, any material capital expenditures for environmental control facilities in the foreseeable future. 9 Table of Contents In connection with sales of our products and operation of our business, we collect and process personal data from our customers and employees.
We are not aware of any pending international or federal environmental legislation that would have a material impact on our operations, and have not been required to make, and do not expect to make, any material capital expenditures for environmental control facilities or other regulatory requirements in the foreseeable future.
Going forward, we expect our strategy for opening additional locations of Tempur-Pedic® retail stores to remain consistent with our previous expansion approach. In addition to our high-end Tempur-Pedic® retail stores, we operate Sleep Outfitters®, a regional bedding retailer that had 107 stores in 2022.
Going forward, we expect our strategy for opening additional locations of Tempur-Pedic® retail stores to continue targeting high traffic, premium locations that complement our existing distribution. In addition to our high-end Tempur-Pedic® retail stores, we operate Sleep Outfitters®, a regional bedding retailer that had over 100 stores in 2023.
As such, we are subject to certain laws and regulations relating to information technology security and personal data protection and privacy. For example, in 2018, the European Union ("EU") adopted the General Data Protection Regulation ("GDPR").
In connection with sales of our products and operation of our business, we collect and process personal data from our customers and employees. As such, we are subject to certain laws and regulations relating to IT security and personal data protection and privacy. For example, the European Union ("EU") adopted the General Data Protection Regulation ("GDPR").
For example, in 2021, the People's Republic of China recently consolidated its existing data privacy laws into one overarching regime with the introduction of the Personal Information Protection Law ("PIPL").
In the Asia-Pacific region, several data privacy laws regulate the processing of personal data of resident citizens and compliance requirements vary widely. For example, the People's Republic of China consolidated its data privacy laws into one overarching regime with the introduction of the Personal Information Protection Law ("PIPL").
The GDPR imposed a new and expanded set of ongoing compliance requirements on companies, including us, that process personal data from citizens living in the EU. In addition, there are country-specific data privacy laws in Europe which tend to follow the principles laid out in the GDPR, but in some cases, impose additional requirements on data controllers.
The GDPR imposed ongoing compliance requirements on companies, including us, that process personal data from citizens resident in the EU. In addition, there are country-specific data privacy laws in Europe that impose additional requirements on data controllers and several of these laws are more stringent than the GDPR.
We believe that sound ESG practices can help identify, manage and mitigate risks while contributing to the financial success of our business.
Executive officers are held accountable for the Company's ESG performance through the Company's performance-based long-term equity incentive plan. We believe that sound ESG practices can help identify, manage and mitigate risks while contributing to the financial success of our business.
Environmental, Social and Corporate Governance ("ESG") We recognize that as a corporate citizen we have a responsibility to protect our communities and environment. Our executive leadership and board members believe that our success as an organization must be inclusive of our impact on our communities, employees, customers and environment.
Our executive leadership and board members believe that our success as an organization must be inclusive of our impact on our communities, employees, customers and environment. The Nominating and Corporate Governance Committee of our Board of Directors oversees our practices and positions relating to ESG issues.
Our stores are connected to the urban areas of Stockholm, Gothenburg and Malmö. The assortment primarily focuses on premium to ultra-premium brands and well trained sales staff targeting to sell quality beds with a very high average selling price.
The assortment primarily focuses on premium to ultra-premium brands and well trained sales staff targeting to sell quality beds with a very high average selling price. In 2024, we are launching a new portfolio of Tempur-Pedic® Adapt mattresses in our North America segment.
Research and Development We have four research and development centers, three in the U.S. and one in Denmark, that conduct technology and product development. Additionally, we have a product testing facility that conducts hundreds of consumer tests annually. We believe our consumer-research driven approach to innovation results in best-in-class products that benefit the consumer.
Additionally, we have a product testing facility that conducts hundreds of consumer tests annually. We believe our consumer-research driven approach to innovation results in best-in-class products that benefit the consumer. Industry and Competition We compete in the global bedding industry. The bedding industry is comprised of mattresses and foundations, pillows and accessories.
These U.S. state privacy laws grant consumers certain rights related to their personal information, such as access to and deletion of their personal information, placing strict data collection requirements on businesses, including ours. In the Asia-Pacific region, several data privacy laws regulate the processing of personal data of resident citizens and compliance requirements vary widely.
Several other states have recently introduced similar state privacy laws. These U.S. state privacy laws grant consumers new rights over their personal information, such as access to and deletion of their personal information, placing strict data collection requirements on businesses, including ours.
We also operate Dreams®, which has developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the U.K., an industry-leading online channel, as well as manufacturing and delivery assets. 6 Table of Contents Our third-party retailers, Tempur-Pedic® retail stores, Dreams® and Sleep Outfitters®, and our other company-owned store concepts reach the vast majority of consumers who still prefer to touch and feel a mattress and speak to a retail sales associate prior to making a purchase decision.
Our third-party retailers, Tempur-Pedic® retail stores, Dreams® and Sleep Outfitters®, and our other company-owned store concepts reach the vast majority of consumers who still prefer to touch and feel a mattress and speak to a retail sales associate prior to making a purchase decision.
We are continuing to expand our Direct channel to strengthen our distribution footprint and provide alternatives to allow the customer to shop on their preferred terms - whether online or in-store. Our Direct channel includes company-owned stores, online and call centers and represented 23.3% of net sales in 2022.
In 2023, we continued to drive this initiative, as we increased the number of wholesale doors retailing our products and expanded our company-owned store footprint around the world. We are continuing to expand our Direct channel to strengthen our distribution footprint and provide alternatives to allow the customer to shop on their preferred terms - whether online or in-store.
Suppliers We obtain the raw materials used to produce our pressure-relieving Tempur® material and components used in the manufacture of Tempur-Pedic® products from third-party sources. We currently acquire chemicals and proprietary additives for Tempur-Pedic® products as well as other components such as textiles from a number of suppliers with manufacturing locations around the world.
For a list of our principal manufacturing and distribution facilities, please refer to ITEM 2, "Properties". Suppliers We obtain the raw materials used to produce our pressure-relieving Tempur® material and components used in the manufacture of Tempur-Pedic® products from third-party sources.
We have implemented a global compliance system, appointed dedicated resources and have put reasonable measures in place to facilitate adherence to the continuing compliance requirements of applicable worldwide data privacy laws such as the GDPR, CPRA, CCPA, VCDPA, CPA, CTDPA, UCPA and PIPL.
In response, we have implemented a global compliance system, appointed dedicated resources and have put measures in place to facilitate adherence to the continuing compliance requirements of applicable worldwide data privacy laws. Environmental, Social and Corporate Governance ("ESG") We recognize that as a corporate citizen we have a responsibility to protect our communities and environment.
Intellectual Property Patents, Trademarks and Licensing We hold U.S. and foreign patents and patent applications regarding certain elements of the design and function of many of our mattress and pillow products. 8 Table of Contents As of December 31, 2022, we held hundreds of trademark registrations worldwide, which we believe have significant value and are important to the marketing of our products to retailers.
Intellectual Property Patents, Trademarks and Licensing We hold U.S. and foreign patents and patent applications regarding certain elements of the design and function of many of our mattress and pillow products.
Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturpedic® and Stearns & Foster® are our trademarks registered with the U.S. Patent and Trademark Office, as are many other of our registered trademarks and pending applications. Each U.S. trademark registration is renewable indefinitely as long as the trademark remains in use.
Patent and Trademark Office, as are many other of our registered trademarks and pending applications. Each U.S. trademark registration is renewable indefinitely as long as the trademark remains in use. We also own numerous trademarks, trade names, service marks, logos and design marks in the U.S. and a number of other countries, including Dreams and SOVA.
The regulations generally impose requirements as to the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as "new" or otherwise, controls as to hygiene and other aspects of product handling and sale and penalties for violations. The U.S. Consumer Product Safety Commission (“CPSC”) has adopted rules relating to fire retardancy standards for the mattress industry.
These regulations vary among the states, countries and localities in which we do business. The regulations generally impose requirements as to the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as "new" or otherwise, controls as to chemical and other substances, hygiene and other aspects of product safety, handling, marketing and sale and penalties for violations.
For further information regarding the loss of suppliers and disruptions in the supply of our raw materials and components on the Company, please refer to "Risk Factors" in ITEM 1A of Part I of this Report. The rapid increase in demand experienced in 2021 for bedding products challenged the entire bedding industry and supply chain, including our business.
For further information regarding the loss of suppliers and disruptions in the supply of our raw materials and components on the Company, please refer to "Risk Factors" in ITEM 1A of Part I of this Report. 7 Table of Contents Research and Development We have four research and development centers, three in the U.S. and one in Denmark, that conduct technology and product development.
These supplier relationships may be modified in order to maintain quality, cost and delivery expectations. All critical components are purchased under supply agreements.
We currently acquire chemicals and proprietary additives for Tempur-Pedic® products as well as other components such as textiles from a number of suppliers with manufacturing locations around the world. These supplier relationships may be modified in order to maintain quality, cost and delivery expectations. All critical components are purchased under supply agreements.
Many foreign jurisdictions also regulate fire retardancy standards. Future changes to these standards may require modifications to our products to comply with such changes. We are also subject to environmental and health and safety requirements with regard to the manufacture of our products and the conduct of our operations and facilities.
The U.S. Consumer Product Safety Commission ("CPSC") has adopted rules relating to fire retardancy standards for the mattress industry. Many foreign jurisdictions also regulate fire retardancy standards. Future changes to these standards may require modifications to our products to comply with such changes.
Sleep Outfitters is a specialty mattress retailer that serves consumers across all price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products.
Sleep Outfitters is a specialty mattress retailer that serves consumers across all price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products. We also operate Dreams®, which has developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the U.K., an industry-leading online channel, as well as manufacturing and delivery assets.
Our principal executive office is located at 1000 Tempur Way, Lexington, Kentucky 40511 and our telephone number is (800) 878-8889. Tempur Sealy International, Inc. was incorporated under the laws of the State of Delaware in September 2002.
Tempur Sealy International, Inc. was incorporated under the laws of the State of Delaware in September 2002.
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.
Our International segment consists of manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). Our principal executive office is located at 1000 Tempur Way, Lexington, Kentucky 40511 and our telephone number is (800) 878-8889.
Additionally, the U.S. bedding industry generally experiences increases in sales around holidays and promotional periods. Operations Manufacturing and Distribution Our products are currently manufactured and distributed through our global network of facilities. For a list of our principal manufacturing and distribution facilities, please refer to ITEM 2, "Properties".
Additionally, the U.S. bedding industry generally experiences increases in sales around holidays and promotional periods. Operations Manufacturing and Distribution In 2023, we opened our newest and largest state-of-the-art manufacturing facility in Crawfordsville, Indiana. The new facility has the capabilities to manufacture a wide variety of bedding products and components for branded and non-branded operations.
In addition, Tempur-Pedic was also awarded #1 in Customer Satisfaction for the online mattress segment in the same report. • Stearns & Foster ® - The Stearns & Foster brand offers our consumers high quality mattresses built by certified craftsmen who have been specially trained.
This is the third consecutive year winning the online mattress category and the fifth consecutive year winning at least one J.D. Power award. • Stearns & Foster ® - The Stearns & Foster brand offers our consumers high quality mattresses built by certified craftsmen who have been specially trained.
Removed
On January 31, 2020, we acquired an 80% ownership interest in a newly formed limited liability company containing substantially all of the assets of the Sherwood Bedding business. Sherwood Bedding is a major manufacturer in the U.S. private label and OEM bedding market, and this acquisition of a majority interest marked our entrance into the private label category.
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As a multi-branded retailer, Dreams sells a variety of products across a range of price points.
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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.
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This next-generation technology sets the standard for support, pressure relief and motion cancellation with Tempur material precisely responding to your body's weight, shape, and temperature in a way no other mattress does. This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur lineup.
Removed
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.
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In our International segment in 2024, we plan to complete the rollout of the new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors.
Removed
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.
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The facility's Midwest location enables us to balance manufacturing and distribution in the region, allowing us to more efficiently service our customers and capture the projected long-term demand to support our rapidly growing OEM business. Our products are currently manufactured and distributed through our global network of facilities.
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Omni-Channel Distribution Our primary selling channels are Wholesale and Direct. These channels align to the operating margin characteristics of our business and our marketplace.
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As of December 31, 2023, we held hundreds of trademark registrations worldwide, which we believe have significant value and are important to the marketing of our products to retailers and consumers. Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturpedic® and Stearns & Foster® are our primary trademarks registered with the U.S.
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In 2022, we continued to drive this initiative, as we increased the number of wholesale doors retailing our products, launched e-commerce websites for Sealy® and Stearns & Foster® in the U.S. and expanded our company-owned store footprint around the world.
Added
For example, the UK is seeking to implement new regulations in October 2024, which will include measures to reduce the use of chemical fire retardants. We are also subject to environmental and health and safety requirements with regard to the manufacture of our products and the conduct of our operations and facilities.
Removed
This broad-based increase in demand coupled with supply chain constraints, which continued in 2022, has created operational challenges for production. This constrained production for certain products increased our production costs in 2021 and 2022, and may continue to do so.
Added
We are subject to similar requirements in Canada, the EU and other jurisdictions, with further waste management and prevention, and other environmental protection regulations coming into effect both this year and over the next few years. We believe that we are in compliance with all applicable international, federal, state and local environmental statutes and regulations.
Removed
We have taken actions and made numerous investments to expand capacity, diversify our suppliers and increase our safety stock to reduce these challenges going forward and position ourselves to service the long-term demand outlook for our brands and products.
Added
Below are some highlights of the progress we made on certain of our ESG initiatives in 2023: 9 Table of Contents Environment • Achieved zero waste to landfill status at our Canadian and Mexican manufacturing operations and maintained our zero waste to landfill status at our U.S. and European manufacturing operations • Achieved zero waste to landfill status at 75% of our corporate offices and R&D labs, in line with our goal to achieve zero landfill waste at our corporate offices and R&D labs by 2025 • Progressed towards our goal of achieving carbon neutrality by 2040 through reducing greenhouse gas emissions at our wholly owned manufacturing and logistics operations by 4%* compared to the prior year • Summarized and published our approach to comprehensive chemical supply management in a Chemical Safety Policy *This excludes the impact of new facilities opened in the trailing twelve-month period.
Removed
We also own numerous trademarks, trade names, service marks, logos and design marks in the U.S. and a number of other countries, including Dreams and SOVA. In addition, we license the Bassett® trade name in various territories under a long-term agreement.
Added
Including the impact of new facilities, we reduced greenhouse gas emissions at our wholly owned manufacturing and logistics operations by 1% compared to the prior year.
Removed
The Nominating and Corporate Governance Committee of our Board of Directors oversees our practices and positions relating to ESG issues. Our Chairman and CEO has ultimate responsibility for the Company's ESG performance. Executive officers are held accountable for the Company's ESG performance through the Company's performance-based long-term equity incentive plan.
Added
Purpose • Continued to bring industry-leading innovation to market that provides consumers with access to higher quality sleep at a variety of price points, including the new U.S. product launches of Tempur-Breeze®, Tempur-Ergo® Smart Base, and Stearns & Foster®, and the new international launches of Tempur® products • Contributed approximately $0.8 million through the Tempur Sealy Foundation and donated more than 12,100 mattresses worth approximately $16.9 million, bringing our ten-year donation total to over $100 million People • Increased transparency and expanded disclosures around Employee Health & Safety, Ethics Line, and Employee Satisfaction & Engagement • Embedded ESG performance as a factor in executive leadership's 2023 compensation program Human Capital Management As a global organization, our workforce is important to us.
Removed
Below are some highlights of the progress we made on certain of our ESG initiatives in 2022: Environment • Improved the percent of waste diverted from landfills from our U.S. wholly owned manufacturing operations to 100% for the trailing twelve months ended September 30, 2022, compared to 96% in 2021 • Expanded our commitment to achieving zero landfill waste to include our corporate offices and our research and development facilities by 2025 • Achieved a 3% reduction in greenhouse gas emissions per unit produced at our wholly owned manufacturing and logistics operations compared to the prior year, furthering our progress towards our goal of achieving carbon neutrality by 2040 • Substantially aligned our sustainability reporting to the Task Force on Climate-Related Financial Disclosures (TCFD) framework in 2022 • Formalized our ESG processes and stances in a new Environmental Policy Statement Purpose • Launched our new Sealy® Naturals TM mattress collection made with sustainable and responsibly sourced materials • Continued to bring industry-leading innovation to market that provides consumers with higher quality sleep at a variety of price points • Contributed over $1 million through the Tempur Sealy Foundation and donated more than 8,300 mattresses worth approximately $13.7 million People • Completed the implementation of a new global enterprise resource planning ("ERP") system, which is expected to fortify our cybersecurity and drive long-term efficiencies across our global operation 10 Table of Contents • Increased the percentage of U.S. employee base that self identifies as a minority from 47% to 49%, and increased percentage of U.S. employee base that self identifies as female from 30% to 32% • Increased the number of women represented on our Board of Directors from 33% to 43% • Embedded ESG as a metric in executive leadership's 2022 compensation program Human Capital Management As a global organization, our workforce is important to us.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

36 edited+19 added−17 removed77 unchanged
Biggest changeWe also rely on third-party technology service providers in ordinary course operations of our Direct channel, such as website hosting, payment systems and digital advertising.
Biggest changeHowever, such measures and controls do not provide absolute security in preventing these cybersecurity events from occurring, particularly given that techniques used to access, disable or degrade service, or sabotage systems change frequently. Moreover, we rely on third-party technology service providers in ordinary course operations of our Direct channel, such as website hosting, payment systems and digital advertising.
The bedding industry is subject to volatility in the price of petroleum-based and steel products, which affects the cost of polyurethane foam, polyester, polyethylene foam and steel innerspring component parts. The price and availability of these raw materials are subject to market conditions affecting supply and demand.
The bedding industry is subject to volatility in the price of petroleum-based and steel products, which affects the cost of polyurethane foam, polyester and steel innerspring component parts. The price and availability of these raw materials are subject to market conditions affecting supply and demand.
Our degree of leverage could have important consequences, such as: • increasing our vulnerability to adverse economic, industry or competitive developments; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and other business opportunities; • making it more difficult for us to satisfy the obligations related to our indebtedness; • restricting us from making strategic acquisitions or investments or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate; • exposing us to variability in interest rates, as a substantial portion of our indebtedness is and will be at variable rates; and • limiting our ability to return capital to our stockholders, including through share repurchases and dividends.
Our degree of leverage could have important consequences, such as: • increasing our vulnerability to adverse economic, industry or competitive developments; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and other business opportunities; • making it more difficult for us to satisfy the obligations related to our indebtedness; • restricting us from making strategic acquisitions or investments or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, including the pending Mattress Firm acquisition, and general corporate or other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate; • exposing us to variability in interest rates, as a substantial portion of our indebtedness is and will be at variable rates; and • limiting our ability to return capital to our stockholders, including through share repurchases and dividends.
Failure to comply with any of these regulatory requirements may result in liability exposure and costly expenditures to remediate or pay for liabilities.
Any violation or failure to comply with any of these regulatory requirements may result in liability exposure and costly expenditures to remediate or pay for liabilities.
We are subject to risks from our international operations, such as complying with U.S. and foreign laws, foreign exchange exposure, tariffs, increased costs, political risks and our ability to expand in certain international markets, which could impair our ability to compete and our profitability. We are a global company, selling our products in approximately 100 countries worldwide.
We are subject to risks from our international operations, such as complying with U.S. and foreign laws, foreign exchange exposure, tariffs, increased costs, political risks, geopolitical conflicts and our ability to expand in certain international markets, which could impair our ability to compete and our profitability. We are a global company, selling our products in approximately 100 countries worldwide.
The performance of our business depends upon a number of factors, including the following: • our ability to continuously improve our products to offer new and enhanced consumer benefits and better quality; • the ability of our current and future product launches to increase net sales; • the effectiveness of our advertising campaigns and other marketing programs to build product and brand awareness, driving traffic to our distribution channels and increasing sales; • our ability to successfully launch new products; • our ability to compete in the mattress and pillow industry; • our ability to continue to expand into new distribution channels and optimize our existing channels; • our ability to continue to successfully execute our strategic initiatives; • our ability to manage growth and limit cannibalization associated with new or expanded supply agreements; • our ability to reduce costs, including the level of consumer acceptance of our products at optimal price points; • our ability to successfully mitigate the impact of headwinds facing our business, including increased commodity prices and the influx of low-end, imported beds that compete with certain of our products; • our ability to pursue and successfully integrate potential acquisition opportunities; and • general economic factors that impact consumer confidence, disposable income or the availability of consumer financing.
The performance of our business depends upon a number of factors, including the following: • our ability to continuously improve our products to offer new and enhanced consumer benefits and better quality; • the ability of our current and future product launches to increase net sales; • the effectiveness of our advertising campaigns and other marketing programs to build product and brand awareness, driving traffic to our distribution channels and increasing sales; • our ability to successfully launch new products; • our ability to compete in the mattress and pillow industry; • our ability to continue to expand into new distribution channels and optimize our existing channels; • our ability to continue to successfully execute our strategic initiatives; • our ability to manage growth and limit cannibalization associated with new or expanded supply agreements; • our ability to reduce costs, including the level of consumer acceptance of our products at optimal price points; • our ability to successfully mitigate the impact of headwinds facing our business, including increased commodity prices and the influx of low-end, imported beds that compete with certain of our products; • our ability to pursue, successfully integrate and capture the synergies from potential acquisition opportunities, including the pending Mattress Firm acquisition; and • general economic factors that impact consumer confidence, disposable income or the availability of consumer financing.
Approximately 18% of our employees are represented by various labor unions with separate collective bargaining agreements or government labor union contracts for certain international locations. Our North American collective bargaining agreements, which are typically three years in length, expire at various times during any given three year period.
Approximately 15% of our employees are represented by various labor unions with separate collective bargaining agreements or government labor union contracts for certain international locations. Our North American collective bargaining agreements, which are typically three years in length, expire at various times during any given three year period.
Our Board of Directors could determine in the future that adoption of a stockholder rights agreement is in the best interest of our stockholders and any such stockholder rights agreement, if adopted, could render more difficult, or discourage, a merger, tender offer, or assumption of control of the Company that is not approved by our Board of Directors.
Our Board of Directors could determine in the future that adoption of a stockholder rights agreement is in the best interest of our stockholders and any such stockholder rights agreement, if adopted, could render more difficult, or discourage, a merger, tender offer, or assumption of control of the Company that is not approved by our Board of Directors. ITEM 1B.
Any failure to comply with applicable laws and regulations relating to information technology and data privacy, due to various factors within or outside of our control, could result in costly investigations from regulators and litigation, expose us to potentially significant penalties, and result in negative publicity that could damage our reputation and credibility.
Any failure to comply with applicable laws and regulations relating to data security and privacy, due to various factors within or outside of our control, could result in costly investigations from regulators and litigation, expose us to potentially significant penalties, and result in negative publicity that could damage our reputation and credibility.
We participate in several plans which are in the Red Zone for 2022. A plan is in the Red Zone (Critical) if it has a current funded percentage of less than 65.0%.
We participate in several plans which are in the Red Zone for 2023. A plan is in the Red Zone (Critical) if it has a current funded percentage of less than 65.0%.
Furthermore, we are subject to a constantly evolving regulatory landscape of laws and regulations relating to information technology security and personal data protection and privacy, including but not limited to the EU's GDPR and California’s CCPA, each of which have imposed new and expanded compliance requirements on companies, including us, that process personal data from citizens living in applicable jurisdictions.
Furthermore, we are subject to a constantly evolving regulatory landscape of laws and regulations relating to IT security and personal data protection and privacy, including but not limited to the EU's GDPR and the CCPA, each of which have imposed new and expanded compliance requirements on companies, including us, that process personal data from citizens living in applicable jurisdictions.
Any decision to declare and pay dividends, and the amount of any such dividends, will be dependent on a variety of factors, including compliance with Section 170 of the Delaware General Corporation Law; changes to our capital allocation policies; our results of operation, liquidity and cash flows; contractual restrictions in our debt agreements; economic conditions, including the impact of COVID-19 and related macroeconomic impacts on our business and financial condition; and other factors the Board of Directors may deem relevant.
Any decision to declare and pay dividends, and the amount of any such dividends, will be dependent on a variety of factors, including compliance with Section 170 of the Delaware General Corporation Law; changes to our capital allocation policies; our results of operations, liquidity and cash flows; contractual restrictions in our debt agreements; economic conditions, including the impact of geopolitical uncertainty and related macroeconomic impacts on our business and financial condition; and other factors the Board of Directors may deem relevant.
Deterioration in labor relations could disrupt our business operations and increase our costs, which could decrease our liquidity and profitability. As of December 31, 2022, we had approximately 12,000 full-time employees. Our joint ventures also employ approximately 1,600 full-time employees.
Deterioration in labor relations could disrupt our business operations and increase our costs, which could decrease our liquidity and profitability. As of December 31, 2023, we had approximately 12,000 full-time employees. Our joint ventures also employ approximately 1,500 full-time employees.
We, and our products, are subject to extensive regulation in the U.S. by various federal, state and local regulatory authorities, including the Federal Trade Commission, the Consumer Product Safety Commission ("CSPC") and the U.S. Food and Drug Administration, and by similar international regulatory regimes.
We, and our products, are subject to extensive regulation in the U.S. by various federal, state and local regulatory authorities, including the FTC, the Consumer Product Safety Commission ("CPSC") and the U.S. Food and Drug Administration, and by similar international regulatory regimes.
We and our third-party service providers may be victims to cyber-based attacks and incidents from time to time, and failure to prevent, detect or remediate such events may disrupt our operations could and cause financial or reputational harm, including if insurance coverage is insufficient to cover all losses or all types of claims that may arise.
Our third-party service providers may be victims to cybersecurity events from time to time, and failure to prevent, detect or remediate such events may disrupt our operations and could cause financial or reputational harm, including if insurance coverage is insufficient to cover all losses or all types of claims that may arise.
Regulatory, Legal and Financial Risks We may be adversely affected by fluctuations in exchange rates, which could affect our results of operations, the costs of our products and our ability to sell our products in foreign markets. Approximately 26.9% of our net sales were generated outside of the U.S. in 2022.
Regulatory, Legal and Financial Risks We may be adversely affected by fluctuations in exchange rates, which could affect our results of operations, the costs of our products and our ability to sell our products in foreign markets. Approximately 27.7% of our net sales were generated outside of the U.S. in 2023.
In 2022, foreign currency exchange rate changes negatively impacted our net income by approximately 2.5% and negatively impacted adjusted EBITDA, which is a non-GAAP financial measure, by approximately 0.8%. Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows.
In 2023, foreign currency exchange rate changes positively impacted our net income by approximately 1.5% and positively impacted adjusted EBITDA, which is a non-GAAP financial measure, by approximately 0.8%. Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows.
Loss of suppliers and disruptions in the supply of our raw materials and components could increase our costs of sales and reduce our ability to compete effectively. We acquire raw materials and components from a number of suppliers with manufacturing locations around the world.
Loss of suppliers and disruptions in the supply of our raw materials and components has increased and may continue to increase our costs of sales and reduce our ability to compete effectively. We acquire raw materials and components from a number of suppliers with manufacturing locations around the world.
We generated approximately 26.9% of our net sales outside of the U.S. in the year ended December 31, 2022. We operate through multiple wholly owned subsidiaries and we also participate in international license and joint venture arrangements with independent third parties.
We generated approximately 27.7% of our net sales outside of the U.S. in the year ended December 31, 2023. We operate through multiple wholly owned subsidiaries and we also participate in international license and joint venture arrangements with independent third parties.
There can be no assurance that we will declare dividends in any particular amounts or at all, and changes in our dividend policy could adversely affect the market price for our stock. Our share repurchase program could be suspended or terminated, and may not enhance long-term stockholder value.
There can be no assurance that we will declare dividends in any particular amounts or at all, and changes in our dividend policy could adversely affect the market price for our stock. Our share repurchase program is subject to suspension or termination at any time, and may not enhance long-term stockholder value.
Our international operations are subject to the customary risks of operating in an international environment, including complying with U.S. laws affecting operations outside of the U.S. such as the Foreign Corrupt Practices Act; complying with foreign laws and regulations, including disparate anti-corruption laws and regulations; and the potential imposition of trade or foreign exchange restrictions, tariffs and other tax increases, inflation and unstable political situations and labor issues.
Our international operations are subject to the customary risks of operating in an international environment, including complying with U.S. laws affecting operations outside of the U.S. such as the Foreign Corrupt Practices Act; complying with foreign laws and regulations, including disparate anti-corruption laws and regulations; and the potential imposition of trade or foreign exchange restrictions, tariffs and other tax increases, inflation, unstable political situations, labor issues and geopolitical conflicts (including the Russia-Ukraine conflict, the Israel-Hamas conflict and wider Middle East developments).
Because we depend on certain significant customers, a decrease or interruption in their business with us would reduce our sales and results of operations. Our top five customers, collectively, accounted for approximately 32% of our net sales in 2022, and of these, one wholesale customer contributed over 15%.
Because we depend on certain significant customers, a decrease or interruption in their business with us would reduce our sales and results of operations. Our top five customers, collectively, accounted for approximately 32% of our net sales in 2023, and Mattress Firm contributed over 15%.
Such events could result in operational slowdowns, shutdowns or other difficulties; loss of revenues or market share; compromise or loss of sensitive or proprietary information; destruction or corruption of data; costs of remediation, upgrades, repair or recovery; breaches of obligations to third parties under privacy laws or contracts; or damage to our reputation or customer relationships; each of which, depending on the extent or duration of the event, could materially and adversely impact our business, operating results or financial condition.
Such events have resulted in and in the future could result in operational slowdowns, shutdowns or other difficulties; loss of sales, revenues or market share; compromise or loss of sensitive or proprietary information, including the misappropriation of our customers' or employees' personal information; destruction or corruption of data, including valuable business data; costs of remediation, upgrades, repair or recovery; breaches of obligations to third parties under privacy laws or contracts; exhaustion of insurance coverage and increased insurance premiums; fines or lawsuits; or other damage to our reputation or customer relationships; each of which, depending on the extent or duration of the event, could materially and adversely impact our business, operating results or financial condition.
In 2023, we expect to complete the launch of our refreshed Stearns & Foster® product line and begin the launch of a new line of Tempur® mattresses internationally. We also expect to launch a new portfolio of Tempur-Pedic® Breeze mattresses and Tempur-Ergo® Smart Bases in 2023.
In 2023, we launched our refreshed Stearns & Foster® product line and a new line of Tempur® mattresses internationally. We also launched a new portfolio of Tempur-Pedic® Breeze mattresses and Tempur-Ergo® Smart Bases in 2023.
Changes in economic conditions, including inflationary trends in the price of our input costs, such as raw materials, has adversely affected our business and financial results and could continue to do so in the future.
Changes in economic conditions, including inflationary trends in the price of our input costs, such as raw materials, due to, among other things, current geopolitical events, have adversely affected our business and financial results and could continue to do so in the future.
Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we are authorized to repurchase shares of our common stock. From 2016 through December 31, 2022, we had repurchased an aggregate of 55.2 million shares for approximately $2,383.9 million under our share repurchase program.
Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we are authorized to repurchase shares of our common stock. The share repurchase program may be suspended or terminated at any time. From 2016 through December 31, 2023, we had repurchased an aggregate of 55.3 million shares for approximately $2,388.9 million under our share repurchase program.
Such a disruption could occur for a variety of reasons, including changes in international trade duties and other aspects of international trade policy, labor shortages, natural disasters or climate-change related events (including severe weather events), pandemics and political events.
We have experienced and may continue to experience disruptions for a variety of reasons, including disruptions in international trade routes, changes in international trade duties and other aspects of international trade policy, labor shortages, natural disasters or climate-change related events (including severe weather events), pandemics and political events.
We rely on information technology systems to operate and manage our business and to process, maintain and safeguard information essential to our business as well as information relating to third-parties, including our customers, suppliers and employees.
We rely on IT systems to operate and manage our business and to process, maintain and safeguard information essential to our business as well as information relating to third-parties, including our customers, suppliers and employees. These systems are vulnerable to events beyond our reasonable control, including cyberattacks and security breaches.
We have experienced and may continue to experience, volatility and increases in the price of certain of these raw materials as a result of global market and supply chain disruptions and the broader inflationary environment related to the ongoing macroeconomic conditions. Throughout 2022, we implemented pricing actions to mitigate these known commodity headwinds.
We have experienced, and may continue to experience, volatility and increases in the price of certain of these raw materials as a result of global market and supply chain disruptions and the broader inflationary environment related to the ongoing macroeconomic conditions. Interest rates remain relatively high and may continue to remain at such levels.
Risks related to operating our business The performance of our business depends on our ability to implement strategic initiatives and actions taken to increase sales growth may not be effective.
We can provide no assurance that these divestiture obligations, conditions, terms, obligations or restrictions will not result in the abandonment of the merger and termination of the Merger Agreement. Risks related to operating our business The performance of our business depends on our ability to implement strategic initiatives and actions taken to increase sales growth may not be effective.
As of December 31, 2022, we had approximately $779.5 million remaining under the share repurchase authorization. The share repurchase program may be suspended or terminated at any time. Shares may be repurchased from time to time, in the open market or through private transactions, subject to market conditions, in compliance with applicable state and federal securities laws.
Shares may be repurchased from time to time, in the open market or through private transactions, subject to market conditions, in compliance with applicable state and federal securities laws.
Given the significance of the cost of these materials to our products, volatility in the prices of the underlying commodities can significantly affect profitability.
Given the significance of the cost of these materials to our products, volatility in the prices of the underlying commodities has and will significantly affect profitability. The global economy continues to experience high rates of inflation, and inflationary pressure and price uncertainty may continue in 2024.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including cyber-based attacks, could harm our ability to effectively operate our business.
We rely significantly on information technology ("IT") and we have experienced and in the future could experience cyber-based attacks which have and in the future could harm our ability to effectively operate our business.
Any disruption in our operations or additional expenses caused by the long-term effects of climate change could have a material adverse effect on our operations. Changes in tax laws could have an adverse effect on us, the mattress and pillow industries, our customers, and the value of collateral securing our loans.
Any disruption in our operations or additional expenses caused by the long-term effects of climate change could have a material adverse effect on our operations. Risks Related to Ownership of Our Common Stock There can be no assurance as to the declaration or amount of future dividends.
We previously announced our intention to begin paying a quarterly cash dividend beginning in 2021 and recently declared a dividend of 11 cents per share for the first quarter of 2023.
We recently announced an increase in our quarterly dividend to $0.13 per share, effective for the first quarter of 2024.
The credit environment in which our customers operate has been relatively stable over the past few years. However, there have been signs of deterioration in the U.S. retail sector, both nationally and regionally, including among our competitors.
If we are successful in closing the pending Mattress Firm acquisition, our significant customer concentration will be significantly reduced. There have been signs of deterioration in the U.S. retail sector, both nationally and regionally, including among our competitors.
Removed
The ongoing COVID-19 pandemic, as well as other global health crises, could have a material adverse effect on our business, operations, or financial results in future periods.
Added
In addition, monetary policies to counter inflation could negatively affect our borrowing costs and those of our customers and suppliers, as well as exchange rates and other macroeconomic factors.
Removed
The COVID-19 pandemic and it's variants, as well as periodic spikes in infection rates globally, and related responses are continuing to evolve and, therefore, could continue to present potential new risks to our business.
Added
Geopolitical developments, such as trade wars, the Russia-Ukraine conflict, the Israel-Hamas conflict and wider Middle East developments (including disruptions to the Red Sea passage or such conflicts spreading further in the relevant regions), have adversely impacted and could continue to adversely impact, among other things, our raw material, energy and transportation costs, certain of our suppliers, distributors, customers and local markets, global and local macroeconomic conditions, and cause further supply chain disruptions (including by delaying the delivery times of raw materials needed for our business or our products to customers).
Removed
We have seen and expect to continue to see that the COVID-19 pandemic has, and there may be other global health crises in the future that will have, effects on our business operations, including secondary and tertiary effects such as increased raw material prices, a decline in consumer confidence and spending, further increase in unemployment which could impact consumers' disposable income and, in turn, decrease sales of our products, required isolation in certain markets, disruptions in our supply chain, as the outbreak has disrupted travel, manufacturing and distribution throughout the world and increases in operating costs due to disruptions.
Added
In order to consummate the previously disclosed, pending merger with Mattress Firm, we and Mattress Firm must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, consummation of the merger may be jeopardized, may not occur or may be delayed, or the anticipated benefits of the merger may not be achieved.
Removed
As COVID-19 continues to evolve, or if similarly severe global health crises were to develop, the full extent of the impact and effects on our business, operations, liquidity, financial condition and results of operations remain uncertain and could be material. Any of these events could potentially result in a material adverse impact on our business and results of operations.
Added
On May 9, 2023, we entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire Mattress Firm Group Inc. ("Mattress Firm").
Removed
In 2022, we completed the launch of our refreshed Sealy portfolio of new models in our Posturepedic Plus TM , Posturepedic® and Essentials product lines. We also began the launch of a refreshed Stearns & Foster product line and introduced a new Sealy® Naturals™ product line in the U.S.
Added
Although we and Mattress Firm have agreed to use reasonable best efforts to make certain governmental filings and obtain the required governmental approvals, including from the Federal Trade Commission ("FTC"), and to observe the expiration and termination of relevant waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR Act"), there can be no assurance that the relevant approvals will be obtained.
Removed
These systems are vulnerable to events beyond our reasonable control, including cyberattacks and security breaches, and we may be subject to failure of our current systems, or future upgrades, to operate effectively or to integrate with other systems.
Added
In the fourth quarter of 2023, we announced that we certified substantial compliance with the FTC’s second request for documents pursuant to the HSR Act, in connection with the merger.
Removed
For example, we have implemented a new enterprise resource planning system ("ERP") across several of our global subsidiaries and in certain significant U.S. subsidiaries throughout 2020, 2021 and 2022.
Added
The governmental entities from which these approvals are required have broad discretion in administering the governing laws and regulations, and may take into account various facts and circumstances in their consideration of the merger. These governmental entities may initiate proceedings seeking to prevent, or otherwise seek to prevent, the merger.
Removed
The new ERP system replaces a substantial portion of our legacy systems and if we are unable to successfully implement the replacement system or if errors or failures in the implementation process lead to production shutdowns, our business may be materially impacted and disrupted and we may be required to engage in unanticipated additional use of capital and other resources, which may adversely impact our results of operations or reduce our profitability.
Added
As a condition to approving the merger, these governmental entities may impose conditions, terms, obligations or restrictions or require divestitures or place restrictions on the conduct of our business after consummation of the merger.
Removed
We entered into the Advance Pricing Agreement Program to resolve a tax matter in Denmark, and a failure to resolve the matter or a change in factors or circumstances could adversely impact our income tax expense, effective tax rate and cash flows.
Added
As further described in the Merger Agreement, we have agreed to take certain divestiture actions and agree to certain other obligations or commitments in connection with the consummation of the merger if reasonably likely to permit consummation of the merger, provided that we are not required to take any divestiture actions in excess of an agreed amount specified in the Merger Agreement or if such actions, commitments and divestitures individually or in the aggregate would or would reasonably be expected to have a material and adverse impact on our business or the business of Mattress Firm or the anticipated benefits to the Company of the merger.
Removed
We are a participant in the Advance Pricing Agreement Program (the "APA Program") for the tax years 2012 through 2024, under which the U.S.
Added
While we are pursuing the divestiture of certain of our and Mattress Firm’s stores, the progress of such process may change and there can be no assurance that we will successfully complete this process on the expected timing or at all.
Removed
Internal Revenue Service ("IRS"), on our behalf, will negotiate directly with the Danish Tax Authority ("SKAT") with respect to the royalty to be paid by a U.S. subsidiary of the Company to the Company's Danish subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary.
Added
There can be no assurance that governmental entities will not impose the aforementioned divestiture obligations, conditions, terms, obligations or restrictions and that such divestiture obligations, conditions, terms, obligations or restrictions will not have the effect of delaying or preventing consummation of the merger or imposing additional material costs on or limiting the benefits of the merger to the Company, or otherwise adversely affecting, including to a material extent, our business, results of operations and financial condition after consummation of the merger.
Removed
In December 2022, SKAT and the IRS agreed on a preliminary framework to conclude the Company's Danish tax matter for the years 2012 through 2024, which resulted in an income tax benefit recorded in the fourth quarter of 2022. The preliminary framework is expected to be finalized during 2023.
Added
If we are required to divest assets or businesses, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on favorable terms or that the governmental entities will approve the terms of such divestitures.
Removed
If this matter is not resolved successfully or there is a change in facts or circumstances, we may be required to further increase our uncertain income tax provision or decrease our deferred tax asset related to this matter, which could have a material impact on the Company's reported earnings.
Added
We expect to complete the multi-year refresh of Tempur-Pedic® products in 2024 with a new portfolio of Tempur-Pedic® Adapt mattresses and accessories in North America in 2024. This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur lineup.
Removed
For a description of these matters and additional information please refer to Note 13, "Income Taxes," to the accompanying Consolidated Financial Statements.
Added
We have been, and may in the future be, subject to cybersecurity incidents. As these attacks increase and become more sophisticated, the risks associated with such an event continue to increase, particularly as our digital business footprint expands.
Removed
The Inflation Reduction Act of 2022 was signed into law by President Biden on August 16, 2022 which makes significant changes to the U.S. tax law, including the introduction of a corporate alternative minimum tax of 15% of the "adjusted financial statement income" of certain domestic corporations as well as a 1% excise tax on the fair market value of stock repurchases by certain domestic corporations, effective for tax years beginning in 2023.
Added
Our security measures and internal controls are designed to protect personal data, business information, including intellectual property, and other confidential information, to prevent data loss, and to prevent or detect security breaches.
Removed
We currently do not expect the tax-related provision of the Inflation Reduction Act to have a material impact on our financial results. Risks Related to Ownership of Our Common Stock Although we recently announced a quarterly cash dividend, there can be no assurance as to the declaration or amount of future dividends.
Added
As previously disclosed, we identified a cybersecurity event on July 23, 2023 affecting certain of our data and IT systems, which resulted in the temporary interruption of our operations when we proactively shut down certain of our systems.
Removed
It is uncertain how the Inflation Reduction Act of 2022 and the imposition of a 1% excise tax on the fair market value of share repurchases by certain domestic corporations, effective for tax years beginning in 2023, will affect our share repurchase program.
Added
This cybersecurity event, as well as any other breach of our network or databases, or those of our third-party providers, have resulted and may in the future result in the risks discussed herein.
Added
For the year ended and as of December 31, 2023, we repurchased an aggregate of $5.0 million of shares under our share repurchase program and had approximately $774.5 million remaining under the share repurchase authorization. Upon the announcement of our pending acquisition of Mattress Firm, we suspended our share repurchase program.
Added
UNRESOLVED STAFF COMMENTS None. 11 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed2 unchanged
Biggest changeName Location Type of Facility North America Sealy Mattress Manufacturing Co., LLC United States Manufacturing Tempur Production USA, LLC United States Manufacturing Sherwood Bedding United States Manufacturing Comfort Revolution, LLC United States Manufacturing Sealy Canada, Ltd Canada Manufacturing Sealy Mattress Company Mexico, S. de R.L. de C.V.
Biggest changeName Location Type of Facility North America Sealy Mattress Manufacturing Company, LLC United States Manufacturing Tempur Production USA, LLC United States Manufacturing Sherwood Bedding United States Manufacturing Comfort Revolution, LLC United States Manufacturing Sealy Canada, Ltd. Canada Manufacturing Tempur Sealy Mattress Mexico, S. de R.L. de C.V.
Mexico Manufacturing International Dan-Foam ApS Denmark Manufacturing Dreams United Kingdom Manufacturing In addition to the properties listed above, we have other facilities in the U.S. and other countries, the majority under leases with one to ten year terms.
Mexico Manufacturing International Dan-Foam ApS Denmark Manufacturing Dreams Limited United Kingdom Manufacturing In addition to the properties listed above, we have other facilities in the U.S. and other countries, the majority under leases with one to ten year terms.
ITEM 2. PROPERTIES The following table sets forth certain information regarding our principal facilities by segment, which have been aggregated by principal manufacturing and distribution entity, at December 31, 2022.
ITEM 2. PROPERTIES The following table sets forth certain information regarding our principal facilities by segment, which have been aggregated by principal manufacturing entity, at December 31, 2023.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings can be found in Note 12, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, "Financial Statements and Supplementary Data," and is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES None. 12 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings can be found in Note 12, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, "Financial Statements and Supplementary Data," and is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES None. PART II 13 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+3 added−4 removed6 unchanged
Biggest changeEquity Compensation Plan Information Equity compensation plan information required by this Item is incorporated by reference from Part III, ITEM 12 of this Report. 13 Table of Contents Performance Graph The following Performance Graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Biggest changeThe following table sets forth purchases of our common stock for the three months ended December 31, 2023: Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans or programs (d) Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions) October 1, 2023 - October 31, 2023 — $— — $774.5 November 1, 2023 - November 30, 2023 — $— — $774.5 December 1, 2023 - December 31, 2023 — $— — $774.5 Total — — Equity Compensation Plan Information Equity compensation plan information required by this Item is incorporated by reference from Part III, ITEM 12 of this Report. 14 Table of Contents Performance Graph The following Performance Graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Further, we are subject to certain customary restrictions on dividends under our 2019 Credit Agreement and Indentures. See Note 6, "Debt," in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, for a discussion of the 2019 Credit Agreement and Indentures.
Further, we are subject to certain customary restrictions on dividends under our 2023 Credit Agreement and Indentures. See Note 6, "Debt," in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, for a discussion of the 2023 Credit Agreement and Indentures.
Prior to that time, there was no public trading market for our common stock. As of February 13, 2023, we had approximately 67 stockholders of record of our common stock. Dividends In February 2023, our Board of Directors declared a cash dividend of $0.11 per share on our common stock.
Prior to that time, there was no public trading market for our common stock. As of February 12, 2024, we had approximately 60 stockholders of record of our common stock. Dividends In February 2024, our Board of Directors declared a cash dividend of $0.13 per share on our common stock.
During the year ended December 31, 2022, we had repurchased 18.6 million shares, under the share repurchase program, for approximately $621.2 million and had approximately $779.5 million remaining under the program. 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.
During the year ended December 31, 2023, we had repurchased 0.1 million shares, under the share repurchase program, for approximately $5.0 million and had approximately $774.5 million remaining under the program. 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.
(HAS) RH (RH) Carter's, Inc. (CRI) Herman Miller, Inc. (MLHR) Sleep Number Corporation (SNBR) Columbia Sportswear Company (COLM) La-Z-Boy Incorporated (LZB) Steelcase Inc. (SCS) Deckers Outdoor Corporation (DECK) Leggett & Platt, Incorporated (LEG) Tapestry, Inc. (TPR) Gildan Activewear Inc. (GIL) Polaris Industries Inc. (PII) Under Armour, Inc. (UA) Hanesbrands Inc. (HBI) Ralph Lauren Corporation (RL) Williams-Sonoma, Inc.
(HBI) RH (RH) 2022 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) RH (RH) Carter's, Inc. (CRI) Herman Miller, Inc. (MLHR) Sleep Number Corporation (SNBR) Columbia Sportswear Company (COLM) La-Z-Boy Incorporated (LZB) Steelcase Inc. (SCS) Deckers Outdoor Corporation (DECK) Leggett & Platt, Incorporated (LEG) Tapestry, Inc. (TPR) Gildan Activewear Inc. (GIL) Polaris Industries Inc. (PII) Under Armour, Inc.
The dividend is payable on March 9, 2023 to shareholders of record on the close of business February 23, 2023.
The dividend is payable on March 7, 2024 to shareholders of record on the close of business February 22, 2024.
(WSM) 2021 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) RH (RH) Carter's, Inc. (CRI) Herman Miller, Inc. (MLHR) Sleep Number Corporation (SNBR) Columbia Sportswear Company (COLM) HNI Corporation (HNI) Steelcase Inc. (SCS) Deckers Outdoor Corporation (DECK) La-Z-Boy Incorporated (LZB) Under Armour, Inc. (UA) Gildan Activewear Inc. (GIL) Leggett & Platt, Incorporated (LEG) Williams-Sonoma, Inc. (WSM) Hanesbrands Inc.
(SKX) Capri Holdings Limited (CPRI) Leggett & Platt, Incorporated (LEG) Sleep Number Corporation (SNBR) Carter's, Inc. (CRI) Levi Strauss & Co. (LEVI) Tapestry, Inc. (TPR) Columbia Sportswear Company (COLM) Polaris Industries Inc. (PII) Under Armour, Inc. (UA) Deckers Outdoor Corporation (DECK) PVH Corp. (PVH) Williams-Sonoma, Inc. (WSM) Gildan Activewear Inc. (GIL) Ralph Lauren Corporation (RL) Hanesbrands Inc.
The peer issuers included in this graph are set forth below in the table. In 2022, Ralph Lauren Corporation and Tapestry, Inc. were added to the peer group and HNI Corporation and Wolverine World Wide, Inc. (WWW), were removed from the peer group due to no longer meeting our market capitalization criteria. 2022 Peer Group Brunswick Corporation (BC) Hasbro, Inc.
The peer issuers included in this graph are set forth below in the table. Each year we assess our peer group and evaluate if they meet our market capitalization criteria.
Removed
The following table sets forth purchases of our common stock for the three months ended December 31, 2022: Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans or programs (d) Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions) October 1, 2022 - October 31, 2022 387,601 $26.64 387,601 $799.2 November 1, 2022 - November 30, 2022 348,627 (1) $30.22 341,543 $788.9 December 1, 2022 - December 31, 2022 282,900 $33.03 282,900 $779.5 Total 1,019,128 1,012,044 (1) Includes shares withheld upon the vesting of certain equity awards to satisfy tax withholding obligations.
Added
In 2023, Capri Holdings Limited, Levi Strauss & Corporation, PVH Corporation, and Skechers U.S.A., Incorporated were added to the peer group, while Herman Miller, Incorporated, La-Z-Boy Incorporated, and Steelcase Incorporated were removed since they no longer meet our market capitalization criteria. 2023 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) Skechers U.S.A., Inc.
Removed
The shares withheld were valued at the closing price of the common stock on the New York Stock Exchange on the vesting date or prior business day.
Added
(UA) Hanesbrands Inc. (HBI) Ralph Lauren Corporation (RL) Williams-Sonoma, Inc.
Removed
(HBI) Polaris Industries Inc. (PII) Wolverine World Wide, Inc.
Added
(WSM) 15 Table of Contents 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Tempur Sealy International, Inc. $ 100.00 $ 210.29 $ 260.87 $ 458.08 $ 339.18 $ 509.01 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 S&P 400 Consumer Discretionary 100.00 126.57 165.80 211.70 167.18 207.78 2022 Peer Group 100.00 124.19 132.04 161.94 118.89 143.77 2023 Peer Group 100.00 124.18 130.37 162.79 121.36 145.99 ITEM 6. [RESERVED]
Removed
(WWW) 14 Table of Contents 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Tempur Sealy International, Inc. $ 100.00 $ 66.04 $ 138.87 $ 172.28 $ 302.51 $ 223.99 S&P 500 100.00 95.62 125.72 148.85 191.58 156.89 S&P 400 Consumer Discretionary 100.00 82.08 103.88 136.08 173.75 137.21 2021 Peer Group 100.00 91.13 118.06 125.78 152.83 105.33 2022 Peer Group 100.00 90.07 111.86 118.93 145.86 107.09 ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

96 edited+45 added−35 removed48 unchanged
Biggest changeFULL YEAR 2021 (in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate Net sales $ 4,930.8 $ 4,079.2 $ 851.6 $ — Gross profit $ 2,158.7 43.8 % $ 1,678.0 41.1 % $ 480.7 56.4 % $ — Operating income (expense) $ 912.3 18.5 % $ 856.7 21.0 % $ 200.0 23.5 % $ (144.4) Adjustments: Acquisition-related costs (1) 6.2 — 2.3 3.9 Adjusted operating income (expense) $ 918.5 18.6 % $ 856.7 21.0 % $ 202.3 23.8 % $ (140.5) (1) In the year ended December 31, 2021, we recognized $6.2 million of acquisition-related costs, primarily related to legal and professional fees and stamp taxes associated with the acquisition of Dreams. 28 Table of Contents EBITDA, Adjusted EBITDA and Consolidated Indebtedness Less Netted Cash The following reconciliations are provided below: • Net income to EBITDA and adjusted EBITDA • Ratio of consolidated indebtedness less netted cash to adjusted EBITDA • Total debt, net to consolidated indebtedness less netted cash We believe that presenting these non-GAAP measures provides investors with useful information with respect to our operating performance, cash flow generation and comparisons from period to period, as well as general information about our progress in reducing our leverage.
Biggest changeEBITDA, Adjusted EBITDA and Consolidated Indebtedness Less Netted Cash The following reconciliations are provided below: • Net income to EBITDA and adjusted EBITDA • Ratio of consolidated indebtedness less netted cash to adjusted EBITDA • Total debt, net to consolidated indebtedness less netted cash We believe that presenting these non-GAAP measures provides investors with useful information with respect to our operating performance, cash flow generation and comparisons from period to period, as well as general information about our progress in reducing our leverage.
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).
These segments are strategic business units that are managed separately based on geography. Our North America segment consists of manufacturing and distribution subsidiaries 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).
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.
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.
Goodwill and indefinite-lived intangible assets are evaluated for impairment annually as of October 1 and whenever events or circumstances make it more likely than not that impairment may have occurred or when required by accounting standards. We test goodwill for impairment at the reporting unit level.
Goodwill and Indefinite-Lived Intangible Assets. Goodwill and indefinite-lived intangible assets are evaluated for impairment annually as of October 1 and whenever events or circumstances make it more likely than not that impairment may have occurred or when required by accounting standards. We test goodwill for impairment at the reporting unit level.
As of December 31, 2022, our accounts receivable were substantially current. Other factors considered include historical write-off experience, current economic conditions and also factors such as customer credit, past transaction history with the customer and changes in customer payment terms. The credit environment in which our customers operate has been relatively stable over the past few years.
As of December 31, 2023, our accounts receivable were substantially current. Other factors considered include historical write-off experience, current economic conditions and also factors such as customer credit, past transaction history with the customer and changes in customer payment terms. The credit environment in which our customers operate has been relatively stable over the past few years.
In the event future sales returns claims are higher than our historical experiences, such as a 50 basis point increase, the impacts would not be material to the Consolidated Financial Statements. The allowance for credit losses is our best estimate of the amount of estimated lifetime credit losses in our accounts receivable.
In the event future sales returns claims are higher than our historical experiences, such as a 50 basis point increase, the impact would not be material to the Consolidated Financial Statements. The allowance for credit losses is our best estimate of the amount of estimated lifetime credit losses in our accounts receivable.
As of December 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.
As of December 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.
For purposes of determining total debt for financial covenant purposes, we added these costs back to total debt, net as calculated per the Consolidated Balance Sheets. (2) Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as restricted subsidiaries in the 2019 Credit Agreement.
For purposes of determining total debt for financial covenant purposes, we added these costs back to total debt, net as calculated per the Consolidated Balance Sheets. (2) Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as "Restricted Subsidiaries" in the 2023 Credit Agreement.
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.
The limit on restricted payments under the 2023 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.
Both consolidated indebtedness and adjusted EBITDA as used in discussion of the 2019 Credit Agreement are terms that are not recognized under GAAP and do not purport to be alternatives to net income as a measure of operating performance or total debt.
Both consolidated indebtedness and adjusted EBITDA as used in discussion of the 2023 Credit Agreement are terms that are not recognized under GAAP and do not purport to be alternatives to net income as a measure of operating performance or total debt.
In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the years ended December 31, 2022 and 2021, 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. 15 Table of Contents Business Overview General We are committed to improving the sleep of more people, every night, all around the world.
In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the years ended December 31, 2023 and 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. 16 Table of Contents Business Overview General We are committed to improving the sleep of more people, every night, all around the world.
Refer to Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report for further information. Liquidity and Capital Resources Liquidity Our principal sources of funds are cash flows from operations, supplemented with borrowings made pursuant to our credit facilities and cash and cash equivalents on hand.
Refer to Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report for further information. 23 Table of Contents Liquidity and Capital Resources Liquidity Our principal sources of funds are cash flows from operations, supplemented with borrowings made pursuant to our credit facilities and cash and cash equivalents on hand.
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.
This ratio is within the terms of the financial covenants for the maximum consolidated total net leverage ratio as set forth in the 2023 Credit Agreement, which limits this ratio to 5.00 times.
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 our 2019 Credit Agreement.
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 our 2023 Credit Agreement.
(4) We recorded $6.5 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S. in the year ended 2022, including $0.4 million of other expense. Cost of sales and operating expenses included personnel and facility related costs of $5.8 million and $0.3 million, respectively.
We recorded $6.5 million of operational start-up costs related to the capacity expansion of its manufacturing and distribution facilities in the U.S. in the year ended 2022, including $0.4 million of other expense for the year ended 2022. Cost of sales and operating expenses included personnel and facility related costs of $5.8 million and $0.3 million, respectively.
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. The Board of Directors declared a dividend of $0.11 per share for the first quarter of 2023.
Our capital allocation strategy follows a balanced approach focused on supporting the business, returning shareholder value through strategic acquisition opportunities that enhance our global competitiveness, as well as quarterly dividends and opportunistic share repurchases. The Board of Directors declared a dividend of $0.13 per share for the first quarter of 2024.
The 2019 Credit Agreement provides the definition of adjusted EBITDA. Accordingly, we present adjusted EBITDA to provide information regarding our compliance with requirements under the 2019 Credit Agreement.
The 2023 Credit Agreement provides the definition of adjusted EBITDA. Accordingly, we present adjusted EBITDA to provide information regarding our compliance with requirements under the 2023 Credit Agreement.
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 year ended December 31, 2022, our adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2019 Credit Agreement.
Under the 2023 Credit Agreement, the definition of adjusted EBITDA contains certain restrictions that limit adjustments to net income when calculating adjusted EBITDA. For the year ended December 31, 2023, our adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2023 Credit Agreement.
For results of operations comparisons relating to years ending December 31, 2021 and 2020, refer to our annual report on Form 10-K, Part II, ITEM 7: Management's Discussion and Analysis of Financial Condition and Results of Operations filed with the Securities and Exchange Commission on February 22, 2022.
For results of operations comparisons relating to years ending December 31, 2022 and 2021, refer to our annual report on Form 10-K, Part II, ITEM 7: Management's Discussion and Analysis of Financial Condition and Results of Operations filed with the Securities and Exchange Commission on February 17, 2023.
We currently operate over 700 retail stores globally through our wholly-owned and joint venture operations, led by over 200 Tempur-Pedic and Sleep Outfitters retail stores in the U.S. and over 200 Dreams locations in the U.K. We expect these retail stores to complement our existing third-party retail partners by increasing our products' brand awareness in the local markets.
We currently operate over 750 retail stores globally through our wholly-owned and joint venture operations, led by over 200 Tempur-Pedic and Sleep Outfitters retail stores in the U.S. and over 200 Dreams locations in the U.K. We believe these retail stores complement our existing third-party retail partners by increasing our products' brand awareness in the local markets.
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 220 basis points.
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 improved 160 basis points.
A valuation allowance is recorded against certain deferred tax assets to reduce the consolidated deferred tax asset to an amount that will, more likely than not, be realized in future periods. At December 31, 2022 the valuation allowance of $42.3 million was primarily related to certain tax attributes both domestically and in various foreign jurisdictions.
A valuation allowance is recorded against certain deferred tax assets to reduce the consolidated deferred tax asset to an amount that will, more likely than not, be realized in future periods. At December 31, 2023 the valuation allowance of $49.5 million was primarily related to certain tax attributes both domestically and in various foreign jurisdictions.
(2) Interest payments represent obligations under our debt outstanding as of December 31, 2022, applying December 31, 2022 interest rates and assuming scheduled payments are paid as contractually required through maturity. (3) The payments due for finance lease obligations excludes $15.2 million in future payments for interest.
(2) Interest payments represent obligations under our debt outstanding as of December 31, 2023, applying December 31, 2023 interest rates and assuming scheduled payments are paid as contractually required through maturity. (3) The payments due for finance lease obligations excludes $17.5 million in future payments for interest.
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 year ended December 31, 2022. 27 Table of Contents FULL YEAR 2022 (in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate Net sales $ 4,921.2 $ 3,886.1 $ 1,035.1 $ — Gross profit $ 2,049.6 41.6 % $ 1,487.3 38.3 % $ 562.3 54.3 % $ — Adjustments: ERP system transition (1) 11.1 11.1 — — Operational start-up costs (2) 5.8 5.8 — — Total adjustments 16.9 16.9 — — Adjusted gross profit $ 2,066.5 42.0 % $ 1,504.2 38.7 % $ 562.3 54.3 % $ — Operating income (expense) $ 680.6 13.8 % $ 642.4 16.5 % $ 187.2 18.1 % $ (149.0) Adjustments: ERP system transition (1) 15.5 14.3 — 1.2 Restructuring costs (3) 9.8 1.8 1.3 6.7 Operational start-up costs (2) 6.1 6.1 — — Total adjustments 31.4 22.2 1.3 7.9 Adjusted operating income (expense) $ 712.0 14.5 % $ 664.6 17.1 % $ 188.5 18.2 % $ (141.1) (1) We recorded $15.5 million of charges related to the transition of our ERP system in the year ended 2022.
FULL YEAR 2022 (in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate Net sales $ 4,921.2 $ 3,886.1 $ 1,035.1 $ — Gross profit $ 2,049.6 41.6 % $ 1,487.3 38.3 % $ 562.3 54.3 % $ — Adjustments: ERP system transition (1) 11.1 11.1 — — Operational start-up costs (2) 5.8 5.8 — — Total adjustments 16.9 16.9 — — Adjusted gross profit $ 2,066.5 42.0 % $ 1,504.2 38.7 % $ 562.3 54.3 % $ — Operating income (expense) $ 680.6 13.8 % $ 642.4 16.5 % $ 187.2 18.1 % $ (149.0) Adjustments: ERP system transition (1) 15.5 14.3 — 1.2 Restructuring costs (3) 9.8 1.8 1.3 6.7 Operational start-up costs (2) 6.1 6.1 — — Total adjustments 31.4 22.2 1.3 7.9 Adjusted operating income (expense) $ 712.0 14.5 % $ 664.6 17.1 % $ 188.5 18.2 % $ (141.1) (1) We recorded $15.5 million of charges related to the transition of our ERP system in the year ended 2022.
The allowance for credit losses included in accounts receivable, net in the accompanying Consolidated Balance Sheets was $62.4 million and $62.1 million as of December 31, 2022 and 2021, respectively. We regularly review the adequacy of our allowance for credit losses.
The allowance for credit losses included in accounts receivable, net in the accompanying Consolidated Balance Sheets was $66.9 million and $62.4 million as of December 31, 2023 and 2022, respectively. We regularly review the adequacy of our allowance for credit losses.
The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At December 31, 2022, our estimated gross unrecognized tax benefits were $39.0 million of which $17.6 million, if recognized, would favorably impact our future earnings.
The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At December 31, 2023, our estimated gross unrecognized tax benefits were $4.5 million which, if recognized, would favorably impact our future earnings.
Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. We have been involved in a dispute with SKAT regarding the Danish Tax Matter for tax years 2001 through current.
Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. We had previously been involved in a dispute with SKAT regarding the Danish Tax Matter for tax years 2012 through 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, share repurchases and debt service obligations.
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 25 Table of Contents necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures, debt service obligations and dividend payments.
The accrued sales returns in the accompanying Consolidated Balance Sheet, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $40.5 million and $49.8 million as of December 31, 2022 and 2021, respectively.
The accrued sales returns in the accompanying Consolidated Balance Sheet, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $43.7 million and $40.5 million as of December 31, 2023 and 2022, respectively.
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 remains below 3.5 times.
The 2023 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 remains below 3.75 times in the case of the 2023 Credit Agreement and remains below 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes.
For the year ended December 31, 2022, we repurchased 18.6 million shares under our share repurchase program for approximately $621.2 million and had approximately $779.5 million remaining under our share repurchase program. 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.
For the year ended December 31, 2023, we repurchased 0.1 million shares under our share repurchase program for approximately $5.0 million and had approximately $774.5 million remaining under our share repurchase program. 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.
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.
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.
GROSS PROFIT Year Ended December 31, 2022 2021 Margin Change (in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin 2022 vs 2021 North America $ 1,487.3 38.3 % $ 1,678.0 41.1 % (2.8) % International 562.3 54.3 % 480.7 56.4 % (2.1) % Consolidated gross margin $ 2,049.6 41.6 % $ 2,158.7 43.8 % (2.2) % 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 PROFIT Year Ended December 31, 2023 2022 Margin Change (in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin 2023 vs 2022 North America $ 1,537.5 39.9 % $ 1,487.3 38.3 % 1.6 % International 591.2 55.3 % 562.3 54.3 % 1.0 % Consolidated gross margin $ 2,128.7 43.2 % $ 2,049.6 41.6 % 1.6 % Costs associated with net sales are recorded in cost of sales and include the costs of producing, shipping, warehousing, receiving and inspecting goods during the period, as well as depreciation and amortization of long-lived assets used in the manufacturing process.
As of December 31, 2022, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure defined in the 2019 Credit Agreement, was 3.10 times.
As of December 31, 2023, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure defined in the 2023 Credit Agreement, was 2.87 times.
The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was 3.10 times for the trailing twelve months ended December 31, 2022. The 2019 Credit Agreement requires us to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00:1.00 times.
The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was 2.87 times for the trailing twelve months ended December 31, 2023. The 2023 Credit Agreement requires us to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00 times.
The dividend is payable on March 9, 2023 to shareholders of record as of February 23, 2023. As of December 31, 2022, we had $2,830.8 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,762.6 million.
The dividend is payable on March 7, 2024 to shareholders of record as of February 22, 2024. As of December 31, 2023, we had $2,593.6 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,518.7 million.
The effective tax rate as compared to the U.S. federal statutory tax rate for 2021 included the impact of net favorable discrete items primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan.
The 2023 effective tax rate as compared to the U.S. federal statutory tax rate included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and a benefit related to the final settlement of the Danish Tax Matter.
Refer to Part II, ITEM 7A of this Report for a discussion of our foreign currency exchange rate risk. 18 Table of Contents The following table sets forth the various components of our Consolidated Statements of Income and expresses each component as a percentage of net sales: (in millions, except percentages and Year Ended December 31, per common share amounts) 2022 2021 Net sales $ 4,921.2 100.0 % $ 4,930.8 100.0 % Cost of sales 2,871.6 58.4 2,772.1 56.2 Gross profit 2,049.6 41.6 2,158.7 43.8 Selling and marketing expenses 992.5 20.2 923.1 18.7 General, administrative and other expenses 397.6 8.1 353.9 7.2 Equity income in earnings of unconsolidated affiliates (21.1) (0.4) (30.6) (0.6) Operating income 680.6 13.8 912.3 18.5 Other expense, net: Interest expense, net 103.0 2.1 66.3 1.3 Loss on extinguishment of debt — — 23.0 0.5 Other expense (income), net 0.4 — (1.0) — Total other expense, net 103.4 2.1 88.3 1.8 Income from continuing operations before income taxes 577.2 11.7 824.0 16.7 Income tax provision (119.0) (2.4) (198.3) (4.0) Income from continuing operations 458.2 9.3 625.7 12.7 Loss from discontinued operations, net of tax (0.4) — (0.7) — Net income before non-controlling interest 457.8 9.3 625.0 12.7 Less: Net income attributable to non-controlling interest 2.1 — 0.5 — Net income attributable to Tempur Sealy International, Inc. $ 455.7 9.3 % $ 624.5 12.7 % Earnings per common share: Basic Earnings per share for continuing operations $ 2.61 $ 3.17 Loss per share for discontinued operations — — Earnings per share $ 2.61 $ 3.17 Diluted Earnings per share for continuing operations $ 2.53 $ 3.06 Loss per share for discontinued operations — — Earnings per share $ 2.53 $ 3.06 Weighted average common shares outstanding: Basic 174.9 197.0 Diluted 180.3 204.3 19 Table of Contents NET SALES Year Ended December 31, Consolidated North America International (in millions) 2022 2021 2022 2021 2022 2021 Net sales by channel Wholesale $ 3,772.5 $ 4,034.4 $ 3,390.1 $ 3,584.1 $ 382.4 $ 450.3 Direct 1,148.7 896.4 496.0 495.1 652.7 401.3 Total net sales $ 4,921.2 $ 4,930.8 $ 3,886.1 $ 4,079.2 $ 1,035.1 $ 851.6 Net sales decreased 0.2%, and on a constant currency basis increased 1.8%.
Refer to Part II, ITEM 7A of this Report for a discussion of our foreign currency exchange rate risk. 19 Table of Contents The following table sets forth the various components of our Consolidated Statements of Income and expresses each component as a percentage of net sales: (in millions, except percentages and Year Ended December 31, per common share amounts) 2023 2022 Net sales $ 4,925.4 100.0 % $ 4,921.2 100.0 % Cost of sales 2,796.7 56.8 2,871.6 58.4 Gross profit 2,128.7 43.2 2,049.6 41.6 Selling and marketing expenses 1,063.4 21.6 992.5 20.2 General, administrative and other expenses 481.1 9.8 397.6 8.1 Equity income in earnings of unconsolidated affiliates (23.0) (0.5) (21.1) (0.4) Operating income 607.2 12.3 680.6 13.8 Other expense, net: Interest expense, net 129.9 2.6 103.0 2.1 Loss on extinguishment of debt 3.2 0.1 — — Other expense, net — — 0.4 — Total other expense, net 133.1 2.7 103.4 2.1 Income from continuing operations before income taxes 474.1 9.6 577.2 11.7 Income tax provision (103.4) (2.1) (119.0) (2.4) Income from continuing operations 370.7 7.5 458.2 9.3 Loss from discontinued operations, net of tax — — (0.4) — Net income before non-controlling interest 370.7 7.5 457.8 9.3 Less: Net income attributable to non-controlling interest 2.6 0.1 2.1 — Net income attributable to Tempur Sealy International, Inc. $ 368.1 7.5 % $ 455.7 9.3 % Earnings per common share: Basic Earnings per share for continuing operations $ 2.14 $ 2.61 Loss per share for discontinued operations — — Earnings per share $ 2.14 $ 2.61 Diluted Earnings per share for continuing operations $ 2.08 $ 2.53 Loss per share for discontinued operations — — Earnings per share $ 2.08 $ 2.53 Weighted average common shares outstanding: Basic 172.2 174.9 Diluted 177.3 180.3 20 Table of Contents NET SALES Year Ended December 31, Consolidated North America International (in millions) 2023 2022 2023 2022 2023 2022 Net sales by channel Wholesale $ 3,746.1 $ 3,772.5 $ 3,348.2 $ 3,390.1 $ 397.9 $ 382.4 Direct 1,179.3 1,148.7 507.3 496.0 672.0 652.7 Total net sales $ 4,925.4 $ 4,921.2 $ 3,855.5 $ 3,886.1 $ 1,069.9 $ 1,035.1 Net sales increased 0.1% (including on a constant currency basis).
(4) Uncertain tax positions are excluded from this table given the timing of payments cannot be reasonably estimated. 25 Table of Contents 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, 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.
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, 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 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.
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.
Research and development expenses for the year ended December 31, 2022 were $29.2 million compared to $27.3 million for the year ended December 31, 2021, an increase of $1.9 million, or 7.0%. 21 Table of Contents OPERATING INCOME Year Ended December 31, 2022 2021 Margin Change (in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin 2022 vs 2021 North America $ 642.4 16.5 % $ 856.7 21.0 % (4.5) % International 187.2 18.1 % 200.0 23.5 % (5.4) % 829.6 1,056.7 Corporate expenses (149.0) (144.4) Total operating income $ 680.6 13.8 % $ 912.3 18.5 % (4.7) % Operating income decreased $231.7 million and operating margin declined 470 basis points.
Research and development expenses for the year ended December 31, 2023 were $30.6 million compared to $29.2 million for the year ended December 31, 2022, an increase of $1.4 million, or 4.8%. 22 Table of Contents OPERATING INCOME Year Ended December 31, 2023 2022 Margin Change (in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin 2023 vs 2022 North America $ 643.1 16.7 % $ 642.4 16.5 % 0.2 % International 170.9 16.0 % 187.2 18.1 % (2.1) % 814.0 829.6 Corporate expenses (206.8) (149.0) Total operating income $ 607.2 12.3 % $ 680.6 13.8 % (1.5) % Operating income decreased $73.4 million and operating margin declined 150 basis points.
Year Ended December 31, (in millions) 2022 2021 Net cash provided by (used in) continuing operations: Operating activities $ 378.8 $ 723.1 Investing activities (315.3) (554.8) Financing activities (279.1) 76.5 Cash provided by operating activities from continuing operations decreased $344.3 million in 2022 as compared to 2021.
Year Ended December 31, (in millions) 2023 2022 Net cash provided by (used in) continuing operations: Operating activities $ 570.3 $ 378.8 Investing activities (187.8) (315.3) Financing activities (384.3) (279.1) Cash provided by operating activities from continuing operations increased $191.5 million in 2023 as compared to 2022.
(8) The Company recorded an income tax benefit, on a net basis, of $12.3 million related to its Danish tax matter in the fourth quarter of 2022. In December 2022, the Danish tax authority and the IRS agreed on a preliminary framework to conclude the Company's Danish tax matter for the years 2012 through 2024.
(9) We recorded an income tax benefit, on a net basis, of $10.2 million and $12.3 million related to its Danish tax matter in the years ended 2023 and 2022, respectively. In December 2022, the Danish tax authority ("DTA") and the IRS agreed on a preliminary framework to conclude its Danish tax matter for the years 2012 through 2022.
Key Highlights Year Ended December 31, (in millions, except percentages and per common share amounts) 2022 2021 % Change Net sales $ 4,921.2 $ 4,930.8 (0.2) % Net income $ 455.7 $ 624.5 (27.0) % Adjusted net income (1) $ 467.9 $ 651.7 (28.2) % EPS $ 2.53 $ 3.06 (17.3) % Adjusted EPS (1) $ 2.60 $ 3.19 (18.5) % (1) Non-GAAP financial measure.
Key Highlights Year Ended December 31, (in millions, except percentages and per common share amounts) 2023 2022 % Change Net sales $ 4,925.4 $ 4,921.2 0.1 % Net income $ 368.1 $ 455.7 (19.2) % Adjusted net income (1) $ 425.6 $ 467.9 (9.0) % EPS $ 2.08 $ 2.53 (17.8) % Adjusted EPS (1) $ 2.40 $ 2.60 (7.7) % (1) Non-GAAP financial measure.
As of December 31, 2022, we had net working capital of $214.0 million, including cash and cash equivalents of $69.4 million, as compared to working capital of $222.2 million, including cash and cash equivalents of $300.7 million, as of December 31, 2021.
As of December 31, 2023, we had net working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as compared to working capital of $214.0 million, including cash and cash equivalents of $69.4 million, as of December 31, 2022.
Our reporting units are our North America segment, our International segment (excluding Dreams) and Dreams. Dreams was added as a separate reporting unit upon acquisition of the business on August 2, 2021. We test individual indefinite-lived intangible assets at the brand level. These assessments may be performed quantitatively or qualitatively.
Our reporting units are our North America segment, our International segment (excluding Dreams) and Dreams. We test individual indefinite-lived intangible assets at the brand level. These assessments may be performed quantitatively or qualitatively.
Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.10 times for the year ended December 31, 2022. We expect our leverage ratio to return to our target range of 2.0 to 3.0 times in 2023.
Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.87 times for the year ended December 31, 2023. As a result of the pending Mattress Firm acquisition, we expect our leverage ratio in 2024 to be between 3.0 and 3.25 times.
While we are well represented at third-party retailers in the U.S. today, there are opportunities to both increase the presence of our brands with existing retail partners and to sell into certain key retailers that do not have our products on their floors today. We strengthened these relationships in 2022, which we expect to support our sales growth in 2023.
While we are well represented at third-party retailers in the U.S. today, there are opportunities to both increase the presence of our brands with existing retail partners and to sell into certain key retailers that do not have our products on their floors today. We have been focused on building our direct channel, both online and company-owned retail stores.
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 3.5 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 3.75 times in the case of the 2023 Credit Agreement and above 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes.
INTEREST EXPENSE, NET Year Ended December 31, Percent change (in millions, except percentages) 2022 2021 2022 vs 2021 Interest expense, net $ 103.0 $ 66.3 55.4 % Interest expense, net, increased $36.7 million, or 55.4%. 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.
INTEREST EXPENSE, NET Year Ended December 31, Percent change (in millions, except percentages) 2023 2022 2023 vs 2022 Interest expense, net $ 129.9 $ 103.0 26.1 % Interest expense, net, increased $26.9 million, or 26.1%. The increase in interest expense, net, was primarily driven by higher interest rates on our variable rate debt.
The change in net sales was driven by the following: • North America net sales decreased $193.1 million, or 4.7%. Net sales in the Wholesale channel decreased $194.0 million, or 5.4%, primarily driven by macroeconomic pressures impacting U.S. consumer behavior. Net sales in our Direct channel increased $0.9 million, or 0.2%. • International net sales increased $183.5 million, or 21.5%.
The change in net sales was driven by the following: • North America net sales decreased $30.6 million, or 0.8%. Net sales in the Wholesale channel decreased $41.9 million, or 1.2%, primarily driven by macroeconomic pressures impacting U.S. consumer behavior.
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.
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. 26 Table of Contents 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.
Indebtedness Our total debt increased to $2,830.8 million as of December 31, 2022 from $2,353.2 million as of December 31, 2021. Total availability under our revolving senior secured credit facility was $387.4 million as of December 31, 2022, which matures in 2024.
Indebtedness Our total debt decreased to $2,593.6 million as of December 31, 2023 from $2,830.8 million as of December 31, 2022. Total availability under our revolving senior secured credit facility was $966.4 million as of December 31, 2023.
(in millions) December 31, 2022 December 31, 2021 Total debt, net $ 2,810.3 $ 2,331.5 Plus: Deferred financing costs (1) 20.5 21.7 Consolidated indebtedness 2,830.8 2,353.2 Less: Netted cash (2) 68.2 299.5 Consolidated indebtedness less netted cash $ 2,762.6 $ 2,053.7 (1) We present deferred financing costs as a direct reduction from the carrying amount of the related debt in the Consolidated Balance Sheets.
"Consolidated Indebtedness" and "Netted Cash" are terms used in the 2023 Credit Agreement for purposes of certain financial covenants. 31 Table of Contents (in millions) December 31, 2023 December 31, 2022 Total debt, net $ 2,571.9 $ 2,810.3 Plus: Deferred financing costs (1) 21.7 20.5 Consolidated indebtedness 2,593.6 2,830.8 Less: Netted cash (2) 74.9 68.2 Consolidated indebtedness less netted cash $ 2,518.7 $ 2,762.6 (1) We present deferred financing costs as a direct reduction from the carrying amount of the related debt in the Consolidated Balance Sheets.
The decline in operating margin was primarily driven by the decline in gross margin of 280 basis points and operating expense deleverage of 140 basis points. • International operating income decreased $12.8 million and operating margin declined 540 basis points.
The improvement in operating margin was primarily driven by the improvement in gross margin of 160 basis points, offset by operating expense deleverage of 160 basis points. • International operating income decreased $16.3 million and operating margin declined 210 basis points.
Year Ended December 31, 2022 2021 2022 2021 2022 2021 2022 2021 (in millions) Consolidated North America International Corporate Operating expenses: Advertising $ 448.0 $ 432.8 $ 375.1 $ 368.6 $ 72.9 $ 64.2 $ — $ — Other selling and marketing 544.5 490.3 288.6 289.6 234.8 174.8 21.1 25.9 General, administrative and other 397.6 353.9 181.2 163.1 88.5 72.3 127.9 118.5 Total operating expense $ 1,390.1 $ 1,277.0 $ 844.9 $ 821.3 $ 396.2 $ 311.3 $ 149.0 $ 144.4 Operating expenses increased $113.1 million, or 8.9%, and increased 230 basis points as a percentage of net sales.
Year Ended December 31, 2023 2022 2023 2022 2023 2022 2023 2022 (in millions) Consolidated North America International Corporate Operating expenses: Advertising $ 469.0 $ 448.0 $ 389.9 $ 375.1 $ 79.1 $ 72.9 $ — $ — Other selling and marketing 594.4 544.5 319.9 288.6 254.0 234.8 20.5 21.1 General, administrative and other 481.1 397.6 184.6 181.2 110.2 88.5 186.3 127.9 Total operating expense $ 1,544.5 $ 1,390.1 $ 894.4 $ 844.9 $ 443.3 $ 396.2 $ 206.8 $ 149.0 Operating expenses increased $154.4 million, or 11.1%, and increased 320 basis points as a percentage of net sales.
Adjusted gross margin, which is a non-GAAP financial measure, was 42.0% in 2022. There were no adjustments to gross margin in 2021. • Operating income was $680.6 million as compared to $912.3 million in 2021.
Adjusted gross margin, which is a non-GAAP financial measure, was 43.7% as compared to 42.0% in 2022. • Operating income decreased 10.8% to $607.2 million as compared to $680.6 million in 2022.
The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of December 31, 2022 and 2021. "Consolidated Indebtedness" and "Netted Cash" are terms used in the 2019 Credit Agreement for purposes of certain financial covenants.
The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of December 31, 2023 and 2022.
The direct channel growth rate has surpassed the wholesale growth rate over the last few years, and we anticipate the direct channel to continue to grow as a percentage of net sales in future years.
The development of our online business has been particularly important as consumers have grown more comfortable shopping for bedding products online. The direct channel growth rate has surpassed the wholesale growth rate over the last few years, and we anticipate the direct channel to continue to grow as a percentage of net sales in future years.
(9) Adjusted income tax provision represents the tax effects associated with the aforementioned items, excluding the income tax benefit for the Danish tax matter.
In October 2023, the DTA and the IRS formally concluded the matter. (10) Adjusted income tax provision represents the tax effects associated with the aforementioned items, excluding the income tax benefit for the Danish tax matter.
Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes. (4) We recorded $15.5 million of charges related to the transition of our ERP system in the year ended 2022. (5) We recorded $10.0 million of restructuring costs primarily associated with professional fees and headcount reductions related to organization changes in the year ended 2022.
(6) We recorded $3.2 million and $15.5 million of charges related to the transition of our ERP system in the year ended 2023 and 2022, respectively. (7) We recorded $10.0 million of restructuring costs primarily associated with professional fees and headcount reductions related to organization changes in the year ended 2022.
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.
As consumers make this connection, they are willing to invest more in their bedding purchases, which positions us well for long-term growth. In 2024, we expect a continuation of the current macroeconomic environment, which includes the impact of inflation and interest rate pressures on the consumer.
Adjusted operating income, which is a non-GAAP financial measure, was $712.0 million as compared to $918.5 million in 2021. • Net income was $455.7 million as compared to $624.5 million in 2021.
Adjusted operating income, which is a non-GAAP financial measure, decreased 2.4% to $695.1 million as compared to $712.0 million in 2022. • Net income decreased 19.2% to $368.1 million as compared to $455.7 million in 2022.
INCOME TAX PROVISION Year Ended December 31, Percent change (in millions, except percentages) 2022 2021 2022 vs 2021 Income tax provision $ 119.0 $ 198.3 (40.0) % Effective tax rate 20.6 % 24.1 % (3.5) % 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. 22 Table of Contents Our income tax provision decreased $79.3 million due to a decrease in income before income taxes and the favorable impact of discrete items.
INCOME TAX PROVISION Year Ended December 31, Percent change (in millions, except percentages) 2023 2022 2023 vs 2022 Income tax provision $ 103.4 $ 119.0 (13.1) % Effective tax rate 21.8 % 20.6 % 1.2 % 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.
Adjusted net income, which is a non-GAAP financial measure, was $467.9 million as compared to $651.7 million in 2021. 17 Table of Contents • EPS decreased to $2.53 as compared to $3.06 in 2021. Adjusted EPS, which is a non-GAAP financial measure, was $2.60 as compared to $3.19 in 2021.
Adjusted net income, which is a non-GAAP financial measure, decreased 9.0% to $425.6 million as compared to $467.9 million in 2022. • EPS decreased 17.8% to $2.08 as compared to $2.53 in 2022. Adjusted EPS, which is a non-GAAP financial measure, decreased 7.7% to $2.40 as compared to $2.60 in 2022.
The declines were partially offset by increased royalties of 70 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.
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.
The decrease was driven by the following: • North America operating income decreased $214.3 million and operating margin declined 450 basis points.
The decrease was driven by the following: • North America operating income increased $0.7 million and operating margin improved 20 basis points.
Operating expenses included $4.4 million, primarily related to professional fees. (3) We recorded $10.0 million of restructuring costs primarily associated with professional fees and headcount reductions related to organizational changes in the year ended 2022, including $0.2 million of other expense.
(6) In the year ended 2023, we recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of our senior secured credit facilities. (7) In the year ended December 31, 2022, we recorded $10.0 million of restructuring costs, primarily associated with professional fees and headcount reductions related to organizational changes, including $0.2 million of other expense.
The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the years ended December 31, 2022 and 2021: Year Ended (in millions) December 31, 2022 December 31, 2021 Net income $ 455.7 $ 624.5 Interest expense, net 103.0 61.1 Income tax provision 119.0 198.3 Depreciation and amortization 182.0 176.6 Overlapping interest expense (1) — 5.2 Loss on extinguishment of debt (2) — 23.0 EBITDA $ 859.7 $ 1,088.7 Adjustments: Loss from discontinued operations, net of tax (3) 0.4 0.7 ERP system transition (4) 15.5 — Restructuring costs (5) 10.0 — Operational start-up costs (6) 6.5 — Acquisition-related costs (7) — 6.2 Earnings from Dreams prior to acquisition (8) — 40.3 Adjusted EBITDA $ 892.1 $ 1,135.9 Consolidated indebtedness less netted cash $ 2,762.6 $ 2,053.7 Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 3.10 times 1.81 times 29 Table of Contents (1) In the year ended December 31, 2021, we incurred $5.2 million of overlapping interest expense during the period between the issuance of the 2029 Senior Notes and the redemption of the 2026 Senior Notes.
The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the years ended December 31, 2023 and 2022: 30 Table of Contents Year Ended (in millions) December 31, 2023 December 31, 2022 Net income $ 368.1 $ 455.7 Interest expense, net 129.9 103.0 Loss on extinguishment of debt (1) 3.2 — Income tax provision 103.4 119.0 Depreciation and amortization 184.8 182.0 EBITDA $ 789.4 $ 859.7 Adjustments: Transaction costs (2) 49.0 — Cybersecurity event (3) 14.3 — Fair value remeasurement (4) 11.0 — Operational start-up costs (5) 10.4 6.5 ERP system transition (6) 3.2 15.5 Restructuring costs (7) — 10.0 Loss from discontinued operations, net of tax (8) — 0.4 Adjusted EBITDA $ 877.3 $ 892.1 Consolidated indebtedness less netted cash $ 2,518.7 $ 2,762.6 Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 2.87 times 3.10 times (1) In the year ended 2023, we recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of our senior secured credit facilities.
Omni-Channel Distribution Expansion We have a diversified group of strong retail partners and a rapidly growing direct business. The largest pillar of our omni-channel distribution strategy is our more than 26,000 third-party retail doors. This broad footprint ensures that consumers can easily find and experience our products in person.
The largest pillar of our omni-channel distribution strategy is our distribution across tens of thousands of third-party retail doors. This broad footprint ensures that consumers can easily find and experience our products in person.
The effective tax rate as compared to the U.S. federal statutory tax rate for 2022 included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and a benefit related to release of reserves for uncertain tax positions related to a tax matter in Denmark.
The 2022 effective tax rate, as compared to the U.S. federal statutory tax rate, also included the impact of net favorable discrete items related to our incentive stock compensation plan and the Danish Tax Matter.
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 years ended December 31, 2022 and 2021.
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 years ended December 31, 2023 and 2022.
Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes. (2) We recorded $15.5 million of charges related to the transition of our ERP system in the year ended 2022. Cost of sales included $11.1 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.
(3) We recorded $3.2 million of charges related to the transition of our ERP system in the year ended 2023. Cost of sales included $3.2 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.
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.
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 primary drivers of changes in operating expenses by segment are discussed below. • North America operating expenses increased $23.6 million, or 2.9%, and increased 160 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 and e-commerce strategies.
The primary drivers of changes in operating expenses by segment are discussed below. • North America operating expenses increased $49.5 million, or 5.9%, and increased 150 basis points as a percentage of net sales.
Capital Expenditures Capital expenditures totaled $306.5 million and $123.3 million for the year ended December 31, 2022 and 2021, respectively. We currently expect our 2023 capital expenditures to decrease significantly to approximately $200 million, which includes investments to complete our manufacturing capacity expansion.
Capital Expenditures Capital expenditures were $185.4 million and $306.5 million for the year ended December 31, 2023 and 2022, respectively. We currently expect our 2024 capital expenditures to decrease to approximately $150 million, which includes maintenance capital expenditures of $110 million.
The decline in operating margin was primarily driven by the decline in gross margin of 210 basis points, operating expense deleverage of 190 basis points and the decline in Asia joint venture performance due to COVID-19 of 160 basis points. • Corporate operating expenses increased $4.6 million, which negatively impacted our consolidated operating margin.
The decline in operating margin was primarily driven by operating expense deleverage of 330 basis points, offset by the improvement in gross margin of 100 basis points. • Corporate operating expenses increased $57.8 million, which negatively impacted our consolidated operating margin.
The following table sets forth our reported gross profit and the reconciliation of our operating income (expense) to the calculation of adjusted operating income (expense) for the year ended December 31, 2021. We had no adjustments to gross profit for the year ended December 31, 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 years ended December 31, 2023 and 2022.
The principal factors impacting gross margin for each segment are discussed below. 20 Table of Contents • North America gross margin declined 280 basis points. The decline in gross margin was primarily driven by operational headwinds of 170 basis points and expense deleverage of 90 basis points.
The principal factors impacting gross margin for each segment are discussed below. 21 Table of Contents • North America gross margin improved 160 basis points. The improvement in gross margin was primarily driven by normalizing commodity costs of 220 basis points and pricing actions of 120 basis points.
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.
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 15, "Business Segment Information," included in Part II, ITEM 8 "Financial Statements and Supplementary Data", of this Report.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−2 removed1 unchanged
Biggest changeFor further information regarding the potential impacts of the LIBOR phase-out on the Company, please refer to "Risk Factors" in ITEM 1A of Part I of this Report. Foreign Currency Exchange Risk We hedge a portion of our currency exchange exposure relating to foreign currency transactions with foreign exchange forward contracts.
Biggest changeForeign Currency Exchange Risk We hedge a portion of our currency exchange exposure relating to foreign currency transactions with foreign exchange forward contracts.
A sensitivity analysis indicates the potential loss in fair value on foreign exchange forward contracts outstanding at December 31, 2022, resulting from a hypothetical 10.0% adverse change in all foreign currency exchange rates against the U.S. dollar, is approximately $4.3 million.
A sensitivity analysis indicates the potential loss in fair value on foreign exchange forward contracts outstanding at December 31, 2023, resulting from a hypothetical 10.0% adverse change in all foreign currency exchange rates against the U.S. dollar, is approximately $1.7 million.
Based on our balance sheet position as of December 31, 2022, the annualized effect of a 10% percentage point increase in floating interest rates on our variable-rate debt obligations would cause an estimated reduction on income before income taxes of $11.5 million.
As of December 31, 2023, the value of our variable-rate debt was $901.5 million. Based on our balance sheet position as of December 31, 2023, the annualized effect of a 10% percentage point increase in floating interest rates on our variable-rate debt obligations would cause an estimated reduction on income before income taxes of $9.0 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our primary exposure to interest rate risk is due to our variable-rate debt agreements, including our 2019 Credit Agreement. These variable-rate debt agreements use LIBOR, which is subject to fluctuation and uncertainty. As of December 31, 2022, the value of our variable-rate debt was $1,152.0 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our primary exposure to interest rate risk is due to our variable-rate debt agreements, including our 2023 Credit Agreement. These variable-rate debt agreements use Secured Overnight Financing Rate ("SOFR"), which is subject to fluctuation and uncertainty.
Removed
In March 2021, the FCA confirmed that all of the LIBOR settings for Euro and Swiss Franc and some of the LIBOR settings for Japanese Yen, Sterling and U.S. dollars would cease in December 2021 and the remainder of the LIBOR settings for U.S. dollars would cease in June 2023.
Removed
As a result, we expect to amend our debt agreements that use LIBOR as a benchmark by adopting the Secured Overnight Financing Rate ("SOFR") as the new reference rate, but do not expect these changes will have a material impact on our financial statements, liquidity and access to capital markets.

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