Leggett & Platt(LEG) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated condensed financial statements for Leggett & Platt, Inc., including balance sheets, statements of operations, comprehensive income (loss), and cash flows, along with detailed notes explaining accounting policies, segment information, and other financial disclosures for the periods ended March 31, 2021, and December 31, 2020 Consolidated Condensed Balance Sheets The consolidated condensed balance sheets show an increase in total assets from $4,800.0 million at December 31, 2020, to $4,911.6 million at March 31, 2021, primarily driven by higher current assets, especially inventories and trade receivables. Total liabilities also increased, with long-term debt rising from $1,849.3 million to $1,952.9 million (Amounts in millions) | (Amounts in millions) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total current assets | $1,789.0 | $1,658.1 | | Total assets | $4,911.6 | $4,800.0 | | Total current liabilities | $995.6 | $1,006.0 | | Total long-term liabilities | $2,459.8 | $2,368.9 | | Total liabilities and equity | $4,911.6 | $4,800.0 | - Total assets increased by $111.6 million from December 31, 2020, to March 31, 2021, primarily due to increases in current assets like inventories and trade receivables[10] - Long-term debt increased by $103.6 million, from $1,849.3 million at December 31, 2020, to $1,952.9 million at March 31, 2021[10] Consolidated Condensed Statements of Operations For the three months ended March 31, 2021, net trade sales increased by 10.1% year-over-year to $1,150.9 million. Gross profit rose to $247.5 million, and net earnings attributable to common shareholders more than doubled to $87.5 million, resulting in diluted EPS of $0.64, up from $0.33 in the prior year (Amounts in millions, except per share data) | (Amounts in millions, except per share data) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net trade sales | $1,150.9 | $1,045.5 | | Gross profit | $247.5 | $220.7 | | Earnings before interest and income taxes | $127.7 | $78.6 | | Net earnings attributable to Leggett & Platt, Inc. common shareholders | $87.5 | $44.1 | | Diluted EPS | $0.64 | $0.33 | - Net trade sales increased by $105.4 million (10.1%) year-over-year[11] - Net earnings attributable to common shareholders increased by $43.4 million (98.4%) year-over-year[11] - Diluted EPS increased by $0.31 (93.9%) year-over-year[11] Consolidated Condensed Statements of Comprehensive Income (Loss) The company reported comprehensive income of $75.1 million for the three months ended March 31, 2021, a significant improvement from a comprehensive loss of $(26.5) million in the prior year. This change was primarily driven by higher net earnings and a substantial reduction in foreign currency translation adjustments (Amounts in millions) | (Amounts in millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net earnings | $87.5 | $44.1 | | Foreign currency translation adjustments | $(14.3) | $(65.5) | | Other comprehensive loss | $(12.4) | $(70.6) | | Comprehensive income (loss) | $75.1 | $(26.5) | - Comprehensive income improved by $101.6 million year-over-year, moving from a loss to a gain[14] - Foreign currency translation adjustments decreased significantly from a loss of $(65.5) million in 2020 to $(14.3) million in 2021[14] Consolidated Condensed Statements of Cash Flows For the three months ended March 31, 2021, net cash used for operating activities was $(10.6) million, a decrease from $10.4 million provided in the prior year, primarily due to working capital investments. Net cash used for investing activities increased to $(49.9) million, largely due to acquisitions, while net cash provided by financing activities decreased to $49.1 million (Amounts in millions) | (Amounts in millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used for) provided by operating activities | $(10.6) | $10.4 | | Net cash used for investing activities | $(49.9) | $(17.3) | | Net cash provided by financing activities | $49.1 | $279.0 | | (Decrease) increase in cash and cash equivalents | $(15.1) | $258.2 | - Operating cash flow shifted from a positive $10.4 million in Q1 2020 to a negative $(10.6) million in Q1 2021, primarily due to working capital investments[17][168] - Investing activities used more cash in Q1 2021 ($(49.9) million) compared to Q1 2020 ($(17.3) million), mainly due to purchases of companies[17][56] Notes to Consolidated Condensed Financial Statements The notes provide essential context to the financial statements, detailing accounting policies, significant changes like the LIFO to FIFO inventory method, segment performance, and specific financial instrument disclosures. They also cover critical areas such as acquisitions, stock-based compensation, and potential contingencies and risks, including the ongoing impacts of the COVID-19 pandemic 1. INTERIM PRESENTATION The interim financial statements are unaudited and prepared in accordance with SEC rules, condensing certain GAAP disclosures. A significant change in accounting methodology from LIFO to FIFO for certain inventories was retrospectively applied as of January 1, 2021, to improve comparability and reflect physical inventory flow - The company changed its inventory valuation method from LIFO to FIFO for primarily domestic steel-related inventories, effective January 1, 2021, with retrospective application to all presented periods[23][58] - The change to FIFO is considered preferable as it better reflects the physical flow of inventory, provides consistency across businesses, and improves comparability with industry peers[58] - The company participates in trade receivables sales programs, selling receivables for 100% of face value less a discount, removing approximately $40.0 million at March 31, 2021, from the balance sheet[21] 2. ACCOUNTING STANDARDS UPDATES The adoption of ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," effective January 1, 2021, did not materially impact the company's financial statements. Other recent FASB guidance also had no material impact on current or future financial statements - ASU 2019-12, effective January 1, 2021, did not materially impact the financial statements[25] - Other FASB accounting guidance effective for current and future periods also did not have a material impact[25] 3. REVENUE Revenue is recognized when control of products transfers to customers, typically upon shipment or delivery. Shipping and handling costs are included in cost of goods sold. The company disaggregates revenue by product family, which aligns with its customer groups and segments, showing an overall increase in net trade sales to $1,150.9 million for Q1 2021 - Revenue is recognized when performance obligations are satisfied, generally upon transfer of control of products to customers (shipment or delivery)[26] Revenue by Product Family (Three Months Ended March 31) | Product Family | 2021 (Millions) | 2020 (Millions) | | :------------- | :-------------- | :-------------- | | Bedding Group | $535.8 | $490.6 | | Specialized Products | $257.6 | $234.5 | | Furniture, Flooring & Textile Products | $357.5 | $320.4 | | Total | $1,150.9 | $1,045.5 | - Net trade sales increased by $105.4 million (10.1%) from Q1 2020 to Q1 2021[34] 4. SEGMENT INFORMATION The company operates through three reportable segments: Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products. Performance is evaluated based on Earnings Before Interest and Taxes (EBIT). All segments showed increased trade sales and EBIT in Q1 2021 compared to Q1 2020, with Bedding Products experiencing the largest EBIT growth - The company has three operating segments: Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products[35][36] - Segment performance is evaluated based on Earnings Before Interest and Taxes (EBIT)[36] Segment Trade Sales (Three Months Ended March 31) | Segment | 2021 (Millions) | 2020 (Millions) | | :------ | :-------------- | :-------------- | | Bedding Products | $535.8 | $490.6 | | Specialized Products | $257.6 | $234.5 | | Furniture, Flooring & Textile Products | $357.5 | $320.4 | | Total | $1,150.9 | $1,045.5 | Segment EBIT (Three Months Ended March 31) | Segment | 2021 (Millions) | 2020 (Millions) | | :------ | :-------------- | :-------------- | | Bedding Products | $63.8 | $28.3 | | Specialized Products | $35.2 | $27.7 | | Furniture, Flooring & Textile Products | $28.3 | $26.1 | | Total | $127.7 | $78.6 | 5. IMPAIRMENT CHARGES The company incurred a $3.5 million pretax impairment charge in Q1 2020 to write off stock from a prior year divestiture that filed for bankruptcy. No impairment charges were recorded in Q1 2021 - A $3.5 million pretax impairment charge was recorded in Q1 2020 due to a stock write-off from a prior year divestiture[41] - No impairment charges were incurred in Q1 2021[41] 6. EARNINGS PER SHARE (EPS) Basic and diluted EPS for Q1 2021 were $0.64, a significant increase from $0.33 in Q1 2020, reflecting higher net earnings attributable to common shareholders. Cash dividends declared per share remained constant at $0.40 for both periods Earnings Per Share (Three Months Ended March 31) | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Net earnings attributable to Leggett & Platt, Inc. common shareholders (millions) | $87.5 | $44.1 | | Basic EPS | $0.64 | $0.33 | | Diluted EPS | $0.64 | $0.33 | | Cash dividends declared per share | $0.40 | $0.40 | - Basic and diluted EPS increased by $0.31 (93.9%) year-over-year[42] 7. ACCOUNTS AND OTHER RECEIVABLES Total net receivables increased to $602.9 million at March 31, 2021, from $563.6 million at December 31, 2020. The allowance for doubtful accounts decreased from $42.0 million at December 31, 2020, to $38.6 million at March 31, 2021, reflecting improved customer payment trends and macroeconomic conditions Accounts and Other Receivables (Amounts in millions) | Category | March 31, 2021 | December 31, 2020 | | :------- | :------------- | :---------------- | | Total net receivables | $602.9 | $563.6 | | Allowance for doubtful accounts | $(38.6) | $(42.0) | - The allowance for doubtful accounts decreased by $3.4 million in Q1 2021, reflecting positive customer payment trends and improved macroeconomic conditions[44][126] - A specific customer in the Bedding Products segment with financial difficulties had a reserve of $24.0 million at March 31, 2021[44] 8. STOCK-BASED COMPENSATION Total stock-based compensation expense increased to $12.4 million in Q1 2021 from $7.5 million in Q1 2020. Performance Stock Unit (PSU) awards, based on TSR and EBIT CAGR, are a significant component, with 50% intended to be settled in stock and 50% in cash Stock-Based Compensation Expense (Three Months Ended March 31, in millions) | Category | 2021 | 2020 | | :------- | :--- | :--- | | Total stock-related compensation expense (income) | $10.1 | $4.6 | | Employee contributions for above stock plans | $2.3 | $2.9 | | Total stock-based compensation | $12.4 | $7.5 | - Total stock-based compensation increased by $4.9 million (65.3%) year-over-year[45] - PSU awards are based 50% on Total Shareholder Return (TSR) compared to a peer group and 50% on EBIT Compound Annual Growth Rate (CAGR)[47][49] 9. ACQUISITIONS In Q1 2021, the company acquired one business for $27.3 million, a UK manufacturer specializing in metallic ducting systems for the aerospace industry, expanding the capabilities of its Specialized Products segment. No acquisitions occurred in Q1 2020 - In Q1 2021, the company acquired a UK manufacturer of metallic ducting systems for the space, military, and commercial aerospace applications for $27.3 million[56] - This acquisition, which added $6.3 million in goodwill, expands the capabilities of the Aerospace Products business unit within the Specialized Products segment[56] - No businesses were acquired during the first three months of 2020[57] 10. INVENTORIES Effective January 1, 2021, the company changed its inventory valuation method from LIFO to FIFO for certain domestic steel-related inventories, retrospectively applying the change. This resulted in an increase to retained earnings of $29.4 million as of January 1, 2020, and adjustments to Q1 2020 financial statements. Total inventories increased to $801.8 million at March 31, 2021, from $691.5 million at December 31, 2020 - The company changed its inventory valuation method from LIFO to FIFO for domestic steel-related inventories, effective January 1, 2021, retrospectively applied[58] - This change increased retained earnings by $29.4 million as of January 1, 2020[60] Inventories (Amounts in millions) | Category | March 31, 2021 | December 31, 2020 | | :------- | :------------- | :---------------- | | Finished goods | $343.7 | $302.3 | | Work in process | $57.2 | $47.1 | | Raw materials and supplies | $400.9 | $342.1 | | Total Inventories | $801.8 | $691.5 | 11. EMPLOYEE BENEFIT PLANS Net pension expense for domestic and foreign defined benefit plans was $0.9 million in Q1 2021, slightly lower than $1.0 million in Q1 2020. Employer contributions for 2021 are expected to be approximately $4.0 million Components of Net Pension Expense (Three Months Ended March 31, in millions) | Component | 2021 | 2020 | | :-------- | :--- | :--- | | Service cost | $1.2 | $1.1 | | Interest cost | $1.5 | $1.9 | | Expected return on plan assets | $(3.1) | $(3.0) | | Recognized net actuarial loss | $1.3 | $1.0 | | Net pension expense | $0.9 | $1.0 | - Employer contributions for 2021 are expected to approximate $4.0 million[65] 12. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Total equity increased to $1,456.2 million at March 31, 2021, from $1,425.1 million at January 1, 2021, primarily due to net earnings and stock-based compensation transactions, partially offset by dividends and foreign currency translation adjustments. Accumulated other comprehensive loss increased from $(52.4) million to $(64.8) million during the quarter Changes in Total Equity (Three Months Ended March 31, in millions) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Beginning balance, January 1 | $1,425.1 | $1,339.4 | | Net earnings attributable to Leggett & Platt, Inc. common shareholders | $87.5 | $44.1 | | Dividends declared | $(53.4) | $(52.8) | | Foreign currency translation adjustments | $(14.3) | $(65.5) | | Ending balance, March 31 | $1,456.2 | $1,266.4 | - Accumulated other comprehensive loss increased by $12.4 million in Q1 2021, primarily due to foreign currency translation adjustments[68][69] 13. FAIR VALUE The company utilizes a three-level valuation hierarchy for fair value measurements. As of March 31, 2021, total assets measured at fair value were $207.2 million, primarily consisting of Level 2 bank time deposits and Level 1 diversified investments. Total liabilities measured at fair value were $46.5 million, mainly Level 1 liabilities associated with ESUP - Fair value measurements are established using a three-level valuation hierarchy (Level 1: quoted prices in active markets, Level 2: observable inputs, Level 3: unobservable inputs)[71][72] Fair Value of Assets and Liabilities (As of March 31, 2021, in millions) | Category | Level 1 | Level 2 | Level 3 | Total | | :------- | :------ | :------ | :------ | :---- | | Assets | $45.7 | $161.5 | $0.0 | $207.2 | | Liabilities | $44.9 | $1.6 | $0.0 | $46.5 | - The fair value of fixed rate debt was approximately $130.0 million greater than its carrying value of $1,588.1 million at March 31, 2021[74] 14. DERIVATIVE FINANCIAL INSTRUMENTS The company uses derivative financial instruments, primarily currency cash flow hedges, to manage interest rate and foreign currency risks, aiming for hedge accounting treatment. Total derivative assets were $7.5 million and liabilities were $1.6 million at March 31, 2021. Hedging activities resulted in a pretax gain of $(1.1) million in Q1 2021, compared to a loss of $5.1 million in Q1 2020 - The company uses derivative instruments (currency and interest rate cash flow hedges) to manage market and financial risks, primarily foreign currency and interest rates[76][77][200] Fair Value of Derivative Financial Instruments (As of March 31, 2021, in millions) | Category | Assets | Liabilities | | :------- | :----- | :---------- | | Total derivatives | $7.4 | $1.5 | Pretax (Gains) Losses from Hedging Activities (Three Months Ended March 31, in millions) | Category | 2021 | 2020 | | :------- | :--- | :--- | | Total derivative instruments | $(1.1) | $5.1 | 15. CONTINGENCIES The company is involved in various legal proceedings, including significant Brazilian value-added tax (VAT) matters, for which it denies allegations and is vigorously defending itself. While an immaterial litigation contingency accrual of $0.7 million was recorded at March 31, 2021, reasonably possible (but not probable) losses in excess of accruals are estimated at $10.6 million, including $9.8 million for Brazilian VAT matters - The company faces various legal proceedings, including employment, intellectual property, environmental, taxation, and antitrust matters[84] - Reasonably possible (but not probable) losses in excess of recorded accruals are estimated at $10.6 million, with $9.8 million related to Brazilian VAT matters[97] Litigation Contingency Accrual (Three Months Ended March 31, in millions) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Beginning of period | $0.5 | $0.7 | | Adjustment to accruals - expense | $0.2 | $0.1 | | End of period | $0.7 | $0.6 | 16. RISKS AND UNCERTAINTIES The company faces significant risks and uncertainties primarily stemming from the COVID-19 pandemic, including adverse impacts on product demand, manufacturing operations, supply chain disruptions (e.g., microchip and chemical shortages), and increased costs. These factors could negatively affect sales, earnings, and financial condition - The COVID-19 pandemic has adversely affected demand for products, manufacturing operations, and global supply chains[99][100] - Ongoing microchip shortages in the automotive industry and chemical shortages (exacerbated by severe weather) are impacting production and increasing costs, with anticipated persistence throughout the year[101][104] - Supply chain disruptions, including congested ports and increased freight costs, continue to hamper operations[105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive overview of the company's business, operational segments, and the significant impacts of the COVID-19 pandemic on its demand, manufacturing, and supply chain. It details the financial performance for Q1 2021, highlighting growth in sales and earnings, and discusses liquidity, capitalization, raw material costs, competitive landscape, and various risks and contingencies What We Do Leggett & Platt, Incorporated is a diversified manufacturer of engineered components and products for homes, offices, and automobiles. The company holds leading positions in various markets, including bedding components, automotive seat support systems, specialty bedding foams, and furniture components - Leggett & Platt is a diversified manufacturer of engineered components and products for homes, offices, and automobiles[106] - The company is a leading U.S.-based manufacturer of bedding components, automotive seat support and lumbar systems, specialty bedding foams, private-label finished mattresses, furniture components, flooring underlayment, adjustable beds, and bedding industry machinery[107] Our Segments The company operates through three reportable segments: Bedding Products (47% of Q1 2021 trade sales), Specialized Products (22% of trade sales), and Furniture, Flooring & Textile Products (31% of trade sales). Each segment supplies a wide range of components and finished products to various industries - Bedding Products segment supplies components and machinery for bedding manufacturers, private-label finished mattresses, and is integrated into specialty foam chemicals and steel production, contributing 47% of Q1 2021 trade sales[109] - Specialized Products segment provides lumbar support, seat suspension, motors, actuators, and control cables for automotive, tubing for aerospace, and hydraulic cylinders for material-handling and construction, contributing 22% of Q1 2021 trade sales[110] - Furniture, Flooring & Textile Products segment supplies components for residential and work furniture, private-label finished furniture, carpet cushion, hard surface flooring underlayment, and textile/geo components, contributing 31% of Q1 2021 trade sales[111] COVID-19 Impacts on our Business The COVID-19 pandemic has significantly impacted the company's operations, leading to adverse effects on demand, manufacturing, and supply chains. The company responded by implementing safety protocols, managing supply chain risks, reducing costs, and amending credit facility covenants. While demand has recovered in some areas, microchip and chemical shortages, along with logistics disruptions, continue to pose challenges - The pandemic has adversely impacted product demand, manufacturing operations, raw material availability, labor levels, and operating costs[112] - The company implemented safety protocols, managed supply chain risks, reduced fixed costs by approximately $20 million in Q1 2021, and amended credit facility covenants to strengthen cash flow and balance sheet[113][115] - Ongoing microchip shortages in the automotive industry and chemical shortages (exacerbated by severe weather) are disrupting operations and increasing costs, with anticipated persistence throughout the year[119][104] Customers The company serves a broad and diversified customer base, including bedding brands, residential and office furniture producers, automotive OEMs, and Tier 1 manufacturers. Its largest customer accounted for approximately 6% of trade sales in 2020 - The company serves a broad suite of customers, including bedding brands, furniture producers, automotive OEMs, and Tier 1 manufacturers[133] - The largest customer represented approximately 6% of trade sales in 2020[133] Raw Material Costs Raw material costs, particularly for steel and chemicals, significantly impact the company's expenses. Steel costs inflated further in Q1 2021, and chemical costs experienced significant inflation and supply shortages due to severe weather. The company typically passes these cost changes to customers, though with a timing lag - Steel is the principal raw material, with costs inflating further in Q1 2021 after significant inflation late in 2020[135] - Chemical costs (TDI, MDI, polyol) experienced significant inflation and supply shortages in Q1 2021 due to severe weather impacts, with allocations expected to persist[137] - The company generally implements price increases to recover higher raw material costs, but typically experiences a lag in recovery[134] Competition The company operates in highly competitive markets, facing pressure from smaller, price-focused domestic and foreign competitors. It maintains competitiveness through efficiency, innovation, and vertical integration. Anti-dumping and countervailing duties on imported innersprings, steel wire rod, and finished mattresses from various countries are in effect, providing some protection against unfair competition - Markets are highly competitive, with competitors often smaller, private companies primarily competing on price[140] - The company competes through efficient operations, automation, vertical integration in steel and wire, logistics, and large-scale purchasing[141] - Anti-dumping duties are in effect for innerspring imports (through 2024), steel wire rod (various dates through 2025), and finished mattresses (through 2024-2026) from several countries, including China[142][143][144][145] Total Shareholder Return Total Shareholder Return (TSR) is a primary long-term performance measure, aiming for the top third of S&P 500 companies through revenue growth, margin expansion, dividends, and share repurchases. Senior executives' incentive programs are tied to TSR performance and EBIT Compound Annual Growth Rate (CAGR) - Total Shareholder Return (TSR) is a primary financial measure to assess long-term performance, with a goal to achieve TSR in the top third of S&P 500 companies[146][147] - TSR is driven by revenue growth, margin expansion, dividends, and share repurchases[147] - Senior executives' incentive programs are based on TSR performance relative to peers and the company's or segment's EBIT Compound Annual Growth Rate (CAGR)[148] Acquisition of Elite Comfort Solutions In January 2019, the company acquired Elite Comfort Solutions (ECS) for approximately $1.25 billion. ECS is a leader in specialized foam technology for the bedding and furniture industries, operating a vertically-integrated model and strengthening the Bedding Products segment - The company acquired Elite Comfort Solutions (ECS) for approximately $1.25 billion in January 2019[149] - ECS specializes in foam technology for bedding and furniture, with a vertically-integrated model producing specialty foam and private-label finished products[149] - ECS operates within the Bedding Products segment and has a strong position in the high-growth compressed mattress market[149] Organic Sales Organic sales are defined as trade sales excluding sales from acquisitions and divestitures within the last twelve months. This metric is used by management and investors to analyze underlying sales performance in legacy businesses - Organic sales are calculated as trade sales excluding sales attributable to acquisitions and divestitures consummated within the last twelve months[151] - This metric is used to analyze underlying sales performance from period to period in legacy businesses[151] Climate Change While the company has an environmental management system to ensure compliance with regulations, it has experienced supply shortages in chemicals due to severe weather impacts, restricting foam supply and increasing costs. Increased property insurance premiums are also partly attributed to enhanced weather-related risks - The company has an environmental management system to ensure compliance with environmental regulations and drive sustainability improvements[152] - Severe weather impacts have led to chemical supply shortages, restricting foam supply, constraining mattress production, and increasing costs[152] - Property insurance premiums have increased, partly due to enhanced weather-related risks[152] Change in Method for Valuing Inventories from Last-In, First-Out (LIFO) Cost Method Effective January 1, 2021, the company changed its inventory valuation method from LIFO to FIFO for certain domestic steel-related inventories, retrospectively applying the change. This change is expected to result in aggregate tax payments of $21 million during 2021-2023, with approximately $11 million in 2021 - The company changed its inventory valuation method from LIFO to FIFO for domestic steel-related inventories, effective January 1, 2021, with retrospective application[153] - This change is expected to result in aggregate tax payments of $21 million during 2021-2023, with approximately $11 million in 2021[153] RESULTS OF OPERATIONS The company reported strong financial results for Q1 2021, with significant increases in consolidated trade sales, EBIT, and EPS, driven by volume growth, lower fixed costs, and reduced impairment charges. All three segments contributed to sales and EBIT growth, though with varying drivers Discussion of Consolidated Results For Q1 2021, consolidated trade sales increased 10% to $1,150.9 million, with organic sales up 11%. EBIT surged 62% to $127.7 million, and EPS rose to $0.64 from $0.33, primarily due to volume growth, lower fixed costs, and the non-recurrence of prior year impairment charges Consolidated Financial Performance (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 (Millions) | Q1 2020 (Millions) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | | Trade Sales | $1,150.9 | $1,045.5 | 10% | | EBIT | $127.7 | $78.6 | 62% | | EPS | $0.64 | $0.33 | 94% | - Organic sales increased 11%, driven by 4% volume growth from strong residential end markets and Automotive, and 5% raw material-related selling price increases[155] - Net interest expense decreased by $2 million due to reduced debt levels and lower interest rates. The effective tax rate was 20% in Q1 2021, down from 25% in Q1 2020[158][159] Discussion of Segment Results All segments reported increased trade sales and EBIT in Q1 2021. Bedding Products saw a 9% sales increase and 125.4% EBIT growth, driven by volume, higher metal margin, and lower costs. Specialized Products' sales rose 10% and EBIT 27.1%, mainly from Automotive volume. Furniture, Flooring & Textile Products increased sales by 12% and EBIT by 8.4%, fueled by strong demand in Geo Components and Home Furniture Bedding Products Trade sales for Bedding Products increased by $45 million (9%) in Q1 2021, with organic sales up 12%. EBIT surged by $36 million (125.4%), primarily due to volume growth, higher metal margin, lower fixed costs, and reduced bad debt expense Bedding Products Segment Performance (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 (Millions) | Q1 2020 (Millions) | Change ($) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | :--------- | | Trade Sales | $535.8 | $490.6 | $45.2 | 9.2% | | EBIT | $63.8 | $28.3 | $35.5 | 125.4% | - Organic sales increased 12%, driven by 9% raw material-related selling price increases and 2% volume growth[164] - EBIT growth was also supported by the non-recurrence of an $8 million impairment charge related to a note receivable[165] Specialized Products Specialized Products' trade sales increased by $23 million (10%) in Q1 2021, with organic sales up 9%. EBIT increased by $8 million (27.1%), mainly from volume growth in Automotive and lower fixed costs, partially offset by weak demand in Aerospace Specialized Products Segment Performance (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 (Millions) | Q1 2020 (Millions) | Change ($) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | :--------- | | Trade Sales | $257.6 | $234.5 | $23.1 | 9.9% | | EBIT | $35.2 | $27.7 | $7.5 | 27.1% | - Organic sales increased 9%, driven by 6% currency benefit and 3% volume growth in Automotive and Hydraulic Cylinders[166] - A small Aerospace acquisition in January added 1% to trade sales[166] Furniture, Flooring & Textile Products Trade sales for Furniture, Flooring & Textile Products increased by $37 million (12%) in Q1 2021, with volume up 8% from strong demand in Geo Components, Home Furniture, and Flooring Products. EBIT increased by $2 million (8.4%), driven by volume growth and lower fixed costs, despite pricing lag from higher raw material costs Furniture, Flooring & Textile Products Segment Performance (Q1 2021 vs. Q1 2020) | Metric | Q1 2021 (Millions) | Q1 2020 (Millions) | Change ($) | Change (%) | | :----- | :----------------- | :----------------- | :--------- | :--------- | | Trade Sales | $357.5 | $320.4 | $37.1 | 11.6% | | EBIT | $28.3 | $26.1 | $2.2 | 8.4% | - Volume was up 8%, driven by strong demand in Geo Components, Home Furniture, and Flooring Products' residential business[167] - Raw material-related selling price increases added 3% to sales, and currency benefit increased sales 1%[167] LIQUIDITY AND CAPITALIZATION The company's liquidity is primarily driven by cash from operations, which was negative in Q1 2021 due to working capital investments. It manages working capital efficiently and utilizes commercial paper and a credit facility for financing. Strategic uses of cash include capital expenditures, acquisitions, dividends, and debt repayment, with a temporary focus on deleveraging Cash from Operations Cash from operations for Q1 2021 was $(10.6) million, a $21.0 million decrease from the prior year, primarily due to working capital investments to support growth and inflationary impacts. Adjusted working capital as a percent of annualized trade sales increased to 12.0% at March 31, 2021 - Cash from operations for Q1 2021 was $(10.6) million, down $21.0 million from Q1 2020, primarily due to working capital investments[168] Working Capital Metrics (Amounts in millions) | Metric | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Working capital | $793.4 | $652.1 | | Adjusted working capital | $553.2 | $396.5 | | Adjusted working capital as a percent of annualized trade sales | 12.0% | 8.4% | Three Primary Components of our Working Capital Trade receivables increased due to strong sales and inflation, but Days Sales Outstanding (DSO) decreased to 45 days. Inventories and Days Inventory On Hand (DIO) increased to 80 days due to planned builds and higher costs. Accounts payable and Days Payables Outstanding (DPO) decreased compared to December 31, 2020, but increased compared to March 31, 2020 Working Capital Components (Amounts in millions, Days) | Component | March 31, 2021 | December 31, 2020 | March 31, 2020 | DSO/DIO/DPO (March 31, 2021) | | :-------- | :------------- | :---------------- | :------------- | :--------------------------- | | Trade Receivables | $577.4 | $535.2 | $546.0 | 45 DSO | | Inventories | $801.8 | $691.5 | $692.3 | 80 DIO | | Accounts Payable | $536.3 | $552.2 | $429.1 | 53 DPO | - DSO decreased to 45 days in Q1 2021 from 48 days in Q1 2020, reflecting strong credit discipline[171][175] - DIO increased to 80 days in Q1 2021 from 76 days in Q1 2020, driven by planned inventory builds and higher costs[171][176] Accounts Receivable and Accounts Payable Programs The company participates in trade receivables sales programs, which reduced quarterly DSO by approximately three days and removed $40 million of receivables from the balance sheet at March 31, 2021. It also uses third-party programs for accounts payable to optimize payment terms, with approximately $105 million settled through these programs at March 31, 2021 - Trade receivables sales programs reduced quarterly DSO by roughly three days and removed approximately $40 million of receivables from the balance sheet at March 31, 2021[178] - Third-party programs allow suppliers to be paid earlier at a discount, with approximately $105 million in accounts payable settled through these programs at March 31, 2021[179] - Cessation of these programs is not expected to materially impact operating cash flows or liquidity[180] Uses of Cash The company prioritizes funding organic growth and dividends, followed by strategic acquisitions and debt repayment, temporarily limiting share repurchases due to increased leverage from the ECS acquisition. Capital expenditures are expected to approximate $150 million in 2021, and a quarterly dividend of $0.42 per share was declared in May - Long-term priorities for cash use are funding organic growth, paying dividends, funding strategic acquisitions, and repurchasing stock[185] - Due to increased leverage from the ECS acquisition, the company is prioritizing debt repayment and temporarily limiting share repurchases[185] - Capital expenditures are expected to approximate $150 million in 2021, and a quarterly dividend of $0.42 per share was declared in May 2021, representing a 5.0% increase[181][184] Capitalization Total capitalization increased to $3,916.0 million at March 31, 2021, from $3,794.0 million at December 31, 2020. Total long-term debt was $1,952.9 million with an average interest rate of 3.7% and average maturities of 5.1 years. Unused committed credit under the revolving credit facility was $1,084.0 million Key Debt and Capitalization Statistics (Amounts in millions) | Metric | March 31, 2021 | December 31, 2020 | | :----- | :------------- | :---------------- | | Total long-term debt | $1,952.9 | $1,849.3 | | Average interest rates | 3.7% | 3.7% | | Average maturities in years | 5.1 | 5.3 | | Total capitalization | $3,916.0 | $3,794.0 | | Unused committed credit | $1,084.0 | $1,200.0 | - Total long-term debt increased by $103.6 million from December 31, 2020, to March 31, 2021[186] - The company had $116.0 million of commercial paper outstanding at March 31, 2021, classified as long-term debt[186] Commercial Paper Program and Term Loan Financing The company's $1.2 billion multi-currency credit facility, maturing in January 2024, backs its commercial paper program. At March 31, 2021, $116.0 million of commercial paper was outstanding, and the company was in compliance with all debt covenants, including a leverage ratio covenant that tightens over time - The company's $1.2 billion multi-currency credit facility, maturing in January 2024, serves as back-up for its commercial paper program[187] - At March 31, 2021, $116.0 million of commercial paper was outstanding, classified as long-term debt[187] - The company was in compliance with all debt covenants at March 31, 2021, including a leverage ratio covenant that requires a ratio of consolidated funded indebtedness to trailing 12-month consolidated EBITDA not to exceed 4.75 to 1.00 through March 31, 2021, tightening to 3.25 to 1.00 by December 31, 2021[189] Accessibility of Cash At March 31, 2021, the company held $334 million in cash and cash equivalents, primarily in international accounts. It expects to repatriate approximately $165 million of additional foreign cash before year-end, which would incur approximately $22 million in foreign withholding taxes - Cash and cash equivalents totaled $334 million at March 31, 2021, with substantially all funds held in international accounts[190] - The company expects to repatriate approximately $165 million of additional foreign cash before year-end, incurring an estimated $22 million in foreign withholding taxes[190][191] CONTINGENCIES The company's contingencies primarily relate to the ongoing impacts of the COVID-19 pandemic on its business, as detailed in Note 15 to the financial statements - Contingencies related to the impact of the COVID-19 pandemic on the business are discussed in Note 15[192] Potential Sale of Real Estate The company has agreed to sell certain real estate from prior restructuring activities in the Bedding Products segment, expecting to realize a gain of up to $30 million upon closing, potentially as early as Q2 2021 - The company expects to realize a gain of up to $30 million from the sale of real estate associated with prior restructuring activities in the Bedding Products segment[193] - The sale may close as early as the second quarter of 2021[193] Cybersecurity Risks The company relies heavily on industrial control and information systems, making it vulnerable to cybersecurity risks. While no material incidents have occurred, enhanced protection efforts, quarterly training, and cyber insurance are in place. However, increased remote access due to COVID-19 heightens the risk of disruptions or data breaches, which could adversely affect operations and financial results - The company relies on industrial control systems and information systems for manufacturing, data management, and business operations[194] - Enhanced cybersecurity protection efforts, quarterly training, and broad-form cyber insurance are in place, and the company benchmarks its program against NIST Cybersecurity Framework[195] - Increased remote access due to COVID-19 heightens the risk of technology failures or cybersecurity breaches, which could disrupt operations, lead to financial loss, and negatively impact reputation[195] Litigation The company is exposed to litigation contingencies, with an immaterial aggregate accrual at March 31, 2021. Reasonably possible (but not probable) losses in excess of accruals are estimated at $11 million, including $10 million for Brazilian VAT matters, which could materially impact financial condition if realized - The company is exposed to litigation contingencies, with an immaterial aggregate accrual at March 31, 2021[196] - Reasonably possible (but not probable) losses in excess of accruals are estimated at $11 million, including $10 million for Brazilian VAT matters[196] ACCOUNTING STANDARDS UPDATES The FASB has issued accounting guidance effective for current and future periods, as further discussed in Note 2 to the Consolidated Condensed Financial Statements - Refer to Note 2 for a complete discussion of accounting standards updates[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks related to interest rates and foreign currency, which it manages using derivative instruments. Substantially all debt is USD-denominated, and investments in foreign subsidiaries are viewed as long-term commitments, with translation exposures not hedged - The company is subject to market and financial risks related to interest rates and foreign currency, which are managed using derivative instruments[200] - Substantially all debt is denominated in United States dollars[198] - Investments in foreign subsidiaries are viewed as long-term commitments, and translation exposures are not hedged[199] Item 4. Controls and Procedures The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of March 31, 2021. There were no material changes to internal control over financial reporting during the quarter Effectiveness of the Company's Disclosure Controls and Procedures The company's management, with the participation of the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures and concluded they were effective as of March 31, 2021 - The company's disclosure controls and procedures were deemed effective as of March 31, 2021[207] Changes in the Company's Internal Control Over Financial Reporting There were no changes during the quarter ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - No material changes to internal control over financial reporting occurred during Q1 2021[208] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section details ongoing legal proceedings, including the successful imposition of anti-dumping and countervailing duties on mattresses imported from several countries, and an environmental matter involving a French subsidiary facing potential fines for alleged air emission violations Mattress Anti-Dumping Matter In March 2021, the DOC made final determinations on Chinese subsidies (97.78% duty rate) and anti-dumping duties on mattresses from Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam (2.22% – 763.28%). The ITC affirmed material injury to domestic producers, leading to duties remaining in effect through May 2026 - Final anti-dumping and countervailing duties were imposed on mattresses imported from China (97.78% countervailing duty) and seven other countries (2.22% – 763.28% anti-dumping duties)[212] - The ITC made a unanimous affirmative final determination that domestic mattress producers were materially injured[212] - These duties will remain in effect for five years, through May 2026[212] Environmental Matters Involving Potential Monetary Sanctions of $300,000 or More The company's French subsidiary, Specitubes SAS, faces allegations of violating French environmental air emission standards and creating a human health hazard, with a possible fine of up to $600,000 USD. Specitubes intends to defend the matter, and the outcome is not expected to have a material adverse effect - Specitubes SAS, a French subsidiary, faces allegations of violating French environmental air emission standards and creating a human health hazard[213] - The allegations carry a possible fine of up to approximately $600,000 USD[213] - The company does not expect this matter to have a material adverse effect on its financial position, cash flows, or results of operations[213] Item 1A. Risk Factors This section updates and expands on the company's risk factors, categorizing them into operational, financial, market, technology/cybersecurity, regulatory, and litigation risks. Key concerns include the ongoing impacts of COVID-19, supply chain disruptions, potential asset impairments, unfair competition, and compliance with evolving data protection and climate change regulations OPERATIONAL RISK FACTORS Operational risks are dominated by the COVID-19 pandemic's adverse impacts on manufacturing, supply chains (e.g., microchip and chemical shortages), labor levels, and operating costs. These disruptions could negatively affect sales, earnings, liquidity, and financial condition - The COVID-19 pandemic continues to adversely impact manufacturing operations, ability to obtain raw materials and parts, maintain labor levels, and ship products, potentially increasing operating costs[216][221] - Ongoing microchip shortages in the automotive industry and chemical shortages (exacerbated by severe weather) are disrupting operations and may persist throughout the year[219][222] - A significant increase in COVID-19 cases among employees could disrupt labor levels and production, while severance costs may be incurred if demand or governmental restrictions change[224][225] FINANCIAL RISK FACTORS Financial risks include the adverse impact of the COVID-19 pandemic on trade and other notes receivables, potentially leading to increased bad debt provisions. There's also a risk of goodwill and long-lived asset impairment, particularly for the Aerospace and Work Furniture reporting units, and the inability to realize deferred tax assets depending on future taxable income - The COVID-19 pandemic could adversely impact the collection of trade and other notes receivables due to customer bankruptcy or financial difficulties, requiring additional bad debt provisions[226][227] - Goodwill and other long-lived assets are subject to potential impairment, with fair values for Aerospace (51% in excess of carrying value) and Work Furniture (25% in excess of carrying value) reporting units being closely monitored[228][232][233][234] - The ability to realize deferred tax assets ($138 million at March 31, 2021) is dependent on the amount and source of future taxable income, with changes in earnings mix by jurisdiction posing a risk[236] MARKET RISK FACTORS Market risk factors primarily involve unfair competition, where the expiration or circumvention of anti-dumping and countervailing duties on imported innersprings, steel wire rod, and finished mattresses could adversely affect market share, sales, profit margins, and earnings - Unfair competition could adversely affect market share, sales, profit margins, and earnings[237] - The expiration or circumvention of existing anti-dumping and countervailing duties on imported innersprings, steel wire rod, and finished mattresses poses a significant risk[238] TECHNOLOGY AND CYBERSECURITY RISK FACTORS Technology failures or cybersecurity breaches, particularly given increased remote access due to COVID-19, could materially disrupt operations, lead to unauthorized disclosure of confidential information, and result in financial losses, reputational damage, and increased costs - Reliance on computerized systems and networks across over 130 facilities in 17 countries exposes the company to technology failures or cybersecurity breaches[239] - Increased remote access and work conditions due to COVID-19 heighten the risk of system disruptions, unauthorized data disclosure, or ransomware attacks on industrial control systems[241] - Such incidents could lead to remediation costs, lost revenues, litigation, reputational damage, and a negative impact on stock price[242] REGULATORY RISK FACTORS Regulatory risks stem from complex and evolving privacy and data protection laws (e.g., GDPR, CCPA) globally, which could harm business operations, reputation, and financial condition. Climate change laws and regulations, along with severe weather impacts, could increase costs, restrict supply, and negatively affect the company's competitive position and reputation. Increased scrutiny on ESG practices also poses risks to liquidity and reputation - Compliance with complex and evolving privacy and data protection regulations (e.g., GDPR, CCPA) in various jurisdictions could harm business, reputation, and financial condition, especially regarding cross-border data transfers[243][244] - Climate change laws and regulations could mandate more restrictive standards, increase operational costs, and impact customer demand, while severe weather impacts have already caused chemical supply shortages and increased costs[245][247] - Increased scrutiny from investors and market participants on environmental, social, and governance (ESG) practices could expose the company to additional costs, risks, and adversely impact liquidity, reputation, and stock price[248] LITIGATION RISK FACTORS The company is exposed to litigation contingencies, with estimated reasonably possible (but not probable) losses in excess of accruals totaling $11 million, including $10 million for Brazilian VAT matters. If assumptions are incorrect or facts change, actual losses could materially impact financial condition, results of operations, and cash flows - Estimated reasonably possible (but not probable) losses in excess of recorded accruals for litigation contingencies are $11 million, including $10 million for Brazilian VAT matters[250] - Incorrect assumptions or changing facts could lead to losses exceeding these estimates, materially impacting financial condition, results of operations, and cash flows[250] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's purchases of its common stock. In March 2021, 5,523 shares were purchased at an average price of $47.86, not as part of a publicly announced plan. The Board authorized repurchases of up to 10 million shares for 2021 Issuer Purchases of Equity Securities In March 2021, the company purchased 5,523 shares of its common stock at an average price of $47.86 per share. These shares were surrendered in transactions permitted under the company's benefit plans and were not part of a publicly announced repurchase program. The Board authorized repurchases of up to 10 million shares for 2021 Issuer Purchases of Equity Securities (March 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----- | :------------------------------- | :--------------------------- | | March 2021 | 5,523 | $47.86 | - The purchased shares were surrendered in transactions permitted under the company's benefit plans[253] - The Board authorized the repurchase of up to 10 million shares each calendar year, with 10 million shares authorized for 2021[253] Item 5. Other Information The Nominating & Corporate Governance Committee amended the company's director nomination procedures to actively seek and include female and racial or ethnic minority candidates in the pool for each director search, reinforcing diversity efforts - The Nominating & Corporate Governance Committee amended director nomination procedures[254] - The amended procedures require actively seeking and including female and racial or ethnic minority candidates in the pool for each director search[254] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, compensation plans, certifications, and XBRL-formatted financial statements - The exhibit index includes documents such as the Stock Purchase Agreement, Bylaws, Executive Cash Compensation Summary, Incentive Plan Award Formula, Performance Stock Unit Award Agreements, Restricted Stock Unit Unit Award Agreement, Preferability Letter, and various certifications[257] - Financial statements are filed in Inline XBRL format as Exhibit 101[259]