# LEGGETT & PLATT INC (LEG) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from LEGGETT & PLATT INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/58492/000005849224000174/leg-20231231.htm
Accession: 0000058492-24-000174
Filing date: 2024-02-27
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/LEG/
All MD&A years: /company/LEG/mda/
Previous year: /company/LEG/mda/fy2022/ (FY 2022)
Next year: /company/LEG/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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[["","","Page No."],["\u2022","Highlights","36"],["\u2022","Introduction","37"],["\u2022","Results of Operations 2023 vs 2022","41"],["\u2022","Results of Operations 2022 vs 2021","44"],["\u2022","Liquidity and Capitalization","47"],["\u2022","Critical Accounting Policies and Estimates","54"],["\u2022","Contingencies","58"],["\u2022","New Accounting Standards","62"]]
[[/GREPCENT_TABLE]]

HIGHLIGHTS

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["(Dollar amounts in millions, except for per share data)"],["Net trade sales","$","4,725","","","$","5,147","","","$","5,073"],["Earnings (loss) before interest and taxes (EBIT)","(90)","","","485","","","596"],["Cash from operations","497","","","441","","","271"],["Total debt","1,988","","","2,084","","","2,090"],["Dividends per share","$","1.82","","","$","1.74","","","$","1.66"]]
[[/GREPCENT_TABLE]]

Trade sales decreased 8% in 2023. Organic sales decreased sales 10%, with volume declines of 6% and combined raw material-related price decreases and currency impact of 4%. Acquisitions, net of divestitures, contributed 2% to sales growth. 2022 trade sales increased 1% due to acquisitions, net of divestitures.

Earnings in 2023 decreased primarily from a $444 million non-cash impairment of long-lived assets (primarily customer relationships, technology, and trademark intangibles), metal margin compression in our Steel Rod business, and lower trade sales volume in residential end markets partially offset by higher trade sales volume in industrial end markets. Earnings in 2022 decreased primarily from lower trade sales volume, lower overhead absorption from reduced production, operational inefficiencies in Specialty Foam, higher raw material and transportation costs and operational inefficiencies in Automotive, and the non-recurrence of a prior year gain on the sale of real estate associated with our exited Fashion Bed business. These decreases were partially offset by metal margin expansion in our Steel Rod business and pricing discipline in the Furniture, Flooring & Textile Products segment.

In 2023, we generated $497 million in cash from operations compared to $441 million in 2022. The increase was primarily driven by working capital improvements partially offset by lower earnings. Cash flow in 2021 was significantly impacted by increased working capital due to restocking efforts following inventory depletion in 2020. Although working capital was still a use of cash in 2022, it was much improved over 2021. We returned to inventory levels more reflective of demand in 2022, which was partially offset by a decrease in accounts payable as purchases slowed due to lower volume and efforts to reduce inventory levels.

We ended 2023 with $332 million of availability under the $1.2 billion credit facility. In August 2022, we used our commercial paper program to repay $300 million of 3.4%, 10-year bonds that matured.

We increased the annual dividend in 2023 to $1.82 per share from $1.74 per share in 2022 and extended our record of consecutive annual increases to 52 years. In 2023, we repurchased minimal shares of our stock as we focused on managing cash and debt repayment. For the full year, we used $6 million to repurchase approximately .2 million shares of our stock at an average price of $32.56.

Portfolio management remains a strategic priority. Over the past several years, we have enhanced our business portfolio by executing on our strategy of pursuing profitable growth and exiting or restructuring businesses that consistently struggled to deliver acceptable returns. We had no acquisitions in 2023. In 2022, we acquired four businesses:

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a global manufacturer of hydraulic cylinders for heavy construction equipment with operations in Germany, China, and the U.S.; a small textiles business that converts and distributes construction fabrics for the furniture and bedding industries; and two Canadian-based distributors of products used for erosion control, stormwater management, and various other applications. We also divested a small South African innerspring operation in our International Bedding business.

These topics are discussed in more detail in the sections that follow.

INTRODUCTION

Customers

We serve a broad suite of customers, with our largest customer representing less than 6% of our sales in 2023. Many are companies whose names are widely recognized. They include bedding brands and manufacturers, residential and office furniture producers, automotive OEM and Tier 1 manufacturers, and a variety of other companies.

Organic Sales

We calculate organic sales as trade sales excluding sales attributable to acquisitions and divestitures consummated within the last twelve months. Management uses the metric, and it is useful to investors, as supplemental information to analyze our underlying sales performance from period to period in our legacy businesses.

Major Factors That Impact Our Business

Long-Lived Asset Impairment

Weak demand and changing market dynamics in the bedding industry have created disruption and financial instability with some of our customers. While sales and earnings have been lower as compared to acquisition-date estimates for the customer bases associated with Elite Comfort Solutions (ECS) and Kayfoam (acquired in 2019 and 2021, respectively), estimated undiscounted cash flows for these asset groups exceeded their carrying amounts until the fourth quarter of 2023.

Late in the fourth quarter of 2023, certain of our ECS and Kayfoam customers notified us of efforts to improve their financial position, which could adversely impact our future cash flow forecasts. In early January 2024, we conducted an evaluation and determined that our sales and earnings forecasts should be reduced, and, as a result, we performed a recoverability test for these asset groups. Because the forecasted undiscounted cash flows had fallen below the carrying value for these asset groups, we tested for impairment by comparing the estimated fair value of long-lived assets to their carrying values, which resulted in a non-cash charge of $444 million for long-lived asset impairments (primarily customer relationships, technology, and trademark intangibles) in the Bedding Products segment during the fourth quarter of 2023. This impairment was unrelated to the Restructuring Plan as discussed in Operational Risk Factors beginning on page 16 in Item 1A Risk Factors and in the Restructuring Plan section below.

The fourth quarter 2023 activities resulting in the long-lived asset impairments discussed above were also considered a triggering event for goodwill impairment testing of the Bedding reporting unit, and no impairments were indicated (as discussed on page 61 in Goodwill and Long-Lived Asset Impairment Testing). We will continue to monitor our Bedding reporting unit, and changed facts and circumstances may lead to a different determination in the future.

Restructuring Plan

In the first quarter of 2024, we committed to a restructuring plan, primarily associated with our Bedding Products segment and, to a lesser extent, our Furniture, Flooring & Textile Products segment (the “Restructuring Plan” or “Plan”), which is expected to be substantially complete by the end of 2025. Optimizing our manufacturing and distribution footprint should reduce complexity, improve overall efficiency, and align capacity with anticipated future market demand. Pursuant to the Plan, we expect to:

•consolidate between 15 and 20 production and distribution facilities (out of 50) in the Bedding Products segment and a small number of production facilities in our Furniture, Flooring & Textile Products segment;

•reduce workforce levels over time;

•incur restructuring and restructuring-related costs between $65 and $85 million, of which approximately half are anticipated to be incurred in 2024 and the remainder in 2025. This includes $30 to $40 million in future cash costs, the majority of which are anticipated to be incurred in 2024;

•ultimately realize a positive financial impact when fully implemented in late 2025;

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•receive between $60 and $80 million in pretax net cash proceeds from the sale of real estate associated with the Restructuring Plan; and

•experience a reduction in annual sales by approximately $100 million.

Because of certain risks and uncertainties, the Plan may not achieve its intended outcomes. Our estimates of the number of facilities to be consolidated and the cash and non-cash costs and impairments associated with the Plan are preliminary in nature. All or some of the estimates may change as our analysis develops and additional information is obtained. Also, we may not be able to implement the Plan in a timely manner that will positively impact our financial condition and results of operations. Moreover, we may not be able to dispose of real estate pursuant to the Plan or obtain the expected proceeds in a timely manner, and the number of employees impacted by the Plan may change. It is also possible that the Plan may have a negative impact on our relationships with our employees, customers, and vendors. Finally, because restructuring activities are complex and involve time-consuming processes, substantial demands may be placed on management, which could divert attention from other business priorities or disrupt our daily operations. Any failure to achieve the intended outcomes could materially adversely affect our business, financial condition, results of operations and cash flows, and liquidity.

We continue to evaluate opportunities across our businesses for further restructuring opportunities in addition to those activities included in the announced Plan. The execution of any of these opportunities may result in additional material restructuring costs, restructuring-related costs, or impairments.

Market Demand

Market demand (including product mix) is impacted by several economic factors, with consumer confidence being the most significant. Other important factors include disposable income levels, employment levels, housing turnover, and interest rates. All of these factors influence consumer spending on durable goods, and therefore affect demand for our products and components. Some of these factors also influence business spending on facilities and equipment, which impacts approximately 25%-30% of our sales. Since early 2022, the dynamic macroeconomic environment has pressured our residential end markets and negatively affected the demand for our products. As a result of the continued uncertainty, we expect 2024 overall demand to be down modestly from 2023 levels.

Trends in Cost of Goods Sold

Our costs can vary significantly as market prices for raw materials (many of which are commodities) fluctuate. We typically have short-term commitments from our suppliers; accordingly, our raw material costs generally move with the market. We have also been impacted by fluctuations in transportation and energy costs as well as labor. Our ability to recover higher costs (through selling price increases) is crucial. When we experience significant increases in costs, we typically implement price increases to recover the higher costs. Conversely, when costs decrease significantly, we generally pass those lower costs through to our customers. The timing of our price increases or decreases is important; we typically experience a lag in recovering higher costs, and we also realize a lag as costs decline.

Steel is our principal raw material. At various times in past years, we have experienced significant cost fluctuations in this commodity. In most cases, the major changes (both increases and decreases) were passed through to customers with selling price adjustments. Over the past few years, we have seen varying degrees of inflation and deflation in U.S. steel pricing. Steel costs inflated in the first half of 2022 but deflated in the second half of 2022 as demand in the steel markets softened. Steel costs fluctuated up and down throughout the year, but average costs were down versus 2022.

As a producer of steel rod, we are also impacted by changes in metal margins (the difference in the cost of steel scrap and the market price for steel rod). In the first half of 2022, steel rod price increases outpaced steel scrap price increases, resulting in significantly expanded metal margins within the steel industry. Beginning in the second half of 2022 and continuing through 2023, metal margins compressed and, as a result, we experienced lower metal margins in our Steel Rod business.

We have exposure to the cost of chemicals, including TDI, MDI, and polyol. The cost of these chemicals has fluctuated at times, but we have generally passed the changes through to our customers. In 2022, chemical prices were relatively stable at historically high levels. Prices began to soften in the latter part of 2022 with continued declines through 2023.

Shortages in the labor markets in some industries in which we operate could create challenges in hiring and maintaining adequate workforce levels.

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In 2022, some facilities experienced disruptions in logistics necessary to import, export, or transfer raw materials or finished goods, which generally resulted in increased transportation costs. Costs began to moderate in late 2022 and have returned to pre-pandemic conditions during 2023. We typically pass through cost fluctuations to our customers.

Our other raw materials include woven and nonwoven fabrics. We have experienced changes in the costs of these materials and generally have been able to pass them through to our customers.

When we raise our prices to recover higher raw material costs, this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components. We must continue providing product options to our customers that enable them to improve the functionality of their products and manage their costs, while providing higher profits for our operations.

Supply Chain Shortages and Disruptions

We have experienced supply chain disruptions related to labor availability and freight challenges, as well as higher costs associated with each of these issues. In 2022, we experienced delays in delivery of raw materials, parts, and finished goods because of shutdown or congested delivery ports and trucking constraints. This resulted in reduced volume and higher costs in many of our businesses. These issues began to moderate in late 2022 and returned to near pre-pandemic conditions in 2023.

In 2023, drought conditions lowered the water levels of the Mississippi River and Panama Canal, reducing traffic through these waterways. Also, in late 2023 and early 2024, the conflict in the Red Sea caused delays with some of our shipments, while other shipments from China to the U.S. or Europe have been re-routed. Although these issues have not had a material impact on our results of operations, additional logistical disruptions could result in additional delays in our ability to deliver products timely to certain customers.

The shortage of semiconductors continues to improve across the automotive industry globally and no longer negatively impacts the sale of our products. The challenges of securing an adequate supply of semiconductors have mostly been resolved, but could be challenged again by any number of unexpected or unplanned events. Overall, OEM inventory levels continue to improve with most every model available at nearly normal levels. Our Automotive Group uses semiconductors in our seat comfort, motors, and actuator products. Although our Automotive Group has been able to obtain an adequate supply of semiconductors, we are dependent on our suppliers to deliver these semiconductors in accordance with our production schedule. A shortage of the semiconductors, either to us, the automotive OEMs, or our suppliers, can disrupt our operations and our ability to deliver products to our customers. If we, our customers, or our suppliers cannot secure an adequate supply of semiconductors, this may negatively impact our sales, earnings, and financial condition.

For more information regarding supply chain disruptions, see Trends in Cost of Goods Sold on page 38.

Competition

Many of our markets are highly competitive, with the number of competitors varying by product line. In general, our competitors tend to be smaller, private companies. Many of our competitors, both domestic and foreign, compete primarily on the basis of price. Our success has stemmed from the ability to remain price competitive, while delivering innovation, better product quality, and customer service.

We continue to face pressure from foreign competitors, as some of our customers source a portion of their components and finished products offshore. In addition to lower labor rates, foreign competitors benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. We typically compete in market segments that value product differentiation. When we do compete on cost, we typically remain price competitive in most of our business units, even versus many foreign manufacturers, as a result of our efficient operations, automation, vertical integration in steel rod and wire, logistics and distribution efficiencies, and large-scale purchasing of raw materials and commodities. To stay competitive with global steel costs, both contract and non-contract innerspring pricing was adjusted in the back half of 2023. We have also reacted to foreign competition in certain cases by developing new proprietary products that help our customers reduce total costs and shifting production offshore to take advantage of lower input costs.

Antidumping orders on innerspring imports. Since 2009, there have been antidumping duty orders on innerspring imports from China, South Africa, and Vietnam, ranging from 116% to 234%. In September 2019, the Department of Commerce (DOC) and the International Trade Commission (ITC) concluded a second sunset review extending the orders for an additional five years, through October 2024, at which time the DOC and ITC will conduct a third sunset review to determine whether to extend the orders for an additional five years.

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Antidumping and countervailing orders on steel wire rod imports. Antidumping and countervailing duty cases filed by major U.S. steel wire rod producers have resulted in the imposition of antidumping duties on imports of steel wire rod from Brazil, China, Belarus, Indonesia, Italy, Korea, Mexico, Moldova, Russia, South Africa, Spain, Trinidad & Tobago, Turkey, Ukraine, United Arab Emirates, and the United Kingdom, ranging from less than 1% to 757%, and countervailing duties on imports of steel wire rod from Brazil, China, Italy, and Turkey, ranging from 3% to 193%. In June 2020, the ITC and DOC concluded a first sunset review, extending the orders on China through June 2025, and in July 2020, the ITC and DOC concluded a third sunset review, determining to extend the orders on Brazil, Indonesia, Mexico, Moldova, and Trinidad & Tobago through August 2025. In August 2023, the ITC and DOC concluded a first sunset review, extending the duties for Belarus, Italy, Korea, Russia, South Africa, Spain, Turkey, Ukraine, United Arab Emirates, and the United Kingdom for an additional five years through July 2028.

Antidumping and countervailing orders on mattress imports. Since 2019, there has been an antidumping duty order on mattress imports from China ranging from 57% to 1,732%. This order will remain in effect through December 2024, at which time the DOC and ITC will conduct a sunset review to determine whether to extend the order for an additional five years.

In March 2020, the Company, along with other domestic mattress producers and two labor unions representing workers at other mattress producers (collectively "Petitioners"), filed antidumping petitions with the DOC and the ITC alleging that manufacturers of mattresses in Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam were unfairly selling their products in the United States at less than fair value (dumping) and a countervailing duty petition alleging manufacturers of mattresses in China were benefiting from subsidies. In March 2021, the DOC made final determinations, assigning China a countervailing duty rate of 98% and antidumping duty rates on the other seven countries from 2% – 763%. In April 2021, the ITC made a unanimous affirmative final determination that domestic mattress producers were materially injured by reason of the unfairly priced or subsidized imported mattresses. Accordingly, the agencies instructed that final antidumping and countervailing duty orders will remain in effect for five years, through May 2026, at which time the DOC and ITC will conduct a sunset review to determine whether to extend the orders for an additional five years. Appeals were filed with the U.S. Court of International Trade (CIT) by respondents as to the DOC’s final determinations on antidumping duty rates for Cambodia, Indonesia, and Vietnam and the ITC’s unanimous, final determination of material injury to the domestic industry. Petitioners separately appealed the DOC's final determinations on antidumping duty rates for Cambodia, Indonesia, and Thailand.

In November 2022, the CIT ruled partially in favor of the DOC and Petitioners on the calculations of rates for Vietnam, but also sent the case back to the DOC to explain the use of certain financial data in making its determination. The DOC filed its explanation in February 2023.

In February 2023, the CIT ruled partially in favor of Petitioners on the calculation of rates for Cambodia, but also sent the case back to the DOC to explain the use of certain financial data in making its determination. In March 2023, the CIT ruled partially in favor of Petitioners on the calculation of rates for Indonesia, but also sent the case back to the DOC to explain treatment of certain in-transit mattresses and selling expenses.

In December 2023, the CIT ruled in favor of the ITC and Petitioners and sustained the ITC’s unanimous injury decision. In February 2024, one respondent filed an appeal of the CIT's decision to the U.S. Court of Appeals for the Federal Circuit. These matters and the other appeals are ongoing with no timeline for decisions.

2023 mattress antidumping matter. In July 2023, the Company, along with nine other domestic mattress producers and two labor unions, filed petitions with the DOC and the ITC alleging that manufacturers of mattresses in Bosnia and Herzegovina, Bulgaria, Burma, India, Italy, Kosovo, Mexico, the Philippines, Poland, Slovenia, Spain, and Taiwan were unfairly selling their products in the United States at less than fair value (dumping) and manufacturers of mattresses in Indonesia were unfairly benefiting from subsidies, causing harm to the U.S. industry and seeking the imposition of duties on mattresses imported from these countries. The ITC made a preliminary determination of injury in September 2023. In December 2023, the DOC made a negative preliminary determination on the filed petitions regarding subsidies. In January 2024, the DOC initiated an investigation on new subsidy allegations that was presented by the Petitioners. The DOC’s preliminary determination on dumping was issued in February 2024, imposing duties ranging from 11% to 745% on finished mattresses. The DOC’s final determinations are expected in July 2024, and the ITC’s final determination is expected in September 2024.

See Item 3 Legal Proceedings on page 31 for more information.

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PART II

RESULTS OF OPERATIONS—2023 vs. 2022

Consolidated Results

The following table shows the changes in sales and earnings during 2023 and identifies the major factors contributing to the changes from prior year. 

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

   1 Calculations impacted by rounding

Full-year trade sales decreased 8%, to $4.73 billion. Organic sales decreased sales 10%, with volume declines of 6% and combined raw material-related price decreases and currency impact of 4%. Acquisitions, net of divestitures, contributed 2% to sales growth. Volume declines were impacted by continued weak residential end market demand, partially offset by automotive and industrial end market demand strength.

Earnings decreased primarily from a long-lived asset impairment charge, metal margin compression in our Steel Rod business, and lower trade sales volume in residential end markets.

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Interest and Income Taxes

Net interest expense in 2023 was higher by $2 million compared to the twelve months ended December 31, 2022, primarily due to increased interest rates on higher average commercial paper balances, somewhat offset by the interest expense associated with our matured 2012 $300 million Senior Notes, which were fully paid in the third quarter of 2022.

Our worldwide effective income tax rate was approximately 21% in 2023 and 23% in 2022. The following table reflects how our effective income tax rate differs from the statutory federal income tax rate. See Note M on page 108 of the Notes to Consolidated Financial Statements for additional details.

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[[/GREPCENT_TABLE]]

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PART II

Segment Results

In the following section we discuss 2023 sales and EBIT (earnings before interest and taxes) for each of our segments. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated EBIT in Note E on page 89 of the Notes to Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["(Dollar amounts in millions)","2023","","2022","","Change in Sales","","% Change Organic"],["$","","%","","Sales 1"],["Trade sales"],["Bedding Products","$","1,964.7","","","$","2,356.3","","","$","(391.6)","","","(16.6)","%","","(16.6)","%"],["Specialized Products","1,279.8","","","1,118.3","","","161.5","","","14.4","","","7.1"],["Furniture, Flooring & Textile Products","1,480.8","","","1,672.1","","","(191.3)","","","(11.4)","","","(13.5)"],["Total trade sales","$","4,725.3","","","$","5,146.7","","","$","(421.4)","","","(8.2)","%","","(10.4)","%"],["","2023","","2022","","Change in EBIT","","EBIT Margins"],["$","","%","","2023","","2022"],["EBIT"],["Bedding Products","$","(344.2)","","","$","219.6","","","$","(563.8)","","","(256.7)","%","","(17.5)","%","","9.3","%"],["Specialized Products","125.0","","","99.4","","","25.6","","","25.8","","","9.8","","","8.9"],["Furniture, Flooring & Textile Products","128.6","","","165.0","","","(36.4)","","","(22.1)","","","8.7","","","9.9"],["Intersegment eliminations & other",".2","","","1.0","","","(.8)"],["Total EBIT","$","(90.4)","","","$","485.0","","","$","(575.4)","","","(118.6)","%","","(1.9)","%","","9.4","%"],["","2023","","2022"],["Depreciation and amortization"],["Bedding Products","$","103.9","","","$","104.1"],["Specialized Products","41.1","","","40.5"],["Furniture, Flooring & Textile Products","22.5","","","23.2"],["Unallocated 2","12.4","","","12.0"],["Total depreciation and amortization","$","179.9","","","$","179.8"]]
[[/GREPCENT_TABLE]]

1 This is the change in sales not attributable to acquisitions or divestitures in the last 12 months. Refer to the respective segment discussion below for a reconciliation of the change in total segment sales to organic sales.

2 Unallocated consists primarily of depreciation and amortization on non-operating assets.

Bedding Products

Trade sales decreased 17%. Organic sales were down 17%, from volume declines of 8% and raw material-related selling price decreases, net of currency benefit, of 9%.

EBIT decreased $564 million, primarily from a $444 million non-cash long-lived asset impairment charge, lower metal margin in our Steel Rod business, and lower volume.

 Specialized Products

Trade sales increased 14%. Organic sales were up 7%, from volume growth of 8% partially offset by currency impact, net of raw material-related price increases, of 1%. Acquisitions contributed 7% to sales growth.

EBIT increased $26 million, primarily from higher volume. 2023 also benefited from a $15 million reduction to a contingent purchase price liability associated with a prior year acquisition mostly offset by higher costs to support demand.

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Furniture, Flooring & Textile Products

Trade sales decreased 11%. Organic sales were down 13%, from volume declines of 11% and raw material-related selling price decreases, net of currency benefit, of 2%. Acquisitions contributed 2% to sales growth.

EBIT decreased $36 million, primarily from lower volume partially offset by pricing discipline, a $7 million gain on net insurance proceeds from tornado damage, and a $6 million gain on the sale of real estate.

RESULTS OF OPERATIONS—2022 vs. 2021

Consolidated Results

The following table shows the changes in sales and earnings during 2022, and identifies the major factors contributing to the changes from prior year.

[[GREPCENT_TABLE]]
[["(Dollar amounts in millions, except per share data)","Amount","","% 1"],["Net trade sales:"],["Year ended December 31, 2021","$","5,073"],["Divestitures","(15)","","","(1)","%"],["2021 sales excluding divestitures","5,058"],["Approximate volume gains","(373)","","","(7)"],["Approximate raw material-related inflation and currency impact","386","","","7"],["Organic sales","13","","","\u2014"],["Acquisition sales growth","76","","","2"],["Year ended December 31, 2022","$","5,147","","","1","%"],["Earnings:"],["(Dollar amounts, net of tax)"],["Year ended December 31, 2021","$","403"],["Non-recurrence gain on sale of real estate","(21)"],["Other items, primarily lower volume, lower overhead absorption, and inefficiencies partially offset by higher metal margin and pricing discipline","(72)"],["Year ended December 31, 2022","$","310"],["2021 Earnings Per Diluted Share","$","2.94"],["2022 Earnings Per Diluted Share","$","2.27"]]
[[/GREPCENT_TABLE]]

  1 Calculations impacted by rounding

Full-year trade sales increased 1%, to $5.15 billion. Organic sales were flat, with volume declines of 7% and currency impact of 2% offset by raw material-related price increases of 9%. Acquisitions, net of divestitures, contributed 1% to sales growth.

Earnings decreased primarily from lower trade sales volume, lower overhead absorption from reduced production, operational inefficiencies in Specialty Foam, higher raw material and transportation costs and operational inefficiencies in Automotive, and the non-recurrence of a prior year gain on the sale of real estate associated with our exited Fashion Bed business. These decreases were partially offset by metal margin expansion in our Steel Rod business and pricing discipline in the Furniture, Flooring & Textile Products segment.

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PART II

Interest and Income Taxes

Net interest expense in 2022 was higher by $7 million compared to the twelve months ended December 31, 2021, primarily due to the issuance of $500 million debt in the fourth quarter 2021 and higher rates on commercial paper.

Our worldwide effective income tax rate was approximately 23% in both 2022 and 2021. The following table reflects how our effective income tax rate differs from the statutory federal income tax rate. See Note M on page 108 of the Notes to Consolidated Financial Statements for additional details.

[[GREPCENT_TABLE]]
[["","Year Ended December 31"],["","2022","","2021"],["Statutory federal income tax rate","21.0","%","","21.0","%"],["Increases (decreases) in rate resulting from:"],["State taxes, net of federal benefit",".9","","","1.5"],["Tax effect of foreign operations","(.5)","","","(.9)"],["Global intangible low-taxed income",".6","","",".5"],["Current and deferred foreign withholding taxes","2.6","","","2.3"],["Stock-based compensation","(.1)","","","(.5)"],["Change in valuation allowance","(.1)","","","\u2014"],["Other permanent differences, net","(1.0)","","","(.8)"],["Other, net","(.2)","","","(.2)"],["Effective tax rate","23.2","%","","22.9","%"]]
[[/GREPCENT_TABLE]]

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 Segment Results

In the following section we discuss 2022 sales and EBIT for each of our segments. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated EBIT in Note E on page 89 of the Notes to Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["(Dollar amounts in millions)","2022","","2021","","Change in Sales","","% Change Organic"],["$","","%","","Sales 1"],["Trade sales"],["Bedding Products","$","2,356.3","","","$","2,455.9","","","$","(99.6)","","","(4.1)","%","","(4.7)","%"],["Specialized Products","1,118.3","","","998.9","","","119.4","","","12.0","","","8.1"],["Furniture, Flooring & Textile Products","1,672.1","","","1,617.8","","","54.3","","","3.4","","","2.9"],["Total trade sales","$","5,146.7","","","$","5,072.6","","","$","74.1","","","1.5","%","",".3","%"],["","2022","","2021","","Change in EBIT","","EBIT Margins"],["$","","%","","2022","","2021"],["EBIT"],["Bedding Products","$","219.6","","","$","321.3","","","$","(101.7)","","","(31.7)","%","","9.3","%","","13.1","%"],["Specialized Products","99.4","","","115.9","","","(16.5)","","","(14.2)","","","8.9","","","11.6"],["Furniture, Flooring & Textile Products","165.0","","","159.5","","","5.5","","","3.4","","","9.9","","","9.9"],["Intersegment eliminations & other","1.0","","","(.7)","","","1.7"],["Total EBIT","$","485.0","","","$","596.0","","","$","(111.0)","","","(18.6)","%","","9.4","%","","11.7","%"],["","2022","","2021"],["Depreciation and amortization"],["Bedding Products","$","104.1","","","$","106.8"],["Specialized Products","40.5","","","44.8"],["Furniture, Flooring & Textile Products","23.2","","","24.0"],["Unallocated 2","12.0","","","11.7"],["Total depreciation and amortization","$","179.8","","","$","187.3"]]
[[/GREPCENT_TABLE]]

1 This is the change in sales not attributable to acquisitions or divestitures in the last 12 months. Refer to the Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products discussions below for a reconciliation of the change in total segment sales to organic sales.

2 Unallocated consists primarily of depreciation and amortization on non-operating assets.

Bedding Products

Trade sales decreased 4%. Organic sales were down 5%, from volume declines of 16% and negative currency impact of 1% partially offset by raw material-related selling price increases of 12%. Acquisitions, net of divestitures, added 1% to sales.

EBIT decreased $102 million, primarily from lower volume, lower overhead absorption as production and inventories were adjusted to meet reduced demand, operating inefficiencies in Specialty Foam, and the non-recurrence of the prior year $28 million gain from sale of real estate associated with our exited Fashion Bed business. These decreases were partially offset by higher metal margin in our Steel Rod business.

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 Specialized Products

Trade sales increased 12%. Organic sales were up 8%, from volume growth of 11% and raw material-related price increases of 3% partially offset by currency impact of 6%. Acquisitions contributed 4% to sales growth.

EBIT decreased $17 million, primarily from higher raw material and transportation costs, operational inefficiencies and related premium freight costs in a North American Automotive facility, and currency impact. These decreases were partially offset by higher volume.

Furniture, Flooring & Textile Products

Trade sales increased 3%. Organic sales were up 3% from raw material-related selling price increases of 10% partially offset by volume declines of 6% and negative currency impact of 1%. Acquisitions contributed less than 1% to sales growth.

EBIT increased $6 million, primarily from pricing discipline partially offset by lower volume.

LIQUIDITY AND CAPITALIZATION

Liquidity

Sources of Cash

Cash on Hand

At December 31, 2023, we had cash and cash equivalents of $366 million primarily invested in interest-bearing bank accounts and in bank time deposits with original maturities of three months or less. Substantially all of these funds are held in the international accounts of our foreign operations.

If we were to immediately bring back all our foreign cash to the U.S. in the form of dividends, we would pay foreign withholding taxes of approximately $19 million. Due to capital requirements in various jurisdictions, approximately $71 million of this cash was inaccessible for repatriation at year end. Inaccessible cash balances generally have been higher in the last half of the year and can fluctuate from quarter to quarter based on the amount of foreign distributable profits available and the variability of our foreign cash balances.

Cash from Operations

The primary source of funds for our short-term cash requirements is our cash generated from operating activities. Earnings and changes in working capital levels are the two factors that generally have the greatest impact on our cash from operations.

        Cash from operations - 2021 $271 million, 2022 $441 million, 2023 $497 million            

Cash from operations increased approximately $56 million in 2023, primarily driven by working capital improvements partially offset by lower earnings. Working capital was a significant use of cash in 2021 due to restocking efforts following inventory depletion in 2020 but increased to a much lesser extent in 2022 as we returned to inventory

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levels more reflective of current demand. This improvement was partially offset by a decrease in accounts payable as purchases slowed due to lower volume and our efforts to reduce inventory levels.

We ended 2023 with working capital at 13.9% and adjusted working capital at 13.9% of annualized sales.1 The table below explains this non-GAAP calculation. We eliminate cash, current debt maturities, and the current portion of operating lease liabilities from working capital to monitor our operating efficiency and performance related to trade receivables, inventories, and accounts payable. We believe this provides a more useful measurement to investors since cash and current maturities can fluctuate significantly from period to period. As discussed in Cash on Hand on page 47, substantially all of these funds are held by international operations and may not be immediately available to reduce debt on a dollar-for-dollar basis.

[[GREPCENT_TABLE]]
[["(Dollar amounts in millions)","2023","","2022"],["Current assets","$","1,881.4","","","$","1,958.0"],["Current liabilities","1,262.6","","","968.1"],["Working capital","618.8","","","989.9"],["Cash and cash equivalents","365.5","","","316.5"],["Current debt maturities and current portion of operating lease liabilities","365.3","","","58.9"],["Adjusted working capital","$","618.6","","","$","732.3"],["Annualized sales 1","$","4,460.4","","","$","4,783.2"],["Working capital as a percent of annualized sales","13.9","%","","20.7","%"],["Adjusted working capital as a percent of annualized sales","13.9","%","","15.3","%"]]
[[/GREPCENT_TABLE]]

1 Annualized sales equal fourth quarter sales ($1,115.1 million in 2023 and $1,195.8 million in 2022) multiplied by 4. We believe measuring our working capital against this sales metric is more useful, since efficient management of working capital includes adjusting those net asset levels to reflect current business volume.

[[GREPCENT_TABLE]]
[["Three Primary Components of our Working Capital"],["","Amount (in millions)","","","Days"],["","2023","","2022","","2021","","","2023","","2022","","2021"],["Trade Receivables","$","565","","","$","609","","","$","620","","","DSO 1","45","","44","","42"],["Inventories","820","","","908","","","993","","","DIO 2","81","","83","","76"],["Accounts Payable","536","","","518","","","614","","","DPO 3","50","","50","","53"]]
[[/GREPCENT_TABLE]]

1Days sales outstanding: ((beginning of year trade receivables + end of year trade receivables) ÷ 2) ÷ (net trade sales ÷ number of days in the period)

2Days inventory on hand: ((beginning of year inventory + end of year inventory) ÷ 2) ÷ (cost of goods sold ÷ number of days in the period)

3Days payables outstanding: ((beginning of year accounts payable + end of year accounts payable) ÷ 2) ÷ (cost of goods sold ÷ number of days in the period)

We continue to monitor all elements of working capital in order to optimize cash flow.

Trade Receivables - Our trade receivables decreased by $44 million at December 31, 2023 compared to the prior year and our DSO slightly increased during 2023. General increases in DSO the last two years were primarily associated with sales growth in the Specialized Products segment, whose customers generally have longer payment terms. The decrease in accounts receivable was primarily due to reductions in net trade sales, lower material costs and pricing due to deflation, and timing of payments, partially offset by currency.

We decreased our allowance for doubtful accounts by $7 million during 2023, and we increased our allowance for doubtful accounts by $3 million during 2022. While general macroeconomic elements and industry trends have been volatile the last few years, our focused account management has resulted in low loss experience and high levels of current (vs. past-due) accounts. Because of uncertainty around long-term impacts of the COVID-19 pandemic, we

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increased our allowance for general macroeconomic conditions by $6 million in 2020. We have made small adjustments to this component of our reserves over the last few years for various economic signals, but we continued to hold most of this reserve (applicable to the entire portfolio) until we could reasonably conclude that COVID would not impact collectability into the future. During 2023, we reduced the COVID component of our reserve, but added a component for other macroeconomic items (such as higher interest rates, geopolitical tension, and economic uncertainty). The net impact of this change was $4 million favorable to our allowance for doubtful accounts. In addition, 2023's allowance was reduced as accounts receivable balances were lower in 2023 as compared to 2022, including balances on specifically-reserved accounts and receipt of payments on some accounts that were previously fully reserved.

Weak demand and changing market dynamics have created disruption and financial instability for some of our customers, particularly in the Bedding Products segment. We have established reserves for these customers through the process of individual customer credit risk reviews, and we believe we have established appropriate reserves for these customers.

We monitor our receivable portfolio closely and make reserve decisions based upon individual customer credit risk reviews, customer payment trends (percentage of current and past due), historical loss experience, and general macroeconomic and industry trends that could impact the expected collectability of all customers or pools of customers with similar risks. We obtain credit applications, credit reports, bank and trade references, and periodic financial statements from our customers to establish credit limits and terms as appropriate. In cases where a customer’s payment performance or financial condition begins to deteriorate or in the event of a customer bankruptcy, we tighten our credit limits and terms and make appropriate reserves based upon the facts and circumstances for each individual customer, as well as pools of similar customers.

Inventories - Our inventories decreased by $88 million at December 31, 2023 compared to the prior year, and our DIO decreased during 2023. Throughout 2022 and 2023, inventories decreased as we worked to manage inventories to levels needed to support current demand, while maintaining our ability to service customer requirements. In 2023, raw material deflation, primarily in our Bedding Products and Furniture, Flooring & Textile Products segments, was partially offset by currency impacts and increased inventories in the Specialized Products segment to support sales growth. Inventories were somewhat inflated in 2021 due to restocking efforts following inventory depletion in 2020. In the first quarter of 2022, we replaced the reheat furnace at our steel rod mill, which also contributed to higher 2021 year-end inventories and affected our normal seasonal cash flow cycle.

We continuously monitor our slower-moving and potentially obsolete inventory through reports on inventory quantities compared to usage within the previous 12 months. We also utilize cycle counting programs and complete physical counts of our inventory. When potential inventory obsolescence is indicated by these controls, we will take charges for write-downs to maintain an adequate level of reserves. We recorded appropriate reserves in accordance with our policy in 2021 and 2022 when inventories were higher. In 2023, inventory levels have continued to come down and less reserves have been required as we have been able to sell inventory previously reserved.

Accounts Payable - Our accounts payable increased by $18 million at December 31, 2023 compared to the prior year, and our DPO remained flat during 2023. The 2023 increase in accounts payable was primarily related to working capital initiatives and currency. The decrease in 2022 was primarily related to the inventory factors discussed above. Our payment terms did not change meaningfully since last year, and we have continued to focus on optimizing payment terms with our vendors. We continue to look for ways to establish and maintain favorable payment terms through our significant purchasing power and also utilize third-party services that offer flexibility to our vendors, which in turn helps us manage our DPO as discussed below.

Accounts Receivable and Accounts Payable Programs - We participate in trade receivables sales programs in combination with third-party banking institutions and certain customers. Under each of these programs, we sell our entire interest in the trade receivable for 100% of face value, less a discount. Because control of the sold receivable is transferred to the buyer at the time of sale, accounts receivable balances sold are removed from the Consolidated Balance Sheets, and the related proceeds are reported as cash provided by operating activities in the Consolidated Statements of Cash Flows. We had approximately $60 million and $65 million of trade receivables that were sold and removed from our Consolidated Balance Sheets at December 31, 2023 and 2022, respectively. These sales reduced our quarterly DSO by roughly five days at both December 31, 2023 and 2022. The impact to operating cash flow was an approximate $5 million decrease and $30 million increase for the years ended December 31, 2023 and 2022, respectively.

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For accounts payable, we have historically looked for ways to optimize payment terms through utilizing third-party programs that allow our suppliers to be paid earlier at a discount or for a fee. While these programs assist us in negotiating payment terms with our suppliers, we continue to make payments based on our customary terms. Contracts with our suppliers are negotiated independently of supplier participation in the programs, and we cannot increase payment terms pursuant to the programs. The primary program allows a supplier to elect to take payment from a third party earlier with a discount, and in that case, we pay the third party on the original due date of the invoice. As such, there is no direct impact on our DPO, accounts payable, operating cash flows, or liquidity. The accounts payable settled through the third-party programs, which remain on our Consolidated Balance Sheets, were approximately $105 million and $80 million at December 31, 2023 and 2022, respectively.

The above items encompass multiple individual programs that are are utilized as tools in our cash flow management, and we offer them as options to facilitate customer and vendor operating cycles. Because many of these programs operate independently, and a cessation of all these programs at the same time is not reasonably likely, we do not expect changes in these programs to have a material impact on our operating cash flows or liquidity.

Commercial Paper Program

Another source of funds for our short-term cash requirements is our $1.2 billion commercial paper program. As of December 31, 2023, we had $332 million available under the program. For more information on our commercial paper program, see Commercial Paper Program on page 53.

Credit Facility

Our credit facility is a multi-currency facility providing us the ability, from time to time, to borrow, repay, and re-borrow up to $1.2 billion until the maturity date, at which time our ability to borrow under the facility will terminate. The credit facility matures in September 2026. Currently, there are no borrowings under the credit facility. For more information on our credit facility, see Credit Facility on page 54, and Note I on page 95 of the Notes to Consolidated Financial Statements.

Capital Markets

We also believe that we have the ability to raise debt in the capital markets, which acts as a source of funding of long-term cash requirements. Currently, we have $2.0 billion of total debt outstanding. The maturities of the long-term debt range from 2024 through 2051. Our next scheduled maturity of outstanding debt is our $300 million 3.80% Senior Notes due in November 2024, which we expect to predominantly retire with commercial paper. For more information, please see Long-Term Debt on page 54, and Note I on page 95 of the Notes to Consolidated Financial Statements.

Uses of Cash

Our long-term priorities for uses of cash are: fund organic growth including capital expenditures, pay dividends, fund strategic acquisitions, and repurchase stock with available cash.

Capital Expenditures

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         Capital expenditures - 2021 $107 million, 2022 $100 million, 2023 $114 million

Total capital expenditures in 2023 were $114 million, reflecting a balance of investing for the future while controlling our spending. We intend to make investments to support expansion in businesses and product lines where sales are profitably growing, for efficiency improvement and maintenance, and for system enhancements. We expect capital expenditures to approximate between $100-$120 million in 2024. For the periods covered, our employee incentive plans emphasized returns on capital, which included capital expenditures and working capital. This emphasis focuses our management on asset utilization and helps ensure that we are investing additional capital dollars where attractive return potential exists.

Dividends

Dividends Paid-2021 $218 million, 2022 $229 million, 2023 $239 million; Dividends Declared-2021 $1.66, 2022 $1.74, 2023 $1.82

Dividends have been the primary means by which we return cash to shareholders. In 2023, we increased the annual dividend by $.08 from $1.74 to $1.82 per share. 2023 marked our 52nd consecutive annual dividend increase.

Financial conditions or our pursuit of strategic alternative uses of cash could lead to a reduction, suspension, or termination of the payment of cash dividends at any time. Dividends on shares of common stock are declared at the discretion of the Board of Directors. Our Board and management are evaluating capital allocation priorities, including cash allocated to paying dividends. Any decision would consider general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, our ability to generate sufficient earnings and cash flows, capital requirements, strategic alternatives, our decision to reduce leverage, our compliance with our leverage ratio under our credit agreement, contractual, legal, and tax implications, and other factors. There can be no assurance that we will continue to pay cash dividends on our common stock.

Acquisitions

In 2021, we acquired three businesses for total consideration of $153 million. In January 2021, we acquired a United Kingdom (UK) manufacturer specializing in metallic ducting systems, flexible joints, and components for space, military, and commercial applications for a cash purchase price of $28 million. In May 2021, we acquired a Polish manufacturer of bent metal tubing for furniture used in office, residential, and other settings for a cash purchase price of $5 million. In June 2021, we acquired a specialty foam and finished mattress manufacturer serving the UK and Irish markets for a cash purchase price of $120 million.

In 2022, we acquired four businesses for total consideration of $112 million ($83 million cash and $29 million additional contingent consideration to be paid in cash at a later date). In August, we acquired a leading global manufacturer of hydraulic cylinders for heavy construction equipment with manufacturing locations in Germany and China and a distribution facility in the United States for a total purchase price of $90 million ($61 million cash and $29 million additional contingent consideration to be paid). In 2023, subsequent measurement period adjustments to the additional contingent consideration resulted in a final purchase price of $88 million. Also in August, we acquired a small U.S. textiles business that converts and distributes construction fabrics for the furniture and bedding industries for a cash purchase price of $2 million. In early October and mid-December, we acquired two Canadian-based distributors of products used for erosion control, stormwater management, and various other applications for a cash purchase price of $7 million and $13 million, respectively.

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In 2023, we acquired no businesses.

Additional details about acquisitions can be found in Note Q on page 113 of the Notes to Consolidated Financial Statements.

Stock Repurchases

Stock repurchases are the other means by which we return cash to shareholders. During the last three years, we repurchased a total of 2 million shares of our stock and issued 3 million shares (through employee benefit plans and stock option exercises). Our net stock repurchases were $6 million, $60 million, and $6 million in 2021, 2022, and 2023, respectively. In 2023, we repurchased .2 million shares (at an average price of $32.56) and issued 1 million shares.

We have been authorized by the Board to repurchase up to 10 million shares each year, but we have established no specific repurchase commitment or timetable. We expect 2024 stock repurchases to be consistent with 2023, which represents employee benefit plan activity.

Short-Term and Long-Term Cash Requirements

In addition to the expected uses of cash discussed above, we have various material short-term (12 months or less) and long-term (more than 12 months) cash requirements as listed below.

[[GREPCENT_TABLE]]
[["Cash Requirements","","Short-Term","","Long-Term"],["(Dollar amounts in millions)"],["Current and long-term debt, excluding finance leases 1","","$","307","","","$","1,677"],["Operating and finance leases 2","","65","","","172"],["Purchase obligations 3","","428","","","31"],["Interest payments 4","","67","","","624"],["Deemed repatriation tax payable 5","","9","","","12"],["Liability for pension benefits 6","","1","","","10"],["Contingent consideration 7","","6","","","6"]]
[[/GREPCENT_TABLE]]

1The long-term debt presented above could be accelerated if we were not able to make the principal and interest payments when due. See Note I on page 95 in the Notes to Consolidated Financial Statements for more information regarding scheduled maturities of our long-term debt.

2See Note J on page 97 in the Notes to Consolidated Financial Statements for additional information on leases.

3Purchase obligations primarily include open short-term (30-120 days) purchase orders that arise in the normal course of operating our facilities.

4Interest payments assume debt outstanding remains constant with amounts at December 31, 2023 and at rates in effect at the end of the year.

5In addition to the deemed repatriation tax payable we also have deferred income taxes and other reserves for tax contingencies included in our Consolidated Balance Sheets. The resolution or settlement of these tax positions with the taxing authorities is subject to significant uncertainty. We are therefore unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters, or whether the matters will require cash to settle or resolve.

6See Note L on page 104 in the Notes to Consolidated Financial Statements for additional information on pension benefit plans.

7See Note Q on page 113 in the Notes to Consolidated Financial Statements for more information on contingent consideration liabilities related to acquisitions.

See Note H on page 95 of the Notes to Consolidated Financial Statements for details regarding the accrued expenses and other liabilities reflected on our Consolidated Balance Sheets.

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Capitalization

Capitalization Table

This table presents key debt and capitalization statistics at the end of the three most recent years.

[[GREPCENT_TABLE]]
[["(Dollar amounts in millions)","2023","","2022","","2021"],["Total debt excluding credit facility/commercial paper","$","1,801.6","","","$","1,801.1","","","$","2,090.3"],["Less: Current maturities of long-term debt and short-term debt","308.0","","","9.4","","","300.6"],["Scheduled maturities of long-term debt","1,493.6","","","1,791.7","","","1,789.7"],["Average interest rates 1","3.8","%","","3.8","%","","3.7","%"],["Average maturities in years 1","10.5","","","11.5","","","10.8"],["Credit facility/commercial paper 2","186.0","","","282.5","","","\u2014"],["Weighted average interest rate on year-end balance","5.6","%","","4.8","%","","\u2014","%"],["Average interest rate during the year","5.2","%","","3.2","%","",".2","%"],["Total long-term debt","1,679.6","","","2,074.2","","","1,789.7"],["Deferred income taxes and other liabilities","358.3","","","502.4","","","533.3"],["Total equity","1,334.0","","","1,641.4","","","1,648.6"],["Total capitalization","$","3,371.9","","","$","4,218.0","","","$","3,971.6"],["Unused committed credit: 2"],["Long-term","$","1,014.0","","","$","917.5","","","$","1,200.0"],["Short-term","\u2014","","","\u2014","","","\u2014"],["Total unused committed credit","$","1,014.0","","","$","917.5","","","$","1,200.0"],["Cash and cash equivalents","$","365.5","","","$","316.5","","","$","361.7"]]
[[/GREPCENT_TABLE]]

1 These rates include current maturities, but exclude commercial paper to reflect the averages of outstanding debt with scheduled maturities.

2 The unused committed credit amount is based on our revolving credit facility and commercial paper program which, during all periods presented, had a total authorized program amount of $1.2 billion. However, our borrowing capacity is limited by covenants to our credit facility. Reference is made to the discussion under Commercial Paper Program below on page 53 and Credit Facility on page 54 for more details about our borrowing capacity at December 31, 2023.

Commercial Paper Program

Details of our commercial paper program at December 31 are presented in the table below: 

[[GREPCENT_TABLE]]
[["(Dollar amounts in millions)","2023","","2022","","2021"],["Total authorized program","$","1,200.0","","","$","1,200.0","","","$","1,200.0"],["Commercial paper outstanding (classified as long-term debt)","186.0","","","282.5","","","\u2014"],["Letters of credit issued under the credit agreement","\u2014","","","\u2014","","","\u2014"],["Amount limited by restrictive covenants of credit facility 1","682.1","","","200.9","","","13.0"],["Total program available","$","331.9","","","$","716.6","","","$","1,187.0"]]
[[/GREPCENT_TABLE]]

1 Our borrowing capacity is limited by covenants to our credit facility. Reference is made to the discussion under Credit Facility on page 54 for more details about our borrowing capacity at December 31, 2023.

The average and maximum amounts of commercial paper outstanding during 2023 were $306 million and $419 million, respectively. During the fourth quarter, the average and maximum amounts outstanding were $239 million and $267 million, respectively. At year end, we had no letters of credit outstanding under the credit facility, but we had issued $52 million of stand-by letters of credit under other bank agreements to take advantage of better pricing.

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Over the long-term, and subject to our credit ratings, market conditions, capital needs, and alternative capital market opportunities, we expect to maintain the indebtedness under the commercial paper program by continuously repaying and reissuing the commercial paper notes. We view the notes as a source of long-term funds and have classified the borrowings under the commercial paper program as long-term borrowings on our balance sheet. We have the intent to roll over such obligations on a long-term basis and have the ability to refinance these borrowings on a long-term basis as evidenced by our $1.2 billion revolving credit facility maturing in 2026 discussed below. If our credit ratings are lowered below investment grade, or other factors impact marketability, we may not be able to access the commercial paper market. If we are unable to meet our short-term borrowing needs in the commercial paper market, we may rely more heavily on bank debt to fund short-term working capital needs at higher interest costs.

Credit Facility

Our multi-currency credit facility matures in September 2026. It provides us the ability, from time to time, subject to certain restrictive covenants and customary conditions, to borrow, repay, and re-borrow up to $1.2 billion.

Our credit facility contains restrictive covenants which (a) require us to maintain as of the last day of each fiscal quarter, or if we borrow under the credit facility i) Consolidated Funded Indebtedness minus the lesser of: (A) Unrestricted Cash, or (B) $750 million to ii) Consolidated EBITDA for the four consecutive trailing quarters, such ratio not being greater than 3.50 to 1.00, provided, however, subject to certain limitations, if we have made a Material Acquisition in any fiscal quarter, at our election, the maximum Leverage Ratio shall be 4.00 to 1.00 for the fiscal quarter during which such Material Acquisition is consummated and the next three consecutive fiscal quarters; (b) limit the amount of total secured obligations to 15% of our total consolidated assets, and (c) limit our ability to sell, lease, transfer, or dispose of all or substantially all of our assets and the assets of our subsidiaries, taken as a whole (other than accounts receivable sold in a Permitted Securitization Transaction, products sold in the ordinary course of business and our ability to sell, lease, transfer, or dispose of any of our assets or the assets of one of our subsidiaries to us or one of our subsidiaries, as applicable) at any given point in time. We were in compliance with all of our debt covenants at the end of 2023. For more information about long-term debt, please see Note I on page 95 of the Notes to Consolidated Financial Statements.

Our credit facility serves as back-up for our commercial paper program. At December 31, 2023, we had $186 million commercial paper outstanding and had no borrowing under the credit facility. As our trailing 12-month Consolidated EBITDA, Unrestricted Cash, and debt levels change, our borrowing capacity increases or decreases. Based on our trailing 12-month Consolidated EBITDA, Unrestricted Cash, and debt levels at December 31, 2023, our borrowing capacity under the credit facility was $332 million. However, this may not be indicative of the actual borrowing capacity moving forward, which may be materially different depending on our Consolidated EBITDA, Unrestricted Cash, debt levels, and leverage ratio requirements at that time.

Long-Term Debt

We have total debt of $2.0 billion. The maturities of the long-term debt range from 2024 through 2051. Our next scheduled maturity of outstanding debt is our $300 million 3.80% Senior Notes due in November 2024, which we expect to predominantly retire with commercial paper. For more details on long-term debt see Note I on page 95 of the Notes to Consolidated Financial Statements.

In November 2021, we issued $500 million aggregate principal amount of notes that mature in 2051. The notes bear interest at a rate of 3.5% per year, with interest payable semi-annually. As part of this issuance, we also unwound $300 million of treasury lock agreements we had entered into during 2021 at a gain of approximately $10 million, which will be amortized over the life of the notes. The net proceeds of these notes were used to repay commercial paper and therefore indirectly were used to repay the $300 million 3.4% notes that matured in August 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. To do so, we must make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosures. If we used different estimates or judgments, our financial statements could change. Some of these changes could be significant. Our estimates are frequently based upon historical experience and are considered by management, at the time they are made, to be reasonable and appropriate. Estimates are adjusted for actual events as they occur. 

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Critical accounting estimates are those that are: (a) subject to uncertainty and change and (b) of material impact to our financial statements. Listed below are the estimates and judgments which we believe could have the most significant effect on our financial statements. 

We provide additional details regarding our significant accounting policies in Note A on page 80 of the Notes to Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainty","","Changes in Estimate and Effect if Actual Results Differ from Assumptions"],["Goodwill"],["Goodwill is assessed for impairment annually as of June 30 and as triggering events occur.","","Goodwill is evaluated annually for impairment as of June 30 using a quantitative analysis at the reporting unit level, which is one level below our operating segments. Judgment is required in the quantitative analysis. We estimate fair value using a combination of: (a) A discounted cash flow model that contains uncertainties related to the forecast of future results, as many outside economic and competitive factors can influence future performance. Revenue growth, expected changes in operating margins, and appropriate discount rates are the most critical estimates in determining enterprise values using the cash flow model. (b) A market approach, using price to earnings ratios for comparable publicly traded companies that operate in the same or similar industry and with characteristics similar to the reporting unit.","","We had no goodwill impairments in 2023, 2022, and 2021. The fourth quarter 2023 activities resulting in the long-lived asset impairments discussed below were also considered a triggering event for goodwill impairment testing of the Bedding reporting unit, and no goodwill impairments were indicated. Four reporting units had fair values in excess of carrying value of less than 100% in 2023 as discussed in Note C on page 86 of the Notes to Consolidated Financial Statements. At December 31, 2023, we had $1.5 billion of goodwill. Information regarding material assumptions used to determine if a goodwill impairment exists can be found in Note A on page 80 and Note C on page 86 of the Notes to Consolidated Financial Statements. Our assumptions are based on our current business strategy in light of present industry and economic conditions, as well as future expectations. If we are not able to achieve projected performance levels, future non-cash impairments could be possible. For additional information regarding uncertainties, see discussions in Goodwill and Long-Lived Asset Impairment Testing starting on page 61."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainty","","Changes in Estimate and Effect if Actual Results Differ from Assumptions"],["Other Long-Lived Assets"],["Other long-lived assets are tested for recoverability at year end and whenever events or circumstances indicate the carrying value may not be recoverable. For other long-lived assets we estimate fair value at the lowest level where cash flows can be measured.","","Impairments of other long-lived assets usually occur when industry trends reduce our forecasted sales and earnings, major restructuring activities take place, or we decide to discontinue selected products. Our impairment assessments have uncertainties because they require estimates of future cash flows to determine if undiscounted cash flows are sufficient to recover carrying values of these assets. For assets where undiscounted cash flows are not expected to recover carrying value, fair value is estimated using discounted cash flow models for intangibles and right-of-use assets or estimated replacement cost for fixed assets.","","These impairments are unpredictable. We had a triggering event to review long-lived assets for impairment late in the fourth quarter of 2023. We had non-cash pretax impairment charges of $444 in our Bedding Products segment in the year ended December 31, 2023 and no impairment charges in 2022 or 2021. For additional information, see Note C on page 86 of the Notes to Consolidated Financial Statements and Goodwill and Long-Lived Asset Impairment Testing starting on page 61. At December 31, 2023, net property, plant and equipment was $781 million, net intangible assets (other than goodwill) were $168 million, and operating lease right-of-use assets were $193 million."],["Inventory Reserves"],["We reduce the carrying value of inventories to reflect an estimate of net realizable value for slow-moving (i.e., not selling very quickly) and obsolete inventory. Generally, a reserve is required when we have more than a 12-month supply of the product. The calculation also uses an estimate of the ultimate recoverability of items identified as slow-moving, based upon historical experience. If we have had no sales of a given product for 12 months, those items are generally deemed to be obsolete with no value and are written down completely.","","Our inventory reserve contains uncertainties because the calculation requires management to make assumptions about the value of products that are obsolete or slow-moving. Purchases of inventories in excess of quantities ultimately sold and/or changes in customer behavior and requirements can cause inventory to become obsolete or slow-moving. Restructuring activity and decisions to narrow product offerings also impact the estimated net realizable value of inventories.","","At December 31, 2023, the reserve for obsolete and slow-moving inventory was $51 million (approximately 6% of inventories). This is in line with the reserves at December 31, 2022 and 2021, representing approximately 5% of inventories for both years. Additions to inventory reserves in 2023 were $5 million, which is lower than our $12 million three-year average. Inventory levels were somewhat elevated in 2021 and began to return to levels more reflective of demand in 2022. We recorded appropriate reserves in accordance with our policy in those years. In 2023, inventory levels have continued to come down and less reserves have been required as we have been able to sell inventory previously reserved. There have been no changes to our policies for establishing reserves, and we do not expect significant changes to our historical obsolescence levels. For additional information, see discussions of our inventories in the working capital section starting on page 48."]]
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PART II

[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainty","","Changes in Estimate and Effect if Actual Results Differ from Assumptions"],["Allowance for Doubtful Accounts"],["For accounts and other receivables, we estimate an allowance for the amount that will ultimately be uncollectible. When we become aware of a specific customer\u2019s potential inability to pay, we record an allowance for the amount we believe may not be collectible. We also monitor general macroeconomic and industry conditions and other items that could impact the expected collectibility of our receivables.","","Our allowance for doubtful accounts contains uncertainties because it requires management to estimate the amount uncollectible based upon an evaluation of several factors such as the length of time that receivables are past due, the financial health of the customer, industry and macroeconomic considerations, and historical loss experience. Our customers are diverse and many are small-to-medium sized companies, with some being highly leveraged. Bankruptcy can occur with some of these customers relatively quickly and with little warning. In cases where a customer\u2019s payment performance or financial condition begins to deteriorate, we tighten our credit limits and terms and make appropriate reserves when deemed necessary. Certain of our customers have from time to time experienced bankruptcy, insolvency, and/or an inability to pay their debts to us as they come due. If our customers suffer significant financial difficulty, they may be unable to pay their debts to us timely or at all, they may reject their contractual obligations to us under bankruptcy laws or otherwise, or we may have to negotiate significant discounts and/or extend financing terms with these customers.We have been experiencing significant refund delays in Mexico for value-added tax (VAT) receivables. Although we believe the amounts are fully realizable, continued government actions in Mexico, including audits of the amounts we have requested, could either further delay the receipt of our refunds, or cause us to settle for a lesser amount than the VAT receivable we have recorded.","","A significant change in the financial status of a large customer could impact our estimates. However, we believe we have established adequate reserves on our customer accounts. Our bad debt expense has fluctuated over the last three years: ($7) million benefit in 2023, $3 million expense in 2022, and ($3) million benefit in 2021. The 2023 reduced expense is primarily related to reduced COVID-19 risks and lower accounts receivable balances. The average annual amount of bad debt write-offs associated with trade accounts receivable was less than $2 million over the last three years. At December 31, 2023, our allowances for doubtful trade accounts receivable were $11 million (approximately 2% of our trade receivables of $575 million). For additional information, see discussions of our accounts receivable reserves in the working capital discussion starting on page 48 and Note G on page 94 of the Notes to Consolidated Financial Statements"]]
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[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainty","","Changes in Estimate and Effect if Actual Results Differ from Assumptions"],["Income Taxes"],["In the ordinary course of business, we must make estimates of the tax treatment of many transactions, even though the ultimate tax outcome may remain uncertain for some time. These estimates become part of the annual income tax expense reported in our financial statements. Subsequent to year end, we finalize our tax analysis and file income tax returns. Tax authorities periodically audit these income tax returns and examine our tax filing positions, including (among other things) the timing and amounts of deductions, and the allocation of income among tax jurisdictions. If necessary, we adjust income tax expense in our financial statements in the periods in which the actual outcome becomes more certain.","","Our tax liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures related to our various filing positions. Our effective tax rate is also impacted by changes in tax laws, the current mix of earnings by taxing jurisdiction, and the results of current tax audits and assessments. At December 31, 2023 and 2022, we had $134 million and $105 million, respectively, of net deferred tax assets on our balance sheet. The ultimate realization of these deferred tax assets is dependent upon the amount, source, and timing of future taxable income. In cases where we believe it is more likely than not that we may not realize the future potential tax benefits, we establish a valuation allowance against them.","","Changes in U.S. and foreign tax laws could impact assumptions related to the taxation and repatriation of certain foreign earnings. Audits by various taxing authorities continue as governments look for ways to raise additional revenue. Based upon past audit experience, we do not expect any material changes to our tax liability as a result of this audit activity; however, we could incur additional tax expense if we have audit adjustments higher than recent historical experience. We believe that appropriate valuation allowances have been recorded as necessary. However, if earnings expectations or other assumptions change such that additional valuation allowances are required, we could incur additional tax expense. Likewise, if fewer valuation allowances are needed, we could incur reduced tax expense."]]
[[/GREPCENT_TABLE]]

CONTINGENCIES

Litigation

Accruals for Probable Losses

We are exposed to litigation contingencies that, if realized, could have a material negative impact on our financial condition, results of operations, and cash flows. Although we deny liability in all currently threatened or pending litigation proceedings, we have recorded an immaterial aggregate litigation contingency accrual of $1.4 million, $.9 million, and $1.0 million at December 31, 2023, 2022, and 2021, respectively. The accruals do not include accrued expenses related to workers’ compensation, vehicle-related personal injury, product and general liability claims, taxation issues, and environmental matters, some of which may contain a portion of litigation expense. However, any litigation expense associated with these categories is not anticipated to have a material effect on our financial condition, results of operations, or cash flows. For more information regarding accrued expenses, see “Accrued expenses” under Note H on page 95 of the Notes to Consolidated Financial Statements.

Reasonably Possible Losses in Excess of Accruals

Although there are a number of uncertainties and potential outcomes associated with all of our pending or threatened litigation proceedings, we believe, based on current known facts, that additional losses, if any, are not expected to materially affect our consolidated financial position, results of operations, or cash flows. However, based upon current known facts, as of December 31, 2023, aggregate reasonably possible (but not probable, and therefore not accrued) losses in excess of the accruals for litigation contingencies are estimated to be $22 million. If our assumptions or analyses regarding any of our contingencies are incorrect, or if facts change or future litigation arises, we could realize losses in excess of the recorded accruals (including losses in excess of the $22 million referenced above), which could have a material negative impact on our financial condition, results of operations, and cash flows. Also, we could be subject to future litigation of various types (including, but not limited to, litigation related to employment, intellectual property, environmental, taxation, vehicle-related personal injury, antitrust, climate change, and others) that could negatively impact our financial condition, results of operations, and cash flows.

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PART II

For more information regarding our litigation contingencies, see Item 3 Legal Proceedings on page 31 and Note S on page 115 of the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Climate Change

Transition Risks

Change in Laws, Policies, and Regulations. Many scientists, legislators, and others attribute global warming to increased levels of greenhouse gas (GHG) emissions, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit such emissions. At December 31, 2023, we had 135 manufacturing facilities in 18 countries. We also maintain a fleet of over-the-road tractor trailers that emit GHG. Our manufacturing facilities are primarily located in North America, Europe, and Asia. There are certain transition risks (meaning risks related to the process of reducing our carbon footprint) that could materially affect our business, capital expenditures, results of operations, financial condition, competitive position, and reputation. One of these transition risks is the change in treaties, laws, policies, and regulations that could impose significant operational and compliance burdens. For example, some of our operations are subject to certain governmental actions like the EU “European Green Deal” (which provides for a 55% reduction in net GHG emissions by 2030 (compared to 1990 levels), and no net emissions of GHG by 2050), and the “Paris Agreement” (which is an international treaty on climate change designed to lower GHG emissions).

Other laws that could materially increase our compliance costs are the California Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act, as well as the EU Corporate Sustainability Reporting Directive and the EU Carbon Border Adjustment Mechanism. In addition, with respect to our Automotive Group, the EU is moving forward with an effective ban on the sale of new gas-powered automobiles (with the exception of CO2-neutral automobiles) in the EU from 2035 (with interim requirements by 2030), aiming to accelerate the conversion to zero-GHG emission automobiles as part of a broad package to combat global warming. Also, President Biden signed executive orders setting the goal of having zero-emission vehicles account for half of all new U.S. passenger cars and light trucks sales by 2030 and committing the Federal government to procuring only zero-emission light vehicles by 2035. Finally, some states, including California and New York, are also implementing similar provisions. Our automotive products can be sold to manufacturers of either gas-powered or electric-powered vehicles. However, if our customers (who may be subject to any of these or other similarly proposed or newly enacted laws and regulations) incur additional costs to comply with such laws and regulations, which in turn, impact their ability to operate at similar levels in certain jurisdictions, the demand for our products could be adversely affected. Also, overall, there continues to be a lack of consistent climate legislation in the jurisdictions in which we operate, which creates economic and regulatory uncertainty. If these laws or regulations (including the SEC’s proposed rule regarding climate-related disclosures) impose significant operational restrictions and compliance requirements on us, they could increase costs associated with our operations, including costs for raw materials and transportation. Non-compliance with climate change treaties, legislative, and regulatory requirements could also negatively impact our reputation. To date, however, we have not experienced a material impact from climate change legislative and regulatory efforts.

Market Transition. We are engaged in the manufacture of various automotive components, including mechanical and pneumatic lumbar support and massage systems for seating, seat suspension systems, motors and actuators, and cables. For several decades, automotive manufacturers have sought lightweight components designed to increase fuel efficiency in the automobiles they manufacture. Replacing traditional steel components with high-strength steel, magnesium, aluminum alloys, carbon fiber, polymer composites, or post-consumer grade recycled nylon and plastics can directly reduce the weight of a vehicle's body and chassis and therefore reduce a vehicle's fuel consumption. This increased fuel efficiency also indirectly reduces GHG emissions. Because of our technological competitiveness, this long-standing market transition has not had, and is not expected to have, a material negative impact on our share of the markets in which we compete. However, if we are unable to continue to react to changes in technology, successfully develop, engineer, and bring to market new and innovative products, or successfully respond to evolving business trends, including continuing to produce comparatively lightweight components, our share in these automotive markets could be negatively impacted.

Physical Climate Change Risks

Direct Physical Effects. The acute and chronic physical effects of climate change, such as severe weather-related events, natural disasters, and/or significant changes in climate patterns, could have an increasingly adverse impact on our business and customers. As mentioned above, at December 31, 2023, we had 135 manufacturing facilities in 18 countries, primarily in North America, Europe, and Asia. We serve thousands of customers worldwide. In 2023, our largest customer represented less than 6% of our sales, and our customers were located in approximately 100 countries. Although our diverse geographical manufacturing footprint and our broad geographical customer base mitigates the potential physical

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risks of any local or regional climate change weather-related event having a material effect on our operations and results, the increased frequency and severity of such weather-related events could pose a risk to our operations and results.

To continue improving our climate-related risk assessment processes, we use technology-based tools to monitor our property portfolio’s exposure to certain natural catastrophic events. We integrated climate-related risk into our enterprise risk management process, providing an opportunity to improve our internal processes for identifying, assessing, and managing climate-related risks. In April 2023, we experienced tornado damage to a shared Home Furniture and Bedding facility in Mississippi. This event did not have a material impact on our physical properties as a whole, or our overall ability to manufacture and distribute our products to customers in a timely fashion, and it did not have a material effect on our business, financial condition, or results of operations. However, in the future, depending on whether severe weather-related events increase in frequency and severity, such events could result in potential damage to our physical assets, local infrastructure, transportation systems, water delivery systems, our customers’ or suppliers’ operations, as well as prolonged disruptions in our manufacturing operations (including but not limited to our steel rod mill), all of which could harm our business, results of operations, and financial condition.

Indirect Physical Effects. The physical effects of climate change could continue to have an adverse impact on our supply chain. In recent years, we experienced (due, in part, to severe weather-related impacts) supply shortages in chemicals, which restricted foam supply. The restriction of foam supply constrained overall mattress production in the bedding industry and reduced our production levels. The cost of chemicals and foam also increased due to the shortages. Severe weather impacts could also reduce supply of other products in our supply chain that could result in higher prices for our products and the resources needed to produce them. If we are unable to secure an adequate and timely supply of raw materials or products in our supply chain, or the cost of these raw materials or products materially increases, it could have a negative impact on our business, results of operations, and financial condition.

In 2023, drought conditions lowered the water levels of the Mississippi River and Panama Canal, reducing traffic through these waterways. Although these issues have not had a material impact on our results of operations, additional logistical disruptions could result in additional delays in our ability to deliver products timely to certain customers.

In addition, although the cost has not been, and is not expected to be, material to our business, results of operations, and financial condition, severe weather-related incidents may continue to result in increased costs of our property insurance.

GHG Reduction Strategy and Compliance Costs

To date, we have not experienced material climate-related compliance costs. However, evaluating opportunities to reduce our carbon footprint, setting goals for carbon reduction, and measuring performance in achieving those goals are part of our sustainability and corporate governance strategy moving forward. We have completed our first GHG emissions inventory covering 2019 through 2022. To ensure our information is complete and accurate, we engaged a third-party limited assurance provider for all four years. Our emissions inventory includes Scope 1 and Scope 2 carbon dioxide equivalent emissions. We believe our inventory in each of the four years was prepared in general accordance with the GHG Protocol Corporate Accounting and Reporting Standard. As of 2022, we achieved an absolute reduction of 18% of our combined Scope 1 and 2 GHG emissions over our baseline year of 2019.

Our baseline measurement will inform a long-term GHG reduction strategy, including setting reduction targets and other key performance areas. Our key initiatives as we move through 2024, 2025, and into 2026 include: developing our emissions reduction pathways to reduce GHG emissions, undertaking our first Scope 3 emissions inventory, assessing where emission reduction opportunities lie within our value chain, and preparing for and complying with new reporting requirements. We anticipate setting a climate reduction target in line with climate science. As we evaluate our GHG emissions, we recognize the importance of understanding the impact of our emissions across our value chain. We expect to compile a full emissions inventory, including Scope 3, to inform the setting of a science-aligned carbon reduction target. We currently do not have an estimate of the capital expenditures or operating costs that may be required to implement our GHG reduction strategy. However, we do not expect that such capital expenditures or operating costs will be material to our financial condition or results of operations. For more information regarding our GHG reduction strategy, see our Sustainability Report, which is expected to be published in the first half of 2024. Our Sustainability Report does not constitute part of this Annual Report on Form 10-K.

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