LEGGETT & PLATT, INCORPORATED What We DoLeggett & Platt, Incorporated (the Company, we or our) is a diversified manufacturer, and member of the S&P 500 index, that conceives, designs, and produces a wide range of engineered components and products found in many homes, offices, and automobiles. We make components that are often hidden within, but integral to, our customers' products. We are the leadingU.S. -based manufacturer of: a) bedding components; b) automotive seat support and lumbar systems; c) specialty bedding foams and private-label finished mattresses; d) components for home furniture and work furniture; e) flooring underlayment; f) adjustable beds; and g) bedding industry machinery. 31 -------------------------------------------------------------------------------- Our Segments Our operations are comprised of 140 production facilities located in 18 countries around the world. Our reportable segments are the same as our operating segments, which also correspond with our management organizational structure. To reflect how we manage our newly aligned businesses and in conjunction with the change in executive officer leadership, our management organizational structure and all related internal reporting changed effectiveJanuary 1, 2020 . As a result, our segment reporting has changed to reflect the new structure. The modified structure consists of three segments, seven business groups, and 15 business units organized as follows: Furniture, Flooring & Textile Bedding Products 1 Specialized Products Products 2 Segment Segment Segment BEDDING GROUP AUTOMOTIVE GROUP HOME FURNITURE GROUP Steel Rod Automotive Home Furniture Drawn Wire U.S. Spring AEROSPACE PRODUCTS GROUP WORK FURNITURE GROUP Specialty Foam Aerospace Products Work Furniture Adjustable Bed International Spring HYDRAULIC CYLINDERS FLOORING & TEXTILE Machinery GROUP PRODUCTS GROUP Hydraulic Cylinders Flooring Products Fabric Converting Geo Components 1 The new segment consists of the former Residential Products and Industrial Products segments, plus theConsumer Products Group (which is renamed the Adjustable Bed business unit), minus theFabric & Flooring Products Group (which is renamed theFlooring & Textile Products Group ).
2 The new segment consists of the former Furniture Products segment, plus the
This segment change was retrospectively applied to all prior periods presented. Our segments are described below. Bedding Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products, as well as produces private-label finished mattresses for bedding brands, and adjustable bed bases. This segment is also backwardly integrated into the production and supply of specialty foam chemicals, steel rod and drawn steel wire to our own operations and to external customers. Our trade customers for wire make mechanical springs and many other end products. This segment generated 48% of our trade sales during the first nine months of 2020. Specialized Products: From this segment, we supply lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries. This segment contributed 20% of our trade sales in the first nine months of 2020. Furniture, Flooring & Textile Products: Operations in this segment supply a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture. We also produce or distribute carpet cushion, hard surface flooring underlayment, and textile and geo components. This segment contributed 32% of our trade sales in the first nine months of 2020. COVID-19 Impacts on our Business
Governments and health organizations have identified an outbreak of a
respiratory illness known as COVID-19. The
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have, an adverse impact to, among other things (i) the demand for our products,
and our customers' products, growth rates in the industries in which we
participate, and opportunities in those industries; (ii) our manufacturing
operations' ability to remain open, or fully operate, obtain necessary raw
materials and parts, maintain appropriate labor levels and ship finished
products to customers; (iii) operating costs related to pay and benefits for
terminated employees; (iv) the collection of trade and other notes receivables
in accordance with their terms due to customer bankruptcy, financial
difficulties or insolvency; (v) impairment of goodwill and long-lived assets;
and (vi) our ability to access the commercial paper market or borrow under our
credit facility; all of which, in the aggregate, have had, and could further
have, a material negative impact on our trade sales, earnings, liquidity, cash
flow and financial condition.
While we are unable to accurately foresee these future impacts, we believe that
our financial resources and liquidity levels, along with various contingency
plans to reduce costs are sufficient to manage the impact currently anticipated
from the COVID-19 pandemic, which will likely include reduced revenues and
operating profits for the full year 2020 and lower operating cash flows.
Demand for our Products. Various governments in Asia , Europe , North America , and
elsewhere have instituted, and may reinstitute, quarantines, shelter-in-place or
stay-at-home orders, or restrictions on public gatherings as well as limitations
on social interactions. These restrictions and limitations have had, and could
further have, an adverse effect on the economies and financial markets of the
countries where our products, or our customers' products are sold. The resulting
economic downturn has had, and could further have, an effect on the demand for
our products and our customers' products, growth rates in the industries in
which we participate, and opportunities in those industries.
Trade sales in the third quarter were down 3% versus the third quarter of 2019.
Following steep declines in the second quarter of 2020, we returned to
year-over-year sales growth in the third quarter in ECS, U.S. and European
Spring, Home Furniture , Fabric Converting and Geo Components. These business
units continued to benefit from a consumer spending focus on home products.
Automotive sales were roughly flat with the prior year's quarter, while demand
continued to be weak in our Aerospace and Work Furniture business units.
Impact on our Manufacturing Operations. We have manufacturing facilities in the
United States and 17 other countries. All of these countries have been affected
by the COVID-19 pandemic. All of our facilities are open and running at this
time. From time to time we have some capacity restrictions on our plants due to
governmental orders in various parts of the world. We have been and could be
further negatively affected by governmental action in any one or more of the
countries in which we operate by the imposition, or re-imposition, of
restrictive measures concerning shelter-in-place or stay-at-home orders, public
gatherings and human interactions, mandatory closures of retail establishments
that sell our products or our customers' products, and restrictions on the
import or export of products.
The U.S. and other governments have ordered that certain non-woven fabrics used
to produce ComfortCore® innersprings be prioritized to produce medical supplies,
resulting in shortages of the fabrics for non-medical applications. These
shortages and very strong bedding demand have caused the Company temporarily to
be unable to supply full industry demand for ComfortCore®. We are engaging with
customers in an effort to work through these issues. The shortages have resulted
in higher pricing for non-woven fabrics. If we are unable to obtain the fabrics,
or cannot pass the cost along to our customers, our results of operations may be
negatively impacted. As demand has improved, we also have experienced some
temporary labor shortages. We are attempting to hire additional employees and
add equipment, particularly in our U.S. Spring business to meet this demand.
Depending on the length and severity of the COVID-19 pandemic, our ability to
keep our manufacturing operations open, maintain appropriate labor levels,
obtain necessary raw materials and parts and ship finished products to customers
may be partially or completely disrupted, either on a temporary or prolonged
basis. The realization of these risks to our manufacturing operations, labor
force and supply chain could also increase labor, commodity and energy costs.
Although not directly related to the pandemic, we have experienced supply
shortages with certain chemicals, which has resulted in higher pricing for the
chemicals. If we are unable to obtain the chemicals, or pass the cost along to
our customers, our results of operations may be negatively impacted. Also, some
facilities had experienced problems delivering products to customers because of
disruption in logistics necessary to import, export, or to transfer products
across borders. Currently, our supply chains have been hampered by congested
ports, especially on the U.S. west coast.
To date, we have had some employees in our facilities who have tested positive
for COVID-19. When this has occurred, we follow adopted procedures which include
enhanced disinfecting that targets areas that have likely exposure to COVID-19.
The employee is required to observe a quarantine period, monitor symptoms and
follow medical guidance prior to returning to work. Contact tracing is performed
to identify any other employees who had direct contact with the employee who
tested positive for COVID-19. If any direct contacts are identified, those
employees must also self-isolate, monitor symptoms, and
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follow medical guidance prior to returning to work. A significant increase in
COVID-19 cases among our employees may disrupt our ability to maintain necessary
labor levels and produce and deliver products to our customers if we are unable
to shift production to other manufacturing facilities.
Severance Costs Related to Workforce Reductions. In connection with reduced
demand for our products in certain business units, we have decreased the size of
our workforce worldwide. We incurred severance costs of $5 million and $2
million in the third and second quarters of 2020, respectively, and we do not
expect any additional material charges. However, if circumstances change because
of lack of demand, mandatory governmental closure of our facilities or
otherwise, we may incur future material separation costs.
Collection of Trade and Notes Receivables. Bankruptcy, financial difficulties or
insolvency caused by the COVID-19 pandemic, or otherwise, can and has occurred
with some of our customers which can impact their ability to pay their debts to
us. Prior to the pandemic, we provided trade credit and other financing to some
of these customers in a material amount, particularly in our Bedding Products
segment. Our bad debt reserve contains uncertainties because it requires
management to estimate the amount of uncollectible receivables and notes based
upon the financial health and payment history of the customer, industry and
macroeconomic considerations, and historical loss experience.
Some of our customers and other third parties have been adversely affected by
the social and governmental restrictions and limitations related to the COVID-19
pandemic. If these parties suffer significant financial difficulty, they may be
unable to pay their debts to us, 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 parties. If we
are unable to collect trade receivables and other notes receivables on a timely
basis, this inability will require larger provisions for bad debt.
We are closely monitoring accounts receivable and collections. At September 30,
2020 , the level of our accounts receivable in current status had improved and
was consistent with pre-COVID-19 levels.
Impairment of Goodwill and Long-Lived Assets. A significant portion of our
assets consists of goodwill and other long-lived assets, the carrying value of
which may be reduced if we determine that those assets are impaired. At
September 30, 2020 , goodwill and other intangible assets represented $2.1
billion , or 45% of our total assets. In addition, net property, plant and
equipment, operating lease right-of-use assets, and sundry assets totaled $1.05
billion , or 23% of total assets.
We review our reporting units for potential goodwill impairment in the second
quarter as part of our annual goodwill impairment testing, and more often if an
event or circumstance occurs making it likely that impairment exists. In
addition, we test for the recoverability of long-lived assets at year end, and
more often if an event or circumstance indicates the carrying value may not be
recoverable. We conduct impairment testing based on our current business
strategy in light of present industry and economic conditions, as well as future
expectations.
The 2020 goodwill impairment testing resulted in a $25.4 million non-cash
goodwill impairment charge in the second quarter of 2020 with respect to our
Hydraulic Cylinders reporting unit, which is a part of the Specialized Products
segment. Demand for hydraulic cylinders is dependent upon capital spending for
material handling equipment.
The impairment charge reflects the complete write-off of the goodwill associated
with the Hydraulic Cylinders reporting unit and will not result in future cash
expenditures. Although we do not believe that a triggering event related to the
impairment of goodwill or other long-lived assets occurred in the first quarter
of 2020, the anticipated longer-term economic impacts of COVID-19 lowered
expectations of future revenue and profitability causing its fair value to fall
below its carrying value. We concluded on July 30, 2020 , as part of our normal
second quarter 2020 annual goodwill impairment testing and in connection with
the preparation and review of the second quarter 2020 financial statements, that
an impairment charge was required with respect to this reporting unit. We also
evaluated other long-lived assets associated with this unit for impairment; no
impairments were indicated other than goodwill.
Of the remaining six reporting units, three had fair values in excess of
carrying value of less than 100%.
•Fair value for our Bedding reporting unit exceeded carrying value by 68%. Our
2019 acquisition of ECS is part of our Bedding reporting unit, and goodwill for
our Bedding reporting unit was $855 million at September 30, 2020 .
•Fair value for our Aerospace reporting unit exceeded carrying value by 51%.
Goodwill for the Aerospace reporting unit was $59 million at September 30, 2020 .
•Fair value for our Work Furniture reporting unit exceeded carrying value by
25%. Goodwill for the Work Furniture reporting unit was $96 million at
September 30, 2020 .
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If there is a prolonged adverse economic impact from the COVID-19 pandemic, or
otherwise, we may not be able to achieve projected performance levels. Although
we do not believe that a triggering event has occurred, internal forecasts and
industry data suggest that economic impacts of COVID-19 for the aerospace
industry may be longer than previously expected during the second quarter
impairment testing. We are continuing to monitor all factors impacting this
industry. If actual results materially differ from the assumptions and estimates
used in the goodwill and long-lived asset valuation calculations, we could incur
future impairment charges. These non-cash charges could have a material negative
impact on our earnings.
Our Ability to Borrow under our Credit Facility. The credit facility is a
multi-currency credit facility maturing in January 2024 providing 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 . The
credit facility also provided for a one-time draw of up to $500 million under a
five-year term loan facility, which we fully borrowed in January 2019 to
consummate the ECS acquisition.
Because of the economic impacts of the COVID-19 pandemic on our business,
effective May 6, 2020 , we amended the credit facility to, among other things,
change the restrictive borrowing covenants. The prior leverage ratio covenant
required us to maintain, as of the last day of each quarter, a leverage ratio of
consolidated funded indebtedness to trailing 12-month consolidated EBITDA (each
as defined in the credit facility) of not greater than 3.50 to 1.00. The
covenant was changed in two ways: (i) the calculation of the ratio now subtracts
unrestricted cash (as defined in the credit facility) from consolidated funded
indebtedness; and (ii) the ratio levels, calculated as of the last day of the
applicable fiscal quarter, were changed to 4.75 to 1.00 for each fiscal quarter
end date through March 31, 2021 ; 4.25 to 1.00 at June 30, 2021 ; 3.75 to 1.00 at
September 30, 2021 ; and 3.25 to 1.00 at December 31, 2021 and thereafter. In
addition, the amount of total secured debt limit was changed from 15% to 5% of
our total consolidated assets until December 31, 2021 , at which time it will
revert back to the 15%. Various interest rate terms were also changed. The
impact on our interest expense will depend upon our ability to access the
commercial paper market, and if so, the degree of that access. The credit
facility also contains an anti-cash hoarding provision that limits borrowing if
the Company has a consolidated cash balance (as defined in the credit facility)
in excess of $300 million without planned expenditures. At September 30, 2020 ,
the Company is in compliance with all of its debt covenants and expects to be
able to maintain compliance with the amended debt covenant requirements.
Our credit facility serves as back-up for our commercial paper program. At
September 30, 2020 , we had no 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 September 30, 2020 , our borrowing capacity under the credit
facility was $1.2 billion at quarter end. However, this may not be indicative of
the actual borrowing capacity going forward, which may be materially different
depending on our consolidated EBITDA, unrestricted cash and debt levels at that
time. Because of the adverse economic impacts of the COVID-19 pandemic, our
consolidated EBITDA may decrease in future quarters.
Also, if we fail to comply with the covenants specified in the credit facility,
we may trigger an event of default, in which case the lending banks would have
the right to: (i) terminate their commitment to provide additional loans under
the credit facility; and (ii) declare all borrowings outstanding, together with
accrued and unpaid interest and fees, to be immediately due and payable.
Additionally, our senior notes contain cross-default provisions which could make
outstanding amounts under the senior notes immediately payable in the event of
an acceleration of amounts due under the credit facility following a material
uncured default. If the debt due under the credit facility or senior notes were
to be accelerated, we may not have sufficient cash to repay this debt.
Our Response to the COVID-19 Pandemic. In response to COVID-19, the Company has
focused on protecting our employees and ensuring a safe work environment. Where
possible, our employees are working remotely. However, most of our production
employees have returned to work. We formed a cross-functional crisis response
team that meets daily. We help our business leaders manage items such as
responding to workplace health and safety issues and protocols, interpreting
government orders and securing personal protective equipment. The team developed
a comprehensive handbook to document new work procedures and changes to
production necessary to facilitate proper social distancing. Our business
leaders have implemented training and change management initiatives to drive and
maintain new ways of operating.
In order to carefully manage cash, we reduced capital expenditures by nearly 60%
to approximately $70 million for 2020 (to be used primarily for maintenance
capital) and are limiting acquisition spending. We eliminated non-essential
expenses and postponed major projects, of which we expect to produce
approximately $100 million of fixed cost savings in 2020. The Company continues
to closely control all elements of working capital.
Relief under the CARES Act and Foreign Governmental Subsidies. The Company is
deferring its payment of employer's Social Security match into 2021 and 2022 as
provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Through September 30, 2020 , we have deferred $12 million , and we expect to defer
$19 million in total for
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2020. Half of the amount will be paid in 2021 and half in 2022. The Company also
received $7 million and $18 million in government subsidies in our international
locations for the three months and nine months ended September 30, 2020 . These
deferrals and subsidies are not expected to have a material impact on our short-
or long-term financial condition, results of operations, liquidity or capital
resources and do not contain material restrictions on our operations, sources of
funding or otherwise.
Cash Dividend
Dividends have historically been the primary means by which we return cash to
shareholders. Our long-term targeted dividend payout ratio has been
approximately 50% of adjusted EPS (which excludes special items such as
significant tax law impacts, impairment charges, restructuring-related charges
and gains from sales of assets or businesses). On November 2, 2020 , our Board of
Directors declared a fourth quarter dividend of $.40 per share, equal to the
dividend declared in the fourth quarter of 2019. At an annual dividend of $1.60
per share, this year marks the Company's 49th annual dividend increase, a record
of consecutive dividend increases that only ten S&P 500 companies currently
exceed.
Credit Rating Downgrade and Liquidity
Independent rating agencies evaluate our credit profile on an ongoing basis and
have assigned ratings to our long-term and short-term debt. On April 21, 2020 ,
one of three rating agencies, which had our long-term debt rating on negative
outlook, lowered that rating by one notch, but changed the outlook to stable. On
May 5, 2020 , another rating agency lowered our long-term and short-term ratings
by one notch with a stable outlook. If we are not able to access the commercial
paper market, either partially or completely, we expect to borrow under our
credit facility for our liquidity needs but at higher interest costs. See "Our
borrowing costs and access to liquidity may be impacted by our credit ratings"
under Risk Factors on page 55.
Customers
We serve a broad suite of customers, with our largest customer representing
approximately 5% of our trade sales in 2019. Many are companies whose names are
widely recognized. They include bedding, residential and work furniture
producers, automotive OEM and Tier 1 manufacturers, and a variety of other
companies.
Raw Material Costs
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. Our ability to recover higher costs (through selling price increases) is
crucial. When we experience significant increases in raw material 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. In 2019, steel costs
decreased through most of the year. Steel costs deflated modestly through the
first part of the year, but began to increase at the end of the third quarter.
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 2019, although steel prices decreased through the year, a wider than usual
metal margin persisted. As a result, our steel operations experienced enhanced
profitability in 2019. In 2020, these metal margins began to compress, but
remain wider than usual.
With the acquisition of ECS, we now have greater exposure to the cost of
chemicals, including TDI, MDI, and polyol. The cost of these chemicals has
fluctuated at times, but ECS has generally passed the changes through to its
customers, with a lag that varies based on customer contract terms. In 2019, ECS
experienced a negative effect on trade sales due to chemical deflation. In the
first half of 2020, chemicals deflated further but have been increasing in the
third quarter. Our other raw materials include woven and non-woven fabrics and
foam scrap. We have experienced changes in the cost of these materials and
generally have been able to pass them through to our customers.
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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.
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 remain price competitive in most of our
business units, even versus many foreign manufacturers, as a result of our
highly efficient operations, automation, vertical integration in steel and wire,
logistics and distribution efficiencies, and large scale purchasing of raw
materials and commodities. However, we have also reacted to foreign competition
in certain cases by selectively adjusting prices, developing new proprietary
products that help our customers reduce total costs and shifting production
offshore to take advantage of lower input costs.
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.
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 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 . Duties will continue through December 2022 for Belarus , Italy ,
Korea , Russia , South Africa , Spain , Turkey , Ukraine , United Arab Emirates , and
the United Kingdom . At that time the DOC and the ITC will conduct a sunset
review to determine whether to extend those orders for an additional five years.
In September 2018 , the Company, along with other domestic mattress producers,
filed petitions with the DOC and the ITC alleging that manufacturers of
mattresses in China were unfairly selling their products in the United States at
less than fair value (dumping) and seeking the imposition of duties on
mattresses imported from China . In October 2019 , the DOC made a final
determination assigning duty rates between 57% to 1,732%. In November 2019 , the
ITC made a unanimous final determination that domestic mattress producers were
materially injured by reason of the unfairly priced imported mattresses. An
antidumping order on imports of Chinese mattresses will remain in effect for
five years, 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, 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 May 2020 , the ITC made a
unanimous, affirmative preliminary determination of a reasonable likelihood of
injury. In August 2020 , the DOC made a preliminary determination in the
countervailing investigation, assigning China a duty rate of 97.78%, and, in
late October 2020 , the DOC made preliminary determinations in the antidumping
investigations, assigning duty rates of 2.61- 989.9%. Final determinations are
expected in the first half of 2021.
Total Shareholder Return
Total Shareholder Return (TSR), relative to peer companies, is a primary
financial measure that we use to assess long-term performance. TSR = (Change in
Stock Price + Dividends) ÷ Beginning Stock Price. Our goal is to achieve TSR in
the top
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third of the S&P 500 companies over the long term through an approach that
employs four TSR sources: revenue growth, margin expansion, dividends, and share
repurchases.
We monitor our TSR performance relative to the S&P 500 on a rolling three-year
basis. We believe our disciplined growth strategy, portfolio management, and
prudent use of capital will support achievement of our goal over time.
Senior executives participate in an incentive program with a three-year
performance period based on two equal measures: (i) our TSR performance compared
to the performance of a group of approximately 300 peers, and (ii) the Company
or segment Earnings Before Interest and Taxes (EBIT) Compound Annual Growth Rate
(CAGR).
Acquisition of Elite Comfort Solutions
On January 16, 2019 , we acquired ECS for a cash purchase price of approximately
$1.25 billion (the "ECS Acquisition"). ECS is a leader in specialized foam
technology, primarily for the bedding and furniture industries. With 16
facilities across the United States , ECS operates a vertically-integrated model,
developing many of the chemicals and additives used in foam production,
producing specialty foam, and manufacturing private-label finished products.
These innovative specialty foam products include finished mattresses sold
through both traditional and online channels, mattress components, mattress
toppers and pillows, and furniture foams. ECS has a diversified customer mix and
a strong position in the high-growth compressed mattress market segment. ECS
operates within the Bedding Products segment.
For information on the financing of the ECS acquisition, please see "Commercial Paper Program and Term Loan Financing" on page 45.
Organic Sales This report contains the metric organic sales. In the past, we have disclosed the metric same location sales calculated as net sales excluding sales attributable to acquisitions and divestitures consummated within the last twelve months. In the Company's 2019 Form 10-K filed February 20, 2020, we disclosed the metric organic sales but indicated that it was calculated identically to the prior same location sales metric. Beginning with our first quarter 2020 Form 10-Q (and including the presentation in this Form 10-Q), we have modified the calculation of organic sales. It is now calculated as trade sales (not net sales) excluding sales attributable to acquisitions and divestitures consummated within the last twelve months. Management uses the organic sales metric, and it is useful to investors, as supplemental information to analyze our underlying sales performance from period to period in our legacy businesses. RESULTS OF OPERATIONS
Discussion of Consolidated Results
Third Quarter:
Trade Sales were$1,207.6 million in the current quarter, a 3% decrease versus the third quarter 2019. Organic sales decreased 3%, with volume down 3%. Business we exited in connection with the 2018 Restructuring Plan accounted for 1% of the decline. Raw material-related selling price decreases were offset by currency benefit and acquisitions were offset by divestitures in the quarter. Earnings Per Share (EPS) increased to$.77 in the current quarter, versus$.74 in the third quarter of 2019, primarily from fixed cost reductions partially offset by lower trade sales volume and a change in LIFO impact. Earnings Before Interest and Taxes (EBIT) increased 2%, to$147.3 million , primarily from fixed cost reductions partially offset by lower trade sales volume and a change in LIFO impact. 38 -------------------------------------------------------------------------------- Nine Months:Trade Sales were$3,098.2 million in the first nine months of 2020, a 14% decrease versus the same period last year. Acquisitions, net of divestitures, added 1% to sales growth in the first nine months of 2020. Organic sales decreased 15%, with volume down 14%. In the first nine months of 2020 trade sales were primarily impacted by COVID-related demand declines along with the planned lower volume in business we exited in connection with the 2018 Restructuring Plan (which reduced trade sales 2%). Raw material-related selling price decreases and negative currency impact reduced trade sales 1%. EPS was$1.06 for the first nine months of 2020, versus$1.83 in the same period of 2019, with the decrease primarily from lower trade sales volume and a goodwill impairment charge, partially offset by fixed cost reductions. EBIT decreased 34%, to$250.8 million , primarily from lower volume and a$25.4 million goodwill impairment charge in Hydraulic Cylinders, partially offset by fixed cost reductions. LIFO/FIFO and the Effect of Changing Prices The last-in, first-out (LIFO) method is primarily used to value our domestic steel-related inventories, largely in the Bedding Products and Furniture, Flooring & Textile Products segments. Inventories accounted for using the LIFO method typically represent 40% of our inventories. Due to the sharp increase in demand that began in the latter part of the second quarter of 2020, our Bedding Products segment inventories have been much lower than historical levels, and LIFO inventories currently represent about one-third of our total inventories. In early 2020 cost deflated modestly, but rose to some degree late in the third quarter of 2020. We are currently estimating that LIFO will be neutral for the full year. The LIFO estimate incorporates certain assumptions about year-end steel prices and inventory levels. Therefore, the LIFO calculation for the full year could be materially different from that currently estimated. The following table contains the LIFO (expense) benefit included for each of the periods presented: Nine Months Ended Three Months Ended September 30, September 30, 2020 2019 2020 2019 LIFO (expense) benefit $ -$ 18.0 $ (2.0) $ 7.6
Net Interest Expense and Income Taxes
2020 net interest expense was higher by
While theU.S. statutory federal income tax rate was 21% in both years, our worldwide effective tax rate was 17% for the third quarter of 2020, compared to 19% for the same quarter last year. In both years, our tax rate benefited from earnings in non-U.S. jurisdictions, which reduced our effective tax rate by 3% in 2020 and 1% in 2019. Conversely, our tax rate increased in both years due to foreign withholding taxes (2% in 2020 and 3% in 2019) and the tax on global intangible low-taxed income (GILTI) (2% in 2020 and 1% in 2019). In 2020, the tax rate also benefited 5% from recently issued GILTI high-tax exception regulations, while in 2019, the tax rate benefited from a 4% reduction in the accrued withholding tax on a dividend from a Chinese entity and 1% for several less significant items. For the full year, we are anticipating an effective tax rate of approximately 23%, including the impact of discrete tax items that we expect to occur from quarter to quarter. Other factors, such as our overall profitability, the mix and level of earnings among jurisdictions, the type of income earned, business acquisitions and dispositions, the impact of tax audits, the effect of other tax law changes, and prudent tax planning strategies, can also influence our rate. 39 --------------------------------------------------------------------------------
Discussion of Segment Results
Third Quarter Discussion
A description of the products included in each segment, along with segment
financial data, appear in Note 4 to the Consolidated Condensed Financial
Statements on page 8. All segment data has been retrospectively adjusted to
reflect the change in segment structure discussed on page 32. A summary of
segment results is shown in the following tables.
Three Months Three Months Change in Trade Sales
% Change in Organic
millions) 30, 2020 30, 2019 $ % Sales 1
Bedding Products $ 589.8 $ 601.4 $ (11.6) (1.9) % (1.3) %
Specialized Products 242.9 267.2 (24.3) (9.1) (9.1)
Furniture, Flooring and Textile
Products 374.9 370.7 4.2 1.1 (2.2)
Total $ 1,207.6 $ 1,239.3 $ (31.7) (2.6) % (3.3) %
Three Months Three Months Change in EBIT EBIT Margins
EBIT Ended September Ended September Three Months Ended Three Months Ended
(Dollar amounts in millions) 30, 2020 30, 2019 $ % September 30, 2020 September 30, 2019
Bedding Products $ 73.6 $ 70.7 $ 2.9 4.1 % 12.5 % 11.8 %
Specialized Products 32.7 44.4 (11.7) (26.4) 13.5 16.6
Furniture, Flooring and Textile Products 41.7 29.3 12.4 42.3 11.1 7.9
Intersegment eliminations & other (.7) (.3) (.4)
Total $ 147.3 $ 144.1 $ 3.2 2.2 % 12.2 % 11.6 %
Depreciation and Amortization Three Months Ended September Three Months Ended September
(Dollar amounts in millions) 30, 2020 30, 2019
Bedding Products $ 26.6 $ 27.5
Specialized Products 10.7 10.4
Furniture, Flooring & Textile Products 6.3 6.4
Unallocated 3.4 4.1
Total $ 47.0 $ 48.4
1 This is a change in trade sales not attributable to acquisitions or
divestitures in the last 12 months. Refer to the segment discussions below in
Bedding Products and Furniture, Flooring & Textile Products for a reconciliation
of the change in total segment trade sales to organic sales.
Bedding Products
Trade sales decreased $12 million , or 2%. Organic sales were down 1% as trade
sales volume decreased 1%, with growth in Specialty Foam, U.S. Spring and
European Spring more than offset by lower volume in Adjustable Bed and the
closure of a Drawn Wire facility. Divestiture of a small operation in our former
Fashion Bed business reduced trade sales 1%.
EBIT increased
Specialized Products Trade sales decreased$24 million , or 9%. Volume was down 10%, primarily from COVID-related demand declines in Aerospace and Hydraulic Cylinders. Currency benefit increased trade sales 1%. EBIT decreased$12 million , primarily from lower volume and restructuring charges incurred from pandemic-related cost reductions partially offset by fixed cost reductions. 40 -------------------------------------------------------------------------------- Furniture, Flooring & Textile Products Trade sales increased$4 million , or 1%. Organic sales were down 2%. A small Geo Components acquisition completed inDecember 2019 added 3% to trade sales. Volume decreased 2%, with growth in Fabric Converting, Geo Components andHome Furniture more than offset by COVID-related demand declines inWork Furniture and Flooring Products' hospitality business. EBIT increased$12 million , primarily from fixed cost reductions, lower raw material costs and favorable product mix. Nine Month Discussion A description of the products included in each segment, along with segment financial data, appear in Note 4 to the Consolidated Condensed Financial Statements on page 8. All segment data has been retrospectively adjusted to reflect the change in segment structure discussed on page 32. A summary of segment results is shown in the following tables. Nine Months Nine Months Ended Ended Change in Sales Trade Sales September 30, September 30, % Change in Organic (Dollar amounts in millions) 2020 2019 $ % Sales 1 Bedding Products$ 1,491.0 $ 1,724.1 $ (233.1) (13.5) % (14.6) % Specialized Products 618.2 797.1 (178.9) (22.4) (22.4) Furniture, Flooring & Textile Products 989.0 1,086.4 (97.4) (9.0) (11.6) Total$ 3,098.2 $ 3,607.6 $ (509.4) (14.1) % (15.4) % Nine Months Nine Months Ended Ended Change in EBIT EBIT Margins EBIT September 30, September 30, Nine Months Ended Nine Months Ended (Dollar amounts in millions) 2020 2019 $ % September 30, 2020 September 30, 2019 Bedding Products$ 122.2 $ 178.3 $ (56.1) (31.5) % 8.2 % 10.3 % Specialized Products 40.7 121.6 (80.9) (66.5) 6.6 15.3 Furniture, Flooring & Textile Products 91.6 79.2 12.4 15.7 9.3 7.3 Intersegment eliminations & other (3.7) (.8) (2.9) Total$ 250.8 $ 378.3 $ (127.5) (33.7) % 8.1 % 10.5 % Depreciation and Amortization Nine Months Ended Nine
Months Ended
(Dollar amounts in millions) September 30, 2020 September 30, 2019 Bedding Products $ 79.7 $ 80.5 Specialized Products 32.5 31.0 Furniture, Flooring & Textile Products 19.1 19.7 Unallocated 9.7 13.5 Total $ 141.0 $ 144.7 1 This is a change in trade sales not attributable to acquisitions or divestitures in the last 12 months. Refer to the segment discussions below in Bedding Products and Furniture, Flooring & Textile Products for a reconciliation of the change in total segment trade sales to organic sales.
Bedding Products
Trade sales decreased$233 million , or 14%. Organic sales were down 15%. Volume decreased 12%, with raw material-related selling price decreases of 2% and a negative currency impact of 1%. Acquisitions, net of divestitures, added 1% to trade sales.
EBIT decreased
41
--------------------------------------------------------------------------------
Specialized Products
Trade sales decreased $179 million , or 22%. Organic sales were down 22%, with
volume down 22%.
EBIT decreased $81 million , primarily from COVID-related demand declines and a
$25 million goodwill impairment charge in Hydraulic Cylinders, partially offset
by fixed cost reductions.
Furniture, Flooring & Textile Products
Trade sales decreased $97 million , or 9%. Organic sales were down 12% and volume
was down 11%, with raw material-related selling price decreases and a negative
currency impact of 1%. A small Geo Components acquisition completed in December
2019 added 3% to trade sales.
EBIT increased $12 million , with COVID-related demand declines more than offset
by fixed cost reductions and lower raw material costs.
LIQUIDITY AND CAPITALIZATION
Cash from Operations Cash from operations is our primary source of funds. 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 for the nine months endedSeptember 30, 2020 was$383.8 million , down$32.8 million from the same period last year, primarily reflecting lower earnings partially offset by working capital improvement from low inventory levels, strong collections and normalized payables. We closely monitor our working capital levels and ended the quarter with adjusted working capital at 8.7% of annualized trade sales. The table below explains this non-GAAP calculation. We eliminate cash, current debt maturities and the current portion of operating lease liabilities from working capital to monitor our operating efficiency and performance related to trade receivables, inventories and accounts payable. We believe this provides a more useful measurement to investors since cash and current maturities can fluctuate significantly from period to period. As discussed on page 46, slightly more than half of these funds are held by international operations and may not be immediately available to reduce debt on a dollar-for-dollar basis. September 30, (Amounts in millions) 2020 December 31, 2019 Current assets$ 1,518.3 $ 1,538.1 Current liabilities 947.4 928.1 Working capital 570.9 610.0 Cash and cash equivalents 245.0 247.6 Current debt maturities and current portion of operating lease liabilities 93.0 90.4 Adjusted working capital$ 418.9 $ 452.8 Annualized trade sales 1$ 4,830.4 $ 4,579.6 Working capital as a percent of annualized trade sales 11.8 % 13.3 %
Adjusted working capital as a percent of annualized trade sales 8.7
% 9.9 % 1 Annualized trade sales equal third quarter 2020 trade sales of$1,207.6 million and fourth quarter 2019 trade sales of$1,144.9 million 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. 42 --------------------------------------------------------------------------------
Three Primary Components of our Working Capital
Amount (in millions) Days
Three Months Ended Twelve Months Ended Three Months Ended
September 30, December 31, September 30, September 30, 2020 September 30, 2019
2020 2019 2019 December 31, 2019
Trade Receivables $ 621.8 $ 564.4 $ 655.6 DSO 1 47 43 49
Inventories $ 585.3 $ 636.7 $ 635.8 DIO 2 57 63 61
Accounts Payable $ 494.1 $ 463.4 $ 467.3 DPO 3 48 46 45
1Days sales outstanding
a. Quarterly: end of period trade receivables ÷ (quarterly net trade sales ÷
number of days in the period).
b. Annually: ((beginning of year trade receivables + end of period trade
receivables) ÷ 2) ÷ (net trade sales ÷ number of days in the period).
2Days inventory on hand
a. Quarterly: end of period inventory ÷ (quarterly cost of goods sold ÷ number
of days in the period).
b. Annually: ((beginning of year inventory + end of period inventory) ÷ 2) ÷
(cost of goods sold ÷ number of days in the period).
3Days payables outstanding
a. Quarterly: end of period accounts payable ÷ (quarterly cost of goods sold ÷
number of days in the period).
b. Annually: ((beginning of year accounts payable + end of period 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 increased atSeptember 30, 2020 compared to year end and decreased compared toSeptember 30, 2019 . Our DSO decreased compared to the third quarter 2019, primarily related to decreased sales as a result of COVID-19, focused collection efforts, and the increased fourth quarter 2019 utilization of receivable sales programs. We are closely monitoring accounts receivable and collections. We recognized$20 million in bad debt expense in the first quarter partially due to COVID-19 impacts on our customers and risk across our account portfolio; approximately half was associated with a Bedding customer that had been experiencing financial difficulties and liquidity problems. AtSeptember 30, 2020 , the level of our accounts receivable in current status had improved and was consistent with pre-COVID-19 levels. We monitor all accounts for possible loss. 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. Inventories - Our inventories decreased as compared to both year end andSeptember 30, 2019 . Our DIO also decreased considerably during the third quarter 2020. As a result of the sharp increase in demand that began in the latter part of the second quarter of 2020, coupled with the supply constraints for fabric and chemicals, our inventories have been much lower than historical levels, particularly in the Bedding Products segment. We are taking steps to carefully control inventory levels as demand improves. We believe we have established adequate reserves for any slower-moving or obsolete inventories. 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. Our reserve balances as a percentage of period-end inventory were consistent with our historical average. Accounts Payable - Accounts payable increased compared to both year end andSeptember 30, 2019 . Our DPO also increased slightly during the third quarter 2020. Our payment terms did not change meaningfully since year end, as we chose to keep our commitment to our vendors by paying on time and did not request an extension of terms. We continue to look for ways to optimize payment terms through our significant purchasing power and also utilize third-party services that allow flexible payment options to enhance our DPO. 43 --------------------------------------------------------------------------------
Accounts Receivable and Accounts Payable Programs
We have participated in certain accounts receivable sales programs to some degree the last few years. We had approximately$45 million and$40 million of trade receivables that were sold and removed from our Consolidated Condensed Balance Sheet atSeptember 30, 2020 andDecember 31, 2019 . These sales reduced our quarterly DSO by roughly 3 days, and increased year-to-date operating cash flow by approximately$5 million and$25 million , each atSeptember 30, 2020 andDecember 31, 2019 , respectively. We also 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. While these programs assist us in negotiating more favorable payment terms with our suppliers, we continue to make payments based on our customary terms. A vendor can 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. Contracts with our suppliers are negotiated independently of supplier participation in the programs, and we cannot increase payment terms pursuant to the programs. As such, there is no direct impact on our DPO, accounts payable, operating cash flows or liquidity. The accounts payable, which remain on our Consolidated Condensed Balance Sheets, settled through the third-party programs were roughly$70 million and$55 million atSeptember 30, 2020 andDecember 31, 2019 , respectively. While we utilize the above items as tools in our cash flow management, and offer them as options to facilitate customer and vendor operating cycles, if there were to be a cessation of these programs, we do not expect it would materially impact our operating cash flows or liquidity. Uses of Cash Finance Capital Requirements In order to carefully manage cash, we reduced capital expenditures by nearly 60% to approximately$70 million for 2020 (to be used primarily for maintenance capital) and are limiting acquisition spending. We eliminated non-essential expenses and postponed major projects, of which we expect to produce nearly$100 million of fixed cost savings in 2020. The Company continues to closely control all elements of working capital. In the first quarter of 2019, we acquired ECS, a leader in the production of proprietary specialized foam used primarily for the bedding and furniture industries, for total consideration of approximately$1.25 billion . Additional details about acquisitions are discussed on page 38 and in Note 9 on page 19 to the Consolidated Condensed Financial Statements. Pay Dividends Dividends are one of the primary means by which we return cash to shareholders. In August, we declared a quarterly dividend of$.40 per share, equal to the dividend declared in the third quarter of 2019. Our long-term targeted dividend payout ratio is approximately 50% of adjusted EPS (which excludes special items such as significant tax law impacts, impairment charges, restructuring-related charges, divestiture gains, litigation accruals and settlement proceeds). For more information about the payment of dividends, please see "Cash Dividend" on page 36. OnNovember 2, 2020 , our Board of Directors declared a fourth quarter dividend of$.40 per share, equal to the dividend declared in the fourth quarter of 2019. At an annual dividend of$1.60 per share, this year marks the Company's 49th annual dividend increase, a record of consecutive dividend increases that only ten S&P 500 companies currently exceed. Continuing our long track record of increasing the dividend remains a high priority. Repurchase Stock Our long-term priorities for uses of cash remain: fund organic growth, pay dividends, fund strategic acquisitions, and repurchase stock with available cash. With the increase in leverage from our acquisition of ECS, as previously discussed, we are prioritizing debt repayment after funding necessary expenditures and dividends, and as a result, are temporarily limiting share repurchases and acquisitions. 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. 44 --------------------------------------------------------------------------------
Capitalization
The following table presents our key debt and capitalization statistics:
September 30, December 31,
(Dollar amounts in millions) 2020 2019
Total debt excluding revolving credit/commercial paper $ 1,960.2 $ 2,056.1
Less: Current maturities of long-term debt 51.1 51.1
Scheduled maturities of long-term debt 1,909.1 2,005.0
Average interest rates 1 3.7 % 3.6 %
Average maturities in years 1 5.5 6.0
Revolving credit/commercial paper 2 - 61.5
Average interest rate on period-end balance outstanding - % 2.0 %
Average interest rate during the period (three months) .4 % 2.6 %
Total long-term debt 1,909.1 2,066.5
Deferred income taxes and other liabilities 507.3 509.3
Shareholders' equity and noncontrolling interest 1,300.0 1,312.5
Total capitalization $ 3,716.4 $ 3,888.3
Unused committed credit:
Long-term $ 1,200.0 $ 1,138.5
Short-term - -
Total unused committed credit 2 $ 1,200.0 $ 1,138.5
Current maturities of long-term debt $ 51.1 $ 51.1
Cash and cash equivalents $ 245.0 $ 247.6 1 These rates include current maturities, but exclude commercial paper to reflect the
averages of outstanding debt with scheduled maturities. The rates also include
amortization of interest rate swaps.
2 The unused committed credit amount is based on our revolving credit facility and
commercial paper program which, at year end 2019 and at the end of the third quarter
of 2020, had a total authorized program amount of
capacity may be limited by covenants to our credit facility.
Commercial Paper Program and Term Loan Financing InJanuary 2019 , we expanded the borrowing capacity under our credit facility from$800 million to$1.2 billion , extended the term toJanuary 2024 and correspondingly increased permitted borrowings under our commercial paper program primarily to finance the ECS Acquisition. The ECS Acquisition was financed through the issuance of approximately$750 million of commercial paper (of which roughly$500 million was subsequently refinanced through the public issuance of 10-year 4.4% notes due 2029) and the issuance of a$500 million five-year Term Loan A with our current bank group which requires us to pay principal in the amount of$12.5 million each quarter and to pay the remaining principal at maturity. As ofSeptember 30, 2020 , we had repaid$135 million , including a$60 million prepayment of a portion of the Term Loan A in the third quarter of 2020. The credit facility allows us to issue letters of credit totaling up to$125 million . When we issue letters of credit under the facility, we reduce our available credit and commercial paper capacity by a corresponding amount. We may borrow funds in advance of expected outflows to provide additional flexibility during the COVID-19 disruption. Amounts outstanding related to our commercial paper program were: September 30, December 31, (Amounts in millions) 2020 2019 Total authorized program$ 1,200.0 $ 1,200.0 Commercial paper outstanding (classified as long-term debt) - 61.5 Letters of credit issued under the credit agreement - - Total program usage - 61.5 Total program available$ 1,200.0 $ 1,138.5 45
-------------------------------------------------------------------------------- The average and maximum amounts of commercial paper outstanding during the third quarter of 2020 were$53.6 million and$131.0 million , respectively. At quarter-end, we had no letters of credit outstanding under the credit facility, but we had issued$41.8 million of stand-by letters of credit under other bank agreements to take advantage of better pricing. Over the long-term, and subject to our capital needs, market conditions, alternative capital market opportunities, and our ability to continue to access the commercial paper market, we expect to maintain the indebtedness under the 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 2024 discussed above. With cash on hand, operating cash flow, our commercial paper program and/or our credit facility, and our ability to obtain debt financing, we believe we have sufficient funds available to repay maturing debt, as well as support our ongoing operations. Our credit facility was amended effectiveMay 6, 2020 and contains revised restrictive covenants. The revised covenants limit: a) as of the last day of each fiscal quarter, the leverage ratio of consolidated funded indebtedness (minus unrestricted cash) to trailing 12-month consolidated EBITDA (each as defined in the credit facility) must not exceed 4.75 to 1.00 for each fiscal quarter end date throughMarch 31, 2021 ; 4.25 to 1.00 atJune 30, 2021 ; 3.75 to 1.00 atSeptember 30, 2021 ; and 3.25 to 1.00 atDecember 31, 2021 and thereafter; b) the amount of total secured debt to 5% of our total consolidated assets untilDecember 31, 2021 , at which time it will revert to 15% of our total consolidated assets; and c) our ability to sell, lease, transfer, or dispose of all or substantially all of total consolidated assets. Various interest rate terms were also changed. The impact on our interest expense will depend upon our ability to access the commercial paper market, and if so, the degree of that access. The amendment also added an anti-cash hoarding provision that limits borrowing if the Company has a consolidated cash balance (as defined in the credit facility) in excess of$300 million without planned expenditures. We were comfortably in compliance with our covenants at the end of the third quarter 2020, and had access to the full$1.2 billion borrowing capacity under the credit agreement. For more information about the restrictive covenants in our credit facility, see "Our Ability to Borrow under our Credit Facility" on page 35. Accessibility of Cash AtSeptember 30, 2020 , we had cash and cash equivalents of$245 million primarily invested in interest-bearing bank accounts and in bank time deposits with original maturities of three months or less. Slightly more than half of these funds are held in the international accounts of our foreign operations. During the first nine months of 2020, we brought back$152 million of foreign cash. We currently expect to bring back approximately$20 million of additional foreign cash before year-end. If we were to immediately bring back all our foreign cash to theU.S. in the form of dividends, we would pay foreign withholding taxes of approximately$15 million . Due to capital requirements in various jurisdictions,$12 million of this cash is currently inaccessible for repatriation.
CONTRACTUAL OBLIGATIONS
Our contractual obligations table presented on page 47 in our Form 10-K filedFebruary 20, 2020 , had a material change outside the ordinary course of business in the first quarter 2020 due to an increase of$360 million in our commercial paper borrowing to provide additional flexibility during the COVID-19 disruption. Reference is made to the updated disclosure regarding our contractual obligations on page 44 of our Form 10-Q filed May 8, 2020. As reported on page 48 of our Form 10-Q filed August 6, 2020, our total long-term debt decreased by$332 million primarily due to the reduction of commercial paper borrowings. Since that disclosure, which was as ofJune 30, 2020 , our total long-term debt, atSeptember 30, 2020 , has decreased by$174 million primarily due to the reduction of commercial paper borrowings.
CONTINGENCIES
For contingencies related to the impact of the COVID-19 pandemic on our business, please see "COVID-19 Impacts on our Business" on page 32.
46
--------------------------------------------------------------------------------Potential Sale of Real Estate
Although the potential sale is subject to significant conditions that may change the timing, the amount and whether the sale is completed at all, we have agreed to sell certain real estate associated with prior years' restructuring activities in the Bedding Products segment. If the sale is completed, we expect to realize a gain of up to approximately$25 million to$30 million on this transaction in the next 12 months. Cybersecurity Risks We rely on information systems to obtain, process, analyze and manage data, as well as to facilitate the manufacture and distribution of inventory to and from our facilities. We receive, process and ship orders, manage the billing of and collections from our customers, and manage the accounting for and payment to our vendors. We have a formal process in place for both incident response and cybersecurity continuous improvement that includes a cross functionalCybersecurity Oversight Committee . Members of theCybersecurity Oversight Committee update the Board quarterly on cyber activity, with procedures in place for interim reporting if necessary. Although we have not experienced any material cybersecurity incidents, we have enhanced our cybersecurity protection efforts over the last few years. However, because of risk due to the COVID-19 pandemic regarding increased remote access, remote work conditions and associated strain on employees, technology failures or cybersecurity breaches could still create system disruptions or unauthorized disclosure of confidential information. We cannot be certain that the attacker's capabilities will not compromise our technology protecting information systems. If these systems are interrupted or damaged by any incident or fail for any extended period of time, then our results of operations could be adversely affected. We may incur remediation costs, increased cybersecurity protection costs, lost revenues resulting from unauthorized use of proprietary information, litigation and legal costs, reputational damage, damage to our competitiveness and negative impact on stock price and long-term shareholder value.
Litigation
Accrual for Litigation Contingencies and Reasonably Possible Losses in Excess of Accruals
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. We deny liability in all currently threatened or pending litigation proceedings and believe we have valid bases to contest all claims made against us. AtSeptember 30, 2020 , our litigation contingency accrual was immaterial (which does not include accrued expenses related to workers' compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters). Based on current known facts, aggregate reasonably possible (but not probable, and therefore, not recorded) losses in excess of accruals for litigation contingencies are estimated to be$11 million , including$10 million for Brazilian VAT matters and$1 million for other matters. If our assumptions or analyses regarding any of our contingencies are incorrect, or if facts change, we could realize loss in excess of the recorded accruals (and in excess of the$11 million referenced above) which could have a material negative impact on our financial condition, results of operations and cash flows. For more information regarding our litigation contingencies, see
Note 16 "Contingencies" on page 28 of the Notes to Consolidated Condensed Financial Statements.
ACCOUNTING STANDARDS UPDATES The FASB has issued accounting guidance effective for the current and future periods. See Note 2 to the Consolidated Condensed Financial Statements on page 6 for a more complete discussion.
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