RISKS AND UNCERTAINTIES

9 Months Ended

Sep. 30, 2021

Risks And Uncertainties, Unusual Items [Abstract]

RISKS AND UNCERTAINTIES

RISKS AND UNCERTAINTIES

Because of the COVID-19 pandemic, various governments in North America, Europe, Asia, and elsewhere instituted, and some have reinstituted, quarantines, shelter-in-place, or stay-at-home orders, or restrictions on public gatherings as well as limitations on social interactions, which have had, and could further have, an adverse effect on the demand for our products.

We have manufacturing facilities in 18 countries. All of these countries have been, and are continuing to be 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 social measures, mandatory closures of retail establishments that sell our products or our customers’ products, travel restrictions, and restrictions on the import or export of products.

In early 2020, the U.S. and other governments ordered that certain nonwoven fabrics used to produce ComfortCore® innersprings be prioritized to produce medical supplies. This resulted in shortages of the fabrics for non-medical applications beginning in second quarter 2020. These shortages and strong bedding demand caused us to temporarily be unable to supply full industry demand for ComfortCore® and resulted in higher costs for nonwoven fabrics. Beginning in late 2020, nonwoven fabrics supply constraints began to alleviate. As demand improved in mid-2020, we also experienced some temporary labor shortages. In the first nine months of 2021, our supply of nonwoven fabrics, additional staffing, and additional machine capacity has allowed us to increase production and build inventory of ComfortCore® to fulfill expected customer requirements. If we cannot produce an adequate amount of ComfortCore® to meet demand, our results of operations may be negatively impacted.

Depending on the length and severity of the COVID-19 pandemic, the percentage of the population vaccinated, and the effectiveness of the vaccines, our ability to keep our manufacturing operations fully operational, build and maintain appropriate labor levels, obtain necessary raw materials and parts, and ship finished products to customers, from supply chain disruptions or otherwise, may be partially or completely disrupted, either on a temporary or prolonged basis. The continued realization of these risks to our manufacturing operations, labor force, and supply chain could also increase labor, commodity, and energy costs.

Supply chain disruptions have continued into 2021, most notably in chemicals, semiconductors, labor, and transportation, constraining volume growth.

We experienced chemical shortages that began in 2020 resulting in constraints of overall mattress production in the industry, negatively impacting component demand and our finished goods production, and higher pricing for chemicals. In 2020, chemical prices deflated in the first half of the year followed by inflation in the second half of the year as a result of supply shortages. In 2021, chemical prices inflated further due to robust demand and shortages from severe weather, supplier production disruptions, port delays, and logistics challenges. The supply shortages resulted in significant restrictions by producers. Supply availability has slowly improved but remains challenging and dynamic. We import certain chemicals to supplement domestic supply, but port delays and logistics issues are limiting access to those products. We now see these challenges continuing into 2022.

Currently there is a shortage of microchips in the automotive industry. Our Automotive Group uses the microchips in seat comfort products, and to a lesser extent in motors and actuators. Although, to date, our Automotive Group has been able to obtain an adequate supply of microchips, we are dependent on our suppliers to deliver these microchips in accordance with our production schedule, and a shortage of the microchips can disrupt our operations and our ability to deliver products to our customers. Also, because of the industry shortage, automotive OEMs and other suppliers have not been able to secure an

adequate supply of microchips, and as a result have reduced or completely shut down their production of some automobiles or parts, which in turn has reduced, and may continue to reduce, our sale of products. Consumer demand remains strong and vehicle inventory remains at record low levels. Once supply chains stabilize, the industry should see improving production. Industry forecasts indicate recovery starting in the back half of next year and continuing through 2023. If we cannot secure an adequate supply of microchips in our supply chain, and the microchips cannot be sourced from a different supplier, or the automotive OEMs and other suppliers continue to reduce their production as a result of such shortage, this may negatively impact our sales, earnings, and financial condition.

Because of shortages in the labor markets, several industries in which we operate have experienced challenges in hiring and maintaining adequate workforce levels, as well as increased labor costs. If this continues, our results of operations may be negatively impacted.

The United States Occupational Safety and Health Administration (OSHA) has released an emergency temporary standard (ETS) requiring private employers with 100 or more employees to mandate vaccination or weekly testing with masking requirements for their unvaccinated employees. We will be subject to the ETS, and it is unclear at this point what impact it will have on our labor force. It is possible that we could experience a disruption in our ability to retain necessary labor levels because of the ETS, which may impact our ability to manufacture and deliver products to our customers. The ETS may also create disruptions to our suppliers and customers.

Some facilities have experienced disruptions in logistics necessary to import, export, or transfer raw materials or finished goods, which has generally resulted in increased freight costs that are typically passed through to our customers. Our supply chains have also been hampered by congested ports.