Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
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For Quarter Ended Commission File Number
March 31, 1998 1-7845
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LEGGETT & PLATT, INCORPORATED
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(Exact name of registrant as specified in its charter)
Missouri 44-0324630
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
No. 1 Leggett Road
Carthage, Missouri 64836
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (417) 358-8131
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Common stock outstanding as of April 30, 1998: 196,200,880
PART I. FINANCIAL INFORMATION
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
March 31, December 31,
1998 1997
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CURRENT ASSETS
Cash and cash equivalents $ 9.9 $ 7.7
Accounts and notes receivable 521.3 450.1
Allowance for doubtful accounts (11.9) (11.5)
Inventories 487.9 433.2
Other current assets 68.5 65.1
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Total current assets 1,075.7 944.6
PROPERTY, PLANT & EQUIPMENT, NET 773.4 693.2
OTHER ASSETS
Excess cost of purchased companies over
net assets acquired, less accumulated
amortization of $41.2 in 1998
and $38.2 in 1997 443.2 394.0
Other intangibles, less accumulated
amortization of $25.6 in 1998
and $24.1 in 1997 33.4 31.6
Sundry 47.2 42.9
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Total other assets 523.8 468.5
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TOTAL ASSETS $ 2,372.9 $ 2,106.3
========= =========
CURRENT LIABILITIES
Accounts and notes payable $ 148.7 $ 128.7
Accrued expenses 172.9 166.4
Other current liabilities 62.2 77.4
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Total current liabilities 383.8 372.5
LONG-TERM DEBT 591.3 466.2
OTHER LIABILITIES 42.4 40.8
DEFERRED INCOME TAXES 67.8 52.8
SHAREHOLDERS' EQUITY
Common stock 2.0 1.0
Additional contributed capital 379.7 311.9
Retained earnings 916.3 871.3
Cumulative translation adjustment (10.1) (10.1)
Treasury stock (.3) (.1)
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Total shareholders' equity 1,287.6 1,174.0
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,372.9 $ 2,106.3
========= =========
Items excluded are either not applicable or de minimis in amount and, therefore,
are not shown separately.
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in millions, except per share data)
Three Months Ended
March 31,
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1998 1997
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Net sales $ 793.2 $ 673.2
Cost of goods sold 590.9 503.0
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Gross profit 202.3 170.2
Selling, distribution and
administrative expenses 98.6 82.4
Interest expense 8.8 7.2
Other deductions (income), net 2.2 2.5
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Earnings before income taxes 92.7 78.1
Income taxes 34.8 29.7
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NET EARNINGS $ 57.9 $ 48.4
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Earnings Per Share
Basic $ .29 $ .26
Diluted $ .29 $ .26
Cash Dividends Declared
Per Share $ .075 $ .065
Average shares outstanding
Basic 196.3 186.4
Diluted 199.7 189.3
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
Three Months Ended
March 31,
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1998 1997
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OPERATING ACTIVITIES
Net Earnings $ 57.9 $ 48.4
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 25.0 20.0
Amortization 5.1 3.3
Other 2.1 2.0
Other changes, net of effects
from purchases of companies
Increase in accounts receivable, net (50.9) (46.7)
(Increase) decrease in inventories (20.2) 5.3
Increase in other current assets (3.0) (2.9)
Increase in current liabilities 14.2 25.2
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NET CASH PROVIDED BY OPERATING ACTIVITIES 30.2 54.6
INVESTING ACTIVITIES
Additions to property, plant and equipment (36.5) (25.2)
Purchases of companies, net of cash acquired (52.2) (75.3)
Other 2.9 1.1
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NET CASH USED FOR INVESTING ACTIVITIES (85.8) (99.4)
FINANCING ACTIVITIES
Additions to debt 128.8 76.1
Payments on debt (41.8) (9.2)
Dividends paid (28.1) (22.9)
Other (1.1) .8
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NET CASH PROVIDED BY FINANCING ACTIVITIES 57.8 44.8
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INCREASE IN CASH AND CASH EQUIVALENTS 2.2 .0
CASH AND CASH EQUIVALENTS - January 1, 7.7 3.7
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CASH AND CASH EQUIVALENTS - March 31, $ 9.9 $ 3.7
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See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions)
1. STATEMENT
In the opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments necessary for a fair statement of results of
operations and financial position of Leggett & Platt, Incorporated and
Consolidated Subsidiaries (the "Company").
2. STOCK SPLIT
On May 13, 1998, the Board of Directors of the Company declared a two-for-one
stock split in the form of a stock dividend for shareholders of record on
May 29, 1998. The shares will be distributed to shareholders on June 15, 1998.
Common Stock and Additional Contributed Capital as of March 31, 1998, and all
references to share and per share amounts in the accompanying financial
statements have been restated to reflect the split.
3. INVENTORIES
Inventories, using principally the Last-In, First-Out (LIFO) cost method,
comprised the following:
March 31, December 31,
1998 1997
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At First-In, First-Out (FIFO) cost
Finished goods $ 262.0 $ 228.0
Work in process 57.3 50.3
Raw materials 182.9 170.0
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502.2 448.3
Excess of FIFO cost over LIFO cost 14.3 15.1
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$ 487.9 $ 433.2
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4. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
March 31, December 31,
1998 1997
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Property, plant and equipment, at cost $ 1,313.7 $ 1,212.3
Less accumulated depreciation 540.3 519.1
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$ 773.4 $ 693.2
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5. COMPREHENSIVE INCOME
In accordance with the provisions of Financial Accounting Standard No. 130, the
Company has elected to report comprehensive income in its Statement of Changes
in Shareholders' Equity. For the quarter ending March 31, 1998 and 1997,
comprehensive income was $57.9 and $46.0, respectively.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
6. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
March 31,
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1998 1997
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Basic
Weighted average shares outstanding,
including shares issuable for little
or no cash 196.3 186.4
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Net earnings $ 57.9 $ 48.4
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Earnings per share - basic $ .29 $ .26
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Diluted
Weighted average shares outstanding,
including shares issuable for little
or no cash 196.3 186.4
Additional dilutive shares
principally from the assumed
exercise of outstanding stock
options 3.4 2.9
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199.7 189.3
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Net earnings $ 57.9 $ 48.4
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Earnings per share - diluted $ .29 $ .26
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LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
7. CONTINGENCIES
The Company is involved in various legal proceedings including matters which
involve claims against the Company under employment, intellectual property,
environmental and other laws. When it appears probable in management's
judgement that the Company will incur monetary damages or other costs in
connection with such claims and proceedings, and the costs can be reasonably
estimated, appropriate liabilities are recorded in the financial statements and
charges are made against earnings. No claim or proceeding has resulted in a
material charge against earnings, nor are the total liabilities recorded
material to the Company's financial position. While the results of any
ultimate resolution cannot be predicted, management believes the possibility of
a material adverse effect on the Company's consolidated financial position,
results of operations and cash flows from these claims and proceedings is
remote. The more significant claims and proceedings are briefly described in
the following paragraphs.
One of the Company's subsidiaries is performing an environmental investigation
at a Florida plant site pursuant to a negotiation with local and Federal
environmental authorities. The costs of the investigation and any remediation
actions will be shared equally by the Company and a former joint owner of the
plant site.
One of the Company's subsidiaries is involved in an unfair labor complaint filed
by the National Labor Relations Board prior to the Company's acquisition of the
subsidiary. An administrative decision has been rendered against the
subsidiary, which was recently upheld by the courts. The Company is currently
pursuing actions to resolve this matter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All share and per share amounts have been adjusted for the stock split discussed
in Item I, Note 2.
Capital Resources and Liquidity
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The Company's total capitalization at March 31, 1998 and December 31, 1997 is
shown in the table below. The table also shows the amount of unused committed
credit available through the Company's revolving bank credit agreements.
(Dollar amounts in millions)
March 31, December 31,
1998 1997
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Long-term debt outstanding:
Scheduled maturities $ 451.8 $ 402.9
Average interest rates 6.6% 6.6%
Average maturities in years 6.1 6.3
Revolving credit/commercial paper 139.5 63.3
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Total long-term debt 591.3 466.2
Deferred income taxes and other liabilities 110.2 93.6
Shareholders' equity 1,287.6 1,174.0
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Total capitalization $ 1,989.1 $ 1,733.8
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Unused committed credit $ 240.0 $ 240.0
The Company's internal investments to modernize and expand manufacturing
capacity were $36.5 million in the first quarter of 1998. The Company also
invested $52.2 million in cash (net of cash acquired) and issued 2.9 million
shares of common stock and common stock equivalents to make 10 acquisitions.
Cash provided by operating activities provided approximately one-third of the
funds required for these investments. Increased borrowing under the Company's
commercial paper program initially provided the balance. In March 1998, the
Company issued $50 million in medium-term notes. These notes have fixed interest
rates of 6.07% and 5-year maturities. Proceeds from the notes were used to
repay commercial paper outstanding.
Working capital at March 31, 1998 was $691.9 million, up from $572.1 million at
year-end. Total current assets increased $131.1 million, due primarily to
increases in accounts and notes receivable and inventories attributable to
increased sales. Total current liabilities increased $11.3 million, due to
increases in accounts payable and accrued expenses.
In addition to unused committed credit, the Company has the availability of
short-term uncommitted credit from several banks. However, there was no short-
term bank debt outstanding at March 31, 1998. Given this strong financial
position and the continuing strong coverage of interest expense, the Company has
substantial capital resources and flexibility to provide for projected internal
cash needs and additional acquisitions consistent with management's goals and
objectives.
Effective April 28, 1998, the Company's senior debt rating was upgraded to A+
from A by Standard & Poor's. Also in April, the Company issued $26 million in
medium term notes with fixed interest rates of 6.30% and maturities of 10 years.
Proceeds from these notes were used to repay commercial paper outstanding.
Results of Operations
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The Company's continuing growth resulted in record first quarter sales and
earnings in 1998. Sales increased to $793.2 million (up 18%) and net earnings
grew to $57.9 million (up 20%) - both compared with 1997 first quarter records.
Earnings per diluted share increased to $.29 (up 12%) - also compared with a
first quarter record set in 1997.
Increased 1998 sales reflected ongoing benefits from acquisitions and internal
improvements. Acquisitions accounted for more of the sales growth than other
factors. The balance of the sales growth primarily reflected increased unit
volumes.
Net earnings grew faster than sales due to a slight improvement in 1998 profit
margins. The somewhat lower growth in earnings per share, when compared to the
growth in net earnings, primarily reflects the issuance of shares in the
Company's acquisition program. The following table shows various measures of
earnings as a percentage of sales for the first quarter in both of the last two
years. It also shows the effective income tax rate and the coverage of interest
expense by pre-tax earnings plus interest in each period.
Quarter Ended
March 31,
1998 1997
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Gross profit margin 25.5% 25.3%
Pre-tax profit margin 11.7 11.6
Net profit margin 7.3 7.2
Effective income tax rate 37.5 38.0
Interest coverage ratio 11.5x 11.8x
As shown above, the gross profit margin improved in 1998 as many operations
increased sales and efficiencies and the Company's costs for some materials
declined. Some of this improvement was offset by a somewhat higher operating
expense ratio and increased interest expense as a percentage of sales. Thus,
the pre-tax profit margin improved slightly. The net profit margin also
benefited from a slightly lower effective income tax rate in 1998.
Consistent cash flow, a conservative capital policy and the success of
management's long-term growth strategy have allowed the Company to sustain a
27-year record of increasing dividends. In March 1998, shareholders received
first quarter dividends at a new quarterly rate of $.075 per share. This
dividend was 7% higher than the previous two quarters and 15% higher than the
1997 first quarter dividend.
ITEM 3. DISCLOSURES ABOUT MARKET RISK
(Unaudited)
(Amounts in millions)
INTEREST RATE SENSITIVITY
The Company has debt obligations sensitive to changes in interest rates. The
Company has no other significant financial instruments sensitive to changes in
interest rates. The Company has not in the past used any derivative financial
instruments to hedge its exposure to interest rate changes. Substantially all
of the Company's debt is denominated in United States dollars. The fair value
of variable rate debt is not significantly different from its recorded amount.
Using the U.S. Treasury Bond rate as of March 31, 1998 for similar remaining
maturities, plus an estimated "spread" over such Treasury securities
representing the Company's interest costs under its medium-term note program,
there was no material change in the fair value of debt obligations since
December 31, 1997, when compared to the carrying value. The principal fixed
rate debt of the Company increased by approximately $50 and principal variable
rate debt increased by approximately $76 since December 31, 1997.
EXCHANGE RATE SENSITIVITY
The Company has not typically hedged foreign currency exposures related to
transactions denominated in other than its functional currencies, although such
transactions have not been material in the past. The Company does hedge firm
commitments for certain machinery purchases, and occasionally may hedge amounts
due in foreign currencies related to its acquisition program. The decision by
management to hedge any such transactions is made on a case-by-case basis. The
amount of forward contracts outstanding at March 31, 1998 was not significant.
The Company views its investment in foreign subsidiaries as a long-term
commitment and does not hedge any translation exposures. The investment in a
foreign subsidiary may take the form of either permanent capital or notes. The
Company's net investment (excluding goodwill) in foreign subsidiaries subject to
translation exposure at March 31, 1998 has not changed significantly since
December 31, 1997.
COMMODITY PRICE SENSITIVITY
The Company does not use derivative commodity instruments to hedge its exposures
to changes in commodity prices. The principal commodity price exposure is
aluminum, of which the Company had an estimated $45 (at cost) in inventory at
March 31, 1998. The current fair value of aluminum approximated its carrying
value at March 31, 1998. The Company has purchasing procedures and arrangements
with customers to mitigate its exposure to aluminum price changes. No other
commodity exposures are significant to the Company.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 1998 the Company issued 2,815,730 shares of its
common stock in transactions which qualified for exemption from registration
under the Securities Act by virtue of Regulation D and Section 4(2) of the
Securities Act. These securities were issued in connection with the acquisition
of four businesses. On January 30, 1998, 974,638 shares were issued pursuant to
Section 4(2) and Regulation D to acquire Cumulus Fibres, Inc. from its
shareholders. On February 4, 1998, 1,591,266 shares were issued pursuant to
Section 4(2) and Regulation D to acquire Syndicate Systems, Inc. from its
shareholders. On February 11, 1998, 65,934 shares were issued pursuant to
Section 4(2) to acquire American Innerspring, Co. from its sole shareholder.
On March 2, 1998, 183,892 shares were issued pursuant to Section 4(2) and
Regulation D to acquire B&C Die Cast, Inc. from its shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 27 - Financial Data Schedule
Exhibit 27.1 - Restated Financial Data Schedules
Exhibit 27.2 - Restated Financial Data Schedules
Exhibit 27.3 - Restated Financial Data Schedules
(B) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEGGETT & PLATT, INCORPORATED
DATE: May 13, 1998 By: /s/ HARRY M. CORNELL, JR.
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Harry M. Cornell, Jr.
Chairman of the Board
and Chief Executive Officer
DATE: May 13, 1998 By: /s/ MICHAEL A. GLAUBER
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Michael A. Glauber
Senior Vice President,
Finance and Administration
EXHIBIT INDEX
Exhibit Page
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27 Financial Data Schedule 14
27.1 Restated Financial Data Schedules 15
27.2 Restated Financial Data Schedules 16
27.3 Restated Financial Data Schedules 17