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 September 30, 2001
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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 ________________
For Quarter Ended Commission File Number
September 30, 2001 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
incorporation or organization) Identification No.)
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 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 ______
Common stock outstanding as of October 23, 2001: 196,484,229
PART I. FINANCIAL INFORMATION
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
September 30, December 31,
2001 2000
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 126.4 $ 37.3
Accounts and notes receivable 732.8 650.5
Allowance for doubtful accounts (27.7) (16.3)
Inventories 596.0 671.8
Other current assets 63.7 62.0
--------- ---------
Total current assets 1,491.2 1,405.3
PROPERTY, PLANT & EQUIPMENT, NET 995.9 1,018.4
OTHER ASSETS
Excess cost of purchased companies over net
assets acquired, less accumulated amortization
of $106.2 in 2001 and $88.8 in 2000 858.4 846.0
Other intangibles, less accumulated amortization
of $40.1 in 2001 and $38.1 in 2000 45.9 49.3
Sundry 106.3 54.2
--------- ---------
Total other assets 1,010.6 949.5
--------- ---------
TOTAL ASSETS $ 3,497.7 $ 3,373.2
========= =========
CURRENT LIABILITIES
Accounts and notes payable $ 202.5 $ 179.4
Accrued expenses 249.1 201.5
Other current liabilities 76.3 95.7
--------- ---------
Total current liabilities 527.9 476.6
LONG-TERM DEBT 984.0 988.4
OTHER LIABILITIES 46.4 42.5
DEFERRED INCOME TAXES 71.6 71.9
SHAREHOLDERS' EQUITY
Common stock 2.0 2.0
Additional contributed capital 417.9 423.5
Retained earnings 1,540.8 1,460.0
Accumulated other comprehensive income (47.1) (45.4)
Treasury stock (45.8) (46.3)
--------- ---------
Total shareholders' equity 1,867.8 1,793.8
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,497.7 $ 3,373.2
========= =========
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)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales $ 3,145.3 $ 3,268.8 $ 1,056.8 $ 1,129.6
Cost of goods sold 2,384.9 2,424.7 799.0 845.5
--------- --------- --------- ---------
Gross profit 760.4 844.1 257.8 284.1
Distribution and handling expenses 132.4 131.0 43.9 44.7
Selling and administrative expenses 313.2 291.2 105.4 100.4
Amortization of excess cost of
purchased companies and other
intangibles 29.9 25.3 9.2 9.0
Other deductions (income), net .6 3.1 .1 3.9
--------- --------- --------- ---------
Earnings before interest
and income taxes 284.3 393.5 99.2 126.1
Interest expense 46.2 49.4 13.2 17.2
Interest income 3.1 3.0 1.6 .3
--------- --------- --------- ---------
Earnings before income taxes 241.2 347.1 87.6 109.2
Income taxes 89.0 128.1 32.3 40.3
--------- --------- --------- ---------
NET EARNINGS $ 152.2 $ 219.0 $ 55.3 $ 68.9
========= ========= ========= =========
Earnings Per Share
Basic $ .76 $ 1.10 $ .28 $ .35
Diluted $ .76 $ 1.09 $ .28 $ .34
Cash Dividends Declared
Per Share $ .36 $ .31 $ .12 $ .11
Average Shares Outstanding
Basic 199.4 199.0 199.7 199.3
Diluted 200.5 200.5 200.7 200.7
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
Nine Months Ended
September 30,
-------------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net Earnings $ 152.2 $ 219.0
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation 114.6 101.5
Amortization 29.9 25.3
Other (6.0) 8.6
Other changes, net of effects from
purchase of companies
(Increase) in accounts receivable, net (67.4) (83.9)
Decrease (Increase) in inventories 90.4 (1.5)
Decrease (Increase) in other current assets .4 (5.4)
Increase in current liabilities 99.0 48.0
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 413.1 311.6
INVESTING ACTIVITIES
Additions to property, plant and equipment (103.4) (124.7)
Purchases of companies, net of cash acquired (58.9) (223.9)
Other 23.1 (15.7)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (139.2) (364.3)
FINANCING ACTIVITIES
Additions to debt 46.2 396.1
Payments on debt (97.3) (228.7)
Dividends paid (92.5) (78.6)
Issuances of common stock 10.9 3.0
Purchases of common stock (47.7) (32.9)
Other (4.4) (3.0)
--------- ---------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (184.8) 55.9
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 89.1 3.2
CASH AND CASH EQUIVALENTS - January 1, 37.3 20.6
--------- ---------
CASH AND CASH EQUIVALENTS - September 30, $ 126.4 $ 23.8
========= =========
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 positions of Leggett & Platt,
Incorporated and Consolidated Subsidiaries (the `Company').
2. INVENTORIES
Inventories, about 50% of which are valued using the Last-in, First-out
(LIFO) cost method and the remainder using the First-In, First-Out (FIFO)
cost method, comprised the following:
September 30, December 31,
2001 2000
------------- ------------
At First-In, First-Out (FIFO) cost
Finished goods $ 313.4 $ 336.8
Work in process 73.3 89.2
Raw materials and supplies 217.6 255.5
---------- ----------
604.3 681.5
Excess of FIFO cost over LIFO cost (8.3) (9.7)
---------- ----------
$ 596.0 $ 671.8
========== ==========
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
September 30, December 31,
2001 2000
------------- ------------
Property, plant and equipment, at cost $ 1,882.5 $ 1,822.8
Less accumulated depreciation 886.6 804.4
---------- ----------
$ 995.9 $ 1,018.4
========== ==========
4. 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 nine months ending September 30,
2001 and 2000, comprehensive income was $150.5 and $203.1, respectively.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
Basic
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.4 199.0 199.7 199.3
======== ======== ======== ========
Net earnings $ 152.2 $ 219.0 $ 55.3 $ 68.9
======== ======== ======== ========
Earnings per share - basic $ .76 $ 1.10 $ .28 $ .35
======== ======== ======== ========
Diluted
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.4 199.0 199.7 199.3
Additional dilutive shares
principally from the
assumed exercise of
outstanding stock options 1.1 1.5 1.0 1.4
-------- -------- -------- --------
200.5 200.5 200.7 200.7
======== ======== ======== ========
Net earnings $ 152.2 $ 219.0 $ 55.3 $ 68.9
======== ======== ======== ========
Earnings per share - diluted $ .76 $ 1.09 $ .28 $ .34
======== ======== ======== ========
6. 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 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
claims and proceedings is remote.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. SEGMENT INFORMATION
Reportable segments are primarily based upon the Company's management
organizational structure. This structure is generally focused on broad
end-user markets for the Company's diversified products. Residential
Furnishings derives its revenues from components for bedding, furniture and
other furnishings, as well as related consumer products. Commercial
Furnishings derives its revenues from retail store fixtures, displays,
storage, material handling systems, components for office and institutional
furnishings, and plastic components. Aluminum Products revenues are derived
from die castings, custom tooling, secondary machining and coating, and
smelting of aluminum ingot. Industrial Materials derives its revenues from
drawn steel wire, specialty wire products and welded steel tubing sold to
trade customers as well as other Leggett segments. Specialized Products is
a combination of non-reportable segments which derive their revenues from
machinery, manufacturing equipment, automotive seating suspensions, control
cable systems, and lumbar supports for automotive, office and residential
applications.
A summary of segment results for the nine months ended September 30, 2001
and 2000 and the quarters ended September 30, 2001 and 2000 are shown in
the following tables. Segment figures for 2000 include the reclass of one
operation from Commercial Furnishings to Industrial Materials.
Inter-
External Segment Total
Sales Sales Sales EBIT
---------- --------- ---------- --------
Nine Months ended Sept. 30, 2001
Residential Furnishings $ 1,549.9 $ 8.9 $ 1,558.8 $ 136.5
Commercial Furnishings 749.5 3.0 752.5 56.4
Aluminum Products 350.2 12.0 362.2 22.6
Industrial Materials 225.6 159.5 385.1 41.6
Specialized Products 270.1 41.5 311.6 30.1
Intersegment eliminations - - - (4.3)
Change in LIFO reserve - - - 1.4
---------- --------- ---------- ---------
$ 3,145.3 $ 224.9 $ 3,370.2 $ 284.3
========== ========= ========== =========
Nine Months ended Sept. 30, 2000
Residential Furnishings $ 1,628.8 $ 7.5 $ 1,636.3 $ 184.8
Commercial Furnishings 750.4 3.3 753.7 92.7
Aluminum Products 413.5 12.2 425.7 29.8
Industrial Materials 248.8 166.7 415.5 61.1
Specialized Products 227.3 36.6 263.9 35.1
Intersegment eliminations - - - (5.2)
Change in LIFO reserve - - - (4.8)
---------- --------- ---------- ---------
$ 3,268.8 $ 226.3 $ 3,495.1 $ 393.5
========== ========= ========== =========
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. SEGMENT INFORMATION (continued)
Inter-
External Segment Total
Sales Sales Sales EBIT
---------- --------- ---------- ----------
Quarter ended September 30, 2001
Residential Furnishings $ 524.3 $ 2.7 $ 527.0 $ 44.1
Commercial Furnishings 265.0 1.2 266.2 27.4
Aluminum Products 99.8 3.6 103.4 5.1
Industrial Materials 82.0 52.7 134.7 13.2
Specialized Products 85.7 11.4 97.1 7.5
Intersegment eliminations - - - 1.3
Change in LIFO reserve - - - .6
---------- --------- ---------- ----------
$ 1,056.8 $ 71.6 $ 1,128.4 $ 99.2
========== ========= ========== ==========
Quarter ended September 30, 2000
Residential Furnishings $ 552.5 $ 2.6 $ 555.1 $ 57.5
Commercial Furnishings 292.1 1.0 293.1 40.2
Aluminum Products 111.9 3.9 115.8 .0
Industrial Materials 84.7 54.9 139.6 18.2
Specialized Products 88.4 11.2 99.6 10.4
Intersegment eliminations - - - 1.3
Change in LIFO reserve - - - (1.5)
---------- --------- ---------- ----------
$ 1,129.6 $ 73.6 $ 1,203.2 $ 126.1
========== ========= ========== ==========
Asset information for the Company's segments at September 30, 2001 and December
31, 2000 is shown in the following table:
September 30, December 31,
2001 2000
-------------- --------------
Assets
Residential Furnishings $ 1,226.0 $ 1,223.2
Commercial Furnishings 923.2 896.5
Aluminum Products 441.9 478.7
Industrial Materials 262.9 264.9
Specialized Products 349.6 336.4
Unallocated assets 336.0 242.6
Adjustment to period-end
vs. average assets (41.9) (69.1)
-------------- --------------
$ 3,497.7 $ 3,373.2
============== ==============
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Adoption of FAS 133
The Company adopted Statement of Financial Accounting Standards No. 133 (FAS
133), Accounting for Derivative Instruments and Hedging Activities, on January
1, 2001. FAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value, with changes in the fair value of the
derivative instruments to be recorded in current earnings or deferred in equity.
Accordingly, at September 30, 2001, the Company increased its long-term debt and
other assets by a total of $40.1 from year-end 2000 to reflect the fair market
value of its interest rate swap agreements and the related debt. It is the
opinion of the Company's management that, due to its limited use of significant
hedging or other activities involving derivative instruments, changes in the
fair value of derivatives will not have a significant effect on the Company's
results of operation or its financial position.
Fair-Value Hedges
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. In 2000, $350 of 7.65% fixed rate debt maturing in February 2005
and, in 1999, $14 of 6.90% fixed rate debt maturing in June 2004 were issued and
converted to variable rate debt by use of interest rate swap agreements. These
swap agreements, which contain the same payment dates as the original issues,
are used primarily by the Company to manage the fixed/variable interest rate mix
of its debt portfolio. The effective swap rate for the third quarter of 2001 was
3.99% for the $350 and 4.09% for the $14. The difference in interest paid or
received as a result of swap agreements is recorded as an adjustment to interest
expense during the period the related debt is outstanding. Substantially all of
the Company's debt is denominated in United States dollars (U.S.$). The fair
value of fixed rate debt not subject to the interest rate swaps was greater than
its carrying value by $4.8 as of September 30, 2001, and was not significantly
different from its carrying value as of December 31, 2000. The fair value of
fixed rate debt was calculated using the U.S. Treasury Bond rate as of September
30, 2001 for similar remaining maturities, plus an estimated "spread" over such
Treasury securities representing the Company's interest costs under its
medium-term note or public debt programs. The fair value of variable rate debt
is not significantly different from its recorded amount.
The Company does not generally 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 $41 and $50 (at cost) in
inventory at September 30, 2001 and December 31, 2000, respectively. 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.
Hedges of Net Investments in Foreign Operations
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 may occasionally
hedge firm commitments for certain machinery purchases, other fixed expenses or
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 September 30, 2001 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 in foreign subsidiaries subject to translation exposure was
$482.8 at September 30, 2001, compared to $428.7 at December 31, 2000. The
increase in translation exposure was due primarily to acquisition activity
in Western Europe, strengthening of European currencies against the U.S.
dollar and other factors.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Company's financial position reflects management's capital policy
guidelines. These guidelines are intended to ensure that corporate liquidity is
adequate to support the Company's projected growth rate. Also, liquidity is
necessary to finance the Company's ongoing operations in periods of economic
downturn. In a normal operating environment, management intends to direct
capital to ongoing operations, strategic acquisitions and other investments that
provide opportunities for expansion and enhanced profitability.
The expansion of capital resources - debt and equity - is planned to allow
the Company to take advantage of favorable capital market conditions, rather
than respond to short-term needs. Such financial flexibility is considered more
important than short-term maximization of earnings per share through excessive
leverage. Therefore, management continuously provides for available credit in
excess of near-term projected cash needs and has maintained a guideline for
long-term debt as a percentage of total capitalization in a range of 30% to 40%.
Total Capitalization
The following table shows the Company's total capitalization at September
30, 2001 and December 31, 2000. Also, the table shows the amount of unused
committed credit available through the Company's revolving bank credit
agreements and the amount of cash and cash equivalents.
(Dollar amounts in millions) September 30, December 31,
2001 2000
--------------- --------------
Long-term debt outstanding:
Scheduled maturities $ 984.0 $ 988.4
Average interest rates 5.4% 6.8%
Average maturities in years 4.1 4.8
Revolving credit/commercial paper - -
-------------- --------------
Total long-term debt 984.0 988.4
Deferred income taxes and other
liabilities 118.0 114.4
Shareholders' equity 1,867.8 1,793.8
-------------- --------------
Total capitalization $ 2,969.8 $ 2,896.6
============== ==============
Unused committed credit:
Long-term $ 215.0 $ 215.0
Short-term 110.0 112.5
-------------- --------------
Total unused committed credit $ 325.0 $ 327.5
============== ==============
Cash and cash equivalents $ 126.4 $ 37.3
============== ==============
Cash provided by operating activities was $413.1 million in the first nine
months of 2001, compared to $311.6 million in the first nine months of 2000.
Lower earnings in 2001 were more than offset by a decline in working capital
(excluding acquisitions), primarily related to inventory reduction, increased
depreciation and amortization and increased current liabilities.
Long-term debt outstanding decreased to $984.0 million, and was 33.1% of
total capitalization at September 30, 2001, down from 34.1% at the end of 2000.
Due to implementation of Financial Accounting Standard No. 133, long-term debt
increased $40.1 million from year-end 2000. That increase was more than offset
by the maturity of $50 in medium-term notes in June 2001. As shown in the
preceding table, obligations having scheduled maturities are the primary source
of the Company's debt capital. At September 30, 2001, these obligations
consisted primarily of the Company's privately placed and publicly held
medium-term notes and tax-exempt industrial development bonds.
The secondary source of the Company's debt capital consists of revolving
bank credit agreements and commercial paper issuances. Management has negotiated
bank credit agreements and established a commercial paper program to
continuously support the Company's projected growth and to maintain highly
flexible sources of debt capital. The majority of the credit under these
arrangements is a long-term obligation. If needed, however, the credit is
available for short-term borrowings and repayments. To further facilitate the
issuance of debt capital, the Company has in effect a $500 million shelf
registration of debt.
Uses of Capital Resources
The Company's internal investments to modernize and expand manufacturing
capacity were $103.4 million in the first nine months of 2001. In 2001,
management anticipates internal investments will approximate $140 million, down
from the nearly $170 million spent in 2000. During the first nine months of
2001, seven businesses were acquired for $58.9 million in cash (net of cash
acquired). In addition, the Company assumed $12.5 million of acquisition
companies' debt and other liabilities. Two of the 2001 acquisitions were made in
Residential Furnishings, three in Commercial Furnishings, one in Industrial
Materials, and one in Specialized Products.
During the third quarter the Company divested its consumer shelving and
kitchen housewares businesses. These small, profitable pieces of the Store
Fixtures and Displays operations generated about $20 million in annual revenue,
but were not an area of focus for Leggett.
Cash dividends on the Company's common stock were $92.5 million during the
first nine months of 2001. Company purchases of its common stock (net of
issuances) totaled $36.8 million in the first nine months of 2001. These
purchases were made primarily for employee stock plans.
The Board of Directors annually authorizes management, at its discretion,
to buy up to 2,000,000 shares of Leggett stock for use in employee benefit
plans. This authorization is continuously replenished as shares acquired are
reissued for these benefit plans. In addition, management is authorized, again
at its discretion, to repurchase any shares issued in acquisitions.
At the end of the third quarter 2000, the Board of Directors authorized
management to buy up to an additional 10,000,000 shares of Leggett stock as part
of the Company's performance improvement plan also announced at that time. No
specific schedule of purchases has been established under this authorization.
The amount and timing of any purchases will depend on availability of cash,
economic and market conditions, acquisition activity and other factors.
Short-term Liquidity
Working capital, excluding cash, at September 30, 2001 was $836.9 million,
down from $891.4 million at year-end. The Company is continuing its efforts to
reduce working capital levels. At the end of the third quarter, working capital,
excluding cash, declined to 19.8% of annualized sales, and was below 20% for the
first time in eight quarters. Working capital improvement is primarily related
to inventory reduction, as the quarter's $51 million expansion in current
liabilities was basically offset by growth in accounts receivable. Inventories
fell $35 million since the end of last quarter, to 14.1% of annualized sales,
and inventory turns achieved a two-and-a-half year high of 5.4.
The Company's cash and cash equivalents increased to $126.4 million at
September 30, 2001 as a result of the strong cash flow provided by operations,
lower capital expenditures and reduced acquisition spending. This cash is
available for future payments of debt, acquisitions and other corporate
purposes.
Results of Operations
---------------------
Discussion of Consolidated Results
The Company's third quarter earnings were $.28 per diluted share, down
17.6% from last year's third quarter earnings of $.34 per diluted share. Sales
were $1.06 billion, a decrease of 6.4% versus third quarter 2000. Sales growth
from acquisitions was more than
offset by a 9.2% decline in same location sales, as weak market demand continued
to impact all five business segments. Production was down significantly from
last year, resulting in reduced plant utilization and overhead absorption, and
adversely impacted profit margins and earnings. Sequentially, sales increased
2.1% from second quarter and earnings improved 8.6%, or 3 cents per share, from
second quarter's $.25 per diluted share.
During the third quarter of 2001, the Company acquired one business with
estimated annualized sales of approximately $53 million. This business
fabricates and processes steel tubing, and joins the Company's Industrial
Materials segment.
The following table shows various measures of earnings as a percentage of
sales for the last two years. It also shows the effective income tax rate and
the ratio of earnings to fixed charges.
Nine Months Ended Quarter Ended
September 30, September 30,
---------------------- ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Gross profit margin 24.2% 25.8% 24.4% 25.2%
EBIT (earnings before
interest and
taxes) margin 9.0 12.0 9.4 11.2
Net profit margin 4.8 6.7 5.2 6.1
Effective income tax rate 36.9 36.9 36.9 36.9
Ratio of earnings
to fixed charges 5.3x 7.0x 6.3x 6.5x
The Company's gross profit margin declined during the third quarter and
first nine months of 2001, primarily reflecting weak market demand in all of the
Company's business segments. Production cutbacks contributed to reduced plant
utilization and lower overhead absorption, which significantly impacted gross
profit and EBIT margins. EBIT margins were also reduced by higher medical, bad
debt and other costs, partially offset by cost improvements and reduced
overheads.
The Company is making steady progress on its tactical plan announced in
September 2000, aimed at improving performance, margins and shareholder return.
The Company has consolidated or sold twelve facilities; restructured other
operations; reduced full time equivalent headcount by approximately 3,300
(excluding acquisitions); and reduced capital and acquisition spending. In the
third quarter the Company held capital spending to $34 million; completed one
acquisition; reduced working capital; repurchased approximately 900,000 shares
of stock at an average price of $22.85; added $3.9 million of long-term debt,
and added $91 million to cash and equivalents. The Company expects to continue
this tactical course as long as conditions warrant. Once economic conditions and
performance improve, subject to management discretion, the Company expects to
return to its traditional level of acquisition activity. The Company's
strategic, long-term growth plans remain unchanged.
Discussion of Segment Results
A description of the products included in each segment, segment sales,
segment earnings before interest and taxes (EBIT) and other segment data appear
in Note 7 of the Notes to Consolidated Condensed Financial Statements.
Third Quarter Discussion
Residential Furnishings sales decreased 5.1%. Same location sales, which
were partially offset by acquisitions, decreased 7.1%. EBIT declined 23.3%
during the quarter. Lower same location sales accounted for most of the EBIT
decline, but a retroactive import duty on Canadian wood also impacted earnings.
Commercial Furnishings sales decreased 9.2%. Same location sales declined
12.4%, reflecting unusually poor business conditions in the office and contract
furniture markets, and continued weakness and reduced fixture purchases in the
telecom industry. EBIT decreased $12.8 million, or 31.8%, due to lower same
location sales.
Aluminum Products sales decreased 10.7%. Same location sales were off an
identical amount as there were no acquisitions within the prior twelve months.
Reduced die cast component sales reflect weak market demand in a variety of
consumer and industrial sectors,
including the telecom, electrical, diesel engine, and barbecue grill markets.
EBIT increased $5.1 million, despite sales declines. EBIT improvement stems from
increased operating efficiency, reduced overhead, and absence of last year's $2
million plant closure costs.
Industrial Materials sales decreased 3.5%. Same location sales were down
10.4%, and were partially offset by acquisitions. EBIT declined 27.4%, as a
result of higher steel rod costs and lower sales volumes.
Specialized Products sales decreased 2.5%, with same location sales down
3.2%. Sales declines, primarily in the machinery group, resulted in a 27.9% EBIT
decrease.
Nine Month Discussion
Residential Furnishings sales decreased 4.7%. Same location sales, which
were partially offset by acquisitions, decreased 6.9%. EBIT declined 26.1%
during the period. Soft industry demand and inventory reduction efforts resulted
in lower production. The lower plant utilization reduced overhead absorption,
yielding lower margins.
Commercial Furnishings sales decreased 0.2%. Same location sales, which
were almost totally offset by acquisitions, declined 8.7%. EBIT decreased $36.3
million, or 39.2%, due primarily to lower same location sales and reduced
margins reflecting unusually poor business conditions in the office and contract
furniture markets, and continued weakness and reduced fixture purchases in the
telecom industry.
Aluminum Products sales decreased 14.9%. Same location sales were down
16.8%, and were slightly offset by one acquisition. Reduced die cast component
sales reflect weak market demand in a variety of consumer and industrial
sectors, including the telecom, electrical, diesel engine, and barbecue grill
markets. EBIT decreased 24.2% due to reduced volumes, decreased efficiencies,
and higher natural gas costs. Partially offsetting these items were lower costs
from reduced overhead and the elimination of one smelter operation.
Industrial Materials sales decreased 7.3%. Same location sales were down
12.3%, and were partially offset by acquisitions. EBIT declined 31.9%, as a
result of reduced sales volumes and lower plant utilization.
Specialized Products sales increased 18.1% due to acquisitions. Same
location sales declined 5.0%, due primarily to slowing production and reduced
demand in automotive markets and the machinery group. EBIT was down 14.2% due to
reduced sales and changing product mix.
Seasonality
The Company does not experience significant seasonality, however,
quarter-to-quarter sales can vary in proportion to the total year by 1-2%.
Management estimates that this 1-2% sales impact can have, at current average
net margins and considering normal overhead absorption, an approximately 5-10%
plus or minus impact on quarter-to-quarter earnings. The timing of acquisitions
and economic factors in any year can distort the underlying seasonality in
certain of the Company's businesses. For the Company's businesses in total, the
second and third quarters have proportionately greater sales, while the first
and fourth quarters are lower. This small seasonality has become somewhat more
pronounced, with the fourth quarter particularly showing proportionately lower
sales due to the growth of the store fixtures business of Commercial
Furnishings.
Residential Furnishings and Commercial Furnishings typically have their
strongest sales in the second and third quarters. Commercial Furnishings
particularly has heavy third quarter sales of its store fixtures products, with
the first and fourth quarters generally lower. Aluminum Products sales are
proportionately greater in the first two calendar quarters due to gas barbecue
grill castings. Industrial Materials sales peak in the third and fourth quarters
from wire products used for baling cotton. Specialized Products has relatively
little quarter-to-quarter variation in sales, although the automotive business
is somewhat heavier in the first two quarters of the year, and somewhat lower in
the third quarter, due to model changeovers and plant shutdowns in the
automobile industry during the summer.
New Financial Accounting Standards Board Statements
The Financial Accounting Standards Board (FASB) recently issued Statement
No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets". Statement No. 141 requires that the purchase method be used
for all business combinations
initiated after June 30, 2001. Statement No. 142 requires, among other things,
that goodwill no longer be amortized to earnings, but instead be reviewed
periodically for impairment. The amortization of goodwill ceases upon adoption
of Statement No. 142 on January 1, 2002. The Company presently estimates that
the goodwill amortization change, if it had been adopted January 1, 2001, would
have positively impacted total year 2001 net earnings by approximately $19
million, or about 9-10 cents per share.
During August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal by sale of long-lived
assets. The provisions of this Statement are effective for financial statements
issued for fiscal years beginning after December 15, 2001. This Statement may
impact the accounting and reporting for any future consolidation or closing of
facilities, but such impact cannot be estimated.
Forward-Looking Statements
This report and other public reports or statements made from time to time
by the Company or its management may contain "forward-looking" statements
concerning possible future events, objectives, strategies, trends or results.
Such statements are identified either by the context in which they appear or by
use of words such as "anticipate," "believe," "estimate," "expect," or the like.
Readers are cautioned that any forward-looking statement reflects only the
beliefs of the Company or its management at the time the statement is made. In
addition, readers should keep in mind that, because all forward-looking
statements deal with the future, they are subject to risks, uncertainties and
developments which might cause actual events or results to differ materially
from those envisioned or reflected in any forward-looking statement. Moreover,
the Company does not have and does not undertake any duty to update or revise
any forward-looking statement to reflect events or circumstances after the date
on which the statement was made. For all of these reasons, forward-looking
statements should not be relied upon as a prediction of actual future events,
objectives, strategies, trends or results.
It is not possible to anticipate and list all of the risks, uncertainties
and developments which may affect the future operations or performance of the
Company, or which otherwise may cause actual events or results to differ from
forward-looking statements. However, some of these risks and uncertainties
include the following: the Company's ability to improve operations and realize
cost savings, future growth of acquired companies, competitive and general
economic and market conditions and risks, such as the rate of economic growth in
the United States, inflation, government regulation, interest rates, taxation,
and the like; risks and uncertainties which could affect industries or markets
in which the Company participates, such as growth rates and opportunities in
those industries, or changes in demand for certain products, etc.; and factors
which could impact costs, including but not limited to the availability and
pricing of raw materials, the availability of labor and wage rates, and fuel and
energy costs.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 10 - Employment and Severance Benefit Agreement between the
Company and David S. Haffner, dated July 30, 2001.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 24 (a)- Power of Attorney of Raymond F. Bentele dated August
8, 2001.
Exhibit 24 (b) - Power of Attorney of Ralph W. Clark dated August 8,
2001.
Exhibit 24 (c) - Power of Attorney of Harry M. Cornell, Jr. dated
August 8, 2001.
Exhibit 24 (d) - Power of Attorney of Jack D. Crusa dated August 8,
2001.
Exhibit 24 (e) - Power of Attorney of R. Ted Enloe, III dated August
8, 2001.
Exhibit 24 (f) - Power of Attorney of Richard T. Fisher dated August
8, 2001.
Exhibit 24 (g) - Power of Attorney of Bob L. Gaddy dated August 8,
2001.
Exhibit 24 (h) - Power of Attorney of Karl G. Glassman dated August 8,
2001.
Exhibit 24 (i) - Power of Attorney of Michael A. Glauber dated August
8, 2001.
Exhibit 24 (j) - Power of Attorney of Robert G. Griffin dated August
8, 2001.
Exhibit 24 (k) - Power of Attorney of David S. Haffner dated August 8,
2001.
Exhibit 24 (l) - Power of Attorney of Thomas A. Hays dated August 8,
2001.
Exhibit 24 (m) - Power of Attorney of Robert A. Jefferies, Jr. dated
August 8, 2001.
Exhibit 24 (n) - Power of Attorney of Ernest C. Jett dated August 8,
2001.
Exhibit 24 (o) - Power of Attorney of Alexander M. Levine dated August
8, 2001.
Exhibit 24 (p) - Power of Attorney of Duane W. Potter dated August 8,
2001.
Exhibit 24 (q) - Power of Attorney of Maurice E. Purnell, Jr. dated
August 8, 2001.
Exhibit 24 (r) - Power of Attorney of Allan J. Ross dated August 8,
2001.
Exhibit 24 (s) - Power of Attorney of Robert A. Wagner dated August 8,
2001.
Exhibit 24 (t) - Power of Attorney of Alice L. Walton dated August 8,
2001.
Exhibit 24 (u) - Power of Attorney of Felix E. Wright dated August 8,
2001.
(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: October 29, 2001 By: /s/ FELIX E. WRIGHT
-------------------
Felix E. Wright
President and
Chief Executive Officer
DATE: October 29, 2001 By: /s/ MICHAEL A. GLAUBER
----------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
EXHIBIT INDEX
Exhibit Page
------- ----
10 Employment and Severance Benefit Agreement between
The Company and David S. Haffner, dated July 30, 2001 19
12 Computation of Ratio of Earnings to Fixed Charges 43
24 (a) Power of Attorney of Raymond F. Bentele dated August 8, 2001 44
24 (b) Power of Attorney of Ralph W. Clark dated August 8, 2001 45
24 (c) Power of Attorney of Harry M. Cornell, Jr. dated August 8, 2001 46
24 (d) Power of Attorney of Jack D. Crusa dated August 8, 2001 47
24 (e) Power of Attorney of R. Ted Enloe, III dated August 8, 2001 48
24 (f) Power of Attorney of Richard T. Fisher dated August 8, 2001 49
24 (g) Power of Attorney of Bob L. Gaddy dated August 8, 2001 50
24 (h) Power of Attorney of Karl G. Glassman dated August 8, 2001 51
24 (i) Power of Attorney of Michael A. Glauber dated August 8, 2001 52
24 (j) Power of Attorney of Robert G. Griffin dated August 8, 2001 53
24 (k) Power of Attorney of David S. Haffner dated August 8, 2001 54
24 (l) Power of Attorney of Thomas A. Hays dated August 8, 2001 55
24 (m) Power of Attorney of Robert A. Jefferies, Jr. dated August 8 2001 56
24 (n) Power of Attorney of Ernest C. Jett dated August 8, 2001 57
24 (o) Power of Attorney of Alexander M. Levine dated August 8, 2001 58
24 (p) Power of Attorney of Duane W. Potter dated August 8, 2001 59
24 (q) Power of Attorney of Maurice E. Purnell, Jr. dated August 8, 2001 60
24 (r) Power of Attorney of Allan J. Ross dated August 8, 2001 61
24 (s) Power of Attorney of Robert A. Wagner dated August 8, 2001 62
24 (t) Power of Attorney of Alice L. Walton dated August 8, 2001 63
24 (u) Power of Attorney of Felix E. Wright dated August 8, 2001 64