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 June 30, 2002
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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
June 30, 2002 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 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 July 24, 2002: 195,783,367
PART I. FINANCIAL INFORMATION
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions) June 30, December 31,
2002 2001
---------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 148.5 $ 187.2
Accounts and notes receivable 708.8 591.9
Allowance for doubtful accounts (29.1) (29.4)
Inventories 618.2 601.3
Other current assets 77.7 70.9
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Total current assets 1,524.1 1,421.9
PROPERTY, PLANT & EQUIPMENT, NET 960.2 961.9
OTHER ASSETS
Excess cost of purchased companies over net
assets acquired, less accumulated amortization
of $112.3 in 2002 and $111.7 in 2001 890.2 879.0
Other intangibles, less accumulated amortization
of $45.2 in 2002 and $41.0 in 2001 41.5 43.8
Sundry 108.2 106.3
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Total other assets 1,039.9 1,029.1
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TOTAL ASSETS $ 3,524.2 $ 3,412.9
=========== ===========
CURRENT LIABILITIES
Accounts and notes payable $ 212.0 $ 162.4
Current maturities of long-term debt 89.2 5.8
Accrued expenses 228.6 197.8
Other current liabilities 103.4 91.0
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Total current liabilities 633.2 457.0
LONG-TERM DEBT 831.0 977.6
OTHER LIABILITIES 43.9 47.0
DEFERRED INCOME TAXES 68.7 64.7
SHAREHOLDERS' EQUITY
Common stock 2.0 2.0
Additional contributed capital 420.8 419.3
Retained earnings 1,631.8 1,552.7
Accumulated other comprehensive income (41.2) (55.8)
Treasury stock (66.0) (51.6)
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Total shareholders' equity 1,947.4 1,866.6
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,524.2 $ 3,412.9
=========== ===========
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)
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------------- ------------------------------------
2002 2001 2002 2001
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Net sales $ 2,138.0 $ 2,088.5 $ 1,115.3 $ 1,035.2
Cost of goods sold 1,709.8 1,674.4 886.2 827.3
------------- ------------- ------------- -------------
Gross profit 428.2 414.1 229.1 207.9
Selling and administrative
expenses 201.0 207.8 103.4 103.0
Amortization of excess cost of
purchased companies (in 2001
only) and other intangibles 5.4 20.7 2.8 11.9
Other deductions (income), net 6.1 .5 4.6 (2.5)
------------- ------------ ------------- ------------
Earnings before interest
and income taxes 215.7 185.1 118.3 95.5
Interest expense 21.5 33.0 10.2 15.8
Interest income 2.6 1.5 1.3 1.0
------------- ------------ ------------- ------------
Earnings before income taxes 196.8 153.6 109.4 80.7
Income taxes 70.3 56.7 39.1 29.8
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NET EARNINGS $ 126.5 $ 96.9 $ 70.3 $ 50.9
============= ============ ============= ============
Earnings Per Share
Basic $ .63 $ .49 $ .35 $ .26
Diluted $ .63 $ .48 $ .35 $ .25
Cash Dividends Declared
Per Share $ .24 $ .24 .12 $ .12
Average Shares Outstanding
Basic 199.4 199.3 199.3 199.4
Diluted 200.6 200.3 200.5 200.2
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions) Six Months Ended
June 30,
---------------------------------
2002 2001
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OPERATING ACTIVITIES
Net Earnings $ 126.5 $ 96.9
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation 71.6 75.6
Amortization 5.4 20.7
Other 8.1 (4.0)
Other changes, net of effects from
purchase of companies
(Increase) in accounts receivable, net (112.2) (17.5)
(Increase) decrease in inventories (15.0) 48.4
(Increase) in other current assets (8.5) (4.1)
Increase in current liabilities 115.8 35.6
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NET CASH PROVIDED BY OPERATING ACTIVITIES 191.7 251.6
INVESTING ACTIVITIES
Additions to property, plant and equipment (54.4) (69.1)
Purchases of companies, net of cash acquired (19.3) (38.4)
Other 7.7 1.1
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NET CASH USED FOR INVESTING ACTIVITIES (66.0) (106.4)
FINANCING ACTIVITIES
Additions to debt 12.4 37.8
Payments on debt (94.3) (92.8)
Dividends paid (47.3) (68.8)
Issuances of common stock 10.9 9.2
Purchases of common stock (46.1) (31.5)
Other - (.9)
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NET CASH USED FOR FINANCING ACTIVITIES (164.4) (147.0)
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DECREASE IN CASH AND CASH EQUIVALENTS (38.7) (1.8)
CASH AND CASH EQUIVALENTS - January 1, 187.2 37.3
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CASH AND CASH EQUIVALENTS - June 30, $ 148.5 $ 35.5
========== ===========
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except per share data)
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:
June 30, December 31,
2002 2001
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At First-In, First-Out (FIFO) cost
Finished goods $ 327.2 $ 308.6
Work in process 72.7 74.7
Raw materials and supplies 230.2 224.1
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630.1 607.4
Excess of FIFO cost over LIFO cost (11.9) (6.1)
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$ 618.2 $ 601.3
============= =============
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
June 30, December 31,
2002 2001
--------------- ------------------
Property, plant and equipment, at cost $ 1,910.3 $ 1,865.5
Less accumulated depreciation 950.1 903.6
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$ 960.2 $ 961.9
=============== ==================
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 six months ending June 30, 2002
and 2001, comprehensive income was $141.1 and $97.4, respectively.
5. RECLASSIFICATION OF SHIPPING & HANDLING EXPENSES TO COST OF GOODS SOLD
As discussed in the 2002 Proxy Statement, the Company has identified a peer
group of diversified manufacturing companies to act as a benchmark for the
Company's performance. To facilitate comparison with this peer group, the
Company has reclassified shipping and handling expenses to cost of goods
sold on the Statement of Earnings. All of the peer group companies classify
similar expenses in cost of goods sold. This reclassification was made
beginning in the First Quarter 2002, and shipping and handling expenses for
all prior periods have been similarly reclassified. This reclassification
had no impact on EBIT, pre-tax earnings or net earnings.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ---------- ----------
Basic
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.4 199.3 199.3 199.4
=========== =========== ========== ==========
Net earnings $ 126.5 $ 96.9 $ 70.3 $ 50.9
=========== =========== ========== ==========
Earnings per share - basic $ .63 $ .49 $ .35 $ .26
=========== =========== ========== ==========
Diluted
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.4 199.3 199.3 199.4
Additional dilutive shares
principally from the
assumed exercise of
outstanding stock options 1.2 1.0 1.2 .8
----------- ----------- ---------- ----------
200.6 200.3 200.5 200.2
=========== =========== ========== ==========
Net earnings $ 126.5 $ 96.9 $ 70.3 $ 50.9
=========== =========== ========== ==========
Earnings per share - diluted $ .63 $ .48 $ .35 $ .25
=========== =========== ========== ==========
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 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.
8. GOODWILL AMORTIZATION
The Financial Accounting Standards Board (FASB) issued Statement No. 142,
"Goodwill and Other Intangible Assets" in 2001. Statement No. 142 requires,
among other things, that goodwill no longer be amortized to earnings, but
instead be tested periodically for impairment. As required, the Company
adopted Statement No. 142 on January 1, 2002, and ceased amortization of
goodwill. The goodwill amortization change is expected to contribute ten
cents per share to 2002 annual earnings. Earnings per share for 2001,
adjusted for FAS No. 142 treatment of goodwill amortization, would have
been $.28 basic
and diluted on pro forma net earnings of $55.9 for the second quarter and
$.54 basic and $.53 diluted on pro forma net earnings of $106.9 for the six
months.
As required by Statement No. 142, the Company tested each of its reporting
units for possible goodwill impairment by comparing the estimated fair
value of each unit with the related book value. In each case, the estimated
fair value exceeded the book value; accordingly, there is no asset
impairment and no impairment charge is required.
9. LONG-TERM DEBT
The Company had in the past intended to refinance all current maturities of
medium-term notes and commercial paper on a long-term basis. With the
Company's current strong cash position, current maturities of such debt
will likely be paid and not replaced until the need for additional debt
arises. Accordingly, $83.1 million of current maturities were reclassified
to current liabilities as of June 30, 2002.
10. 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
Fixturing and Components derives its revenues from retail store fixtures,
displays, storage, material handling systems, components for office and
institutional furnishings, and plastic components. (Commercial Fixturing &
Components was previously called Commercial Furnishings and includes all
operations previously reported as part of the prior Commercial Furnishings
segment.) The 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.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. SEGMENT INFORMATION (continued)
A summary of segment results for the six months ended June 30, 2002 and 2001 and
the quarters ended June 30, 2002 and 2001 are shown in the following tables.
Inter-
External Segment Total
Sales Sales Sales EBIT
------------ ------------ ------------ ------------
Six Months ended June 30, 2002
Residential Furnishings $ 1,071.4 $ 7.7 $ 1,079.1 $ 122.0
Commercial Fixturing & Components 433.7 2.7 436.4 22.9
Aluminum Products 264.7 7.6 272.3 20.8
Industrial Materials 183.3 116.3 299.6 30.8
Specialized Products 184.9 25.4 210.3 25.6
Intersegment eliminations - - - (.6)
Change in LIFO reserve - - - (5.8)
------------ ------------ ------------ ------------
$ 2,138.0 $ 159.7 $ 2,297.7 $ 215.7
============ ============ ============ ============
Six Months ended June 30, 2001
Residential Furnishings $ 1,025.6 $ 6.2 $ 1,031.8 $ 92.4
Commercial Fixturing & Components 484.5 1.8 486.3 29.0
Aluminum Products 250.4 8.4 258.8 17.5
Industrial Materials 143.6 106.8 250.4 28.4
Specialized Products 184.4 30.1 214.5 22.6
Intersegment eliminations - - - (5.6)
Change in LIFO reserve - - - .8
------------ ------------ ------------ ------------
$ 2,088.5 $ 153.3 $ 2,241.8 $ 185.1
============ ============ ============ ============
Inter-
External Segment Total
Sales Sales Sales EBIT
------------ ------------ ------------ ------------
Quarter ended June 30, 2002
Residential Furnishings $ 544.4 $ 3.9 $ 548.3 $ 60.8
Commercial Fixturing & Components 233.1 1.3 234.4 14.3
Aluminum Products 137.5 4.1 141.6 14.6
Industrial Materials 97.3 57.5 154.8 15.4
Specialized Products 103.0 14.0 117.0 15.9
Intersegment eliminations - - - 1.4
Change in LIFO reserve - - - (4.1)
------------ ------------ ------------ ------------
$ 1,115.3 $ 80.8 $ 1,196.1 $ 118.3
============ ============ ============ ============
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
10. SEGMENT INFORMATION (continued)
Inter-
External Segment Total
Sales Sales Sales EBIT
------------ ------------ ------------ ------------
Quarter ended June 30, 2001
Residential Furnishings $ 507.2 $ 3.0 $ 510.2 $ 47.1
Commercial Fixturing & Components 239.8 1.0 240.8 14.3
Aluminum Products 120.5 4.3 124.8 8.1
Industrial Materials 71.8 52.0 123.8 15.3
Specialized Products 95.9 14.7 110.6 12.4
Intersegment eliminations - - - (2.1)
Change in LIFO reserve - - - .4
------------ ------------ ------------ ------------
$ 1,035.2 $ 75.0 $ 1,110.2 $ 95.5
============ ============ ============ ============
Asset information for the Company's segments at June 30, 2002 and December 31,
2001 is shown in the following table:
June 30, December 31,
2002 2001
--------------- ----------------
Assets
Residential Furnishings $ 1,239.9 $ 1,221.5
Commercial Fixturing & Components 882.4 944.2
Aluminum Products 426.6 437.4
Industrial Materials 256.3 260.2
Specialized Products 356.1 352.8
Unallocated assets 305.8 336.1
Adjustment to period-end
vs. average assets 57.1 (139.3)
------------ ------------
$ 3,524.2 $ 3,412.9
============ ============
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 and 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.
Our policy is to expand capital resources - debt and equity - at
appropriate times 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 June
30, 2002 and December 31, 2001. Also, the table shows the amount of unused
committed credit available through the Company's revolving bank credit
agreements, the amount of cash and cash equivalents and the ratio of earnings to
fixed charges.
(Dollar amounts in millions) June 30, December 31,
2002 2001
------------------ ---------------
Long-term debt outstanding:
Scheduled maturities $ 831.0 $ 977.6
Average interest rates 4.5% 4.8%
Average maturities in years 4.0 4.0
Revolving credit/commercial paper - -
--------------- ---------------
Total long-term debt 831.0 977.6
Deferred income taxes and other
Liabilities 112.6 111.7
Shareholders' equity 1,947.4 1,866.6
--------------- ---------------
Total capitalization $ 2,891.0 $ 2,955.9
=============== ===============
Unused committed credit:
Long-term $ 232.5 $ 232.5
Short-term 110.0 110.0
--------------- ---------------
Total unused committed credit $ 342.5 $ 342.5
=============== ===============
Current maturities of long-term debt $ 89.2 $ 5.8
=============== ===============
Cash and cash equivalents $ 148.5 $ 187.2
=============== ===============
Ratio of earnings to fixed charges 7.9x 5.2x
=============== ===============
Cash provided by operating activities was $191.7 million in the first
six months of 2002, compared to $251.6 million in the first six months of 2001.
The decrease in cash provided by operating activities compared to the prior year
principally reflects an increase in working capital (excluding acquisitions) and
lower depreciation and amortization, partially offset by increased earnings.
Management is continuing in its efforts to control working capital. At the end
of the second quarter of 2002, working capital, excluding cash, was 16.6% of
annualized sales, down from 21.2% of sales one year ago. In part this decline
was due to the amount of long-term debt reclassified as coming due within the
next twelve months (See Note 9 of the Notes to Consolidated Financial
Statements). Working capital, excluding cash and current maturities of long-term
debt was 18.6% of sales, the second
consecutive quarter we have been below the Company's target of 19% for working
capital as a percent of sales.
Long-term debt outstanding decreased to $831.0 million, and was 28.7%
of total capitalization at June 30, 2002, down from 33.1% at the end of 2001.
Total debt as a percent of total capitalization, net of cash and including
current maturities in debt, was 27.3% at June 30, 2002, and 28.7% at the end of
2001. Long-term debt decreased $146.6 million from year-end 2001 due to a
reclass of $83.1 million in long-term debt to current maturities and the
maturity and payment of $75 million in medium-term notes in April 2002,
partially offset by an increase in fair market value related to the Company's
interest rate swap agreements. As shown in the preceding table, obligations
having scheduled maturities are the primary source of the Company's debt
capital. At June 30, 2002, these obligations consisted primarily of the
Company's 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.
The Company relies on cash flow from operations as its primary source
of capital. The weak economic conditions that began in the last half of 2000 and
continued through 2002 would have normally resulted in reduced cash flow. The
Company responded to these difficult business conditions by decreasing capital
spending, temporarily reducing the pace of acquisitions, and lowering working
capital. As a result of these improvements, the Company achieved strong growth
in cash flow and was able to increase cash and equivalents to a level that
provides adequate liquidity to finance ongoing operations, temporarily pay down
debt and fund a portion of future growth initiatives. The Company has sufficient
unused committed credit to ensure that future capital resources are sufficient
for its ongoing operations and growth opportunities.
Uses of Capital Resources
The Company's internal investments to modernize and expand
manufacturing capacity were $54.4 million in the first six months of 2002. For
the full year 2002, management anticipates internal investments will approximate
the $128 million spent in 2001.
During the first six months of 2002, three businesses were acquired for
$19.3 million in cash (net of cash acquired). During the second quarter of 2002,
one business was acquired in the Industrial Materials segment for $9.7 million
in cash (net of cash acquired). This acquisition was a wire mill, which is
expected to bring our total wire production to about 900,000 tons per year, and
further the Company's position as North America's leading producer of drawn
steel wire. Annual revenue from this acquisition should approximate $35 million.
Also during the second quarter of 2002, the Company purchased a portion
of the assets of a closed steel mill. Specifically, the melt furnace, billet
caster and rod mill were acquired. Production of rod with these assets is
anticipated to begin in the first quarter of 2003. Once full production is
achieved it is anticipated that these assets will produce about one-half of the
Company's expected internal needs for steel rod. All of the rod produced will be
used internally within the Industrial Materials segment, so there will not be a
resulting increase in annual revenues.
Cash dividends on the Company's common stock were $47.3 million during
the first six months of 2002. Company purchases of its common stock (net of
issuances) totaled $35.2 million in the first six months of 2002. 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. No
specific schedule of purchases has been established under this authorization
which expires in August 2002. 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 and acquisitions increased $19.9
million from year-end 2001 levels. The increase was primarily related to a
$112.2 million increase in receivables and a $15.0 million increase in
inventories, partially offset by a $115.8 million increase in payables and
accrued expenses. As a percent of second quarter annualized sales, working
capital (excluding cash and current maturities) was 18.6%, within the Company's
target of 19% for working capital, as a percent of sales.
Results of Operations
Discussion of Consolidated Results
The Company's second quarter earnings were $.35 per diluted share, up
40.0% from last year's second quarter results of $.25 per diluted share,
reflecting higher same location sales, lower interest expense and restructuring
charges, and elimination of goodwill amortization. Sales for the quarter were
$1.12 billion, the second highest ever, up 7.7% versus sales of $1.04 billion in
the second quarter of 2001. Same location sales increased 3.8%, marking the
first year-over-year improvement since the economic downturn began in mid 2000.
For the first six months of 2002, sales were $2.14 billion, an increase
of 2.4% versus sales of $2.09 billion in the first six months of 2001. Same
location sales declined 1.5% year-to-date. Earnings, at $.63 per diluted share,
were up 31% from last year's $.48 per diluted share. The effect on earnings from
the same location sales decrease was more than offset by lower interest and
energy expense, cost structure improvements, and elimination of goodwill
amortization.
Continued strength in the consumer sectors of the economy, coupled with
gains in market share in several businesses, contributed to the increased sales
and earnings. However, the recovery continues to be slow to arrive in the
industrial and capital goods sectors, affecting Commercial Fixturing &
Components, and portions of the Aluminum Products, and Specialized Products
segments.
The Company has begun to see rising material costs related to import
fees and duties for sheet steel, lumber, steel rod and other basic raw
materials. The Company continues to work with customers to pass along the higher
raw material costs we are experiencing.
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 10 of the Notes to Consolidated Condensed Financial Statements.
Second Quarter Discussion
Residential Furnishings sales increased 7.5%, with same location sales
up 6.2%. Nearly all business units showed modest year-over-year improvements
with upholstered furniture component sales leading the way at roughly 20% sales
growth. EBIT (earnings before interest and taxes) increased $13.7 million, or
29%, reflecting the benefit from higher same location sales, the reversal of a
$3.8 million accrual for duties on Canadian lumber imports which as a result of
recent government rulings will not be collected, and reduced amortization of
$1.9 million.
Commercial Fixturing & Components sales decreased 2.7%, with increases
from acquisitions more than offset by a 7.6% reduction in same location sales.
Although the year-over-year decline is lessening (from more than 20% in each of
the last two quarters), weak market conditions in the industrial and capital
goods sectors of the economy continue to impact the commercial fixturing
businesses, particularly those operations serving telecom customers.
Additionally, continued soft demand has resulted in declines in office and
contract furniture sales. EBIT was unchanged year-over-year, with the impact of
lower same location sales offset by reduced amortization of $2.3 million and the
absence of last year's $4 million non-recurring charge for restructuring and
plant consolidation.
Aluminum Products sales were up 13.5%, solely from same location growth
since there were no acquisitions within the prior twelve months. Market share
gains are driving this increase and to a lesser extent, improvements in some
consumer sectors of the economy. EBIT rose $6.5 million, or 80%, primarily
reflecting the higher sales and decreased amortization of $.6 million.
Industrial Materials sales increased 25.0%, reflecting the benefit of
two acquisitions and same location sales growth of 7.1%. EBIT was basically
unchanged. Higher same location sales yielded an EBIT increase of about $2
million, but this was offset by higher steel prices.
Specialized Products sales were up 5.8%. There were no acquisitions
within the prior twelve months. The sales increase was attributable to the
automotive component businesses, which benefited from additional market
penetration. The machinery businesses reported sales down slightly from the
prior year, reflecting slower economic recovery in the capital goods sectors.
EBIT increased $3.5 million, or 28%, primarily reflecting higher sales volume
and lower amortization of $.9 million.
Six Month Discussion
Residential Furnishings sales increased 4.6%, with same location sales
up 3.1%. Upholstered furniture component sales were strong, with those
improvements offset slightly by relatively flat sales in bedding components.
EBIT increased $29.6 million, or 32% during the period, reflecting higher same
location sales, the one-time benefit of the reversal of an accrual for duties on
imports of Canadian lumber, increased production and overhead absorption, other
cost structure improvements and reduced amortization of $3.9 million.
Commercial Fixturing & Components sales decreased 10.3%, with increases
from acquisitions offset by a 15.4% reduction in same location sales. Sales
reflect continued weak business conditions in the office and contract furniture
markets. Weak market conditions also continue to affect the commercial fixturing
businesses. EBIT decreased $6.1 million, or 21%, as the earnings impact of the
sales decline more than offset decreased amortization of $4.5 million and the
absence of last year's non-recurring charge.
Aluminum Products sales were up 5.2%, solely from same location growth,
since there were no acquisitions within the prior twelve months. EBIT increased
$3.3 million, or 19% due primarily to market share gains and reduced
amortization of $1.2 million.
Industrial Materials sales increased 19.6%, reflecting two acquisitions
and same location sales growth of 3.5%. EBIT was up slightly at $2.4 million, or
8%, a result of increased sales volume offset by higher steel costs.
Specialized Products sales declined 2.0%. There were no acquisitions in
the prior twelve months. Automotive component businesses reported increased
sales, reflecting increased market share and improvements in the consumer
sectors of the economy. This increase was more than offset by declining sales in
machinery, which continues to reflect slow recovery in the industrial sectors of
the economy. EBIT was up $3.0 million, or 13%, due to lower amortization of $1.7
million and reductions in other costs.
Derivative Instruments and Hedging Activities
Interest rate
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 typically in the past used
derivative financial instruments to hedge its exposure to interest rate changes.
However, during 2000, $350 million of 7.65% fixed rate debt maturing in February
2005 and, in 1999, $14 million 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 by the Company to manage the fixed/variable interest
rate mix of its debt portfolio. The effective swap rate for the second quarter
of 2002 was 2.07% for the $350 million and 2.34% for the $14 million. The
difference in interest paid or received as a result of swap agreements is
recorded as an adjustment to interest expense during the period the related debt
is outstanding.
Substantially all of the Company's debt is denominated in United States
dollars (U.S.$). The fair value for fixed rate debt not subject to the interest
rate swaps was greater than its carrying value by $23.3 million as of June 30,
2002, and $13.8 million at
December 31, 2001. The fair value of fixed rate debt was calculated using the
U.S. Treasury Bond rate as of June 30, 2002 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.
Commodity Price
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 $38 million
and $46 million (at cost) in inventory at June 30, 2002 and December 31, 2001,
respectively. The Company has purchasing arrangements with customers to mitigate
its exposure to aluminum price changes. No other commodity exposures are
significant to the Company.
Exchange Rate
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, 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 June 30, 2002 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
exposures was $522.3 million at June 30, 2002, compared to $460.0 at December
31, 2001. The increase in translation exposure was due primarily to
strengthening of the Canadian Dollar and European currencies against the U.S.
dollar.
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 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May 8, 2002. Matters
voted upon were (1) election of directors, and (2) the ratification of the
Board's selection of PricewaterhouseCoopers LLP as the Company's independent
accountants for the fiscal year ending December 31, 2002.
The number of votes cast for, against or withheld, as well as abstentions, with
respect to each matter are set out below.
1. Election of Directors
DIRECTOR FOR WITHHELD
Raymond F. Bentele 154,862,943 2,662,715
Ralph W. Clark 154,857,318 2,668,340
Harry M. Cornell, Jr. 153,922,094 3,603,564
Robert Ted Enloe III 156,302,890 1,222,768
Richard T. Fisher 154,865,040 2,660,618
Karl G. Glassman 155,339,770 2,185,888
Michael A. Glauber 155,252,831 2,272,827
David S. Haffner 155,364,452 2,161,206
Thomas A. Hays 154,861,680 2,663,978
Maurice E. Purnell, Jr. 153,182,253 4,343,405
Alice L. Walton 154,798,921 2,726,737
Felix E. Wright 155,510,967 2,014,691
2. Ratification of Independent accountants
FOR AGAINST ABSTAIN
151,764,156 5,592,448 169,054
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 24 - Power of Attorney of Daniel R. Hebert, dated June 24, 2002.
Exhibit 99.1 - Certification of Felix E. Wright, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated August 5, 2002.
Exhibit 99.2 - Certification of Michael A. Glauber, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated August 5, 2002.
(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: August 5, 2002 By: /s/ DAVID S. HAFFNER
--------------------------
David S. Haffner
President and
Chief Operating Officer
DATE: August 5, 2002 By: /s/ MICHAEL A. GLAUBER
-------------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
EXHIBIT INDEX
Exhibit Page
- ------- ----
12 Computation of Ratio of Earnings to Fixed Charges 18
24 Power of Attorney of Daniel R. Hebert, dated June 24, 2002. 19
99.1 Certification of Felix E. Wright, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated August 5, 2002. 20
99.2 Certification of Michael A. Glauber, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated August 5, 2002. 21