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, 1996
------------------
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
September 30, 1996 1-7845
------------------ -----------------------
LEGGETT & PLATT, INCORPORATED
-----------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0324630
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
No. 1 Leggett Road
Carthage, Missouri 64836
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (417) 358-8131
--------------
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
--- ---
Common stock outstanding as of October 22, 1996: 91,359,020
PART I. FINANCIAL INFORMATION
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
ITEM I. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions) September 30, December 31,
1996 1995
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 4.6 $ 8.2
Accounts and notes receivable 383.5 306.8
Allowance for doubtful accounts (10.7) (7.5)
Inventories 359.7 344.1
Other current assets 42.9 35.0
--------- ---------
Total current assets 780.0 686.6
PROPERTY, PLANT & EQUIPMENT, NET 555.9 510.6
OTHER ASSETS
Excess cost of purchased companies over
net assets acquired, less accumulated
amortization of $26.5 in 1996
and $21.6 in 1995 273.8 210.3
Other intangibles, less accumulated
amortization of $28.1 in 1996
and $24.2 in 1995 33.3 31.7
Sundry 43.7 38.9
--------- ---------
Total other assets 350.8 280.9
--------- ---------
TOTAL ASSETS $ 1,686.7 $ 1,478.1
========= =========
CURRENT LIABILITIES
Accounts and notes payable $ 124.3 $ 127.5
Accrued expenses 147.4 117.1
Other current liabilities 38.1 30.5
--------- ---------
Total current liabilities 309.8 275.1
LONG-TERM DEBT 431.8 380.6
OTHER LIABILITIES 37.5 21.3
DEFERRED INCOME TAXES 60.0 54.3
SHAREHOLDERS' EQUITY
Common stock .9 .9
Additional contributed capital 184.0 164.0
Retained earnings 667.4 601.6
Cumulative translation adjustment (4.6) (5.0)
Treasury stock (.1) (14.7)
--------- ---------
Total shareholders' equity 847.6 746.8
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,686.7 $ 1,478.1
========= =========
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,
--------------------- --------------------
1996 1995 1996 1995
--------- --------- -------- --------
Net sales $ 1,839.8 $ 1,715.3 $ 628.6 $ 551.3
Cost of goods sold 1,380.3 1,311.9 471.3 422.9
--------- --------- -------- --------
Gross profit 459.5 403.4 157.3 128.4
Selling, distribution and
administrative expenses 222.6 203.1 74.9 67.0
Interest expense 22.9 23.2 7.0 7.4
Merger expense 26.6 - - -
Other deductions (income), net 10.3 9.2 3.5 2.9
--------- --------- -------- --------
Earnings before income taxes
and extraordinary item 177.1 167.9 71.9 51.1
Income taxes 68.8 66.3 27.9 19.5
--------- --------- -------- --------
Net earnings before
extraordinary item 108.3 101.6 44.0 31.6
Extraordinary item 12.5 - - -
--------- --------- -------- --------
NET EARNINGS $ 95.8 $ 101.6 $ 44.0 $ 31.6
========= ========= ======== ========
Earnings Per Share (Exhibit 11)
Net earnings before
extraordinary item $ 1.19 $ 1.13 $ .48 $ .35
Net earnings $ 1.05 $ 1.13 $ .48 $ .35
Cash Dividends Declared
Per Share $ .34 $ .28 $ .12 $ .10
Average Common and Common
Equivalent Shares Outstanding 91.1 89.7 92.0 90.2
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,
-----------------------
1996 1995
--------- ---------
OPERATING ACTIVITIES
Net Earnings $ 95.8 $ 101.6
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 55.3 45.6
Amortization 12.3 10.7
Merger expense (non-cash portion) 24.4 -
Extraordinary item (non-cash portion) 4.0 -
Other .6 (3.6)
Other changes, net of effects from
purchases of companies
Increase in accounts receivable, net (63.1) (42.9)
Decrease (increase) in inventories 2.3 (6.7)
Increase in other current assets (2.0) (6.6)
Increase in current liabilities 32.5 50.0
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 162.1 148.1
INVESTING ACTIVITIES
Additions to property, plant and equipment (72.8) (79.0)
Purchases of companies, net of cash acquired (88.9) (1.3)
Other (.8) 2.8
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (162.5) (77.5)
FINANCING ACTIVITIES
Additions to debt 287.6 56.2
Payments on debt (254.8) (85.2)
Dividends paid (30.0) (23.5)
Sales of common stock 4.4 2.3
Purchases of common stock (9.9) (14.0)
Other (.5) (.4)
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NET CASH USED FOR FINANCING ACTIVITIES (3.2) (64.6)
------- -------
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (3.6) 6.0
CASH AND CASH EQUIVALENTS - January 1, 8.2 3.0
------- -------
CASH AND CASH EQUIVALENTS - September 30, $ 4.6 $ 9.0
======= =======
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. INVENTORIES
Inventories, using principally the Last-In, First-Out (LIFO) cost method,
comprised the following:
September 30, December 31,
1996 1995
------------- ------------
At First-In, First-Out (FIFO) cost
Finished goods $ 191.8 $ 186.3
Work in process 37.8 39.1
Raw materials 144.9 136.1
----------- ----------
374.5 361.5
Excess of FIFO cost over LIFO cost 14.8 17.4
----------- ----------
$ 359.7 $ 344.1
=========== ==========
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
September 30, December 31,
1996 1995
------------- ------------
Property, plant and equipment, at cost $ 967.9 $ 875.5
Less accumulated depreciation 412.0 364.9
----------- ----------
$ 555.9 $ 510.6
=========== ==========
4. LOAN AGREEMENTS
In connection with various notes payable, the related loan agreements, among
other restrictions, limit the amount of additional debt and restrict payment of
dividends. Unrestricted retained earnings available for dividends at September
30, 1996 were approximately $125.0.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
5. ACQUISITION AND RELATED EXPENSES
In May 1996, the Company issued 5,134,092 shares of common stock to acquire Pace
Holdings, Inc. (Pace) in a transaction accounted for as a pooling of interests.
Pace is a leading manufacturer and marketer of non-automotive aluminum die cast
components. Previously issued financial statements have been restated to
reflect the pooling. Results of operations for the separate companies prior to
the merger and for the combined companies as restated are as follows:
Three Months Nine Months Three Months
Ended Ended Ended
March 31, 1996 September 30, 1995 September 30, 1995
-------------- ------------------ ------------------
Net Sales
Leggett & Platt $524.2 $1,564.4 $523.6
Pace 67.0 150.9 27.7
------ -------- ------
Combined $591.2 $1,715.3 $551.3
====== ======== ======
Net Earnings
Leggett & Platt $ 36.4 $ 100.7 $ 34.8
Pace 1.3 .2 (3.5)
Restatement Adjustments - .7 .3
------ -------- ------
Combined $ 37.7 $ 101.6 $ 31.6
====== ======== ======
Included in the restatement adjustments to reflect the Pace acquisition is a
change in accounting for the Company's existing aluminum inventory from the LIFO
method to FIFO. This change was made to conform the accounting principles used
by the Company's aluminum operations to those of Pace.
In May 1996, prior to the acquisition, options were granted and exercised under
the Pace employee stock option/bonus plan resulting in compensation expense of
$12.0 before taxes. Other merger expense, including costs for the accrual of
commitments under contracts no longer benefiting the Company and legal and
environmental issues, was $14.6 before taxes, in 1996.
Following the acquisition, the Company issued a tender offer to all holders of
the Pace 10.625% senior notes. In June 1996, the notes were redeemed at
approximately 113% of par value, plus accrued interest. The cash required for
the redemption was provided through the issuance of medium term notes and the
Company's revolving credit agreements. The Company recognized an extraordinary
charge, net of related tax benefits, of $12.5 in 1996 from the extinguishment of
debt.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
6. CONTINGENCIES
From time to time, the Company is involved in proceedings related to
environmental matters. In one instance, the United States Environmental
Protection Agency (EPA) ordered one of the Company's subsidiaries to investigate
potential releases into the environment and, if necessary, to perform corrective
action. The subsidiary successfully appealed the EPA's order. On June 27,
1994, the EPA indicated it planned to issue a new, similar order. The
subsidiary, the EPA and the Florida Department of Environmental Protection
(FDEP) are negotiating an agreement to investigate and, if necessary, take
corrective action to resolve the dispute. Estimated costs to perform an agreed
upon investigation and any related corrective actions are not material and have
been provided for in the financial statements as of September 30, 1996.
If current negotiations with the EPA and the FDEP are unsuccessful, and the EPA
issues a new order, the subsidiary expects it would appeal the new order. If
this appeal is unsuccessful, the costs to perform any required investigation
and, if necessary, corrective action cannot be reasonably estimated. One-half
of any costs, including the costs of voluntary actions, would be reimbursed to
the Company under a contractual obligation of a former joint owner of the
subsidiary. No provision for the costs of performing investigation and
corrective action beyond any agreed upon investigation and remediation mentioned
above has been recorded in the Company's financial statements. If any such
additional investigation and corrective action is required, management believes
the possibility of a material adverse effect on the Company's consolidated
financial position is remote.
In connection with the acquisition of Universal Die Casting, Inc. ("Universal")
through a subsidiary of Pace during 1990, the National Labor Relations Board
("NLRB") filed a complaint based on an unfair labor charge filed by the union
representing the former employees of Universal. The complaint alleges that the
subsidiary refused to hire former employees of Universal because they were union
members and refused to bargain with the union. It seeks back pay and benefits,
together with interest thereon, from October 18, 1988, and reinstatement on
behalf of 81 individuals. In May 1993, the administrative law judge in a
recommended order, rendered a decision against the subsidiary. The recommended
order would require the subsidiary to recognize and bargain with the union and
to offer immediate and full reinstatement of 61 employees and make such
employees whole for any loss of earnings and other benefits suffered as a result
of the alleged discrimination against them. However, under applicable law, such
damages would generally be reduced by the amount of mitigation, if any, by such
individuals, including salary and benefits earned by such individuals since
October 18, 1988. The subsidiary filed an appeal to the full NLRB in Washington
and exceptions to the administrative law judge's recommended order. On January
3, 1996, the NLRB rendered its decision on the subsidiary's appeal by affirming
the administrative law judge's decision and recommended order against the
subsidiary. The subsidiary intends to appeal the NLRB's decision and to contest
individual back pay specifications in NLRB compliance proceedings, if necessary.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
6. CONTINGENCIES - continued
During August 1994, the subsidiary began implementation of a plan to offer
employment to certain of these individuals, which offers, in the event there was
an unfavorable outcome to the subsidiary regarding this matter, would toll the
accrual of any further back pay and benefits. The subsidiary believes its
hiring practices were objective and complied with all labor laws and that the
individuals were denied employment for legitimate reasons. 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
from this matter is remote.
Pace had previously provided in its financial statements amounts estimated to
resolve general litigation matters, including the above. Subsequent to the
acquisition (see Note 5), Leggett & Platt and Pace management continued to
review the alternatives to resolve general litigation matters. The Company
increased (in 1996) the amounts provided in the financial statements as a result
of this review. The additional amounts provided in 1996 are not material to the
Company's consolidated 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 from
these matters is remote.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company's previously issued financial statements have been restated to
reflect the May 1996 pooling of interests acquisition of Pace Holdings, Inc.
(Pace). The following discussion reflects the Company's capital resources and
liquidity and results of operations as restated for the acquisition.
Capital Resources and Liquidity
- -------------------------------
The Company's long-term debt outstanding and shareholders' equity at September
30, 1996 and December 31, 1995 are shown in millions of dollars in the table
below. The amount of additional capital available through the Company's
revolving bank credit agreements is also shown, along with the amount of cash
and cash equivalents.
September 30, December 31,
1996 1995
------------- ------------
Long-term debt outstanding:
Scheduled maturities $338.9 $315.9
Revolving credit/commercial paper 92.9 64.7
------ ------
Total long-term debt 431.8 380.6
Shareholders' equity 847.6 746.8
Unused committed credit 215.0 207.8
Cash and cash equivalents 4.6 8.2
Capital investments to modernize and expand capacity internally were $72.8
million in the first nine months of 1996. The Company also invested $88.9
million, net of cash acquired, and issued 728,835 shares of common stock and
common stock equivalents to acquire several businesses in transactions
accounted for as purchases. Cash provided by operating activities slightly
exceeded total funds required for these investments.
To acquire Pace, the Company issued 5.1 million shares of common stock and
assumed approximately $200 million in Pace debt. The Pace debt that was
refinanced in the second quarter consisted primarily of $115 million in senior
notes and revolving bank credit. In June 1996, the Company issued $100 million
in privately placed medium-term notes having average maturities of 8 years and
fixed interest rates averaging 7.4%. Proceeds from these notes provided a
majority of the funds required to redeem, at 113% of par value, all of the Pace
senior notes that were to mature in almost 7 years and had fixed interest rates
of 10.625%. Funds required to refinance the balance of the senior notes and
Pace's revolving credit initially were provided through the Company's revolving
credit/commercial paper arrangements. In August 1996, the Company issued $25
million in privately placed medium-term notes with maturities of three years and
fixed interest rates of 6.6%. Proceeds from these notes were used to repay a
portion of revolving credit/commercial paper outstanding.
Working capital at September 30, 1996 was $470.2 million, up from $411.5 million
at year-end. Total current assets increased $93.4 million, due primarily to
increases in accounts and notes receivable that primarily reflected increased
sales. Total current liabilities increased $34.7 million, due primarily to
increases in accrued expenses.
The Company has substantial capital resources to support projected internal cash
needs and additional acquisitions consistent with management's goals and
objectives. The Company also has the availability of short-term uncommitted
credit from several banks. There was no short-term debt outstanding at the end
of the third quarter or at year-end.
Acquisitions completed since June 30, 1996 include three businesses that have
combined annual sales of approximately $80 million and fit well with the
Company's existing operations. The largest company was acquired in mid-October
and primarily manufactures components sold to bedding and furniture
manufacturers. The second of these three businesses was acquired in August and
is a part of the Company's lumber operations in Canada. The third business
joined the Company's aluminum group in late July.
Results of Operations
- ---------------------
The Company had record sales of $1.84 billion in the first nine months of 1996.
Sales for the third quarter increased to an all-time quarterly high of $629
million. Compared with the same periods in 1995, sales increased 7% in the
first nine months and 14% in the third quarter.
Stronger sales growth in this year's third quarter, when compared with Company's
growth earlier in 1996, reflected many favorable factors. These included
additional benefits from several acquisitions and increased sales and higher
unit volumes in many existing operations. As previously reported, the Pace
aluminum operations are seasonal in nature, with a majority of sales occurring
in the first half of the year. However, the effect of this seasonality on the
Company as a whole has been significantly offset by certain other recently
acquired operations that have stronger sales in the second half of the year.
Earnings per share for the first nine months of 1996 increased to a record
$1.37, before $.32 per share in previously reported non-recurring costs related
to the Pace acquisition. The non-recurring costs consisted of $.14 per share to
refinance Pace's debt and $.18 per share in other merger related expense.
Compared with the first nine months of 1995, earnings per share before the
non-recurring costs increased 21%. Including the non-recurring costs, earnings
were $1.05 per share in the first nine months of 1996. This compares with $1.13
per share for the same period in 1995. In this year's third quarter, earnings
increased to an all time quarterly high of $.48 per share, up 37% over the third
quarter of 1995.
Growth in earnings per share in excess of sales growth for the year-to-date and
the third quarter reflected continuing improvements in profit margins. The
following table shows various measures of earnings as a percentage of sales for
the first nine months and the third quarter of the last two years. It also
shows the Company's effective income tax rate in each respective period.
Nine Months Ended Quarter Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------ ------
Gross profit margin 25.0% 23.5% 25.0% 23.3%
Pre-tax profit margin
Excluding non-recurring costs 11.1 9.8 11.4 9.3
Including non-recurring costs 9.6 -- -- --
Net profit margin
Excluding non-recurring costs 6.8 5.9 7.0 5.7
Including non-recurring costs 5.2 -- -- --
Effective income tax rate 38.9 39.5 38.8 38.2
Gross profit margins for the first nine months and the third quarter of
1996 compare favorably with the same periods of 1995. They reflect
continuing improvements in production efficiencies in many operations and
increased overhead absorption on higher sales. Lower costs also resulted
in a smaller LIFO effect on gross profit in the first half of 1996, when
compared to the first half of 1995. The LIFO effect on third quarter
gross profit was not significantly different in the last two years.
Some of the improvement in the gross profit margin for the first nine
months of 1996 was offset by higher total selling, distribution and
administrative expenses as a percentage of sales. However, a reduction in
interest expense offset most of this impact on the pre-tax profit margin,
excluding non-recurring costs. A modestly lower effective income tax rate
in the first nine months of 1996 also had a favorable effect on the
year-over-year comparison of net profit margins.
In the third quarter, the year-over-year improvement in the gross profit
margin was enhanced by a reduction in total selling, distribution and
administrative expenses as a percentage of sales. Ongoing interest
expense was also reduced by the mid-year refinancing of the acquired Pace
debt. These favorable factors were only slightly offset by a higher
effective income tax rate in this year's third quarter.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit 11 - Computations of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(B) 1. A Form 8-K was filed on August 15, 1996 concerning
the restatement of the Company's financial statements
for the three years ended December 31, 1995 to reflect
the May 1996 pooling of interests acquisition of Pace
Holdings, Inc. Restated financial statements were filed
therewith.
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, 1996 By: /s/ HARRY M. CORNELL, JR.
--------------------------
Harry M. Cornell, Jr.
Chairman of the Board
and Chief Executive Officer
DATE: October 29, 1996 By: /s/ MICHAEL A. GLAUBER
------------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
EXHIBIT INDEX
Exhibit Page
------- ----
11 Computations of Earnings Per Share 14
27 Financial Data Schedule 15
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES Exhibit 11
COMPUTATIONS OF EARNINGS PER SHARE
(Amounts in millions, except
per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
EARNINGS PER SHARE
Weighted average number of
common shares outstanding 89.3 88.4 89.8 88.8
Dilution from outstanding stock
options-computed using the
"treasury stock" method 1.8 1.3 2.2 1.4
------ ------ ------ ------
Weighted average number of
common shares outstanding as
adjusted 91.1 89.7 92.0 90.2
====== ====== ====== ======
Net Earnings Before
Extraordinary Item $ 108.3 $ 101.6 $ 44.0 $ 31.6
====== ====== ====== ======
Net Earnings $ 95.8 $ 101.6 $ 44.0 $ 31.6
====== ====== ====== ======
Earnings Per Share
Net Earnings Before
Extraordinary Item $ 1.19 $ 1.13 $ .48 $ .35
====== ====== ====== ======
Net Earnings $ 1.05 $ 1.13 $ .48 $ .35
====== ====== ====== ======
5
1,000
9-MOS
DEC-31-1996
SEP-30-1996
4600
0
383500
10700
359700
780000
967900
412000
1686700
309800
431800
0
0
900
846700
1686700
1839800
1839800
1380300
1380300
0
0
22900
177100
68800
108300
0
12500
0
95800
1.05
0
