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, 2001
-------------
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, 2001 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 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 August 2, 2001: 196,554,419
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,
2001 2000
-------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 35.5 $ 37.3
Accounts and notes receivable 680.3 650.5
Allowance for doubtful accounts (22.5) (16.3)
Inventories 630.9 671.8
Other current assets 67.4 62.0
-------- --------
Total current assets 1,391.6 1,405.3
PROPERTY, PLANT & EQUIPMENT, NET 1,014.4 1,018.4
OTHER ASSETS
Excess cost of purchased companies over net
assets acquired, less accumulated
amortization of $103.3 in 2001 and $88.8 in 2000 860.1 846.0
Other intangibles, less accumulated amortization of
$39.0 in 2001 and $38.1 in 2000 52.2 49.3
Sundry 83.3 54.2
-------- --------
Total other assets 995.6 949.5
-------- --------
TOTAL ASSETS $3,401.6 $3,373.2
======== ========
CURRENT LIABILITIES
Accounts and notes payable $ 196.6 $ 179.4
Accrued expenses 207.3 201.5
Other current liabilities 73.0 95.7
-------- --------
Total current liabilities 476.9 476.6
LONG-TERM DEBT 966.5 988.4
OTHER LIABILITIES 42.4 42.5
DEFERRED INCOME TAXES 72.1 71.9
SHAREHOLDERS' EQUITY
Common stock 2.0 2.0
Additional contributed capital 417.6 423.5
Retained earnings 1,509.1 1,460.0
Accumulated other comprehensive income (44.9) (45.4)
Treasury stock (40.1) (46.3)
-------- --------
Total shareholders' equity 1,843.7 1,793.8
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,401.6 $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)
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $2,088.5 $2,139.2 $1,035.2 $1,095.6
Cost of goods sold 1,585.9 1,579.2 783.7 807.1
-------- -------- -------- --------
Gross profit 502.6 560.0 251.5 288.5
Distribution and handling expenses 88.5 86.3 43.6 44.3
Selling and administrative expenses
207.8 190.8 103.0 98.8
Amortization of excess cost of
purchased companies and other
intangibles 20.7 16.3 11.9 8.5
Other deductions (income), net .5 (.8) (2.5) (.1)
-------- -------- -------- --------
Earnings before interest
and income taxes 185.1 267.4 95.5 137.0
Interest expense 33.0 32.2 15.8 17.6
Interest income 1.5 2.7 1.0 1.2
-------- -------- -------- --------
Earnings before income taxes 153.6 237.9 80.7 120.6
Income taxes 56.7 87.8 29.8 44.3
-------- -------- -------- --------
NET EARNINGS $ 96.9 $ 150.1 $ 50.9 $ 76.3
======== ======== ======== ========
Earnings Per Share
Basic $ .49 $ .75 $ .26 $ .38
Diluted $ .48 $ .75 $ .25 $ .38
Cash Dividends Declared
Per Share $ .24 $ .20 $ .12 $ .10
Average Shares Outstanding
Basic 199.3 198.9 199.4 199.0
Diluted 200.3 200.5 200.2 200.6
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,
------------------
2001 2000
------- -------
OPERATING ACTIVITIES
Net Earnings $ 96.9 $ 150.1
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation 75.6 65.2
Amortization 20.7 16.3
Other (4.0) (.3)
Other changes, net of effects from
purchase of companies
(Increase) in accounts receivable, net (17.5) (56.6)
Decrease (Increase) in inventories 48.4 (24.6)
(Increase) in other current assets (4.1) (3.3)
Increase in current liabilities 35.6 41.5
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 251.6 188.3
INVESTING ACTIVITIES
Additions to property, plant and equipment (69.1) (81.5)
Purchases of companies, net of cash acquired (38.4) (203.4)
Other 1.1 (16.2)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (106.4) (301.1)
FINANCING ACTIVITIES
Additions to debt 37.8 392.0
Payments on debt (92.8) (203.1)
Dividends paid (68.8) (57.0)
Issuances of common stock 9.2 2.3
Purchases of common stock (31.5) (25.4)
Other (.9) 1.1
------- -------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (147.0) 109.9
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1.8) (2.9)
CASH AND CASH EQUIVALENTS - January 1, 37.3 20.6
------- -------
CASH AND CASH EQUIVALENTS - June 30, $ 35.5 $ 17.7
======= =======
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:
June 30, December 31,
2001 2000
-------- ------------
At First-In, First-Out (FIFO) cost
Finished goods $339.4 $336.8
Work in process 76.1 89.2
Raw materials and supplies 224.3 255.5
------ ------
639.8 681.5
Excess of FIFO cost over LIFO cost (8.9) (9.7)
------ ------
$630.9 $671.8
====== ======
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
June 30, December 31,
2001 2000
-------- ------------
Property, plant and equipment, at cost $1,882.8 $1,822.8
Less accumulated depreciation 868.4 804.4
-------- --------
$1,014.4 $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 six months ending June 30, 2001
and 2000, comprehensive income was $97.4 and $140.3, 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:
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
2001 2000 2001 2000
------ ------ ------ ------
Basic
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.3 198.9 199.4 199.0
====== ====== ====== ======
Net earnings $ 96.9 $150.1 $ 50.9 $ 76.3
====== ====== ====== ======
Earnings per share - basic $ .49 $ .75 $ .26 $ .38
====== ====== ====== ======
Diluted
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.3 198.9 199.4 199.0
Additional dilutive shares
principally from the
assumed exercise of
outstanding stock options 1.0 1.6 .8 1.6
------ ------ ------ ------
200.3 200.5 200.2 200.6
====== ====== ====== ======
Net earnings $ 96.9 $ 150.1 $ 50.9 $ 76.3
====== ====== ====== ======
Earnings per share - diluted $ .48 $ .75 $ .25 $ .38
====== ====== ====== ======
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 six months ended June 30, 2001 and
2000 and the quarters ended June 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
-------- ------- -------- ------
Six Months ended June 30, 2001
Residential Furnishings $1,025.6 $ 6.2 $1,031.8 $ 92.4
Commercial Furnishings 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 - - - 0.8
-------- ------ -------- ------
$2,088.5 $153.3 $2,241.8 $185.1
======== ====== ======== ======
Six Months ended June 30, 2000
Residential Furnishings $1,076.3 $ 4.9 $1,081.2 $127.3
Commercial Furnishings 458.3 2.3 460.6 52.5
Aluminum Products 301.6 8.3 309.9 29.8
Industrial Materials 164.1 111.8 275.9 42.9
Specialized Products 138.9 25.4 164.3 24.7
Intersegment eliminations - - - (6.5)
Change in LIFO reserve - - - (3.3)
-------- ------ -------- ------
$2,139.2 $152.7 $2,291.9 $267.4
======== ====== ======== ======
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 June 30, 2001
Residential Furnishings $ 507.2 $ 3.0 $ 510.2 $ 47.1
Commercial Furnishings 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
======== ====== ======== ======
Quarter ended June 30, 2000
Residential Furnishings $ 544.0 $ 2.7 $ 546.7 $ 65.3
Commercial Furnishings 250.5 1.3 251.8 29.3
Aluminum Products 142.6 4.4 147.0 13.2
Industrial Materials 85.3 55.2 140.5 22.3
Specialized Products 73.2 12.8 86.0 12.6
Intersegment eliminations - - - (3.8)
Change in LIFO reserve - - - (1.9)
-------- ------ -------- ------
$1,095.6 $ 76.4 $1,172.0 $137.0
======== ====== ======== ======
Asset information for the Company's segments at June 30, 2001 and December 31,
2000 is shown in the following table:
June 30, December 31,
2001 2000
-------- ------------
Assets
Residential Furnishings $1,232.3 $1,223.2
Commercial Furnishings 930.2 896.5
Aluminum Products 451.2 478.7
Industrial Materials 247.7 264.9
Specialized Products 345.9 336.4
Unallocated assets 255.5 242.6
Adjustment to period-end
vs. average assets (61.2) (69.1)
-------- --------
$3,401.6 $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 June 30, 2001, the Company increased
its long-term debt and other assets by a total of $26.2 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 second quarter of 2001 was 4.90%
for the $350 and 5.18% 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 exceeded its carrying value by $6.8 as of June 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 June 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 $42 and
$50 (at cost) in inventory at June 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 June 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 $458.4 at June 30, 2001, compared to $428.7 at
December 31, 2000. The increase in translation exposure was due primarily
to acquisition activity in Western Europe 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 June 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) June 30, December 31,
2001 2000
-------- ------------
Long-term debt outstanding:
Scheduled maturities $ 966.5 $ 988.4
Average interest rates 5.9% 6.8%
Average maturities in years 4.4 4.8
Revolving credit/commercial paper - -
-------- --------
Total long-term debt 966.5 988.4
Deferred income taxes and other
liabilities 114.5 114.4
Shareholders' equity 1,843.7 1,793.8
-------- --------
Total capitalization $2,924.7 $2,896.6
======== ========
Unused committed credit:
Long-term $ 215.0 $ 215.0
Short-term 112.5 112.5
-------- --------
Total unused committed credit $ 327.5 $ 327.5
======== ========
Cash and cash equivalents $ 35.5 $ 37.3
======== ========
Cash provided by operating activities was $251.6 million in the first six
months of 2001, compared to $188.3 million in the first six months of 2000.
Lower earnings in 2001 were more than offset by reduced working capital
(excluding acquisitions) and increased depreciation and amortization.
Long-term debt outstanding decreased to $966.5 million, and was 33.0% of
total capitalization at June 30, 2001, down from 34.1% at the end of 2000. Due
to implementation of Financial Accounting Standard No. 133, long-term debt
increased $26.2 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 June 30, 2001, these obligations consisted
primarily of the Company's privately placed and publicly owned 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 $69.1 million in the first six months of 2001. In 2001, management
anticipates internal investments will approximate $150 million, down from the
nearly $170 million spent in 2000. During the first six months of 2001, six
businesses were acquired for $38.4 million in cash (net of cash acquired). In
addition, the Company assumed $13.6 million of acquisition companies' debt and
other liabilities. Two of the 2001 acquisitions were made in Residential
Furnishings, three in Commercial Furnishings, and one in Specialized Products.
Cash dividends on the Company's common stock were $68.8 million during the
first six months of 2001. Company purchases of its common stock (net of
issuances) totaled $22.3 million in the first six 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, including working capital from acquired companies, at June
30, 2001 was $914.7 million, down from $928.7 million at year-end. During the
last half of 2000, the Company increased its focus on reducing working capital
levels. Due to the softening in market demand discussed below, under "Results of
Operations", the desired reduction in inventory has not yet been achieved.
Results of Operations
Discussion of Consolidated Results
The Company's second quarter earnings were $.25 per diluted share, down
34.2% from last year's second quarter record earnings of $.38 per diluted share.
Sales were $1.04 billion, a decrease of 5.5% versus second quarter 2000. Sales
growth from acquisitions was more than offset by a 12.0% 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 significantly impacting profit
margins and earnings. Sequentially, sales declined 1.7% from first quarter;
however, earnings improved 10.7%, or 2.5 cents per share, from first quarter's
$.23 per diluted share.
During the second quarter of 2001, the Company acquired one business with
estimated annualized sales of approximately $8 million. This is a UK designer
and manufacturer of point-of-purchase store displays.
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.
Six Months Ended Quarter Ended
June 30, June 30,
---------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Gross profit margin 24.1% 26.2% 24.3% 26.3%
EBIT (earnings before
interest and
taxes) margin 8.9 12.5 9.2 12.5
Net profit margin 4.6 7.0 4.9 7.0
Effective income tax rate 36.9 36.9 36.9 36.7
Ratio of earnings
to fixed charges 4.9x 7.3x 5.2x 6.9x
The Company's gross profit margin declined during the second quarter and
first six 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. Margins were also reduced by higher medical, bad debt,
energy and other costs, partially offset by cost improvements.
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 ten facilities; restructured other
operations; reduced full time equivalent headcount by approximately 3,000
(excluding acquisitions); and reduced capital and acquisition spending. In the
second quarter the Company held capital spending to $36 million; completed one
small acquisition; reduced working capital; repurchased .4 million shares of
stock at an average price of $19.60; repaid $74 million of long-term debt, and
added $23 million to cash and equivalents. The Company expects to continue this
tactical course for several quarters and possibly longer, as conditions warrant.
Once economic conditions and performance improve, 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.
Second Quarter Discussion
Residential Furnishings sales decreased 6.7%. Same location sales, which
were partially offset by acquisitions, decreased 9.3%. EBIT declined 27.9%
during the quarter. Lower same location sales accounted for all of the EBIT
decline. With fewer goods being produced, unabsorbed overhead increased, and
margin declined significantly.
Commercial Furnishings sales decreased 4.4%. Same location sales declined
11.5%, and were partially offset by sales increases from acquisitions. EBIT
decreased $15 million, or 51.2%, due to lower same location sales. The Fixture
and Display group incurred a $4 million non-recurring expense for restructuring
and plant consolidation, but this was more than offset by improvement at a
single acquisition that posted significant losses last year.
Aluminum Products sales decreased 15.1%. Same location sales were down
18.2%, and were slightly offset by one acquisition. Reduced die cast component
sales reflect weak market demand in a variety of consumer and industrial
sectors, especially in the telecom, electrical, diesel engine, and barbecue
grill markets. EBIT decreased 38.6% due to reduced sales 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 11.9%. Same location sales were down
15.7%, and were partially offset by acquisitions. EBIT declined 31.4%, as a
result of lower sales volumes.
Specialized Product sales increased 28.6% due to acquisitions. Same
location sales declined 4.4% and EBIT was essentially flat, with gains from
acquisitions offset by slowing production and reduced demand in automotive
markets.
Six Month Discussion
Residential Furnishings sales decreased 4.6%. Same location sales, which
were partially offset by acquisitions, decreased 6.8%. EBIT declined 27.4%
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 increased 5.6% due to numerous acquisitions.
Same location sales declined 6.4%. EBIT decreased $23.5 million, or 44.8%, due
primarily to lower same location sales and reduced margins attributable to
changing product mix and softness in the telecom and van fixtures business.
Aluminum Products sales decreased 16.5%. Same location sales were down
19.1%, and were slightly offset by one acquisition. Reduced die cast component
sales reflect weak market demand in a variety of consumer and industrial
sectors, especially in the telecom, electrical, diesel engine, and barbecue
grill markets. EBIT decreased 41.3% 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 9.2%. Same location sales were down
13.2%, and were partially offset by acquisitions. EBIT declined 33.8%, as a
result of reduced sales volumes and lower plant utilization.
Specialized Product sales increased 30.6% due to acquisitions. Same
location sales declined 6.1%, due primarily to slowing production and reduced
demand in automotive markets. EBIT was down 8.5% 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 is presently evaluating the specific requirements of each of these
Statements, but the impact on earnings and financial position in the future
could be significant depending upon acquisition activity and other factors.
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 9, 2001. Matters
voted upon were (1) election of directors, (2) the amendment and restatement of
the Company's 1989 Flexible Stock Plan, and (3) the ratification of the Board's
selection of PricewaterhouseCoopers LLP as the Company's independent accountants
for the fiscal year ending December 31, 2001.
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 168,741,823 2,197,185
Ralph W. Clark 168,410,989 2,528,019
Harry M. Cornell, Jr. 168,598,640 2,340,368
Robert Ted Enloe III 161,049,988 9,889,020
Richard T. Fisher 168,672,186 2,266,822
Bob L. Gaddy 168,243,272 2,695,736
David S. Haffner 168,542,464 2,396,544
Thomas A. Hays 168,717,017 2,221,991
Robert A. Jefferies, Jr. 168,409,161 2,529,847
Alexander M. Levine 168,338,847 2,600,161
Duane W. Potter 168,398,175 2,540,833
Maurice E. Purnell, Jr. 165,458,285 5,480,723
Alice L. Walton 168,643,557 2,295,451
Felix E. Wright 151,512,331 19,426,677
2. Amendment and restatement of the Company's 1989 Flexible Stock Plan
FOR AGAINST ABSTAIN
133,586,775 36,149,495 1,202,738
3. Ratification of independent accountants
FOR AGAINST ABSTAIN
169,354,054 974,872 610,082
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
(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 10, 2001 By: /s/ FELIX E. WRIGHT
-------------------------
Felix E. Wright
President and
Chief Executive Officer
DATE: August 10, 2001 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 19
EXHIBIT 12
LEGGETT AND PLATT, INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in millions of dollars)
Six Months Twelve Months Ended
Ended December 31,
6/30/01 6/30/00 2000 1999 1998 1997 1996
---------------------------------------------------------------------------
Earnings
Income from continuing operations
before income tax $153.6 $237.9 $418.6 $462.6 $395.6 $333.3 $249.7
Interest expense (excluding
amount capitalized) 33.0 32.2 66.3 43.0 38.5 31.8 30.0
Portion of rental expense under
operating leases representative
of an interest factor 5.4 4.7 9.4 8.2 6.7 6.1 5.5
----------------------------------------------------------------------------
Total earnings 192.0 $274.8 $494.3 $513.8 $440.8 $371.2 $285.2
============================================================================
Fixed charges
Interest expense
(including amount capitalized) $33.7 $32.7 $67.7 $44.0 $39.2 $32.7 $31.0
Portion of rental expense under
operating leases representative
of an interest factor 5.4 4.7 9.4 8.2 6.7 6.1 5.5
----------------------------------------------------------------------------
Total fixed charges $39.1 $37.4 $77.1 $52.2 $45.9 $38.8 $36.5
============================================================================
Ratio of earnings to fixed charges 4.9 7.3 6.4 9.8 9.6 9.6 7.8
============================================================================
Earnings consist principally of income from continuing operations before income
taxes, plus fixed charges. Fixed charges consist principally of interest costs.
