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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to ________________
Commission file number 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 October 31, 2002: 194,627,162
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions) September 30, December 31,
2002 2001
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 188.6 $ 187.2
Accounts and notes receivable 696.6 591.9
Allowance for doubtful accounts (26.7) (29.4)
Inventories 607.6 601.3
Other current assets 74.1 70.9
-------- --------
Total current assets 1,540.2 1,421.9
PROPERTY, PLANT & EQUIPMENT, NET 944.1 961.9
OTHER ASSETS
Excess cost of purchased companies over net assets acquired, less
accumulated amortization of $112.1 in 2002 and $111.7 in 2001 894.7 879.0
Other intangibles, less accumulated amortization of $47.1 in 2002 and
$41.0 in 2001 39.4 43.8
Sundry 112.9 106.3
-------- --------
Total other assets 1,047.0 1,029.1
-------- --------
TOTAL ASSETS $3,531.3 $3,412.9
======== ========
CURRENT LIABILITIES
Accounts and notes payable $ 211.2 $ 162.4
Current maturities of long-term debt 108.0 5.8
Accrued expenses 240.9 197.8
Other current liabilities 90.1 91.0
-------- --------
Total current liabilities 650.2 457.0
LONG-TERM DEBT 810.8 977.6
OTHER LIABILITIES 35.9 47.0
DEFERRED INCOME TAXES 74.2 64.7
SHAREHOLDERS' EQUITY
Common stock 2.0 2.0
Additional contributed capital 421.2 419.3
Retained earnings 1,663.9 1,552.7
Accumulated other comprehensive income (41.6) (55.8)
Treasury stock (85.3) (51.6)
-------- --------
Total shareholders' equity 1,960.2 1,866.6
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,531.3 $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)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------------- -------------------------------------
2002 2001 2002 2001
----------------- ------------------ ------------------ --------------
Net sales $ 3,259.2 $ 3,145.3 $ 1,121.2 $ 1,056.8
Cost of goods sold 2,619.7 2,517.3 909.9 842.9
----------------- ------------------ ------------------ --------------
Gross profit 639.5 628.0 211.3 213.9
Selling and administrative expenses 299.5 313.2 98.5 105.4
Amortization of excess cost of
purchased companies (in 2001 only) and other
intangibles 7.9 29.9 2.5 9.2
Other deductions (income), net 16.1 .6 10.0 .1
----------------- ------------------ ------------------ --------------
Earnings before interest
and income taxes 316.0 284.3 100.3 99.2
Interest expense 31.9 46.2 10.4 13.2
Interest income 3.7 3.1 1.1 1.6
----------------- ------------------ ------------------ --------------
Earnings before income taxes 287.8 241.2 91.0 87.6
Income taxes 103.6 89.0 33.3 32.3
----------------- ------------------ ------------------ --------------
NET EARNINGS $ 184.2 $ 152.2 $ 57.7 $ 55.3
================= ================= ================== ==============
Earnings Per Share
Basic $ .92 $ .76 $ .29 $ .28
Diluted $ .92 $ .76 $ .29 $ .28
Cash Dividends Declared
Per Share $ .37 $ .36 $ .13 $ .12
Average Shares Outstanding
Basic 199.3 199.4 199.0 199.7
Diluted 200.2 200.5 199.5 200.7
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions) Nine Months Ended
September 30,
---------------------------------------------
2002 2001
--------------------- --------------------
OPERATING ACTIVITIES
Net Earnings $ 184.2 $ 152.2
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation 114.1 114.6
Amortization 7.9 29.9
Other 15.1 (6.0)
Other changes, net of effects from
purchase of companies
(Increase) in accounts receivable, net (101.1) (67.4)
(Increase) decrease in inventories (6.3) 90.4
(Increase) decrease in other current assets (4.2) .4
Increase in current liabilities 121.7 99.0
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 331.4 413.1
INVESTING ACTIVITIES
Additions to property, plant and equipment (83.4) (103.4)
Purchases of companies, net of cash acquired (44.5) (58.9)
Other 18.2 23.1
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (109.7) (139.2)
FINANCING ACTIVITIES
Additions to debt 13.5 46.2
Payments on debt (101.5) (97.3)
Dividends paid (70.9) (92.5)
Issuances of common stock 12.1 10.9
Purchases of common stock (73.5) (47.7)
Other - (4.4)
------- -------
NET CASH USED FOR FINANCING ACTIVITIES (220.3) (184.8)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS 1.4 89.1
CASH AND CASH EQUIVALENTS - January 1, 187.2 37.3
------- -------
CASH AND CASH EQUIVALENTS - September 30, $ 188.6 $ 126.4
======= =======
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
The interim financial statements of the Company included herein have not been
audited by independent accountants. The statements include all adjustments,
including normal recurring accruals, which management considers necessary for a
fair presentation of the financial position and operating results of the Company
for the periods presented. The statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The operating results for interim periods are not necessarily
indicative of results to be expected for an entire year.
For further information, refer to the financial statements of the Company and
footnotes thereto included in the annual report on Form 10-K of the Company for
the year ended December 31, 2001.
2. INVENTORIES
Inventories, about 50% of which are valued using the Last-in, First-out (LIFO)
cost method and the remainder using the First-In, First-Out (FIFO) cost method,
comprised the following:
September 30, December 31,
2002 2001
-------------- ------------
At First-In, First-Out (FIFO) cost
Finished goods $ 312.3 $ 308.6
Work in process 72.9 74.7
Raw materials and supplies 235.5 224.1
----------- -----------
620.7 607.4
Excess of FIFO cost over LIFO cost (13.1) (6.1)
----------- -----------
$ 607.6 $ 601.3
=========== ===========
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
September 30, December 31,
2002 2001
-------------- ------------
Property, plant and equipment, at cost $ 1,903.6 $ 1,865.5
Less accumulated depreciation 959.5 903.6
----------- -----------
$ 944.1 $ 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 nine months ending September 30, 2002 and 2001,
comprehensive income was $198.4 and $150.5, respectively.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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.
6. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
--------------- -------------- -------------- ---------------
Basic
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.3 199.4 199.0 199.7
=========== =========== =========== ===========
Net earnings $ 184.2 $ 152.2 $ 57.7 $ 55.3
=========== =========== =========== ===========
Earnings per share - basic $ .92 $ .76 $ .29 $ .28
=========== =========== =========== ===========
Diluted
Weighted average shares
outstanding, including
shares issuable for
little or no cash 199.3 199.4 199.0 199.7
Additional dilutive shares
principally from the
assumed exercise of
outstanding stock options .9 1.1 .5 1.0
----------- ----------- ----------- -----------
200.2 200.5 199.5 200.7
=========== =========== =========== ===========
Net earnings $ 184.2 $ 152.2 $ 57.7 $ 55.3
=========== =========== =========== ===========
Earnings per share - diluted $ .92 $ .76 $ .29 $ .28
=========== =========== =========== ===========
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
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 $.30 basic and diluted on
pro forma net earnings of $60.5 for the third quarter and $.84 basic and diluted
on pro forma net earnings of $167.4 for the nine months.
During the third quarter 2002 the Company wrote-off approximately $3 million of
goodwill required under Statement No. 142 for divested businesses. Most of this
goodwill is not tax deductible, resulting in an increase to the Company's
effective tax rate for this quarter only.
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, an
additional $104.6 million of current maturities were reclassified to current
liabilities as of September 30, 2002.
10. RESTRUCTURING ACTIVITY
As a part of its continued focus on cost structure improvement, during the third
quarter of 2002 the Company announced the divestiture or closure of five plants.
Three of these facilities were in the Aluminum Products segment and one each in
the Commercial Fixturing & Components and Residential Furnishings Segments. In
September, the Company sold its remaining aluminum smelting operation and one of
its aluminum tool & die operations, and is currently pursuing a possible sale of
one of its die casting operations. The Company also announced the idling of a
Fixture and Display facility in Wooster, Ohio that serves the telecom industry,
and the closing of a facility in the Fibers Division of the Residential
Furnishing Segment. The Company incurred approximately $9.8 million (pretax) in
restructuring charges during the third quarter of 2002 associated with these
decisions. These charges consisted primarily of asset write-downs. Approximately
$8.1 million of these charges are included in "Other deductions (income), net",
and the remaining $1.7 million are in "Cost of goods sold" on the Consolidated
Condensed Statement of Earnings.
Restructuring liabilities from the third quarter of 2002 and prior quarters are
not material to the accompanying balance sheet. Adjustments of previously
established accruals and liabilities relating to restructuring activities have
been negligible. Although the Company expects to realize future cost-savings as
a result of these actions, the effect on consolidated results is expected to be
minimal. The Company may occasionally rationalize its facility base in the
future if compelling savings are evident, or if the economic environment induces
such action.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. 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 & 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. The remaining smelting operations, with annual revenues of about
$30 million, were sold in the third quarter 2002. Industrial Materials derives
its revenues from drawn steel wire, specialty wire products and welded steel
tubing sold to trade customers as well as other Leggett segments. Specialized
Products is a combination of non-reportable segments which derive their revenues
from machinery, manufacturing equipment, automotive seating suspensions, control
cable systems, and lumbar supports for automotive, office and residential
applications.
A summary of segment results for the nine months ended September 30, 2002 and
2001 and the quarters ended September 30, 2002 and 2001 are shown in the
following tables.
Inter-
External Segment Total
Sales Sales Sales EBIT
---------------- ---------------- --------------- --------------
Nine Months ended Sept. 30, 2002
Residential Furnishings $1,614.0 $ 10.9 $1,624.9 $172.6
Commercial Fixturing & Components 700.5 4.2 704.7 43.6
Aluminum Products 370.9 11.0 381.9 23.0
Industrial Materials 293.2 169.6 462.8 44.4
Specialized Products 280.6 38.0 318.6 39.7
Intersegment eliminations - - - (.3)
Change in LIFO reserve - - - (7.0)
-------- ------ -------- -------
$3,259.2 $233.7 $3,492.9 $316.0
======== ====== ======== =======
Nine Months ended Sept. 30, 2001
Residential Furnishings $1,549.9 $ 8.9 $1,558.8 $136.5
Commercial Fixturing & Components 749.5 3.0 752.5 56.4
Aluminum Products 350.2 12.0 362.2 22.6
Industrial Materials 225.6 159.5 385.1 41.6
Specialized Products 270.1 41.5 311.6 30.1
Intersegment eliminations - - - (4.3)
Change in LIFO reserve - - - 1.4
-------- ------ -------- -------
$3,145.3 $224.9 $3,370.2 $284.3
======== ====== ======== =======
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
11. SEGMENT INFORMATION (continued)
Inter-
External Segment Total
Sales Sales Sales EBIT
---------------- ---------------- --------------- --------------
Quarter ended September 30, 2002
Residential Furnishings $ 542.6 $ 3.2 $ 545.8 $ 50.6
Commercial Fixturing & Components 266.8 1.5 268.3 20.7
Aluminum Products 106.2 3.4 109.6 2.2
Industrial Materials 109.9 53.3 163.2 13.6
Specialized Products 95.7 12.6 108.3 14.1
Intersegment eliminations - - - .3
Change in LIFO reserve - - - (1.2)
-------- ----- -------- ------
$1,121.2 $74.0 $1,195.2 $100.3
======== ===== ======== ======
Quarter ended September 30, 2001
Residential Furnishings $ 524.3 $ 2.7 $ 527.0 $44.1
Commercial Fixturing & Components 265.0 1.2 266.2 27.4
Aluminum Products 99.8 3.6 103.4 5.1
Industrial Materials 82.0 52.7 134.7 13.2
Specialized Products 85.7 11.4 97.1 7.5
Intersegment eliminations - - - 1.3
Change in LIFO reserve - - - .6
-------- ----- -------- -----
$1,056.8 $71.6 $1,128.4 $99.2
======== ===== ======== =====
Asset information for the Company's segments at September 30, 2002 and December
31, 2001 is shown in the following table:
September 30, December 31,
2002 2001
--------------------- ---------------------
Assets
Residential Furnishings $1,253.6 $1,221.5
Commercial Fixturing & Components 885.9 944.2
Aluminum Products 418.2 437.4
Industrial Materials 259.8 260.2
Specialized Products 366.5 352.8
Unallocated assets 344.6 336.1
Adjustment to period-end
vs. average assets 2.7 (139.3)
-------- ---------
$3,531.3 $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. We consider
financial flexibility more important than short-term maximization of earnings
per share through excessive leverage. Therefore, management continuously
provides for available credit in excess of near-term projected cash needs and
has maintained a guideline for long-term debt as a percentage of total
capitalization in a range of 30% to 40%.
Total Capitalization
The following table shows the Company's total capitalization at September
30, 2002 and December 31, 2001. Also, the table shows the amount of unused
committed credit available through the Company's revolving bank credit
agreements, current maturities of long-term debt, the amount of cash and cash
equivalents and the ratio of earnings to fixed charges.
(Dollar amounts in millions) September 30, December 31,
2002 2001
------------ -------------
Long-term debt outstanding:
Scheduled maturities $ 810.8 $ 977.6
Average interest rates 4.4% 4.8%
Average maturities in years 3.7 4.0
Revolving credit/commercial paper -- --
----------- -----------
Total long-term debt 810.8 977.6
Deferred income taxes and other
liabilities 110.1 111.7
Shareholders' equity 1,960.2 1,866.6
----------- -----------
Total capitalization $ 2,881.1 $ 2,955.9
=========== ===========
Unused committed credit:
Long-term $ 233.0 $ 232.5
Short-term 106.5 110.0
----------- -----------
Total unused committed credit $ 339.5 $ 342.5
=========== ===========
Current maturities of long-term debt $ 108.0 $ 5.8
=========== ===========
Cash and cash equivalents $ 188.6 $ 187.2
=========== ===========
Ratio of earnings to fixed charges 7.8x 5.2x
=========== ===========
Cash provided by operating activities was $331.4 million in the first nine
months of 2002, compared to $413.1 million in the first nine months of 2001. The
decrease in cash provided by operating activities compared to the prior year
principally reflects a slowing of working capital decreases as the Company
experiences marginal improvement this year from its working capital control
initiatives, partially offset by increased earnings.
Working capital, excluding cash and current maturities of long-term debt,
was 18.0% of sales. This is the second consecutive quarter we have been below
the Company's target of 19% for working capital as a percent of sales. During
2001, the Company was concentrating its efforts on reducing working capital
levels. In the current year, now
that the desired improvements have been achieved, management is focused on
maintaining working capital levels at or below the 19% target.
Long-term debt outstanding decreased to $810.8 million, and was 28.1% of
total capitalization at September 30, 2002, down from 33.1% at the end of 2001.
Total debt as a percent of total capitalization, net of cash, was 26.1% at
September 30, 2002, and 28.7% at the end of 2001. Long-term debt decreased
$166.8 million from year-end 2001 due to a reclass of $104.6 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 September 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 the first nine months of 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 $83.4 million in the first nine months of 2002. For the full year
2002, management anticipates internal investments will approximate $115 million.
During the first nine months of 2002, seven businesses were acquired for
$44.5 million in cash (net of cash acquired). During the third quarter of 2002,
the Company acquired the assets of three businesses. The first acquisition, in
the Aluminum Products Segment, involved the buyout of a minority partner's 49%
share of a consolidated joint venture die casting facility in Saltillo, Mexico,
that has been in operation since the Company acquired Pace Industries in 1996.
This acquisition strengthens Leggett's position as the leading independent
aluminum die caster in North America. The second transaction, in the Industrial
Materials Segment, consisted of the purchase of wire drawing assets from North
American Wire Products, located in Solon, Ohio. This business is expected to add
approximately $8 million to annual sales and will enhance the Company's position
as North America's leading producer of drawn steel wire. The third project, on
the Automotive side of the Specialized Products Segment, encompassed the
purchase of assets from a small producer of pneumatic and mechanical lumbar
systems for automotive seating. This acquisition will add $4 million in annual
revenue, and further Leggett's position as the leading worldwide producer of
automotive lumbar systems.
Cash dividends on the Company's common stock were $70.9 million during the
first nine months of 2002. The Company's guideline for dividend payout is
approximately one-third of the prior three-year's average earnings. With recent
earnings declines, we are currently at a dividend payout about 40%, but expect
to move back toward the 30-35% target as earnings recover. Company purchases of
its common stock (net of issuances) totaled $61.4 million in the first nine
months of 2002. These purchases were made 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
or for other
purposes. This authorization is continuously replenished as shares acquired are
reissued for 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 repurchase up to an additional 10 million shares of Leggett stock.
In August 2002, the Board of Directors continued this authorization for an
additional period expiring in September 2003. No specific schedule of purchases
has been established under this authorization. The amount and timing of any
purchases will depend on availability of cash, economic and market conditions,
acquisition activity and other factors.
Short-term Liquidity
Working capital, excluding cash and acquisitions decreased $10.1 million
from year-end 2001 levels. The decrease was primarily related to a $121.7
million increase in payables and accrued expenses, partially offset by a $101.1
million increase in receivables and a $6.3 million increase in inventories. The
increase in receivables from year-end 2001 levels was due primarily to the
normal seasonality of sales, which were offset by higher payables and the normal
build up of accruals. As a percent of third quarter annualized sales, working
capital (excluding cash and current maturities) was 18.0%, within the Company's
target of 19% for working capital, as a percent of sales.
Results of Operations
- ---------------------
Discussion of Consolidated Results
Trade sales for the quarter were $1.12 billion, the second highest ever, up
6.1% versus sales of $1.06 billion in the third quarter of 2001. Same location
sales increased 2.6%, marking two consecutive quarters with year-over-year
improvement, following the seven previous quarters of economic downturn and
sales decreases.
The Company's third quarter earnings were $.29 per diluted share, up 3.6%
from last year's third quarter results of $.28 per diluted share. The
improvement over last year;s earnings was due in part to higher sales, as the
Company achieved internal growth ranging from 3%-11% in four of its five
segments. In contrast, the Commercial Fixturing & Components segment businesses
continue to experience sales declines, with retailers hesitant to build or
refurbish stores, and office furniture demand down significantly.
Also contributing to the increased earnings was the elimination of goodwill
amortization and lower bad debt and interest expense. Partially offsetting these
factors were $9.8 million of restructuring costs; higher raw material costs,
primarily in lumber, steel, chemicals and aluminum; inefficiencies from certain
start-up operations; margin compression and a higher effective tax rate.
Included in the above restructuring costs is approximately $3 million of
goodwill write-off required under FAS 142 for divested businesses. The majority
of this goodwill is not tax deductible, resulting in an increase to the
Company's effective tax rate for this quarter only.
For the first nine months of 2002, sales were $3.26 billion, an increase of
3.6% versus sales of $3.15 billion in the first nine months of 2001. Same
location sales were essentially flat year-to-date. Earnings, at $.92 per diluted
share, were up 21% from last year's $.76 per diluted share. Lower interest and
energy expense, cost structure improvements, and elimination of goodwill
amortization all contributed to the earnings increase.
Restructuring Activity
As a part of its continued focus on cost structure improvement, during the
third quarter of 2002 the Company announced the divestiture or closure of five
plants. Three of these facilities were in the Aluminum Products segment and one
each in Commercial Fixturing and Components and in Residential Furnishings. In
September, the Company sold its remaining aluminum smelting operation and one of
its aluminum tool & die operations, and is currently pursuing a possible sale of
one of its die casting operations. The Company also announced the idling of a
Fixture and Display facility in Wooster, Ohio that serves the telecom industry,
and the closing of a facility in the Fibers Division of the Residential
Furnishing Segment. The Company incurred
approximately $9.8 million in restructuring charges during the third quarter of
2002 associated with these decisions. These charges consisted primarily of asset
write-downs. Approximately $8.1 million of these charges are included in "Other
deductions (income), net", and the remaining $1.7 million are in "Cost of goods
sold" on the Consolidated Condensed Statement of Earnings. Although the Company
expects to realize future cost-savings as a result of these actions, the effect
on consolidated results is expected to be minimal. The Company may occasionally
rationalize its facility base in the future if compelling savings are evident,
or if the economic environment induces such action.
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 11 of the Notes to Consolidated Condensed Financial Statements.
Third Quarter Discussion
Residential Furnishings sales increased 3.6%, with same location sales up
2.5%. Sales were essentially flat in most business units, with the exception of
upholstered furniture components, which achieved roughly 12% sales growth. EBIT
(earnings before interest and taxes) increased $6.5 million, or 15%, reflecting
higher sales; non-recurrence of last year's $3 million Canadian lumber duty;
lower operating expenses and reduced amortization of $2 million. These factors
were partially offset by higher raw material costs in steel, lumber and
chemicals, and approximately $4 million for restructuring.
Commercial Fixturing & Components sales increased .8%, with increases from
acquisitions mostly offset by a 3.8% reduction in same location sales. Although
the year-over-year decline has lessened (from more than 20% six months ago),
retailers, telecom customers and brand product manufacturers continue to
postpone spending for fixtures and displays. In addition, continued soft
end-market demand has resulted in a decline of component sales to office and
contract furniture manufacturers. EBIT declined $6.7 million, or 24%
year-over-year, due to lower same location sales, margin compression and
including approximately $3 million for restructuring. These decreases were
partially offset by reduced amortization of $2.3 million and lower operating
expenses.
Aluminum Products sales were up 6.0%; same location growth was 7.9%, and
was partially offset by divestiture of Leggett's one remaining smelter. Market
share gains are primarily driving the sales increase. EBIT declined $2.9
million, or 57%, as gains from increased sales and decreased amortization of $.6
million were offset by $3 million of restructuring costs, impacts from start-up
inefficiency associated with new business, and higher raw material costs.
Industrial Materials sales increased 21.2%, reflecting the benefit of three
acquisitions and same location sales growth of 6.0%. EBIT was up $.4 million, or
3%. Higher same location sales, lower operating costs and a $.3 million
reduction in amortization expenses yielded EBIT improvement, but this was offset
by higher steel costs and start up costs for the Sterling Steel rod mill.
Specialized Products sales were up 11.5%. The sales increase was primarily
attributable to the automotive components businesses, which benefited from
robust market demand and additional market penetration. The machinery businesses
reported sales that improved slightly from the prior year. EBIT increased $6.6
million, or 88%, reflecting higher sales volume, improved cost structure and
lower amortization of $.9 million.
Nine Month Discussion
Residential Furnishings sales increased 4.2%, with same location sales up
2.9%. Upholstered furniture component and foam sales were strong, with those
improvements offset slightly by relatively flat sales in most other business
units. EBIT increased $36.1 million, or 26% 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 of $6 million (versus a $3 million
additional duty cost in the prior year), increased production and overhead
absorption, other cost structure improvements and reduced
amortization of $5.9 million. These increases were partially offset by higher
raw material costs and approximately $5 million for restructuring.
Commercial Fixturing & Components sales decreased 6.4%, with increases from
acquisitions offset by an 11.3% reduction in same location sales. Sales reflect
continued weak business conditions in the office and contract furniture markets
and in the commercial fixturing businesses. EBIT decreased $12.8 million, or
23%, as the earnings impact of the sales decline more than offset decreased
amortization of $6.8 million.
Aluminum Products sales were up 5.4%, solely from same location growth,
since there were no acquisitions within the prior twelve months. Divested
businesses reduced the sales growth somewhat. EBIT increased $.4 million or 2%,
as $3 million in restructuring costs and $3 million of non-recurring inventory
and equipment obsolescence charges (in the first quarter of 2002) mostly offset
market share gains and reduced amortization of $1.8 million.
Industrial Materials sales increased 20.2%, reflecting three acquisitions
and same location sales growth of 4.4%. EBIT was up $2.8 million, or 7%, a
result of increased sales volume and lower amortization of $.7 million, offset
by higher steel costs.
Specialized Products sales increased 2.2%, due to same location sales
growth. Automotive component businesses reported increased sales, reflecting
market share gains and improvements in this sector of the economy. This increase
was partially offset by declining sales in machinery, which continues to reflect
slow recovery in the industrial sectors of the economy, especially capital
equipment. EBIT was up $9.6 million, or 32%, due to higher sales volume in
automotive, improved cost structure and lower goodwill amortization of $2.7
million.
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 third quarter of
2002 was 1.92% for the $350 million and 2.16% 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 $33.3 million as of September
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 September 30, 2002
and December 31, 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.
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 $34 million
and $46 million (at cost) in inventory at September 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 September 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 $505.4 million at September 30, 2002, compared to $460.0 at
December 31, 2001. The increase in translation exposure was due primarily to a
general strengthening of European currencies against the U.S. dollar.
New Financial Accounting Standards Board Statements
The Financial Accounting Standards Board (FASB) recently issued Statement
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".
This Statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)".
Statement No. 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized and measured initially at fair value
when the liability is incurred, instead of recognizing the liability at the date
of an entity's commitment to an exit plan.
The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The impact on the Company
will not be different than under EITF No. 94-3 other than in the period in which
such exit or disposal costs are recorded. The Company may occasionally
rationalize its facility base in the future if compelling savings are evident,
or if the economic environment induces such action, and Statement No. 146 would
be applied to any such decisions after December 31, 2002.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the "Derivative Instruments and Hedging Activities" section under Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Within 90 days prior to the filing of this quarterly report, the Company's
principal executive officer and principal financial officer carried out an
evaluation, with the participation of the Company's other management, of the
effectiveness of the Company's disclosure controls and procedures as defined in
Rule 13a-14(c) of the Securities and Exchange Commission. Based upon this
evaluation, the principal executive officer and principal financial officer have
concluded that the Company's disclosure controls and procedures are effective in
timely informing them of material information relating to the Company required
to be disclosed in its reports under the Securities Exchange Act of 1934.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation referred to above.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 10 - Amendment No. 1 to the Restated and Amended Employment
Agreement of Felix E. Wright, dated October 1, 2002.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
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 November 13, 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 November 13, 2002.
(B) On August 5, 2002, Leggett & Platt, Incorporated filed a report on Form
8-K, under Item 9 Regulation FD Disclosure, stating that it had submitted
to the Securities and Exchange Commission the Statements under Oath of
Principal Executive Officer and Principal Financial Officer in accordance
with the SEC's June 27, 2002 Order requiring the filing of sworn statements
pursuant to Section 21(a)(1) of the Securities and Exchange Act of 1934.
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: November 13, 2002 By: /s/ FELIX E. WRIGHT
--------------------
Felix E. Wright
Chairman and
Chief Executive Officer
DATE: November 13, 2002 By: /s/ MICHAEL A. GLAUBER
-----------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
LEGGETT & PLATT, INCORPORATED
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
- -------------
I, Felix E. Wright, Chairman and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Leggett & Platt,
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Felix E. Wright
-------------------
Felix E. Wright
Chairman and
Chief Executive Officer
Leggett & Platt, Incorporated
CERTIFICATION
- -------------
I, Michael A. Glauber, Senior Vice President, Finance and Administration,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Leggett & Platt,
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Michael A. Glauber
-----------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
Leggett & Platt, Incorporated
EXHIBIT INDEX
Exhibit Page
- ------- ----
10 Amendment No. 1 to the Restated and Amended Employment Agreement
of Felix E. Wright, dated October 1, 2002. 21
12 Computation of Ratio of Earnings to Fixed Charges 23
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 November 13, 2002. 24
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 November 13, 2002. 25