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, 1998
-------------
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, 1998 1-7845
----------------- ----------------------
LEGGETT & PLATT, INCORPORATED
-----------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0324630
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
No. 1 Leggett Road
Carthage, Missouri 64836
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (417) 358-8131
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Common stock outstanding as of August 1, 1998: 196,726,744
<PAGE>
PART I. FINANCIAL INFORMATION
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 21.7 $ 7.7
Accounts and notes receivable 502.5 450.1
Allowance for doubtful accounts (13.3) (11.5)
Inventories 483.4 433.2
Other current assets 63.9 65.1
--------- ---------
Total current assets 1,058.2 944.6
PROPERTY, PLANT & EQUIPMENT, NET 775.3 693.2
OTHER ASSETS
Excess cost of purchased companies over
net assets acquired, less accumulated
amortization of $44.2 in 1998
and $38.2 in 1997 454.8 394.0
Other intangibles, less accumulated
amortization of $27.6 in 1998
and $24.1 in 1997 31.9 31.6
Sundry 60.0 42.9
--------- ---------
Total other assets 546.7 468.5
--------- ---------
TOTAL ASSETS $ 2,380.2 $ 2,106.3
========= =========
CURRENT LIABILITIES
Accounts and notes payable $ 132.5 $ 128.7
Accrued expenses 156.1 166.4
Other current liabilities 68.0 77.4
--------- ---------
Total current liabilities 356.6 372.5
LONG-TERM DEBT 576.2 466.2
OTHER LIABILITIES 44.1 40.8
DEFERRED INCOME TAXES 66.3 52.8
SHAREHOLDERS' EQUITY
Common stock 2.0 1.0
Additional contributed capital 386.9 311.9
Retained earnings 963.9 871.3
Accumulated other comprehensive income (15.2) (10.1)
Treasury stock (.6) (.1)
--------- ---------
Total shareholders' equity 1,337.0 1,174.0
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,380.2 $ 2,106.3
========= =========
</TABLE>
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.
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in millions, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------- ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 1,648.6 $ 1,394.4 $ 855.4 $ 721.2
Cost of goods sold 1,227.0 1,040.8 636.1 537.7
--------- --------- ------- -------
Gross profit 421.6 353.6 219.3 183.5
Selling, distribution and
administrative expenses 203.6 170.3 105.0 87.9
Interest expense 18.8 15.3 10.0 8.2
Other deductions (income), net 5.7 6.0 3.5 3.5
--------- --------- ------- -------
Earnings before income taxes 193.5 162.0 100.8 83.9
Income taxes 72.2 61.6 37.4 31.9
--------- --------- ------- -------
NET EARNINGS $ 121.3 $ 100.4 $ 63.4 $ 52.0
========= ========= ======= =======
Earnings Per Share
Basic $ .62 $ .54 $ .32 $ .28
Diluted $ .61 $ .53 $ .32 $ .27
Cash Dividends Declared
Per Share $ .155 $ .13 $ .08 $ .065
Average Shares Outstanding
Basic 196.9 187.2 197.6 188.0
Diluted 200.3 189.9 200.9 190.4
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 121.3 $ 100.4
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation 50.7 43.4
Amortization 10.3 7.9
Other 2.8 3.9
Other changes, net of effects
from purchases of companies
Increase in accounts receivable, net (21.0) (73.1)
(Increase) decrease in inventories (13.0) 16.1
Increase in other current assets (2.9) (3.6)
(Decrease) increase in current liabilities (9.1) 27.7
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 139.1 122.7
INVESTING ACTIVITIES
Additions to property, plant and equipment (67.9) (50.5)
Purchases of companies, net of cash acquired (73.5) (86.2)
Other (6.6) 1.6
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (148.0) (135.1)
FINANCING ACTIVITIES
Additions to debt 257.9 177.7
Payments on debt (186.5) (125.0)
Dividends paid (43.9) (34.8)
Other (4.6) (2.0)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22.9 15.9
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 14.0 3.5
CASH AND CASH EQUIVALENTS - January 1, 7.7 3.7
------- -------
CASH AND CASH EQUIVALENTS - June 30, $ 21.7 $ 7.2
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions)
1. STATEMENT
In the opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments necessary for a fair statement of results of
operations and financial position of Leggett & Platt, Incorporated and
Consolidated Subsidiaries (the "Company").
2. STOCK SPLIT
On May 13, 1998, the Board of Directors of the Company declared a two-for-one
stock split in the form of a stock dividend for shareholders of record on
May 29, 1998. The shares were distributed to shareholders on June 15, 1998.
All references to share and per share amounts in the accompanying financial
statements have been restated to reflect the split.
3. INVENTORIES
Inventories, using principally the Last-In, First-Out (LIFO) cost method,
comprised the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
At First-In, First-Out (FIFO) cost
Finished goods $ 256.1 $ 228.0
Work in process 63.9 50.3
Raw materials 175.4 170.0
-------- --------
495.4 448.3
Excess of FIFO cost over LIFO cost 12.0 15.1
-------- --------
$ 483.4 $ 433.2
======== ========
</TABLE>
4. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Property, plant and equipment, at cost $ 1,335.3 $ 1,212.3
Less accumulated depreciation 560.0 519.1
--------- ---------
$ 775.3 $ 693.2
========= =========
</TABLE>
5. 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, 1998 and 1997,
comprehensive income was $116.2 and $98.3, respectively.
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
6. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic
Weighted average shares
outstanding, including
shares issuable for
little or no cash 196.9 187.2 197.6 188.0
======= ======= ======= =======
Net earnings $ 121.3 $ 100.4 $ 63.4 $ 52.0
======= ======= ======= =======
Earnings per share - basic $ .62 $ .54 $ .32 $ .28
======= ======= ======= =======
Diluted
Weighted average shares
outstanding, including
shares issuable for
little or no cash 196.9 187.2 197.6 188.0
Additional dilutive shares
principally from the
assumed exercise of
outstanding stock options 3.4 2.7 3.3 2.4
------- ------- ------- -------
200.3 189.9 200.9 190.4
======= ======= ======= =======
Net earnings $ 121.3 $ 100.4 $ 63.4 $ 52.0
======= ======= ======= =======
Earnings per share - diluted $ .61 $ .53 $ .32 $ .27
======= ======= ======= =======
</TABLE>
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
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 such 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 these claims and proceedings is
remote. The more significant claims and proceedings are briefly described in
the following paragraphs.
One of the Company's subsidiaries is performing an environmental investigation
at a Florida plant site pursuant to a negotiation with local and Federal
environmental authorities. The costs of the investigation and any remediation
actions will be shared equally by the Company and a former joint owner of the
plant site.
One of the Company's subsidiaries is involved in an unfair labor complaint
filed by the National Labor Relations Board prior to the Company's acquisition
of the subsidiary. An administrative decision has been rendered against the
subsidiary, which was recently upheld by the courts. The Company is currently
pursuing actions to resolve this matter.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All share and per share amounts have been adjusted for the stock split discussed
in Item I, Note 2.
Capital Resources and Liquidity
- --------------------------------
The Company's total capitalization at June 30, 1998 and December 31, 1997 is
shown in the table below. The table also shows the amount of unused committed
credit available through the Company's revolving bank credit agreements.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
(Dollar amounts in millions)
Long-term debt outstanding:
Scheduled maturities $ 576.2 $ 402.9
Average interest rates 6.6% 6.8%
Average maturities in years 6.4 6.3
Revolving credit/commercial paper -- 63.3
--------- ---------
Total long-term debt 576.2 466.2
Deferred income taxes and other liabilities 110.4 93.6
Shareholders' equity 1,337.0 1,174.0
--------- ---------
Total capitalization $ 2,023.6 $ 1,733.8
========= =========
Unused committed credit $ 240.0 $ 240.0
</TABLE>
The Company's internal investments to modernize and expand manufacturing
capacity were $67.9 million in the first six months of 1998. The Company also
invested $73.5 million in cash (net of cash acquired) and issued 2.9 million
shares of common stock and common stock equivalents to make 12 acquisitions.
Cash provided by operating activities provided a majority of the funds required
for these investments.
The Company issued $176 million in privately placed medium-term notes during the
first six months of 1998. These notes have fixed interest rates averaging 6.2%
and maturities averaging just over seven years. Proceeds from the notes were
used to repay commercial paper outstanding. The Company's senior debt rating
was upgraded to single A+ from single A by Standard & Poor's Corporation in
April.
Working capital at June 30, 1998 was $701.6 million, up from $572.1 million at
year-end. Total current assets increased $113.6 million, due primarily to
increases in accounts and notes receivable and inventories attributable to
increased sales. Cash and cash equivalents also increased, more than offsetting
a decrease in other current assets. Total current liabilities decreased $15.9
million. Decreases in accrued expenses and other current liabilities more than
offset an increase in accounts and notes payable.
In addition to unused committed credit, the Company has the availability of
short-term uncommitted credit from several banks. However, there was no
short-term bank debt outstanding at mid-year 1998 or at the end of 1997.
Given this strong financial position and the continuing strong coverage of
interest expense, the Company has substantial capital resources and flexibility
to provide for projected internal cash needs and additional acquisitions
consistent with management's goals and objectives.
<PAGE>
Results of Operations
- ----------------------
The Company's continuing growth resulted in record sales and earnings for the
first half of 1998. Sales increased to $1.65 billion (up 18.2%) and net earnings
grew to $121.3 million (up 20.8%) - both compared with first half records in
1997. Earnings per diluted share increased to $.61 (up 15.1%) - also compared
with the first half of 1997.
Results for this year's second quarter showed similar increases. Sales of
$855.4 million were up 18.6%, net earnings of $63.4 million were up 21.9%,
and earnings per diluted share of $.32 were up 18.5% - all at record levels
compared with the second quarter of 1997.
Increased 1998 sales reflected ongoing benefits from acquisitions and internal
improvements. Acquisitions continued to account for more of the sales growth
than other factors. The balance of the sales growth primarily reflected
increased unit volumes.
Net earnings grew faster than sales due to a slight improvement in 1998 profit
margins. The somewhat lower growth in earnings per share, when compared to the
growth in net earnings, primarily reflected the issuance of shares in the
Company's acquisition program and employee stock benefit plans. The following
table shows various measures of earnings as a percentage of sales for the first
six months and the second quarter in both of the last two years. It also shows
the effective income tax rate and the coverage of interest expense by pre-tax
earnings plus interest for each respective period.
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross profit margin 25.6% 25.4% 25.6% 25.4%
Pre-tax profit margin 11.7 11.6 11.8 11.6
Net profit margin 7.4 7.2 7.4 7.2
Effective income tax rate 37.3 38.0 37.1 38.0
Interest coverage ratio 11.3x 11.6x 11.1x 11.2x
</TABLE>
The gross profit margin for the first six months of 1998 improved as many
operations increased sales and the Company's costs for some materials
declined. Some of this improvement was offset by a slightly higher operating
expense ratio and increased interest expense, which is reflected in the pre-tax
margin. The net profit margin also benefited from a slightly lower effective
income tax rate in 1998.
In the second quarter, the gross profit margin showed the same year-to-year
improvement as the first six months. In addition, the higher operating expense
ratio and increased interest expense in 1998 were offset by lower other
deductions, net of other income for the quarter. Thus, the pre-tax profit
margin showed the same improvement as the gross margin. The net profit
margin for the quarter also benefited from a slightly lower effective income
tax rate in 1998.
Consistent cash flow, a conservative capital policy and the success of
management's long-term strategy have allowed the Company to sustain a 27-year
record of increasing dividends. Dividends declared in the first half of 1998
were $.155 per share. The quarterly rates were increased to $.075 per share in
February and $.08 per share in May. Compared to the first half of 1997, these
dividends together were up 19.2%. A third quarter dividend of $.08 per share
was declared on August 6, 1998, and is payable on September 15, 1998 to
shareholders of record on August 21, 1998.
<PAGE>
Statements of Financial Accounting Standards Not Yet Adopted
- -------------------------------------------------------------
The Financial Accounting Standards Board (FASB) issued a new accounting standard
on "Accounting For Derivative Instruments and Hedging Activities" (FASB
No. 133). This new standard was issued in June 1998 and will become effective
in the Company's financial statements for the year 2000. Management is
currently analyzing the impact of the adoption of FASB No. 133, but does not
anticipate any material impact on the Company's consolidated financial
statements.
<PAGE>
ITEM 3. DISCLOSURES ABOUT MARKET RISK
(Unaudited)
(Amounts in millions)
INTEREST RATE SENSITIVITY
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 in the past used any derivative
financial instruments to hedge its exposure to interest rate changes.
Substantially all of the Company's debt is denominated in United States dollars.
The fair value of variable rate debt is not significantly different from its
recorded amount. Using the U.S. Treasury Bond rate as of June 30, 1998 for
similar remaining maturities, plus an estimated "spread" over such Treasury
securities representing the Company's interest costs under its medium-term note
program, there was no material change in the fair value of debt obligations
since December 31, 1997, when compared to the carrying value. The principal
fixed rate debt of the Company increased by approximately $176 and principal
variable rate debt decreased by approximately $63 since December 31, 1997.
EXCHANGE RATE SENSITIVITY
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 does hedge
firm commitments for certain machinery purchases, and occasionally may hedge
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, 1998 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 (excluding goodwill) in foreign subsidiaries subject
to translation exposure at June 30, 1998 has not changed significantly since
December 31, 1997.
COMMODITY PRICE SENSITIVITY
The Company does not 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 $32 (at cost) in inventory at
June 30, 1998. 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May 13, 1998. Matters
voted upon were (1) election of directors, and (2) ratification of
PricewaterhouseCoopers as the Company's independent auditors.
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 169,607,340 542,104
Harry M. Cornell, Jr. 168,811,384 1,338,060
Robert Ted Enloe, III 169,601,710 547,734
Richard T. Fisher 169,630,610 518,834
Bob L. Gaddy 168,834,446 1,314,998
David S. Haffner 168,852,874 1,296,570
Thomas A Hays 169,601,842 547,602
Robert A. Jefferies, Jr. 168,858,484 1,290,960
Alexander M. Levine 169,625,744 523,700
Richard L. Pearsall 169,583,250 566,194
Duane W. Potter 168,841,998 1,307,446
Maurice E. Purnell, Jr. 168,821,998 1,327,446
Alice L. Walton 169,634,758 514,686
Felix E. Wright 168,834,324 1,315,120
2. Ratification of Independent Auditors
FOR AGAINST ABSTAIN
169,597,994 79,470 431,632
ITEM 5. OTHER INFORMATION
Proposals of stockholders intended to be presented at the 1999 Annual Meeting
must be received by the Company by December 1, 1998 for inclusion in the
Company's Proxy Statement and Proxy relating to that meeting. Upon receipt
of any such proposal, the Company will determine whether or not to include such
proposal in the Proxy Statement and Proxy in accordance with regulations
governing the solicitation of proxies.
In order for a stockholder to nominate a candidate for director, under
Section 2.1 of the Company's Bylaws timely notice of the nomination must be
received by the Company by February 12, 1999 for the 1999 Annual Meeting. In
order for a stockholder to bring other business before a stockholder meeting,
under Section 1.2 of the Company's Bylaws timely notice must be received by
the Company by January 30, 1999 for the 1999 Annual Meeting. These time limits
also apply in determining whether notice is timely under rules adopted by the
SEC relating to exercise of discretionary voting authority.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 27 - Financial Data Schedule
(B) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE>
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 11, 1998 By: /s/ HARRY M. CORNELL, JR.
-----------------------------
Harry M. Cornell, Jr.
Chairman of the Board
and Chief Executive Officer
DATE: August 11, 1998 By: /s/ MICHAEL A. GLAUBER
-----------------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
27 Financial Data Schedule 15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 21700
<SECURITIES> 0
<RECEIVABLES> 502500
<ALLOWANCES> 13300
<INVENTORY> 483400
<CURRENT-ASSETS> 1058200
<PP&E> 1335300
<DEPRECIATION> 560000
<TOTAL-ASSETS> 2380200
<CURRENT-LIABILITIES> 356600
<BONDS> 576200
0
0
<COMMON> 2000
<OTHER-SE> 1335000
<TOTAL-LIABILITY-AND-EQUITY> 2380200
<SALES> 1648600
<TOTAL-REVENUES> 1648600
<CGS> 1227000
<TOTAL-COSTS> 1227000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18800
<INCOME-PRETAX> 193500
<INCOME-TAX> 72200
<INCOME-CONTINUING> 121300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121300
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
