Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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
For Quarter Ended Number
September 30, 1999 1-7845
LEGGETT & PLATT, INCORPORATED
(Exact name of registrant as specified in its charter)
Missouri 44-0324630
(State or other (I.R.S. Employer Identification
jurisdiction of No.)
incorporation or
organization)
No. 1 Leggett Road
Carthage, Missouri 64836
(Address of principal executive (Zip Code)
offices)
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 November 1, 1999: 196,284,790
<PAGE>
PART I. FINANCIAL INFORMATION
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions) September 30, December 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 21.8 $ 83.5
Accounts and notes receivable 623.4 516.6
Allowance for doubtful accounts (15.9) (13.5)
Inventories 541.4 486.2
Other current assets 68.7 64.3
- --------------------------------------------------------------------
Total current assets 1,239.4 1,137.1
PROPERTY, PLANT & EQUIPMENT, NET 884.4 820.4
OTHER ASSETS
Excess cost of purchased companies over
net assets acquired, less accumulated
amortization of $62.4 in 1999
and $50.8 in 1998 682.0 498.9
Other intangibles, less accumulated
amortization of $29.8 in 1999
and $25.3 in 1998 44.1 29.7
Sundry 44.5 49.2
- --------------------------------------------------------------------
Total other assets 770.6 577.8
- --------------------------------------------------------------------
TOTAL ASSETS $2,894.4 $2,535.3
====================================================================
CURRENT LIABILITIES
Accounts and notes payable $ 160.1 $ 134.8
Accrued expenses 203.3 168.8
Other current liabilities 83.4 97.8
- --------------------------------------------------------------------
Total current liabilities 446.8 401.4
LONG-TERM DEBT 745.2 574.1
OTHER LIABILITIES 48.8 48.1
DEFERRED INCOME TAXES 72.5 74.9
SHAREHOLDERS' EQUITY
Common stock 2.0 2.0
Additional contributed capital 420.3 396.1
Retained earnings 1,221.5 1,058.7
Accumulated other comprehensive income (11.9) (18.2)
Treasury stock (50.8) (1.8)
- ---------------------------------------------------------------------
Total shareholders' equity 1,581.1 1,436.8
- ---------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,894.4 $2,535.3
=====================================================================
</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)
<TABLE>
<CAPTION>
(Amounts in millions, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $2,813.9 2,532.7 $ 991.1 $ 884.1
Cost of goods sold 2,058.2 1,882.3 721.2 655.3
- ---------------------------------------------------------------------------
Gross profit 755.7 650.4 269.9 228.8
Selling, distribution and
administrative expenses 362.4 313.5 128.9 109.9
Other deductions (income), net 20.4 13.7 6.3 5.4
- ---------------------------------------------------------------------------
Earnings before interest
and income taxes 372.9 323.2 134.7 113.5
Interest expense 30.5 28.7 11.1 9.9
Interest income 1.8 3.4 0.4 0.8
- ---------------------------------------------------------------------------
Earnings before income taxes 344.2 297.9 124.0 104.4
Income taxes 128.0 111.4 46.3 39.2
- ---------------------------------------------------------------------------
NET EARNINGS $ 216.2 $ 186.5 $ 77.7 $ 65.2
===========================================================================
Earnings Per Share
Basic $ 1.09 $ 0.94 $ 0.39 $ 0.33
Diluted $ 1.08 $ 0.93 $ 0.39 $ 0.32
Cash Dividends Declared
Per Share $ 0.27 $ 0.235 $ 0.09 $ 0.08
Average Shares Outstanding
Basic 198.5 197.9 198.2 198.3
Diluted 201.1 200.6 200.9 201.1
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in millions) Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 216.2 $ 186.5
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 89.3 77.0
Amortization 20.6 15.4
Other (2.7) 13.2
Other changes, net of effects from
purchase of companies
Increase in accounts receivable, net (53.4) (87.0)
(Increase) decrease in inventories (19.1) 7.1
Increase in other current assets (2.4) (3.5)
Increase in current liabilities 47.2 15.2
- ---------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 295.7 223.9
INVESTING ACTIVITIES
Additions to property, plant and equipment (113.4) (102.1)
Purchases of companies, net of cash acquired (233.0) (89.9)
Other 4.9 0.1
- ---------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (341.5) (191.9)
FINANCING ACTIVITIES
Additions to debt 209.3 262.7
Payments on debt (83.9) (193.3)
Dividends paid (68.9) (59.9)
Issuances of common stock 3.1 4.3
Purchases of common stock (78.6) (5.2)
Other 3.1 (6.0)
- -----------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (15.9) 2.6
- -----------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (61.7) 34.6
CASH AND CASH EQUIVALENTS - January 1, 83.5 7.7
- ----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - September 30, $ 21.8 $ 42.3
============================================================================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
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
position of Leggett & Platt, Incorporated and Consolidated
Subsidiaries (the `Company').
2. INVENTORIES
Inventories, using principally the Last-In, First-Out (LIFO) cost
method, comprised the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
At First-In, First-Out (FIFO) cost
Finished goods $ 280.2 $ 251.7
Work in process 65.5 56.2
Raw materials 203.3 185.5
- --------------------------------------------------------------------
549.0 493.4
Excess of FIFO cost over LIFO cost 7.6 7.2
- --------------------------------------------------------------------
$ 541.4 $ 486.2
====================================================================
</TABLE>
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment comprised the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Property, plant and equipment, at cost $ 1,578.6 $ 1,435.0
Less accumulated depreciation 694.2 614.6
- -----------------------------------------------------------------------
$ 884.4 $ 820.4
=======================================================================
</TABLE>
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, 1999 and 1998, comprehensive income
was $222.5 and $179.2, respectively.
<PAGE>
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:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic
Weighted average shares
outstanding, including
shares issuable for
little or no cash 198.5 197.9 198.2 198.3
============================================================================
Net earnings $ 216.2 $ 186.5 $ 77.7 $ 65.2
============================================================================
Earnings per share - basic $ 1.09 $ 0.94 $ 0.39 $ 0.33
============================================================================
Diluted
Weighted average shares
outstanding, including
shares issuable for
little or no cash 198.5 197.9 198.2 198.3
Additional dilutive shares
principally from the
assumed exercise of
outstanding stock options 2.6 2.7 2.7 2.8
- ---------------------------------------------------------------------------
201.1 200.6 200.9 201.1
===========================================================================
Net earnings $ 216.2 $ 186.5 $ 77.7 $ 65.2
===========================================================================
Earnings per share - diluted $ 1.08 $ 0.93 $ 0.39 $ 0.32
===========================================================================
</TABLE>
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. 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 has been upheld by the
courts. The Company is currently pursuing actions to resolve this
matter.
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. CONTINGENCIES - CONTINUED
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.
7. SEGMENT INFORMATION
Reportable segments are primarily based upon the Company's
management and 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, and components for
office and institutional furnishings. 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 and manufacturing equipment, automotive seating
suspension and lumbar supports, and control cable systems.
A summary of segment sales and earnings before interest and income
taxes (EBIT) for the nine months ended September 30, 1999 and 1998
and the quarters ended September 30, 1999 and 1998 are shown in
the following tables.
<TABLE>
<CAPTION>
Inter-
External Segment Total
Sales Sales Sales EBIT
<S> <C> <C> <C> <C>
Nine Months ended Sept. 30, 1999
Residential Furnishings $1,460.9 $ 7.5 $1,468.4 $ 166.2
Commercial Furnishings 570.8 2.3 573.1 95.8
Aluminum Products 401.6 12.3 413.9 38.5
Industrial Materials 208.6 155.6 364.2 53.6
Specialized Products 172.0 32.4 204.4 22.6
Intersegment eliminations - - - (3.4)
Change in LIFO reserve - - - (0.4)
- -----------------------------------------------------------------------------
Totals $2,813.9 $210.1 $3,024.0 $ 372.9
=============================================================================
</TABLE>
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. SEGMENT INFORMATION - CONTINUED
<TABLE>
<CAPTION>
Inter-
External Segment Total
Sales Sales Sales EBIT
<S> <C> <C> <C> <C>
Nine Months ended Sept. 30, 1998
Residential Furnishings $1,335.5 $ 4.7 $1,340.2 $ 150.2
Commercial Furnishings 474.3 1.2 475.5 85.8
Aluminum Products 383.2 12.3 395.5 27.8
Industrial Materials 198.8 142.8 341.6 36.4
Specialized Products 140.9 35.7 176.6 19.4
Intersegment eliminations - - - (1.3)
Change in LIFO reserve - - - 4.9
- ----------------------------------------------------------------------------
Totals 2,532.7 196.7 2,729.4 323.2
============================================================================
Quarter ended Sept. 30, 1999
Residential Furnishings $ 510.2 $ 2.5 $ 512.7 $ 61.5
Commercial Furnishings 230.4 0.7 231.1 38.6
Aluminum Products 119.1 3.8 122.9 10.7
Industrial Materials 72.8 50.0 122.8 18.4
Specialized Products 58.6 9.6 68.2 6.2
Intersegment eliminations - - - (0.1)
Change in LIFO reserve - - - (0.6)
- ----------------------------------------------------------------------------
Totals $ 991.1 $ 66.6 $1,057.7 $ 134.7
============================================================================
Quarter ended Sept. 30, 1998
Residential Furnishings $ 468.8 $ 1.5 $ 470.3 $ 54.8
Commercial Furnishings 182.9 0.4 183.3 36.2
Aluminum Products 105.9 4.2 110.1 0.9
Industrial Materials 75.8 42.7 118.5 14.0
Specialized Products 50.7 13.2 63.9 6.2
Intersegment eliminations - - - (0.4)
Change in LIFO reserve - - - 1.8
- ----------------------------------------------------------------------------
Totals $ 884.1 $ 62.0 $ 946.1 $ 113.5
============================================================================
</TABLE>
<PAGE>
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
7. SEGMENT INFORMATION - CONTINUED
Asset information for the Company's segments at September 30, 1999
and December 31, 1998 is shown in the following table:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Assets
Residential Furnishings $1,127.7 $ 971.0
Commercial Furnishings 692.9 469.8
Aluminum Products 427.3 404.4
Industrial Materials 191.3 204.5
Specialized Products 214.8 188.8
Unallocated assets 209.8 285.9
Adjustment to period-end
vs. average assets 30.6 10.9
- -------------------------------------------------------------------
$2,894.4 $2,535.3
</TABLE>
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Company's total capitalization at September 30, 1999 and
December 31, 1998 is shown in the table below. 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.
<TABLE>
<CAPTION>
(Dollar amounts in millions) September 30, December 31,
1999 1998
<S> <C> <C>
Long-term debt outstanding:
Scheduled maturities $ 642.7 $ 574.1
Average interest rates 6.6% 6.6%
Average maturities in years 5.5 6.2
Revolving credit/commercial paper 102.5 -
- -----------------------------------------------------------------------
Total long-term debt 745.2 574.1
Deferred income taxes and other
liabilities 121.3 123.0
Shareholders' equity 1,581.1 1,436.8
- -----------------------------------------------------------------------
Total capitalization $2,447.6 $2,133.9
=======================================================================
Unused committed credit $ 300.0 $ 300.0
=======================================================================
Cash and cash equivalents $ 21.8 $ 83.5
=======================================================================
Internal investments to modernize and expand manufacturing
capacity were $113.4 million in the first nine months of 1999. The
Company also invested $233.0 million (net of cash acquired) and
issued 885,704 shares of common stock to acquire 21 businesses in
transactions accounted for as purchases. In addition, the Company
repurchased approximately 3.7 million shares of its common stock for
$78.6 million cash, primarily to replace shares issued in purchase
acquisitions and for use in employee benefit plans.
A majority of the funds required for these investments resulted
from cash provided by operating activities and temporary cash
equivalent investments. Proceeds from the issuance of privately
placed medium-term notes and commercial paper provided the balance.
As shown above, long-term debt outstanding on September 30, 1999 was
30.4% of total capitalization compared to 26.9% at the end of 1998.
Working capital at the end of the third quarter was $792.6
million, up from $735.7 million at year-end. Total current assets
reflected increases primarily in accounts and notes receivable,
inventories and other current assets, which were partially offset by
reduced cash and cash equivalents. Total current liabilities
reflected increases in accounts payable and accrued expenses,
partially offset by a decrease in other current liabilities. There
was no short-term bank debt outstanding at the end of either period.
Given this strong financial position and the continuing strong
coverage of interest expense, the Company has substantial capital
resources and flexibility for projected internal cash needs and
additional acquisitions consistent with management's goals and
objectives. 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%. In addition to unused committed credit,
the Company has the availability of short-term uncommitted credit
from several banks.
<PAGE>
Results of Operations
Discussion of Consolidated Results
The Company achieved record sales and earnings in the first nine
months of 1999. Sales increased to $2.81 billion (up 11.1%), net
earnings increased to $216.2 million (up 15.9%), and earnings per
diluted share increased to $1.08 (up 16.1%) - all compared with the
first nine months of 1998.
Third quarter results also set new highs. Sales were $991.1
million (up 12.1%), net earnings were $77.7 million (up 19.2%), and
earnings per diluted share were $.39 (up 21.9%) - all compared with
the third quarter of 1998 and all at the highest levels for any prior
quarter.
This performance reflects ongoing benefits from numerous
acquisitions, as well as broadly based internal improvements and
efficiencies. Sales growth stemming from acquisitions was
approximately 8% in the first nine months and 11% in the third
quarter. Internal growth in unit volume for each of these periods
was approximately 5% and 3%, respectively. When coupled with reduced
selling prices of approximately 2%, same location sales increased
about 3% in the nine months and 1% in the third quarter. The 5%
increase in unit volume for the nine months is in line with
management's long-term objective for internal growth.
Businesses acquired in the first nine months of 1999 have
annualized volume of approximately $390 million. When compared with
the Company's 1998 sales of $3.37 billion, this additional volume
will provide growth of approximately 12%. Thus, the Company is ahead
of management's long-term objective for acquisition growth of
approximately 10% per year.
Residential Furnishings accounted for 44.6% of the 1999 increase
in consolidated sales in the first nine months, and Commercial
Furnishings accounted for 34.3%. In the third quarter, Commercial
Furnishings accounted for 44.4% of the year-to-year increase, and
Residential Furnishings accounted for 38.7%. The reduced selling
prices noted earlier were concentrated in Residential Furnishings,
Aluminum Products and Industrial Materials.
The following table shows various measures of earnings as a
percentage of sales for the first nine months and the third 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.
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Gross profit margin 26.9% 25.7% 27.2% 25.9%
EBIT (earnings before interest
and income taxes) margin 13.3 12.8 13.6 12.8
Net profit margin 7.7 7.4 7.8 7.4
Effective income tax rate 37.2 37.4 37.3 37.5
Interest coverage ratio 12.3x 11.4x 12.2x 11.5x
</TABLE>
The improvement in gross profit margin reflected continued
increases in production efficiencies on higher volume, lower material
and other costs, and generally better manufacturing overhead
absorption. The EBIT margin also increased due to these factors,
offset in part primarily by higher total selling, distribution and
administrative expenses.
<PAGE>
Discussion of Segment Results
A description of the products included in each segment, segment
sales, segment EBIT and other segment data appear in Note 7 of the
Notes to Consolidated Condensed Financial Statements. Following is a
comparison of EBIT margins (Segment EBIT divided by Total Segment
Sales):
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Residential Furnishings 11.3% 11.2% 12.0% 11.7%
Commercial Furnishings 16.7 18.0 16.7 19.7
Aluminum Products 9.3 7.0 8.7 0.8
Industrial Materials 14.7 10.7 15.0 11.8
Specialized Products 11.1 11.0 9.1 9.7
</TABLE>
NINE MONTH DISCUSSION
Residential Furnishings sales increased 9.6%, with acquisition
growth of about 6%. EBIT grew 10.7%, with a slight increase in
margin reflecting broadly based improvements in efficiencies on
higher production and acquisitions.
Commercial Furnishings sales increased 20.5%, with acquisition
growth of approximately 18%. EBIT increased 11.7%, but the margin
declined as the benefits of acquisitions and higher volume in the
first half of 1999 were partially offset in the third quarter by
lower same location sales and temporary labor inefficiencies.
Aluminum Products sales increased 4.7%, with nearly equal year-
to-year acquisition and internal growth. EBIT increased 38.5%, as
the margin recovered substantially in the third quarter due to
improvements in efficiencies and more normal cost/price
relationships.
Industrial Materials sales increased 6.6%, with acquisition
growth of approximately 4.5%. EBIT increased 47.3%, with a higher
margin reflecting more normal cost/price relationships and
efficiencies gained on higher production.
Specialized Products sales increased 15.7%, with acquisition
growth of just over 10%. EBIT increased 16.5%, as the margin
improved due primarily to higher first quarter sales of machinery and
equipment which carries higher margins.
THIRD QUARTER DISCUSSION
Residential Furnishings sales increased 9%, with acquisition
growth of 7%. EBIT grew 12.2%, with the higher margin reflecting
broadly based improvements in efficiencies on higher production and
acquisitions.
Commercial Furnishings sales increased 26.1%, with acquisition
growth of just over 30% more than offsetting lower than expected same
location sales of store fixtures. About $9 million of store fixture
sales expected in this year's third quarter were delayed and shifted
to the next two quarters. The shifting resulted primarily from
delayed customer store openings due to limited availability of
construction labor and the recent shifting of building materials to
weather damaged parts of the country. EBIT increased 6.6%, with the
lower margin reflecting the impact of lower volume and temporary
labor inefficiencies, partially offset by acquisitions.
Aluminum Products sales increased 11.6%, with acquisition growth
of just under 2%. EBIT increased nearly 12-fold, as the margin
recovered substantially due to improvements in efficiencies on higher
production and more normal cost/price relationships.
<PAGE>
Industrial Materials sales increased 3.6%, with a slight
contribution from acquisitions. EBIT increased 31.4%, as the higher
margin reflected more normal cost/price relationships and
efficiencies gained on higher production.
Specialized Products sales increased 6.7%, with acquisition
growth of just over 10%. EBIT was unchanged, but the margin declined
due to lower machinery and equipment volume which carries higher
margins.
Year 2000 Readiness Disclosure
The "Year 2000" issue refers to older computer programs that
used only two digits to represent the year, rather than four digits.
As a result, these older computer programs may not process
information or otherwise function properly when using the year
"2000", since that year will be indistinguishable from the year
"1900". These computer programs are found in information processing
applications and in timing devices for certain machinery and
equipment.
To monitor Year 2000 issues, the Company implemented a Corporate
level Year 2000 Steering Committee (the Steering Committee). The
Steering Committee meets regularly to review the Company's progress,
and to consider other actions that may be necessary for Year 2000
issues.
In addition, the Company has engaged a large, reputable
consulting firm to perform certain procedures to review the Company's
planning, implementation and readiness for the Year 2000 issues at
certain major locations. The results of the consulting firm's
studies have been reviewed with the Company's Audit Committee of the
Board of Directors. The Company has responded to the critical
recommendations made by the consulting firm.
The Company recognized the Year 2000 issue several years ago,
and has been working since to correct this problem in its computer
systems. The majority of the Company's information processing is
centralized at its Corporate Offices. All of these critical central
systems have been converted to Year 2000 compliant software, and
individual system testing is substantially complete.
Many of the Company's international and certain domestic
operations do not use some or any of the Corporate Offices'
centralized systems. All of these non-central system locations have
active projects to convert their systems to Year 2000 compliant
software, most of which projects are now complete, or have otherwise
provided for adequate testing of Year 2000 compliance.
In total, combining both central system and non-central system
locations, management estimates that the Year 2000 systems conversion
effort is 99% complete as of November 10, 1999.
All locations of the Company have been instructed to review
their facilities for Year 2000 issues. Potential internal and third
party risks were identified and considered in this review.
Inventories of computer equipment, communications with key suppliers,
correspondence with customers, obtaining machinery and equipment
compliance certificates and other facility testing related to Year
2000 issues are complete or nearing completion at the Company's
approximately 300 locations around the world. These efforts are
expected to be complete at all significant locations prior to the
year 2000.
Since the Company has been working on Year 2000 issues for
several years, the costs of mitigating these issues, which costs have
not been material in the past, were expensed in ongoing operations.
No material costs are expected from the remaining Year 2000
compliance efforts. Costs of all the Company's system conversion and
implementation efforts, which include those efforts related to the
Year 2000 issue, were less than $6 million in 1998. The overall
magnitude of these ongoing system conversion and implementation costs
is not expected to be significantly different for 1999. It is not
practical to segregate past or anticipated capital expenditures
between Year 2000 compliance and expenditures which occur normally to
keep operations technologically competitive. However, management
believes that past or expected future capital requirements related to
Year 2000 compliance issues are not significant to its operations.
<PAGE>
The Company manufactures a broad line of products in over 175
major manufacturing sites around the world. Raw materials and
critical outside services are generally available from numerous
supply sources including, in some cases, the Company's own vertically
integrated operations. The Company's revenues are not dependent upon
any single customer or any few customers. Therefore, the impact to
the Company of any individual operating location or third-party risk
involving Year 2000 is relatively small. It is reasonable to assume
that the Company will experience a few, hopefully isolated,
disturbances to its operations early in the year 2000. While
reasonable actions have been taken, and will continue to be taken in
the future, to mitigate such disruption, the magnitude of all Year
2000 disturbances cannot be predicted. In addition, any widespread
Year 2000 failures, particularly in North America, in industries such
as electrical and other utilities, financial services, communications
or transportation, could significantly and adversely impact the
Company's operations.
Efforts to date have been concentrated on mitigating Year 2000
disturbances. The Steering Committee has evaluated the reasonable
potential risks that cannot be mitigated (primarily unexpected
computer failure or power outage) and determined the extent of
contingency planning and resources that are needed. These
contingency actions and resources, including appropriate personnel,
will be in place for potential implementation over the year-end
period.
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 that 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
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:
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. As indicated above, the
consequences of the Year 2000 issues cannot be accurately predicted;
therefore, actual consequences will remain at least to some extent
uncertain.
<PAGE>
ITEM 3. DISCLOSURES ABOUT MARKET RISK
(Unaudited)
(Amounts in millions)
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 but, in the second quarter of 1999, $14 of fixed rate debt was
issued and converted to variable rate debt by use of a swap instrument.
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. The fair value of fixed rate debt is
calculated using the U.S. Treasury Bond rate as of September 30, 1999 for
similar remaining maturities, plus an estimated spread over such Treasury
securities representing the Company's interest costs under its medium-term
note program. The fair value of fixed rate debt approximated $537 at
September 30, 1999.
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 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
September 30, 1999 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 $375 at September 30, 1999. The increase in
translation exposure was due to foreign acquisitions, changing the
functional currency of the Company's Mexican operations from the US dollar
to the Mexican peso, increases in Canadian dollar exposure from the
strengthening of this currency (versus the US dollar) and other factors.
COMMODITY PRICE
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 $58 (at cost)
in inventory at September 30, 1999. 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 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: November 12, 1999 By: /s/ FELIX E. WRIGHT
-------------------
Felix E. Wright
President and
Chief Executive Officer
DATE: November 12, 1999 By: /s/ MICHAEL A. GLAUBER
----------------------
Michael A. Glauber
Senior Vice President,
Finance and Administration
<PAGE>
EXHIBIT INDEX
Exhibit Page
27 Financial Data Schedule 19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 21,800
<SECURITIES> 0
<RECEIVABLES> 623,400
<ALLOWANCES> 15,900
<INVENTORY> 541,400
<CURRENT-ASSETS> 1,239,400
<PP&E> 1,578,600
<DEPRECIATION> 694,200
<TOTAL-ASSETS> 2,894,400
<CURRENT-LIABILITIES> 446,800
<BONDS> 745,200
0
0
<COMMON> 2,000
<OTHER-SE> 1,579,100
<TOTAL-LIABILITY-AND-EQUITY> 2,894,400
<SALES> 2,813,900
<TOTAL-REVENUES> 2,813,900
<CGS> 2,058,200
<TOTAL-COSTS> 2,058,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,500
<INCOME-PRETAX> 344,200
<INCOME-TAX> 128,000
<INCOME-CONTINUING> 216,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216,200
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.08
</TABLE>
