Business Context and Reporting Period
Company: Leggett & Platt, Incorporated
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1995
Business Overview: A manufacturer of engineered products for the home, office, institutional, and commercial furnishings industry, as well as specialized consumer and industrial markets. The company produces components (e.g., innersprings, foam, furniture mechanisms) and some finished products. It operates approximately 170 locations in North America and several internationally.
Key Financial Metrics (1995)
| Metric | 1995 | 1994 | 1993 |
|---|---|---|---|
| Net Sales | $2,059.3 million | $1,858.1 million | $1,526.7 million |
| Gross Profit | $491.0 million | $429.0 million | $349.0 million |
| Net Earnings | $134.9 million | $115.4 million | $85.9 million |
| Earnings Per Share | $1.59 | $1.39 | $1.04 |
| Operating Cash Flow | $203.2 million | $173.0 million | $145.7 million |
| Total Assets | $1,218.3 million | $1,119.9 million | $901.9 million |
| Long-Term Debt | $191.9 million | $204.9 million | $165.8 million |
| Shareholders' Equity | $734.1 million | $625.2 million | $515.6 million |
| Cash & Equivalents | $6.7 million | $2.7 million | $0.4 million |
Profit Margins (1995): Gross Profit 23.8%; Pre-tax Profit 10.7%; Net Profit 6.6%.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 11% to $2,059.3 million. Approximately 75% of this growth was driven by acquisitions, with the remainder from internal volume growth.
- Profitability: Net earnings rose 17% to $134.9 million. Gross profit margin improved to 23.8% (from 23.1% in 1994) due to growth in high-margin niche markets and production efficiencies.
- Acquisitions: Completed eight acquisitions in 1995 for $28.7 million in cash and 679,448 shares of stock, expanding the annual sales base by approximately $80 million.
- Debt Reduction: Total long-term debt decreased to $191.9 million (19% of total capitalization) from $204.9 million in 1994. Revolving credit usage dropped significantly from $58.3 million to $17.5 million.
- Stock Split: A two-for-one stock split was effected on September 15, 1995. All per-share data has been restated.
Guidance, Outlook, and Risks
Management Outlook: Management expects modest economic growth and inflation in 1996. While severe winter weather impacted early-year business, prospects for long-term profitable growth remain attractive. Internal capital investments in 1996 are anticipated to approximate 1995 levels.
Capital Policy: The company maintains a guideline for long-term debt as a percentage of total capitalization between 30% and 40%. Currently at 19%, the company has substantial liquidity, including $200 million in unused committed credit.
Risks and Contingencies:
- Environmental: The company is involved in proceedings regarding waste disposal site remediation. One subsidiary is negotiating with the EPA and Florida Department of Environmental Protection. Estimated costs for agreed-upon actions are not material; costs for potential future actions cannot be reasonably estimated but are deemed remote to have a material adverse effect.
- Raw Materials: The company is exposed to price fluctuations in steel, aluminum, and other raw materials, though it has implemented price increases to offset costs.
- Competition: Markets are highly competitive with many suppliers and vertically integrated "maker-users."
Investor Verification Checklist
- Acquisition Integration: Verify the realization of the projected $80 million sales expansion from the eight 1995 acquisitions.
- Margin Sustainability: Monitor whether the improved gross margin (23.8%) can be sustained amidst potential raw material price volatility.
- Debt Covenants: Review the specific restrictive covenants in revolving credit agreements regarding working capital maintenance and dividend payments.
- Environmental Liabilities: Track the outcome of negotiations with the EPA and FDEP regarding the subsidiary's environmental remediation obligations.
- Stock Buybacks: Note the significant increase in treasury stock purchases ($24.5 million in 1995 vs. $1.2 million in prior years) and its impact on share count.