Business Context and Reporting Period
Company: Leggett & Platt, Incorporated
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 1999
Business Overview: A diversified manufacturer of components for bedding, furniture, retail fixtures, aluminum products, and industrial materials. The company operates through five reportable segments: Residential Furnishings, Commercial Furnishings, Aluminum Products, Industrial Materials, and Specialized Products.
Key Financial Metrics
| Metric (in millions) | Six Months Ended June 30, 1999 |
Six Months Ended June 30, 1998 |
Three Months Ended June 30, 1999 |
Three Months Ended June 30, 1998 |
|---|---|---|---|---|
| Net Sales | $1,822.8 | $1,648.6 | $935.2 | $855.4 |
| Gross Profit | $485.8 | $421.6 | $253.4 | $219.3 |
| Net Earnings | $138.5 | $121.3 | $72.4 | $63.4 |
| Diluted EPS | $0.69 | $0.61 | $0.36 | $0.32 |
| Operating Cash Flow | $214.9 | $139.1 | N/A | N/A |
| Long-Term Debt | $611.6 | $574.1 | $611.6 | $574.1 |
| Cash & Equivalents | $13.4 | $83.5 | $13.4 | $83.5 |
| Working Capital | $737.9 | $735.7 | $737.9 | $735.7 |
Margins (Six Months Ended June 30, 1999):
- Gross Profit Margin: 26.7%
- EBIT Margin: 13.1%
- Net Profit Margin: 7.6%
- Interest Coverage Ratio: 12.4x
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 10.6% year-over-year for the six-month period and 9.3% for the quarter. Approximately two-thirds of this growth was attributable to acquisitions, with internal unit volume growth of roughly 6%.
- Profitability: Net earnings rose 14.2% for both the six-month and quarterly periods. Earnings per diluted share increased 13.1% (six months) and 12.5% (quarter).
- Cash Position: Cash and cash equivalents decreased significantly from $83.5 million to $13.4 million. This reduction was driven by $105.1 million in net cash used for acquisitions, $77.0 million in capital expenditures, and $63.1 million in share repurchases.
- Debt: Long-term debt increased to $611.6 million from $574.1 million, representing 27.0% of total capitalization.
- Segment Performance: Industrial Materials saw the most significant EBIT growth (57.1% for six months), while Specialized Products EBIT declined 4.1% in the second quarter due to lower machinery volume and consolidation expenses.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
Management reports that performance is exceeding long-term internal growth objectives of approximately 5%. Acquisitions in the first half of 1999 are expected to add approximately $230 million in annual volume, keeping the company on track for a 10% acquisition growth objective. The company maintains substantial capital resources and flexibility for future projects and acquisitions.
Year 2000 Readiness:
The company estimates its Year 2000 systems conversion effort is 95% complete as of June 30, 1999. Costs incurred to date have not been material, and no material costs are expected for remaining efforts. Management anticipates isolated disturbances but believes the impact of any single location or third-party risk is relatively small.
Risks and Contingencies:
- Legal: The company is involved in various legal proceedings, including an unfair labor complaint upheld by courts against a subsidiary. Management believes the possibility of a material adverse effect is remote.
- Market Risk: Exposure to interest rate changes exists, though the company recently converted $14 million of fixed-rate debt to variable-rate debt via a swap. Foreign currency translation exposure increased to $259.8 million due to changes in functional currency for Mexican operations and a stronger Canadian dollar.
- Commodity: Principal exposure is to aluminum prices; the company holds approximately $44 million in aluminum inventory at cost.
Investor Verification Checklist
- Acquisition Integration: Verify the realization of the projected $230 million in annual sales from the ten businesses acquired in the first half of 1999.
- Cash Flow Sustainability: Monitor the significant drawdown in cash reserves ($70.1 million decrease) against the $300 million in unused committed credit to ensure liquidity remains robust for future operations.
- Year 2000 Execution: Confirm the completion of the remaining 5% of system conversions and the effectiveness of contingency plans for potential operational disturbances in early 2000.
- Segment Margins: Track the EBIT margin trends in the Commercial Furnishings and Specialized Products segments, which faced margin pressure due to consolidation expenses and lower high-margin volume.
- Debt Servicing: Review the interest coverage ratio (12.4x) to ensure continued ability to service the increased long-term debt load.