Business Context and Reporting Period
Company: Leggett & Platt, Incorporated
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1993
Business Overview: Leggett & Platt is the largest producer of a diverse range of furniture and bedding components in the United States. The company operates primarily in two segments: Furnishings Products (bedding and furniture components, finished furniture, and carpet cushioning) and Diversified Products (industrial and commercial components). The company completed several strategic acquisitions in 1993, including Hanes Holding Company (a pooling of interests) and VWR Textiles & Supplies, Inc. (a cash purchase), to expand its fabric conversion and distribution capabilities.
Key Financial Metrics
| Metric (in millions, except per share) | 1993 | 1992 | 1991 |
|---|---|---|---|
| Net Sales | $1,526.7 | $1,315.0 | $1,221.4 |
| Gross Profit | $349.0 | $299.9 | $261.7 |
| Net Earnings | $85.9 | $65.4 | $40.0 |
| Earnings Per Share | $2.09 | $1.64 | $1.08 |
| Cash Flow from Operations | $145.7 | $100.4 | $103.0 |
| Total Assets | $901.9 | $772.0 | $746.7 |
| Long-Term Debt | $165.8 | $147.9 | $232.7 |
| Shareholders' Equity | $515.6 | $441.6 | $346.3 |
| Cash and Cash Equivalents | $0.4 | $5.2 | $12.6 |
Margins (1993): Gross Profit Margin: 22.9%; Pre-tax Profit Margin: 9.2%; Net Profit Margin: 5.6%.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 16% to $1,526.7 million. Excluding acquisitions accounted for as purchases, organic sales grew 10% due to higher unit volumes and modest price increases.
- Profitability: Net earnings rose 31% to $85.9 million. The pre-tax profit margin improved to 9.2% from 8.1% in 1992, driven by a reduction in selling, distribution, and administrative expenses (0.7% of sales) and lower interest expense.
- Acquisitions: Significant activity included the pooling of interests acquisition of Hanes Holding Company (1.6 million shares issued) and the cash acquisition of VWR Textiles ($26 million) and wire drawing mills ($33 million plus debt assumption).
- Debt Structure: Total long-term debt increased to $165.8 million from $147.9 million. This included the issuance of $50 million in medium-term notes to repay debt from acquired companies. Revolving credit usage increased to $43.5 million.
- Liquidity: Cash and cash equivalents decreased significantly to $0.4 million from $5.2 million, largely due to cash acquisitions and capital expenditures ($54.2 million).
Guidance, Outlook, and Risks
Management Outlook: Management anticipates modest economic growth in 1994. While severe winter weather and the California earthquake impacted early-year activity, these are viewed as temporary. Management remains cautious regarding potential higher income tax rates, healthcare program proposals, and inflationary trends.
Cost Pressures: The company experienced renewed inflation in raw material prices, particularly steel and wire, throughout 1993. While modest price increases were implemented, some cost inflation has not yet been fully passed through to customers, creating ongoing cost/price pressures.
Risks and Contingencies:
- Environmental: The EPA has directed a subsidiary to investigate potential environmental releases. The outcome is uncertain, though management believes costs will not be material. One-half of potential costs may be reimbursed by a former joint owner.
- Legal: The company is a defendant in routine legal proceedings (workers' compensation, product liability) which management does not expect to have a material adverse effect.
- Accounting Changes: The company adopted SFAS No. 106, 109, and 112 in 1993. Management states these did not significantly impact financial statements.
Investor Verification Checklist
- Acquisition Integration: Verify the operational integration and financial performance of Hanes Holding Company and VWR Textiles, which were acquired late in 1993.
- Raw Material Costs: Monitor the trajectory of steel and wire prices and the company's ability to pass these costs to customers without losing market share.
- Liquidity Position: Review the low cash balance ($0.4 million) against upcoming debt maturities and capital expenditure plans to ensure adequate working capital management.
- Environmental Liability: Track the status of the EPA investigation regarding the subsidiary in Wisconsin to assess potential future remediation costs.
- Debt Covenants: Confirm compliance with restrictive covenants in revolving credit agreements, specifically regarding working capital maintenance and dividend restrictions.