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, 2001 ------------------ 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 September 30, 2001 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 incorporation or organization) Identification No.) 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 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 October 23, 2001: 196,484,229
PART I. FINANCIAL INFORMATION LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (Amounts in millions) <TABLE> <CAPTION> September 30, December 31, 2001 2000 ------------- ------------ <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 126.4 $ 37.3 Accounts and notes receivable 732.8 650.5 Allowance for doubtful accounts (27.7) (16.3) Inventories 596.0 671.8 Other current assets 63.7 62.0 --------- --------- Total current assets 1,491.2 1,405.3 PROPERTY, PLANT & EQUIPMENT, NET 995.9 1,018.4 OTHER ASSETS Excess cost of purchased companies over net assets acquired, less accumulated amortization of $106.2 in 2001 and $88.8 in 2000 858.4 846.0 Other intangibles, less accumulated amortization of $40.1 in 2001 and $38.1 in 2000 45.9 49.3 Sundry 106.3 54.2 --------- --------- Total other assets 1,010.6 949.5 --------- --------- TOTAL ASSETS $ 3,497.7 $ 3,373.2 ========= ========= CURRENT LIABILITIES Accounts and notes payable $ 202.5 $ 179.4 Accrued expenses 249.1 201.5 Other current liabilities 76.3 95.7 --------- --------- Total current liabilities 527.9 476.6 LONG-TERM DEBT 984.0 988.4 OTHER LIABILITIES 46.4 42.5 DEFERRED INCOME TAXES 71.6 71.9 SHAREHOLDERS' EQUITY Common stock 2.0 2.0 Additional contributed capital 417.9 423.5 Retained earnings 1,540.8 1,460.0 Accumulated other comprehensive income (47.1) (45.4) Treasury stock (45.8) (46.3) --------- --------- Total shareholders' equity 1,867.8 1,793.8 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,497.7 $ 3,373.2 ========= ========= </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.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (Amounts in millions, except per share data) <TABLE> <CAPTION> Nine Months Ended Three Months Ended September 30, September 30, --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net sales $ 3,145.3 $ 3,268.8 $ 1,056.8 $ 1,129.6 Cost of goods sold 2,384.9 2,424.7 799.0 845.5 --------- --------- --------- --------- Gross profit 760.4 844.1 257.8 284.1 Distribution and handling expenses 132.4 131.0 43.9 44.7 Selling and administrative expenses 313.2 291.2 105.4 100.4 Amortization of excess cost of purchased companies and other intangibles 29.9 25.3 9.2 9.0 Other deductions (income), net .6 3.1 .1 3.9 --------- --------- --------- --------- Earnings before interest and income taxes 284.3 393.5 99.2 126.1 Interest expense 46.2 49.4 13.2 17.2 Interest income 3.1 3.0 1.6 .3 --------- --------- --------- --------- Earnings before income taxes 241.2 347.1 87.6 109.2 Income taxes 89.0 128.1 32.3 40.3 --------- --------- --------- --------- NET EARNINGS $ 152.2 $ 219.0 $ 55.3 $ 68.9 ========= ========= ========= ========= Earnings Per Share Basic $ .76 $ 1.10 $ .28 $ .35 Diluted $ .76 $ 1.09 $ .28 $ .34 Cash Dividends Declared Per Share $ .36 $ .31 $ .12 $ .11 Average Shares Outstanding Basic 199.4 199.0 199.7 199.3 Diluted 200.5 200.5 200.7 200.7 </TABLE> See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in millions) <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------- 2001 2000 --------- --------- <S> <C> <C> OPERATING ACTIVITIES Net Earnings $ 152.2 $ 219.0 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation 114.6 101.5 Amortization 29.9 25.3 Other (6.0) 8.6 Other changes, net of effects from purchase of companies (Increase) in accounts receivable, net (67.4) (83.9) Decrease (Increase) in inventories 90.4 (1.5) Decrease (Increase) in other current assets .4 (5.4) Increase in current liabilities 99.0 48.0 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 413.1 311.6 INVESTING ACTIVITIES Additions to property, plant and equipment (103.4) (124.7) Purchases of companies, net of cash acquired (58.9) (223.9) Other 23.1 (15.7) --------- --------- NET CASH USED FOR INVESTING ACTIVITIES (139.2) (364.3) FINANCING ACTIVITIES Additions to debt 46.2 396.1 Payments on debt (97.3) (228.7) Dividends paid (92.5) (78.6) Issuances of common stock 10.9 3.0 Purchases of common stock (47.7) (32.9) Other (4.4) (3.0) --------- --------- NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (184.8) 55.9 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 89.1 3.2 CASH AND CASH EQUIVALENTS - January 1, 37.3 20.6 --------- --------- CASH AND CASH EQUIVALENTS - September 30, $ 126.4 $ 23.8 ========= ========= </TABLE> See accompanying notes to consolidated condensed financial statements.
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 positions of Leggett & Platt, Incorporated and Consolidated Subsidiaries (the `Company'). 2. INVENTORIES Inventories, about 50% of which are valued using the Last-in, First-out (LIFO) cost method and the remainder using the First-In, First-Out (FIFO) cost method, comprised the following: September 30, December 31, 2001 2000 ------------- ------------ At First-In, First-Out (FIFO) cost Finished goods $ 313.4 $ 336.8 Work in process 73.3 89.2 Raw materials and supplies 217.6 255.5 ---------- ---------- 604.3 681.5 Excess of FIFO cost over LIFO cost (8.3) (9.7) ---------- ---------- $ 596.0 $ 671.8 ========== ========== 3. PROPERTY, PLANT & EQUIPMENT Property, plant and equipment comprised the following: September 30, December 31, 2001 2000 ------------- ------------ Property, plant and equipment, at cost $ 1,882.5 $ 1,822.8 Less accumulated depreciation 886.6 804.4 ---------- ---------- $ 995.9 $ 1,018.4 ========== ========== 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, 2001 and 2000, comprehensive income was $150.5 and $203.1, respectively.
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, -------------------- --------------------- 2001 2000 2001 2000 -------- -------- -------- -------- <S> <C> <C> <C> <C> Basic Weighted average shares outstanding, including shares issuable for little or no cash 199.4 199.0 199.7 199.3 ======== ======== ======== ======== Net earnings $ 152.2 $ 219.0 $ 55.3 $ 68.9 ======== ======== ======== ======== Earnings per share - basic $ .76 $ 1.10 $ .28 $ .35 ======== ======== ======== ======== Diluted Weighted average shares outstanding, including shares issuable for little or no cash 199.4 199.0 199.7 199.3 Additional dilutive shares principally from the assumed exercise of outstanding stock options 1.1 1.5 1.0 1.4 -------- -------- -------- -------- 200.5 200.5 200.7 200.7 ======== ======== ======== ======== Net earnings $ 152.2 $ 219.0 $ 55.3 $ 68.9 ======== ======== ======== ======== Earnings per share - diluted $ .76 $ 1.09 $ .28 $ .34 ======== ======== ======== ======== </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. 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.
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 7. SEGMENT INFORMATION Reportable segments are primarily based upon the Company's management 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, components for office and institutional furnishings, and plastic components. 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, manufacturing equipment, automotive seating suspensions, control cable systems, and lumbar supports for automotive, office and residential applications. A summary of segment results for the nine months ended September 30, 2001 and 2000 and the quarters ended September 30, 2001 and 2000 are shown in the following tables. Segment figures for 2000 include the reclass of one operation from Commercial Furnishings to Industrial Materials. <TABLE> <CAPTION> Inter- External Segment Total Sales Sales Sales EBIT ---------- --------- ---------- -------- <S> <C> <C> <C> <C> Nine Months ended Sept. 30, 2001 Residential Furnishings $ 1,549.9 $ 8.9 $ 1,558.8 $ 136.5 Commercial Furnishings 749.5 3.0 752.5 56.4 Aluminum Products 350.2 12.0 362.2 22.6 Industrial Materials 225.6 159.5 385.1 41.6 Specialized Products 270.1 41.5 311.6 30.1 Intersegment eliminations - - - (4.3) Change in LIFO reserve - - - 1.4 ---------- --------- ---------- --------- $ 3,145.3 $ 224.9 $ 3,370.2 $ 284.3 ========== ========= ========== ========= Nine Months ended Sept. 30, 2000 Residential Furnishings $ 1,628.8 $ 7.5 $ 1,636.3 $ 184.8 Commercial Furnishings 750.4 3.3 753.7 92.7 Aluminum Products 413.5 12.2 425.7 29.8 Industrial Materials 248.8 166.7 415.5 61.1 Specialized Products 227.3 36.6 263.9 35.1 Intersegment eliminations - - - (5.2) Change in LIFO reserve - - - (4.8) ---------- --------- ---------- --------- $ 3,268.8 $ 226.3 $ 3,495.1 $ 393.5 ========== ========= ========== ========= </TABLE>
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> Quarter ended September 30, 2001 Residential Furnishings $ 524.3 $ 2.7 $ 527.0 $ 44.1 Commercial Furnishings 265.0 1.2 266.2 27.4 Aluminum Products 99.8 3.6 103.4 5.1 Industrial Materials 82.0 52.7 134.7 13.2 Specialized Products 85.7 11.4 97.1 7.5 Intersegment eliminations - - - 1.3 Change in LIFO reserve - - - .6 ---------- --------- ---------- ---------- $ 1,056.8 $ 71.6 $ 1,128.4 $ 99.2 ========== ========= ========== ========== Quarter ended September 30, 2000 Residential Furnishings $ 552.5 $ 2.6 $ 555.1 $ 57.5 Commercial Furnishings 292.1 1.0 293.1 40.2 Aluminum Products 111.9 3.9 115.8 .0 Industrial Materials 84.7 54.9 139.6 18.2 Specialized Products 88.4 11.2 99.6 10.4 Intersegment eliminations - - - 1.3 Change in LIFO reserve - - - (1.5) ---------- --------- ---------- ---------- $ 1,129.6 $ 73.6 $ 1,203.2 $ 126.1 ========== ========= ========== ========== </TABLE> Asset information for the Company's segments at September 30, 2001 and December 31, 2000 is shown in the following table: September 30, December 31, 2001 2000 -------------- -------------- Assets Residential Furnishings $ 1,226.0 $ 1,223.2 Commercial Furnishings 923.2 896.5 Aluminum Products 441.9 478.7 Industrial Materials 262.9 264.9 Specialized Products 349.6 336.4 Unallocated assets 336.0 242.6 Adjustment to period-end vs. average assets (41.9) (69.1) -------------- -------------- $ 3,497.7 $ 3,373.2 ============== ==============
8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Adoption of FAS 133 The Company adopted Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities, on January 1, 2001. FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value, with changes in the fair value of the derivative instruments to be recorded in current earnings or deferred in equity. Accordingly, at September 30, 2001, the Company increased its long-term debt and other assets by a total of $40.1 from year-end 2000 to reflect the fair market value of its interest rate swap agreements and the related debt. It is the opinion of the Company's management that, due to its limited use of significant hedging or other activities involving derivative instruments, changes in the fair value of derivatives will not have a significant effect on the Company's results of operation or its financial position. Fair-Value Hedges 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. In 2000, $350 of 7.65% fixed rate debt maturing in February 2005 and, in 1999, $14 of 6.90% fixed rate debt maturing in June 2004 were issued and converted to variable rate debt by use of interest rate swap agreements. These swap agreements, which contain the same payment dates as the original issues, are used primarily by the Company to manage the fixed/variable interest rate mix of its debt portfolio. The effective swap rate for the third quarter of 2001 was 3.99% for the $350 and 4.09% for the $14. The difference in interest paid or received as a result of swap agreements is recorded as an adjustment to interest expense during the period the related debt is outstanding. Substantially all of the Company's debt is denominated in United States dollars (U.S.$). The fair value of fixed rate debt not subject to the interest rate swaps was greater than its carrying value by $4.8 as of September 30, 2001, and was not significantly different from its carrying value as of December 31, 2000. The fair value of fixed rate debt was calculated using the U.S. Treasury Bond rate as of September 30, 2001 for similar remaining maturities, plus an estimated "spread" over such Treasury securities representing the Company's interest costs under its medium-term note or public debt programs. The fair value of variable rate debt is not significantly different from its recorded amount. The Company does not generally 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 $41 and $50 (at cost) in inventory at September 30, 2001 and December 31, 2000, respectively. 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. Hedges of Net Investments in Foreign Operations 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 may occasionally hedge firm commitments for certain machinery purchases, other fixed expenses or 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, 2001 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 $482.8 at September 30, 2001, compared to $428.7 at December 31, 2000. The increase in translation exposure was due primarily to acquisition activity in Western Europe, strengthening of European currencies against the U.S. dollar and other factors.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity The Company's financial position reflects management's capital policy guidelines. These guidelines are intended to ensure that corporate liquidity is adequate to support the Company's projected growth rate. Also, liquidity is necessary to finance the Company's ongoing operations in periods of economic downturn. In a normal operating environment, management intends to direct capital to ongoing operations, strategic acquisitions and other investments that provide opportunities for expansion and enhanced profitability. The expansion of capital resources - debt and equity - is planned to allow the Company to take advantage of favorable capital market conditions, rather than respond to short-term needs. Such financial flexibility is considered more important than short-term maximization of earnings per share through excessive leverage. Therefore, 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%. Total Capitalization The following table shows the Company's total capitalization at September 30, 2001 and December 31, 2000. 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. (Dollar amounts in millions) September 30, December 31, 2001 2000 --------------- -------------- Long-term debt outstanding: Scheduled maturities $ 984.0 $ 988.4 Average interest rates 5.4% 6.8% Average maturities in years 4.1 4.8 Revolving credit/commercial paper - - -------------- -------------- Total long-term debt 984.0 988.4 Deferred income taxes and other liabilities 118.0 114.4 Shareholders' equity 1,867.8 1,793.8 -------------- -------------- Total capitalization $ 2,969.8 $ 2,896.6 ============== ============== Unused committed credit: Long-term $ 215.0 $ 215.0 Short-term 110.0 112.5 -------------- -------------- Total unused committed credit $ 325.0 $ 327.5 ============== ============== Cash and cash equivalents $ 126.4 $ 37.3 ============== ============== Cash provided by operating activities was $413.1 million in the first nine months of 2001, compared to $311.6 million in the first nine months of 2000. Lower earnings in 2001 were more than offset by a decline in working capital (excluding acquisitions), primarily related to inventory reduction, increased depreciation and amortization and increased current liabilities. Long-term debt outstanding decreased to $984.0 million, and was 33.1% of total capitalization at September 30, 2001, down from 34.1% at the end of 2000. Due to implementation of Financial Accounting Standard No. 133, long-term debt increased $40.1 million from year-end 2000. That increase was more than offset by the maturity of $50 in medium-term notes in June 2001. As shown in the preceding table, obligations having scheduled maturities are the primary source of the Company's debt capital. At September 30, 2001, these obligations consisted primarily of the Company's privately placed and publicly held medium-term notes and tax-exempt industrial development bonds.
The secondary source of the Company's debt capital consists of revolving bank credit agreements and commercial paper issuances. Management has negotiated bank credit agreements and established a commercial paper program to continuously support the Company's projected growth and to maintain highly flexible sources of debt capital. The majority of the credit under these arrangements is a long-term obligation. If needed, however, the credit is available for short-term borrowings and repayments. To further facilitate the issuance of debt capital, the Company has in effect a $500 million shelf registration of debt. Uses of Capital Resources The Company's internal investments to modernize and expand manufacturing capacity were $103.4 million in the first nine months of 2001. In 2001, management anticipates internal investments will approximate $140 million, down from the nearly $170 million spent in 2000. During the first nine months of 2001, seven businesses were acquired for $58.9 million in cash (net of cash acquired). In addition, the Company assumed $12.5 million of acquisition companies' debt and other liabilities. Two of the 2001 acquisitions were made in Residential Furnishings, three in Commercial Furnishings, one in Industrial Materials, and one in Specialized Products. During the third quarter the Company divested its consumer shelving and kitchen housewares businesses. These small, profitable pieces of the Store Fixtures and Displays operations generated about $20 million in annual revenue, but were not an area of focus for Leggett. Cash dividends on the Company's common stock were $92.5 million during the first nine months of 2001. Company purchases of its common stock (net of issuances) totaled $36.8 million in the first nine months of 2001. These purchases were made primarily for employee stock plans. The Board of Directors annually authorizes management, at its discretion, to buy up to 2,000,000 shares of Leggett stock for use in employee benefit plans. This authorization is continuously replenished as shares acquired are reissued for these benefit plans. In addition, management is authorized, again at its discretion, to repurchase any shares issued in acquisitions. At the end of the third quarter 2000, the Board of Directors authorized management to buy up to an additional 10,000,000 shares of Leggett stock as part of the Company's performance improvement plan also announced at that time. No specific schedule of purchases has been established under this authorization. The amount and timing of any purchases will depend on availability of cash, economic and market conditions, acquisition activity and other factors. Short-term Liquidity Working capital, excluding cash, at September 30, 2001 was $836.9 million, down from $891.4 million at year-end. The Company is continuing its efforts to reduce working capital levels. At the end of the third quarter, working capital, excluding cash, declined to 19.8% of annualized sales, and was below 20% for the first time in eight quarters. Working capital improvement is primarily related to inventory reduction, as the quarter's $51 million expansion in current liabilities was basically offset by growth in accounts receivable. Inventories fell $35 million since the end of last quarter, to 14.1% of annualized sales, and inventory turns achieved a two-and-a-half year high of 5.4. The Company's cash and cash equivalents increased to $126.4 million at September 30, 2001 as a result of the strong cash flow provided by operations, lower capital expenditures and reduced acquisition spending. This cash is available for future payments of debt, acquisitions and other corporate purposes. Results of Operations --------------------- Discussion of Consolidated Results The Company's third quarter earnings were $.28 per diluted share, down 17.6% from last year's third quarter earnings of $.34 per diluted share. Sales were $1.06 billion, a decrease of 6.4% versus third quarter 2000. Sales growth from acquisitions was more than
offset by a 9.2% decline in same location sales, as weak market demand continued to impact all five business segments. Production was down significantly from last year, resulting in reduced plant utilization and overhead absorption, and adversely impacted profit margins and earnings. Sequentially, sales increased 2.1% from second quarter and earnings improved 8.6%, or 3 cents per share, from second quarter's $.25 per diluted share. During the third quarter of 2001, the Company acquired one business with estimated annualized sales of approximately $53 million. This business fabricates and processes steel tubing, and joins the Company's Industrial Materials segment. The following table shows various measures of earnings as a percentage of sales for the last two years. It also shows the effective income tax rate and the ratio of earnings to fixed charges. <TABLE> <CAPTION> Nine Months Ended Quarter Ended September 30, September 30, ---------------------- ------------------------ 2001 2000 2001 2000 -------- -------- -------- -------- <S> <C> <C> <C> <C> Gross profit margin 24.2% 25.8% 24.4% 25.2% EBIT (earnings before interest and taxes) margin 9.0 12.0 9.4 11.2 Net profit margin 4.8 6.7 5.2 6.1 Effective income tax rate 36.9 36.9 36.9 36.9 Ratio of earnings to fixed charges 5.3x 7.0x 6.3x 6.5x </TABLE> The Company's gross profit margin declined during the third quarter and first nine months of 2001, primarily reflecting weak market demand in all of the Company's business segments. Production cutbacks contributed to reduced plant utilization and lower overhead absorption, which significantly impacted gross profit and EBIT margins. EBIT margins were also reduced by higher medical, bad debt and other costs, partially offset by cost improvements and reduced overheads. The Company is making steady progress on its tactical plan announced in September 2000, aimed at improving performance, margins and shareholder return. The Company has consolidated or sold twelve facilities; restructured other operations; reduced full time equivalent headcount by approximately 3,300 (excluding acquisitions); and reduced capital and acquisition spending. In the third quarter the Company held capital spending to $34 million; completed one acquisition; reduced working capital; repurchased approximately 900,000 shares of stock at an average price of $22.85; added $3.9 million of long-term debt, and added $91 million to cash and equivalents. The Company expects to continue this tactical course as long as conditions warrant. Once economic conditions and performance improve, subject to management discretion, the Company expects to return to its traditional level of acquisition activity. The Company's strategic, long-term growth plans remain unchanged. Discussion of Segment Results A description of the products included in each segment, segment sales, segment earnings before interest and taxes (EBIT) and other segment data appear in Note 7 of the Notes to Consolidated Condensed Financial Statements. Third Quarter Discussion Residential Furnishings sales decreased 5.1%. Same location sales, which were partially offset by acquisitions, decreased 7.1%. EBIT declined 23.3% during the quarter. Lower same location sales accounted for most of the EBIT decline, but a retroactive import duty on Canadian wood also impacted earnings. Commercial Furnishings sales decreased 9.2%. Same location sales declined 12.4%, reflecting unusually poor business conditions in the office and contract furniture markets, and continued weakness and reduced fixture purchases in the telecom industry. EBIT decreased $12.8 million, or 31.8%, due to lower same location sales. Aluminum Products sales decreased 10.7%. Same location sales were off an identical amount as there were no acquisitions within the prior twelve months. Reduced die cast component sales reflect weak market demand in a variety of consumer and industrial sectors,
including the telecom, electrical, diesel engine, and barbecue grill markets. EBIT increased $5.1 million, despite sales declines. EBIT improvement stems from increased operating efficiency, reduced overhead, and absence of last year's $2 million plant closure costs. Industrial Materials sales decreased 3.5%. Same location sales were down 10.4%, and were partially offset by acquisitions. EBIT declined 27.4%, as a result of higher steel rod costs and lower sales volumes. Specialized Products sales decreased 2.5%, with same location sales down 3.2%. Sales declines, primarily in the machinery group, resulted in a 27.9% EBIT decrease. Nine Month Discussion Residential Furnishings sales decreased 4.7%. Same location sales, which were partially offset by acquisitions, decreased 6.9%. EBIT declined 26.1% during the period. Soft industry demand and inventory reduction efforts resulted in lower production. The lower plant utilization reduced overhead absorption, yielding lower margins. Commercial Furnishings sales decreased 0.2%. Same location sales, which were almost totally offset by acquisitions, declined 8.7%. EBIT decreased $36.3 million, or 39.2%, due primarily to lower same location sales and reduced margins reflecting unusually poor business conditions in the office and contract furniture markets, and continued weakness and reduced fixture purchases in the telecom industry. Aluminum Products sales decreased 14.9%. Same location sales were down 16.8%, and were slightly offset by one acquisition. Reduced die cast component sales reflect weak market demand in a variety of consumer and industrial sectors, including the telecom, electrical, diesel engine, and barbecue grill markets. EBIT decreased 24.2% due to reduced volumes, decreased efficiencies, and higher natural gas costs. Partially offsetting these items were lower costs from reduced overhead and the elimination of one smelter operation. Industrial Materials sales decreased 7.3%. Same location sales were down 12.3%, and were partially offset by acquisitions. EBIT declined 31.9%, as a result of reduced sales volumes and lower plant utilization. Specialized Products sales increased 18.1% due to acquisitions. Same location sales declined 5.0%, due primarily to slowing production and reduced demand in automotive markets and the machinery group. EBIT was down 14.2% due to reduced sales and changing product mix. Seasonality The Company does not experience significant seasonality, however, quarter-to-quarter sales can vary in proportion to the total year by 1-2%. Management estimates that this 1-2% sales impact can have, at current average net margins and considering normal overhead absorption, an approximately 5-10% plus or minus impact on quarter-to-quarter earnings. The timing of acquisitions and economic factors in any year can distort the underlying seasonality in certain of the Company's businesses. For the Company's businesses in total, the second and third quarters have proportionately greater sales, while the first and fourth quarters are lower. This small seasonality has become somewhat more pronounced, with the fourth quarter particularly showing proportionately lower sales due to the growth of the store fixtures business of Commercial Furnishings. Residential Furnishings and Commercial Furnishings typically have their strongest sales in the second and third quarters. Commercial Furnishings particularly has heavy third quarter sales of its store fixtures products, with the first and fourth quarters generally lower. Aluminum Products sales are proportionately greater in the first two calendar quarters due to gas barbecue grill castings. Industrial Materials sales peak in the third and fourth quarters from wire products used for baling cotton. Specialized Products has relatively little quarter-to-quarter variation in sales, although the automotive business is somewhat heavier in the first two quarters of the year, and somewhat lower in the third quarter, due to model changeovers and plant shutdowns in the automobile industry during the summer. New Financial Accounting Standards Board Statements The Financial Accounting Standards Board (FASB) recently issued Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 141 requires that the purchase method be used for all business combinations
initiated after June 30, 2001. Statement No. 142 requires, among other things, that goodwill no longer be amortized to earnings, but instead be reviewed periodically for impairment. The amortization of goodwill ceases upon adoption of Statement No. 142 on January 1, 2002. The Company presently estimates that the goodwill amortization change, if it had been adopted January 1, 2001, would have positively impacted total year 2001 net earnings by approximately $19 million, or about 9-10 cents per share. During August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal by sale of long-lived assets. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. This Statement may impact the accounting and reporting for any future consolidation or closing of facilities, but such impact cannot be estimated. 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 which 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 or revise 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: the Company's ability to improve operations and realize cost savings, future growth of acquired companies, competitive and 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.
PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibit 10 - Employment and Severance Benefit Agreement between the Company and David S. Haffner, dated July 30, 2001. Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges. Exhibit 24 (a)- Power of Attorney of Raymond F. Bentele dated August 8, 2001. Exhibit 24 (b) - Power of Attorney of Ralph W. Clark dated August 8, 2001. Exhibit 24 (c) - Power of Attorney of Harry M. Cornell, Jr. dated August 8, 2001. Exhibit 24 (d) - Power of Attorney of Jack D. Crusa dated August 8, 2001. Exhibit 24 (e) - Power of Attorney of R. Ted Enloe, III dated August 8, 2001. Exhibit 24 (f) - Power of Attorney of Richard T. Fisher dated August 8, 2001. Exhibit 24 (g) - Power of Attorney of Bob L. Gaddy dated August 8, 2001. Exhibit 24 (h) - Power of Attorney of Karl G. Glassman dated August 8, 2001. Exhibit 24 (i) - Power of Attorney of Michael A. Glauber dated August 8, 2001. Exhibit 24 (j) - Power of Attorney of Robert G. Griffin dated August 8, 2001. Exhibit 24 (k) - Power of Attorney of David S. Haffner dated August 8, 2001. Exhibit 24 (l) - Power of Attorney of Thomas A. Hays dated August 8, 2001. Exhibit 24 (m) - Power of Attorney of Robert A. Jefferies, Jr. dated August 8, 2001. Exhibit 24 (n) - Power of Attorney of Ernest C. Jett dated August 8, 2001. Exhibit 24 (o) - Power of Attorney of Alexander M. Levine dated August 8, 2001. Exhibit 24 (p) - Power of Attorney of Duane W. Potter dated August 8, 2001. Exhibit 24 (q) - Power of Attorney of Maurice E. Purnell, Jr. dated August 8, 2001. Exhibit 24 (r) - Power of Attorney of Allan J. Ross dated August 8, 2001. Exhibit 24 (s) - Power of Attorney of Robert A. Wagner dated August 8, 2001. Exhibit 24 (t) - Power of Attorney of Alice L. Walton dated August 8, 2001. Exhibit 24 (u) - Power of Attorney of Felix E. Wright dated August 8, 2001. (B) No reports on Form 8-K have been filed during the quarter for which this report is filed.
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: October 29, 2001 By: /s/ FELIX E. WRIGHT ------------------- Felix E. Wright President and Chief Executive Officer DATE: October 29, 2001 By: /s/ MICHAEL A. GLAUBER ---------------------- Michael A. Glauber Senior Vice President, Finance and Administration
EXHIBIT INDEX <TABLE> <CAPTION> Exhibit Page ------- ---- <S> <C> 10 Employment and Severance Benefit Agreement between The Company and David S. Haffner, dated July 30, 2001 19 12 Computation of Ratio of Earnings to Fixed Charges 43 24 (a) Power of Attorney of Raymond F. Bentele dated August 8, 2001 44 24 (b) Power of Attorney of Ralph W. Clark dated August 8, 2001 45 24 (c) Power of Attorney of Harry M. Cornell, Jr. dated August 8, 2001 46 24 (d) Power of Attorney of Jack D. Crusa dated August 8, 2001 47 24 (e) Power of Attorney of R. Ted Enloe, III dated August 8, 2001 48 24 (f) Power of Attorney of Richard T. Fisher dated August 8, 2001 49 24 (g) Power of Attorney of Bob L. Gaddy dated August 8, 2001 50 24 (h) Power of Attorney of Karl G. Glassman dated August 8, 2001 51 24 (i) Power of Attorney of Michael A. Glauber dated August 8, 2001 52 24 (j) Power of Attorney of Robert G. Griffin dated August 8, 2001 53 24 (k) Power of Attorney of David S. Haffner dated August 8, 2001 54 24 (l) Power of Attorney of Thomas A. Hays dated August 8, 2001 55 24 (m) Power of Attorney of Robert A. Jefferies, Jr. dated August 8 2001 56 24 (n) Power of Attorney of Ernest C. Jett dated August 8, 2001 57 24 (o) Power of Attorney of Alexander M. Levine dated August 8, 2001 58 24 (p) Power of Attorney of Duane W. Potter dated August 8, 2001 59 24 (q) Power of Attorney of Maurice E. Purnell, Jr. dated August 8, 2001 60 24 (r) Power of Attorney of Allan J. Ross dated August 8, 2001 61 24 (s) Power of Attorney of Robert A. Wagner dated August 8, 2001 62 24 (t) Power of Attorney of Alice L. Walton dated August 8, 2001 63 24 (u) Power of Attorney of Felix E. Wright dated August 8, 2001 64 </TABLE>