ITEM 1. BUSINESS
General Development of Business. The Company was incorporated in 1901 as the successor to a partnership formed in 1883 at Carthage, Missouri. That partnership was a pioneer in the manufacture and sale of steel coil bedsprings. The Company manufacturers, markets and distributes products that range from components for bedding and furniture to other select furnishings and diversified products. Products produced and sold for the furnishings industry constitute the largest portion of the Company's business. These include components used by companies making furniture and bedding for home, office and commercial applications. Also in the furnishings industry, the Company produces and sells some finished products. In addition, a group of diversified non-furnishings products is produced and sold. The term "Company," unless the context requires otherwise, refers to Leggett & Platt, Incorporated and its majority owned subsidiaries.
The Company acquired ten companies in 1994 in exchange for approximately $79 million in cash (net of cash acquired) and 601,000 shares of common stock. The acquired companies expanded the Company's annual sales base by approximately $200 million. For further information concerning acquisitions see Note B of the Notes to Consolidated Financial Statements.
Products, Market and Customers. The Company has several thousand customers, most of which are manufacturers of finished furnishings. The Company is not dependent upon any single customer or any few customers.
Historically, the furnishings industry has been highly fragmented and included many relatively small companies, widely dispersed geographically. Although a trend toward consolidation in the furnishings industry has continued, the industry as a whole remains fragmented to a substantial degree.
The Company's furniture and bedding components customers manufacture bedding (mattresses and boxsprings), upholstered and non-upholstered furniture and other finished products for sale to retailers, institutions, wholesalers and others. The Company's component products are sold and distributed primarily through the Company's sales personnel.
The Company also manufactures and sells finished products for the furnishings industry. These finished products include carpet underlay and non- skid pads, metal shelving, point-of-purchase display racks, sleep-related finished furniture, and other furnishings for residential and commercial markets. Some of the finished furniture is sold to bedding and furniture manufacturers which resell the furniture under their own labels to wholesalers or retailers. Certain finished furniture such as bed frames, fashion beds, daybeds and other select items are also sold by the Company directly to retailers.
The following list is representative of the principal products produced by the Company in the furnishings industry:
BEDDING COMPONENTS Lectro-LOK(R), WEBLOC(R), LOK-Fast(TM), Flex-Deck(TM), and Semiflex(TM) boxspring components Edge and corner stabilizer spring supports Foam and fiber cushioning materials Gribetz computerized single needle (Class V) and multi-needle chain stitch (Class I-IV) quilting machinery, material handling systems, panel cutters, tape edge and border serging machines Hanes construction fabrics Mira-Coil(R), Super-Lastic(R), Lura-Flex(TM), Hinge Flex(TM), and Ever-Flex(TM) innerspring assemblies for mattresses Mounted and crated boxsprings and foundation units Nova-Bond(R) and other insulator pads for mattresses and boxsprings Perm-A-Lator(R), Plasteel(R), Posturizer(TM), Flexnet(TM) and other mattress insulators Spring and basic wire Synthetic, wool, cotton, and silk cushioning materials WBSCO material handling systems and equipment for bedding manufacturers Wood frames and dimension lumber for boxspring frames
FINISHED PRODUCTS Bed frames Daybeds made of brass, painted metal and wood DURAPLUSH(TM), Permaloom(R), other carpet underlay and non-skid pads Electric beds Genuine Brass, Lustre Brass(R) and other metal fashion beds and headboards Metal and wire shelving and other commercial fixtures Pedestal bed bases Point-of-purchase displays and racks Rollaway beds Steel bunk beds Trundle beds Wood headboards
FURNITURE COMPONENTS Chair controls, casters and other components for office furniture ClassicTouch(TM) and Modular Wallhugger(R) mechanisms for motion upholstered groups Coil-Flex(TM) and ModuCoil(R) spring assemblies for upholstered furniture Components for office panel systems Die cast aluminum, fabricated steel, and injection molded plastic bases for office furniture and dinettes Flex-Cord(R) paper covered wire Hanes construction fabrics MPI/No-Sag(R) and other foam cushioning Mechanisms for adjustable height work tables Metal bed rails for bedroom suites Molded plastic recliner handles and other plastic furniture components No-Sag(R) rocker springs, seating systems and clips Perm-A-Lator(R) wire seating insulators Perma-eze(R) seat and back springs PETCO weltcord and furniture edgings Ring-Flex(R) polyethylene foam edgings SOFA PLUS(TM), MAX(R), and Classic(TM) Series sofa sleeper mechanisms Spring wire Super Sagless Select(TM) motion mechanisms Swivel, rocker and glider components for motion furniture Synthetic fiber, densified fiber batting, seat pads and other cushioning materials System Seating(TM), Seat Pleaser(R) and other furniture coils and accessories Tackit(TM) tackstrips VWR supplies for upholstery Wallhugger(R) and Concept(TM) mechanisms for reclining chairs Webline(R) seating systems Welded steel tubing
Outside the furnishings industry, the Company produces and sells for home, industrial and commercial uses a diversified line of components and other products made principally from steel, steel wire, aluminum, plastics, textile fibers and woven and nonwoven fabrics. The Company's diversified products require
manufacturing technologies similar to those used in making furnishings related products and certain raw materials which the Company produces for its own use.
The following list is representative of the Company's principal diversified products:
DIVERSIFIED PRODUCTS Aluminum die cast custom products and aluminum ingot Bale tie machinery and parts Cyclo-Index(R) motion controls for manufacturing equipment Flex-O-Lators(R), No-Sag(R) and Pullmaflex automotive seat suspension systems Formed and welded wire and steel tubing components Gribetz single needle quilters, multi-needle chain stitch quilters, and panel cutters Hanes industrial and apparel fabrics Industrial wire Injection molded plastic products Mechanical springs Non-skid pads Sound insulation materials Specialty foam products Textile fiber wiping cloths and other products
The table below sets out further information concerning sales of each class of the Company's products:
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES SUMMARY OF SALES
Previously reported amounts have been restated to be consistent with current product groupings.
Reference is also made to Note I of the Notes to Consolidated Financial Statements for further segment information.
The Company sells quilting machines and similar equipment, seating suspension products and certain other component products in a number of foreign countries. The Company's international division is involved primarily in the sale of machinery and equipment designed to manufacture the Company's innersprings and certain other spring products and the licensing of patents owned and presently maintained by the Company in foreign countries. Foreign sales are a minor portion of the Company's business.
Sources of Raw Materials. The Company uses a variety of raw materials in manufacturing its products. Some of the Company's most important raw materials include steel rod (from which steel wire is drawn), coil steel, woven and nonwoven fabrics, aluminum ingot, aluminum scrap, angle iron, sheet steel, various woods, textile scrap, foam chemicals, foam scrap, and plastic.
Substantially all of the Company's requirements for steel wire, an important material in many of the Company's products, are supplied by Company- owned wire drawing mills. A substantial portion of the steel rod used by these wire drawing mills is purchased pursuant to a rod supply agreement with a major steel rod producer. The Company also produces, at various locations, for its own consumption and for sale to customers not affiliated with the Company, slit coil steel, welded steel tubing, textile fibers, dimension lumber and aluminum ingot.
Numerous supply sources for the raw materials used by the Company are available. The Company did not experience any significant shortages of raw materials during the past year.
Patents and Trademarks. The Company holds numerous patents concerning its various product lines. No single patent or group of patents is material to the Company's business as a whole. The Company's more significant trademarks include those listed with the Company's principal products.
Research and Development. The Company maintains research, engineering and testing centers at Carthage, Missouri, and also does research and development work at several of its other facilities. The Company is unable to precisely calculate the cost of research and development since the personnel involved in product and machinery development also spend portions of their time in other areas. However, the Company believes the cost of research and development was approximately $6 million in 1994 and $5 million in 1993 and 1992.
Employees. The Company has approximately 16,000 employees of whom approximately 12,500 are engaged in production. Approximately 37% of the Company's production employees are represented by labor unions.
The Company did not experience any material work stoppage related to the negotiation of contracts with labor unions during 1994. Management is not aware of any circumstance which is likely to result in a material work stoppage related to the negotiations of any contracts expiring during 1995.
Competition. The markets for the Company's products are highly competitive in all aspects. There are numerous companies offering products which compete with those products offered by the Company. The primary competitive factors in the Company's industry include price, product quality, customer service and product warranties. The Company believes it is the largest supplier in the United States of a diverse range of components to the furnishings industry.
Government Regulation. The Company's various operations are subject to federal, state, and local laws and regulations related to the protection of the environment, worker safety, and other matters. Environmental regulations include those relating to air and water emissions, underground storage tanks, waste handling, and the like. While the Company cannot forecast policies that may be adopted by various regulatory agencies, management believes that compliance with these various laws and regulations will not have a material adverse effect on the consolidated financial condition or results of operations of the Company.
From time to time, the Company is involved in proceedings related to environmental matters. In one instance, the United States Environmental Protection Agency (EPA) ordered one of the Company's subsidiaries to investigate potential releases into the environment and, if necessary, to perform corrective action. The subsidiary successfully appealed the EPA's order. On June 27, 1994, the EPA indicated it planned to issue a new, similar order. The subsidiary, the EPA and the Florida Department of Environmental Protection (FDEP) are negotiating an agreement to investigate and, if necessary, take corrective action to resolve the dispute. Estimated costs to perform an agreed upon investigation and any related corrective actions are not material and have been provided for in the financial statements as of December 31, 1994. If current negotiations with the EPA and the FDEP are unsuccessful, and the EPA issues a new order, the subsidiary expects it would appeal the new order. If this appeal were unsuccessful, the costs to perform any required investigation and, if necessary, corrective action cannot be reasonably estimated. One-half of any costs, including the costs of voluntary actions, would be reimbursed to the Company under a contractual obligation of a former joint owner of the subsidiary. No provision for the costs of performing investigation and corrective action beyond any agreed upon investigation and remediation mentioned above has been recorded in the Company's financial statements. If any such additional investigation and corrective action is required,
management believes the possibility of a material adverse effect on the Company's consolidated financial condition or results of operations is remote.
ITEM 2.
ITEM 2. PROPERTIES
The Company has approximately 150 locations in North America, including 32 states in the United States. The Company's most important physical properties are its manufacturing plants. These manufacturing plants include five wire drawing mills, three welded steel tubing mills and approximately 50 major manufacturing facilities. The balance of the Company's locations are engaged in assembly, warehousing, sales, administration or research and development. In addition, the Company has several locations in foreign countries. Its corporate headquarters are located in Carthage, Missouri.
Most of the Company's major manufacturing plants are owned by the Company. The Company also conducts certain of its operations in leased premises. Terms of the leases, including purchase options, renewals and maintenance costs, vary by lease. For additional information regarding lease obligations, reference is made to Note E of the Notes to Consolidated Financial Statements.
Properties of the Company include facilities which, in the opinion of management, are suitable and adequate for the manufacture, assembly and distribution of its products.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in numerous ordinary, routine workers' compensation, product liability, vehicle accident, employment termination, and other claims and legal proceedings, the resolution of which management believes will not have a material adverse effect on the consolidated financial condition or results of operations of the Company.
The Company is presently party to a small number of proceedings in which a governmental authority is a party and which involve provisions enacted regulating the discharge of materials into the environment. These proceedings deal primarily with waste disposal site remediation. Management believes that potential monetary sanctions, if imposed in any or all of these proceedings, or any capital expenditures or operating expenses attributable to these proceedings, will not have a material adverse effect on the consolidated financial condition or results of operations of the Company. The EPA has alleged that two of the Company's facilities in Grafton, Wisconsin violated wastewater pretreatment requirements under the Clean Water Act. No action is pending. The EPA has not requested any specific relief, but has indicated it intends to bring an action. Management believes the cost to resolve this matter will not have a material adverse effect on the consolidated financial condition or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Leggett & Platt's common stock is listed on The New York and Pacific Stock Exchanges with the trading symbol LEG. The Company's initial public offering was on March 29, 1967, and the shares were first listed on The New York Stock Exchange on June 25, 1979. The table below highlights quarterly and annual stock market information for the last two years.
Price and volume data reflect composite transactions and prices as reported daily by The Wall Street Journal.
At February 24, 1995 the Company had 8,087 shareholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
______________________ A restructuring charge of $20.3 pre-tax and $14.3 after tax, or $.39 per share is included in 1990.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Company's financial position reflects several important principles and guidelines of management's capital policy. These include management's belief that corporate liquidity must always be adequate to support the Company's projected internal growth rate. At the same time, liquidity must assure management that the Company will be able to withstand any amount of financial adversity that can reasonably be anticipated. Management also intends to direct capital to strategic acquisitions and other investments that provide additional opportunities for expansion and enhanced profitability.
Financial planning to meet these needs reflects management's belief that the Company should never be forced to expand its capital resources, whether debt or equity, at a time not of its choosing. Management also believes that financial flexibility is more important than maximization of earnings through excessive leverage. Therefore, management continuously provides for available credit in excess of 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%.
Internally generated funds provided $419.1 million in capital during the last three years. Long-term debt outstanding was 23% of total capitalization at the end of all three years. Obligations having scheduled maturities are the base "layer" of the Company's debt capital. At the end of 1994, these obligations totaled $146.6 million, consisting primarily of privately placed institutional loans and tax-exempt industrial development bonds. At the end of 1993, debt with scheduled maturities totaled $122.3 million, which was up from $112.5 million a year earlier.
Near the end of July 1994, the Company issued $25 million in unsecured privately placed debt under a medium-term note program. These notes were issued with average lives of approximately eight years and fixed interest rates averaging 7.6%. Proceeds from the notes were used to repay a portion of the Company's revolving credit. In 1993, the Company issued $50 million of medium- term notes near the end of the third quarter. These notes were issued with average lives of approximately nine years and fixed interest rates averaging 5.8%. Debt of a company acquired in a September 1993 pooling of interests transaction was repaid with the majority of the proceeds from these notes. In 1992, the Company also issued $26 million of medium term notes near the beginning of the
fourth quarter. These notes were issued with average lives of approximately five years and fixed interest rates averaging 6.2%. Proceeds of the notes issued in 1992 were used to repay debt outstanding under the Company's revolving bank credit agreements.
In March 1992, substantially all of the $40 million of 6 1/2% convertible subordinated debentures, which had been outstanding at the end of 1991, were converted into 2.1 million shares of the Company's common stock. The resulting increase in shareholders' equity enhanced the Company's flexibility in capital management.
In November 1994, Standard & Poor's and Moody's, the nation's leading debt rating agencies, both increased their ratings of the Company's senior debt. Standard & Poor's increased its rating to A from A-, and Moody's increased its rating to A2 from A3.
The Company's second "layer" of debt capital consists of revolving credit agreements with seven banks. Over the years, management has renegotiated these bank credit agreements and established a commercial paper program to keep pace with the Company's projected growth and to maintain highly flexible sources of debt capital. The credit under these arrangements has been a long-term obligation. If needed, however, the credit is also available for short-term borrowings and repayments. In 1994, there was $58.3 million in revolving debt/commercial paper outstanding at the end of the year, up from $43.5 million in 1993 and $35.4 million in 1992. These increases reflected a portion of funds borrowed to finance cash acquisitions. Internally generated funds were used, as available, to reduce debt outstanding during the last three years. Additional details of long-term debt outstanding, including scheduled maturities, revolving credit and commercial paper are discussed in Note D of the Notes to Consolidated Financial Statements.
The following table shows, in millions, the Company's capitalization at the end of the three most recent years. It also shows the amount of additional capital available through the revolving bank credit agreements. The amount of cash and cash equivalents is also shown.
Net capital investments to modernize and expand manufacturing capacity internally totaled $164.8 million in the last three years. During this period, the Company also employed $162.6 million in cash (net of cash acquired) and issued 2.3 million shares of common stock in acquisitions. During 1994, the Company acquired ten businesses for $78.8 million in cash (net of cash acquired) and .6 million shares of common stock. Additional details of acquisitions are discussed in Note B of the Notes to Consolidated Financial Statements. Cash dividends on the Company's common stock totaled $67.6 million in the last three years.
The Company has substantial capital resources to support projected internal cash needs and additional acquisitions consistent with management's goals and objectives. In addition, the Company has the availability of short-term uncommitted credit from several banks. However, there was no short-term debt outstanding at the end of any of the last three years.
Working capital increased $78.2 million in the last three years. To gain additional flexibility in capital management and to improve the rate of return on shareholders' equity, the Company continuously seeks efficient use of working capital. The following table shows the annual turnover on average year-end working capital, trade receivables and inventories. The ratios may be affected by the timing of the Company's acquisitions.
Future commitments under lease obligations are described in Note E and contingent obligations in connection with environmental and other matters are discussed in Note J of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The results of operations during the last three years reflect various elements of the Company's long-term growth strategy, along with general trends in the economy and the markets the Company serves, both in the furnishings industry and in a variety of diversified non-furnishings markets. The Company's growth strategy continues to include both internal programs and acquisitions which broaden product lines and provide for increased market penetration and operating efficiencies. With a continuing emphasis on the development of new and improved products and advancements in production technology, the Company is able to consistently offer high quality products, competitively priced.
Trends in the general economy were favorable during the last three years. During 1994, economic growth increased as the year progressed. Despite higher interest rates, spending on furnishings and other durable goods increased more than most economists and industry analysts anticipated. Demand also improved in the diversified non-furnishings markets the Company serves. In 1993, economic growth increased in the fourth quarter, following more modest growth during most of the year. Markets generally reacted favorably to lower long-term interest rates and increased availability of credit. During 1992, a post-election increase in overall confidence led to increased spending and accelerated growth in the economy. However, compared with previous first year recoveries from recessionary lows, economic growth and demand for the Company's furnishings and diversified products was modest during most of 1992.
Many forecasters are currently anticipating further 1995 growth in the economy and the markets the Company serves. While the rate of growth may be slower this year, economic conditions should remain healthy, with hopefully moderate overall inflation. The long-term outlook for overall business conditions should also remain favorable if the Federal Reserve Board proves to be successful in its attempts to restrain inflationary expectations and slow economic growth.
The Company's consolidated net sales increased 22% in 1994 and 16% in 1993, when compared with prior years. Excluding acquisitions, sales would have increased 10% in both of the last two years. These increases primarily reflected higher unit volumes, plus some price increases implemented in response to increases in prices for raw materials.
While the percentage and timing of increases in the Company's selling prices varied considerably, the largest 1994 increases were concentrated in aluminum products. In 1993, price increases were concentrated in the Company's steel and wire products. However, some of the 1993 and additional 1994 cost increases the Company experienced in operations producing steel products were not passed along until the end of 1994.
In 1992, consolidated net sales increased 8% over 1991, due almost entirely to higher unit volumes. The Company was able to refrain from raising prices in 1992 as previously weaker economic conditions had reduced inflation for most raw materials.
The following table shows various measures of earnings as a percentage of sales for the last three years. It also shows the effective income tax rate and the coverage of interest expense by pre-tax earnings plus interest.
The Company's profit margins, like sales, continued to improve in the last three years. The 1994 gross profit margin increased slightly from 1993, primarily reflecting improved market conditions in the aluminum and foam industries and gains in overall manufacturing efficiencies on higher volume. These favorable factors more than offset cost/price pressures the Company continued to experience in operations producing steel products for the furnishings industry and diversified non-furnishings markets. The 1993 gross profit margin was substantially unchanged from 1992. Operating efficiencies resulting from increased sales and production, cost cutting, and constant attention to cost containment were largely offset by inflation in prices for some key raw materials. Reflecting this inflation, LIFO expense reduced the gross profit margin by 0.2% in both of the last two years. This was in sharp contrast to 1992, when LIFO income slightly increased the gross profit margin. The replacement cost of the LIFO inventory is discussed in Note A of the Notes to Consolidated Financial Statements.
The pre-tax profit margin in 1994 increased to 10.2%. This improvement reflected a 0.4% reduction in total selling, distribution and administrative expenses, as a percentage of sales. In addition, interest expense and other deductions, net of other income, decreased slightly as a percentage of sales.
The 1993 pre-tax profit margin increased to 9.2% of sales. This improvement primarily reflected a 0.7% reduction in selling, distribution and administrative expenses, as a percentage of sales. Increased efficiencies and reduced bad debt expense contributed to the improvement in operating expense ratios. These factors and a slight increase in other income more than offset one time charges related to acquisitions and the Company's implementation of new accounting statements issued by the Financial Accounting Standards Board. Interest expense, as a percentage of sales, was reduced 0.4% and further improved the pre-tax profit margin. Reduced debt outstanding (before 1993 acquisitions) and lower interest rates were reflected in this improvement.
The effective income tax rate was 39.1% in both of the last two years and 38.5% in 1992. In the third quarter of 1993, corporate federal income tax rates were increased from 34% to 35%, retroactive to January 1, 1993. Additional details of income taxes for the last three years are discussed in Note H of the Notes to Consolidated Financial Statements.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data included in this Report begin on page 15.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the section entitled "Election of Directors" in the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 10, 1995, said section being incorporated by reference, for a description of the directors of the Company.
The following table sets forth the names, ages and positions of all executive officers of the Company. Executive officers are elected annually by the Board of Directors at the first meeting of directors following the Annual Meeting of Shareholders.
The description of the executive officers of the Company is as follows:
Subject to the employment agreements and severance benefit agreements listed as Exhibits to this Report, officers serve at the pleasure of the Board of Directors.
Harry M. Cornell, Jr. has served as the Company's Chief Executive Officer, Chairman of the Board and Chairman of the Board's Executive Committee for more than the last five years.
Felix E. Wright was elected President in 1985 and has served as Chief Operating Officer since 1979.
Roger D. Gladden was elected Senior Vice President in 1992. Mr. Gladden has been President--Commercial Products Group since 1984 and previously served as Vice President--Administration.
Michael A. Glauber was elected Senior Vice President, Finance and Administration in 1990. Mr. Glauber was elected Vice President--Finance in 1979 and Vice President--Finance and Treasurer in 1980.
David S. Haffner was elected Senior Vice President and President-- Furniture and Automotive Components Group in 1992. Mr. Haffner was appointed President--Furniture Components Group in 1985 and was elected Vice President of the Company in 1985.
Robert A. Jefferies, Jr. was elected Senior Vice President, Mergers, Acquisitions and Strategic Planning in 1990. Mr. Jefferies formerly served as Vice President and the Senior Vice President, General Counsel and Secretary of the Company from 1977 through 1992.
Duane W. Potter was elected Vice President in 1978 and Senior Vice President in 1983. Mr. Potter has been President--Bedding Components Group since 1985.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation and Related Matters" in the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 10, 1995, is incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Ownership of Common Stock" in the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 10, 1995, is incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The subsection entitled "Related Transactions" of the section entitled "Executive Compensation and Related Matters" in the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 10, 1995 is incorporated by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. Financial Statements --------------------
The Financial Statements listed below are included in this Report:
* Consolidated Statements of Earnings for each of the years in the three year period ended December 31, 1994
* Consolidated Balance Sheets at December 31, 1994 and 1993
* Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 1994
* Consolidated Statements of Changes in Shareholders' Equity for each of the years in the three year period ended December 31, 1994
* Notes to Consolidated Financial Statements
* Report of Independent Accountants
2. Financial Statement Schedules -----------------------------
Report of Independent Accountants on Financial Statement Schedule
Schedule for each of the years in the three year period ended December 31, 1994
VIII -- Valuation and Qualifying Accounts and Reserves
All other information schedules have been omitted as the required information is inapplicable, not required, or the information is included in the financial statements or notes thereto.
3. Exhibits - See Exhibit Index. --------
4. Reports on Form 8-K filed during the last quarter ------------------------------------------------- of 1994: None. --------
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ----
Quarterly Summary of Earnings............................................ 15
Consolidated Statements of Earnings...................................... 16
Consolidated Balance Sheets.............................................. 17
Consolidated Statements of Cash Flows.................................... 18
Consolidated Statements of Changes in Shareholders' Equity............... 19
Notes to Consolidated Financial Statements............................... 20
Report of Independent Accountants........................................ 30
QUARTERLY SUMMARY OF EARNINGS Leggett & Platt, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS Leggett & Platt, Incorporated and Subsidiaries
(Dollar amounts in millions, except per share data)
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS Leggett & Platt, Incorporated and Subsidiaries
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Leggett & Platt, Incorporated and Subsidiaries
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Leggett & Platt, Incorporated and Subsidiaries
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leggett & Platt, Incorporated and Subsidiaries
(Dollar amounts in millions, except per share data)
December 31, 1994, 1993 and 1992
A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Leggett & Platt, Incorporated and its majority-owned subsidiaries (the Company). All significant intercompany transactions and accounts have been eliminated in consolidation.
ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
CASH EQUIVALENTS: Cash equivalents include cash in excess of daily requirements which is invested in various financial instruments with original maturities of three months or less.
INVENTORIES: All inventories are stated at the lower of cost or market. Cost includes materials, labor and production overhead. Cost is determined by the last-in, first-out (LIFO) method for approximately 70% of the inventories at December 31, 1994 and 1993. The first-in, first-out (FIFO) method is used for the remainder. The FIFO cost of inventories at December 31, 1994 and 1993 approximated replacement cost.
DEPRECIATION, AMORTIZATION AND ASSET REALIZATION: Property, plant and equipment are depreciated by the straight-line method. The rates of depreciation range from 8.3% to 25% for machinery and equipment, 2.5% to 6.7% for buildings and 12.5% to 33% for other items. Accelerated methods are used for tax purposes. The excess cost of purchased companies over net assets acquired is amortized by the straight-line method over forty years. Other intangibles are amortized by the straight-line method over their estimated lives. Assets subject to periodic depreciation or amortization are evaluated for probable realization, and appropriate adjustment of their carrying value is made when realization is not assured. The excess cost of purchased companies over net assets acquired is evaluated using estimated undiscounted cash flows over the remaining amortization period.
COMPUTATIONS OF EARNINGS PER SHARE: Earnings per share is based on the weighted average number of common and common equivalent shares outstanding. Common stock equivalents result from the assumed issuance of shares under stock option plans.
CONCENTRATION OF CREDIT RISKS, EXPOSURES AND FINANCIAL INSTRUMENTS: The Company specializes in manufacturing, marketing, and distributing components and other related products for the furnishings industry and diversified markets. The Company's operations are principally in the United States, although the Company also has subsidiaries in Canada and Europe.
The Company performs ongoing credit evaluations of its customers' financial conditions and, generally, requires no collateral from its customers, some of which are highly leveraged. The Company maintains allowances for potential credit losses and such losses have generally been within management's expectations.
From time to time, the Company will enter into forward exchange contracts to hedge equipment purchase commitments in foreign currencies. The amounts outstanding under the forward contracts at any point in time are not significant to the Company. The Company has minimal continuing exposures to other foreign currency transactions and interest rate fluctuations, none of which have been hedged by the use of derivative instruments.
The carrying value of cash and short-term financial instruments approximates fair value due to the short maturity of those instruments. The carrying value of long-term debt approximates fair value due to the use of variable interest rates and recently issued fixed rate debt.
INCOME TAXES: The Company provides for taxes on undistributed earnings of subsidiaries where appropriate. The tax effect of most such distributions would be significantly offset by available foreign tax credits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
B -- ACQUISITIONS
During 1994, the Company acquired certain assets of eight companies in exchange for $78.8 in cash and 22,378 shares of common stock, net of cash acquired, in transactions accounted for as purchases. These companies primarily specialize in manufacturing and distributing components and certain other products to the furnishings industry. The Company also issued 578,436 shares of common stock to acquire two companies during the year in transactions accounted for as poolings of interests. The Company elected not to restate its financial statements as the effect of the poolings was not material. The pooled companies specialize in manufacturing and distributing point-of-purchase display racks and other formed wire products to the furnishings and diversified industries. The following unaudited pro forma information shows the results of operations for the twelve months ended December 31, 1994 and 1993 as though the 1994 acquisitions discussed above had occurred on January 1 of each year presented. The pro forma amounts reflect, where appropriate, purchase accounting adjustments, interest on incremental borrowings and the tax effects thereof. This pro forma information is not necessarily indicative of either results of operations that would have occurred had the acquisitions been made on January 1 of each year or of future results of the combined companies.
In September 1993, the Company issued 1,579,354 shares of common stock to acquire Hanes Holding Company (Hanes) in a transaction accounted for as a pooling of interests. Hanes' business consists of converting and distributing woven and nonwoven construction fabrics, primarily in the furnishings industry. In addition, Hanes is a commission dye/finisher of non-fashion fabrics for the furnishings and apparel industries. In another pooling of interests transaction, the Company issued 68,788 shares of common stock to acquire a company whose business is manufacturing furniture components for the furnishings industry. Prior year financial statements were restated for these poolings of interests.
In September 1993, the Company acquired VWR Textiles & Supplies (through Hanes) which converts and distributes construction fabrics and manufactures and distributes other soft goods components to the furnishings industry. The purchase price of this acquisition was approximately $26.0. Also in 1993, the Company acquired full ownership of several wire drawing mills which previously had been jointly owned. This transaction involved $33.0 in cash and the assumption of approximately $3.6 of long-term debt. In addition, the Company acquired several smaller companies during 1993 which primarily manufacture and distribute products to the furnishings industry.
During 1992, the Company acquired the assets of one small company that primarily manufactures bedding and furniture components for the furnishings industry. The purchase price of this acquisition was approximately $5.8.
Also during 1992, the Company acquired a business accounted for as a pooling of interests. The business primarily manufactures bedding and furniture components for the furnishings industry. In exchange for all of the outstanding capital stock of the business, the Company issued 100,903 shares of its common stock. The Company elected not to restate prior year's financial statements as the effect of the pooling was not material.
The results of operations of these acquired companies, except the 1993 poolings, have been included in the consolidated financial statements since the dates of acquisition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
C -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December 31 consist of the following:
D -- LONG-TERM DEBT
Long-term debt, weighted average interest rates and due dates at December 31 are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
D -- LONG-TERM DEBT (CONTINUED)
The revolving credit agreements provide for a maximum line of credit of $200.0. For any revolving credit agreement, the Company may elect to pay interest based on 1) the bank's base lending rate, 2) LIBOR, 3) an adjusted certificate of deposit rate, or 4) the money market rate, as specified in the revolving agreements. Any outstanding balances at the end of the third year of the revolving credit agreements may be converted into term loans payable in ten equal semi-annual installments. Commitment fees during the revolving agreement period are 3/16 of 1% per annum of the unused credit line, payable on a quarterly basis.
Commercial paper is classified as long-term debt since the Company intends to refinance it on a long-term basis either through continued issuance or unused credit available under the revolving credit agreements.
The revolving credit agreements and certain other long-term debt contain restrictive covenants which, among other restrictions, limit the amount of additional debt, require working capital to be maintained at specified amounts and restrict payments of dividends. Unrestricted retained earnings available for dividends at December 31, 1994 were approximately $170.9.
Maturities of long-term debt for each of the five years following 1994 are:
E -- LEASE OBLIGATIONS
The Company conducts certain of its operations in leased premises and also leases most of its automotive and trucking equipment and some other assets. Terms of the leases, including purchase options, renewals and maintenance costs, vary by lease.
Total rental expense entering into the determination of results of operations was approximately $18.0, $17.4 and $16.8 for the years ended December 31, 1994, 1993 and 1992, respectively.
Future minimum rental commitments for all long-term noncancelable operating leases are as follows:
The above lease obligations expire at various dates through 2010. Certain leases contain renewal and/or purchase options. Aggregate rental commitments above include renewal amounts where it is the intention of the Company to renew the lease.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
F -- CAPITAL STOCK
At December 31, 1994, the Company had 3,266,540 common shares authorized for issuance under stock option plans. Generally, options are granted at not less than quoted market value on the date of grant and become exercisable in varying installments, beginning 6 to 18 months after the date of grant. However, options may be granted at less than market value to replace existing options of an acquired company or in lieu of compensation. Options exercisable were 538,786 and 310,999 at December 31, 1994 and 1993, respectively.
Other data regarding the Company's stock options is summarized below:
The Company has also authorized shares for issuance in connection with certain employee stock benefit plans discussed in Note G.
In 1993, the Company's shareholders approved an amendment to the Company's Restated Articles of Incorporation reducing the par value of Common Stock to $.01 from $1.00. The amendment provided that the stated capital of the Company would not be affected as of the date of the amendment. Accordingly, stated capital of the Company exceeds the amount reported as common stock in the financial statements by approximately $39.0.
In 1989, the Company declared a dividend distribution of one preferred stock purchase right (a Right) for each share of common stock. The Rights are attached to and traded with the Company's common stock. The Rights may only become exercisable under certain circumstances involving actual or potential acquisitions of the Company's common stock. Depending upon the circumstances, if the Rights become exercisable, the holder may be entitled to purchase shares of Series A junior preferred stock of the Company, shares of the Company's common stock or shares of common stock of the acquiring entity. The Rights remain in existence until February 15, 1999, unless they are exercised, exchanged or redeemed at an earlier date.
G -- EMPLOYEE BENEFIT PLANS
The Company sponsors contributory and non-contributory pension and retirement plans. Substantially all employees, other than union employees covered by multiemployer plans under collective bargaining agreements, are eligible to participate in the plans. Retirement benefits under the contributory plans are based on career average earnings. Retirement benefits under the non-contributory plans are based on years of service, employees' average compensation and social security benefits. It is the Company's policy to fund actuarially determined costs as accrued.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
G -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Information at December 31, 1994, 1993 and 1992 as to the funded status of Company sponsored defined benefit plans, net pension income from the plans for the years then ended and weighted average assumptions used in the calculations are as follows:
Plan assets are invested in a diversified portfolio of equity, debt and government securities, including 294,000 shares of the Company's common stock at December 31, 1994.
Contributions to union sponsored, multiemployer pension plans were $.2 in 1994, 1993 and 1992. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
G -- EMPLOYEE BENEFIT PLANS (Continued)
contracts. As of 1994, the actuarially computed values of vested benefits for these plans were equal to or less than the net assets of the plans. Therefore, the Company would have no withdrawal liability. However, the Company has no present intention of withdrawing from any of these plans, nor has the Company been informed that there is any intention to terminate such plans.
Net pension income, including Company sponsored defined benefit plans, multiemployer plans and other plans, was $.9, $.7 and $.8 in 1994, 1993 and 1992, respectively.
The Company also has a contributory stock purchase/stock bonus plan (SPSB Plan), a non-qualified executive stock purchase program (ESPP) and an employees' discount stock plan (DSP). The SPSB Plan provides Company pre-tax contributions of 50% of the amount of employee contributions. The ESPP provides cash payments of 50% of the employees' contributions, along with an additional payment to assist employees in paying taxes on the cash payments. To the extent possible, contributions to the ESPP are invested in the Company's common stock through the DSP. In addition, the Company matches its contributions when certain profitability levels, as defined in the SPSB Plan and the ESPP, have been attained. The Company's total contributions to the SPSB Plan and the ESPP were $3.3, $2.5 and $2.2 for 1994, 1993 and 1992, respectively.
Under the DSP, eligible employees may purchase a maximum of 4,000,000 shares of Company common stock. The purchase price per share is 85% of the closing market price on the last business day of each month. Shares purchased under the DSP were 207,704, 181,306 and 237,713 during 1994, 1993 and 1992, respectively. Purchase prices ranged from $17 to $43 per share. Since inception of the DSP in 1982, a total of 2,328,117 shares have been purchased by employees.
H -- INCOME TAXES
The components of earnings before income taxes are as follows:
Income tax expense is comprised of the following components:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
H -- INCOME TAXES (CONTINUED)
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The major temporary differences that give rise to deferred tax assets or liabilities at December 31, 1994 and 1993 are as follows:
Deferred tax assets and liabilities included in the consolidated balance sheet are as follows:
Income tax expense, as a percentage of earnings before income taxes, differs from the statutory federal income tax rate as follows:
Tax benefits of approximately $2.0 associated with the Company's restructuring charge were not recognized during 1990. These tax benefits became available during 1992 and were recognized accordingly.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
I -- INDUSTRY SEGMENT INFORMATION
The Company's operations principally consist of manufacturing, marketing and distributing components and related finished products for the furnishings industry. In addition, the Company supplies a diversified group of industries with products which are similar in manufacturing technology to its furnishings operations. Other than furnishings, no industry segment is significant.
Operating profit is determined by deducting from net sales the cost of goods sold and the selling, distribution, administrative and other expenses attributable to the segment operations. Corporate expenses not allocated to the segments include corporate general and administrative expenses, interest expense and certain other income and deduction items which are incidental to the Company's operations. Capital expenditures, as defined herein, include amounts relating to acquisitions as well as internal expenditures. The identifiable assets of industry segments are those used in the Company's operations of each segment. Corporate identifiable assets include cash, land, buildings and equipment used in conjunction with corporate activities and sundry assets. Previously reported amounts have been restated to be consistent with current segment groupings. Financial information by segment is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leggett & Platt, Incorporated and Subsidiaries
J -- CONTINGENCIES
ENVIRONMENTAL: From time to time, the Company is involved in proceedings related to environmental matters. In one instance, the United States Environmental Protection Agency (EPA) ordered one of the Company's subsidiaries to investigate potential releases into the environment and, if necessary, to perform corrective action. The subsidiary successfully appealed the EPA's order. On June 27, 1994, the EPA indicated it planned to issue a new, similar order. The subsidiary, the EPA and the Florida Department of Environmental Protection (FDEP) are negotiating an agreement to investigate and, if necessary, take corrective action to resolve the dispute. Estimated costs to perform an agreed upon investigation and any related corrective actions are not material and have been provided for in the financial statements as of December 31, 1994.
If current negotiations with the EPA and the FDEP are unsuccessful, and the EPA issues a new order, the subsidiary expects it would appeal the new order. If this appeal were unsuccessful, the costs to perform any required investigation and, if necessary, corrective action cannot be reasonably estimated. One-half of any costs, including the costs of voluntary actions, would be reimbursed to the Company under a contractual obligation of a former joint owner of the subsidiary. No provision for the costs of performing investigation and corrective action beyond any agreed upon investigation and remediation mentioned above has been recorded in the Company's financial statements. If any such additional investigation and corrective action is required, management believes the possibility of a material adverse effect on the Company's consolidated financial condition or results of operation is remote.
OTHER RISKS: The Company obtains insurance for worker's compensation, automobile, product and general liability, property loss and medical claims. However, the Company has elected to retain a significant portion of expected losses through the use of deductibles. Provisions for losses expected under these programs are recorded based upon the Company's estimates of the aggregate liability for claims incurred. These estimates utilize the Company's prior experience and actuarial assumptions that are provided by the Company's insurance carrier. The total estimated liability for these losses at December 31, 1994 and 1993 was $33.0 and $22.0, respectively, and is included in accrued expenses. The increase in the liability from 1993 to 1994 is not indicative of a change in the Company's loss experience, but rather is due to a change in the procedure for funding these losses with the Company's insurance carrier.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Leggett & Platt, Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Leggett & Platt, Incorporated and Subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
St. Louis, Missouri February 14, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 28, 1995 LEGGETT & PLATT, INCORPORATED
By: /s/ HARRY M. CORNELL, JR. ---------------------------------- Harry M. Cornell, Jr. Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- (a) PRINCIPAL EXECUTIVE OFFICER:
/S/ HARRY M. CORNELL, JR. Chairman of the Board, March 28, 1995 --------------------------------- Chief Executive Officer Harry M. Cornell, Jr. and Director
(b) PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER:
/S/ MICHAEL A. GLAUBER Senior Vice President, March 28, 1995 --------------------------------- Finance & Administration Michael A. Glauber
(c) DIRECTORS:
HERBERT C. CASTEEL * Director --------------------------------- Herbert C. Casteel
ROBERT TED ENLOE, III * Director --------------------------------- Robert Ted Enloe, III
RICHARD T. FISHER * Director --------------------------------- Richard T. Fisher
FRANK E. FORD, JR. * Director --------------------------------- Frank E. Ford, Jr.
Signature Title Date --------- ----- ----
ROBERT A. JEFFERIES, JR. * Director --------------------------------- Robert A. Jefferies, Jr.
ALEXANDER M. LEVINE * Director --------------------------------- Alexander M. Levine
RICHARD L. PEARSALL * Director --------------------------------- Richard L. Pearsall
MAURICE E. PURNELL, JR. * Director --------------------------------- Maurice E. Purnell, Jr.
FELIX E. WRIGHT * Director --------------------------------- Felix E. Wright
* By /s/ ERNEST C. JETT March 28, 1995 ___________________________ Ernest C. Jett Attorney-in-Fact pursuant to Power of Attorney dated as of February 8, 1995
EXHIBIT INDEX
(1) Denotes management contract or compensatory plan or arrangement.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of Leggett & Platt, Incorporated
Our audits of the consolidated financial statements referred to in our report dated February 14, 1995, appearing on page 30 of Leggett & Platt, Incorporated's Annual Report on Form 10-K for the year ended December 31, 1994, also included an audit of the Financial Statement Schedule listed in Item 14 - 2 in Part IV of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
St. Louis, Missouri February 28, 1995
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the three years ended December 31, 1994 (Amounts in millions)
_____________________
(A) Portion of reserve balance associated with assets disposed during 1993.
(B) Uncollectible accounts charged off, net of recoveries.