Item 1. Financial Statements.
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
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(Amounts in millions)
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June 30,
2020
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December 31,
2019
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CURRENT ASSETS
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Cash and cash equivalents
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$
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208.8
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$
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247.6
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Trade receivables, net
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556.9
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564.4
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Other receivables, net
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20.4
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27.5
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Total receivables, net
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577.3
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591.9
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Total inventories, net
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574.1
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636.7
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Prepaid expenses and other current assets
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50.1
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61.9
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Total current assets
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1,410.3
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1,538.1
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PROPERTY, PLANT AND EQUIPMENT—AT COST
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Machinery and equipment
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1,363.2
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1,388.8
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Buildings and other
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721.2
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719.0
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Land
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42.4
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43.5
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Total property, plant and equipment
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2,126.8
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2,151.3
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Less accumulated depreciation
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1,329.4
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1,320.5
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Net property, plant and equipment
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797.4
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830.8
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OTHER ASSETS
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Goodwill
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1,373.5
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1,406.3
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Other intangibles, less accumulated amortization of $239.3 and $222.3 as of June 30, 2020 and December 31, 2019, respectively
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730.8
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764.0
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Operating lease right-of-use assets
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167.9
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158.8
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Sundry
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102.2
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118.4
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Total other assets
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2,374.4
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2,447.5
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TOTAL ASSETS
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$
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4,582.1
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$
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4,816.4
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CURRENT LIABILITIES
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Current maturities of long-term debt
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$
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51.1
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$
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51.1
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Current portion of operating lease liabilities
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41.8
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39.3
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Accounts payable
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361.4
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463.4
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Accrued expenses
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240.5
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281.0
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Other current liabilities
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80.7
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93.3
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Total current liabilities
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775.5
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928.1
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LONG-TERM LIABILITIES
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Long-term debt
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2,083.2
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2,066.5
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Operating lease liabilities
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128.6
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121.6
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Other long-term liabilities
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168.0
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173.5
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Deferred income taxes
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212.2
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214.2
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Total long-term liabilities
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2,592.0
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2,575.8
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COMMITMENTS AND CONTINGENCIES
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EQUITY
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Common stock
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2.0
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2.0
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Additional contributed capital
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537.8
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536.1
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Retained earnings
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2,663.1
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2,734.5
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Accumulated other comprehensive loss
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(117.2)
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(76.8)
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Treasury stock
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(1,871.5)
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(1,883.8)
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Total Leggett & Platt, Inc. equity
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1,214.2
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1,312.0
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Noncontrolling interest
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.4
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.5
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Total equity
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1,214.6
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1,312.5
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TOTAL LIABILITIES AND EQUITY
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$
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4,582.1
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$
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4,816.4
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See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Six Months Ended
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Three Months Ended
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June 30,
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June 30,
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(Amounts in millions, except per share data)
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2020
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2019
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2020
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2019
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Net trade sales
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$
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1,890.6
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$
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2,368.3
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$
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845.1
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$
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1,213.2
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Cost of goods sold
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1,521.5
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1,865.6
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698.8
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943.5
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Gross profit
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369.1
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502.7
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146.3
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269.7
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Selling and administrative expenses
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215.0
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236.9
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97.2
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118.3
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Amortization of intangibles
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32.7
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31.0
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16.3
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16.9
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Impairments
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29.4
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4.3
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25.9
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1.4
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Other (income) expense, net
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(11.5)
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(3.7)
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(15.9)
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(2.9)
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Earnings before interest and income taxes
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103.5
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234.2
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22.8
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136.0
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Interest expense
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42.3
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45.9
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21.4
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24.5
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Interest income
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1.9
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4.0
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1.0
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2.6
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Earnings before income taxes
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63.1
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192.3
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2.4
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114.1
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Income taxes
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23.5
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44.9
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8.5
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27.8
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Net earnings (loss)
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39.6
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147.4
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(6.1)
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86.3
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(Earnings) attributable to noncontrolling interest, net of tax
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—
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—
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—
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(.1)
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Net earnings (loss) attributable to Leggett & Platt, Inc. common shareholders
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$
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39.6
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$
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147.4
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$
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(6.1)
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$
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86.2
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Net earnings (loss) per share attributable to Leggett & Platt, Inc. common shareholders
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Basic
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$
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.29
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$
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1.10
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$
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(.05)
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$
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.64
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Diluted
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$
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.29
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$
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1.09
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$
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(.05)
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$
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.64
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Weighted average shares outstanding
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Basic
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135.5
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134.5
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135.7
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134.7
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Diluted
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135.7
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135.1
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135.7
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135.2
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See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Six Months Ended
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Three Months Ended
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June 30,
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June 30,
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(Amounts in millions)
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2020
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2019
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2020
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2019
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Net earnings (loss)
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$
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39.6
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$
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147.4
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$
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(6.1)
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$
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86.3
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Other comprehensive income (loss), net of tax:
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Foreign currency translation adjustments
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(39.7)
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9.8
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25.8
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1.0
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Cash flow hedges
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(2.6)
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4.6
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3.7
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.7
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Defined benefit pension plans
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1.8
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1.0
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.6
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.5
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Other comprehensive income (loss)
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(40.5)
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15.4
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30.1
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2.2
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Comprehensive income (loss)
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(.9)
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162.8
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24.0
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88.5
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Add: comprehensive (earnings) attributable to noncontrolling interest
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.1
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—
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—
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(.1)
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Comprehensive income (loss) attributable to Leggett & Platt, Inc.
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$
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(.8)
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$
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162.8
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$
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24.0
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$
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88.4
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See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended June 30,
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(Amounts in millions)
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2020
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2019
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OPERATING ACTIVITIES
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Net earnings
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$
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39.6
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$
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147.4
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Adjustments to reconcile net earnings to net cash provided by operating activities:
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Depreciation
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59.2
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58.4
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Amortization of intangibles and supply agreements
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34.8
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37.9
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Long-lived asset impairments
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4.0
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4.3
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Goodwill impairment
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25.4
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—
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Provision for losses on accounts and notes receivable
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20.8
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2.2
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Writedown of inventories
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6.3
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6.6
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Deferred income tax (benefit) expense
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(1.2)
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7.9
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Stock-based compensation
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12.9
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16.5
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Other, net
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8.1
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(1.7)
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Increases/decreases in, excluding effects from acquisitions and divestitures:
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Accounts and other receivables
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(13.2)
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(58.2)
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Inventories
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46.9
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33.3
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Other current assets
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1.4
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(4.5)
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Accounts payable
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(89.9)
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(46.1)
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Accrued expenses and other current liabilities
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(32.6)
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(.3)
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NET CASH PROVIDED BY OPERATING ACTIVITIES
|
122.5
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203.7
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INVESTING ACTIVITIES
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Additions to property, plant and equipment
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(43.0)
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(70.5)
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Purchases of companies, net of cash acquired
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—
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(1,244.3)
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Proceeds from sales of assets and businesses
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3.6
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2.0
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Other, net
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4.6
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(7.7)
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NET CASH USED FOR INVESTING ACTIVITIES
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(34.8)
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(1,320.5)
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FINANCING ACTIVITIES
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Additions to long-term debt
|
—
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993.3
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Payments on long-term debt
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(25.0)
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(12.5)
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Change in commercial paper and short-term debt
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33.0
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260.1
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Dividends paid
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(105.6)
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(99.4)
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Issuances of common stock
|
.7
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6.9
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Purchases of common stock
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(8.3)
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(9.2)
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Additional consideration paid on prior year acquisitions
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(8.4)
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(1.1)
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Other, net
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(3.8)
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(1.7)
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NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
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(117.4)
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1,136.4
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EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
(9.1)
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2.0
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(38.8)
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|
21.6
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CASH AND CASH EQUIVALENTS—January 1,
|
247.6
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|
|
268.1
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CASH AND CASH EQUIVALENTS—June 30,
|
$
|
208.8
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$
|
289.7
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|
See accompanying notes to consolidated condensed financial statements.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except per share data)
1. INTERIM PRESENTATION
The interim financial statements of Leggett & Platt, Incorporated (we, us or our) included herein have not been audited by an independent registered public accounting firm. The statements include all adjustments, including normal recurring accruals, which management considers necessary for a fair statement of our financial position and operating results for the periods presented. We have prepared the statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year.
The December 31, 2019 financial position data included herein was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP.
Reclassifications
Certain reclassifications have been made to the prior period's information in the Notes to the Consolidated Condensed Financial Statements to conform to the 2020 segment reporting changes in our management structure and all related internal reporting (See Note 4 - Segment Information). These reclassifications did not impact our consolidated earnings or assets of the company, and all prior periods presented have been restated to conform with these changes.
2. ACCOUNTING STANDARD UPDATES
The Financial Accounting Standards Board (FASB) regularly issues updates to the FASB Accounting Standards Codification that are communicated through issuance of an Accounting Standards Update (ASU). Below is a summary of the ASUs, effective for current or future periods, most relevant to our financial statements.
Adopted in 2020:
•On January 1, 2020, we adopted ASU 2016-13 “Financial Instruments—Credit Losses” (Topic 326) as discussed in Note 7.
•ASU 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. We adopted this ASU on January 1, 2020. This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value up to the total amount of goodwill for the reporting unit. We applied this guidance to our annual goodwill impairment testing completed in the second quarter of 2020 as discussed in Note 5.
•ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”. We adopted this ASU on January 1, 2020. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this ASU did not materially impact our financial statements.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
To be adopted in future years:
•ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”: This ASU will be effective January 1, 2021 and is a part of the FASB overall simplification initiative. We are currently evaluating this guidance.
The FASB has issued accounting guidance, in addition to the issuance discussed above, effective for current and future periods. This guidance did not have a material impact on our current financial statements, and we do not believe it will have a material impact on our future financial statements.
3. REVENUE
Performance Obligations and Shipping and Handling Costs
We recognize revenue when performance obligations under the terms of a contract with our customers are satisfied. Substantially all of our revenue is recognized upon transfer of control of our products to our customers, which is generally upon shipment from our facilities or upon delivery to our customers' facilities and is dependent on the terms of the specific contract. This conclusion considers the point at which our customers have the ability to direct the use of and obtain substantially all of the remaining benefits of the products that are transferred. Substantially all unsatisfied performance obligations as of June 30, 2020, will be satisfied within one year or less. Shipping and handling costs are included as a component of "Cost of goods sold".
Sales, value added, and other taxes collected in connection with revenue-producing activities are excluded from revenue.
Sales Allowances and Returns
The amount of consideration we receive and revenue we recognize varies with changes in various sales allowances, discounts and rebates (variable consideration) that we offer to our customers. We reduce revenue by our estimates of variable consideration based on contract terms and historical experience. Changes in estimates of variable consideration for the periods presented were not material.
Some of our products transferred to customers can be returned, and we recognize the following for this right:
•An estimated refund liability and a corresponding reduction to revenue based on historical returns experience.
•An asset and a corresponding reduction to cost of sales for our right to recover products from customers upon settling the refund liability. We reduce the carrying amount of these assets by estimates of costs associated with the recovery and any additional expected reduction in value.
Our refund liability and the corresponding asset associated with our right to recover products from our customers were immaterial for the periods presented.
Other
We expect that at contract inception, the time period between when we transfer a promised good to our customer and our receipt of payment from that customer for that good will be one year or less (our typical trade terms are 30 to 60 days for U.S. customers and up to 90 days for our international customers).
We generally expense costs of obtaining a contract because the amortization period would be one year or less.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Revenue by Product Line
We disaggregate revenue by customer group, which is the same as our product lines for each of our segments, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. For information on our new segment structure, see Note 4.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Bedding Products
|
|
|
|
|
|
|
|
|
Bedding group
|
$
|
901.2
|
|
|
$
|
1,122.7
|
|
|
$
|
410.6
|
|
|
$
|
568.4
|
|
|
|
901.2
|
|
|
1,122.7
|
|
|
410.6
|
|
|
568.4
|
|
|
|
|
|
|
|
|
|
|
|
Specialized Products
|
|
|
|
|
|
|
|
|
Automotive group
|
279.2
|
|
|
398.0
|
|
|
105.5
|
|
|
201.9
|
|
|
Aerospace Products group
|
60.2
|
|
|
80.1
|
|
|
21.8
|
|
|
40.7
|
|
|
Hydraulic Cylinders group
|
35.9
|
|
|
51.8
|
|
|
13.5
|
|
|
24.4
|
|
|
|
375.3
|
|
|
529.9
|
|
|
140.8
|
|
|
267.0
|
|
|
|
|
|
|
|
|
|
|
|
Furniture, Flooring & Textile Products
|
|
|
|
|
|
|
|
|
Home Furniture group
|
131.0
|
|
|
178.3
|
|
|
49.8
|
|
|
87.4
|
|
|
Work Furniture group
|
109.0
|
|
|
147.7
|
|
|
45.4
|
|
|
74.5
|
|
|
Flooring & Textile Products group
|
374.1
|
|
|
389.7
|
|
|
198.5
|
|
|
215.9
|
|
|
|
614.1
|
|
|
715.7
|
|
|
293.7
|
|
|
377.8
|
|
|
|
$
|
1,890.6
|
|
|
$
|
2,368.3
|
|
|
$
|
845.1
|
|
|
$
|
1,213.2
|
|
4. SEGMENT INFORMATION
Our reportable segments are the same as our operating segments, which also correspond with our management organizational structure. To reflect how we manage our newly aligned businesses and in conjunction with the change in executive officer leadership, our management organizational structure and all related internal reporting changed effective January 1, 2020. As a result, our segment reporting has changed to reflect the new structure. This segment change was retrospectively applied to all prior periods presented.
The new Bedding Products segment consists of the former Residential Products and Industrial Products segments, plus the Consumer Products Group (which is renamed the Adjustable Bed business unit), minus the Fabric & Flooring Products Group (which is renamed the Flooring & Textile Products Group).
The new Furniture, Flooring & Textile Products segment consists of the former Furniture Products segment, plus the Fabric & Flooring Products Group (which is renamed the Flooring & Textile Products Group) minus the Consumer Products Group (which is renamed the Adjustable Bed business unit).
Our Specialized Products segment was not changed.
We have three operating segments that supply a wide range of products:
•Bedding Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products, as well as produces private-label finished mattresses for bedding brands, and adjustable bed bases. This segment is also backwardly integrated into the production and supply of specialty foam chemicals, steel rod and drawn steel wire to our own operations and to external customers. Our trade customers for wire make mechanical springs and many other end products.
•Specialized Products: From this segment, we supply lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
•Furniture, Flooring & Textile Products: Operations in this segment supply a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture. We also produce or distribute carpet cushion, hard surface flooring underlayment, and textile and geo components.
Each reportable segment has an executive vice president who has accountability to and maintains regular contact with our chief executive officer, who is the chief operating decision maker (CODM). The operating results and financial information reported through the segment structure are regularly reviewed and used by the CODM to evaluate segment performance, allocate overall resources and determine management incentive compensation.
The accounting principles used in the preparation of the segment information are the same as those used for the consolidated financial statements. We evaluate performance based on Earnings Before Interest and Taxes (EBIT). Intersegment sales are made primarily at prices that approximate market-based selling prices. Centrally incurred costs are allocated to the segments based on estimates of services used by the segment. Certain of our general and administrative costs and miscellaneous corporate income and expenses are allocated to the segments based on sales or other appropriate metrics. These allocated corporate costs include depreciation and other costs and income related to assets that are not allocated or otherwise included in the segment assets.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
A summary of segment results from continuing operations is shown in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade 1
Sales
|
|
Inter-
Segment
Sales
|
|
Total
Sales
|
|
EBIT
|
|
Depreciation and Amortization
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Bedding Products
|
$
|
410.6
|
|
|
$
|
4.0
|
|
|
$
|
414.6
|
|
|
$
|
18.6
|
|
|
$
|
26.3
|
|
|
Specialized Products 2
|
140.8
|
|
|
.4
|
|
|
141.2
|
|
|
(19.7)
|
|
|
10.6
|
|
|
Furniture, Flooring & Textile Products
|
293.7
|
|
|
2.5
|
|
|
296.2
|
|
|
23.4
|
|
|
6.3
|
|
|
Intersegment eliminations, unallocated assets and other 3
|
|
|
|
|
|
|
.5
|
|
|
3.3
|
|
|
|
$
|
845.1
|
|
|
$
|
6.9
|
|
|
$
|
852.0
|
|
|
$
|
22.8
|
|
|
$
|
46.5
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Bedding Products
|
$
|
568.4
|
|
|
$
|
10.2
|
|
|
$
|
578.6
|
|
|
$
|
63.5
|
|
|
$
|
28.2
|
|
|
Specialized Products
|
267.0
|
|
|
.7
|
|
|
267.7
|
|
|
41.5
|
|
|
10.4
|
|
|
Furniture, Flooring & Textile Products
|
377.8
|
|
|
4.0
|
|
|
381.8
|
|
|
31.5
|
|
|
6.7
|
|
|
Intersegment eliminations, unallocated assets and other 3
|
|
|
|
|
|
|
(.5)
|
|
|
4.7
|
|
|
|
$
|
1,213.2
|
|
|
$
|
14.9
|
|
|
$
|
1,228.1
|
|
|
$
|
136.0
|
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade 1
Sales
|
|
Inter-
Segment
Sales
|
|
Total
Sales
|
|
EBIT
|
|
Depreciation and Amortization
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Bedding Products
|
$
|
901.2
|
|
|
$
|
13.6
|
|
|
$
|
914.8
|
|
|
$
|
48.6
|
|
|
$
|
53.1
|
|
|
Specialized Products 2
|
375.3
|
|
|
1.2
|
|
|
376.5
|
|
|
8.0
|
|
|
21.8
|
|
|
Furniture, Flooring & Textile Products
|
614.1
|
|
|
7.7
|
|
|
621.8
|
|
|
49.9
|
|
|
12.8
|
|
|
Intersegment eliminations and other 3, 4
|
|
|
|
|
|
|
(3.0)
|
|
|
6.3
|
|
|
|
$
|
1,890.6
|
|
|
$
|
22.5
|
|
|
$
|
1,913.1
|
|
|
$
|
103.5
|
|
|
$
|
94.0
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Bedding Products
|
$
|
1,122.7
|
|
|
$
|
20.4
|
|
|
$
|
1,143.1
|
|
|
$
|
107.6
|
|
|
$
|
53.0
|
|
|
Specialized Products
|
529.9
|
|
|
1.6
|
|
|
531.5
|
|
|
77.2
|
|
|
20.6
|
|
|
Furniture, Flooring & Textile Products
|
715.7
|
|
|
8.3
|
|
|
724.0
|
|
|
49.9
|
|
|
13.3
|
|
|
Intersegment eliminations and other 3
|
|
|
|
|
|
|
(.5)
|
|
|
9.4
|
|
|
|
$
|
2,368.3
|
|
|
$
|
30.3
|
|
|
$
|
2,398.6
|
|
|
$
|
234.2
|
|
|
$
|
96.3
|
|
1 See Note 3 for revenue by product line.
2 2020 EBIT: Includes $25.4 of goodwill impairment for the Hydraulic Cylinders unit as discussed in Note 5.
3 Depreciation and Amortization: Other relates to non-operating assets (assets not included in segment assets) and is allocated to segment EBIT as discussed above.
4 2020 EBIT: Other includes a charge to write off stock associated with a business divested in 2008 that filed bankruptcy in 2020.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Average assets for our segments are shown in the table below and reflect the basis for return measures used by management to evaluate segment performance. These segment totals include working capital (all current assets and current liabilities) plus net property, plant and equipment. Segment assets for all years are reflected at their estimated average for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Bedding Products
|
$
|
777.7
|
|
|
$
|
816.9
|
|
|
Specialized Products
|
304.5
|
|
|
346.4
|
|
|
Furniture, Flooring & Textile Products
|
356.5
|
|
|
383.2
|
|
|
|
|
|
|
|
Average current liabilities included in segment numbers above
|
603.7
|
|
|
735.3
|
|
|
Unallocated assets 1
|
2,615.2
|
|
|
2,662.7
|
|
|
Difference between average assets and period-end balance sheet
|
(75.5)
|
|
|
(128.1)
|
|
|
Total assets
|
$
|
4,582.1
|
|
|
$
|
4,816.4
|
|
1 Unallocated assets consist primarily of goodwill, other intangibles, cash and deferred tax assets.
5. IMPAIRMENT CHARGES
Impairment charges (pretax) are reported in “Impairments” in the Consolidated Condensed Statements of Operations and are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
Goodwill Impairment
|
|
Other Long-Lived Assets Impairments
|
|
Total Impairments
|
|
|
|
Other Long-Lived Assets Impairments
|
|
|
|
Goodwill Impairment
|
|
Other Long-Lived Assets Impairments
|
|
Total Impairments
|
|
|
|
Other Long-Lived Assets Impairments
|
|
|
|
Bedding Products
|
$
|
—
|
|
|
$
|
.3
|
|
|
$
|
.3
|
|
|
|
|
$
|
3.5
|
|
|
|
|
$
|
—
|
|
|
$
|
.3
|
|
|
$
|
.3
|
|
|
|
|
$
|
.6
|
|
|
|
|
Specialized Products
|
25.4
|
|
|
—
|
|
|
25.4
|
|
|
|
|
—
|
|
|
|
|
25.4
|
|
|
—
|
|
|
25.4
|
|
|
|
|
—
|
|
|
|
|
Furniture, Flooring & Textile Products
|
—
|
|
|
.2
|
|
|
.2
|
|
|
|
|
.8
|
|
|
|
|
—
|
|
|
.2
|
|
|
.2
|
|
|
|
|
.8
|
|
|
|
|
Unallocated 1
|
—
|
|
|
3.5
|
|
|
3.5
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
Total impairment charges
|
$
|
25.4
|
|
|
$
|
4.0
|
|
|
$
|
29.4
|
|
|
|
|
$
|
4.3
|
|
|
|
|
$
|
25.4
|
|
|
$
|
.5
|
|
|
$
|
25.9
|
|
|
|
|
$
|
1.4
|
|
|
|
1 This is a charge to write off stock associated with a business divested in 2008 that filed bankruptcy in 2020.
Goodwill Impairment Testing
We test goodwill for impairment at the reporting unit level (the business groups that are one level below the operating segments) when triggering events occur, or at least annually. We perform our annual goodwill impairment testing in the second quarter. The 2019 goodwill impairment testing indicated no impairments.
The 2020 goodwill impairment testing resulted in a $25.4 non-cash goodwill impairment charge in the second quarter of 2020 with respect to our Hydraulic Cylinders reporting unit, which is a part of the Specialized Products segment. Demand for hydraulic cylinders is dependent upon capital spending for material handling equipment. We began seeing some market softness in the industries served by this reporting unit in 2019, and as discussed in Footnote D in the Notes to Consolidated Financial Statements in our Form 10-K filed February 20, 2020, the fair value of this reporting unit exceeded its carrying value by 29%.
The impairment charge reflects the complete write-off of the goodwill associated with the Hydraulic Cylinders reporting unit and will not result in future cash expenditures. Although we do not believe that a triggering event related to the impairment of goodwill or other long-lived assets occurred in the first quarter of 2020, the anticipated longer-term economic
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
impacts of COVID-19 lowered expectations of future revenue and profitability causing its fair value to fall below its carrying value. We concluded on July 30, 2020, as part of our normal second quarter 2020 annual goodwill impairment testing and in connection with the preparation and review of the second quarter 2020 financial statements, that an impairment charge was required with respect to this reporting unit. We also evaluated other long-lived assets associated with this unit for impairment; no impairments were indicated other than goodwill.
The information below excludes Hydraulic Cylinders, as this unit had no goodwill remaining after the second quarter 2020 impairment.
The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the tables below. In general, fair values for our reporting units decreased versus last year due to COVID-19 impacts on future cash flows. If actual results differ materially from estimates used in these calculations, we could incur future impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
Fair Value over Carrying Value divided by Carrying Value
|
|
June 30, 2020 Goodwill Value
|
|
10-year Compound Annual Growth Rate Range for Sales
|
|
Terminal Values Long-term Growth Rate for Debt-Free Cash Flow
|
|
Discount Rate Ranges
|
|
Less than 50% 1
|
|
$
|
95.2
|
|
|
2.1%
|
|
3
|
%
|
|
9.0%
|
|
50% - 100% 2
|
|
912.1
|
|
|
2.0 - 3.6
|
|
3
|
|
|
9.0 - 10.0
|
|
101% - 300%
|
|
244.8
|
|
|
1.6 - 1.7
|
|
3
|
|
|
8.5 - 9.5
|
|
301% - 600%
|
|
121.4
|
|
|
6.7
|
|
3
|
|
|
9.0
|
|
|
|
$
|
1,373.5
|
|
|
1.6% - 6.7%
|
|
3
|
%
|
|
8.5% - 10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Fair Value over Carrying Value divided by Carrying Value
|
|
June 30, 2019 Goodwill Value
|
|
10-year Compound Annual Growth Rate Range for Sales
|
|
Terminal Values Long-term Growth Rate for Debt-Free Cash Flow
|
|
Discount Rate Ranges
|
|
Less than 50% 3
|
|
$
|
25.8
|
|
|
5.8%
|
|
3
|
%
|
|
8.0%
|
|
50% - 100% 2
|
|
855.7
|
|
|
3.8
|
|
3
|
|
|
8.5 - 9.5
|
|
101% - 300%
|
|
393.3
|
|
|
1.3 - 5.5
|
|
3
|
|
|
7.5 - 8.0
|
|
301% - 600%
|
|
123.6
|
|
|
11.1
|
|
3
|
|
|
8.5
|
|
|
|
$
|
1,398.4
|
|
|
1.3% - 11.1%
|
|
3
|
%
|
|
7.5% - 9.5%
|
1 This category includes one reporting unit, Work Furniture, which had fair value exceeding its carrying value by 25% at June 30, 2020.
2 This category includes two reporting units for 2020 and the Bedding reporting unit for 2019.
•The fair value of our Bedding reporting unit exceeded its carrying value by 68% at June 30, 2020 as compared to 85% at June 30, 2019. This unit had $853.1 of goodwill at June 30, 2020.
•The fair value of our Aerospace reporting unit exceeded its carrying value by 51% at June 30, 2020 as compared to 139% at June 30, 2019. This unit had $59.0 of goodwill at June 30, 2020.
3 This category consisted of the Hydraulic Cylinders reporting unit which had fair value exceeding its carrying value by 29% at June 30, 2019.
Other long-lived assets
We test other long-lived assets for recoverability at year end and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value and the resulting impairment charges noted above were based primarily upon offers from potential buyers, third-party estimates of fair value less selling costs or estimated future cash flows.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
6. EARNINGS (LOSS) PER SHARE (EPS)
Basic and diluted earnings (loss) per share were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net earnings (loss):
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
$
|
39.6
|
|
|
$
|
147.4
|
|
|
$
|
(6.1)
|
|
|
$
|
86.3
|
|
|
(Earnings) attributable to noncontrolling interest, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Leggett & Platt common shareholders
|
$
|
39.6
|
|
|
$
|
147.4
|
|
|
$
|
(6.1)
|
|
|
$
|
86.2
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (in millions):
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS
|
135.5
|
|
|
134.5
|
|
|
135.7
|
|
|
134.7
|
|
|
Dilutive effect of stock-based compensation
|
.2
|
|
|
.6
|
|
|
—
|
|
|
.5
|
|
|
Weighted average number of common shares and dilutive potential common shares used in diluted EPS
|
135.7
|
|
|
135.1
|
|
|
135.7
|
|
|
135.2
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS attributable to Leggett & Platt common shareholders
|
$
|
.29
|
|
|
$
|
1.10
|
|
|
$
|
(.05)
|
|
|
$
|
.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS attributable to Leggett & Platt common shareholders
|
$
|
.29
|
|
|
$
|
1.09
|
|
|
$
|
(.05)
|
|
|
$
|
.64
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted EPS computation
|
.3
|
|
|
.3
|
|
|
.4
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
$
|
.80
|
|
|
$
|
.78
|
|
|
$
|
.40
|
|
|
$
|
.40
|
|
7. ACCOUNTS AND OTHER RECEIVABLES
Initial adoption of new ASU
Effective January 1, 2020, we adopted ASU 2016-13 “Financial Instruments—Credit Losses” (Topic 326), which amended the impairment model to require a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. In accordance with guidance, the new standard was adopted using the modified retrospective approach as of the effective date; prior periods were not restated. The increase to the allowance for doubtful accounts, net of the deferred tax impact, was recorded as an adjustment to opening retained earnings.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The cumulative effect of applying Topic 326 to our Consolidated Condensed Balance Sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 as Previously Reported
|
|
Topic 326 Adjustments
|
|
Balance at January 1, 2020
|
|
|
|
|
|
|
|
|
Trade receivables, net 1
|
$
|
564.4
|
|
|
$
|
(3.3)
|
|
|
$
|
561.1
|
|
|
Other current assets
|
973.7
|
|
|
—
|
|
|
973.7
|
|
|
Property, plant and equipment
|
830.8
|
|
|
—
|
|
|
830.8
|
|
|
Other assets
|
2,447.5
|
|
|
—
|
|
|
2,447.5
|
|
|
Total assets
|
$
|
4,816.4
|
|
|
$
|
(3.3)
|
|
|
$
|
4,813.1
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
928.1
|
|
|
$
|
—
|
|
|
$
|
928.1
|
|
|
Long-term liabilities 2
|
2,575.8
|
|
|
(.8)
|
|
|
2,575.0
|
|
|
Retained earnings
|
2,734.5
|
|
|
(2.5)
|
|
|
2,732.0
|
|
|
Other equity
|
(1,422.0)
|
|
|
—
|
|
|
(1,422.0)
|
|
|
Total assets
|
$
|
4,816.4
|
|
|
$
|
(3.3)
|
|
|
$
|
4,813.1
|
|
1 This adjustment is to increase our allowance for doubtful accounts for estimated expected credit losses on trade receivables over their contractual life.
2 This adjustment is to reflect a decrease in deferred income tax liability as a result of the change in the allowance for doubtful accounts.
Trade receivables are recorded at the invoiced amount and generally do not bear interest. Credit is also occasionally extended in the form of a note receivable to facilitate our customers' operating cycles. Other notes receivable are established in special circumstances, such as in partial payment for the sale of a business or to support other business opportunities. Other notes receivable generally bear interest at market rates commensurate with the corresponding credit risk on the date of the origination.
To determine our allowance for doubtful accounts under the new guidance, we are utilizing a pool approach to group our receivables with similar risk characteristics. Our pools correspond with our business units, which generally have similar terms, industry-specific conditions, and historical or expected loss patterns. Reserves are established for each pool based on their level of risk exposure. When credit deterioration occurs on a specific customer within a pool, we evaluate the receivable separately to estimate the expected credit loss based on the specific risk characteristics. Management reviews individual accounts and pools for factors such as the length of time that receivables are past due, the financial health of the companies involved, industry and macroeconomic considerations, and historical loss experience. A qualitative reserve is also established for any current macroeconomic conditions or reasonable and supportable forecasts that could impact the expected collectibility of all or a portion of our receivables portfolio.
Account balances are charged against the allowance when it is probable the receivable will not be recovered. Interest income is not recognized for nonperforming accounts that are placed on nonaccrual status. For accounts on nonaccrual status, any interest payments received are applied against the balance of the nonaccrual account.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Accounts and other receivables consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
December 31, 2019
|
|
|
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
|
Trade accounts receivable 1
|
$
|
579.5
|
|
|
$
|
—
|
|
|
$
|
571.8
|
|
|
$
|
—
|
|
|
Trade notes receivable
|
1.0
|
|
|
.4
|
|
|
1.1
|
|
|
.6
|
|
|
Total trade receivables
|
580.5
|
|
|
.4
|
|
|
572.9
|
|
|
.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other notes receivable 1
|
—
|
|
|
23.2
|
|
|
—
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
Taxes receivable, including income taxes
|
8.4
|
|
|
—
|
|
|
15.8
|
|
|
—
|
|
|
Other receivables
|
12.0
|
|
|
—
|
|
|
11.7
|
|
|
—
|
|
|
Subtotal other receivables
|
20.4
|
|
|
23.2
|
|
|
27.5
|
|
|
23.4
|
|
|
Total trade and other receivables
|
600.9
|
|
|
23.6
|
|
|
600.4
|
|
|
24.0
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
Trade accounts receivable 1,2
|
(23.6)
|
|
|
—
|
|
|
(8.4)
|
|
|
—
|
|
|
Trade notes receivable
|
—
|
|
|
—
|
|
|
(.1)
|
|
|
—
|
|
|
Total trade receivables
|
(23.6)
|
|
|
—
|
|
|
(8.5)
|
|
|
—
|
|
|
Other notes receivable 1
|
—
|
|
|
(23.2)
|
|
|
—
|
|
|
(15.0)
|
|
|
Total allowance for doubtful accounts
|
(23.6)
|
|
|
(23.2)
|
|
|
(8.5)
|
|
|
(15.0)
|
|
|
Total net receivables
|
$
|
577.3
|
|
|
$
|
.4
|
|
|
$
|
591.9
|
|
|
$
|
9.0
|
|
1 The “Trade accounts receivable” and “Other notes receivable” line items above include $25.3 and $26.0 as of June 30, 2020 and December 31, 2019, respectively, from a customer in our Bedding Products segment who is experiencing financial difficulty and liquidity problems. This customer was placed on nonaccrual status in 2018, and became delinquent in quarterly interest payments in the first quarter of 2020. As a result, we have increased our reserve at June 30, 2020 to $25.3 ($23.2 for the note and $2.1 for the trade receivable). The reserve for this customer at December 31, 2019, was $16.0 ($15.0 for the note and $1.0 for the trade receivable).
2 The impacts of the COVID-19 pandemic have adversely impacted the operations of many of our customers, which have and could further impact their ability to pay their debts to us. As a result, we increased the reserves on "Trade accounts receivable" to reflect this increased collectibility risk.
Activity related to the allowance for doubtful accounts is reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
Topic 326 Adjustment
|
|
Balance at January 1, 2020
|
|
Add:
Charges
|
|
Less:
Net Charge-offs/
(Recoveries) and Other
|
|
Balance at June 30, 2020
|
|
Trade accounts receivable
|
$
|
8.4
|
|
|
$
|
3.3
|
|
|
$
|
11.7
|
|
|
$
|
12.7
|
|
|
$
|
.8
|
|
|
$
|
23.6
|
|
|
Trade notes receivable
|
.1
|
|
|
—
|
|
|
.1
|
|
|
(.1)
|
|
|
—
|
|
|
—
|
|
|
Total trade receivables
|
8.5
|
|
|
3.3
|
|
|
11.8
|
|
|
12.6
|
|
|
.8
|
|
|
23.6
|
|
|
Other notes receivable
|
15.0
|
|
|
—
|
|
|
15.0
|
|
|
8.2
|
|
|
—
|
|
|
23.2
|
|
|
Total allowance for doubtful accounts
|
$
|
23.5
|
|
|
$
|
3.3
|
|
|
$
|
26.8
|
|
|
$
|
20.8
|
|
|
$
|
.8
|
|
|
$
|
46.8
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
8. STOCK-BASED COMPENSATION
The following tables recap the components of stock-based and stock-related compensation for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2020
|
|
|
|
Six Months Ended
June 30, 2019
|
|
|
|
|
To be settled with stock
|
|
To be settled in cash
|
|
To be settled with stock
|
|
To be settled in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based retirement plans contributions 1
|
$
|
—
|
|
|
$
|
.2
|
|
|
$
|
1.5
|
|
|
$
|
.3
|
|
|
Discounts on various stock awards:
|
|
|
|
|
|
|
|
|
Deferred Stock Compensation Program
|
.9
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
Stock-based retirement plans
|
.4
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
Discount Stock Plan
|
.5
|
|
|
—
|
|
|
.6
|
|
|
—
|
|
|
Performance Stock Unit (PSU) awards: 2
|
|
|
|
|
|
|
|
|
2018 and later PSU - TSR based 2A
|
1.7
|
|
|
(1.8)
|
|
|
1.5
|
|
|
.7
|
|
|
2018 and later PSU - EBIT CAGR based 2B
|
(1.9)
|
|
|
(2.4)
|
|
|
2.7
|
|
|
2.8
|
|
|
2017 and prior PSU awards 2C
|
—
|
|
|
.1
|
|
|
.9
|
|
|
(.2)
|
|
|
Restricted Stock Unit (RSU) awards 3
|
5.4
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other, primarily non-employee directors restricted stock
|
.7
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
Total stock-related compensation expense (income)
|
7.7
|
|
|
$
|
(3.9)
|
|
|
10.3
|
|
|
$
|
3.6
|
|
|
Employee contributions for above stock plans
|
5.2
|
|
|
|
|
6.2
|
|
|
|
|
Total stock-based compensation
|
$
|
12.9
|
|
|
|
|
$
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense
|
$
|
1.8
|
|
|
|
|
$
|
2.4
|
|
|
|
|
Tax benefits on stock-based compensation payments
|
1.7
|
|
|
|
|
2.3
|
|
|
|
|
Total tax benefits associated with stock-based compensation
|
$
|
3.5
|
|
|
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2020
|
|
|
|
June 30, 2019
|
|
|
|
|
To be settled with stock
|
|
To be settled in cash
|
|
To be settled with stock
|
|
To be settled in cash
|
|
|
|
|
|
|
|
|
|
|
Stock-based retirement plans contributions 1
|
$
|
.3
|
|
|
$
|
.1
|
|
|
$
|
.9
|
|
|
$
|
.2
|
|
|
Discounts on various stock awards:
|
|
|
|
|
|
|
|
|
Deferred Stock Compensation Program
|
.4
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
Stock-based retirement plans
|
.2
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
Discount Stock Plan
|
.2
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
Performance Stock Unit (PSU) awards: 2
|
|
|
|
|
|
|
|
|
2018 and later PSU - TSR based 2A
|
.8
|
|
|
1.0
|
|
|
.8
|
|
|
(.1)
|
|
|
2018 and later PSU - EBIT CAGR based 2B
|
.2
|
|
|
.4
|
|
|
1.1
|
|
|
.8
|
|
|
2017 and prior PSU awards 2C
|
—
|
|
|
—
|
|
|
.4
|
|
|
(.6)
|
|
|
Restricted Stock Unit (RSU) awards 3
|
.7
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Other, primarily non-employee directors restricted stock
|
.3
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
Total stock-related compensation expense
|
3.1
|
|
|
$
|
1.5
|
|
|
5.1
|
|
|
$
|
.3
|
|
|
Employee contributions for above stock plans
|
2.3
|
|
|
|
|
3.6
|
|
|
|
|
Total stock-based compensation
|
$
|
5.4
|
|
|
|
|
$
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense
|
$
|
.7
|
|
|
|
|
$
|
1.2
|
|
|
|
|
Tax benefits on stock-based compensation payments
|
(1.1)
|
|
|
|
|
.4
|
|
|
|
|
Total tax benefits associated with stock-based compensation
|
$
|
(.4)
|
|
|
|
|
$
|
1.6
|
|
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
1 Stock-Based Retirement Plans
Participants in the Executive Stock Unit Program may contribute up to 10% (depending on certain qualifications) of their compensation above the threshold. Participant contributions are credited to a diversified investment account established for the participant. Leggett matching contributions to the plan, including dividend equivalents, are used to acquire stock units. Stock units are converted to common stock at a 1-to-1 ratio upon distribution from the program.
2 PSU Awards
2020 Changes to the PSU and RSU awards
In November 2019, the Compensation Committee approved changes to our PSU and RSU award programs for 2020. Changes to the plans for executive officers are as follows:
•Two-thirds of the target award value will be granted as PSUs based on relative TSR and EBIT CAGR over a three-year performance period.
•One-third of the target award value will be granted as RSUs vesting in one-third increments over three years.
During 2019, PSU awards were based on two equal measures: (i) Relative Total Shareholder Return (TSR = (Change in Stock Price + Dividends) ÷ Beginning Stock Price) and (ii) EBIT Compound Annual Growth Rate (EBIT CAGR). These components are discussed below.
We intend to pay 50% in shares of our common stock and 50% in cash; although, we reserve the right, subject to Compensation Committee approval, to pay up to 100% in cash.
2A 2018 and later PSU - TSR based
Most of the 2018 and later PSU awards are based 50% upon our TSR compared to a peer group. A small number of PSU awards are based 100% upon relative TSR for certain business unit employees to complement their particular mix of incentive compensation. Grant date fair values are calculated using a Monte Carlo simulation of stock and volatility data for Leggett and each of the peer companies. Grant date fair values are amortized using the straight-line method over the three-year vesting period.
The relative TSR vesting condition of the 2018 and later PSU awards contains the following conditions:
•A service requirement—Awards generally “cliff” vest three years following the grant date; and
•A market condition—Awards are based on our TSR as compared to the TSR of a group of peer companies. The peer group consists of all the companies in the Industrial, Materials and Consumer Discretionary sectors of the S&P 500 and S&P Midcap 400 (approximately 300 companies). Participants will earn from 0% to 200% of the base award depending upon how our TSR ranks within the peer group at the end of the three-year performance period.
2B 2018 and later PSU - EBIT CAGR based
Most of the 2018 and later PSU awards are based 50% upon our or the applicable segment's EBIT CAGR. Grant date fair values are calculated using the grant date stock price discounted for dividends over the vesting period. Expense is adjusted every quarter over the three-year vesting period based on the number of shares expected to vest.
The EBIT CAGR portion of these awards contains the following conditions:
•A service requirement—Awards generally “cliff” vest three years following the grant date; and
•A performance condition—Awards are based on achieving specified EBIT CAGR performance targets for our or the applicable segment's EBIT during the third year of the performance period compared to the EBIT during the fiscal year immediately preceding the performance period. Participants will earn from 0% to 200% of the base award.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In connection with the decision to move a significant portion of the long-term incentive opportunity from a two-year to a three-year performance period by eliminating PGI awards, in February 2018, we also granted participants a one-time transition PSU award, based upon EBIT CAGR over a two-year performance period. This award was paid in the first quarter 2020. Average payout percentage of base award was 114%, and the number of shares paid was .1. The cash portion pay out was $4.1.
2C 2017 and prior PSU Awards
The 2017 and prior PSU awards were based solely on relative TSR. Vesting conditions were the same as (2A) above other than the maximum payout of 175% of the base award. The 2017 PSU award was paid out Q1 2020.
Below is a summary of the number of shares and related grant date fair value of PSU’s for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
TSR based
|
|
|
|
|
Total shares base award
|
.1
|
|
|
.1
|
|
|
Grant date per share fair value
|
$
|
38.23
|
|
|
$
|
57.86
|
|
|
Risk-free interest rate
|
1.4
|
%
|
|
2.4
|
%
|
|
Expected life in years
|
3.0
|
|
3.0
|
|
Expected volatility (over expected life)
|
24.0
|
%
|
|
21.5
|
%
|
|
Expected dividend yield (over expected life)
|
3.6
|
%
|
|
3.4
|
%
|
|
|
|
|
|
|
EBIT CAGR based
|
|
|
|
|
Total shares base award
|
.1
|
|
|
.1
|
|
|
Grant date per share fair value
|
$
|
40.52
|
|
|
$
|
39.98
|
|
|
Vesting period in years
|
3.0
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Year Performance Cycle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award Year
|
|
Completion Date
|
|
TSR Performance
Relative to the Peer Group (1%=Best)
|
|
Payout as a
Percent of the
Base Award
|
|
Number of Shares
Distributed
|
|
Cash Portion
|
|
Distribution Date
|
|
2016
|
|
December 31, 2018
|
|
78th percentile
|
|
|
—%
|
|
—
|
|
$
|
—
|
|
|
First quarter 2019
|
|
2017
|
|
December 31, 2019
|
|
63rd percentile
|
|
|
49.0%
|
|
.1 million
|
|
$
|
1.6
|
|
|
First quarter 2020
|
3 RSU Awards
The RSU terms and conditions have been amended so that those who retire (1) after age 65 or (2) after the date where the participant’s age plus years of service are greater than or equal to 70 years, will continue to receive shares that will vest after the retirement date. Expense associated with these retirement-eligible employees will be recognized immediately at the RSU grant date. For those employees who become retirement eligible after the grant date, any remaining expense associated with those RSUs will be recognized at the date the employee meets the retirement-eligible criteria. For more information on the 2020 RSU award changes see the PSU section above.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
9. ACQUISITIONS
The following table contains the estimated fair values (using inputs as discussed in Note 13) of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions during the periods presented. Of the goodwill included in the table below, $126.8 is expected to be deductible for tax purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2019
|
|
Accounts receivable
|
|
|
$
|
70.7
|
|
|
Inventory
|
|
|
60.7
|
|
|
Property, plant and equipment
|
|
|
80.7
|
|
|
Goodwill
|
|
|
559.8
|
|
|
Other intangible assets:
|
|
|
|
|
Customer relationships (15-year life)
|
|
|
372.3
|
|
|
Technology (15-year life)
|
|
|
173.3
|
|
|
Trademarks and trade names (15-year life)
|
|
|
65.8
|
|
|
Non-compete agreements and other (5-year life)
|
|
|
28.1
|
|
|
Other current and long-term assets
|
|
|
27.3
|
|
|
Current liabilities
|
|
|
(44.3)
|
|
|
Deferred income taxes
|
|
|
(128.5)
|
|
|
Other long-term liabilities
|
|
|
(21.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash consideration
|
|
|
$
|
1,244.3
|
|
The following table summarizes acquisitions for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Number of Acquisitions
|
|
Segment
|
|
Product/Service
|
|
June 30, 2020
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
1
|
|
Bedding Products
|
|
A leader in proprietary specialized foam technology, primarily for the bedding and furniture industries
|
Certain of our prior years' acquisition agreements provide for additional consideration to be paid in cash at a later date and are recorded as liabilities at the acquisition date. At June 30, 2020 and December 31, 2019, our current liability for these future payments was $.0 and $9.2, respectively. Additional consideration, including interest, paid on prior year acquisitions was $8.4 and $1.1 for the six months ended June 30, 2020 and 2019, respectively.
2020
No businesses were acquired during the first six months of 2020.
2019
We acquired one business during the first six months of 2019:
•ECS, a leader in proprietary specialized foam technology, primarily for the bedding and furniture industries. Through this acquisition, we gained critical capabilities in proprietary foam technology, along with scale in the production of private-label finished mattresses. The acquisition date was January 16. The purchase price was $1,244.3 and, upon finalization of the purchase price allocation, added $559.3 of goodwill. The most significant other intangibles added were customer relationships and technology, whose finalized values were $372.3 and $173.3, respectively. There was no contingent consideration associated with this acquisition.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
10. INVENTORIES
The following table recaps the components of inventory for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Finished goods
|
$
|
258.7
|
|
|
$
|
308.7
|
|
|
Work in process
|
48.2
|
|
|
54.4
|
|
|
Raw materials and supplies
|
314.6
|
|
|
323.5
|
|
|
LIFO reserve
|
(47.4)
|
|
|
(49.9)
|
|
|
Total inventories, net
|
$
|
574.1
|
|
|
$
|
636.7
|
|
All inventories are stated at the lower of cost or net realizable value. We generally use standard costs which include materials, labor and production overhead at normal production capacity. The last-in, first-out (LIFO) method is primarily used to value our domestic steel-related inventories. LIFO represents approximately 40% of our inventories. For the remainder of the inventories, we principally use the first-in, first-out (FIFO) method, which is representative of our standard costs. For these inventories, the FIFO cost for the periods presented approximated expected replacement cost.
Inventories are reviewed at least quarterly for slow-moving and potentially obsolete items using actual inventory turnover and, if necessary, are written down to estimated net realizable value. Restructuring activity and decisions to narrow product offerings also impact the estimated net realizable value of inventories. We have had no material changes in inventory writedowns or slow-moving and obsolete inventory reserves in any of the years presented.
The following table contains the LIFO activity for each of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Balance, beginning of year
|
$
|
(49.9)
|
|
|
$
|
(82.2)
|
|
|
$
|
(47.9)
|
|
|
$
|
(82.2)
|
|
|
LIFO benefit
|
2.0
|
|
|
10.4
|
|
|
—
|
|
|
10.4
|
|
|
Allocated to divested businesses 1
|
.5
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
Balance, end of period
|
$
|
(47.4)
|
|
|
$
|
(71.8)
|
|
|
$
|
(47.4)
|
|
|
$
|
(71.8)
|
|
1 During the second quarter 2020 we divested a small operation with annual external sales of approximately $10.0. No significant gain or loss was realized on the sale of this operation.
11. EMPLOYEE BENEFIT PLANS
Employer contributions for 2020 are expected to approximate $2.0.
The following table provides interim information as to our domestic and foreign defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Components of net pension expense
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
2.1
|
|
|
$
|
2.0
|
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
|
Interest cost
|
3.7
|
|
|
4.3
|
|
|
1.8
|
|
|
2.1
|
|
|
Expected return on plan assets
|
(6.0)
|
|
|
(5.7)
|
|
|
(3.0)
|
|
|
(2.8)
|
|
|
Recognized net actuarial loss
|
2.1
|
|
|
1.6
|
|
|
1.1
|
|
|
.8
|
|
|
Net pension expense
|
$
|
1.9
|
|
|
$
|
2.2
|
|
|
$
|
.9
|
|
|
$
|
1.1
|
|
The components of net pension expense, other than the service cost component, are included in the line item “Other (income) expense, net” in the Consolidated Condensed Statements of Operations.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
12. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Beginning balance, April 1, 2020
|
$
|
1,238.6
|
|
|
$
|
2,723.5
|
|
|
$
|
535.5
|
|
|
$
|
(1,873.5)
|
|
|
$
|
.4
|
|
|
$
|
(147.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Leggett & Platt, Inc. common shareholders
|
(6.1)
|
|
|
(6.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared (See Note 6)
|
(53.0)
|
|
|
(54.3)
|
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
(.2)
|
|
|
—
|
|
|
—
|
|
|
(.2)
|
|
|
—
|
|
|
—
|
|
|
Treasury stock issued
|
1.4
|
|
|
—
|
|
|
(.8)
|
|
|
2.2
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustments
|
25.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.8
|
|
|
Cash flow hedges, net of tax
|
3.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|
Defined benefit pension plans, net of tax
|
.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.6
|
|
|
Stock-based compensation transactions, net of tax
|
3.8
|
|
|
—
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, June 30, 2020
|
$
|
1,214.6
|
|
|
$
|
2,663.1
|
|
|
$
|
539.8
|
|
|
$
|
(1,871.5)
|
|
|
$
|
.4
|
|
|
$
|
(117.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Beginning balance, April 1, 2019
|
$
|
1,195.2
|
|
|
$
|
2,623.9
|
|
|
$
|
526.8
|
|
|
$
|
(1,891.6)
|
|
|
$
|
.5
|
|
|
$
|
(64.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
86.3
|
|
|
86.2
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared (See Note 6)
|
(52.5)
|
|
|
(53.9)
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
(.8)
|
|
|
—
|
|
|
—
|
|
|
(.8)
|
|
|
—
|
|
|
—
|
|
|
Treasury stock issued
|
3.1
|
|
|
—
|
|
|
(1.4)
|
|
|
4.5
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustments
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
Cash flow hedges, net of tax
|
.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.7
|
|
|
Defined benefit pension plans, net of tax
|
.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.5
|
|
|
Stock-based compensation transactions, net of tax
|
5.3
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, June 30, 2019
|
$
|
1,238.8
|
|
|
$
|
2,656.2
|
|
|
$
|
532.1
|
|
|
$
|
(1,887.9)
|
|
|
$
|
.6
|
|
|
$
|
(62.2)
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Beginning balance, January 1, 2020
|
$
|
1,312.5
|
|
|
$
|
2,734.5
|
|
|
$
|
538.1
|
|
|
$
|
(1,883.8)
|
|
|
$
|
.5
|
|
|
$
|
(76.8)
|
|
Effect of accounting change on prior years (Topic 326-See Note 7)
|
(2.5)
|
|
|
(2.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Adjusted beginning balance, January 1, 2020
|
1,310.0
|
|
|
2,732.0
|
|
|
538.1
|
|
|
(1,883.8)
|
|
|
.5
|
|
|
(76.8)
|
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
39.6
|
|
|
39.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared (See Note 6)
|
(105.8)
|
|
|
(108.5)
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
(8.6)
|
|
|
—
|
|
|
—
|
|
|
(8.6)
|
|
|
—
|
|
|
—
|
|
|
Treasury stock issued
|
3.9
|
|
|
—
|
|
|
(17.0)
|
|
|
20.9
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustments
|
(39.7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.1)
|
|
|
(39.6)
|
|
|
Cash flow hedges, net of tax
|
(2.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.6)
|
|
|
Defined benefit pension plans, net of tax
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
Stock-based compensation transactions, net of tax
|
16.0
|
|
|
—
|
|
|
16.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, June 30, 2020
|
$
|
1,214.6
|
|
|
$
|
2,663.1
|
|
|
$
|
539.8
|
|
|
$
|
(1,871.5)
|
|
|
$
|
.4
|
|
|
$
|
(117.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Beginning balance, January 1, 2019
|
$
|
1,157.6
|
|
|
$
|
2,613.8
|
|
|
$
|
529.1
|
|
|
$
|
(1,908.3)
|
|
|
$
|
.6
|
|
|
$
|
(77.6)
|
|
|
Effect of accounting change on prior years (Topic 842)
|
.1
|
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Adjusted beginning balance, January 1, 2019
|
1,157.7
|
|
|
2,613.9
|
|
|
529.1
|
|
|
(1,908.3)
|
|
|
.6
|
|
|
(77.6)
|
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
147.4
|
|
|
147.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared (See Note 6)
|
(102.4)
|
|
|
(105.1)
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
(12.5)
|
|
|
—
|
|
|
—
|
|
|
(12.5)
|
|
|
—
|
|
|
—
|
|
|
Treasury stock issued
|
16.9
|
|
|
—
|
|
|
(16.0)
|
|
|
32.9
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustments
|
9.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.8
|
|
|
Cash flow hedges, net of tax
|
4.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
|
Defined benefit pension plans, net of tax
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
Stock-based compensation transactions, net of tax
|
16.3
|
|
|
—
|
|
|
16.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, June 30, 2019
|
$
|
1,238.8
|
|
|
$
|
2,656.2
|
|
|
$
|
532.1
|
|
|
$
|
(1,887.9)
|
|
|
$
|
.6
|
|
|
$
|
(62.2)
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following tables set forth the components of and changes in each component of accumulated other comprehensive income (loss) for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Cash
Flow
Hedges
|
|
Defined
Benefit
Pension
Plans
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance, April 1, 2020
|
|
|
$
|
(86.9)
|
|
|
$
|
(10.4)
|
|
|
$
|
(50.0)
|
|
|
$
|
(147.3)
|
|
|
Other comprehensive income (loss)
|
|
|
25.8
|
|
|
4.0
|
|
|
(.4)
|
|
|
29.4
|
|
|
Reclassifications, pretax 1
|
|
|
—
|
|
|
.6
|
|
|
1.1
|
|
|
1.7
|
|
|
Income tax effect
|
|
|
—
|
|
|
(.9)
|
|
|
(.1)
|
|
|
(1.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
$
|
(61.1)
|
|
|
$
|
(6.7)
|
|
|
$
|
(49.4)
|
|
|
$
|
(117.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 1, 2019
|
|
|
$
|
(17.7)
|
|
|
$
|
(7.9)
|
|
|
$
|
(38.8)
|
|
|
$
|
(64.4)
|
|
|
Other comprehensive income (loss)
|
|
|
1.0
|
|
|
(1.3)
|
|
|
(.1)
|
|
|
(.4)
|
|
|
Reclassifications, pretax 2
|
|
|
—
|
|
|
2.3
|
|
|
.8
|
|
|
3.1
|
|
|
Income tax effect
|
|
|
—
|
|
|
(.3)
|
|
|
(.2)
|
|
|
(.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
$
|
(16.7)
|
|
|
$
|
(7.2)
|
|
|
$
|
(38.3)
|
|
|
$
|
(62.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
2020 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
|
Net trade sales
|
$
|
—
|
|
|
$
|
(.3)
|
|
|
$
|
—
|
|
|
$
|
(.3)
|
|
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
(.2)
|
|
|
—
|
|
|
(.2)
|
|
|
|
|
Interest expense
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
1.1
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, pretax
|
$
|
—
|
|
|
$
|
.6
|
|
|
$
|
1.1
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
2019 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
|
Net trade sales
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
(.2)
|
|
|
—
|
|
|
(.2)
|
|
|
|
|
Interest expense
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
.8
|
|
|
.8
|
|
|
|
|
Total reclassifications, pretax
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
.8
|
|
|
$
|
3.1
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Cash
Flow
Hedges
|
|
Defined
Benefit
Pension
Plans
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance, January 1, 2020
|
|
|
$
|
(21.5)
|
|
|
$
|
(4.1)
|
|
|
$
|
(51.2)
|
|
|
$
|
(76.8)
|
|
|
Other comprehensive income (loss)
|
|
|
(39.7)
|
|
|
(3.6)
|
|
|
.2
|
|
|
(43.1)
|
|
|
Reclassifications, pretax 1
|
|
|
—
|
|
|
.9
|
|
|
2.1
|
|
|
3.0
|
|
|
Income tax effect
|
|
|
—
|
|
|
.1
|
|
|
(.5)
|
|
|
(.4)
|
|
|
Attributable to noncontrolling interest
|
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
Balance, June 30, 2020
|
|
|
$
|
(61.1)
|
|
|
$
|
(6.7)
|
|
|
$
|
(49.4)
|
|
|
$
|
(117.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
|
$
|
(26.5)
|
|
|
$
|
(11.8)
|
|
|
$
|
(39.3)
|
|
|
$
|
(77.6)
|
|
|
Other comprehensive income (loss)
|
|
|
9.8
|
|
|
1.8
|
|
|
(.3)
|
|
|
11.3
|
|
|
Reclassifications, pretax 2
|
|
|
—
|
|
|
4.2
|
|
|
1.6
|
|
|
5.8
|
|
|
Income tax effect
|
|
|
—
|
|
|
(1.4)
|
|
|
(.3)
|
|
|
(1.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
$
|
(16.7)
|
|
|
$
|
(7.2)
|
|
|
$
|
(38.3)
|
|
|
$
|
(62.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
2020 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
(.8)
|
|
|
$
|
—
|
|
|
$
|
(.8)
|
|
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
(.5)
|
|
|
—
|
|
|
(.5)
|
|
|
|
|
Interest expense
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, pretax
|
$
|
—
|
|
|
$
|
.9
|
|
|
$
|
2.1
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
2019 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
(.4)
|
|
|
—
|
|
|
(.4)
|
|
|
|
|
Interest expense
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
1.6
|
|
|
1.6
|
|
|
|
|
Total reclassifications, pretax
|
$
|
—
|
|
|
$
|
4.2
|
|
|
$
|
1.6
|
|
|
$
|
5.8
|
|
13. FAIR VALUE
We utilize fair value measures for both financial and non-financial assets and liabilities.
Items measured at fair value on a recurring basis
Fair value measurements are established using a three level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following categories:
•Level 1: Quoted prices for identical assets or liabilities in active markets.
•Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Short-term investments in this category are valued using discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. Derivative assets and liabilities in this category are valued using models that consider various assumptions and information from market-corroborated sources. The models used are primarily industry-standard models that consider items such as quoted prices, market interest rate curves applicable to the instruments being valued as of the end of each period, discounted cash flows, volatility factors, current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
•Level 3: Unobservable inputs that are not corroborated by market data.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The areas in which we utilize fair value measures of financial assets and liabilities are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Bank time deposits with original maturities of three months or less
|
$
|
—
|
|
|
$
|
109.0
|
|
|
$
|
—
|
|
|
$
|
109.0
|
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|
Diversified investments associated with the Executive Stock Unit Program (ESUP) 1
|
40.7
|
|
|
—
|
|
|
—
|
|
|
40.7
|
|
|
Total assets
|
$
|
40.7
|
|
|
$
|
110.4
|
|
|
$
|
—
|
|
|
$
|
151.1
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
3.5
|
|
|
$
|
—
|
|
|
$
|
3.5
|
|
|
Liabilities associated with the ESUP 1
|
40.1
|
|
|
—
|
|
|
—
|
|
|
40.1
|
|
|
Total liabilities
|
$
|
40.1
|
|
|
$
|
3.5
|
|
|
$
|
—
|
|
|
$
|
43.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Bank time deposits with original maturities of three months or less
|
$
|
—
|
|
|
$
|
153.7
|
|
|
$
|
—
|
|
|
$
|
153.7
|
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
|
4.0
|
|
|
Diversified investments associated with the ESUP 1
|
41.0
|
|
|
—
|
|
|
—
|
|
|
41.0
|
|
|
Total assets
|
$
|
41.0
|
|
|
$
|
157.7
|
|
|
$
|
—
|
|
|
$
|
198.7
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
.9
|
|
|
$
|
—
|
|
|
$
|
.9
|
|
|
Liabilities associated with the ESUP 1
|
40.6
|
|
|
—
|
|
|
—
|
|
|
40.6
|
|
|
Total liabilities
|
$
|
40.6
|
|
|
$
|
.9
|
|
|
$
|
—
|
|
|
$
|
41.5
|
|
1 Includes both current and long-term amounts.
There were no transfers between Level 1 and Level 2 for any of the periods presented.
The fair value for fixed rate debt (Level 2) was approximately $77.1 greater than carrying value of $1,586.6 at June 30, 2020 and was approximately $98.6 greater than carrying value of $1,585.6 at December 31, 2019.
Items measured at fair value on a non-recurring basis
The primary areas in which we use fair value measurements of non-financial assets and liabilities are allocating purchase price to the assets and liabilities of acquired companies (Note 9) and evaluating long-term assets (including goodwill) for potential impairment (Note 5). Determining fair values for these items requires significant judgment and includes a variety of methods and models that utilize significant Level 3 inputs. For methodologies used in determining fair value reference is made to Footnote A in the Notes to Consolidated Financial Statements in our Form 10-K filed February 20, 2020.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
14. DERIVATIVE FINANCIAL INSTRUMENTS
Cash Flow Hedges
Derivative financial instruments that we use to hedge forecasted transactions and anticipated cash flows are as follows:
Currency Cash Flow Hedges—The foreign currency hedges manage risk associated with exchange rate volatility of various currencies.
Interest Rate Cash Flow Hedges—We have also occasionally used interest rate cash flow hedges to manage interest rate risks.
The effective changes in fair value of unexpired contracts are recorded in accumulated other comprehensive income and reclassified to income or expense in the period in which earnings are impacted. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged. (Settlements associated with the sale or production of product are presented in operating cash flows, and settlements associated with debt issuance are presented in financing cash flows.)
Fair Value Hedges and Derivatives not Designated as Hedging Instruments
These derivatives typically manage foreign currency risk associated with subsidiaries’ assets and liabilities, and gains or losses are recognized currently in earnings. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged.
Expense for Underlying Transactions Probable of Not Occurring
In response to the COVID-19 pandemic, our projected sales were adversely impacted in the short term and as a result, we believed that selected underlying transactions were probable of not occurring. Accordingly, we immediately recognized a loss in the first quarter 2020 of $.5, of which $.4 represented the previously deferred losses of our hedge positions that had been recorded in accumulated other comprehensive income (AOCI). These amounts are presented in the same line of the income statement as the expected hedged item (net trade sales).
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table presents assets and liabilities representing the fair value of our most significant derivative financial instruments. The fair values of the derivatives reflect the change in the market value of the derivative from the date of the trade execution and do not consider the offsetting underlying hedged item.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring at various dates through:
|
|
Total USD
Equivalent
Notional
Amount
|
|
As of June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other Current
Assets
|
|
Sundry
|
|
Other Current
Liabilities
|
|
Other Long-Term Liabilities
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Future USD sales/purchases of Canadian, Chinese, European, South Korean and UK subsidiaries
|
Dec 2021
|
|
$
|
134.7
|
|
|
$
|
.3
|
|
|
$
|
.5
|
|
|
$
|
1.4
|
|
|
$
|
.1
|
|
|
Future DKK sales of Polish subsidiary
|
Dec 2021
|
|
19.0
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future EUR sales of Chinese and UK subsidiaries
|
Dec 2021
|
|
28.3
|
|
|
—
|
|
|
—
|
|
|
.5
|
|
|
.1
|
|
|
Future MXN purchases of a USD subsidiary
|
Dec 2021
|
|
9.6
|
|
|
—
|
|
|
—
|
|
|
.8
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
|
|
|
|
.3
|
|
|
.5
|
|
|
3.1
|
|
|
.2
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany and third-party receivables and payables exposed to multiple currencies (DKK, EUR, MXN, USD and ZAR) in various countries (CAD, CNY, EUR, GBP, PLN and USD)
|
Dec 2020
|
|
105.4
|
|
|
.6
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD receivable on a CAD subsidiary
|
Jul 2020
|
|
12.0
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
|
$
|
.9
|
|
|
$
|
.5
|
|
|
$
|
3.3
|
|
|
$
|
.2
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring at various dates through:
|
|
Total USD
Equivalent
Notional
Amount
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other Current
Assets
|
|
Sundry
|
|
Other Current
Liabilities
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Future USD sales/purchases of Canadian, Chinese, European, South Korean, Swiss and UK subsidiaries
|
Sep 2021
|
|
$
|
138.5
|
|
|
$
|
1.3
|
|
|
$
|
.2
|
|
|
$
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future MXN purchases of a USD subsidiary
|
Jun 2021
|
|
9.8
|
|
.5
|
|
|
.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future DKK sales of a Polish subsidiary
|
Jun 2021
|
|
21.1
|
|
.3
|
|
|
—
|
|
|
—
|
|
|
|
|
Future EUR sales of Chinese and UK subsidiaries
|
Jun 2021
|
|
29.9
|
|
|
.7
|
|
|
—
|
|
|
—
|
|
|
|
|
Total cash flow hedges
|
|
|
|
|
2.8
|
|
|
.3
|
|
|
.7
|
|
|
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany and third-party receivables and payables exposed to multiple currencies (DKK, EUR, MXN, USD and ZAR) in various countries (CAD, CHF, CNY, GBP, PLN and USD)
|
May 2020
|
|
112.0
|
|
|
.8
|
|
|
—
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deliverable hedges (EUR and USD) exposed to the CNY
|
Dec 2020
|
|
10.1
|
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge of USD receivable on a CAD subsidiary
|
Jan 2020
|
|
5.0
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
.1
|
|
|
—
|
|
|
.1
|
|
|
|
|
Total Derivatives
|
|
|
|
|
$
|
3.7
|
|
|
$
|
.3
|
|
|
$
|
.9
|
|
|
|
The following table sets forth the pretax (gains) losses for our hedging activities for the years presented. This schedule includes reclassifications (including impact of underlying transactions probable of not occurring) from accumulated other comprehensive income (see Note 12) as well as derivative settlements recorded directly to income or expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caption in Consolidated Condensed Statements of Operations
|
|
Amount of (Gain) Loss Recorded in Income Six Months Ended
June 30,
|
|
|
|
Amount of (Gain) Loss Recorded in Income Three Months Ended June 30,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cash flow hedges
|
Interest expense
|
|
$
|
2.2
|
|
|
$
|
2.2
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
Currency cash flow hedges
|
Net trade sales
|
|
1.2
|
|
|
1.5
|
|
|
.6
|
|
|
1.1
|
|
|
Currency cash flow hedges
|
Cost of goods sold
|
|
(.3)
|
|
|
(.7)
|
|
|
—
|
|
|
(.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
|
|
3.1
|
|
|
3.0
|
|
|
1.7
|
|
|
1.8
|
|
|
Fair value hedges
|
Other (income) expense, net
|
|
2.5
|
|
|
.6
|
|
|
(2.5)
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
Other (income) expense, net
|
|
(.2)
|
|
|
.1
|
|
|
1.1
|
|
|
(.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
|
$
|
5.4
|
|
|
$
|
3.7
|
|
|
$
|
.3
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. OTHER (INCOME) EXPENSE
The components of other (income) expense from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges 1
|
$
|
2.5
|
|
|
$
|
1.9
|
|
|
$
|
1.9
|
|
|
$
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
Currency (income) loss
|
(1.6)
|
|
|
1.8
|
|
|
.7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Loss(Gain) from diversified investments associated with Executive Stock Unit Program (See Note 8)
|
1.2
|
|
|
(4.5)
|
|
|
(5.5)
|
|
|
(1.2)
|
|
|
COVID-19 government subsidies 2
|
(11.4)
|
|
|
—
|
|
|
(10.4)
|
|
|
—
|
|
|
Other income
|
(2.2)
|
|
|
(2.9)
|
|
|
(2.6)
|
|
|
(2.4)
|
|
|
|
$
|
(11.5)
|
|
|
$
|
(3.7)
|
|
|
$
|
(15.9)
|
|
|
$
|
(2.9)
|
|
1 We incurred $1.9 of severance expense for permanent workforce reductions in the second quarter of 2020 associated with changes in management and organizational structure in response to the effect the COVID-19 pandemic has had on the nature and focus of our operations. See Note 18 for additional information. Additionally in the second quarter of 2020, we incurred $1.0 of restructuring-related expenses associated with writedowns of inventories (reported in cost of goods sold) and long-lived asset impairments (reported in impairments) related to the wind down of the 2018 Restructuring Plan.
2 This represents government subsidies in our international locations, which do not contain material restrictions on our operations, sources of funding or otherwise. In the U.S., we are deferring our payment of employer's Social Security match into 2021 and 2022 as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Through June 30, 2020, we have deferred $5.3, and we expect to defer $17.1 in total for 2020. Half of the amount will be paid in 2021 and half in 2022.
16. CONTINGENCIES
We are a party to various proceedings and matters involving employment, intellectual property, environmental, taxation, vehicle-related personal injury and other laws. When it is probable, in management's judgment, that we may incur monetary damages or other costs resulting from these proceedings or other claims, and we can reasonably estimate the amounts, we record appropriate accruals in the financial statements and make charges against earnings. For all periods presented, we have recorded no material charges against earnings. Also, when it is reasonably possible that we may incur additional loss in excess of recorded accruals and we can reasonably estimate the additional losses or range of losses, we disclose such additional reasonably possible losses in these notes.
For specific information regarding accruals, cash payments to settle litigation contingencies, and reasonably possible losses in excess of accruals, please see “Accruals and Reasonably Possible Losses in Excess of Accruals” below.
Brazilian Value-Added Tax Matters
All dollar amounts presented in this section reflect the U.S. Dollar (USD) equivalent of Brazilian Real (BRL).
We deny all allegations in the below Brazilian actions. We believe that we have valid bases to contest such actions and are vigorously defending ourselves. However, these contingencies are subject to uncertainties, and based on current known facts, we believe that it is reasonably possible (but not probable) that we may incur losses of approximately $10.4 including interest and attorney fees with respect to these assessments. Therefore, because it is not probable we will incur a loss, no accrual has been recorded for Brazilian value-added tax (VAT) matters. As of the date of this filing, we have $7.9 on deposit with the Brazilian government to partially mitigate interest and penalties that may accrue while we work through these matters. If we are successful in our defense of these assessments, the deposits are refundable with interest. These deposits are recorded as a long-term asset on our balance sheet.
Brazilian Federal Cases. On December 22 and December 29, 2011, and December 17, 2012, the Brazilian Finance Ministry, Federal Revenue Office (Finance Ministry) issued notices of violation against our wholly-owned subsidiary, Leggett & Platt do Brasil Ltda. (L&P Brazil) in the amount of $1.5, $.1 and $2.6, respectively. The Finance Ministry claimed that for
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
November 2006 and continuing through 2011, L&P Brazil used an incorrect tariff code for the collection and payment of VAT primarily on the sale of mattress innerspring units in Brazil (VAT Rate Dispute). L&P Brazil has denied the violations. On December 4, 2015, we filed an action related to the $2.6 assessment ($3.1 with updated interest), in Sorocaba Federal Court. On October 18, 2018, we filed an action related to the $1.5 assessment ($2.2 with updated interest), in Sorocaba Federal Court. The $.1 assessment remains pending at the second administrative level. These actions seek to annul the entire assessments and remain pending.
In addition, L&P Brazil received assessments on December 22, 2011, and June 26, July 2 and November 5, 2012, and September 13, 2013, from the Finance Ministry where it challenged L&P Brazil’s use of tax credits in years 2005 through 2010. Such credits are generated based upon the VAT rate used by L&P Brazil on the sale of mattress innersprings. On September 4, 2014, the Finance Ministry issued additional assessments regarding this same issue, but covering certain periods of 2011 and 2012. L&P Brazil filed its defenses denying the assessments. L&P Brazil has received aggregate assessments and penalties totaling $1.3 ($1.9 updated with interest) on these denials of tax credit matters. L&P Brazil has denied the violations. Some of these cases have been administratively closed and combined with other actions, while the remaining cases are pending at the administrative level. On September 11, 2017, L&P Brazil received an "isolated penalty" from the Finance Ministry in the amount of $.1 regarding the use of these credits. L&P Brazil filed its defense disputing the penalty. These cases remain pending.
On February 1, 2013, the Finance Ministry filed a Tax Collection action against L&P Brazil in the Camanducaia Judicial District Court, alleging the untimely payment of $.1 of social contributions (social security and social assistance payments) for September to October 2010. L&P Brazil argued the payments were not required to be made because of the application of tax credits generated by L&P Brazil's use of a correct VAT rate on the sale of mattress innersprings. On June 26, 2014, the Finance Ministry issued a new notice of violation against L&P Brazil in the amount of $.5 covering 2011 through 2012 on the same subject matter. L&P Brazil has filed its defenses. These cases remain pending.
On July 1, 2014, the Finance Ministry rendered a preliminary decision alleging that L&P Brazil improperly offset $.1 of social contributions due in 2011. L&P Brazil denied the allegations. L&P Brazil is defending on the basis that the social contribution amounts were correctly offset with tax credits generated by L&P Brazil's use of a correct VAT rate on the sale of mattress innersprings. On December 15, 2015, the Finance Ministry issued an assessment against L&P Brazil in the amount of $.1 for August 2010 through May 2011, as a penalty for L&P Brazil's requests to offset tax credits. We filed our defense denying the assessment. On August 8, 2019, the Finance Ministry issued an assessment against L&P Brazil in the amount of $.1 alleging that L&P Brazil improperly offset social contributions due between 2015 and 2016. These cases remain pending.
State of São Paulo, Brazil Cases. The State of São Paulo, Brazil (SSP) on October 4, 2012, issued a Tax Assessment against L&P Brazil in the amount of $1.0 for the tax years 2009 through 2011 regarding the same VAT Rate Dispute but as applicable to the sale of mattress innerspring units in the SSP (SSP VAT Rate Dispute). On June 21, 2013, the SSP converted the Tax Assessment to a tax collection action against L&P Brazil in the amount of $1.2 in Sorocaba Judicial District Court. L&P Brazil has denied all allegations. This case remains pending.
L&P Brazil also received a Notice of Tax Assessment from the SSP dated March 27, 2014 in the amount of $.6 for tax years January 2011 through August 2012 regarding the SSP VAT Rate Dispute. L&P Brazil filed its response denying the allegations, but the tax assessment was maintained at the administrative level. On June 9, 2016, L&P Brazil filed an action in Sorocaba State Court to annul the entire assessment. The Court ruled against L&P Brazil on the assessment but lowered the interest amount. The Court of Appeals upheld the unfavorable ruling and we filed a Special and Extraordinary appeal to the High Court on October 10, 2017. The High Court denied our appeal on February 18, 2019. L&P Brazil filed an interlocutory appeal on March 20, 2019. On November 5, 2019, SSP announced an amnesty program that provides discounts on penalties and interest on SSP assessments. We decided to move forward with the amnesty program as it relates to the $.6 assessment (updated to $.9 with interest). We expect to pay $.5 to resolve this matter using a portion of our $.9 cash deposit. We also expect the return of approximately $.4 consisting of cash deposit and accrued interest.
State of Minas Gerais, Brazil Cases. On December 18, 2012, the State of Minas Gerais, Brazil issued a tax assessment to L&P Brazil relating to the same VAT Rate Dispute but as applicable to the sale of mattress innerspring units in Minas Gerais from March 2008 through August 2012 in the amount of $.3. L&P Brazil filed its response denying any violation. The Minas Gerais Taxpayer's Council ruled against us, and on June 5, 2014, L&P Brazil filed a Motion to Stay the Execution of the Judgment in Camanducaia Judicial District Court, which remains pending.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Accruals and Reasonably Possible Losses in Excess of Accruals
Accruals for Probable Losses
Although we deny liability in all currently threatened or pending litigation proceedings in which we are or may be a party and believe that we have valid bases to contest all claims threatened or made against us, we have recorded a litigation contingency accrual for our reasonable estimate of probable loss for pending and threatened litigation proceedings, in aggregate, in millions, as follows:
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Six Months Ended June 30,
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Three Months Ended June 30,
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2020
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2019
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2020
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2019
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Litigation contingency accrual - Beginning of period
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$
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.7
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$
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1.9
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$
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.6
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$
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1.9
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Adjustment to accruals - expense (income)
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.1
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.2
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—
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.2
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Currency
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(.1)
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—
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—
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—
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Cash payments
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(.2)
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—
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(.1)
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—
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Litigation contingency accrual - End of period
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$
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.5
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$
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2.1
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$
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.5
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$
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2.1
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The above litigation contingency accruals do not include accrued expenses related to workers' compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters, some of which may contain a portion of litigation expense. However, any litigation expense associated with these categories is not anticipated to have a material effect on our financial condition, results of operations or cash flows.
Reasonably Possible Losses in Excess of Accruals
Although there are a number of uncertainties and potential outcomes associated with our pending or threatened litigation proceedings, we believe, based on current known facts, that additional losses, if any, are not expected to materially affect our consolidated financial position, results of operations or cash flows. However, based upon current known facts, as of June 30, 2020, aggregate reasonably possible (but not probable, and therefore, not accrued) losses in excess of the accruals noted above are estimated to be $11.2, including $10.4 for Brazilian VAT matters disclosed above and $.8 for other matters. If our assumptions or analyses regarding these contingencies are incorrect, or if facts change, we could realize losses in excess of the recorded accruals (and in excess of the $11.2 referenced above), which could have a material negative impact on our financial condition, results of operations and cash flows.
17. DEBT AMENDMENT
We reviewed our current forecasts for liquidity and future compliance with existing debt covenants in light of the potential impacts of COVID-19 on our business and the uncertainties associated with the duration of the pandemic as discussed in Note 18 Risks and Uncertainties.
As such, effective May 6, 2020, we amended our credit facility to, among other things, change the restrictive borrowing covenants. The prior leverage ratio covenant required us to maintain, as of the last day of each quarter, a leverage ratio of consolidated funded indebtedness to trailing 12-month consolidated EBITDA (each as defined in the credit facility) of not greater than 3.50 to 1.00.
The leverage ratio covenant was changed in two ways: (i) the calculation of the ratio now subtracts unrestricted cash (as defined in the credit facility) from consolidated funded indebtedness; and (ii) the ratio levels, calculated as of the last day of the applicable fiscal quarter, were changed to 4.75 to 1.00 for each fiscal quarter end date through March 31, 2021; 4.25 to 1.00 at June 30, 2021; 3.75 to 1.00 at September 30, 2021; and 3.25 to 1.00 at December 31, 2021 and thereafter.
In addition, the amount of total secured debt limit was changed from 15% to 5% of our total consolidated assets until December 31, 2021, at which time it will revert back to the 15%. Various interest rate terms were also changed. The credit facility also contains an anti-cash hoarding provision that limits borrowing if the Company has a consolidated cash balance (as defined in the credit facility) in excess of $300.0 without planned expenditures. The maturity date of January 2024 remains unchanged. At June 30, 2020, the Company is in compliance with all of its debt covenants and expects to be able to maintain compliance with the amended debt covenant requirements.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
18. RISKS AND UNCERTAINTIES
In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. Various governments worldwide instituted quarantines, shelter-in-place or stay-at-home orders, and other material limitations on the conduct of business. These restrictions and limitations have had an adverse effect on the economies and financial markets of the countries where our products, or our customers' products, are sold resulting in an economic downturn that has had an effect on our customers' demand for our products.
Due to the speed with which the COVID-19 pandemic developed and the uncertainties created, including the depth and duration of any disruptions to customers and suppliers, its future effect on our business, results of operations and financial condition cannot be predicted. While we are unable to accurately foresee these future impacts, we believe that our financial resources and liquidity levels, along with various contingency plans to reduce costs are sufficient to manage the impact currently anticipated from the COVID-19 pandemic, which will likely include reduced revenues and operating profits for the full year 2020 in all segments and lower operating cash flows.
Because the COVID-19 pandemic is an evolving situation, we will continue to monitor the business impact and may take further actions that we deem appropriate in light of the circumstances. If government restrictions are imposed, or demand declines further, we could be required to make additional adjustments to our operations, including additional permanent reductions in workforce, operating reductions or facility closures.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
What We Do
Leggett & Platt, Incorporated (the Company, we or our) is a diversified manufacturer, and member of the S&P 500 index, that conceives, designs, and produces a wide range of engineered components and products found in many homes, offices, and automobiles. We make components that are often hidden within, but integral to, our customers’ products.
We are the leading U.S.-based manufacturer of: a) bedding components; b) automotive seat support and lumbar systems; c) specialty bedding foams and private-label finished mattresses; d) components for home furniture and work furniture; e) flooring underlayment; f) adjustable beds; and g) bedding industry machinery.
Our Segments
Our operations are comprised of 140 production facilities located in 18 countries around the world. Our reportable segments are the same as our operating segments, which also correspond with our management organizational structure. To reflect how we manage our newly aligned businesses and in conjunction with the change in executive officer leadership, our management organizational structure and all related internal reporting changed effective January 1, 2020. As a result, our segment reporting has changed to reflect the new structure. The modified structure consists of three segments, seven business groups, and 15 business units organized as follows:
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Bedding Products 1
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Specialized Products
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Furniture, Flooring & Textile Products 2
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Segment
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Segment
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Segment
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BEDDING GROUP
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AUTOMOTIVE GROUP
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HOME FURNITURE GROUP
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Steel Rod
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Automotive
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Home Furniture
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Drawn Wire
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U.S. Spring
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AEROSPACE PRODUCTS GROUP
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WORK FURNITURE GROUP
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Specialty Foam
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Aerospace Products
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Work Furniture
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Adjustable Bed
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International Spring
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HYDRAULIC CYLINDERS
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FLOORING & TEXTILE
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Machinery
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GROUP
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PRODUCTS GROUP
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Hydraulic Cylinders
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Flooring Products
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Fabric Converting
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Geo Components
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1 The new segment consists of the former Residential Products and Industrial Products segments, plus the Consumer
Products Group (which is renamed the Adjustable Bed business unit), minus the Fabric & Flooring Products Group
(which is renamed the Flooring & Textile Products Group).
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2 The new segment consists of the former Furniture Products segment, plus the Fabric & Flooring Products Group
(which is renamed the Flooring & Textile Products Group) minus the Consumer Products Group (which is renamed
the Adjustable Bed business unit).
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This segment change was retrospectively applied to all prior periods presented. Our segments are described below.
Bedding Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products, as well as produces private-label finished mattresses for bedding brands, and adjustable bed bases. This segment is also backwardly integrated into the production and supply of specialty foam chemicals, steel rod and drawn steel wire to our own operations and to external customers. Our trade customers for wire make mechanical springs and many other end products. This segment generated 48% of our trade sales during the first six months of 2020.
Specialized Products: From this segment, we supply lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries. This segment contributed 20% of our trade sales in the first six months of 2020.
Furniture, Flooring & Textile Products: Operations in this segment supply a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture. We also produce or distribute carpet cushion, hard surface flooring underlayment, and textile and geo components. This segment contributed 32% of our trade sales in the first six months of 2020.
COVID-19 Impacts on our Business
Governments and health organizations have identified an outbreak of a respiratory illness known as COVID-19. The World Health Organization has declared the outbreak a global pandemic. The COVID-19 pandemic has had, and could further have, an adverse impact to, among other things (i) the demand for our products and our customers’ products, growth rates in the
industries in which we participate, and opportunities in those industries; (ii) our manufacturing operations' ability to remain open, obtain necessary raw materials and parts, maintain appropriate labor levels and ship finished products to customers; (iii) operating costs related to pay and benefits for permanently terminated employees; (iv) the collection of trade and other notes receivables in accordance with their terms due to customer bankruptcy, financial difficulties or insolvency; (v) impairment of goodwill and long-lived assets; and (vi) our ability to access the commercial paper market or borrow under our credit facility; all of which, in the aggregate, have had, and could further have, a material negative impact on our trade sales, earnings, liquidity, cash flow and financial condition.
While we are unable to accurately foresee these future impacts, we believe that our financial resources and liquidity levels, along with various contingency plans to reduce costs are sufficient to manage the impact currently anticipated from the COVID-19 pandemic, which will likely include reduced revenues and operating profits for the full year 2020 in all segments and lower operating cash flows.
Demand for our Products. Various governments in Asia, Europe, North America, and elsewhere have instituted quarantines, shelter-in-place or stay-at-home orders, or restrictions on public gatherings as well as limitations on social interactions. These restrictions and limitations have had, and could further have, an adverse effect on the economies and financial markets of the countries where our products, or our customers’ products, are sold resulting in an economic downturn that has had, and could further have, an effect on the demand for our products and our customers’ products, growth rates in the industries in which we participate, and opportunities in those industries.
Trade sales in the second quarter were down 30% versus the second quarter of 2019, with demand improving each month throughout the quarter. April sales were down over 50%, May sales were down almost 30% and June sales were down just over 15%, all versus the prior year. We continued to see sequential improvement throughout the first three weeks of July, with sales near prior year levels.
We sell some of our products to certain manufacturing customers, particularly in the automotive industry, that have facilities where their workforce is unionized. Some unions have put pressure on manufacturers to close plants because of the COVID-19 pandemic. It is possible that these unions may institute work stoppages based on the health and safety concerns of union members contracting COVID-19 in our customers’ facilities. A work stoppage for any length of time could stop or reduce production in our customers’ facilities, further negatively impacting the demand for our finished products.
Impact on our Manufacturing Operations. We have manufacturing facilities in the United States and 17 other countries. All of these countries have been affected by the COVID-19 pandemic. All of our facilities are open and running at this time, with some capacity restrictions on our plants due to governmental orders. The U.S. and other governments have ordered that certain non-woven fabrics used to produce ComfortCore® innersprings be prioritized to produce medical supplies, resulting in shortages of the fabrics for non-medical applications. These shortages and very strong bedding demand have caused the Company temporarily to be unable to supply full industry demand for ComfortCore®. The Company has declared force majeure due to the shortages. Also, as demand has improved, we have experienced some temporary labor shortages. Some facilities had experienced problems delivering products to customers because of disruption in logistics necessary to import, export, or to transfer products across borders. At this time, cross border logistics are no longer an issue. Depending on the length and severity of the COVID-19 pandemic, our ability to keep our manufacturing operations open, maintain appropriate labor levels, obtain necessary raw materials and parts and ship finished products to customers may be partially or completely disrupted, either on a temporary or prolonged basis. The realization of these risks to our manufacturing operations, labor force and supply chain could also increase labor, commodity and energy costs.
We have been and could be further negatively affected by governmental action in any one or more of the countries in which we operate by the imposition of restrictive measures concerning shelter-in-place or stay-at-home orders, public gatherings and human interactions, mandatory closures of retail establishments that sell our products or our customers’ products, and restrictions on the import or export of products.
To date, we have had a relatively small number of employees in our manufacturing facilities who have tested positive for COVID-19. When this has occurred, we follow adopted procedures which include enhanced disinfecting that targets areas that have likely exposure to COVID-19. The employee is required to observe a quarantine period, monitor symptoms and follow medical guidance prior to returning to work. Contact tracing is performed to identify any other employees who had direct contact with the employee who tested positive for COVID-19. If any direct contacts are identified, they must also self-isolate, monitor symptoms, and follow medical guidance prior to returning to work. A significant increase in COVID-19 cases among our employees may disrupt our ability to produce and deliver finished products to our customers if we are unable to shift production to other manufacturing facilities.
Severance Costs Related to Permanent Workforce Reductions. In connection with reduced demand for our products, we have permanently terminated a relatively small number of our employees worldwide. We incurred severance costs of $2 million in the second quarter 2020 and expect to incur approximately $5 million in the last half of the year. If we permanently terminate additional employees because of lack of demand, mandatory governmental closure of our facilities or otherwise, we may incur material separation costs.
Collection of Trade and Notes Receivables. Bankruptcy, financial difficulties or insolvency caused by the COVID-19 pandemic, or otherwise, can and has occurred with some of our customers which can impact their ability to pay their debts to us. Prior to the pandemic, we provided trade credit and other financing to some of these customers in a material amount, particularly in our Bedding segment. Our bad debt reserve contains uncertainties because it requires management to estimate the amount of uncollectible receivables and notes based upon the financial health and payment history of the customer, industry and macroeconomic considerations, and historical loss experience.
Many of our customers and other third parties have been adversely affected by the social and governmental restrictions and limitations related to the COVID-19 pandemic. If these parties suffer significant financial difficulty, they may be unable to pay their debts to us, they may reject their contractual obligations to us under bankruptcy laws or otherwise, or we may have to negotiate significant discounts and/or extend financing terms with these parties. If we are unable to collect trade receivables and other notes receivables on a timely basis, this inability will require larger provisions for bad debt.
Impairment of Goodwill and Long-Lived Assets. A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. At June 30, 2020, goodwill and other intangible assets represented $2.1 billion, or 46% of our total assets. In addition, net property, plant and equipment, operating lease right-of-use assets, and sundry assets totaled $1.07 billion, or 23% of total assets.
We review our reporting units for potential goodwill impairment in the second quarter as part of our annual goodwill impairment testing, and more often if an event or circumstance occurs making it likely that impairment exists. In addition, we test for the recoverability of long-lived assets at year end, and more often if an event or circumstance indicates the carrying value may not be recoverable. We conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations.
The 2020 goodwill impairment testing resulted in a $25.4 million non-cash goodwill impairment charge in the second quarter of 2020 with respect to our Hydraulic Cylinders reporting unit, which is a part of the Specialized Products segment. Demand for hydraulic cylinders is dependent upon capital spending for material handling equipment.
The impairment charge reflects the complete write-off of the goodwill associated with the Hydraulic Cylinders reporting unit and will not result in future cash expenditures. Although we do not believe that a triggering event related to the impairment of goodwill or other long-lived assets occurred in the first quarter of 2020, the anticipated longer-term economic impacts of COVID-19 lowered expectations of future revenue and profitability causing its fair value to fall below its carrying value. We concluded on July 30, 2020, as part of our normal second quarter 2020 annual goodwill impairment testing and in connection with the preparation and review of the second quarter 2020 financial statements, that an impairment charge was required with respect to this reporting unit. We also evaluated other long-lived assets associated with this unit for impairment; no impairments were indicated other than goodwill.
Of the remaining six reporting units, three had fair values in excess of carrying value of less than 100%.
•Fair value for our Bedding reporting unit exceeded carrying value by 68%. Our 2019 acquisition of ECS is part of our Bedding reporting unit, and goodwill for our Bedding reporting unit was $853 million at June 30, 2020.
•Fair value for our Aerospace reporting unit exceeded carrying value by 51%. Goodwill for the Aerospace reporting unit was $59 million at June 30, 2020.
•Fair value for our Work Furniture reporting unit exceeded carrying value by 25%. Goodwill for the Work Furniture reporting unit was $95 million at June 30, 2020.
If there is a prolonged adverse economic impact from the COVID-19 pandemic, we may not be able to achieve projected performance levels. If actual results materially differ from the assumptions and estimates used in the goodwill and long-lived asset valuation calculations, we could incur future impairment charges. These non-cash charges could have a material negative impact on our earnings.
Our Ability to Access the Commercial Paper Market or Borrow under our Credit Facility. The COVID-19 pandemic has negatively impacted liquidity in the commercial paper market. Our inability to issue commercial paper in appropriate amounts and tenor, for cash management purposes, could cause us to borrow under our credit facility which serves as support for our commercial paper program. If this were to happen, we would incur higher interest costs.
The credit facility is a multi-currency credit facility maturing in January 2024 providing us the ability, from time to time subject to certain restrictive covenants and customary conditions, to borrow, repay and re-borrow up to $1.2 billion. The credit facility also provided for a one-time draw of up to $500 million under a five-year term loan facility, which we fully borrowed in January 2019 to consummate the ECS acquisition.
Because of the economic impacts of the COVID-19 pandemic on our business, effective May 6, 2020, we amended the credit facility to, among other things, change the restrictive borrowing covenants. The prior leverage ratio covenant required us to maintain, as of the last day of each quarter, a leverage ratio of consolidated funded indebtedness to trailing 12-month consolidated EBITDA (each as defined in the credit facility) of not greater than 3.50 to 1.00. The covenant was changed in two ways: (i) the calculation of the ratio now subtracts unrestricted cash (as defined in the credit facility) from consolidated funded indebtedness; and (ii) the ratio levels, calculated as of the last day of the applicable fiscal quarter, were changed to 4.75 to 1.00 for each fiscal quarter end date through March 31, 2021; 4.25 to 1.00 at June 30, 2021; 3.75 to 1.00 at September 30, 2021; and 3.25 to 1.00 at December 31, 2021 and thereafter. In addition, the amount of total secured debt limit was changed from 15% to 5% of our total consolidated assets until December 31, 2021, at which time it will revert back to the 15%. Various interest rate terms were also changed. The impact on our interest expense will depend upon our ability to access the commercial paper market, and if so, the degree of that access. The credit facility also contains an anti-cash hoarding provision that limits borrowing if the Company has a consolidated cash balance (as defined in the credit facility) in excess of $300 million without planned expenditures. At June 30, 2020, the Company is in compliance with all of its debt covenants and expects to be able to maintain compliance with the amended debt covenant requirements.
At June 30, 2020, we had used, through commercial paper borrowings, $102 million of the borrowing capacity under the credit facility. However, as our trailing 12-month consolidated EBITDA, unrestricted cash and debt levels change, our additional borrowing capacity increases or decreases. Based on our trailing 12-month consolidated EBITDA, unrestricted cash and debt levels at June 30, 2020, our additional borrowing capacity under the credit facility was approximately $1.1 billion at quarter end. However, this may not be indicative of the actual borrowing capacity going forward, which may be materially different depending on our consolidated EBITDA, unrestricted cash and debt levels at that time. Because of the adverse economic impacts of the COVID-19 pandemic, our consolidated EBITDA may decrease in future quarters in 2020. For more information about restrictive covenants, see “Our Ability to Access the Commercial Paper Market or Borrow under our Credit Facility” in Item 1A Risk Factors.
Also, if we fail to comply with the covenants specified in the credit facility, we may trigger an event of default, in which case the lending banks would have the right to: (i) terminate their commitment to provide additional loans under the credit facility; and (ii) declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. Additionally, our senior notes contain cross-default provisions which could make outstanding amounts under the senior notes immediately payable in the event of an acceleration of amounts due under the credit facility following a material uncured default. If the debt due under the credit facility or senior notes were to be accelerated, we may not have sufficient cash to repay this debt.
Our Response to the COVID-19 Pandemic. In response to COVID-19, the Company has focused on protecting our employees and ensuring a safe work environment. We formed a cross-functional crisis response team that meets daily. We help our business leaders manage items such as responding to workplace health and safety issues and protocols, interpreting government orders and securing personal protective equipment. The team developed a comprehensive handbook to document new work procedures and changes to production necessary to facilitate proper social distancing. Our business leaders have implemented training and change management initiatives to drive and maintain new ways of operating.
In order to carefully manage cash, we reduced capital expenditures by over 60% to approximately $60 million for 2020 and are limiting acquisition spending. We eliminated non-essential expenses and postponed major projects, of which we expect to produce approximately $100 million of fixed cost savings in 2020. The Company is also closely monitoring accounts receivable and managing our inventories.
Cash Dividend
Dividends have historically been the primary means by which we return cash to shareholders. Our long-term targeted dividend payout ratio has been approximately 50% of adjusted EPS (which excludes special items such as significant tax law impacts, impairment charges, restructuring-related charges and gains from sales of assets or businesses). In 2019, we increased the quarterly dividend by $.02, or 5.3%, to $.40 per share. 2019 marked the Company's 48th consecutive annual dividend increase, a record that only ten S&P 500 companies have exceeded. On August 3, 2020, our Board of Directors declared a third quarter dividend of $.40 per share, equal to the dividend declared in the third quarter of 2019.
Credit Rating Downgrade and Liquidity
Independent rating agencies evaluate our credit profile on an ongoing basis and have assigned ratings to our long-term and short-term debt. On April 21, 2020, one of our rating agencies, which had our long-term debt rating on negative outlook, lowered that rating by one notch, but changed the outlook to stable. This rating agency did not change our short-term rating. On May 5, 2020, another rating agency lowered our long-term and short-term ratings by one notch with a stable outlook. There is uncertainty whether our short-term ratings will continue to allow us access to the commercial paper market, and if so, the degree of that access. If we are not able to access the commercial paper market, either partially or completely, we expect to borrow under our credit facility for our liquidity needs but at higher interest costs. See "Our borrowing costs and access to liquidity may be impacted by our credit ratings" under Risk Factors on page 56.
Customers
We serve a broad suite of customers, with our largest customer representing approximately 5% of our trade sales in 2019. Many are companies whose names are widely recognized. They include bedding, residential and work furniture producers, automotive OEM and Tier 1 manufacturers, and a variety of other companies.
Raw Material Costs
Our costs can vary significantly as market prices for raw materials (many of which are commodities) fluctuate. We typically have short-term commitments from our suppliers; accordingly, our raw material costs generally move with the market. Our ability to recover higher costs (through selling price increases) is crucial. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs. Conversely, when costs decrease significantly, we generally pass those lower costs through to our customers. The timing of our price increases or decreases is important; we typically experience a lag in recovering higher costs, and we also realize a lag as costs decline.
Steel is our principal raw material. At various times in past years, we have experienced significant cost fluctuations in this commodity. In most cases, the major changes (both increases and decreases) were passed through to customers with selling price adjustments. Over the past few years we have seen varying degrees of inflation and deflation in U.S. steel pricing. In 2019, steel costs decreased through most of the year. In the first half of 2020, steel costs have deflated modestly.
As a producer of steel rod, we are also impacted by changes in metal margins (the difference in the cost of steel scrap and the market price for steel rod). In 2019, although steel prices decreased through the year, a wider than usual metal margin persisted. As a result, our steel operations experienced enhanced profitability in 2019. In the first half of 2020, these metal margins began to compress, but remain wider than usual.
With the acquisition of ECS, we now have greater exposure to the cost of chemicals, including TDI, MDI, and polyol. The cost of these chemicals has fluctuated at times, but ECS has generally passed the changes through to its customers, with a lag that varies based on customer contract terms. In 2019, ECS experienced a negative effect on trade sales due to chemical deflation. In the first half of 2020, chemicals have been further deflating. Our other raw materials include woven and non-woven fabrics and foam scrap. We have experienced changes in the cost of these materials in past years and generally have been able to pass them through to our customers.
When we raise our prices to recover higher raw material costs, this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components. We must continue providing product options to our customers that enable them to improve the functionality of their products and manage their costs, while providing higher profits for our operations.
Competition
Many of our markets are highly competitive, with the number of competitors varying by product line. In general, our competitors tend to be smaller, private companies. Many of our competitors, both domestic and foreign, compete primarily on the basis of price. Our success has stemmed from the ability to remain price competitive, while delivering innovation, better product quality, and customer service.
We continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products offshore. In addition to lower labor rates, foreign competitors benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. We typically remain price competitive in
most of our business units, even versus many foreign manufacturers, as a result of our highly efficient operations, automation, vertical integration in steel and wire, logistics and distribution efficiencies, and large scale purchasing of raw materials and commodities. However, we have also reacted to foreign competition in certain cases by selectively adjusting prices, developing new proprietary products that help our customers reduce total costs and shifting production offshore to take advantage of lower input costs.
Since 2009, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. In September 2019, the Department of Commerce (DOC) and the International Trade Commission (ITC) concluded a second sunset review extending the orders for an additional five years, through October 2024; at which time, the DOC and ITC will conduct a third sunset review to determine whether to extend the orders for an additional five years.
Antidumping and countervailing duty cases filed by major U.S. steel wire rod producers have resulted in the imposition of antidumping duties on imports of steel wire rod from Brazil, China, Belarus, Indonesia, Italy, Korea, Mexico, Moldova, Russia, South Africa, Spain, Trinidad & Tobago, Turkey, Ukraine, United Arab Emirates, and the United Kingdom, ranging from 1% to 757%, and countervailing duties on imports of steel wire rod from Brazil, China, Italy and Turkey, ranging from 3% to 193%. In June 2020, the ITC and DOC concluded a first sunset review, extending the orders on China through June 2025, and in July 2020, the ITC and DOC concluded a third sunset review, determining to extend the orders on Brazil, Indonesia, Mexico, Moldova, and Trinidad & Tobago through August 2025. Duties will continue through December 2022 for Belarus, Italy, Korea, Russia, South Africa, Spain, Turkey, Ukraine, United Arab Emirates, and the United Kingdom. At that time the DOC and the ITC will conduct a sunset review to determine whether to extend those orders for an additional five years.
In September 2018, the Company, along with other domestic mattress producers, filed petitions with the DOC and the ITC alleging that manufacturers of mattresses in China were unfairly selling their products in the United States at less than fair value (dumping) and seeking the imposition of duties on mattresses imported from China. In October 2019, the DOC made a final determination assigning duty rates between 57% to 1,732%. In November 2019, the ITC made a unanimous final determination that domestic mattress producers were materially injured by reason of the unfairly priced imported mattresses. An antidumping order on imports of Chinese mattresses will remain in effect for five years, through December 2024, at which time the DOC and ITC will conduct a sunset review to determine whether to extend the order for an additional five years.
In March 2020, the Company, along with other domestic mattress producers and two labor unions representing workers at other mattress producers, filed antidumping petitions with the DOC and the ITC alleging that manufacturers of mattresses in Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam were unfairly selling their products in the United States at less than fair value (dumping) and a countervailing duty petition alleging manufacturers of mattresses in China were benefiting from subsidies. In May 2020, the ITC made a unanimous, affirmative preliminary determination of a reasonable likelihood of injury. DOC’s preliminary determination on subsidies is expected in late August 2020, and its preliminary determination on dumping is expected in late October 2020. Final determinations are expected in the first half of 2021.
Total Shareholder Return
Total Shareholder Return (TSR), relative to peer companies, is a primary financial measure that we use to assess long-term performance. TSR = (Change in Stock Price + Dividends) ÷ Beginning Stock Price. Our goal is to achieve TSR in the top third of the S&P 500 companies over the long term through an approach that employs four TSR sources: revenue growth, margin expansion, dividends, and share repurchases.
We monitor our TSR performance relative to the S&P 500 on a rolling three-year basis. We believe our disciplined growth strategy, portfolio management, and prudent use of capital will support achievement of our goal over time.
Senior executives participate in an incentive program with a three-year performance period based on two equal measures: (i) our TSR performance compared to the performance of a group of approximately 300 peers, and (ii) the Company or segment Earnings Before Interest and Taxes (EBIT) Compound Annual Growth Rate (CAGR).
Acquisition of Elite Comfort Solutions
On January 16, 2019, we acquired ECS for a cash purchase price of approximately $1.25 billion (the “ECS Acquisition”). ECS, headquartered in Newnan, Georgia, is a leader in specialized foam technology, primarily for the bedding and furniture industries. With 16 facilities across the United States, ECS operates a vertically-integrated model, developing many of the chemicals and additives used in foam production, producing specialty foam, and manufacturing private-label finished products. These innovative specialty foam products include finished mattresses sold through both traditional and online channels,
mattress components, mattress toppers and pillows, and furniture foams. ECS has a diversified customer mix and a strong position in the high-growth compressed mattress market segment. ECS forms a separate business unit and operates within the Bedding Products segment.
For information on the financing of the ECS acquisition, please see "Commercial Paper Program and Term Loan Financing" on page 47.
Organic Sales
This report contains the metric organic sales. In the past, we have disclosed the metric same location sales calculated as net sales excluding sales attributable to acquisitions and divestitures consummated within the last twelve months. In the Company’s 2019 Form 10-K filed February 20, 2020, we disclosed the metric organic sales but indicated that it was calculated identically to the prior same location sales metric. Beginning with our first quarter 2020 Form 10-Q (and including the presentation in this Form 10-Q), we have modified the calculation of organic sales. It is now calculated as trade sales (not net sales) excluding sales attributable to acquisitions and divestitures consummated within the last twelve months. Management uses the organic sales metric, and it is useful to investors, as supplemental information to analyze our underlying sales performance from period to period in our legacy businesses.
RESULTS OF OPERATIONS
Discussion of Consolidated Results
Second Quarter:
Trade Sales were $845.1 million in the current quarter, a 30% decrease versus the second quarter 2019. Organic sales decreased 31%, with volume down 29%. Trade sales were largely impacted by COVID-related demand declines along with the planned lower volume in business we exited in connection with the 2018 Restructuring Plan (which reduced trade sales 2%). The combination of raw material-related selling price decreases and negative currency impact reduced trade sales 2%. Acquisitions added 1% to trade sales growth in the quarter.
Earnings (Loss) Per Share (EPS) decreased to $(.05) in the current year, versus $.64 in the second quarter of 2019, primarily from lower trade sales volume and a goodwill impairment charge, partially offset by fixed cost reductions.
Earnings Before Interest and Taxes (EBIT) decreased 83%, to $22.8 million, primarily from lower volume and a $25.4 million goodwill impairment charge in Hydraulic Cylinders, partially offset by fixed cost reductions.
Six Months:
Trade Sales were $1,890.6 million in the first six months of 2020, a 20% decrease versus the same time period last year. Acquisitions added 2% to sales growth in the first six months of 2020. Organic sales decreased 22%, with volume down 19%. In the first six months of 2020 trade sales were primarily impacted by COVID-related demand declines along with the planned lower volume in business we exited in connection with the 2018 Restructuring Plan (which reduced trade sales 3%). Raw material-related selling price decreases and negative currency impact reduced trade sales 3%.
EPS was $.29 for the first six months of 2020, versus $1.09 in the same period of 2019, with the decrease primarily from lower trade sales volume and a goodwill impairment charge, partially offset by fixed cost reductions.
EBIT decreased 56%, to $103.5 million, primarily from lower volume and a $25.4 million goodwill impairment charge in Hydraulic Cylinders, partially offset by fixed cost reductions.
LIFO/FIFO and the Effect of Changing Prices
The last-in, first-out (LIFO) method is primarily used to value our domestic steel-related inventories. LIFO represents approximately 40% of our inventories.
With steel cost deflation in the early part of 2020, we recognized a LIFO benefit in the first six months. The LIFO estimate incorporates certain assumptions about year-end steel prices and inventory levels. Therefore, the LIFO calculation for the full year could be materially different from that currently estimated.
The following table contains the LIFO benefit included for each of the periods presented:
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Six Months Ended
June 30,
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Three Months Ended
June 30,
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2020
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2019
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2020
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2019
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LIFO benefit
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$
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2.0
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|
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$
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10.4
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|
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$
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—
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|
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$
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10.4
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Net Interest Expense and Income Taxes
2020 net interest expense was not materially different than both the six and three months ended June 30, 2019.
Our tax rate of 24% in the second quarter of 2019 represented a more normalized percentage, while in the second quarter of 2020 our abnormally high 354% tax rate was adversely impacted from nondeductible goodwill impairment, a foreign tax audit matter, and the anomaly in our tax rate percentage from the significant reduction in our quarterly earnings.
For the full year, we are anticipating an effective tax rate of approximately 24%, which includes the expected impact of recently issued global intangible low-taxed income (GILTI) regulations and other discrete tax items that we expect to occur from quarter to quarter. Other factors, such as our overall profitability, the mix and level of earnings among tax jurisdictions, the type of income earned, business acquisitions and dispositions, the impact of tax audits, the effect of other tax law changes, and prudent tax planning strategies, can also influence our rate.
Discussion of Segment Results
Second Quarter Discussion
A description of the products included in each segment, along with segment financial data, appear in Note 4 to the Consolidated Condensed Financial Statements on page 8. All segment data has been retrospectively adjusted to reflect the change in segment structure discussed on page 33. A summary of segment results is shown in the following tables.
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Trade Sales (Dollar amounts in millions)
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Three Months Ended June 30, 2020
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Three Months Ended June 30, 2019
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Change in Trade Sales
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% Change in Organic Sales 1
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$
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%
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Bedding Products
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$
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410.6
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|
|
$
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568.4
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$
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(157.8)
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(27.8)
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%
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(27.8)
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%
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Specialized Products
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140.8
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267.0
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(126.2)
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(47.3)
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(47.3)
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Furniture, Flooring and Textile Products
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293.7
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377.8
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(84.1)
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(22.3)
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(25.0)
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Total
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$
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845.1
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$
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1,213.2
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$
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(368.1)
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(30.3)
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%
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(31.2)
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%
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Three Months Ended June 30, 2020
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Three Months Ended June 30, 2019
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Change in EBIT
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EBIT Margins
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EBIT
(Dollar amounts in millions)
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$
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%
|
|
Three Months Ended June 30, 2020
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Three Months Ended June 30, 2019
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Bedding Products
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$
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18.6
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|
$
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63.5
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|
|
$
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(44.9)
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(70.7)
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%
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4.5
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%
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11.2
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%
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Specialized Products
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(19.7)
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41.5
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|
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(61.2)
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(147.5)
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(14.0)
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|
|
15.5
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|
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Furniture, Flooring and Textile Products
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23.4
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31.5
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(8.1)
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(25.7)
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8.0
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8.3
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Intersegment eliminations & other
|
.5
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(.5)
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1.0
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Total
|
$
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22.8
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|
$
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136.0
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$
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(113.2)
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(83.2)
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%
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2.7
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%
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11.2
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%
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Three Months Ended June 30, 2020
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Three Months Ended June 30, 2019
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Depreciation and Amortization
(Dollar amounts in millions)
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Bedding Products
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$
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26.3
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$
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28.2
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Specialized Products
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10.6
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10.4
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Furniture, Flooring & Textile Products
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6.3
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6.7
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Unallocated
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3.3
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4.7
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Total
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$
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46.5
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$
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50.0
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1 This is a change in trade sales not attributable to acquisitions or divestitures in the last 12 months. Refer to the segment discussions below in Furniture, Flooring & Textile Products for a reconciliation of the change in total segment trade sales to organic sales.
Bedding Products
Trade sales decreased $158 million, or 28%. Organic sales were down 28%. Trade sales volume decreased 25%, primarily from COVID-related demand declines, exited volume in Fashion Bed and the closure of a Drawn Wire facility. Raw material-related selling price decreases and currency impact reduced trade sales 3%.
The re-opening of brick and mortar retail locations and eCommerce demand drove sequential improvement throughout the quarter with April trade sales down 54%, May trade sales down 20% and June trade sales down 14% versus prior year.
EBIT decreased $45 million, primarily from lower volume and lower metal margin in our rod mill, partially offset by fixed cost reductions.
Specialized Products
Trade sales decreased $126 million, or 47%. Volume was down 46% primarily from COVID-related demand declines. Currency impact decreased trade sales 1%.
We saw sequential improvements in the Specialized Products segment throughout the quarter as automotive OEMs restarted production in Europe and North America and production in Asia continued to improve. During the quarter, trade sales were down 63% in April, 54% in May, and 29% in June versus 2019.
EBIT decreased $61 million, primarily from lower volume and a $25 million goodwill impairment charge in Hydraulic Cylinders, partially offset by fixed cost reductions.
Furniture, Flooring & Textile Products
Trade sales decreased $84 million, or 22%. Organic sales were down 25%. A small Geo Components acquisition completed in December 2019 added 3% to trade sales. Volume decreased 24%, primarily from COVID-related demand declines. Raw material-related selling price decreases and currency impact reduced trade sales 1%.
This segment initially was less impacted by the COVID-19 pandemic than our other segments primarily because of the strong demand in our Geotextiles Components businesses. Fabric Converting and Flooring Products also held up well and Home Furniture improved as the quarter progressed. Recovery in Work Furniture has lagged the other businesses in the segment. Industry demand in that business may be challenged for some time as work environments change to meet evolving expectations of employers and employees. April trade sales were down 40%, May trade sales were down 22% and June trade sales were down 7% versus prior year.
Segment EBIT decreased $8 million, primarily from lower volume, partially offset by fixed cost reductions and lower raw material costs.
Six Month Discussion
A description of the products included in each segment, along with segment financial data, appear in Note 4 to the Consolidated Condensed Financial Statements on page 8. All segment data has been retrospectively adjusted to reflect the change in segment structure discussed on page 33. A summary of segment results is shown in the following tables.
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Trade Sales
(Dollar amounts in millions)
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Six Months Ended
June 30, 2020
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|
Six Months Ended
June 30, 2019
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Change in Sales
|
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|
% Change in Organic Sales 1
|
|
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|
$
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%
|
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|
Bedding Products
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$
|
901.2
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|
|
$
|
1,122.7
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|
$
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(221.5)
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|
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(19.7)
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%
|
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(21.7)
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%
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Specialized Products
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375.3
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|
|
529.9
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|
|
(154.6)
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|
|
(29.2)
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|
|
(29.2)
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|
Furniture, Flooring & Textile Products
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614.1
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|
715.7
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|
(101.6)
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(14.2)
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|
(16.4)
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|
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|
|
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|
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Total
|
$
|
1,890.6
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|
|
$
|
2,368.3
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|
|
$
|
(477.7)
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|
(20.2)
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%
|
|
(21.8)
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%
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|
|
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|
|
|
Six Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Change in EBIT
|
|
|
|
EBIT Margins
|
|
|
EBIT
(Dollar amounts in millions)
|
|
|
|
|
$
|
|
%
|
|
Six Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
|
Bedding Products
|
$
|
48.6
|
|
|
$
|
107.6
|
|
|
$
|
(59.0)
|
|
|
(54.8)
|
%
|
|
5.4
|
%
|
|
9.6
|
%
|
|
Specialized Products
|
8.0
|
|
|
77.2
|
|
|
(69.2)
|
|
|
(89.6)
|
|
|
2.1
|
|
|
14.6
|
|
|
Furniture, Flooring & Textile Products
|
49.9
|
|
|
49.9
|
|
|
—
|
|
|
—
|
|
|
8.1
|
|
|
7.0
|
|
|
Intersegment eliminations & other
|
(3.0)
|
|
|
(.5)
|
|
|
(2.5)
|
|
|
|
|
|
|
|
|
Total
|
$
|
103.5
|
|
|
$
|
234.2
|
|
|
$
|
(130.7)
|
|
|
(55.8)
|
%
|
|
5.5
|
%
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2020
|
|
Six Months Ended
June 30, 2019
|
Depreciation and Amortization
(Dollar amounts in millions)
|
|
|
|
|
Bedding Products
|
$
|
53.1
|
|
|
$
|
53.0
|
|
|
Specialized Products
|
21.8
|
|
|
20.6
|
|
|
Furniture, Flooring & Textile Products
|
12.8
|
|
|
13.3
|
|
|
Unallocated
|
6.3
|
|
|
9.4
|
|
|
Total
|
$
|
94.0
|
|
|
$
|
96.3
|
|
1 This is a change in trade sales not attributable to acquisitions or divestitures in the last 12 months. Refer to the segment discussions below in Bedding Products and Furniture, Flooring & Textile Products for a reconciliation of the change in total segment trade sales to organic sales.
Bedding Products
Trade sales decreased $222 million, or 20%. Organic sales were down 22% and volume was down 18%, with raw material-related selling price decreases of 3% and a negative currency impact of 1%. ECS acquisition completed in mid-January 2019 added 2% to trade sales.
EBIT decreased $59 million, primarily from COVID-related demand declines and lower metal margin in our rod mill, partially offset by fixed cost reductions.
Specialized Products
Trade sales decreased $155 million, with organic sales down 29%. Volume decreased 28% and currency impact reduced trade sales 1%.
EBIT decreased $69 million, primarily from COVID-related demand declines and a $25 million goodwill impairment charge in Hydraulic Cylinders, partially offset by fixed cost reductions.
Furniture, Flooring & Textile Products
Trade sales decreased $102 million, or 14%. Organic sales were down 16% and volume was down 15%, with raw material-related selling price decreases and a negative currency impact of 1%. A small Geo Components acquisition completed in December 2019 added 2% to trade sales.
EBIT was flat, with COVID-related demand declines offset by fixed cost reductions and lower raw material costs.
LIQUIDITY AND CAPITALIZATION
Cash from Operations
Cash from operations is our primary source of funds. Earnings and changes in working capital levels are the two factors that generally have the greatest impact on our cash from operations. Cash from operations for the six months ended June 30, 2020 was $122.5 million, down $81.2 million from the same period last year, primarily reflecting lower earnings.
We closely monitor our working capital levels and ended the quarter with adjusted working capital at 15.4% of annualized trade sales which reflected a combination of very weak sales early in the quarter and working capital increases later in the quarter to support demand improvement. The table below explains this non-GAAP calculation. We eliminate cash, current debt maturities and the current portion of operating lease liabilities from working capital to monitor our operating efficiency and performance related to trade receivables, inventories and accounts payable. We believe this provides a more useful measurement to investors since cash and current maturities can fluctuate significantly from period to period. As discussed on page 48, slightly more than half of these funds are held by international operations and may not be immediately available to reduce debt on a dollar-for-dollar basis.
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(Amounts in millions)
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June 30, 2020
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December 31, 2019
|
|
Current assets
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$
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1,410.3
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|
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$
|
1,538.1
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Current liabilities
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775.5
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|
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928.1
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Working capital
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634.8
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|
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610.0
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Cash and cash equivalents
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208.8
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|
|
247.6
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Current debt maturities and current portion of operating lease liabilities
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92.9
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|
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90.4
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Adjusted working capital
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$
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518.9
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$
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452.8
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Annualized trade sales 1
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$
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3,380.4
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$
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4,579.6
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Working capital as a percent of annualized trade sales
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18.8
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%
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13.3
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%
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|
Adjusted working capital as a percent of annualized trade sales
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15.4
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%
|
|
9.9
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%
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1 Annualized trade sales equal second quarter 2020 trade sales of $845.1 million and fourth quarter 2019 trade sales of $1,144.9 million multiplied by 4. We believe measuring our working capital against this sales metric is more useful, since efficient management of working capital includes adjusting those net asset levels to reflect current business volume.
Three Primary Components of our Working Capital
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Amount (in millions)
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Days
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Three Months Ended
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Twelve Months Ended
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Three Months Ended
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June 30, 2020
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December 31, 2019
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June 30, 2019
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June 30, 2020
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December 31, 2019
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June 30, 2019
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Trade Receivables
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$
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556.9
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$
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564.4
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$
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670.8
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DSO 1
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60
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43
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50
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Inventories
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$
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574.1
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$
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636.7
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$
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656.7
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DIO 2
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75
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63
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63
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Accounts Payable
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$
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361.4
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$
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463.4
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$
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452.9
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DPO 3
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47
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46
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44
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1Days sales outstanding
a. Quarterly: end of period trade receivables ÷ (quarterly net trade sales ÷ number of days in the period).
b. Annually: ((beginning of year trade receivables + end of period trade receivables) ÷ 2) ÷ (net trade sales ÷ number of days in the period).
2Days inventory on hand
a. Quarterly: end of period inventory ÷ (quarterly cost of goods sold ÷ number of days in the period).
b. Annually: ((beginning of year inventory + end of period inventory) ÷ 2) ÷ (cost of goods sold ÷ number of days in the period).
3Days payables outstanding
a. Quarterly: end of period accounts payable ÷ (quarterly cost of goods sold ÷ number of days in the period).
b. Annually: ((beginning of year accounts payable + end of period accounts payable) ÷ 2) ÷ (cost of goods sold ÷ number of days in the period).
Although our DSO and DIO changed considerably in the second quarter 2020, we had sufficient liquidity to meet our operating needs. We continue to monitor all elements of working capital in order to optimize cash flow. The timing of the sales in relation to the quarter end heavily impacted the DSO and DIO metrics. Trade sales in the second quarter were down 30% versus the second quarter of 2019, with demand improving each month throughout the quarter. April sales were down over 50%, May sales were down almost 30% and June sales were down just over 15% all versus the prior year.
Trade Receivables - Although our trade receivables decreased at June 30, 2020 compared to both year end and June 30, 2019, our DSO increased considerably during the second quarter 2020, primarily related to the timing of sales. Our sales improved sequentially throughout the quarter, most notably in June. We are closely monitoring accounts receivable and collections. We recognized $20 million in bad debt expense in the first quarter ($8 million on a note receivable and $12 million on trade accounts receivable), partially due to COVID-19 impacts on our customers and risk across our account portfolio, particularly among our bedding customers. By the end of the second quarter, the level of our accounts receivable in current status had improved and was consistent with pre-COVID-19 levels, and we had no significant changes in our reserves in the second quarter. We monitor all accounts for possible loss. We obtain credit applications, credit reports, bank and trade references, and periodic financial statements from our customers to establish credit limits and terms as appropriate. In cases where a customer’s payment performance or financial condition begins to deteriorate or in the event of a customer bankruptcy, we tighten our credit limits and terms and make appropriate reserves based upon the facts and circumstances for each individual customer. We had approximately $25 million and $40 million of trade receivables that were sold and removed from our Consolidated Condensed Balance Sheets at June 30, 2020 and December 31, 2019, respectively.
Inventories - Although our inventories decreased as compared to both year end and June 30, 2019, our DIO increased considerably during the second quarter 2020, primarily related to the timing of sales. Our sales improved sequentially throughout the quarter, most notably in June. We are taking steps to carefully control inventory levels as demand improves. We believe we have established adequate reserves for any slower-moving or obsolete inventories. We continuously monitor our slower-moving and potentially obsolete inventory through reports on inventory quantities compared to usage within the previous 12 months. We also utilize cycle counting programs and complete physical counts of our inventory. When potential inventory obsolescence is indicated by these controls, we will take charges for write-downs to maintain an adequate level of reserves. Our reserve balances as a percentage of period-end inventory were consistent with our historical average.
Accounts Payable - Accounts payable decreased compared to both year end and June 30, 2019, as a result of reductions in purchasing unit volumes and production levels due to COVID-19. Our payment terms did not change meaningfully since year end, as we chose to keep our commitment to our vendors by paying on time and did not request an extension of terms. We
continue to look for ways to optimize payment terms through our significant purchasing power and also utilize third-party services that allow flexible payment options to enhance our DPO.
Uses of Cash
Finance Capital Requirements
Because of the current uncertainties around the impact of COVID-19 on our businesses and operations, we significantly reduced our expected uses of cash in 2020. We reduced fixed costs by an estimated $100 million. We cut our capital expenditure budget for 2020 by over 60% to approximately $60 million, and are limiting acquisitions.
In the first quarter of 2019, we acquired ECS, a leader in the production of proprietary specialized foam used primarily for the bedding and furniture industries, for total consideration of approximately $1.25 billion. Additional details about acquisitions are discussed on page 38 and in Note 9 on page 19 to the Consolidated Condensed Financial Statements.
Pay Dividends
In May, we declared a quarterly dividend of $.40 per share, which represented a $.02, or 2.6%, increase versus the first half of 2019. Our long-term targeted dividend payout ratio is approximately 50% of adjusted EPS (which excludes special items such as significant tax law impacts, impairment charges, restructuring-related charges, divestiture gains, litigation accruals and settlement proceeds). For more information about the payment of dividends, please see “Cash Dividend” on page 36.
On August 3, 2020, our Board of Directors declared a third quarter dividend of $.40 per share, equal to the dividend declared in the third quarter of 2019.
Repurchase Stock
Once we are past the impact from COVID-19 on our business, we expect to continue our long-term priorities for uses of cash: fund organic growth, pay dividends, fund strategic acquisitions, and repurchase stock with available cash. With the increase in leverage from our acquisition of ECS, as previously discussed, and our need to manage cash in light of the COVID-19 pandemic, we are prioritizing debt repayment after funding only necessary expenditures, and as a result, are temporarily limiting share repurchases. We have been authorized by the Board to repurchase up to 10 million shares each year, but we have established no specific repurchase commitment or timetable.
Capitalization
The following table presents our key debt and capitalization statistics:
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(Dollar amounts in millions)
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June 30, 2020
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December 31, 2019
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Total debt excluding revolving credit/commercial paper
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$
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2,032.3
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$
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2,056.1
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Less: Current maturities of long-term debt
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51.1
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51.1
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Scheduled maturities of long-term debt
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1,981.2
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|
|
2,005.0
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Average interest rates 1
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3.6
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%
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3.6
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%
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Average maturities in years 1
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5.6
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6.0
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Revolving credit/commercial paper 2
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102.0
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61.5
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Average interest rate on period-end balance outstanding
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0.4
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%
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2.0
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%
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Average interest rate during the period (three months)
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1.9
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%
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2.6
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%
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Total long-term debt
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2,083.2
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|
2,066.5
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Deferred income taxes and other liabilities
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508.8
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509.3
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Shareholders’ equity and noncontrolling interest
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1,214.6
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|
|
1,312.5
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Total capitalization
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$
|
3,806.6
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$
|
3,888.3
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Unused committed credit:
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Long-term
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$
|
1,098.0
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$
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1,138.5
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Short-term
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—
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—
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Total unused committed credit 2
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$
|
1,098.0
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$
|
1,138.5
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Current maturities of long-term debt
|
$
|
51.1
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$
|
51.1
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Cash and cash equivalents
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$
|
208.8
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$
|
247.6
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1
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These rates include current maturities, but exclude commercial paper to reflect the averages of outstanding debt with scheduled maturities. The rates also include amortization of interest rate swaps.
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2
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The unused committed credit amount is based on our revolving credit facility and commercial paper program which, at year end 2019 and at the end of the second quarter of 2020, had a total authorized program amount of $1,200. However, our borrowing capacity may be limited by covenants to our credit facility.
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Commercial Paper Program and Term Loan Financing
In January 2019, we expanded the borrowing capacity under our credit facility from $800 million to $1.2 billion, extended the term to January 2024 and correspondingly increased permitted borrowings under our commercial paper program primarily to finance the ECS Acquisition. The ECS Acquisition was financed through the issuance of approximately $750 million of commercial paper (of which roughly $500 million was subsequently refinanced through the public issuance of 10-year 4.4% notes due 2029) and the issuance of a $500 million five-year Tranche A Term Loan with our current bank group which requires us to pay principal in the amount of $12.5 million each quarter and to pay the remaining principal at maturity. As of June 30, 2020 we had repaid $62.5 million, as scheduled, on the Tranche A Term Loan. The credit facility allows us to issue letters of credit totaling up to $125 million. When we issue letters of credit under the facility, we reduce our available credit and commercial paper capacity by a corresponding amount. We may borrow funds in advance of expected outflows to provide additional flexibility during the COVID-19 disruption. Amounts outstanding related to our commercial paper program were:
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(Amounts in millions)
|
June 30, 2020
|
|
December 31, 2019
|
|
Total authorized program
|
$
|
1,200.0
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$
|
1,200.0
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Commercial paper outstanding (classified as long-term debt)
|
102.0
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|
|
61.5
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Letters of credit issued under the credit agreement
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—
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|
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—
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Total program usage
|
102.0
|
|
|
61.5
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Total program available
|
$
|
1,098.0
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$
|
1,138.5
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The average and maximum amounts of commercial paper outstanding during the second quarter of 2020 were $305.9 million and $381.3 million, respectively. At quarter-end, we had no letters of credit outstanding under the credit facility, but we had issued $42.2 million of stand-by letters of credit under other bank agreements to take advantage of better pricing. Over the long-term, and subject to our capital needs, market conditions, alternative capital market opportunities, and our ability to continue to access the commercial paper market, we expect to maintain the indebtedness under the program by continuously repaying and reissuing the commercial paper notes. We view the notes as a source of long-term funds and have classified the borrowings under the commercial paper program as long-term borrowings on our balance sheet. We have the intent to roll over such obligations on a long-term basis and have the ability to refinance these borrowings on a long-term basis as evidenced by our $1.2 billion revolving credit facility maturing in 2024 discussed above.
With cash on hand, operating cash flow, our commercial paper program and/or our credit facility, and our ability to obtain debt financing, we believe we have sufficient funds available to repay maturing debt, as well as support our ongoing operations.
Our credit facility was amended effective May 6, 2020 and contains revised restrictive covenants. The revised covenants limit: a) as of the last day of each fiscal quarter, the leverage ratio of consolidated funded indebtedness (minus unrestricted cash) to trailing 12-month consolidated EBITDA (each as defined in the credit facility) must not exceed 4.75 to 1.00 for each fiscal quarter end date through March 31, 2021; 4.25 to 1.00 at June 30, 2021; 3.75 to 1.00 at September 30, 2021; and 3.25 to 1.00 at December 31, 2021 and thereafter; b) the amount of total secured debt to 5% of our total consolidated assets until December 31, 2021, at which time it will revert to 15% of our total consolidated assets; and c) our ability to sell, lease, transfer, or dispose of all or substantially all of total consolidated assets. Various interest rate terms were also changed. The impact on our interest expense will depend upon our ability to access the commercial paper market, and if so, the degree of that access. The amendment also added an anti-cash hoarding provision that limits borrowing if the Company has a consolidated cash balance (as defined in the credit facility) in excess of $300 million without planned expenditures. We were comfortably in compliance with our covenants at the end of the second quarter 2020. For more information about the restrictive covenants in our credit facility, see "Our Ability to Access the Commercial Paper Market or Borrow under our Credit Facility" on page 35.
Accessibility of Cash
At June 30, 2020, we had cash and cash equivalents of $209 million primarily invested in interest-bearing bank accounts and in bank time deposits with original maturities of three months or less. Slightly more than half of these funds are held in the international accounts of our foreign operations. During the first six months of 2020, we brought back $82 million of foreign cash. We currently expect to bring back approximately $40 million of additional foreign cash before year-end.
If we were to immediately bring back all our foreign cash to the U.S. in the form of dividends, we would pay foreign withholding taxes of approximately $13 million. Although there are capital requirements in various jurisdictions, all of this cash is currently accessible for repatriation.
CONTRACTUAL OBLIGATIONS
Our contractual obligations table presented on page 47 in our Form 10-K filed February 20, 2020, had a material change outside the ordinary course of business in the first quarter 2020 due to an increase of $360 million in our commercial paper borrowing to provide additional flexibility during the COVID-19 disruption. Reference is made to the updated disclosure regarding our contractual obligations on page 44 of our Form 10-Q filed May 8, 2020. Since that disclosure, which was as of March 31, 2020, our total long-term debt, at June 30, 2020, has decreased by $332 million primarily due to the reduction of commercial paper borrowings.
CONTINGENCIES
For contingencies related to the impact of the COVID-19 pandemic on our business, please see “COVID-19 Impacts on our Business” on page 33.
Potential Sale of Real Estate
Although the potential sale is subject to significant conditions that may change the timing, the amount and whether the sale is completed at all, we have agreed to sell certain real estate associated with restructuring activities in the Bedding Products segment. If the sale is completed, we expect to realize a gain of up to $30 million on this transaction in the fourth quarter of 2020 or in 2021.
Cybersecurity Risks
We rely on information systems to obtain, process, analyze and manage data, as well as to facilitate the manufacture and distribution of inventory to and from our facilities. We receive, process and ship orders, manage the billing of and collections from our customers, and manage the accounting for and payment to our vendors. We have a formal process in place for both incident response and cybersecurity continuous improvement that includes a cross functional Cybersecurity Oversight Committee. Members of the Cybersecurity Oversight Committee update the Board quarterly on cyber activity, with procedures in place for interim reporting if necessary.
Although we have not experienced any material cybersecurity incidents, we have enhanced our cybersecurity protection efforts over the last few years. However, because of risk due to the COVID-19 pandemic regarding increased remote access, remote work conditions and associated strain on employees, technology failures or cybersecurity breaches could still create system disruptions or unauthorized disclosure of confidential information. We cannot be certain that advances in the attacker’s capabilities will not compromise our technology protecting information systems. If these systems are interrupted or damaged by any incident or fail for any extended period of time, then our results of operations could be adversely affected. We may incur remediation costs, increased cybersecurity protection costs, lost revenues resulting from unauthorized use of proprietary information, litigation and legal costs, reputational damage, damage to our competitiveness and negative impact on stock price and long-term shareholder value.
Litigation
Accrual for Litigation Contingencies and Reasonably Possible Losses in Excess of Accruals
We are exposed to litigation contingencies that, if realized, could have a material negative impact on our financial condition, results of operations and cash flows. We deny liability in all currently threatened or pending litigation proceedings and believe we have valid bases to contest all claims made against us. At June 30, 2020, our litigation contingency accrual was immaterial (which does not include accrued expenses related to workers' compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters). Based on current known facts, aggregate reasonably possible (but not probable, and therefore, not recorded) losses in excess of accruals for litigation contingencies are estimated to be $11 million, including $10 million for Brazilian VAT matters and $1 million for other matters. If our assumptions or analyses regarding these contingencies are incorrect, or if facts change, we could realize loss in excess of the recorded accruals (and in excess of the $11 million referenced above) which could have a material negative impact on our financial condition, results of operations and cash flows. For more information regarding our litigation contingencies, see Note 16 “Contingencies” on page 29 of the Notes to Consolidated Condensed Financial Statements.
ACCOUNTING STANDARD UPDATES
The FASB has issued accounting guidance effective for the current and future periods. See Note 2 to the Consolidated Condensed Financial Statements on page 6 for a more complete discussion.