禮恩派 (LEG) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth quarter 2002 earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero as a reminder, this conference is being recorded today, Thursday, January 30th of 2003.

I would now like to turn the conference over to Mr. Dave DeSonier. Please go ahead, sir.

Good morning, and thank you for taking part in Leggett & Platt's fourth quarter conference call. I'm Dave DeSonier, vice president of investor relations, and with me are Felix Wright, Leggett's chairman and CEO, Dave Haffner, our president and chief operating officer, Karl Glassman, who is executive vice president of the company, Bob Griffin, senior vice president of Leggett and also the head of our fixtures and display group, and Susan McCoy (ph), who is director of investor relations. The agenda for today's call is as follows - Felix Wright will summarize overall results for the quarter and for the year, Dave Haffner will then give a more detailed review of what's occurring in our segments. Following that, Felix will discuss the outlook for 2003, the first quarter and also the full year, and finally as a group, we'll try to answer any questions you might have.

I'd like to remind you that this call is being recorded for Leggett & Platt. It is copyrighted material. This call may not be transcribed, recorded or broadcast without our express permission. A replay is available from the IR portion of Leggett's Web site. In addition, I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially from such forward-looking statements due to a number of risks and uncertainties and the company undertakes no obligation to update or revise these forward-looking statements.

For a summary of these risk factors and additional information concerning forward-looking statements, please refer to yesterday's press release and the section in our 2001 10-K entitled forward-looking statements.

I'll now turn the call over to Felix Wright.

Thank you, Dave, and we appreciate the fact that you've joined us this morning to participate in our fourth quarter conference call.

Leggett performed very well in 2002. Earnings for the fourth quarter were up 39% over last year and at 25 cents per share were near the upper end of the guidance we issued on October 16th. Sales for the quarter increased 4.6% with same-location sales up 3.2%. This marks the third consecutive quarter of same-location sales growth following nearly two years of declines. For the year, earnings increased 24% to $1.17 per share. Total revenues increased 3.8%, and at 4.27 billion, we're second only to the record set in 2000. Same-location sales were up slightly at .7%. Aggregate demand in our markets was basically flat with 2001, and was roughly 10% lower than levels we saw in 1999 and 2000.

For the full year, we posted growth in four of the five segments. Reduced expenses account for the bulk of the 2002 earnings improvement. Cost decreases resulted from the elimination of goodwill amortization, continuing improvements in operating efficiency, and reduced expenses for energy, bad debts, and interest. Partially offsetting these improvements were higher raw material costs, which was primarily steel, and stiff price competition experienced by some of our business units. For the full year, we posted improvements in EBIT and net margins of 90 basis points. Net earnings for the quarter at 25 cents per share were up 7 cents from last year's fourth quarter earnings. Sales growth before acquisitions increased earnings by 3 cents, lower restructuring added about three cents, and a two-cent benefit came from the elimination of goodwill amortization. Other factors including costs associated with the start-up of the Sterling rod mill lowered earnings by about one penny.

For the year, net earnings were up 23 cents at $1.17 versus 94 in 2001. Approximately half the gain relates to same-location sales growth, improved cost structure, less restructuring, and lower interest. The elimination of goodwill amortization added about 10 cents to earnings, and the partial reversal of Canadian lumber duty accruals added about another 3 cents. Other factors including reduced bad debts and energy costs were more than offset by higher raw material costs and margin pressure in some of our businesses. During this past year, we made significant progress on several fronts. Cash from operations for the year were 456 million, second only to 2001's record. We ended the year with 225 million of cash on hand, a 20% increase from year-end 2001. We improved our debt position, ending 2002 with debt to total capitalization net of cash at 25%, down from 29% in 2001.

We repurchased about 4.1 million shares of our stock at an average price of $23.25 per share. And our working capital as a percent of sales was the lowest year-end level in seven years. 2002 marked the 31st consecutive year of increased dividends. Although this year's increase was smaller, our shareholders have benefited from compound annual growth of 15% over the past three decades. Few firms can match both our long string of consecutive dividend increases and the growth rate we've sustained. Our guideline for dividend payout is approximately one-third the moving three-year earnings average. However, payout currently is slightly above the target because of the weak economy. Dividends are reviewed each quarter with the timing of near-term increases in part dependent on the pace of the recovery of the U.S. economy. We believe in paying dividends to our shareholders and are very proud of our dividend growth record and expect to extend that record far into the future.

Finally, before I turn the call over to Dave Haffner, I'd like to briefly comment on a few topics that have been given more focus this past year by investors in the media. First, our pension plans remain overfunded in the aggregate despite three years of stock market decline. We've seen two studies that estimate that fewer than 10% of the Fortune 500 firms can make this claim. Second, we're in compliance with all the new corporate governance rules. In fact, we were already following good corporate governance practices before the new rules were adopted. We've had a majority of independent directors on our board for several years, and all of our key committees exist solely of independent directors. Third, we will begin expensing stock options in 2003. In the first year, this will reduce earnings by 2 cents and will grow to a 4-cent impact over time. We issue stock options to about 1700 employees each year. In addition, we remind you that many of our executives also purchase options by voluntarily foregoing cash, salary and bonus to which they are entitled. Fourth, we're proud of our long history of high quality earnings, financial transparency, and conservative accounting practices.

We emphasize GAAP-based earnings and include restructuring costs as a normal part of doing business, not as non-recurring costs that we hope you will ignore. In the past 25 years, we are recognized only two special charges for a total of $31 million. And finally, in contrast to most acquisitive firms, we took no goodwill write down for implementation of FAS 142, primarily because we don't overpay for acquisitions. These above comments are the Leggett way, they've been the Leggett way for a long time, and they'll continue to be that in the future.

With that, I'm going to turn it over to Dave Haffner.

Thank you, Felix, and good morning, everyone.

With my comments, I plan to address both the fourth quarter and the year. First I'll briefly address acquisition activity. I'll then recap the results accomplished under the tactical plan and comment on restructuring activity during the year. Finally, I'll discuss factors affecting overall operating results followed by a review of each segment's results. With regard to acquisitions, in the fourth quarter, we acquired the assets of one business that manufactures molded plywood components for commercial and residential furniture. This company should add about $8 million in annual sales to the commercial fixturing and component segment.

For the year, we completed eight acquisitions with annualized sales of about $70 million. When we announced the tactical plan late in 2000, we said we expected to temporarily reduce the volume of acquisitions. This intent was reflected in the level of our activity in 2001, and again this year. Since we've reached the end of the tactical plan, we expect the pace of acquisitions to begin to accelerate. We continue to look at a good number of opportunities, and in 2003, we expect our acquisition volume to be at a higher level than in the past two years. Our approach is disciplined, and over the long term, we target 8 to 10% growth from acquisitions. However, we don't set specific short-term targets, and as you've seen in the past, our quarter to quarter acquisition growth is highly variable.

We will continue to be opportunistic and will pursue those deals that we believe offer strategic benefits to the company and good returns to our shareholders. During 2002, we completed the tactical plan which was initiated in September of the year 2000. Since that plan's implementation, we've consolidated or sold 27 facilities, seven of which occurred during 2002. We've restructured other operations, eliminated overhead, reduced full-time equivalent employment by about 3,700, and repurchased 9 million shares of Leggett stock, primarily to offset shares issued in employee benefit programs. In addition, we've reduced capital spending with 2002 at the lowest level in five years. We've reduced working capital as a percent of sales to the lowest level in seven years.

Finally, as mentioned earlier, we temporarily reduced our pace of acquisitions. Through these positive steps, we've improved operational performance, profit margins, and shareholder return. The entire operating team remains highly focused on both working capital and capital expenditure deployment. We will continue that focus, and the corresponding discipline we've developed in these tough economic times. Turning to sales, as Felix mentioned, trade sales were up 4.6% in the fourth quarter versus fourth quarter last year. For the third consecutive quarter, we saw organic sales growth in the majority of our segments. The declines in the commercial segment are lessening significantly for more than 20% early in 2002, to 2.3% this quarter. For the year, overall corporate trade sales increased 3.8% with four of the five segments posting same-location sales growth over 2001. EBIT increased from $66.9 million in the fourth quarter of 2001 to $84.6 million in the fourth quarter of 2002. Versus the fourth quarter last year, here are the major components of the EBIT increase. Organic sales growth increased EBIT by about $10 million. $9 million of the increase relates to lower restructuring costs. EBIT increased $6 million due to the elimination of goodwill amortization, and the remaining change came from various other items including $3 million related to the start-up of the Sterling rod mill.

For the year, EBIT increased to $400.6 million from $351.2 million in 2001. The major components of the EBIT increase are, organic sales growth increased EBIT by about $9 million, lower restructuring added $3 million, further gains from improvements we made in our cost structure, EBIT increased $24 million due to the elimination of goodwill amortization. We benefited $9 million from the partial reversal of Canadian lumber duty accruals, and other factors including reduced bad debt expense and energy costs were more than offset by higher raw material costs, margin pressure, and costs associated with the start-up of the Sterling rod mill.

Now turning to the segments, in residential furnishings, total sales for the quarter increased 3.6% versus the fourth quarter of 2001, with same-location sales up 2.4%. EBIT increased $9.4 million, or 23%. For the year, we saw an increase in sales of 4.1% with a 2.8% increase in same-location sales. EBIT also increased up 26% or $47 million from last year. Higher same-location sales added about $4 million to EBIT for the quarter, and about $18 million for the year.

In the fourth quarter, we saw modest sales improvements in several product categories, but upholstered component furniture sales led the way again with an 11% improvement over last year. For the full year, sales of upholstered furniture components increased 16%, but these gains were tempered largely by flat sales and bedding and other product categories. The absence of last year's restructuring costs contributed about $6 million to the EBIT improvement for the quarter. Lower restructuring costs added about $2 million to EBIT for the year. Reduced amortization expense also benefited EBIT, both in the quarter and for the full year. The partial reversal of Canadian lumber duty accruals earlier this year, along with reduced bad debt expense and lower energy costs, added to the full-year EBIT increase. Margin pressure from higher raw material costs in steel, lumber, and chemicals, continued during the fourth quarter, and partially offset some of these gains.

In commercial fixturing and components, for the fourth quarter, total sales increased by .9% with increases from acquisitions mostly offset by 2.3% reduction in same location sales. EBIT for the quarter increased $8.1 million.

For the full year, sales were down 4.9%, with same locations off 9.5% or $90 million. EBIT for the year decreased $5 million, or 9%. The sales decline reduced EBIT by about $1 million in the fourth quarter but lowered the full year by about $27 million. These declines were offset by some favorable changes including lower restructuring costs and reduced amortization expense. Lower energy costs and bad debt expense also benefited the year in this segment. The absence of last year's restructuring charges contributed about $5 million to the EBIT increase for the quarter. For the year, lower restructuring contributed about $4 million to EBIT. We continued to see extremely difficult business conditions throughout the year. In some cases, business was down 20 to 25% from level two years ago. On a positive note, we have gained market share in our fixture and display businesses. This results in part from the financial difficulties of some of our competitors, brought about by the tough conditions the industry has faced over this past two and a half years. In aluminum, for the quarter, total sales increased $8 million, or 8.2%. Same-location sales increased 20.3%, but were partially offset by the effect of three recent divestitures. EBIT increased $5.5 million, a significant improvement over last year.

For the full year, total sales increased $28 million, or 6%. Same-location sales were up 8.8%, and actually averaged 14% growth for the final three quarters of the year. EBIT for the year rose 23%, or $6 million. The sales increase which resulted primarily from significant effort to gain market share accounts for nearly all the fourth quarter EBIT gain. For the year, increased sales contributed roughly $12 million to EBIT. For the full year, reduced amortization expense and lower energy costs also benefited EBIT. These improvements were offset by restructuring costs and non-recurring inventory and equipment obsolescence charges recognized earlier this year. Higher raw material costs and minor impacts from startup inefficiency associated with new business has also reduced EBIT somewhat for the full year. We have made significant gains in this segment during 2002. We've increased market share with many of our key customers, in some cases becoming the sole supplier of their diecast components. Our restructuring efforts have helped us improve our efficiency. We sold the last of our smelting operations. All of these factors, as well as the priority on cost management, have helped us improve our EBIT margins compared to last year. In industrial materials, total sales for the fourth quarter increased 4.3% with acquisitions more than offsetting a 3.1% decline in same-location sales. EBIT was down $7.6 million, or 54%.

For the year, sales increased 15.9%, primarily from acquisitions, with same location sales up 2.4%. EBIT decreased 9% or $5 million for the entire year. For the quarter, the sales decrease reduced EBIT by about $1 million, but for the year, higher sales contributed roughly $4 million to EBIT. The majority of the EBIT decline for the year results from increased steel prices. These increases began in the second quarter as a result of tariffs imposed on foreign steel. Fourth quarter EBIT was impacted but to a lesser extent. Steel prices began to stabilize late in the year, and we were able to pass along the majority of the increases to our customers. However, there remains some continued impact on the margins. Additional EBIT declines for both the quarter and the year resulted from costs associated with the start-up of the Sterling rod mill. And further restructuring efforts within the segment.

For the year, reduced bad debt and amortization expenses both benefited EBIT slightly. And finally, in specialized products, total sales for the quarter increased 10.4% with the same-location sales up 9.4%. This increase reflects the continued strong performance of our automotive businesses, which are benefiting from additional market penetration and strong demand for lumbar and seat components. EBIT for the quarter was essentially flat, and sales related earnings gains were offset by several small items, including the write down of some machinery inventory and start-up costs associated with production of wide format digital printing equipment. For the full year, sales increased 4.3% with same locations up 3.9%. EBIT increased $8 million, or 21%, due to higher automotive sales and elimination of goodwill amortization.

And with that overview, I'd like to turn the call back to Felix.

Thank you, Dave.

We'd like to talk now about the outlook for 2003. Market demand and its impact on the top line remains the largest driver of our earnings. There is significant uncertainty about near-term business conditions and the timing of economic recovery in 2003. Many analysts believe there is pent-up demand for furniture and bedding as consumers have yet to fully furnished homes purchased in the last few years at historically low interest rates. In addition, retailers have postponed store fixture purchased both for new stores and refurbishment of old stores for over two years. There could be a significant increase in orders once retailers conclude that consumer sentiment is on the increase. Whether or not markets improve during 2003, we will continue to pursue additional market share. For planning purposes, we are assuming sales growth of zero to 5% for the full year, and earnings in the range of 1.20 to 1.45 per share. At current depressed plant utilizations, we have sufficient capacity to generate about 500 million in additional revenue with minimal incremental revenue and operating out outlay. -- one penny to EPS. Our range for sales growth for the year, zero-5 before acquisitions, results in an earnings increase from flat to 20 cents per share.

In addition, we expect a 5 to 10-cent per share improvement in 2003 earnings from cost savings. For the first quarter, we are expecting sales between 1.02 billion and 1.07 billion, reflecting same location sales growth, excluding acquisitions, between negative one and plus four. Based on this sales range, we expect earnings of 27 cents to 32 cents per share. Sequentially, this reflects a seven to $57 million increase in sales from fourth quarter of 2002 consistent with historical seasonal patterns. This sales increase should add 1 to 6 cents to first quarter's earnings on a sequential basis. I want to summarize the assumptions that we use to arrive at our earnings forecast. Sequentially, we expect the sales increase of seven to 57 million to add 1 to 6 cents to earnings for the quarter. In addition, we expect a slight benefit from other items. Taken together, these assumptions yield an earnings range of 27 to 32 cents for the quarter. For the year, we expect sales to contribute flat to 20 cents earnings, with no benefit if sales are flat. In addition, we expect a full year benefit of 5 to 10 cents from cost structure improvements.

Finally, the future for Leggett looks very bright. We have an enviable 35-year record of 15% average growth, a history of high quality earnings, a superior operating team, and an extremely strong financial position. We are improving our cost structure, and expanding our leading market positions. We see significant growth opportunity in the worldwide markets that we serve. In short, we are very well poised to capitalize on improving business conditions in all of our markets as they materialize.

And with that, Dave, we'll turn it back to you.

That concludes our prepared remarks. We appreciate your attention, and we will be glad to try to answer any questions. We'll conduct the Q and A in the same manner we typically do. In order to allow everyone as opportunity to participate, we request that you ask your best single question and then voluntarily yield to the next participant. If you have additional questions, please re-enter the queue and we will answer all the questions you may have. We're ready to begin the Q and A.

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press "*1" on your pushbutton phone. If you would like to decline from the polling process, press the star followed by the 2. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order they are received. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment, please, for the first question.

The first question is from Budd Bugatch. Please go ahead and state your company name followed by your question.

Good morning. Raymond James. Very thorough rundown as always. I guess, Felix or David, the question I have really relates to order trends now versus when you gave your mid quarter update. Looks like residential accelerated from plus 1% to 4%, in commercial it looks like it decelerated a bit. Can you comment on any more recent trends that you're seeing in those areas, and if I can just piggy back one quick follow-up on that, what do you think the EBIT targets in each of those two segments are to be, particularly in commercial, which is has obviously had a significant change over the last three years.

You're exactly right. What we saw was a stronger 12 period than we had expected in both furniture and bedding sales. From an order entry perspective today through the first three weeks of our first period 2003, what we're experiencing is, on the furniture side, sales that are about in the 5 to 6% range ahead of last year. Bedding, we're seeing actually a reduction in sales on a domestic basis in the low single digits. International sales are frankly up in the 10% range.

In commercial as well -- I know that's not your area.

Budd, this is Dave. Bob Griffin is with us, and I think Bob would be in a good position to answer your question.

Sure. For next year, I don't see a -- from a market standpoint, I don't see any significant recovery from a market standpoint. I do see from Leggett's point of view, I do see some - although we haven't budgeted it, I do see some potential upside because of some significant new customer and particularly market share gains on the sales side. On the EBIT side, even on flat sales next year, we see some significant profit improvement from some of the restructuring and cost-cutting that we've accomplished this year. I don't think in 2003--in fact, I feel certain you're not going to see a return to the double digits that we saw back in --margins that we saw back in 2000, but I think you're going to see a very substantial recovery.

I might add that just looking at our budgeted numbers, we expect residential to see approximately the same margins in first quarter, and commercial furnishings will depend upon volume as Bob alluded to, but there will be substantial improvements in the first part of the year.

Thank you, guys.

Thank you. The next question is from Margaret Whelan. Please go ahead and state your company name followed by your question.

Good morning. UBS Warburg.

Good morning, Margaret.

Congratulations on ending a tough year so well. My question is about the balance sheet, sales are low so I guess it's art artificially low and what the working capital requirement might be in 2003 given the assumptions you've given us, and this also for Karl, can we get an update on the new plant that's coming on line in Asia?

Margaret, we're on the schedule that we last spoke to, and that is after the Chinese holidays are over, mid February, we will start production in that facility. We believe our break-even or actually the plant is budgeted to move into the area of profitability in May, so we're pleased with that startup, and it continues to progress as expected.

With regard to working capital, we don't anticipate significant changes, Margaret. Obviously some of the business models require more working capital than others, but as you know, we've been able to drive our inventories as a percentage of sales down below 15%, and we're diligently attempting to maintain that. Our receivables, we've gotten receivables down to 13.3% of net sales, and I still believe that our working capital excluding cash and current portion of debt for 2003 ought to be in that 18.5 to 19% range.

So it would be around 130, 140?

That is correct, on cap-ex, yes.

And Margaret, that 130 to 140 has got a couple of -- it's wind winding up one major project, which is the Sterling rod mill, and has another major project estimated in it that we're not at liberty to talk about today, but -- so if you took apples for apples, we probably will be spending less than what we spent in 2002 as far as cap-ex is for same locations.

Got it. OK. Thank you very much.

Thank you. The next question is from Ivy Zelman. Please state your company name followed by your question.

Good morning, gentlemen, Dennis McGill at Credit Suisse First Boston. I was hoping you guys could touch on a couple things you spoke about in November. First, what did you see that caused you to bring down the upper end of your guidance from $1.50 to $1.45? And secondly, maybe you could elaborate on what are your retailers telling you that they need to see from the economy before they consider investing in their stores?

On the -- this is Dave DeSonier. The 1.50 to the 1.45 was mostly just a little bit more comfort with our sales range. Two months ago, we didn't yet know where we were going to end 2002, and I don't know that we have a lot more insight into 2003, but when you run through the numbers and put 5 to 10 cents for cost structure improvement, less the 2 cents for the options expensing and then you add the 5% full growth, that gets you to the $1.45.

OK.

And then I think over in the retail side, obviously the retailers are notorious for winding up and looking at holiday sales and big sales months throughout the year and then deciding what kind of capital deployment they're going to have. We're in an unprecedented about 30 to 34 months of lower capital expenditures in the retail environment, and we believe that there is a lot of pent-up demand, we're probably looking at more projects for refurbishments than we've looked at in quite some time.

Obviously we can't go to the bank with those because they still have the ability to push those out on us and they didn't like what Christmas sales were so we're going to wind up and go through some other things, but we feel that that pent-up demand is there, probably no more retail space built except by some specific companies that are going to do it, probably a reduction in total square footage of retail space, but as far as the refurbishment, that plays right into our hands and we feel like we're going to see part of that play out in the balance of 2003, and with us having some competitors that are having some tough times, we think that we will be able to make some market share gains that will help us even with some flat sales as Bob Griffin had mentioned in his opening comments, pick up some market share that will help us in our own segment.

Given the weak holiday sales that you mentioned, are you anticipating that any pickup in this division would most likely occur in the back half of the year?

I would say that probably that is correct, that we will have some that you could see in the first part, but the majority of it probably would be on the back end.

Bob Griffin, do you have a count?

Yeah, from a market standpoint, I agree with Felix on that. I will mention, though, that the strong retailers continue to invest in their operations, and they really -- we really haven't seen much of a pullback, if any, there, and I'm talking, you know, the ones that we all know, the Kohls and the Wal-Marts, et cetera. We are seeing an awful lot of activity from some of the - in terms of new designs, new concepts, in some of the depressed areas of retail, the fashion and department store in particular are really quite active right now. You've read, I think recently, some of the plans or new plans for Home Depot, extremely active in that area as well as some of the drug chains. So there is -- as Felix said, there say lot of activity when they pull the trigger is really the question. And it's very difficult to determine that at this point in time.

Thank you very much, guys.

Thank you. The next question is from Laura Champine. Please state your company name followed by your question.

Ms. Champine? Your line is open.

Can you hear me?

Yes.

Laura Champine from Morgan Keegan. I had assumed that you had shaved the top end of the guidance range because of a slower pace of acquisitions than you had expected because it doesn't look like much is changing in our operational expectations.

Not really. I mean, we had a 30-cent range. It's two months later. We wanted to narrow it by a nickel or so, and so we're faced with are we confident enough to raise from 1.20 to 1.25? Not yet, especially with what we're hearing in the last few weeks. So there's not really a lot that's changed in that range. We just thought we'd bring it down a nickel at the top end.

Sure, but it is clear that your pace of acquisitions is insufficient to return you near your historical growth rate, and we talk every quarter about plenty of opportunities for acquisitions, so I'm wondering what the primary stumbling blocks have been in getting those done in recent quarters.

I'd say it's self-discipline more than anything else.

So the valuations are still not where they need to be?

Laura, this is Felix. That's certainly part of it. Sometime, as you know, we buy primarily owner/operator businesses and some of those people feel like that their businesses in tough times are worth as much as they were in good times, so there is some self-imposed discipline of trying to get the valuations correct, plus the fact there is a self-imposed discipline of us wanting to make sure that whatever this economic situation is, we're sitting here with $500 million worth of productive capacity in place on some of these operations that we'd like to fill part of that up as we go forward with some of these other acquisitions. So it is some self-discipline that's brings it to bear, but we're looking at a lot of opportunities, and as the economy improves, and I know we tell you this every quarter, we don't think we've got any problem of moving back into that range of acquisitions to where we could maintain our growth objectives, but it is some self-discipline right now as we go forward. But you'll see that probably pick up in 03.

Thank you.

Thank you. The next question is from John Baugh. Please state your company name followed by your question.

Wachovia Securities. Job well done managing last year. I guess I just wanted to follow up on the acquisition front and get a flavor for what segments, and I guess I'm a little puzzled at the valuations would still be sticky given some of these segments have been depressed for two or three years. I would think there might be some distressed sellers.

John, Felix. There are some distressed sellers. Some of the distressed sellers, though, have got their businesses into such a shape under the economic conditions we're in today that even at distressed prices, sometimes it's not a value that we think that we could pass on to the shareholder unless we could blend it in with certain things. So again, that brings up some of that self-discipline, but I think that the valuations have definitely come down. There's no doubt about that. And -- but you know we're very conscious of not taking dilution. We've stated and continue to state within that 12 months after an acquisition, we plan on them being anti-dilutive or being positive, and in an economic environment like that, sometimes that causes us to take a good look as to whether when we try to pull the trigger and when we try to do some of these things. But it will continue to get better, rest assured.

And as a follow-up to that, I know you don't want to quantify and it's hard to obviously estimate acquisitions, but for the year just ended including divestitures, you were less than 1% of net revenues acquired. Would you think you'd exceed a 5% number in '03 or any kind of wide range? Obviously 8 to 10 is your goal, but it would seem to me it's going to be near impossible to get to that number this year.

I'd say it is certainly possible for us to get back to the middle part of our growth targets.

So you think you can do 8 to 10?

In 2003, John, so we could be in that 4 to 6%.

Half of that.

You're not going to see 8 to 10.

No. We could get back into that half range in 2003. That's not unreasonable.

OK. Thank you.

The other thing I think you know, John, is we don't set a hard target each year. We're opportunistic, we're always looking, but we don't go to the businesses and say you've got to acquire 15 companies this year.

I understand. Thank you.

John, this is Dave Haffner. Just one last comment on your point, and that is without naming names, there are a couple of targets that we've chosen just to go ahead and help out of the business.

Thank you. The next question is from Keith Hughes. Please state your company name followed by your question.

Good morning. It's Scott Phillips. Taking a closer look at the aluminum segment, you guys put up some really good numbers there. Are there any key end use markets where you saw better share gains?

Yes.

Just kind of comparing like grills to motorcycles, small engines. Is there anything you could cite there where maybe something that drove results?

For sure, we saw additional gains in small engine components, non-transportation-type engines.

Right.

We continue to see some buoyancy and some gain in the barbecue grill business. The season lasted longer than we had anticipated, which is a good thing. Now it's wound down, but motorcycle components for sure, Scott.

OK.

Lighting, we've improved our market share in lighting components, and I guess kind of the new kid on the block where we saw substantial improvement is in appliances.

Right. Were those gains pretty even keel across the end use markets?

No, they varied. Unfortunately I won't be able to quantify the variance for you, but there were some segments of the market where we didn't see --some of the industries that we serve, we didn't see significant gains, but -- and those that I mentioned, we did.

Right. Were they -- by any competitor bankruptcy or key customer wins?

Yes, sir, they were. That's been a very tough environment too, and while this sounds self-serving, I think that our management within the aluminum group, within Leggett & Platt, have done a superior job in servicing the customer and driving out inefficiencies, so for sure we have benefited from some of our competition's failures.

Scott, another thing too is we've continued to narrow our focus on certain industries and try to do a better job and better penetration with certain customers which is certainly aiding up in gaining more market share from some of the areas that Dave has talked about.

Right. And then shifting gears, one last question. What was your '02 store fixtures revenue? Do you have that number?

About 700.

700 million?

700 million.

That's got to be about right.

That's not the segment.

For store fixtures, about 700 million, Scott.

OK thanks a lot.

Thank you. The next question is from Michael Braig. Please state your company name followed by your question.

AG Edwards. Question specifically on store fixtures. Opinion has been voiced or expressed some that the relatively poor performance in that sector for the last few years puts the cumulative goodwill associated with their acquisition at risk. Can you comment on how FAS B143 is applied? Specifically is it applied to the individual acquisitions or at some other aggregate level?

It's applied at an aggregate level, Mike. We've broke the company into 11 business groups or groupings and then they apply those tests to each of the groupings. If you looked at 150 acquisitions, there's got to be a couple in there that wouldn't meet that test, but we do it at a group level.

Are store fixtures included as a separate group among those 11 sectors, or are they coupled with something else?

Mike, this is Dave Haffner. Store fixtures, point of purchase displays and storage products are all put together in a group.

All right. Thank you.

You're welcome.

Thank you. The next question is from Joel Havard.

BB&T Capital Markets. Good morning, guys.

Hi, Joel.

Want to make Mike do some work before he slides off to retirement. Would you walk us through the components of debt at year-end and what the scheduled amortization and any prepays might look like during the course of '03 and into '04, please?

The components of debt are primarily our medium or longer-term bonds. We've got some amount, about $40 million of IBB-type debt in there. We don't have anything borrowed under our commercial paper program at this time.

OK.

As you know, part of our scheduled debt or long-term debt has been converted to -- we're actually paying, LIBOR floating rate versus fixed rai (ph).

You got a swap on 40 or so there too, right? More than that now?

We swapped on about -- it's about 360, 370. The 350 was the biggest piece that we swapped when we did it.

OK.

Those swaps now have a value to us on our balance sheet that's recorded, as you know, of about close to $50 million. I think 48 million at the end of the year.

OK.

And that's shown as debt, as increased debt. Obviously that's an accounting convention. If we were to unwind that swap, our debt would go down by $48 million.

OK.

So really, the bulk of our debt is in the long-term section at this point. We've recently completed the new revolver, which was five-year revolver, basically 2-1, 2 -- for every $2, it's five years. And that's all been reworked late summer. The maturities -- I believe we've got about 100 million, 94 million due within one year.

OK.

And then, of course, the big chunk, that 350 gets rolled in February of 05.

Right.

And then, you know, after that, it's kind of smaller chunks as we go forward. I don't have that.

OK. And as far as the 94 this year, is that heavy in any one quarter?

Yeah, I believe it's all -- it all comes due in -- is it second quarter?

David DeSonier - Leggett and Platt - VP Investor Relations

We think it's second.

I believe it's second. I don't have that schedule in here with me.

OK.

I believe it's second quarter.

And just one follow-up. Dave Haffner, you were talking about the yearly same store -- I didn't catch it on aluminum.

The same-store sales for the year?

Yes, sir.

8.8%. But it actually averaged 14% growth in the final three quarters of the year. What you need to catch there, Joel, is that we're on an uptick.

Exactly. All right, guys. Thanks.

Great.

Thank you.

Thank you. The next question is from Fred Speece.

Mid year last year, Felix, you had mentioned a long-term EBITDA goal of 13.5 and you thought that might go up with all the restructuring. What is your long-term goal there?

Fred, that was EBIT, not EBITDA.

EBIT. OK. Thank you.

Yes. And I still think that long-term goal is probably realistic for us.

You're not raising it with all the restructuring you've done?

I believe still in that -- I guess the range has been 13 to 15, but in that 13.5% range, we're probably about where we need to be.

OK.

We've kind of said let us get back to 13 and then we'll talk about what we can do beyond that.

But theoretically, the point that Fred's making, one that I've mentioned in New York, and that is that if we were able to backfill and get with the same mix that we had, which is unlikely but if we can get it similar with the same mix that we had, and you take a look at the reduction in SG&A and some other group charges that we have, theoretically, we should be higher.

That's my one question. Thank you.

Thanks, Fred.

Thank you. Ladies and gentlemen, if there are any additional questions, please press the star followed by the 1 at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment, please, for the next question.

The next question is from Dennis McGill. Please go ahead with your question.

Morning, guys. Just a quick follow-up. I was hoping you could break out what exactly is included in the other expense and income line and where you see that going for '03. And if you could as well break out the actual goodwill from the other assets.

You're talking about for the full year?

Yeah.

I'm trying to find my number again.

We had restructuring of about 15 million for the company, and I'm trying to guess, maybe 10 or 12 million in that other income line. Do you have detail there?

I don't. I do on goodwill.

And then amortization is also in that line, and that's going to run 10, 12 million a year. And that's probably what it will be going forward also. We don't expect as much restructuring next year, but there will likely be a little bit. I don't know, $6 million, something like that. That's a guess.

You would guide somewhere to 15, 20 million for '03?

For the total, about 15 million.

Well, yeah, 15 to 20. That's a good guess.

And then relative to goodwill, Dennis, on a consolidated basis, we've got $898 million worth of goodwill.

OK. Great. Thanks a lot, guys.

You're welcome.

Thank you. The next question is from Peter Sleep. Please state your company name followed by your question.

Citigroup Asset Management. Couple of quick questions, please. The LIFO adjustment in year end numbers -- was that in your original guidance and budget?

You mean a year ago?

No, this year. There's a life - adjustment up.

When you say ...

Say from three months ago, six months ago. I was just checking my notes. I think, Felix, you said in your guidance 113 to 118, 94 cents was last year, 13 cents in cost structure, so on. I don't recall -- I guess this is the reverse sort of the Canadian lumber duty, it's something I don't recall.

The (inaudible) would not include Canadian lumber duty. We don't exclude that from those numbers when we give guidance, but to be candid, we don't get down to that specific.

It's the -- if it's not Canadian lumber, why was there a write-up? I would have thought it would have been a write down.

I don't know, Peter. I'd have to look into it.

OK.

Mike Glauber - Leggett & Platt - Senior Vice President

I think probably what happened is earlier in the year -- I think where we wound up is we had estimated the steel prices being maybe a little more impactive than they wound up being, so at the end of the year, we wound up with an adjustment of our estimates.

OK.

We had estimated steel prices to be more impactive than they were.

So is the year-end reversal over accrual earlier this year?

Right. It affected over accrual.

And next year, all other things being equal, flattish for LIFO?

That's a good guess at this point.

The steel mill, I think there's 3 million of start-up costs in this quarter. Last quarter reported. What sort of expenses do you associate with that start-up, or has it now finished?

It is not finished. We will have some cost in the first quarter of this year. We expect at the end of the second quarter of this year that the start-up should be over and it should be headed into a positive range. But there will be some other charges, Peter, that will take place in the first quarter.

First quarter is probably going to be the most significant.

Yeah.

What sort of magnitude, Felix, please?

Could be in the $4 million to $5 million range.

OK. Thanks very much.

OK.

Thank you. Gentlemen, there are no further questions at this time. Please continue.

OK. We appreciate your listening in and we'll talk to you again next quarter. Thank you very much.

Thank you. Goodbye.

Thank you, sirs. Ladies and gentlemen, this concludes the fourth quarter 2002 earnings conference call. If you would like to listen to a replay of today's conference call, please dial 303-590-3000 with access code 518624. Once again, if you would like to listen to a replay of today's conference call, please dial 303-590-3000 with access code 518624. Thank you for participating. You may now disconnect.