禮恩派 (LEG) 2005 Q4 法說會逐字稿

Good morning. My name is Jennifer and I will be your conference operator. At this time, I would like to welcome everyone to the Leggett & Platt fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Mr. DeSonier, you may begin your conference.

Good morning and thank you for taking part in Leggett & Platt's fourth-quarter conference call. I'm Dave DeSonier, the Vice President of Investor Relations, and with me today are the following. Felix Wright, who is Leggett's Chairman and Chief Executive Officer; Dave Haffner, our President and Chief Operating Officer; Karl Glassman, who is Executive Vice President and also Head of the Residential Furnishings Segment; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations.

The agenda for our call this morning is as follows. Felix will start with a summary of the major statements we made in yesterday's press release, and then we'll add some further insight into the quarter and the year; Dave Haffner will discuss the segments and update you regarding restructuring plans we announced in September. We are using a different approach in our segment comments this quarter. We assume you have had an opportunity to review yesterday's press release, so we're not repeating the comments regarding performance for the quarter and the year. Instead we will discuss key strategic issues for each segment.

Felix will then address our outlook for 2006; and finally, the group will try to answer any questions you might have. This conference is being recorded for Leggett & Platt and 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 website.

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 due to a number of risks and uncertainties and the Company undertakes no obligation to update or revise these statements. For a summary of the risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled forward-looking statements.

I will now turn the call over to Felix Wright.

Good morning and thank you for joining us on our fourth-quarter and 2005 year-end conference call. We're pleased to have posted fourth-quarter earnings at the upper end of our guidance even though restructuring costs were realized more quickly that we expected. We made significant progress on our restructuring and by year end we're ahead of schedule in completing these activities.

Fourth quarter earnings per share were $0.24, including $0.11 per share of non-recurring net cost. We posted record fourth-quarter sales of 1.34 billion, with the increase due to recent acquisitions; same location sales were essentially flat. We set a new sales record for the full year 2005, with sales of 5.3 billion, up 4% versus 2004. Acquisitions and internal growth each contributed about half of the increase. Internal growth was primarily from inflation. Demand was mixed across our various markets.

Bedding demand was weak for much of the year but we began to see year-over-year unit growth beginning in early September. This improvement has continued into January. In contrast, we posted solid growth throughout the year in our businesses supplying upholstered furniture components.

Earnings decreased in 2005, primarily due to an $0.18 per share restructuring related charge. Other non-recurring items including $0.07 per share for unusually high workers' compensation expense and $0.05 per share benefit for a onetime reduction in taxes. Excluding these items, earnings would have been slightly higher than in 2004.

Several other factors including sales growth, purchasing initiatives, declining share count, higher energy costs, and currency rates essentially offset in full year earnings.

Inflation was a significant challenge again in 2005. The largest impact resulted from higher oil and natural gas prices, which affect the cost of raw materials such as chemicals, fibers, and resins. Many of these costs rose throughout the year, but the increases accelerated following the September hurricanes. In response, we raised prices to our customers and by year-end had recovered most of the higher cost.

In addition to price, availability of chemicals was a concern heading into the fourth quarter. Shortages of TDI, which is a chemical used to make polyurethane foam, had abated by year end and we experienced no significant volume or earnings impact in the quarter.

Higher workers' compensation costs reduced our earnings in 2005. For the year, we increased our reserve for these costs by about 21 million in excess of normal rates and we do not expect these costs to repeat. This increase results from higher costs of medical care, longer duration of claims as more treatment options are available, and continue over longer periods of time. Our total number of claims has been relatively steady for the past several years.

In 2005, we had a solid acquisition year. We completed 12 acquisitions in total that should add about 320 million in annual revenue. Seven of those including the two largest occurred in the fourth quarter and therefore will contribute nicely to total sales growth in 2006. We discussed many of these recent acquisitions in previous announcements and on the last quarter's call. The two largest, ABC and Ikex / Jarex, established sizable new business platforms with opportunities for future growth.

We repurchased 10.3 million shares in 2005, considerably more than any previous year. This was an opportunistic move that was driven by two main factors. Additional cash was available as we increased net debt as a percentage of net capital toward our targeted range of 30 to 40%, and a lower stock price in the last few months of the year presented an attractive buying opportunity. Almost 6 million shares were purchased during a nine-weak period in the third and fourth quarters at an average price of about $20.25 per share.

The Board of Directors has authorized the purchase of up to 10 million shares in 2006. The timing of future share repurchases will vary based on several factors including the pace of acquisitions and stock price. A specific repurchase schedule has not been established.

We continued to generate strong cash flow in 2005. Cash from operations increased 30% over 2004. In August, we further strengthened our balance sheet through the issuance of 200 million of ten-year debt at a coupon rate of 5%. As we first mentioned in September of 2004, we plan to increase our net debt as a percentage of net capital back toward our long-term range of 30 to 40%. As a result of this debt issuance, the share buyback and increased acquisition volume, net debt to net cap had increased to 28.5% by year end.

Finally, we increased our annual dividend in May, making 2005 our 34th consecutive year of annual dividend increases at a compound annual growth rate of just over 14%.

With those comments, I'm going to turn the call over to Dave Haffner.

Thank you, Felix. Good morning. As Dave DeSonier mentioned, I will discuss key strategic points for each segment and then some major companywide initiatives we're working on. But first I'll update you regarding our restructuring activities.

We made significant progress during the quarter on the restructuring plan announced in mid-September and by year-end we're well ahead of schedule. Through an intensive companywide analysis, we identified 36 underutilized or underperforming operations that have been or will be closed, consolidated or divested. About half of these facilities are in Residential Furnishings; approximately one-quarter are in Commercial Fixturing and Components; and the remainder are in Industrial and Specialized.

Collectively these operations had revenue of approximately $400 million. Most of this volume is moving to surviving facilities, but a $90 million volume reduction is expected as we divest small noncore operations and walk away from some unprofitable business. The majority of this volume reduction will occur in the residential and commercial segments.

We will reduce our productive capacity by about $150 million as a result of closing and consolidating these facilities. About two-thirds of this capacity reduction will be taken out of our fixture and display operations and about one-third will come out of residential. Costs associated with these activities should approximate $76 million, of which about half will be non-cash charges. We recognized $53 million of these costs in 2005 and expect the majority of the balance to be incurred during the first quarter of 2006. This estimate of total cost does not include benefits from the sales of buildings, real estate, or equipment, so our final net cost will be somewhat lower.

We estimate an ongoing annual EBIT benefit from the restructuring of about 30 to $35 million or $0.10 to $0.12 per share. This benefit is derived from a reduction in number of employees, elimination of fixed costs associated with closed facilities, and improved overhead absorption from increased volume at remaining facilities. About half this benefit should occur in residential; 15 to 20% should impact commercial; and roughly 10 to 15% of the benefit should occur in each of the other segments. These gains will lead to improved margins and returns in all segments.

Now for some comments on the segments. In Residential Furnishings, bedding industry unit volume including all types of mattresses has been flat to slightly down for the past few years. Although overall consumer spending has been relatively strong, consumers have not been purchasing or replacing mattresses at historic rates. They seem to have been buying new homes, remodeling their existing homes, taking advantage of automotive industry promotions, and buying furnishings and electronics for the front rooms of their homes. Bedding purchases are deferrable and are influenced to a large extent by consumer confidence and the amount of discretionary income consumers have available to spend. Higher gasoline and energy costs impact these spending levels.

In addition, advertising expenditures by bedding manufacturers have also been lower in the past few years because of raw material inflation. Less promotion negatively impacts consumer demand for bedding. Costs of many of the key materials used to produce finished bedding and upholstered furniture has increased dramatically over the past two years. This has forced our customers to make changes in the design of some of their products, which impacts their demand for our components.

Across the Company we have stepped up our research and development efforts. We are working with customers on their new component designs and are usually the supplier's choice and often the developer for those new components. As raw materials come back down, we typically pass these decreases back through to our customers. Price deflation related to lower steel costs began to occur in 2005 and will likely impact 2006 sales growth on a year-over-year basis.

We continue to perform very well in our Upholstered Furniture Components businesses. We are gaining market share as our customers gain share. This market is increasingly global, but we're very well-positioned to participate in worldwide markets. We expanded our international presence in this business during 2005. With one acquisition and one startup, we now operate three furniture component facilities in China.

We expect to pursue growth in other businesses within the segment. A good example is the acquisition we announced in October and Felix just mentioned of Ikex / Jarex, which significantly expands our geotextile operations and provides a solid base for further growth.

In Commercial Fixturing and Components, our office furniture components business have consistently performed well. Although still below peak levels, market demand has steadily improved since late 2003. This business faces challenges from increasing foreign competition but we are very well-positioned with product development, quality, and efficient semiautomated operations.

The performance disappointments in this segment come from our fixture and display operations. The single largest contributing factor has been weak demand by the retailers. Beginning in late 2000, retailer spending on remodeling programs and new store construction declined significantly, resulting in much lower market demand for the display fixtures that we manufacture and sell. Although the declines have stopped, we are yet to see any sustained improvements in demand. In addition over the past few years, many of our weaker competitors have gone through bankruptcies and some of them are no longer in business. As these competitors struggle to survive, they cause pricing pressure in the market.

The performance disappointments have also resulted in part from internal operating issues and inefficiencies. We have effected changes in key personnel and manufacturing systems to address many of these. We are also with the assistance of our corporate procurement staff doing a better job of utilizing groupwide purchasing leverage.

Segment margins remain at unacceptably low levels. We are committed to improving those margins and should accomplish gains through our current restructuring efforts. The capacity reduction that I mentioned earlier will help. With that said, margins must increase appreciably from current levels or further restructuring will be initiated. Long term, we strongly believe our fixture and display business represents a good strategic opportunity for the Company. We are well-positioned with a broad base of customers and see opportunities to grow our business in new markets.

Although our near-term focus is on completing the restructuring and accomplishing margin improvements, we will also continue to consider attractive opportunities for growth in this business both internally and through acquisitions.

Over in our Aluminum Products segment, as planned in December, we completed construction of our new die casting facility in Auburn, Alabama. This operation will supply aluminum components for Briggs and Stratton and will ramp up over the next few quarters as we install and commission the die casting equipment and related systems. We expect the operation to be approaching targeted margin and return levels by the end of 2006. 2006 sales growth will benefit from this new operation and our focus in this segment will continue to be on similar deverticalization opportunities with other customers.

For internal growth, we target customers that are large users of castings across many industries except for automotive. Our focus includes those customers and markets we already serve as well as new prospects. Furthermore we continue to investigate opportunities for post casting value added activities that can increase sales price and profitability of the raw castings.

Over the past several years, we have seen continued declines in the volume of gas barbecue grill components that we sell and we expect that trend to continue in 2006 as more units are sourced from Asia in partially assembled sets. We are gradually replacing that volume with other products such as components for large appliances, industrial lighting and electric tools.

The operating issues we faced in 2005 were dilutive to segment EBIT margins, but those issues were largely behind us by year end. Our margin targets for this segment are 10 to 11%. We were making steady progress towards those targets in each of the three years prior to 2005 and expect notable improvements in 2006.

Over in Industrial Materials, EBIT margins in this segment have been above our long-range targeted levels for the past two years, mainly due to a higher scrap to rod market spread. We expect the average spread to be lower in 2006 and as a result we are estimating lower segment margins for the year. We also expect 2006 sales to be impacted by deflation. Declining steel costs experienced in the latter part of 2005 resulted in sales prices lower than those realized earlier in the year.

Late in 2005 we implemented several projects at our Sterling, Illinois rod mill which will increase ultimate capacity of the mill by 20% to approximately 540,000 tons per year when fully ramped up. These projects, which total $12 million in investment, included a facility expansion, an automated billet welding system and associated equipment, new drives for our rolling mills, and world-class maintenance and lubrication systems. With these additions, the mill now ensures a consistent supply of quality steel rod for nearly 65% of our annual requirements.

In Specialized Products, North American automotive production is expected to continue at just under 17 million vehicles in 2006. This is roughly flat with 2005. Recent industry announcements highlight some of the issues the major U.S. manufacturers are facing and their need to adjust capacity to match current demand levels. We do not believe these announcements suggest a further decline in market demand for our business. We're placed well with nearly all manufacturers including the foreign companies that assemble vehicles in the United States.

If volume moves from a U.S. manufacturer to another producer, we generally maintain the component content. For the past several years, we have grown our market share through increased product placements and more content per vehicle. These gains helped mitigate declines in industry units.

In addition to serving the U.S. market, our global presence is very strong. We have well-established operations in Europe and Asia that enable us to take advantage of opportunities in those other markets. Long-term we think notable growth opportunities in our automotive business will likely occur as the Asian market develops.

In late October, we announced the acquisition of America's Body Company, a designer, manufacturer and supplier of equipment for light- and medium-duty commercial trucks. When combined with our existing commercial vehicle products, we become the second-largest supplier in a $1.5 billion U.S. market. Looking forward, we see this as a significant growth platform for both geographic expansion and new product development.

Before I turn the call back to Felix, I would like to share some of the major companywide initiatives that we've been working on with many of our senior managers. As I referenced earlier, our corporate purchasing efforts continue to bear fruit as we roll out an enterprise purchasing system that significantly enhances our ability to leverage our spend on goods and services both from domestic and foreign suppliers.

Another very important initiative deals with the way we conceive and develop new products. This has been a critical part of our history and we're exploring ways to expedite these innovation efforts throughout the corporation in close conjunction with existing or prospective customers to ensure a stream of new ideas and products. As part of this strategic emphasis, we are strengthening our development staff and planning a new technology facility here in Carthage.

Many of you know that we pride ourselves on our commitment to continuous improvement and lean manufacturing. While we have done a good job in the past, we are stepping up our priority on manufacturing optimization by adding technical engineering staff that will assist every segment in finding more and better ways to increase planned efficiencies and drive out costs. With ever increasing cost pressure associated with utilities and energy, we are continuing to explore ways to mitigate these costs not only in our gas hedging initiatives but also in consumption-oriented projects. We are finding some excellent capital investments that are yielding very good ROIs and every operating group has and will benefit from these.

Recently we have worked closely with Russell Iorio, our Vice President of Mergers and Acquisitions, to investigate ways to streamline the process of defining targets, screening for probability of success, developing enterprise valuations, and soliciting ultimate senior management approval. With acquisitions being such an important part of our growth fuel, we feel this continuous improvement approach to the M&A process will help us with the increasing demand for more and bigger deals.

With those comments, I will pass the call back to Felix.

Thank you, Dave. We are optimistic about 2006 and expect to post record sales and earnings. The three main factors influencing earnings growth for the full year should be the level of cost improvements obtained from our restructuring efforts, sales growth, and our ability to recover potential raw material cost increases. For planning purposes, we are assuming 2006 total sales growth of about 5%. Same location sales growth is expected to be about 2%, with unit volume and market share gains partially offset by changes in product mix and some isolated price deflation.

Acquisitions should contribute about 5% to sales growth, but will partially offset by a 90 million or 2% expected sales reduction from our restructuring activities.

In 2006, we expect EBIT margin improvement in four of our five segments. The gains will come primarily from operational improvements and lower restructuring costs. The restructuring activity is eventually expected to add $0.10 the $0.12 per share to annual earnings and we expect at least half of that benefit to be realized in 2006.

In the Industrial Materials segment, EBIT margins are expected to decline somewhat, reflecting a lower average steel scrap to rod price spread in 2006 versus 2005. We expect the combined sales growth and margin improvements to result in full year 2006 earnings of $1.50 to $1.75 per share. For the first quarter, we expect sales to be roughly equivalent to a fourth quarter '05, which would be about 3% sales growth versus first quarter of '05.

Restructuring related costs should be approximately $0.05 per share and the tax rate should return to a more typical level. Based on these assumptions, we expect first-quarter earnings of $0.28 to $0.33 per share.

As I've stated in the past, profitable growth both organic and acquisition will continue to be our top priority for the use of our cash. We also plan to continue increasing our dividend and use excess cash to repurchase shares. Our use of cash in '06 will be consistent with these priorities. We expect to spend approximately 165 million for capital expenditures. Dividends will require about 120 million. We currently expect to spend about 250 million in 2006 for our acquisitions and share repurchases combined. Cash used for acquisitions will vary depending on the timing of opportunities. Share repurchases should be lower in 2005 in part because we do not anticipate as large an increase in leverage.

Working capital management continues to be a focus and we believe we have opportunities to reduce our working capital in 2006.

With those comments, we are going to turn the call back over to Dave DeSonier.

That concludes our prepared remarks. We appreciate your attention and we will be glad to try to answer your questions. As we typically do, in order to allow everyone an opportunity to participate, we request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please re-enter the queue and we will try to answer all the questions you have.

Jennifer, we are ready to begin the Q&A.

(OPERATOR INSTRUCTIONS) Budd Bugatch.

Let's go right to just the sales and sales guidance for the year. I have got and for the first quarter as well, you have given us some components of the plus 5 as I get it plus 2 in sales locations -- same location plus 5 of acquisition and about 2% of walk-away business. Can you help us for both the year and the quarter; give us kind of the same components for first quarter? And for the year help us and maybe for the first quarter give us an idea of the magnitude of the deflation and the product mix changes that I guess would go into same location? Because it looks like the sales growth is about the only thing that concerns me. It looks rather tepid for the year.

For the full year, Budd, you're right. You've got the numbers right and the organic growth of plus 2% before deflation maybe that's 3, 4% and then it is offset slightly by a little bit of deflation. For the first quarter, we've got plus 3% roughly in sales growth and if I had to guess I'd say that may be negative 3 same location and plus 6 acquisitions. And I'd don't have with me -- I don't know if Matt does -- the breakout of how much of the reduction in sales from divesting; how much of that would fall in the first quarter. We would probably have to get you that.

Okay, and if I could just make sure we follow up and in that same location, can you parse that a bit for first quarter?

I don't have that with me, but I can get it for you.

Thanks, David.

Margaret Whelan, UBS.

Congratulations. You're making a lot of progress. The margins came in on a couple of the business units ahead of what we expected and I'm just trying to get a sense for the benefit of the restructuring, the cost containment efforts versus potentially lower commodity or energy prices helped you a little bit in the Q versus what you were expecting. Because I know your pull forwards from the cost-cutting as well. If you could go through each business unit for us?

Karl, you want to try residential first?

Margaret, that's a tough one. It seems like every time I answer one of your questions I preface it by saying there's a lot of moving parts. I will do again. What happened to us in the fourth quarter in particular we saw extreme chemical inflation, so we passed that through. So you saw some sales growth because of that recovery in our phone businesses as well as our foam businesses. You saw we experienced real unit growth in springs for the first quarter -- the fourth quarter is the first time we saw real unit growth in U.S. springs in calendar '05. And posted another really strong quarter in sales of furniture-related hardware.

So the volume was good in the quarter, but we are starting to experience some deflation as it relates to the steel indexes in the elimination of surcharges on the flatrolled products. So there's all winded together in the end the margins were better-than-expected, not in total but to a great degree because volume was up.

So that was a function of it was just the (inaudible) utilization?

Yes, yes. We were better utilized in the quarter, definitely. And the challenge of answering your question becomes the consolidation impacts because as an example in residential there's 18 facilities involved and distinctly different businesses, flushing out some businesses that we historically had not had acceptable margins on. And then the benefit of the rationalization of others and rolling that all together, it is a difficult calculation.

Over in commercial fixturing, if we disregard for the moment the restructuring or non-recurring costs, we have been able to replace some new business with higher margins than we have had in the past. As I know you know, when you commit to some of those programs, you have to lock in pricing for longer periods of time and so as you have freight or energy costs go up, then they do eat into your margins. What we have been able to do with our newer quotations is to regain part of that incremental cost. So while margins still aren't where we need them to be for the whole segment, we are project by project and order by order increasing the margins over and that is primarily fixture and display.

I am just trying to think what else. In aluminum, that I simply can't remember exactly all the elements that have come into play there. That segment, which we all should feel really good about, is experiencing that Auburn startup as well as the influence of the assured castings volume that went from Rogersville into five other of the other plants. So they are experiencing some new business or startup effect in all of those. But we're very pleased to get a lot of that behind us by the end of the year.

Industrial Materials, we simply did a better job. We had better margins than we had originally or previously had anticipated.

And that was a function of the capacity or the cost management or the mix?

It was primarily a function of some capacity, some mix, but the big piece over there was the spread from our raw material cost to the market. That spread stayed higher longer than we expected.

The second question I just have is the trend in your SG&A has been really impressive despite the volatility of the sales effect (indiscernible) over the last couple of years. So is the lower SG&A a function of less advertising and selling expenses or is it that you're actually taking permanent corporate ads?

You know what, Margaret? We're never satisfied with that SG&A. Thank you for recognizing that. But we have looked, continued to look myself with Felix's endorsement, Karl's endorsement, Matt's hard efforts, we continue to look for ways to reduce those corporate overheads. Obviously as sales go up, that overhead as a percentage of sales can come down if we can keep it in check. It is something that is an ongoing universal day in/day out vigilance that we have. And when we talk about adding technical engineering staff and critical support staff, we only do that when we're sure that the return on that investment is very, very significant. And many times when we add a particular person at a corporate level, we know that we're going to be able to more than offset that in reductions of staff or overhead out in the field. So it is across the Company that we are vigilant in that regard.

Margaret, in addition to that, some of our sales growth has been driven by inflation. And there should not be a SG&A growth with that inflation. So we -- it is nice of you to note, but we shouldn't see that expansion.

Okay, that's good. So we would as we're modeling forward we'll expect this kind of the lower around nine?

That's a good is function. (multiple speakers) And I would add one other thing. This is Matt. On the EBIT margins for 2006, Felix mentioned that four the five segments are going to be seeing an improvement and we're planning for that. And in each one of those segments, the only one not included in those four would be industrial is something in the neighborhood of 200 basis points or more compared to the EBIT margins that were occurred in 2005. A lot of noise in 2005 as you know, but that is at least the sense of the magnitude of the improvement expected in four of the five segments.

Okay, good job. Thank you, guys.

David MacGregor, Longbow Research.

On the restructuring, it just seems as though you're making progress a little faster than you had initially anticipated, which is great to see of course. I'm wondering what other surprises might be in store here as a result of this as well? Is it possible that the actual EBIT benefit once the dust settles is perhaps greater than you had initially anticipated?

Secondly, I'm wondering if the scale of the restructuring ends up now that you are in there and you've got your sleeves rolled up and you are working through these 36 facilities, are you finding a group of others that provide an opportunity to get in and do some work on as well?

Dave, this is Felix. I will take just a high-level shot at it then let Dave and Karl talk to you. But as far as once we have gotten into this, obviously when we gave you the range of 50 to 70, it does look like it's going to be close to 76. So we are maybe a little bit above that range because obviously we did exactly as you suggested. Once you get in, once you get an opportunity to continue to looking etc., are there some things that can bring some long-term advantage? We did that.

Are we finding anything now that we are already into the first quarter that's any major other things that we think we may be coming to you two or three quarters down the road that we need to do? No. The answer to that question is no, we don't think so at this point.

Could there be better margin improvement? Obviously as we go through these restructuring related events and try to drive the manufacturing improvements through there that Dave even addressed in some of his comments, we are always hopeful of trying to get there and that is the reason that you have seen us leave this segment target margins where we have them. We're certainly not there.

As Matt stated, we have got in nearly every segment except for the industrial, we've got a 200 plus basis point improvement in margins in our 2006 budget. That still doesn't get us up to our target levels. But we still think that those target levels are certainly attainable. Some of these things that we're doing, capacity taken out, other things that we're doing in the utilization piece (indiscernible), and etc.

But I don't want you think that there all of a sudden is another 50 or 100 million that's sitting out that we just either haven't been willing to recognize or we think is just around the corner. We're not seeing that at this point that we think that we have got to do that. But now, Dave and Karl, if you have got any other comments?

Just real quickly, Dave. With regard to being ahead of schedule, we're very pleased with that of course and I contribute that to the segment and group presidents maintaining a real strong priority and vigilance on it. We discuss it really we discuss it daily but we discuss it more formally every week. I do with each of the guys.

With regard to EBIT benefit, are there more surprises? Could it be better? It could. It is going to be function of timing and accuracy relative to our forecasts. We do not think that it would be any worse than we forecasted.

With regard to the scale of restructuring, as you put it, I like the way you put that. We have effectively reshuffled our deck and we know the bell curve of operation performance has changed somewhat and those that are no longer in the deck, we don't consider and we know where the next layer of poorer performing operations are. There's still operations that we want to keep, we want to continue to nurture. But as I said in one of my comments, we know in each one of those segments if we need to where we can make additional changes. We think we have done enough. We think this is right. We think we've got productive capacity ratcheted down to where we need it and so there are not, as Felix said, there aren't any other significant plans.

Dave, there is one thing we need to make clear and I think we pointed it out in our verbiage. But in the commercial fixturing business, obviously that was a huge disappointment to us in '05. We have got 200 to 250 basis point improvement programmed into '06. We have taken $100 million worth of capacity out of that business, but as Dave very succinctly stated, that if we don't see the improvements there and even ahead of that schedule, we will do some further restructuring in that business to get the profitability where it needs to be.

One of the things -- this might get to a capacity utilization question that either might have come up or just were in peoples minds. With that shift or elimination of productive capacity over in fixturing and display, that by itself with our forecasted volumes should increase our utilization about 10 to 12%, which is going to go a long way toward meeting those margin improvements.

Are you confident that in your commercial fixtures business you're not losing share or that the market has not migrated into products that you're not currently producing?

Dave, we really are. As vain as that may sound, we ask that question a lot. We in fact have gained a little bit of market share with some new customers. We get fired or lose a little business in some projects every year. So there's some give and some take but relative to the slice of the pie that we have and the defined market as we define it, we feel comfortable that we're not losing market share.

One other comment on the restructuring real quickly relative to how we feel about it and where we are seeing relatively good news, it would be on the asset disposals that we're lining up. We feel real good about what we think that is going to bring to the party. We haven't talked a lot about the magnitude there, but it will be millions of dollars that will help offset the cost of the restructuring. Felix referenced 76 that we're feeling good about the valuations that are there to be had as we monetize those assets and redeploy them.

Just a quick question. The rod to scrap margin, where is that now?

$306.

Was that the average or the end of quarter?

That was average. That was the quarterly average.

Do you have some sense of what the end of quarter was?

Just a little bit north of that.

Thanks very much, guys.

Laura Champine, Morgan Keegan.

Can you indicate what bedding unit growth is contemplated in your 2006 full-year guidance?

Laura, it's forecasted at this point to be flat, which correlates to what the major producers have said as to their forecasts for '06.

So bedding unit growth flat. For the full year '05, your bedding unit growth was probably flat as well. Is that fair to assume?

No, it was positive in only the fourth quarter. It was -3.7% for the year.

Okay. It is tough for me to reconcile what has happened in some other adjacent spaces and general macro stimulus in home in general. It is tough for me to reconcile that with flat end market demand. Do you retain your previously indicated confidence that you're not losing share in mattress springs?

Yes.

Okay, and is there any competition on the horizon specifically I'm thinking about Chinese producers that is a cause for concern down the road?

There were a number of finished bedding manufacturers in China that made an attempt to penetrate the U.S. market in 2005 and they were -- I'm not going to say totally unsuccessful, but they were in the most part unsuccessful. They are probably getting a new look because of the foam inflation that hit the U.S. mattress industry in the fourth quarter of '05. So it is a chapter of a book that has yet to the written but the U.S. bedding manufacturing industry is extremely efficient with a low labor cost content and a wonderfully efficient distribution system. So we will see, but I would say there has been some renewed interest in retailers in the U.S. looking at offshore sources.

Can we talk a little bit just big picture on demand a little bit more? Your upholstery furniture business has been strong and I think that units in that business have been fairly decent. Is there a precedent for having demand for upholstered furniture substantially growing at a substantially higher pace than mattresses?

Well, the issue there, Laura, is our furniture businesses are in a market where the market itself is growing as there is a conversion from stationary furniture to motion furniture. We have a much higher content in motion. And we are growing our market share there. So we are growing a position in a growing market. In bedding, the market is from a unit standpoint has been stagnant. From a sales dollar standpoint it has been growing significantly as AUSPs have increased. Some of that is inflation driven and some of that it the manufacturers are doing a pretty good job of stepping the consumer up in the price point spectrum.

Thank you.

Keith Hughes, SunTrust Robinson Humphrey.

Karl, your comments earlier on the expectations of the bedding industry for flat, do you think that is driven on macroeconomic or is that more related to many companies going through a conversion of products to get ready for the fire standards, not being able to this as much money for advertising? What do you think goes into that number?

That's an interesting question, Keith. I believe it is macroeconomic driven. As you probably know, the CTSC came out for the tail end of last week and moved the Federal flammability standard from an expected January of '07 start to a July of '07. So it has moved that out a little bit, giving the bedding manufacturers a little bit more time to prepare. But the preparation is a year cycle. So they all have a lot of work ahead of themselves trying to comply to a stricter standard than the California standard.

But when the bedding manufacturers were surveyed in furniture today, the forecast aggregated from a unit perspective for '06 expectations of 0.2% growth and a dollar growth -- I believe the number was 7.8%. I might be slightly off on that. And I think that the consensus was that consumer confidence drives bedding, questioning where consumer confidence will go, the amount of free cash that the consumer has somewhat dependent on higher energy costs, so they're truly macroeconomic drivers.

Thank you.

John Baugh, Stifel Nicolaus.

Two questions. One real quick, the workman's comp, you said $21 million increase. Help me with understanding year-over-year in '06 to '05. Are we going to be flat? Are we going to be down 21 million? The second question is in the commercial side, the office furnishings. Are we looking -- we can look back at '05 and also as we look forward in '06, is the secular trend to imports being more than offset right now by the growth in overall demand?

Matt, why don't you take the workers' comp?

John, the workers' comp, sure enough that $21 million that we've referenced in the press release, that is extraordinary expense that we incurred in 2005 to catch up. Again as Felix mentioned in his comments, reflecting longer term of claims that is now occurring as well as higher costs and more treatments that people can get. And that $21 million in 2005 allowed us to go ahead and reflect that across the portfolio of claims that we had and that will not be repeating item we certainly don't expect in 2006.

But as we go to 2006, we are reflecting appropriately in our budget for this year of course what we think new claims would represent with that kind of backdrop that we are now even much better tuned into.

So Matt, does that grow in line with sales growth? In other words going forward, '06 to '05? What growth would there be in claims?

We are working very hard obviously Dave, Karl, Felix to drive our incident rates down and actually they have been coming down. But they won't be correlated with sales. They are somewhat correlated to payroll and employees and as we continue to grow, we will have more claim experience. It just happens with a broader base of employees, but no dramatic increase. In fact we intend to go the other way on a percent of cost for workers' comp in the Company at large.

John, maybe another way to answer that obviously we as other manufacturers are all experiencing this problem that Matt expressed. And if we looked at it in just pure increased cost per year, we think it is probably about $8 million is about what it is and that is in our budget. But because this has got a six-year tail on these workers' comp deals, it took $21 million additional to get us caught up for what may happen over that period of time. So maybe that helps you little bit.

That does. That clears it up, thank you. Then the commercial question?

Yes, John, on office furnishings, what Leggett & Platt is experiencing and you're right there is a continual increase in imported products coming into North America. We are seeing that being offset by demand for our product. Now we have a lot of manufacturing expertise and use a substantial amount of automated manufacturing in those operations, and so we continue to be reasonably competitive even on the low-end products. What that suggests is that the overall demand is good and of course you probably read the same BIFMA data that we do but we are expecting to see a mid single digit increase again next year with some improving margins from our perspective.

Is that what happened last year, '05?

Yes.

All right, thank you very much.

(OPERATOR INSTRUCTIONS) A follow-up from Budd Bugatch, Raymond James.

On the restructuring savings, I don't know that you have told us. I think most of it is kind of second half of this year as well for this year. I know it is half of the ultimate number. Can we kind of get a feel for what goes third and fourth quarter or is there some in second?

Budd, it is mostly going to be second half of the year we could make up some number but the real answer is we don't know. We believe it is mostly second half of the year. It will be half of the total occurring this year and the remainder coming next year.

Okay, and couple of other follow-ups. Multi-part single question.

Follow-ups, that's all fair.

Thank you. John Baugh, I don't want to hear from you. On the grill volume, can you give us the delta of grill volume loss this year and what do you think the grill volume is going to be lost -- last year and what do you think it's going to be this year?

Budd, I've got a report in my office in there that would be able to give you the exact percentage. But it's probably and this is just a guess, it is probably off another 20, 25% for us this year and it could be off even a larger percentage. Of course now that the base gets smaller and smaller and smaller as we go, but it could be off even a larger percentage next year.

That said, we picked up business from two barbecue grill manufacturers over what we had the previous year. So our largest customer has indicated that they are likely to go ahead and move all of their business to Asia. A couple of the smaller customers -- we'll continue to make barbecue grills is my point and deliver them here in the United States and into Canada, barbecue grill castings. But I think you could expect to see another 30% reduction next year.

Forgive me if I have forgotten -- but at my age that happens. Have you updated us on what the casting situation is in China? Were you not going to have a facility up and running about now?

Well, we had intended to, Budd, and I'm glad you asked the question. We are close to an agreement with a company. On the other hand, we have a couple of other targets that have been identified that are high-priority targets that have caused us to slow our decision with the initial joint venture partner and so it is likely that it will happen, but it may happen on a little bit of a larger scale than we had originally anticipated. We don't have any target date to give you, but we are thinking that there is some larger and better strategic opportunities that we have now identified.

Well, if you won't give us a number, would you give us a time?

Should happen in '06.

As Felix said, I would like to see it happen this year.

Okay and do you think you would get favored then with some of that offshore barbecue and barbecue casting? Would that be sizable or is that just going to go someplace else?

No. We're thinking that we will, Budd. One of the things that has always been in our favor is the ability and the knowledge of producing those thin walled castings which is a lot different than producing a structural casting or a motor component. And it is something that Leggett and Pace before Leggett has done extremely well. That is why we are virtually the only manufacturer of those types of castings here in North America for trade sale.

But we believe that that's an opportunity for us to go over there and enjoy a part of that -- get that back if you will. But that is not the primary driver for us going there.

Okay and just lastly on that whole issue, is there a significant move to stainless on that? And is there any way for you to play in that side of the business?

Absolutely that is the move. If you go to Home Depot or Lowe's or any number of other stores and you see the amount of stainless steel in those grills, that is the move -- toward stainless steel. There are still some castings in those grill sets, in plates in some cases and sometimes the bottom is still an aluminum casting while the top is stainless steel. We have and will continue to investigate the possibility to participate in some of the stainless steel componentry.

All right. Thanks, David.

Fred (indiscernible),

The season approaching where the bids and the offers are made for point-of-sale shelving, are your conversations leading up to that? Are they picking up? Are they giving you any encouragement or is it still being delayed?

No, Fred. This is Dave. We are very encouraged, but we're very cautious. We are getting opportunities to react to more requests for quotations. We are seeing more follow-up questions and interactions with those prescribed projects and so while I made the comment that we have yet to see sustained improvement in our sales, we are seeing improvement in the RFQs.

And are any -- I know there are still competitors out there but are you -- you said that is an area you would like to acquire more in. Are there deals that you are working on that are close?

Fred, this is Felix. Obviously if you have got an industry that is in transition and you've got an industry that you've got some companies that are failing in etc., there are always certain assets or etc. that might be in play that we continue to look at and etc. or what that there might be some consolidation in the industry. But there is nothing at this point that is where we could talk about or want to talk about at all.

And you said that utilization is down 10%. What is the utilization now in that group?

Fred, this is Dave again. Let me reiterate what I said. The business, the volume that we are going to take out of that operating group, that fixture and display group, is going to cause our utilization to go up by 10 to 12%. Just let me get my paper where I calculated it. It should push us into the low 80% range of utilization where we like to be in that mid 80 to high 80%. So I apologize if I misspoke.

No. I misspoke. Thank you.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions, sir.

Okay. We'll just say thank you and we'll be talking to you again in three months.

This concludes today's conference call. You may now disconnect.