禮恩派 (LEG) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Leggett & Platt fourth-quarter earnings conference on February 4, 2009. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

I will now hand the conference over to David DeSonier. Please go ahead, sir.

Good morning and thank you for taking part in Leggett & Platt's fourth-quarter conference call. I am David DeSonier, the Vice President of Strategy and Investor Relations, and with me today are the following. Dave Haffner, our CEO and President; Karl Glassman, our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations.

The agenda for the call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Karl Glassman will provide operating highlights. Dave will then address our outlook for 2009 and finally, the group will answer any questions you 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 these 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 Dave Haffner.

Thank you Dave. Good morning and thank you all for participating in our call. 2008 was a year with two very significant and opposing forces in play. On the positive side, we successfully began implementing and benefiting from our most significant strategic changes in quite some time. On the negative side, global economies and stock markets suffered from their worst performance in decades. Weakened global economies have resulted in extremely soft market demand. Consumers have significantly curtailed spending in nearly all areas, but particularly for the large ticket items that contain our products.

Fourth-quarter sales from continuing operations declined 15% versus fourth quarter of 2007. Significant unit volume declines of greater than 20% and our decision to exit some specific sales volume with unacceptable margins were partially offset by inflation-related price increases implemented earlier in the year to recover higher steel costs.

Fourth-quarter earnings from continuing operations adjusted to exclude restructuring-related costs and other items were $0.03. In the fourth quarter of 2007, adjusted earnings from continuing operations were $0.21 per share. The year-over-year decrease is primarily due to lower unit volumes. In addition, we further reduced production during the quarter in an effort to bring inventory levels in line with current demand. These production cuts reduced fourth-quarter earnings but contributed favorably to our strong generation of operating cash flow.

For the year 2008, sales from continuing operations decreased 4%. Lower unit volume and our decision to exit some specific sales with unacceptable margins were partially offset by inflation. Full-year adjusted earnings per share from continuing operations decreased from $1.19 in 2007 to $0.88 in 2008, primarily due to extremely weak demand.

We expect these very weak demand conditions to continue for some time. We have significantly reduced headcount, constrained spending, and are closing certain facilities. We are not sacrificing long-term opportunities, though. We remain focused on new product development and have not reduced our spending in this critical area.

Despite the economic challenges, we made significant progress on our strategic initiatives and efforts to position the Company for the long term. A little more than a year ago, we committed to divest some operations, restrain spending, raise the dividend, and buy back our stock. We accomplished these objectives and more.

During the year, we divested five business units and received after-tax cash proceeds in excess of $400 million. In the fourth quarter, we completed the sale of our poly fibers business. The four other divestitures, including the sale of our aluminum product segment occurred in the third quarter. Two divestitures remain. Those are our storage products and coated fabrics businesses. We expect the successful disposition of these businesses once credit markets improve.

We also concluded that our store fixtures business unit in its previous form was not capable of meeting our return requirements. As a result, we contracted the operation to a smaller, more profitable metals-focused business consistent with Leggett's core competency of producing steel and steel-related products.

During the year, we also significantly reduced our combined spending on capital expenditures and acquisitions. We increased our annual dividend by 39% and bought back 9% of our outstanding shares. Further, we implemented an annual rigorous strategic planning process at the business unit level.

Operationally during the year, we gain significant market share in our US bedding components business. We also successfully implemented price increases to recover inflation and steel costs.

We fell short of one of our goals in one key area last year and that was EBIT margin improvement. Excluding unusual items from both years' results, our continuing operations posted an EBIT margin decline versus 2007. To a significant extent, this was due to reduced demand in our markets. However, it is imperative that we aggressively pursue and deliver higher margins as part of our effort to improve returns.

As a part of our strategic change, we adopted total shareholder return or TSR as our primary objective. For 2008, we posted TSR of negative 7%, which was well below our 12% to 15% goal. However, our TSR performance ranked in the top 10% of the S&P 500 and was significantly better than the negative 37% TSR for the S&P 500 collectively. We strongly believe that our TSR would have been much lower had we not implemented and made substantial progress on our strategic initiatives.

In this very turbulent financial environment, our strong financial profile is especially notable. Our balance sheet remains in excellent condition. We ended the year with net debt at approximately 28% of net capital, which is below the low end of our long-term targeted range of 30% to 40%. We have over $500 million of availability and more than three years remaining on our $600 million bank facility and we have no significant maturities of long-term debt until 2012.

We generated $436 million of cash from operations during the year, $233 million of which was in the fourth quarter as we made substantial progress in reducing working capital. We are aggressively managing our operations and expect to further reduce working capital levels in 2009.

We repurchased 1.6 million shares of our stock during the quarter bringing our full-year total to 15.8 million shares. We also declared a fourth-quarter dividend of $0.25 per share. The current dividend yield is approximately 7.9% based on a $12.71 stock price. 2008 marked the 37th consecutive annual dividend increase for Leggett at an average compound annual growth rate of over 14%.

Even with 2008's challenging market conditions, operating cash exceeded the amount required to fund dividends and capital expenditures by $153 million. Going forward, we expect to comfortably meet these priorities with operating cash flow.

As we have consistently stated, we plan to use the majority of the divestiture proceeds to repurchase shares, but we are completing those purchases at a slower pace than originally anticipated as we carefully monitor economic conditions. Returning cash to our shareholders remains a key priority and we expect share repurchases to consistently be one of the means by which we attain our TSR goal.

And with those comments, I will turn the call over to Karl Glassman, who will provide some operating highlights. Karl?

Thank you, Dave. Good morning. In my comments this morning, I am not going to repeat the segment details from yesterday's press release. We are operating in very tough markets with limited visibility in most cases. We are not forecasting demand improvement in 2009, but we are intently focused on the factors we can influence and control. Dave has already mentioned some of the actions we are taking, but they bear repeating.

Across the Company, we significantly reduced production during the fourth quarter in order to reduce inventory levels. This had a significant negative impact on the quarter's earnings but most of this inventory reduction is now behind us. We are also significantly -- we also significantly reduced headcount. By the end of the quarter, we had eliminated about 9% of our workforce. We are tightly constraining our overhead spending. We are closing certain facilities and are near completion with most of those activities.

In late 2007, we filed an antidumping suit related to innerspring imports from China, South Africa, and Vietnam. As we have discussed with you previously, we saw a distinct decline in unfair imports in 2008 after the antidumping investigations began and as a result, we regained market share. Last week the International Trade Commission made a unanimous final determination that the domestic innerspring industry has been materially injured by imports from China. This follows their unanimous ruling in November on innersprings imported from South Africa and Vietnam.

As a result of these determinations, we should see improved performance in our bedding group as imported innersprings from these countries will now have to be sold at fair prices. The current antidumping rates on innersprings from these countries are significant, ranging from 116% to 234%. The antidumping duty orders will remain in effect for at least five years.

We have an ongoing focus on product innovation and recognize that this important function is critical to our future success. Our new patented VertiCoil innerspring continues to be in high demand and in 2009, we are expecting to sell more of these new proprietary products than the generic Bonnell innersprings that they replace. VertiCoil is a better value product for our customers with a higher earnings contribution for Leggett. Market share gains combined with this new product launch enabled our US bedding operations to outperform the industry during 2008 and we expect to continue to do so in 2009.

As a part of our effort to contract store fixtures to a smaller metals-focused business, we are consolidating four wood fixture facilities into two ongoing operations. The specific closures were announced in the fourth quarter, significant consolidation steps have been taken, and remaining activity should be substantially complete within the next two months.

We have also eliminated virtually all of the customer programs that were deemed to have unacceptable margins with very little of these sales should occur in 2009. We believe these activities will position the store fixtures business to generate returns at or above cost of capital levels.

As a final comment, all of our segments use the FIFO method of valuing inventory. An adjustment is made at the corporate level to convert about 60% of our inventories to the LIFO method. These are primarily our domestic steel-related inventories. Significant steel cost increases during 2008 along with moderately higher levels of inventories resulted in LIFO expense in continuing operations of approximately $62 million for the full year. Segment level earnings in 2008 generally benefited under the FIFO method from the effect of rising commodity costs.

With those comments, I will turn the call back over to Dave.

Thank you, Karl. As we announced in yesterday's press release, 2009 earnings per share from continuing operations are expected to be in the range of $0.60 to $1.00. This guidance anticipates the continuation of weak market demand. Versus our fourth-quarter results, we expect 2009 earnings improvement as a result of better overhead absorption as necessary inventory reductions and facility consolidations have been and are nearing completion.

2009 earnings should also benefit from closure of poorly performing operations, headcount reductions, reduced overhead spending, and lower commodity costs. Sales from continuing operations for the full year are projected to be approximately 12% to 22% lower than in 2008. This decrease reflects continuation of weak market demand, expected steel-related price decreases, and the elimination of sales with unacceptable margins partially offset by the continued benefit from market share gains that occurred throughout 2008.

Our quarterly sales and earnings normally reflect moderate seasonality. In 2009, our quarterly earnings are expected to be more variable than normal due to steel impacts. And the first half of 2009 is expected to be negatively impacted by steel deflation as we adjust inventory valuation and selling prices to reflect lower steel costs. This impact should be offset for the year by LIFO income. We are forecasting about $50 million of LIFO income for the full year and anticipate recognizing approximately $12.5 million in each quarter.

As a result of the expected mismatch in timing of these two offsetting items, first half 2009 earnings and especially in the first quarter, should be lower than second-half earnings. We expect to generate more than $300 million of operating cash in 2009. Capital expenditures for the year should approximate $100 million and dividends require about $155 million. We still intend to use excess cash primarily to repurchase shares. Our 2009 guidance assumes we repurchase 4 million shares for the year and realize a 2 million share net reduction including shares issued for employee benefit plans.

In conclusion, I will just say as all of you well know, these are very unusual financial times, possibly the most difficult any of us have ever seen. Leggett is well situated to weather this environment even if it lasts for an extended period. We are very comfortable with our strategic direction and are absolutely committed to the continued execution of our plan. We believe our actions are reestablishing this Company as a stronger and more profitable venture.

With those comments, I will 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. In order to allow everyone an opportunity to participate request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please reenter the queue and we will answer all the questions you have.

We are ready to begin the Q&A.

(Operator Instructions) Mark Rupe.

Mark Rupe, Longbow Research. Karl, a question for you. You've been in this business a long time on the bedding side. Have you ever experienced anything like this on a brief or an extended period of time? I'm just trying to get your take on where the industry is and if there is -- and if you are seeing any kind of stabilization on the bedding side?

Mark, the answer is unequivocally no that we've -- I have never seen -- as a matter of fact, I am kind of the byproduct of four generations in the bedding industry and in talking to my father, that he has never experienced anything like this. So the depth and the duration of this that just -- we haven't seen in the past.

As to where are we from a trend standpoint and where are we in the cycle, we have not seen much of a change. We believe that the bedding industry in the fourth quarter from a macro standpoint -- certainly not Leggett -- but from us macro standpoint was off in the 25% to 30% range. We believe that those statistics continue as we speak.

Okay, because I know that -- it seems like things -- you took a step down, stabilized and took another step down. But now that we are going against some easier comparisons, it doesn't sound like what you're saying is things are changing at all.

That's correct, and we really -- from what we see today, our guidance is showing that we see a demand environment that is really unchanged through all of this year. We are not forecasting the proverbial strong back half. From a bedding-specific perspective, we don't really start to bump up against those easier comps until into the mid third quarter.

Right and on -- you cited improved performance related to dumping stuff that happened last week. I was under the assumption that you had been benefiting from most of the countries that this relates to. Is that not the case?

No, you are correct. We have been benefiting but we continue to benefit. Really the way to look at that, Mark, is that we didn't really see any benefit through the first quarter of last year. We started to incrementally benefit in the second and third quarter and probably started to feel the full extent of that late third and early fourth quarter. We just haven't anniversaried that benefit yet and the fact that that final determination was made last week gives any hope of those that had illegally dumped an opportunity to continue to do so. That just closes that door [in our opinion].

Okay, good luck. Thank you.

Thank you.

Keith Hughes.

Keith Hughes, SunTrust Robinson Humphrey. I wanted to follow up in your comments regarding the negative impact of price you expect in the first half of the year. The challenge is that you are lowering -- must be lowering price in certain industries I guess based on weak demand and the falling steel. Can you just give me more color of where it's at, how much it is, and when it's actually going to be implemented?

Okay, Keith, this is Karl again. What we've experienced is there's, as you know, Leggett is a pretty complicated place. I'm going to take you from almost a segment perspective. In industrial materials, the more commodity like raw material, the wire side of the business, we have started to reduce some selling prices effective January 1. We have also done the same in the furniture and bedding industries. In some of the other markets, specifically specialized products, we did not get the benefit, the full benefit of the inflation in 2008. So we are not reducing prices. We effectively did not fully increase them in 2008, so we will actually get benefit in 2009 from the late or really fourth-quarter impact of that inflation.

Some of those, Keith, were due to long-term committed contract pricing.

Right, they would be automotive and then some of the specialized areas of industrial also would have that same criteria. What happens to us in commercial, that also is a mixed bag in that store fixtures business a significant percentage of those customer supply agreements now have a commodity inflation index in them. So as we receive this deflation, we will pass that through.

Some of those as we call -- and we made reference to it in my comments -- some of the unacceptable business we actually have -- there's less of it, but we've increased prices there on the office side of things. We got some benefit of inflation last year, don't expect a lot of deflation there. We didn't get the full magnitude of our cost increases.

So it's all over the board, but I will end this by saying Leggett historically has proven really a somewhat unique ability to raise prices in the face of rising raw material costs and appropriately decrease prices when we start to deal with deflation in those same indices. We perceive this as an opportunity to enhance our margins which need enhancement.

Okay, so it sounds as though the wire business as I understand the price coming down, but you are bringing some price down in furniture and bedding. Is that correct?

Selectively, but I will admit that our inventory valuations are higher than they should be. We've clearly communicated that to our customers, that we don't have -- that we have not yet received relief on the costing side even though admittedly the replacement cost is lower than the current cost, so we have been judicious with those decreases.

Okay, final question. Offsetting this, you referred to the $50 million LIFO benefit, so we have two negatives offsetting that $50 million and what we've just been discussing and the inventory valuation down. What is the break between those?

Theoretically they should marry each other from just the way LIFO/FIFO adjustments work. The problem is is the timing disconnect and Leggett has had a long-standing policy that the way that we look at the LIFO forecast either negative or positive, expense or income depending on increasing or decreasing commodity costs, is we look at a forecast of December 31. We forecast those expected replacement costs, multiply it by the expected inventory level, as we run through the calculation today we have an expectation of $50 million of income.

Keith, that number will change as we get closer to year-end. Commodity costs will change. Our assumptions are wrong -- we don't know how much -- and the inventory values is strictly a forecast. So we will continue to update that but as we update it, we allocate that either cost or income on a quarterly basis of the quarters that remain. So --

But you are not taking some big first-quarter write down because of the fall in inventory prices? Is that correct?

We are. Our inventories we will turn over in that (multiple speakers) in that replacement cost is significantly below the existing cost of those inventories, so those inventories will turn over in the first quarter. That's why we've gone to kind of an extreme of saying, look, expect that the first quarter is not going to follow the normal trend. Expect strength -- meaning the seasonal trend of earnings -- expect strength in the back half because of the smoothing of the LIFO impact offset by the revaluing of inventories in the first quarter.

It's important that you don't hear us say that we expect a strong second half because of any change in demand assumption.

Yes, the 12% to 22%, whatever number we pick in that range, that would be pretty consistent through all four quarters. Is that kind of what you are -- (multiple speakers)?

Yes.

Okay, thanks a lot.

Thank you.

Budd Bugatch.

Raymond James. Good morning. I wanted to walk through the last year number to the guidance. I'm not sure you quantified the pricing impact for us and the pricing concession. Is it going to match the $50 million, Karl, of LIFO or is there another way to look at that? And I have a couple of other parts of that to get through to the sales guidance.

Budd, it will not. A part of that $50 million of call it LIFO income, which isn't a pure accounting term, but LIFO adjustment is the devaluation of the inventories, the biggest part of it. So pricing is not the driver of that resultant $50 million add back. Now in answer to I think you were asking about the miss in guidance in the fourth quarter, that was really a byproduct of this LIFO calculation, which is very, very difficult.

We are making some assumptions on what the value of inventory is as we deal with each one of those LIFO layers and then an assumption on what ending inventory is going to be. Admittedly our inventories, while the operations guys did a fantastic job of reducing inventories in the fourth quarter, exhibited by the cash flow, the year just ended too quickly for us.

Well, said differently, our best guess at the commodity price and the inventory unit levels were wrong and that is what caused that variance.

That really wasn't the question. I was trying to go forward to -- but I thank you for that because that was also a question. But I was trying to go forward to the $3.2 billion to $3.6 billion from $4.1 billion. We know you've got a 12% to 22% reduction. We've got some amount of volume that is going to be lost, $125 million or more for the exit of the piece of store fixtures. I was trying to get some of the major pieces of that. What is that reduction in volume for exited businesses? How much is the pricing concession? How much is the unit change to the extent that you are willing to quantify that?

Pricing just about neutralizes in all of that, Budd, because there was from a year-on-year basis, there's inflation that you will see in the first and second quarter as an example, our selling prices first and second few of '09 are significantly higher than they were in first and second quarter of '08 even though on a trend analysis because of some limited givebacks will be lower than they were in the fourth quarter. So pricing kind of neutralizes through all of that.

You are saying there will be no net pricing impact on revenues this year?

It will be minimal. It is a unit story. That's -- it's that midpoint of 17% units off. That's the story.

I see. And how much volume is lost because of the exit of store fixtures and whatever other product lines you might be exiting for the year from the $4.1 billion?

Store fixtures themselves are about $130 million there and then other businesses, but there were divestitures in continuing operations that took place through the year that eliminated about $100 million, the best that we can quantify of sales that just don't exist.

So a total of $230 million lost versus the $4.1 billion? Is that the right number, right way to look at that?

Budd, I would edge it up a little more. In round numbers, say $250 million.

Okay, and finally let me just quickly ask you to quantify if you would the headcount savings or the impact on the fourth quarter of the underutilization.

There is -- that headcount incidentally included hourly and salaried people across the board. A large percentage of the individuals were variable with our volume, hourly folks. But in round numbers, it's in the SG&A portion of our statement, it's probably about $15 million.

And that's the fixed side of that? That's the side that is more structural than the variable side?

Yes.

Okay, and David, what was the impact of underutilization in the fourth quarter?

I don't know right off the top of my head. Karl, do you by chance? (multiple speakers) It's a big number. I'm sorry I don't have it. We will have to try and work on that and get back to you, Budd.

All right, thanks very much.

John Baugh.

Stifel Nicolaus. My question was on the -- now that you have guided earnings to be less or less than your dividend, what or how do you think about that with TSR? And then what should be our expectation for -- you gave us the $2 million share reduction in share count. Is that your best guess? Or how might it change depending on how business conditions change? Then do you have a goal in mind, a figure for working capital reductions for '09? Thank you.

Okay, John, good morning. Relative to the dividend, it is still our intent to increase earnings per share to the point where that dollar, the [circa] dollar represents about 50% to 60% of our earnings. So said differently, we continue to believe that we will be able to drive our EPS up very appreciably over the next two to three years say.

The Board is very proud of its dividend history. I can't speak for all of the Board, but I can speak for Karl and I here, and we continue to be very comfortable with our cash generation and what our operations are able to generate the strength of the balance sheet. And so we are very comfortable with our dividend policy.

Relative to share count, you are correct. It would suggest that the forecast is pretty conservative. We have chosen to be conservative in that regard. We don't know what's going to happen in this economy and just want to maintain our flexibility. There is a reasonable chance that the net number of shares purchased would be greater than that $2 million that we put into the forecast. And --

Working capital.

Oh, the effect on working capital. This one is a little more challenging to predict, but the three primary elements of working capital that are at play, namely inventory and receivables and payables, all have significant initiatives going with them. And if we were building a model, it would seem reasonable to put at least another $50 million worth of cash flow out of working capital.

Great, thank you very much.

Joel Havard.

Hilliard Lions. Good morning, everybody. A question for Matt. This is going to be pretty vague because I need an education on it. Given the credit market environment, recalling that your revolver/commercial paper-backed facility is used as a trade tool, what difficulties did you run into in the worst of the storm? How has the environment changed? And to give you a bit of a soft ball, what advantages can the Company craft out of this environment in your ability to extend the trade credit with customers who may be running out of other options?

Joel, good questions. First of all, through the excitement in the third quarter and the fourth quarter, we are very blessed to have very ready access to the commercial paper market. We never heaved up to have that be a problem for us at all. As you know near the end of the year, we did become an A2/P2 rated commercial paper borrower, but once again, our name is very well known out in that market and we have had absolutely no disruption at all.

And also as you know with the strong cash flow generation and frankly the determination from Dave and the Board to go ahead and throttle back on our share repurchase activity, we have been significantly paying down our commercial paper balance and as we sit here today, it is all of about $50 million. So we are not really actively needing to call upon that market very much by design.

Relative to using that strong financial flexibility to help support our customers, I will tell you pretty quickly that we are working pretty hard to make sure our customers are staying on point with their terms to pay us back. We are actively managing the accounts receivable base. Everyone is passionately trying to protect their own cash flow positions and certainly Leggett is doing the very same thing.

And we certainly listen to our customers as they have issues that we need to deal with. To the extent there's new business or new opportunities that we can weave into that conversation, we will do so as part of their terms. But the shorter answer is we are being very diligent in following all of our working capital management aspects here and receivables and collection is right in that sweet spot for us as well.

Okay, one related follow-up if I may. The facility I understand is in through 2012. Is there any risk or potential need for any of that structure to change?

No, in fact, we are fortunate that we did a renewal of that facility about a year and a half ago and as you look at that, that was pretty good timing relative to the credit markets at that point. And it is a very benign -- there are no significant financial -- there is no significant financial covenant aspect to it and a very strong group of banks providing that for us and it is very much anchored in place for more than three years from today.

Great. Thanks, guys. Good luck.

Fred Speece.

Speece Thorson Capital Group. Related to your customers, can you talk about your allowance for doubtful accounts? And also, as weak as they are, do you see pending de-verticalizations?

This is Matt. I will start out on the allowance for doubtful accounts. At the end of the year, that was about $28 million for Leggett relative to our gross receivable base which is about $578 million in the press release. You will see that our AR is shown at $550 million, but that's after that reserve is reflected. And we did bolster that quite a bit in 2008 as you might expect. And also relative to our guidance for 2009, we are assuming it's going to be a uniquely challenging year for some of our customers and are planning for our allowance for doubtful accounts accordingly. Then your other question, Fred?

About de-verticalization, you have had some success in the bedding industry and taking in-house production. Any other [pending] things like that?

Fred, this is Karl. That -- we continue to have conversations with our customers that were backwardly integrated. We appreciate you making mention of the bedding side. We also had a de-verticalization activity in the Furniture Hardware mechanism business last year. We have those conversations and in times like this, historically there have been opportunities. There's nothing imminent, but we are in conversations with some folks.

Fred, this is Dave. Good morning. I would mention or reiterate what Karl said. Challenging times is one of the criteria that helps the concept of de-verticalization or a change in make versus buy. Especially if it fits into a sweet spot for us and we can meet or exceed the customer's expectations and simultaneously take some assets off of their balance sheet and help with their return on assets.

So as Karl said, there are some opportunities lying out there, nothing imminent, but I think you know us well enough that we always look for ways that will allow that such that our customers benefits and Leggett shareholders benefit.

Okay, thank you.

(Operator Instructions) Budd Bugatch.

I just have a few more follow-up questions, Karl and Dave. One, can you talk a little bit about January versus December and the fourth quarter in terms of unit changes? Has there been a step down in January or any change from what was going on at the end of the year?

Budd, no, not really. It's unchanged that we are looking at January topline, it's holding with what we've guided. There hasn't really been a change. In each one of the markets, they are depressed. It's hard to find any bit of optimism, but it doesn't feel like things continue to deteriorate. It feels like bedding is still running that 25% to 30%, [off] furniture, probably worse than that. North American automotive obviously challenged. The BIFMA statistics that you reported capably on yesterday, we are experiencing that same type of demand environment. So things don't feel to be getting worse, but they certainly aren't getting any better.

Okay and you talked about -- you cash flow from operations to exceed $300 million. I would presume that is at the midpoint of your sales guidance. Could you tell us what it might be, what you project it to be at the endpoints of your sales guidance?

Budd, this is Matt. We would expect it to be north of $300 million even at the low end of guidance. And at the upper end of guidance, again you would take it north of probably $350 million, maybe a little bit better than that. Of course, we are coming off the heels of a year that we found pretty tough when it was all said and done and we did well over $400 million. So frankly come, good or bad and within our guidance, we should do comfortably north of $300 million of cash flow.

Okay, just two other questions. One, the first quarter, do you think that will be profitable? I know you are giving back pricing in the quarter and it is challenging. But do you think it's going to be profitable?

Yes.

Okay. And lastly, can you kind of walk through the impact of foreign exchange? There have been a lot of changes in that arena as well.

Yes, Budd, this is Matt. Relatively insignificant sales because the dollar weakening actually pulled back about $16 million in the fourth quarter because of the weaker dollar. Where you see the biggest impact on currency for Leggett and you will see this in much bigger dosages for companies far more international than we are was n our stockholders' equity. The other comprehensive income because the dollar got stronger, therefore the assets offshore translating into fewer dollars was about $140 million impact to our stockholders' equity in the fourth quarter.

But as we sit here today, it's relatively moot given where currencies currently sit as an impact that we are expecting this year, should not be very significant. Frankly if there is some good news, some ray of sunshine, it is in our automotive business, where we produce a lot of that product in Canadian dollars and sell in US dollars, and that has been a good trade with what's happened in that exchange rate in the last 90 days.

And we will see a little bit of that in our office and contract business as well.

Okay, thanks a lot.

(inaudible)

Sorry, my question was already asked.

(Operator Instructions) Sir, there appear to be no further questions at this time. Please continue with any other points you wish to raise.

We will just say thank you. We appreciate your attention and we'll talk to you again next quarter.

Ladies and gentlemen, this concludes the Leggett & Platt fourth-quarter earnings conference call. Thank you for participating. You may now disconnect.