禮恩派 (LEG) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Leggett & Platt fourth-quarter 2011 earnings. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David DeSonier, Senior Vice President, Strategy and Investor Relations for Leggett & Platt. Thank you. Mr. DeSonier, you may begin.

Good morning, and thank you for taking part in Leggett & Platt's fourth-quarter conference call. I am Dave DeSonier, 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 Staff VP 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 will provide operating highlights. Dave will then address our outlook for 2012. 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.

We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information. Those slides supplement the information we discuss on this call, including non-GAAP reconciliations.

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 the 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.

Good morning, and thank you for participating in our call. Yesterday we reported fourth-quarter and full-year 2011 earnings. For the quarter, earnings were $0.06 per share and included $0.16 per share of costs associated with the restructuring activities that we announced in late December. Earnings per share excluding these costs were $0.22 in the quarter. In the fourth quarter of 2010 we earned $0.21 per share.

Fourth-quarter same-location sales grew 6% versus the prior year, largely from items that brought little incremental profit. Raw material related price inflation and trade sales from our steel mill accounted for the bulk of the growth, with unit volumes from our other businesses in total adding about 1% to sales.

Earnings per share for the full-year 2011, adjusted to exclude the fourth-quarter restructuring related costs, were $1.20 per share. In 2010, we earned $1.15 per share. The increase is primarily due to a lower share count, a lower effective tax rate and slightly higher sales, partially offset by higher selling and administrative expense and other costs.

Sales grew 8% in 2011, largely from inflation, currency rate changes and trade sales from our steel mill. Across the Company as a whole, unit volume increased slightly.

Demand improved in certain of our markets during 2011, with automotive and office furniture leading the way. In contrast, stagnant demand negatively impacted our major residential markets. Many consumers continue to postpone spending on larger ticket items such as bedding and furniture in the face of ongoing weak economy.

On the third quarter earnings call, we stated that our view of continuing demand weakness in certain of our markets and our plan to initiate actions that would yield improved ongoing profitability. In late December, we announced further restructuring, which included the closure of four production facilities along with other cost reductions. These activities resulted in a $0.16 per share, predominately non-cash, charge to earnings during the fourth quarter. The restructuring related activities that we initiated during 2011 in total should benefit 2012 earnings per share by approximately $0.07 to $0.10.

We were very pleased to report in late December that we were acquiring Western Pneumatic Tube, a leading provider to the aerospace industry of integral components for critical aircraft systems. Our strategic long-term 4% to 5% annual growth objective envisions periodic acquisitions of companies exactly like Western, high-quality businesses with secure, leading positions in growing, profitable, attractive markets, and that make sense to be part of Leggett & Platt. The acquisition was completed on January 12 and is expected to be slightly accretive to EPS in 2012.

Operating cash for the fourth quarter was $127 million, bringing the full-year 2011 operating cash to $329 million. With concerns about weak markets, our operating folks continue to closely monitor the working capital levels. We ended the year with working capital at 11.8% of annualized sales. Now, current liabilities include approximately $30 million associated with an interest rate swap that we entered in 2010. Excluding this item, working capital was 12.7% of annualized sales, still well below our 15% target.

In August, we increased the quarterly dividend by $0.01 to $0.28 per share, reinforcing our commitment to consistent shareholder returns and our confidence in Leggett's strong cash generation. 2011 marks our 40th consecutive year of annual dividend increases. Maintaining our dividend track record is very important to us. Only two companies in the S&P 500 have a stronger string of annual increases at a higher growth rate than Leggett.

For over 20 years, we have generated more than enough operating cash to fund both capital expenditures and dividends, and we expect that to be the case again in 2012. For the upcoming year, operating cash should exceed $300 million, capital expenditures are expected to be about $100 million and dividend payments should approximate $160 million. The anticipated increase in capital expenditures relates primarily to new automotive programs that we have been awarded and that should contribute meaningfully to earnings and cash flow beginning in 2013.

During 2011, we continued purchasing our stock, while maintaining our strong financial base. For the year, we repurchased 10 million shares. We also issued 3 million shares through various employee benefit and stock purchase programs. We ended the year with net debt at 29% of net capital, which is below our long-term targeted range of 30% to 40%.

We expect to continue repurchasing our stock when we have excess cash flow, and we have an annual $10 million share authorization under which these purchases may be made. However, with the acquisition of Western Pneumatic Tube in mid-January and the resulting temporary increase in our net debt levels to about 35% of net capital, we may choose not to repurchase any shares during 2012.

For the fourth consecutive year, Leggett & Platt stock provided a better return to investors than did the S&P 500 index. We target total shareholder return in the top one third of the S&P 500 over the long term, which we believe will require an average TSR of 12% to 15% per year. For the three years ending December 31, 2011, we generated an average annual total shareholder return of 21% compared to 14% for the S&P 500 Index. That places us in the top 38% of the S&P 500, just a bit shy of our goal.

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, I will discuss a few segment highlights. You will find segment details in yesterday's press release and in a slide presentation on our website.

Fourth-quarter sales in the Residential Furnishings segment increased 6%, primarily from raw material related price inflation. Unit volumes were up slightly. In our US Spring business, innerspring unit volumes increased 4%, and boxspring units increased 2% during the fourth quarter. The positive innerspring data primarily reflects our recovery of market share in 2011 that was temporarily lost to a European supplier in the back half of 2010. For the full-year 2011, both innerspring and boxspring units were essentially flat.

In our Furniture Hardware business, fourth-quarter unit volume decreased 3% versus the prior year. While units were still negative in the quarter, the market has stabilized since midyear and was showing some improved strength as the year came to a close. For the full-year 2011, units were down 6%. Again this quarter we had significant growth in adjustable beds, with unit shipments up 35%. With our other major residential businesses flat or down in unit volume for the full year, this business was the bright spot in this segment.

For the full-year 2011 adjustable bed units grew 44%. EBIT and EBIT margins in the Residential Furnishings segment decreased versus the fourth quarter of 2010. The earnings benefit from slightly higher unit volumes was more than offset by higher restructuring related costs. Of the four additional plant closures that we mentioned in the restructuring announcement in late December, one was in the Residential segment. This operation was a fabric coating business that was formerly part of our fabric and carpet underlay group. Earlier restructuring activity in 2011 included a Canadian spring facility, which was converted from manufacturing to warehouse, and two carpet underlay plants. We expect segment margins to benefit in 2012 from the cost savings associated with these activities.

In the Commercial Fixturing & Components segment, fourth-quarter sales decreased 4% from lower fixture and display volume. Most of this decrease resulted from lower volume with brand product companies supplied by our point-of-purchase business.

Sales in the Office Furniture Components was essentially flat during the quarter. Volume in this business continued to generally track the overall recovery in the office furniture industry. Growth rates slowed in the back half of 2011 as comparisons became more difficult, reflecting the acceleration of the industry's recovery in mid-2010. EBIT and EBIT margins in the Commercial Fixturing & Components segment decreased versus fourth quarter of 2010, primarily from lower fixture and display sales and production levels and higher inventory reserves.

Of the four plant closures that we mentioned in our December announcement, one is in the Commercial segment. We have begun the consolidation of one of our six remaining Store Fixtures locations. The majority of the volume is expected to be retained and will be supplied through two of our remaining operations. This activity is expected to benefit 2012 margins and should be complete in the second quarter.

In addition, consistent with our stated plan to continually assess our portfolio and exit non-core businesses, we divested our small UK-based point-of-purchase display operation in January 2012.

Moving on to the Industrial segment, fourth-quarter sales increased 18%, reflecting steel-related price inflation and higher trade sales through our steel mill. Unit volumes increased slightly in our Wire Drawing business, but declined in Steel Tubing and Fabricated Wire Products. EBIT decreased versus fourth quarter of 2010, primarily due to restructuring-related costs. EBIT margins also decreased during the quarter as a result of a change in sales from intra-segment to trade at our steel rod mill. These trade sales have positive earnings contribution in addition to covering overhead costs, and have kept the mill running at full capacity while internal demand for steel rod has been down.

However, this sales shift is dilutive to margin percentages since it increases our reported sales while preserving comparable EBIT levels.

The remaining two plant closures that we discussed in December are occurring in this segment. We closed one of our six domestic wire drawing operations and consolidated that volume into two of the remaining plants. We are also closing a wire forming operation that was a supplier of coated wire dishwasher racks to the domestic appliance industry. These activities should improve capacity utilization within the segment in 2012 and benefit earnings and margins.

As Dave mentioned earlier, we completed the acquisition of Western Pneumatic Tube on January 12. This operation will become a stand-alone business unit in the Industrial Materials segment, and with operating margins above Company average, should bolster the segment's full-year EBIT margins in 2012.

In the Specialized Products segment, we posted 6% sales growth in the fourth quarter, with increases coming from all parts of the segment. Automotive growth continued but at a more moderate 6% rate as prior-year comparisons have become more challenging. EBIT and EBIT margins decreased during the quarter. Higher sales contributed favorably to EBIT, but the benefit was more than offset by impairment costs associated with the write-down of a specific patent.

Automotive industry forecasts anticipate continued growth in the global production rates in 2012, but the outlook varies by geography. North America and Asia are both expected to have meaningful production growth, but European forecasts are negative as economic concerns linger.

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

Thank you, Karl. As we announced yesterday, our full-year 2012 earnings guidance is $1.20 to $1.40 per share on sales of $3.6 billion to $3.8 billion. The earnings guidance assumes a $0.07 to $0.10 per share benefit from recent restructuring activities, but this will be partially offset by higher anticipated interest expense and effective tax rate.

The full-year revenue forecast assumes only modest improvement in the economy, with no significant change from inflation, deflation or currency factors.

We had to make some difficult and emotional decisions this past quarter. It is never easy to close facilities or reduce the number of employee partners. But it is a tough business environment, and we have reacted accordingly. The changes we have made and the meaningful, positive effects that they will have on our operations going forward are valuable to our entire shareholder base. We are leaner than we've been for many years and are in great shape to benefit from improved demand.

With those comments, I will now 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, we 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'll try to answer all the questions that you have.

We are ready to begin the Q&A.

(Operator Instructions) Budd Bugatch, Raymond James.

Here is my question, I guess. It goes to guidance, and maybe give us some color on guidance. Dave, you did tantalize us a bit with 2013, talking about the automotive projects. And I think in the announcement on Western Pneumatic, you talked about significant accretion after 2012, as you get through some of the purchase accounting issues.

Can you give us kind of a goalpost of -- what are the goalposts of 2012 in terms of negative 1%, plus 5%, and the operating margins that happen. Why do you have a negative 1%? What has to happen there? What has to happen to get to plus 5% at the top line and then the bottom line? And then what does 2013 look like? You didn't put any numbers to that. At least I didn't hear any. So give us a thought of -- do we get to our $2 road map in 2013?

See if I can tackle that a piece at a time. First of all, the reason I commented on the automotive business, the gestation period -- I think you know this -- the time it takes from conception through development through quotation and then landing the business is significant. And then there is quite a period of time for tooling and ultimate utilization of the product. And those are reasonably meaningful capital expenditures for us. We are very pleased to do that, because the return on that investment is outstanding.

But we wanted to kind of dovetail the timing of that increased capital expenditure and the fact that it is probably -- or it will be 2013 whenever that incremental benefit comes to pass. So I wasn't -- certainly wasn't trying to do anything other than just show that difference in timing on capital expenditure.

And with regard to Western, you are right, there is some purchase accounting that comes into play, and that is a good thing. 2013 will see improved accretion as a result of that acquisition. I'm not in a position today to try to quantify that for you, except to say that the bias on EPS will be higher the next year and subsequent years.

And then with regard to -- let me take the low end of the guidance, if I may -- and I apologize for jumping around here -- because we reckoned that question would come. And as we sat around and put forth our best estimate of a range, we reminded ourselves of what happened in 2010. Namely, we came out of the gate pretty robustly, pretty strong. And by midyear, we started to see some significant pullback in demand. We hope we are being conservative, but we think we are being realistic that that could happen. So that really talks to the lower end of that guidance.

And then I read your notes this morning that you put out, and I think you've done a good job of talking about what is going to cause the CPS shift, and specifically margins and reduced fixed costs on higher volumes certainly assist us. The restructuring benefits that I spoke about, that $0.07 to $0.10, certainly going to come to pass. A modest accretion in the first year here with Western, and then those higher tax rates and interest expense. We know, those are going to happen, and so we have gone ahead and put those into play. Stir that whole pot, it gets us in that approximate $1.30, $1.32 range, and so we bracketed $1.20, $1.40.

Just if I can just avoid Dave DeSonier's restrictions for one more time, just one more follow-up. On the Western Pneumatic, it is so project-related with the aerospace and the big projects that are going on with the airline companies, how do you get comfort that that is a longer-lasting business and that there is something behind that?

Yes, that's an excellent question, and really we're glad you asked it. Because part of the due diligence -- in fact, a meaningful part of the due diligence that we did in conjunction with this Western Pneumatic team -- which incidentally, they are an outstanding team of management and partners in general -- but that diligence had to do with the customer concentration, the breadth of the product line and the duration of those products and their application. They are very, -- they are somewhat automotive-like, and even longer, they are long-lived applications. And once you are able to be favored with that type of business, then the users of that product rarely will change suppliers over the life of that particular application.

So they are very long-lived. And so we gained a significant amount of comfort. And then of course, we are pleased to see the demand in global aircraft orders go up, and certainly benefit from that.

All right. Thank you very much. I'll get back in the queue for some more questions.

Keith Hughes, SunTrust.

My question was in the Commercial division. Within your guidance, could you tell me how you are thinking about Fixture and Display and Office Furniture for 2012?

From a Commercial standpoint, we are looking, from a top-line perspective, of a reduction in sales of about $20 million. Some of that has to do with the divestiture of the UK-based POP facility, and about flattish demand in the remaining business. Remember that we are going through this facility consolidation in Alabama. We expect that we will retain the majority of that business. So Store Fixtures, while it's early and is by far the most difficult of our businesses to predict, we are looking at flattish once you take out the POP business.

Office is also a forecast of both flat to slightly up. You will note that the BIFMA forecast for 2012 is for flat to slightly negative in the macro BIFMA space. We feel pretty good -- or real good about our product placement and our relative position with specific customers. So we are up admittedly against some very difficult comps in that business, but feel good about our market position. It's just a question does the market continue to say strong.

The market for store fixtures?

The market for office.

For office, okay. I guess on Residential, and if you could do the same thing, just on spring and furniture, your expectation for '12.

On the spring side, our forecasts are slightly positive, maybe a point, which correlates to the ISPA industry data, of forecasted unit growth of 1%. They also -- they incorporate all the specialty space, so some people would say our innerspring growth forecast may be bullish.

I certainly feel that those that think that an innerspring is no longer a part of a mattress didn't witness Las Vegas Market last week and see the extreme proliferation of new innerspring design, especially in hybrid placements. We feel good about the trend on innersprings. They were up in the fourth quarter. Innerspring sales in the January timeframe are up about 7%.

So we feel good about the trend, but today's earlier point, we are a little spooked by the head fake that we've experienced in the last couple years, with a strong start and a diminished back half.

From a hardware standpoint, specific to furniture, that business was under greater pressure in 2011 than was bedding. We saw a trough in the summer months, saw some recovery toward the end of the year, with hardware units being up about 7% in December. Feel good about the trend. I cannot give you a January trend number on furniture because of the Asian aspect of that business. And as you will know that the Chinese holidays were in January this year versus February last, so I don't have meaningful comparisons.

But we would expect for the full year flat to slightly unit positive in that business as well, all in the backdrop of, as you yourself witnessed, significant optimism and really positive feelings coming out of the Las Vegas Market last week.

But we continue to be concerned, as are our customers, about the back half of the year, the cost of advertising, the probability of a very contentious election. So we are guarded in our forecast.

All right. Thank you.

Leah Villalobos, Longbow Research.

I just wanted to clarify on the quarter innerspring results, how much of that was share gains versus organic growth?

It was primarily recovery of previously lost share that you would have heard in our commentary or remember from a year ago, that we spoke to some temporary loss to some opportunistic pricing from a European spring manufacturer that was highly correlated to then very low euro exchange rate.

We've regained that business in early 2011, so we are comping the recovery of that business. So probably three quarters of the pickup in the fourth quarter was the recovery of that business. In the first shipping weeks of this new year, we are still getting some benefit of that. I would think about 50% of it was the recovery of that business and the other 50% was just the fact that business is better now than it was a year ago now.

That's really helpful. And then just if I could, one more on the international springs business. We saw some nice growth numbers for the last few quarters, and I was just wondering if there is anything in terms of timing or if you're really seeing a contraction there versus kind of what you saw in the third quarter.

We started to see a little bit of slowing in specifically European spring in the fourth quarter, with units down about 4.5% to 5%. Interestingly enough, they were up in December, just 100 basis points, but they were up.

But we did see a little bit of contraction in January, which we've been expecting. Now remember, January, in all the data that I'm giving you, has one less shipping day in 2012 versus 2011. But European spring was down about 10% in January. Latin American spring was up about 10% in January, and was up as we continue to gain share. It was actually up 22% in the fourth quarter of last year, so we feel good about that. The real question is the cloud that hangs over Europe.

Okay. Thanks for taking my questions.

Herb Hardt, Monness.

With the plant closings, can you give us some sense of your operating rate? And if business starts to get more robust, are there any areas where you might run out of capacity?

Herb, good question. Our utilization rate at the end of the quarter was about 60%. We had not -- that does not take into consideration the majority of the restructuring activities that are really in process now. We expect through all of that we may lose as much as 500 basis points in total capacity, but it's spread through the businesses in the appropriate areas. And all of that, obviously, based on some longer-term forecasts.

The steel mill is, as I said, 100% utilized. The automotive and office sides have a little bit higher utilization rate than, say, a store fixtures would. I really look forward to running out of capacity in any of our businesses and long for the day when a customer is calling me saying that we can't keep up with them. It has been so long that I have kind of forgotten how those calls take place, but I remember the EBIT margins that come with them.

Yes, but with the production capacity that we've got, Herb, it is unlikely we are going to need to make any meaningful capital expenditures for increased capacity, if we keep the product mix that we've got through 2013 -- excuse me -- through 2012. Come 2013, if the economy picks up, there are going to be two or three business units where we will probably need to increase capacity.

Thank you.

Budd Bugatch, Raymond James.

I thought I would get back in. Karl, the obvious issue in the bedding industry, I just wondered if you would just step back and kind of philosophically talk about the changes that we are seeing in bedding, between alternative sleep and the units of innerspring, and where you think that goes.

And if you could also maybe comment a little bit about the import situation and where that sits. I know you've had some recent conversations in our nation's capital on that. So maybe talk about the whole philosophy of where you think -- where Leggett thinks this is going, because you guys have as good a window on that as anybody, and there has been a lot of conversation about that market now.

Absolutely. Thank you for the opportunity. You and I have certainly had a lot of conversations recently on this very issue.

We believe today that alternative sleep or specialty, depending how you define the terms, is about 10% of total industry units. Probably in the 25% to 30% range in dollars. A future expectation of how large it can get is difficult. Admittedly, that product sells at some ultra-premium price points. Until recently, almost all above $2000 at queen retail. That consumer certainly has been a more comfortable consumer, allowing that business to grow significantly last year.

Give a lot of credit to the people in that space, the Tempur-Pedics and Select Comforts, who have done a wonderful job of pulling the consumer into the replacement cycle, as opposed to the fulfillment replacement business that others had been doing.

To give you an order of magnitude, though, I think that your statistics would tell us that Temper sales were about 618,000 units in 2011, admittedly great growth. To give you that magnitude, though, and I don't want to be overly defensive, but that is about three average shipping weeks for us. So 90% of the market is still alive and well, servicing a consumer that has been less confident than the ultra-premium consumer.

Now what we saw at Las Vegas was a shift, in that Tempur-Pedic, along with some others, specifically Serta, have done a really good job of introducing new products that hit a target customer north of a $1000 queen. And we believe that about 75% to 80% of sales are still below $1000 a queen. That is very highly concentrated to an innerspring, probably in the 98% range. Don't know for sure.

It is interesting, in conversations with both Simmons and Serta that they have done a lot of consumer market preference analysis and believe that at the $1000 price point and above, their own studies tell them that about 60% of consumers prefer an innerspring hybrid product. That highly correlates to our own internal studies. That is why you saw Simmons focus on a hybrid product. That is why you saw Serta -- obviously, those two share the same dataset -- introduce a hybrid -- [hy] series product.

Sealy -- there is no secrets in the bedding industry -- certainly introduced a Beautyrest hybrid product. It becomes a definition of terms issue. We had some conversation with a manufacturer at the Las Vegas Market, and asked him how things were doing. And he said, you know, business is great; I'm having a hard time selling innersprings. And we said, well, you know, what is your best-selling introduction? And he described the hybrid product that has our innerspring in it, but he called it specialty.

So we need to understand the definition of the terms. We are really optimistic about the launch of the hybrid product offerings and what the support of an innerspring combined with some alternative materials and the sleeping surface mean for the consumer. The fact that a high percentage of those introductions contain our products is rewarding.

So we are bullish, the same time that we are looking forward to the day that that consumer that is more price-sensitive comes back into the market. We will learn a lot over the next few months in that, as you know, the bedding demand cycle has changed a little bit. The biggest selling months historically going back in time were August/September. They are now February and March, highly correlated to tax refund season. So we'll see. It is a little bit too early to say what that demand will look like, but we are optimistic.

And the import issue?

I'm sorry -- on the import issue. Go way back in time, you will know that we filed an anti-dumping suit against a combination of China, South Africa and Vietnam, believing that primarily China at that time, and the others to a lesser degree, were dumping innersprings into the United States at lower than their cost of manufacture and lower than they were pricing their products in the domestic market.

We then and today produce innersprings in China. We are very confident of that filing. The US government agreed with us. At its peak, we were experiencing about 3.5 million innersprings coming into this country. With benefit of that anti-dumping and sister countervailing duty finding, that new tariffs were put on those innersprings at the high rate of 235%, and we saw the importation of that dumped product drop pretty significantly.

Then in early 2010, late 2009, we saw a spike in that product again, probably at the rate of 1 million pieces. So we've fixed two-thirds of it. But there's about 1 million pieces that we believe that we closely track that are shipped into this country illegally by trans-shipment. Most of the point of origin is still China, and all that happens is shipping documents change hands, and it looks to the Customs Department that those products are produced in places like Malaysia and Singapore or Taiwan, where there is not a big manufacturing base of innersprings.

The reference that you made is that I did have the pleasure of testifying in front of a Senate Trade Subcommittee in May of last year, making the folks in Washington aware of that illegal trans-shipment. It is a nonpartisan issue in that it is a jobs issue, that we are losing jobs through the lack of enforcement of US trade laws. And we continue to fight. We hear good things. But one thing that I'm sure of in Washington is there is a propensity to point fingers at the other agency, and to cut through the politics and the lack of inaction and the desire to enforce our laws, but seemingly the lack of ability is alarming.

So as a US taxpayer, we are certainly losing that revenue. As a US manufacturer, we are losing the ability to engage in increased job formation, and we continue to pursue that. It is rewarding to hear the talking heads, the politicians, all talk about fair trade, but little is being done. So we will continue to push. Thank you for allowing me to get on my soapbox.

Keith Hughes, SunTrust.

Just a follow-up on the acquisition. If I'm hearing you right, there are going to be some purchase accounting adjustments. I assume that is around inventory in the first year that prevents more accretion. Is that correct?

Yes, that's correct, Keith.

Okay, and there will be a goodwill amortization that would hit over a longer period of time -- correct?

It is intangible amortization. It is -- we will assign some value to the customer relationships, and that is fairly meaningful.

Okay. And you have to amortize that over time -- is that correct?

Yes, that's right.

But the inventory hit is just the first year.

That's correct.

All right. Thank you.

Joel Havard, Hilliard Lyons.

The text -- the release cited higher interest expense as a potential at least marginal drag on earnings power here. If Matt is in the room still, I wondered if he could elaborate on that debt picture. You don't have big maturities near-term, but I don't see anything big coming on either. It looks like kind of '13, '14 some of the chunks start to roll off. Is that expected to be replaced or does cash flow take care of it? What are you looking at?

Good question, Joel. As we sit here today, we have our $600 million bank facility that we renewed in August, and it's a five-year tenure, so we've got almost a full five years left. We're using about $300 million of that as we speak. The overnight volume rate is about 30 basis points. So we're happy to have that in place, feel real good about that. We anticipate continuing to use that as a source of financing, and it's obviously quite inexpensive, all things considered.

And in January, which is when we bought Western Tube, that required about $188 million check to write. So that's the spike in the borrowing that has taken place, and we are glad it did so to make an acquisition come to pass. And so that is directly correlated to some of the incremental expense we will see on the interest line in 2012. We expect to pay that off significantly during the year, which also directly correlates to the fact we do not anticipate to buy back many shares if any at all in 2012.

If you look at our rolling forward maturities, we do have one coming around the corner in April of 2013. That is $300 million. We expect to largely refinance most of that with an issuance later this year. That issuance will be about $200 million. And again, where we see interest rates today, the coupon on that would be something without our swap noted in the 3.5% to 4% range. Once we factor in our swap, it will be something still south of 5%, again, if rates stay just where they are right now.

So we would anticipate refinancing some of the upcoming maturing debt just in a pragmatic fashion. So nothing on the debt side or the overall leverage should give anybody pause. In fact, quite the contrary. We would anticipate that our net debt to cap ratio, which we often quote, would be near the end of the year about 30% once again, which is about where it was as we closed 2011.

Thanks for that elaboration, Matt. And since we are all doing inherent follow-ups today, I wonder then, does that -- maybe this goes to Haffner, too -- does that mean to get into the, quote, target debt range that there is another more sizable acquisition candidate or two on the horizon?

Let me just say, if I may, that the activity down in the M&A department has picked up a bit, and we've got a few more things on the radar screen, as we say. There are some pretty critical criteria that we use. We have strengthened and refined our criteria requirements. So we are looking at, I think, generally fewer but higher-quality targets, and we will need to announce them as they happen. But we are working.

That's good to hear, Dave. Thanks. Good luck, everybody.

(Operator Instructions) Robert Kelly, Sidoti & Company.

Forgive me if I missed this. Did you talk about in your 2012 guidance your expectation for the Western Pneumatic revenue?

We didn't talk about it specifically, Bob, but it is in the $60 million to $62 million range.

So revenue in '12 will be roughly even with what they did in 2011?

No, 2011 was about $55 million, $56 million.

Okay, got you. And I believe you stated the EBIT margins for Western were -- I guess -- is the right way to think about the EBIT margins for Western accretive to Leggett's corporate average?

Yes, I think the way to think is those margins in general are higher than the average margins otherwise.

And is that adjusted for the one-time inventory and purchase accounting adjustments you will be making?

Yes, sir.

So once those fall away, significantly accretive.

Meaningfully, yes.

Okay. Thanks, guys.

Dillard Watt, Stifel Nicolaus.

You mentioned a shift from intra-segment to trade sales in the steel mill. Wondering what drove that shift. Was it an addition of any new customers or anything like that?

No, really what happened was it was a reduction in internal demand, which used to be the transfer or the sale of product intra-segment. So sales at the rod mill would move to the wire mill -- at market, remember; so there is an appropriate EBIT margin on all of that, but they were non-reported sales.

We have now, because of things being relatively soft and our ability to produce more ton at the Sterling mill, we've shifted some of that business out into the trade steel industry, again at very acceptable EBIT margins, but now we have a reported sale. So it becomes dilutive from that perspective.

Okay. And then within the Residential segment and I guess really the whole business, what are you all thinking about in terms of the inflation impact from a year ago on revenue on a quarterly basis? Thank you.

From an inflation perspective, we are today modeling no new inflation. And we would have the continuation then of where you would have depressed prices in 1Q of last year, somewhat inflated prices in 2Q, and then depending on the business, some selective givebacks in 3Q. So normalize the whole thing and it is flattish.

All right. Thank you very much.

Ladies and gentlemen, there are no further questions at this time. I will turn the conference back over to management for closing remarks. Thank you.

We appreciate your attention, and we'll (technical difficulty) next quarter. Thank you.

Thank you. This concludes today's conference. All parties may now disconnect. Have a great day.