Leggett & Platt(US:LEG)2024-08-07 19:08PART I - FINANCIAL INFORMATION Financial Statements The company's unaudited financial statements reflect a significant net loss and goodwill impairment for Q2 2024 Consolidated Condensed Balance Sheets Total assets and equity declined significantly due to a major goodwill reduction and net losses Balance Sheet Comparison (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,838.8 | $4,634.5 | | Goodwill | $804.1 | $1,489.8 | | Total Current Assets | $1,788.6 | $1,881.4 | | Total Liabilities | $3,170.5 | $3,300.5 | | Long-term Debt | $1,702.1 | $1,679.6 | | Total Equity | $668.3 | $1,334.0 | Consolidated Condensed Statements of Operations A $675.6 million impairment charge drove a significant Q2 net loss of $602.2 million on declining sales Q2 and Six Months Operating Results (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Trade Sales | $1,128.6 | $1,221.2 | $2,225.5 | $2,434.8 | | Gross Profit | $186.5 | $221.1 | $372.9 | $439.7 | | Impairments | $675.6 | $0 | $677.9 | $0 | | EBIT (Loss) | $(614.3) | $95.7 | $(551.3) | $185.0 | | Net Earnings (Loss) | $(602.2) | $54.2 | $(570.6) | $107.7 | | Diluted EPS | $(4.39) | $0.40 | $(4.16) | $0.79 | Consolidated Condensed Statements of Cash Flows Net cash from operations decreased significantly to $87.9 million due to lower net earnings Six Months Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $87.9 | $207.3 | | Net Cash Used for Investing Activities | $(18.6) | $(62.6) | | Net Cash Used for Financing Activities | $(117.1) | $(184.9) | | Decrease in Cash and Cash Equivalents | $(58.5) | $(44.1) | Notes to Consolidated Condensed Financial Statements Disclosures detail a $675.3M goodwill impairment, a restructuring plan, and a credit covenant amendment - In Q1 2024, the company initiated a Restructuring Plan, primarily in the Bedding Products segment, expecting to consolidate 15-20 facilities. Total expected costs are $65.0 to $85.0 million, with $22.0 million incurred as of June 30, 20244345 Goodwill Impairment Charges (Q2 & Six Months 2024, in millions) | Reporting Unit | Segment | Impairment Charge | | :--- | :--- | :--- | | Bedding | Bedding Products | $587.2 | | Work Furniture | Furniture, Flooring & Textile Products | $44.5 | | Hydraulic Cylinders | Specialized Products | $43.6 | | Total | | $675.3 | - Effective March 22, 2024, the company amended its credit facility, increasing the maximum Leverage Ratio from 3.50x to 4.00x through June 30, 2025, to provide additional financial flexibility6263 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses weak sales, a major goodwill impairment, an ongoing restructuring, and a dividend cut - Q2 2024 EPS was $(4.39), which includes a $4.61 non-cash goodwill impairment charge. Year-to-date EPS was $(4.16)87 - The Board of Directors reduced the quarterly dividend by 89% to $0.05 per share in April 2024 to reallocate capital towards deleveraging the balance sheet87141 - The Restructuring Plan is progressing, with an expected EBIT benefit of $10-$15 million in 2024, up from the initial $5-$10 million estimate. The plan is expected to generate $40-$50 million in annualized EBIT benefits when fully implemented100 Q2 2024 Segment Performance vs. Q2 2023 | Segment | Trade Sales Change | EBIT Change | EBIT Margin 2024 | EBIT Margin 2023 | | :--- | :--- | :--- | :--- | :--- | | Bedding Products | -13.2% | $(614.8)M | (135.1)% | 4.6% | | Specialized Products | -0.5% | $(42.6)M | (3.0)% | 10.3% | | Furniture, Flooring & Textile | -6.2% | $(48.3)M | (2.5)% | 9.8% | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency risks, which it mitigates with derivatives - The fair value of the company's fixed-rate debt was approximately $250.0 million less than its carrying value of $1,787.4 million at June 30, 2024167 - The net investment in foreign operations with functional currencies other than the U.S. dollar was $1,127.1 million at June 30, 2024168 - The company utilizes derivative instruments to reduce or eliminate market and financial risks related to interest rates and foreign currency, and it is company policy not to speculate with these instruments169 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - Based on an evaluation as of June 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective173 - There were no changes during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting174 PART II - OTHER INFORMATION Legal Proceedings The company is involved in ongoing antidumping and countervailing duty proceedings for mattress imports - The company is a petitioner in ongoing antidumping and countervailing duty cases concerning mattress imports from numerous countries177 - A 2020 petition resulted in duty orders on mattresses from China, Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam, which are effective through May 2026177 - A 2023 petition targeting 12 additional countries has resulted in final duty determinations for eight countries, with final orders for India, Kosovo, Mexico, and Spain expected in September 2024177 Risk Factors Key risks include restructuring outcomes, potential goodwill impairments, and financial covenant compliance - The Restructuring Plan may not achieve its intended outcomes, and estimates for costs, impairments, and proceeds from real estate sales may change180181 - A $675 million non-cash goodwill impairment was recorded in Q2 2024 due to macroeconomic pressures and a significant decline in the company's stock price. Further impairments are possible if performance differs from estimates191192 - The company faces financial risks including potential further dividend reductions, adverse impacts from credit rating downgrades on borrowing costs, and difficulties in collecting receivables, which led to an $8 million bad debt expense in H1 2024187188190 - Non-compliance with the amended leverage ratio covenant in the credit facility could trigger a default, accelerating debt repayment and severely impacting liquidity197199 Unregistered Sales of Equity Securities and Use of Proceeds Affiliated purchasers acquired 27,650 shares, and the Board authorized a 10 million share repurchase plan Issuer Purchases of Equity Securities (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 0 | N/A | | May 2024 | 23,800 | $11.48 | | June 2024 | 3,850 | $12.20 | | Total | 27,650 | $11.58 | - On August 7, 2024, the Board authorized the company to repurchase up to 10 million shares each calendar year, replacing a prior authorization and continuing a substantive authority in place since 2004217 Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement in Q2 2024 - No director or officer (as defined in Rule 16a-1(f)) adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" in the three months ended June 30, 2024218 Exhibits This section lists filed exhibits, including governance documents, compensation plans, and SOX certifications - The exhibits include the company's Restated Articles of Incorporation, Bylaws, and the amended Flexible Stock Plan220 - Several agreements related to executive compensation, severance, and transition for Karl G. Glassman and J. Mitchell Dolloff are filed as exhibits220 - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included, along with Inline XBRL data files220