LEG Brief 2004 01 29T14 - 00

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LEG - Q4 2003 Leggett & Platt Earnings Conference Call

Event Date/Time: Jan. 29. 2004 / 9:00AM ET
OVERVIEW
LEG reported EPS in 4Q03 of $0.30, 20% above last year. 4Q03 sales were $1.14b. All five segments
recorded organic sales growth. Scrap steel prices have risen by $100 per ton, nearly doubling, and may
rise another $25 per ton in Feb. Raised dividends to an annual payout of $0.56 per share. Q&A Focus:
China, steel prices, organic sales growth, capacity utilization, acquisitions and residential segment.
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Jan. 29. 2004 / 9:00AM, LEG - Q4 2003 Leggett & Platt Earnings Conference Call
CORPORATE PARTICIPANTS
Felix Wright
Leggett & Platt - Chairman and CEO
Dave Haffner
Leggett & Platt - President and COO
Karl Glassman
Leggett & Platt - EVP and Head of Residential Furnishings
Matt Flanigan
Leggett & Platt - CFO
Dave DeSonier
Leggett & Platt - VP of IR
Susan McCoy
Leggett & Platt - Director of IR
CONFERENCE CALL PARTICIPANTS

Michael Braig
AG Edwards - Analyst
Linda Bannister
Edward Jones - Analyst
Sean Harrison
Longbow Research - Analyst
John Baugh
Wachovia Securities - Analyst
Keith Hughes
SunTrust Robinson Humphrey - Analyst
Marek Ciszewski
Vestor Capital - Analyst
Geoffrey Dancey
Cutler Wentzell Management - Analyst
Fred Speece
Speece Thorson Capital Group - Analyst
Susan Maklari
UBS - Analyst
Margaret Whelan
UBS - Analyst
Budd Bugatch
Raymond James - Analyst
Laura Champine
Morgan Keegan - Analyst
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Joel Havard
BB&T Capital Markets - Analyst
OVERVIEW
LEG reported EPS in 4Q03 of $0.30, 20% above last year. 4Q03 sales were $1.14b. All five segments recorded organic
sales growth. Scrap steel prices have risen by $100 per ton, nearly doubling, and may rise another $25 per ton in
Feb. Raised dividends to an annual payout of $0.56 per share. Q&A Focus: China, steel prices, organic sales growth,
capacity utilization, acquisitions and residential segment.
FINANCIAL DATA
A. FY03 EPS was $1.05.
B. FY03 sales were $4.4b.
C. Same location sales rose 8.7%.
D. Cash from operations was $395m.
E. EPS will be $0.26-0.31 in 1Q04.
PRESENTATION SUMMARY
I. 4Q03 AND FY03 RESULTS (F.W.)
A. Highlights:
1. EPS in 4Q03 was $0.30, 20% above last year.
2. Same location sales rose 8.7%.
3. 4Q03 sales were $1.14b.
4. All five segments recorded organic sales growth.
5. GM was its highest in five Qs, and 4Q EBIT was the highest since 2000.
B. FY03 Results:
1. FY03 EPS was $1.05.
2. FY03 sales were $4.4b.
C. Steel Prices:
1. Scrap prices have risen by $100 per ton, nearly doubling, and may rise another $25 per ton in Feb.
2. Vendors have rescinded all prior supply commitments for 1Q04 and are implementing 30-day pricing.
3. Steel comprises 15% of COGS
4. Price increases were announced in 4Q03; implemented 30-day pricing on wire and may raise prices again
in Feb. or Mar.
D. Acquisitions and Activities:
1. Sterling rod mill has begun operation.
2. Completed fourth largest acquisition in history; acquired RHC Spacemaster, which has annual revenues
of $100-120m.
3. Fifteen acquisitions were completed that will add $200m to total revenue.
4. Divested two operations with annual revenue of $23m.
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5. Added five Asian facilities.

E. Cash and Debt:
1. Raised dividends to an annual payout of $0.56 per share.
2. Have raised dividends through 32 consecutive quarters at a 15% compounded annual growth rate.
3. Issued $350m of long terms debt.
4. Net debt is 23.4% of total capital.
5. Cash from operations was $395m.
6. Expensed stock options.
II. PRODUCT AND SEGMENT HIGHLIGHTS (D.H.)
A. Fixture Display Group:

1. In 4Q03, visited seven poorly peforming businesses.
2. Focus is on GM improvement, administrative cost reduction and process improvements.
3. Will review cost structures and customer accounts.
4. Currently considering consolidaton opportunities.
5. Anticipate modest restructuring charges as a result.
B. Other Highlights:
1. Completed seven acquisitions that will add $65m to annual revenues.
2. Four companies in residential will add $40m annually.
3. Two plastic injection molding companies will add $17m annually.
4. A maker of cables for automotive will add $8m annually.
C. Balance Sheet:
1. Working captal was 19% of annualized sales.
2. AR was higher than in 2002.
3. Inventory was flat with 2002.
D. Product Segments:
1. Residential Furnishings:
a. 4Q03 sales increased 10.2%; 7.9% without acquisitions; EBIT increased.
b. FY03 sales increased 2.5% (1.4% without acquistions) but EBIT decreased.
c. Bedding demand increased in 2H03.
d. International spring sales increased each Q.
e. Upholstered furniture sales were strong.
f. Sales were also strong in fashion and adjustable bedding and carpet cushion.
2. Commercial Fixturing and Components:
a. 4Q03 sales increased 27.5%.
b. Same location sales increased 10.6%.
c. EBIT decreased slightly.
d. FY03 sales increased 7.4%, and EBIT declined significantly.
e. Demand for office furniture components increased in 2H03.
3. Aluminum Products:
a. 4Q03 sales increased 9.8%; 11% excluding divestitures.
b. EBIT was roughly flat.
c. FY03 sales decreased 4.2%; increased 2.5% excluding divestitures.
d. EBIT increased.
e. New programs for small engines and large appliances represent the majority of sales increases and will
grow in 2004.
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4. Industrial Materials:
a. 4Q03 sales increased 2.9%; same location sales increased 5.7%.
b. EBIT improved partially because Sterling Rod Mill is up and running.
c. FY03 sales decreased 5.3% (5.1% excluding divestitures) and EBIT decreased.
d. Improvements in end markets will continue during 2004.
5. Specialized Products:
a. 4Q03 sales grew 12.4% (11.4% excluding acquisitions) and EBIT increased.
b. FY03 sales increased 11.6% (10.7% excluding acquisitions) and EBIT increased slightly.
III. OUTLOOK (F.W.)
A. Expectations:
1. Sales growth in 2004 will be between 3-8%
2. Prices must increase due to steel price increases.
3. Operations wil improve in the fixture business.
B. Earnings:
1. FY04 EPS will be $1.15-1.35.
2. 1Q04 sales will be 10% higher than 1Q03.
3. 4Q03 included a $0.01 EPS foreign tax credt.
4. EPS will be $0.26-0.31 in 1Q04.
QUESTIONS AND ANSWERS

Operator
Thank you, sir. (Operator instructions) The first question is from Margaret Whelan. Please state your company name,
followed by your question.
Susan Maklari - UBS - Analyst

Good morning, it’s Susan Maklari, actually, for Margaret from UBS. Can you guys talk a little bit about what you are
seeing in your residential segment? Sales were up nicely there, but can you give us just a bit more detail on the
trend?
Karl Glassman - Leggett & Platt - EVP and Head of Residential Furnishings
Susan, this is Karl Glassman. The trend certainly strengthened as the fourth quarter progressed. As we had told you
earlier, that we really saw a turn on the bedding side of the business, say middle of June, and continued to see
strength. December was unusually strong, business continues to be strong at this point, affected maybe slightly
in the last few days with the nationwide weather situation.
But on the furniture side itself, the hardware business was extremely strong all year, as compared and contrasted
to a very strong 2002. That business continues to be strong as we speak. Market share gains in our carpet underlay
business that accelerated through the year, adjustable beds, Dave announced the adjustable bed acquisition we
made mid-fourth quarter, that is a very quickly growing category and that business is at a 15 percent to 20 percent
CAGR. That business is extremely strong at this point, with the major introduction on behalf of one of the bedding
manufacturers.
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Okay, and then just one more quick question. As business trends seem to be accelerating and business is improving
across your segments, do you expect the pace of acquisitions to increase this year? Are you seeing any change in
the valuations and prices that people are looking for?
Felix Wright - Leggett & Platt - Chairman and CEO

Susan, it is Felix. I think that the pace of acquisitions or the cost of those acquisitions I think we probably haven’t
seen that much of a change at this point, as far as either an escalation in those prices or anything such as that. I
would expect that our acquisition pace should be somewhat in the range of where you saw it last year, maybe
somewhat enhanced, but somewhere in that range. I don’t think that 2004 will bring us back to the level of
acquisitions that we had had in some years past, but I think somewhere in that range of that 4 percent to 6 percent
range is probably where you should expect those in 2004.

Okay, thank you.
Operator
Thank you. Our next question comes from Budd Bugatch. Please state your company name, followed by your
question.
Budd Bugatch - Raymond James - Analyst

With Raymond James, good morning Felix, David, Karl and everyone else that’s there.

Hi, Budd.

Seeing as I am going to adhere to the DeSonier rule, can you, based upon after all of the restructuring and what
you know now, could you kind of give us EBIT margin targets by segment, by the five segments, what you think
maybe the upper bounds are? Now I realize that’s not a 2004 question, it’s a 2000 and whenever question, but what
you think your ultimate margins can be.
Dave DeSonier - Leggett & Platt - VP of IR

Budd, this is Dave DeSonier. You probably are aware of most of this, but we still think EBIT margin overall can get
back to where we were in that 12 percent to 13 percent range, and like you said, that’s probably not a 2004 realization,
but in the future that’s still our target. Commercial should be above the corporate average, maybe in the 14 percent
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to 15 percent EBIT range, aluminum will be 10 percent at a minimum, maybe a little better. And the remaining
segments will be, you know, at or maybe slightly below that corporate average.

Okay, and then obviously the $64 question as a follow up, when and what does the steel issue do, and to which
division mostly does it hit?

Budd, that’s a huge question. I’ve been here longer than most, as you know, but I’ve never seen one like this. In the
early 70’s we had something that almost approached this in price controls and everything else, but we’ve never
seen one with the rapid escalation that we have got on our hands at this point, and in fact it’s so bad that we do
need to see the government step in and place some kind of surcharge on scrap exports to where that we can try
to get some kind of a control on this. The consumer is going to be just devastated as to what is going to happen
with the magnitude of what’s going on in steel currently.
Obviously the residential section is a huge user of steel, both hot roll, cold rolled, et cetera. Our automotive products
and our fixtures and displays, those are obviously the three big parts of the company that we are having to deal
with, and we are trying to deal with it as best we can with our customers in mind, but with the movement that has
happened, there is nobody that has got enough gross margin or anyplace else to come anywhere close to trying
to absorb any of these increases of this magnitude, so they’ve got to go through the system all the way to the
consumer.
So it’s something we are dealing with, but those three businesses are the ones that are mostly impacted.

Thank you.
Operator
Thank you. Our next question comes from Laura Champine. Please state your company name, followed by your
question.
Laura Champine - Morgan Keegan - Analyst

This is Laura Champine from Morgan Keegan.

Hi, Laura.
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Hi. Could you – forgive me if you’ve already done this, but can you break out for the full year 2003 the acquisitions
that should add $200m to revenues, and the divestitures that should take $23m away, can you break that down
by segment?

The answer is yes we can, I’m not sure we can do it live, but we can give it a shot. We know the biggest one will be
in commercial, and that’s going to be RHC Spacemaster which I think we said should add $100m to $120m in
revenue, so that’s the bulk of that $200m. The divestitures are a little easier because there are only two, and the
largest was in industrial and was probably three-quarters of that $23m. The other was in residential and is the
remainder of that. I’m trying to think where the other bulk of it would come from. Most of the other acquisitions
are much smaller than that one.

But the plastic acquisitions get in commercial, so commercial is going to be the –
Dave Haffner - Leggett & Platt - President and COO

Yes, unique molded products, which was in October, was $11m of that $17m and the other SEP Plastics was $5m,
Orthomatic was $25m to $30m.

That’s residential. Laura, I’ll get you a better set of numbers, but that is just the majority of it.

Okay. Well I’m hoping, David, that you will let me, since I didn’t get a complete answer to that one, ask one more.

Okay.

So in the commercial fixturing and components segment, how much of the year-over-year decline in operating
income was affected by currency, and how much was dilution from RHC Space Master?

The second part of that is a pretty easy answer, because I don’t think we had much dilution from RHC –
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We didn’t have any dilution from RHC Space Master. I don’t know the answer from a currency perspective.

Currency was roughly $5m in commercial for the year.

Thank you.
Operator
Thank you. Our next question comes from Joel Havard. Please state your company name, followed by your question.
Joel Havard - BB&T Capital Markets - Analyst

BB&T Capital Markets. Good morning, everybody.

Good morning, Joel.

Felix or Dave or whoever wants to take a stab at this, with the gross margin improvement we saw in Q4, in the
context of steel costs, can you talk about specifically what the drag would have been from steel and/or what that
gross margin might have looked like? Because it looks pretty good on its own, what that gross margin might have
looked like excluding the steel cost issues you are facing right now.

Joel, that’s a pretty tough question. We started moving some of those steel costs through the system, the first part
started in December in the residential spring side of the business. We did not get any through the upholstered
furniture side of the business in the fourth quarter, so there would have been some slight drag there. But as far as
– Industrial got through --
Joel, this is Karl. What happened in residential is we were experiencing accelerating steel costs specific to rod and
wire in the third quarter. Okay? So third quarter was, the gross margins in third quarter were negatively impacted
by those cost inputs. In the fourth quarter we announced and implemented the first price increase on bedding
components, which we saw wire rod before we saw the steel side, the sheet side, effective October 27th. Okay?
And then passed the second increase through effective January 2nd.
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So from a residential perspective, it was a catch up and certainly weren’t made whole, but caught a good part of
it. Where we start to see is now it’s, as Felix said, it’s moving so darn fast that it’s a challenge to catch up here in this
first quarter.

Okay. I can interpret that then to say that Q4 based on the timing was, you had sort of a partial price recapture?
But it’s slipping away from you a little bit since. What I’m getting at there of course is Q4 gross margin may be
difficult to attain again in the near term, until you can start to stabilize or capture some of that increase via other
price increases from your part. Is that right?

Joel, the only thing that we can tell is that we are attempting to try to do the same thing that our vendors have
done to us. We have had – I don’t believe we have got a steel contract at this point that we had prices locked in
the first quarter that haven’t been cancelled, and we are now on a 30-day pricing schedule and we are trying to do
the same thing from our industrial part of our business as well as through some of the components is trying to go
into a 30 or 60-day pricing mode with them.
Now obviously you are going to get some drag or some lag, but we are trying to operate under this horrible situation,
in that kind of a manner, but there will be some lag.

Also, Joel, I mean just mathematically if you recovered, only recovered your absolute costs, your margins experience
slight decline, and I realize people don’t know that, but if we just recovered our costs, margins would decline slightly
as a percentage of sales.
And what’s happening to us, because of the uptick in sales, the additional throughput through these assets is
helping cover some of that raw material cost.

That helps. DeSonier, I apologize, but one little follow up on there. Felix or Dave, in your experience in dealing with
these kinds of materials cost environments, is tagging along, playing catch up with price increases – I know you
guys have talked a lot about your relationship with your customers and how you play ball when costs are helping
people. Are you getting much push back? What other mechanisms do you have at your disposal to fight this fight?

Well, Joel, it’s tough on us, it’s tough on our customers, and this one is such a magnitude it’s got to go all the way
to the consumer, and we’ve got to help our customers and hopefully our vendors are going to try to help us, but
we’re not getting much at this point. We’ll try to get it all the way through the system to the consumer, because
that’s the only place this one can go, it’s just too much of a magnitude. There’s not that much gross margin between
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where we buy the steel and where our customer winds up and sends it to the consumer to absorb this stuff. It’s
got to go through the system some way, so we are trying to work with them, obviously and they understand
because it’s not just Leggett it’s across a number of industries, you read about it every day that anybody that is
using any kind of a seal, and quite frankly I think that if we continue the way that we are that there could be even
some availability issues on certain items that people have to deal with. Thank goodness we’ve got a Sterling rod
mill that we have started up that is making 50 percent of our product that I believe we can get scrapped if we’ll
pay the price for it, and we are certainly going to do that. So I think that’s one comfort that our customer can have,
that we are going to have material for them, but I believe there’s going to be some other people that availability
is going to be a problem.

Okay. Guys, sorry to drag that out so much. Thanks, and good luck.

Thank you.
Operator
Thank you. Our next question comes from Michael Braig. Please state your company name, followed by your
question.
Michael Braig - AG Edwards - Analyst

AG Edwards. Just to expand on that pricing issue the attempts to go to current pricing, or ad hoc pricing. I think
you had mentioned throughout 2003 that mix or decontenting, especially in the residential sector, was penalizing
margins. Does the kind of cost pass through and price kick back you are going to get from customers going to
continue to retard that mix or that value-added features capability?

Mike, this is Dave DeSonier. In the first half of the year, part of the mix issue was trading off, probably betting for
other products in that segment that may not have as strong a margin. But I don’t know that we would say that
same thing for the fourth quarter.
I would agree. And from a decontenting standpoint – that’s a new word I’ve got to learn – that we don’t see an
acceleration of that. The customer specifications now, that all of us in the chain are working so lean that I can’t see
significant spec changing or despecing at this point and as Felix said, our customers and the retailers are in the
same position, that this has got to go through the system to the consumer. Certainly not without resistance, but
it’s just like I said, it’s so much, so fast that that is our expectation at this point.
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And this, Mike, sort of goes back to part of Joel’s question. Those customers that are either maker/users or buy steel
in some other form or format such as structural to build stores, they understand more directly what we are going
through. It doesn’t make it necessarily easy, at least there’s an understanding there that some of the other customers
that are a step or two away from steel purchases don’t, but we do see a little bit of decontenting continuing to take
place in some of our automotive products. What we are doing there is trying to do some things internally though
to maintain our margins while we value-engineer some of those costs down. There is still some decontenting going
on, not so much in residential.
Michael Braig - AG Edwards - Analyst

Thank you.
Operator
Thank you. Our next question comes from Linda Bannister. Please state your company name, followed by your
question.
Linda Bannister - Edward Jones - Analyst

Good morning. Edward Jones. Some questions on the fixtures and displays business. Felix, can you give us an
update on where you are in terms of hiring any executives for that business? And then my second question is for
Dave, given the time that you’ve spent in the division and the fact that organic growth now is starting to return,
when do you expect to see some margin improvement?

Linda, this is Felix. Let me take the first portion. We announced earlier that we had hired an EVP of that group from
a manufacturing standpoint. He has been in lock step with Bob Griffin who is the CEO of that business, and Dave
Haffner in all of these changes. We have also made a number of other changes in the management down below
there to take some good operating and sales executives and put them into certain positions within the three
different parts of those businesses, and then obviously when we buy the Space Master operation we do get some
of their management talent at that point there.
So from a structuring standpoint, we do have the majority of those people in place, however we are going to wind
up, there are two other people that will be put in place and they will be from a finance and from a marketing
standpoint, and those are in the process of being put in place as we speak, but I will let Dave address the rest of it,
he may want to make some other comments about the management.

Well the only thing on the management is that we are in final interviewing stages for the CFO for that group, so
that is coming to a head pretty quickly. With regard to things that we are doing and the improvement in market
share and the improvement or apparent improvement in some demand, when will we expect to see margins
improve? The answer is quickly. The harder question is, when are we going to see those margins – this gets back
to Budd’s question, when are we going to see those margins back where you think they will ultimately be? That’s
going to take longer, but you know there is seasonality in this business and margins vary quarter to quarter. I am
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talking about fixtures and displays now. But we will see margin improvement right away. The improvement that
we are going to see this quarter and next quarter still will not satisfy us, we will be several quarters before we get
it back to where we need to be, but interestingly enough, there are a finite number of ways, albeit a large number
of ways, to improve those margins and we’re chiseling away at them one by one. So you can expect improvements
right away.
Linda Bannister - Edward Jones - Analyst

Thank you.
Operator
Thank you. Our next question comes from David McGregor. Please state your company name, followed by your
question.
Sean Harrison - Longbow Research - Analyst

Good morning, gentlemen. It’s actually Sean Harrison for David, Longbow Research. I guess while we’re on the
topic of raw materials, I guess could you talk about maybe if you are seeing rising raw material costs in other areas,
and then additionally I know lumber had been a topic in prior conference calls, could you touch on that as well.
On the lumber side, the situation is multi-faceted. Early in 2003 the issue was [inaudible]. The other issue was trying
to pass along a tough situation as it relates to counter veiling duties and tariffs put on the Canadian exports by the
U.S. government, and the negotiations between the countries and the uncertainty of the negotiations of the
countries through that process that many of the producers in Canada were not impacting their selling prices by
that duty, thinking that they were temporary. So there were those pressures. Most significant, though, was the
change in the relationship of the Canadian dollar to the U.S. dollar in that we produce in Canadian dollars and sell
in U.S. dollars and that has certainly not been a positive for us. Those businesses continue to be under, all three or
certainly the latter two of those pressures, we have seen an uptick in demand.
We have just recently, within the last two weeks actually gone to the market with a price increase to our bed frame
lumber customers that is driven by the combination of this duty situation and the currency, and we are attempting
to and have been successful in passing that through in recent weeks.

And then with regard to aluminum we’ve seen some upward pressure that pales in comparison to the [ferrous]
market, but there is some upward pressure on secondary alloys, which is what we utilize. We do a good job of
buying those sals and ingids and have arrangements with our customers whereby those metal costs are included
in our selling prices as they vary, so do our selling prices in those cases.
One thing, although we don’t buy a substantial amount of it, stainless steel has just gone through the roof, that’s
primarily because of the cost of nickel, and thank goodness we don’t buy a heck of a lot of stainless steel, because
it is very, very challenging at this point.
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Other things like corrugated and paint and lubricants and abrasives and other things like that all have a tend to
want to be upwardly biased, however we are doing a good job of leveraging our corporate purchases and regional
purchases on those, so those don’t pose a significant problem.
Sean Harrison - Longbow Research - Analyst

All right. Thank you very much.
Operator
Thank you. Our next question comes from John Baugh. Please state your company name, followed by your question.
John Baugh - Wachovia Securities - Analyst

Wachovia Securities. Congratulations, nice quarter, by the way. My question is – and if you addressed it earlier, I
am sorry, we were on other calls – but the dollars versus unit, both the consolidated revenue number you reported
as well as specifically in the residential segment.

John, you are getting at how much inflation is in that number?

Yes, how much is pricing and how much is in units?

I would guess there is not much inflated.

Very little.

I don’t even know if it would be a percent for the fourth quarter.
Certainly it would not be a point.
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And that would apply to the consolidated results as well as the residential?
It would be diluted down from there.

And was bedding stronger than furniture within the residential, or was it fairly equivalent?
I would say furniture has – our segment of the upholstered furniture business, from a hardware perspective, has
been stronger and probably continues to be stronger than bedding, but the gap is narrowing. Bedding is accelerated,
furniture was strong all year.

And I know I am violating the DeSonier rule, but I’m asking these questions quickly. Last one. And I’m ignorant on
steel, so pardon me, but is there any way for any of your customers to get these products from somewhere around
the world, elsewhere in other words, at a different price or is this just a noncompetitive issue.

The channel for –
It’s always a competitive issue, first off. The steel situation is not a U.S. phenomenon, it is a worldwide issue that
we are dealing with – I’ll give you an example. In the U.K. where we produce wire for our bedding operations, we
were on a Monday given a surcharge of a margin of eight pounds a ton, the following Monday it was 32 pounds a
ton. It is moving at the same rate in Europe as it is in the States. China, we have just experienced our seventh price
increase in China since January 1st of 2003. So the Chinese are dealing with a surge in cost and then a problem
with electrical, electricity availability, so what’s happening is our customers look to other markets, they are placing
orders and those orders aren’t being filled and are being requoted. So there is not a place for them to go, but that’s
a geographic issue and a worldwide steel issue, it is not a market share issue.

Karl, they think they can get a better deal somewhere else, so they are trying it, but in reality they really can’t. Is
that what you are saying?
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Yes.

That’s basically it, John.
Yes, they assume – first they assume it’s a Leggett phenomenon and then they assume it’s a U.S. phenomenon and
then they find out that it’s a worldwide issue.

So at the end of the day you don’t expect large market share movement from one country to another because of
this issue?
Not at all.

Thank you very much.
As a matter of fact, I expect that there will be lesser pressures than there have been in the last few quarters because
of the Chinese situation.

Interesting. I’m sorry, and you said seven increases in prices in China since the beginning of 2003?
Yes.

Wow. Thank you.
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Operator
Thank you. Our next question comes from Keith Hughes. Please state your company name, followed by your
question. Mr. Hughes, your line is open at this time.
Keith Hughes - SunTrust Robinson Humphrey - Analyst

SunTrust Robinson Humphrey. In the residential business, is it fair to say we are going to see several more price
increases in the first half of this year on your products to help offset this?
Unfortunately that’s fair to say.

Okay, and in terms of the problems, having some of these stick, are customers just looking to move stuff in house,
or – I’m not really seeing where they have a lot of options at this point.
Their steel costs are certainly accelerating at the same rate as ours, if they are maker/users. As a matter of fact,
because they don’t enjoy the purchase leverage that we do, that they are probably accelerating at a greater rate.
Keith, it’s a terrible situation, none of us have a choice.

Okay. Thank you.
Operator
Thank you. Our next question comes from Marek Ciszewski. Please state your company name, followed by your
question.
Marek Ciszewski - Vestor Capital - Analyst

Good morning everybody, this is Marek Ciszewski with Vestor Capital. Just a quick two questions. First I just wanted
to see if in the past you have stated that every $10m in revenues equals about an EPS with the current capacity
you are able to support about $500m of additional revenues, so I just wanted to find out if that still is the case. And
then, just a secondly we are going real quick, maybe is the Asian production that you have, is it primarily for local
production or is it for export? And then in those terms, on a relative basis, do you feel you are ahead, behind, or
pretty much on par with competition in moving production to China?
EDITED BRIEF

Marek, this is Dave Haffner. Let me take a stab at the first part of that, which is primarily the gearing or the leverage
question. It varies, depending upon the individual segment or division within the segment, and that of course gets
to their existing capacity utilization by division, by segment. But if you blend it all together, if you blend it all
together, we still have a feeling that for every $10m or $11m we can get that approximate penny per share. But
it’s important to know that if we have a bias or a skew of volume in a particular area that’s already significantly
utilizing their assets, that that gearing is less than it is otherwise. But on average, yes.
And the second part of that first question was, do you still have about a half a billion dollars in capacity, unused
capacity, the answer is yes. That assumes the same product mix that we have now, so if for some reason that mix
were to shift slightly, it could be that we would have more or less than that $500m.
So that’s the first part. Karl needs to take the Asian part.
As it regards China, our spring operations are in place solely for domestic consumption. Our upholstered mechanism
facility is all for Chinese consumption. That product, in many cases, may be incorporated into a product in China
on our customer’s behalf and shipped back to this country, but we sell it primarily it stays in China. There are sales
in China to Chinese producers.
On the automotive side, a good part of that joint venture, productive capacity would come back to the States. We
are sourcing from a machinery perspective, we are building machines that are built in China, sold in China, but that
business also is in the procurement business and also the milling business of parts that in parts form are sold back
to the United States.

And then I think the last part of your question was, is how do we feel as to where we are in what we are doing in
Asia versus what we should be doing in Asia or what competition may be doing in Asia. We believe we have
ourselves positioned at this point where we should be. There are some things that if we would have done earlier
we would have probably made some mistakes, but we do think that we are ahead of the curve now to where that
as far as either sourcing products for ourselves, sourcing products for our customers, and et cetera that we are
where we feel very comfortable.
We have approximately 2,000 people employed in China as we speak today, and continuing to look at other factories,
et cetera. But we believe we are positioned just right.
Operator
Thank you. Our next question comes from Geoffrey Dancey.
Geoffrey Dancey - Cutler Wentzell Management - Analyst

Cutler Wentzell Management. I was wondering, you gave in your press release that 2004 organic sales growth
between 3 percent and 8 percent for the full year, I was wondering if you could break that down by segment?
EDITED BRIEF

We can give you a rough feel. I’d say for the most part it’s going to be spread pretty evenly across the segments,
probably stronger in commercial than the others, maybe up to twice the percentage growth, so if growth was 5
percent across the board, you might get up to 10 percent in commercial, but the rest of them would be pretty even
with that corporate average.
Geoffrey Dancey - Cutler Wentzell Management - Analyst

Okay. All right. Thank you.
Operator
Thank you. Our next question comes from Fred Speece. Please state your company name, followed by your question.
Fred Speece - Speece Thorson Capital Group - Analyst

Speece Thorson Capital Group. I’ll respect Dave’s rule and ask one question. The point of sale, is it more dependent
upon retail remodeling or square foot expansion, and do you see any backlog building or order building there?

Where that that used to be a lot more square footage expansion, it has certainly shifted much greater to renovations
and reworks, et cetera. Whereas I think that maybe used to be 30 percent or 35 percent renovations, and maybe
65 percent or so more square footage, that certainly has reversed, and we think obviously there is a lot of retail
space out there now, maybe there is a lot of retail space that is unused or unutilized, but we think that the refurbishing
the renovation is certainly going to be the biggest driver, it won’t be all of it because you are still going to have the
Wal-Mart’s and the Home Depot’s and a lot of other people that are continuing to put more square footage in play,
and we’re certainly a player in that part of the business too. But the big driver in our business is certainly going to
be the renovations.
Fred Speece - Speece Thorson Capital Group - Analyst

Thank you.
Operator
Thank you. (Operator instructions) The next question is from Margaret Whelan. Please go ahead with your follow
up question.
Margaret Whelan - UBS - Analyst

Good morning, guys.
EDITED BRIEF

Hey, how are you?

I’m terrific, and congratulations, I am delighted to see the quarter came in so well. I have two short questions. The
first one is, if you mentioned capacity utilization, I didn’t catch it?

Dave will give it to you.

All right. I am so glad you asked that question. At the end of the fourth quarter, our capacity utilization on average
for residential furnishings was at 76.2 percent. And it ranges, of course, as you know we’ve got lots of various
divisions, and it ranges from a low of 59. 3 percent up to 95 percent.

Okay.

And then in fixtures, displays and plastics, we are at about – they range from 51.4 percent to 67 percent. Aluminum
we are at 70.7 percent, sterling steel we are at 100 percent.

Wow.

Although I really think we could find one more ton somewhere. Wire we are at 89.7 percent, tubing and automotive
we are between 80 percent and 85 percent and machinery and technology we are at 72 percent of our capacity.

Okay. Now the reason I am asking is because I am wondering, if you look for example in residential furnishings,
you put up such a solid number in terms of sales, yet your margin is 10.3 percent, and if I look back historically,
you’ve had a higher margin there and I think what might have been even lower sales. So I am just wondering, just
on the progression during the quarter, did you take any downtime or anything?
EDITED BRIEF
Margaret, this is Karl, that’s a byproduct of a number of things; currency, mix, we certainly don’t have any downtime,
those from a productive capacity those businesses in total are certainly more heavily utilized in the fourth quarter
than they were in the third, that variance was probably three to four points. So it truly, what you are seeing is mix
and then you are seeing a little bit of this lag in passing through the cost increases.

Okay. And then – okay, so that will catch up with you in terms of cost increases, I guess, in the first quarter you did
say?
I would hope, but it’s moving so fast, Margaret, no, I don’t think it will catch up in the first quarter.

The raw materials are moving so fast, Margaret, that’s going to give a little pressure on the first quarter.

Okay, but nothing, it is included in your guidance?

Yes.
Yes.

Now the second question I have, when we were in Asia in November we met with many of the suppliers, and your
customers and the upholstery guys over there, and the only complaint they had was they couldn’t get enough
product from you, because they love the quality and the service, but they felt that you didn’t have enough operations
set up over there. Can you just comment on that? The speed at which you are moving?
We are in the process of starting construction on another 80,000 square foot addition to the facility in Jiaxing that
you toured. So we are adding capacity as quickly as we can.
EDITED BRIEF

Okay, and then would you be phasing out more capacity here in the U.S. as you do that?
The tide has risen to a point, Margaret, that it has not been a situation of lesser demand in the U.S. If there is a switch
that we have a facility in Australia that a good part of that business has moved to China, so we are downsizing the
Australian mechanism facility, but not the U.S. facilities at all. They are running full out as we speak.

Are the margins in China better than Australia?
Yes.

And so net net, as you are moving your factories over there, we would expect, you have this landed U.S./Asian
made product, we should expect the margins to be higher, right?
Yes.

Okay, terrific. Congrats again, guys. Thank you very much.

Thank you.
Thank you.
Operator
Thank you. Mr. DeSonier, there are no further questions at this time. Please continue.
EDITED BRIEF

Okay, we appreciate your interest and hope to talk to you again in a quarter. Thank you very much.

Thank you.
Operator
Thank you, sir. Ladies and gentlemen, this concludes the Leggett and Platt fourth quarter 2003 earnings conference
call. If you would like to listen to a replay of today’s conference call, please dial 303-590-3000 with pass code 565766.
You may now disconnect, and thank you for using ACT Teleconferencing.
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EDITED BRIEF

LEG - Q4 2003 Leggett & Platt Earnings Conference Call

CONFERENCE CALL PARTICIPANTS

5. Added five Asian facilities.

II. PRODUCT AND SEGMENT HIGHLIGHTS (D.H.)

A. Fixture Display Group:

III. OUTLOOK (F.W.)

QUESTIONS AND ANSWERS

Susan Maklari - UBS - Analyst

Susan Maklari - UBS - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Susan Maklari - UBS - Analyst

Budd Bugatch - Raymond James - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Budd Bugatch - Raymond James - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

Budd Bugatch - Raymond James - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Budd Bugatch - Raymond James - Analyst

Laura Champine - Morgan Keegan - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Laura Champine - Morgan Keegan - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

Felix Wright - Leggett & Platt - Chairman and CEO

Dave Haffner - Leggett & Platt - President and COO

Dave DeSonier - Leggett & Platt - VP of IR

Laura Champine - Morgan Keegan - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

Laura Champine - Morgan Keegan - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

Dave Haffner - Leggett & Platt - President and COO

Dave DeSonier - Leggett & Platt - VP of IR

Laura Champine - Morgan Keegan - Analyst

Joel Havard - BB&T Capital Markets - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Joel Havard - BB&T Capital Markets - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Joel Havard - BB&T Capital Markets - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Dave Haffner - Leggett & Platt - President and COO

Joel Havard - BB&T Capital Markets - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Joel Havard - BB&T Capital Markets - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Michael Braig - AG Edwards - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

Dave Haffner - Leggett & Platt - President and COO

Michael Braig - AG Edwards - Analyst

Linda Bannister - Edward Jones - Analyst

Felix Wright - Leggett & Platt - Chairman and CEO

Dave Haffner - Leggett & Platt - President and COO

Linda Bannister - Edward Jones - Analyst

Sean Harrison - Longbow Research - Analyst

Dave Haffner - Leggett & Platt - President and COO

Sean Harrison - Longbow Research - Analyst

John Baugh - Wachovia Securities - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

John Baugh - Wachovia Securities - Analyst

Dave DeSonier - Leggett & Platt - VP of IR

Felix Wright - Leggett & Platt - Chairman and CEO

Dave DeSonier - Leggett & Platt - VP of IR

John Baugh - Wachovia Securities - Analyst