Leggett & Platt Inc. (LEG), the manufacturer of diverse engineered products and components, declared that its GAAP results for the fourth quarter of 2013 will include $60-$75 million of pre-tax non-cash impairment charge due to writing down of goodwill, and possibly, intangible assets associated with its Commercial Vehicle Products (:CVP) group business. This is expected to impact fourth-quarter earnings per share in the range of 28–35 cents.
As of Sep 30, 2013, goodwill and other intangible assets related with the CVP Group were recorded at $76 million and $20 million, respectively.
The impairment charges for the CVP group, a unit of the Specialized Products Segment, stemmed from the company’s ongoing strategic review process, wherein it identified a sudden decline in the division’s sales, operating cash flows and earnings in the past few months. This called for an interim evaluation of the group’s goodwill and other intangible assets that revealed a decline in the market values of the division’s assets compared to the book values, mainly of goodwill. Market values were mainly impacted by a fall in demand for the division’s products – including racks, shelving, and cabinets used in telecom, cable, home service and delivery vans.
Per the norms, companies are required to evaluate goodwill for identifying impairment, if any, at least once a year or when an impacting event occurs. Similarly, long-lived assets including other intangible assets are required to be reviewed at the end of each year or when need be. As a practice, Leggett reviews goodwill in the second quarter of every year and other intangible assets at the end of every year.
Earlier, as part of the strategic review conducted, the company had identified that divesting all or part of the CVP group is a strategic option. However, the company has now changed course and focuses on improving the unit’s operating performance and cost structure.
Other Stocks Worth Considering
Leggett & Platt currently has a Zacks Rank #4 (Sell). Better-performing stocks in the furniture industry are Hooker Furniture Corp. (HOFT), La-Z-Boy Inc. (LZB) and Virco Mfg. Corporation (VIRC). Hooker and La-Z-Boy sport a Zacks Rank #1 (Strong Buy), while Virco carries a Zacks Rank #2 (Buy).