LEG 9.30.2012 10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from             to
Commission File Number 001-07845
LEGGETT & PLATT, INCORPORATED
(Exact name of registrant as specified in its charter)
 
Missouri
 
44-0324630
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
No. 1 Leggett Road
Carthage, Missouri
 
64836
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (417) 358-8131
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨     No   ý
Common stock outstanding as of October 25, 2012: 141,280,401




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
September 30,
2012
 
December 31,
2011
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
264.9

 
$
236.3

Accounts and other receivables, net
589.7

 
503.6

Inventories
 
 
 
Finished goods
263.1

 
261.3

Work in process
51.1

 
41.5

Raw materials and supplies
234.9

 
223.9

LIFO reserve
(77.9
)
 
(85.7
)
Total inventories, net
471.2

 
441.0

Other current assets
52.9

 
43.1

Total current assets
1,378.7

 
1,224.0

PROPERTY, PLANT AND EQUIPMENT—AT COST
 
 
 
Machinery and equipment
1,151.6

 
1,120.1

Buildings and other
618.7

 
608.5

Land
45.9

 
45.2

Total property, plant and equipment
1,816.2

 
1,773.8

Less accumulated depreciation
1,240.8

 
1,193.2

Net property, plant and equipment
575.4

 
580.6

OTHER ASSETS
 
 
 
Goodwill
985.1

 
926.6

Other intangibles, less accumulated amortization of $125.5 and $106.2 as of September 30, 2012 and December 31, 2011, respectively
205.3

 
116.6

Sundry
101.4

 
67.3

Total other assets
1,291.8

 
1,110.5

TOTAL ASSETS
$
3,245.9

 
$
2,915.1

CURRENT LIABILITIES
 
 
 
Current maturities of long-term debt
$
201.8

 
$
2.5

Accounts payable
292.0

 
256.6

Accrued expenses
234.0

 
209.6

Other current liabilities
67.9

 
117.3

Total current liabilities
795.7

 
586.0

LONG-TERM LIABILITIES
 
 
 
Long-term debt
860.2

 
833.3

Other long-term liabilities
127.5

 
130.3

Deferred income taxes
61.7

 
57.8

Total long-term liabilities
1,049.4

 
1,021.4

COMMITMENTS AND CONTINGENCIES

 

EQUITY
 
 
 
Common stock
2.0

 
2.0

Additional contributed capital
456.0

 
456.9

Retained earnings
2,079.4

 
2,027.4

Accumulated other comprehensive income
75.2

 
65.2

Treasury stock
(1,224.1
)
 
(1,254.3
)
Total Leggett & Platt, Inc. equity
1,388.5

 
1,297.2

Noncontrolling interest
12.3

 
10.5

Total equity
1,400.8

 
1,307.7

TOTAL LIABILITIES AND EQUITY
$
3,245.9

 
$
2,915.1

See accompanying notes to consolidated condensed financial statements.


2


LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
(Amounts in millions, except per share data)
2012
 
2011
 
2012
 
2011
Net sales
$
2,867.8

 
$
2,781.9

 
$
982.2

 
$
940.9

Cost of goods sold
2,296.8

 
2,259.6

 
776.7

 
770.5

Gross profit
571.0

 
522.3

 
205.5

 
170.4

Selling and administrative expenses
285.1

 
287.8

 
94.7

 
93.9

Amortization of intangibles
19.1

 
14.4

 
6.5

 
4.7

Other expense (income), net
1.1

 
(4.8
)
 
(.6
)
 
.2

Earnings from continuing operations before interest and income taxes
265.7

 
224.9

 
104.9

 
71.6

Interest expense
30.4

 
28.5

 
11.3

 
9.6

Interest income
4.9

 
5.2

 
1.6

 
1.4

Earnings from continuing operations before income taxes
240.2

 
201.6

 
95.2

 
63.4

Income taxes
66.1

 
54.5

 
28.6

 
18.1

Earnings from continuing operations
174.1

 
147.1

 
66.6

 
45.3

Earnings from discontinued operations, net of tax
2.4

 
—

 
—

 
—

Net earnings
176.5

 
147.1

 
66.6

 
45.3

(Earnings) loss attributable to noncontrolling interest, net of tax
(1.8
)
 
(2.5
)
 
(.8
)
 
(.4
)
Net earnings attributable to Leggett & Platt, Inc. common shareholders
$
174.7

 
$
144.6

 
$
65.8

 
$
44.9

Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
1.20

 
$
.99

 
$
.46

 
$
.31

Diluted
$
1.18

 
$
.98

 
$
.45

 
$
.31

Earnings per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
.02

 
$
—

 
$
—

 
$
—

Diluted
$
.02

 
$
—

 
$
—

 
$
—

Net Earnings per share attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
1.21

 
$
.99

 
$
.46

 
$
.31

Diluted
$
1.20

 
$
.98

 
$
.45

 
$
.31

Cash dividends declared per share
$
.85

 
$
.82

 
$
.29

 
$
.28

Average shares outstanding
 
 
 
 
 
 
 
Basic
144.0

 
146.2

 
144.4

 
143.8

Diluted
145.5

 
147.8

 
146.1

 
145.1

See accompanying notes to consolidated condensed financial statements.

3


LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
(Amounts in millions)
2012
 
2011
 
2012
 
2011
Net earnings
$
176.5

 
$
147.1

 
$
66.6

 
$
45.3

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
12.0

 
(5.6
)
 
19.4

 
(42.4
)
Cash flow hedges
(4.5
)
 
(20.7
)
 
(.2
)
 
(17.0
)
Defined benefit pension plans
2.5

 
1.4

 
.7

 
.6

Other comprehensive income (loss)
10.0

 
(24.9
)
 
19.9

 
(58.8
)
Comprehensive income
186.5

 
122.2

 
86.5

 
(13.5
)
Less: comprehensive (income) loss attributable to noncontrolling interest
(1.8
)
 
(3.0
)
 
(.9
)
 
(.5
)
Comprehensive income (loss) attributable to Leggett & Platt, Inc.
$
184.7

 
$
119.2

 
$
85.6

 
$
(14.0
)
See accompanying notes to consolidated condensed financial statements.

4

LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
September 30,
(Amounts in millions)
2012
 
2011
OPERATING ACTIVITIES
 
 
 
Net earnings
$
176.5

 
$
147.1

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
68.6

 
73.8

Amortization
19.1

 
14.4

Provision for losses on accounts and notes receivable
4.3

 
7.2

Writedown of inventory
8.4

 
7.9

Asset impairment charges
1.0

 
3.4

Net gain from sales of assets and businesses
(3.0
)
 
(9.8
)
Deferred income tax (income) expense
(3.5
)
 
7.2

Stock-based compensation
26.0

 
29.3

Other, net
(1.3
)
 
(8.6
)
Other changes, excluding effects from acquisitions and divestitures:
 
 
 
Increase in accounts and other receivables
(87.2
)
 
(100.7
)
Increase in inventories
(20.2
)
 
(29.1
)
Increase in other current assets
(3.2
)
 
(1.2
)
Increase in accounts payable
34.7

 
47.0

Increase in accrued expenses and other current liabilities
20.8

 
14.1

NET CASH PROVIDED BY OPERATING ACTIVITIES
241.0

 
202.0

INVESTING ACTIVITIES
 
 
 
Additions to property, plant and equipment
(53.5
)
 
(56.7
)
Purchases of companies, net of cash acquired
(190.3
)
 
(6.6
)
Proceeds from sales of assets and businesses
9.3

 
20.3

Maturity of short-term investments
—

 
22.8

Investment in unconsolidated entity
(22.4
)
 
—

Other, net
(6.4
)
 
(2.5
)
NET CASH USED FOR INVESTING ACTIVITIES
(263.3
)
 
(22.7
)
FINANCING ACTIVITIES
 
 
 
Additions to long-term debt
299.1

 
—

Payments on long-term debt
(10.5
)
 
(2.4
)
Change in commercial paper and short-term debt
(77.2
)
 
127.6

Dividends paid
(117.5
)
 
(117.0
)
Issuances of common stock
14.4

 
17.5

Purchases of common stock
(15.7
)
 
(225.1
)
Liquidation of interest rate swap agreement
(42.7
)
 
—

Acquisition of noncontrolling interest
—

 
(13.1
)
Excess tax benefits from stock-based compensation
2.7

 
6.9

Other, net
(3.1
)
 
(1.6
)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
49.5

 
(207.2
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
1.4

 
2.2

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
28.6

 
(25.7
)
CASH AND CASH EQUIVALENTS—January 1,
236.3

 
244.5

CASH AND CASH EQUIVALENTS—September 30,
$
264.9

 
$
218.8

See accompanying notes to consolidated condensed financial statements.






5



LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except per share data)
1. INTERIM PRESENTATION
The interim financial statements of Leggett & Platt, Incorporated (“we”, “us” or “our”) included herein have not been audited by an independent registered public accounting firm. The statements include all adjustments, including normal recurring accruals, which management considers necessary for a fair presentation of our financial position and operating results for the periods presented. We have prepared the statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year.
The December 31, 2011 financial position data included herein was derived from the audited consolidated financial statements included in Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2011.
Reclassifications
Certain reclassifications have been made to prior year's statements to conform to the 2012 presentation.
2. NEW ACCOUNTING GUIDANCE
The Financial Accounting Standards Board (FASB) has issued accounting guidance effective for current and future periods (that we have not yet adopted), but we do not believe any of the new guidance will have a material impact on our current or future financial statements.
3. INVENTORIES
About 60% of our inventories are valued using the Last-In, First-Out (LIFO) cost method and the remainder using the First-In, First-Out (FIFO) cost method.
We calculate our LIFO reserve (the excess of FIFO cost over LIFO cost) on an annual basis. During interim periods, we estimate the current year annual change in the LIFO reserve (i.e., the annual LIFO expense or benefit) and allocate that change ratably to the four quarters. Because accurately predicting inventory prices for the year is difficult, the change in the LIFO reserve for the full year could be significantly different from the amount currently estimated. In addition, a variation in expected ending inventory levels could also impact total change in the LIFO reserve for the year. Any change in the annual LIFO estimate will be reflected in the fourth quarter.
The following table contains the LIFO (income) expense included in earnings for each of the periods presented.
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
LIFO (income) expense
$
(7.8
)
 
$
8.1

 
$
(5.7
)
 
$
(.9
)
4. SEGMENT INFORMATION
We have four operating segments that are generally focused on broad end-user markets for our diversified products.
•
Residential Furnishings—components for bedding, furniture and other furnishings, as well as related consumer products
•
Commercial Fixturing & Components—retail store fixtures, displays and components for office and institutional furnishings
•
Industrial Materials—drawn steel wire, specialty wire products, titanium and nickel tubing for the aerospace industry and welded steel tubing sold to trade customers as well as other Leggett segments
•
Specialized Products—automotive seating components, specialized machinery and equipment, and commercial vehicle interiors

6
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


Our reportable segments are the same as our operating segments, which also correspond with our management organizational structure. Each reportable segment has a senior operating vice-president that reports to the chief operating decision maker. The operating results and financial information reported through the segment structure are regularly reviewed and used by the chief operating decision maker to evaluate segment performance, allocate overall resources and determine management incentive compensation.
 
Separately, we also utilize a role-based approach (Grow, Core, Fix or Divest) as a supplemental management tool to ensure capital (which is a subset of the overall resources referred to above) is efficiently allocated within the reportable segment structure.
The accounting principles used in the preparation of the segment information are the same as those used for the consolidated financial statements, except that the segment assets and income reflect the FIFO basis of accounting for inventory. Certain inventories are accounted for using the LIFO basis in the consolidated financial statements. We evaluate performance based on earnings from operations before interest and income taxes (EBIT). Intersegment sales are made primarily at prices that approximate market-based selling prices. Centrally incurred costs are allocated to the segments based on estimates of services used by the segment. Certain of our general and administrative costs and miscellaneous corporate income and expenses are allocated to the segments based on sales. These allocated corporate costs include depreciation and other costs and income related to assets that are not allocated or otherwise included in the segment assets.
A summary of segment results from continuing operations are shown in the following tables.

7
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


 
External
Sales
 
Inter-
Segment
Sales
 
Total
Sales
 
EBIT
Nine Months Ended September 30, 2012:
 
 
 
 
 
 
 
Residential Furnishings
$
1,442.7

 
$
6.3

 
$
1,449.0

 
$
119.9

Commercial Fixturing & Components
388.4

 
3.5

 
391.9

 
29.5

Industrial Materials
497.6

 
194.1

 
691.7

 
48.9

Specialized Products
539.1

 
33.1

 
572.2

 
66.6

Intersegment eliminations
 
 
 
 
 
 
(7.0
)
Change in LIFO reserve
 
 
 
 
 
 
7.8

 
$
2,867.8

 
$
237.0

 
$
3,104.8

 
$
265.7

Nine Months Ended September 30, 2011:
 
 
 
 
 
 
 
Residential Furnishings
$
1,393.1

 
$
6.7

 
$
1,399.8

 
$
116.8

Commercial Fixturing & Components
405.6

 
3.9

 
409.5

 
22.4

Industrial Materials
468.6

 
187.5

 
656.1

 
39.3

Specialized Products
514.6

 
34.4

 
549.0

 
60.1

Intersegment eliminations
 
 
 
 
 
 
(5.6
)
Change in LIFO reserve
 
 
 
 
 
 
(8.1
)
 
$
2,781.9

 
$
232.5

 
$
3,014.4

 
$
224.9

Three Months Ended September 30, 2012:
 
 
 
 
 
 
 
Residential Furnishings
$
479.7

 
$
2.0

 
$
481.7

 
$
39.7

Commercial Fixturing & Components
161.5

 
1.3

 
162.8

 
19.2

Industrial Materials
159.6

 
58.4

 
218.0

 
19.3

Specialized Products
181.4

 
9.6

 
191.0

 
22.8

Intersegment eliminations
 
 
 
 
 
 
(1.8
)
Change in LIFO reserve
 
 
 
 
 
 
5.7

 
$
982.2

 
$
71.3

 
$
1,053.5

 
$
104.9

Three Months Ended September 30, 2011:
 
 
 
 
 
Residential Furnishings
$
470.2

 
$
2.1

 
$
472.3

 
$
33.5

Commercial Fixturing & Components
140.5

 
1.2

 
141.7

 
6.7

Industrial Materials
156.8

 
59.9

 
216.7

 
11.7

Specialized Products
173.4

 
14.3

 
187.7

 
20.6

Intersegment eliminations
 
 
 
 
 
 
(1.8
)
Change in LIFO reserve
 
 
 
 
 
 
.9

 
$
940.9

 
$
77.5

 
$
1,018.4

 
$
71.6


 
Average assets for our segments are shown in the table below and reflect the basis for return measures used by management to evaluate segment performance. These segment totals include working capital (all current assets and current liabilities) plus net property, plant and equipment. Segment assets for all years are reflected at their estimated average for the periods presented.
 

8
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


 
September 30,
2012
 
December 31,
2011
Residential Furnishings
$
612.0

 
$
624.1

Commercial Fixturing & Components
164.8

 
176.1

Industrial Materials
242.4

 
218.1

Specialized Products
228.1

 
226.6

Average current liabilities included in segment numbers above
443.0

 
417.7

Assets held for sale
20.5

 
19.6

Unallocated assets (1)
1,514.2

 
1,328.3

Difference between average assets and period-end balance sheet
20.9

 
(95.4
)
Total assets
$
3,245.9

 
$
2,915.1

 
(1)
Primarily goodwill, other intangibles, cash and notes receivable
5. DISCONTINUED OPERATIONS
In March 2007, we sold our Prime Foam Products Unit and reported the business as discontinued operations. This business was previously part of the Residential Furnishings segment and produced foam primarily used for cushioning by upholstered furniture and bedding manufacturers. During the second quarter of 2012, we received a cash litigation settlement related to this business as follows:
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Earnings before interest and income taxes:
 
 
 
 
 
 
 
Residential Furnishings—Prime Foam Products Unit
$
3.9

 
$
—

 
$
—

 
$
—

Income tax expense
(1.5
)
 
—

 
—

 
—

Earnings from discontinued operations (net of tax)
$
2.4

 
$
—

 
$
—

 
$
—

6. RESTRUCTURING
We have historically implemented various cost reduction initiatives to improve our operating cost structures. These cost initiatives have, among other actions, included workforce reductions and the closure or consolidation of certain operations.
In December 2011, we adopted the 2011 Restructuring Plan, which included the closure of four underperforming manufacturing facilities. We incurred a $37 pre-tax (largely non-cash) charge in the 4th quarter of 2011 primarily related to this plan, which included $31 of long-lived asset impairments and $6 of other restructuring-related costs. Approximately $2.2 in restructuring costs, and approximately $.9 of long-lived asset impairments during the first nine months of 2012 were related to this plan. We expect plant closures to be complete by the end of the year, with no additional material costs expected.
Our total restructuring-related costs (excluding long-lived asset impairments) for the periods presented were comprised of:
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Charged to other expense (income), net:
 
 
 
 
 
 
 
Severance and other restructuring costs
$
5.7

 
$
4.8

 
$
1.3

 
$
2.6

(Gain) from sale of assets
(1.8
)
 
(.1
)
 
(.1
)
 
—

Total restructuring and restructuring-related costs
$
3.9

 
$
4.7

 
$
1.2

 
$
2.6








9
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


7. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Earnings:
 
 
 
 
 
 
 
Earnings from continuing operations
$
174.1

 
$
147.1

 
$
66.6

 
$
45.3

(Earnings) loss attributable to noncontrolling interest, net of tax
(1.8
)
 
(2.5
)
 
(.8
)
 
(.4
)
Net earnings from continuing operations attributable to Leggett & Platt, Inc. common shareholders
$
172.3

 
$
144.6

 
$
65.8

 
$
44.9

Earnings from discontinued operations, net of tax
2.4

 
—

 
—

 
—

Net earnings attributable to Leggett & Platt, Inc. common shareholders
$
174.7

 
$
144.6

 
$
65.8

 
$
44.9

Weighted average number of shares:
 
 
 
 
 
 
 
Weighted average number of common shares used in basic EPS
144.0

 
146.2

 
144.4

 
143.8

Additional dilutive shares principally from the assumed exercise of outstanding stock options
1.5

 
1.6

 
1.7

 
1.3

Weighted average number of common shares and dilutive potential common shares used in diluted EPS
145.5

 
147.8

 
146.1

 
145.1

Basic and Diluted EPS:
 
 
 
 
 
 
 
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Continuing operations
$
1.20

 
$
.99

 
$
.46

 
$
.31

Discontinued operations
.02

 
—

 
—

 
—

Basic EPS attributable to Leggett & Platt, Inc. common shareholders
$
1.21

 
$
.99

 
$
.46

 
$
.31

Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Continuing operations
$
1.18

 
$
.98

 
$
.45

 
$
.31

Discontinued operations
.02

 
—

 
—

 
—

Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
$
1.20

 
$
.98

 
$
.45

 
$
.31

Other information:
 
 
 
 
 
 
 
Shares issuable under employee and non-employee stock options
10.6

 
11.5

 
10.6

 
11.5

Anti-dilutive shares excluded from diluted EPS computation
2.5

 
2.3

 
1.7

 
2.8















10
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 




8. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consisted of the following:
 
 
September 30, 2012
 
December 31, 2011
 
Current
 
Long-term
 
Current
 
Long-term
Trade accounts receivable
$
577.5

 
$
—

 
$
461.3

 
$
—

Notes receivable:
 
 
 
 
 
 
 
Customer-related
1.3

 
2.9

 
2.9

 
2.4

Notes received as partial payment for divestitures
.5

 
10.3

 
3.5

 
10.4

Other
.5

 
4.7

 
3.4

 
2.3

Income tax receivables
4.3

 
—

 
29.1

 
—

Other receivables
25.4

 
—

 
27.7

 
—

Total accounts and other receivables
609.5

 
17.9

 
527.9

 
15.1

Allowance for doubtful accounts:
 
 
 
 
 
 
 
Trade accounts receivable
(19.5
)
 
—

 
(21.9
)
 
—

Notes receivable:
 
 
 
 
 
 
 
Customer-related
—

 
(.8
)
 
—

 
(.7
)
Notes received as partial payment for divestitures
—

 
(.8
)
 
(2.3
)
 
(.4
)
Other
(.3
)
 
(.6
)
 
(.1
)
 
(.6
)
Total allowance for doubtful accounts
(19.8
)
 
(2.2
)
 
(24.3
)
 
(1.7
)
Total net receivables
$
589.7

 
$
15.7

 
$
503.6

 
$
13.4

Notes are evaluated individually for impairment, and we had no significant impaired notes for the periods presented.
Our investment in notes that were past due more than 90 days was less than $2.0 at September 30, 2012 and less than $5.0 at December 31, 2011, of which approximately $1.0 and $4.0 had been placed on non-accrual status, respectively.
Activity related to the allowance for doubtful accounts is reflected below:
 
 
Balance at December 31, 2011
 
2012
Charges
 
2012
Charge-
offs,
net of
recoveries
 
Balance at
September 30, 2012
Trade accounts receivable
$
21.9

 
$
3.5

 
$
(5.9
)
 
$
19.5

Notes receivable:
 
 
 
 
 
 
 
Customer-related
.7

 
.1

 
—

 
.8

Notes received as partial payment for divestitures
2.7

 
.4

 
(2.3
)
 
.8

Other
.7

 
.3

 
(.1
)
 
.9

 
$
26.0

 
$
4.3

 
$
(8.3
)
 
$
22.0












11
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 




9. STOCK-BASED COMPENSATION
The following table recaps the components of stock-based compensation for each period presented:
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Stock-based compensation expense:
 
 
 
 
 
 
 
Amortization of the grant date fair value of stock options (1)
$
3.8

 
$
4.2

 
$
.6

 
$
.6

Stock-based retirement plans contributions (2)
4.8

 
5.0

 
1.5

 
1.5

Discounts on various stock awards:

 
 
 

 
 
Deferred Stock Compensation Program
.9

 
1.0

 
.3

 
.2

Stock-based retirement plans
.9

 
1.3

 
.2

 
.1

Discount Stock Plan
.7

 
.6

 
.2

 
.2

Performance Stock Unit awards (3)
4.9

 
5.4

 
1.6

 
1.8

Restricted Stock Unit awards
1.7

 
1.7

 
.3

 
.6

Other, primarily non-employee directors restricted stock
.7

 
.8

 
.3

 
.2

Total stock-based compensation expense
18.4

 
20.0

 
5.0

 
5.2

Employee contributions for above stock plans
7.6

 
9.3

 
2.7

 
3.0

Total stock-based compensation
$
26.0

 
$
29.3

 
$
7.7

 
$
8.2

Recognized tax benefits on stock-based compensation expense
$
7.0

 
$
7.6

 
$
1.9

 
$
2.0

 
(1)
Stock Option Grants
Our most significant stock options have historically been granted annually on a discretionary basis to a broad group of employees.
We have offered two different option choice programs. One group of employees has been offered the choice to receive stock options or to receive a cash alternative being equal to approximately one-half of the Black-Scholes value of the option grant foregone. Another group of employees, generally higher level employees, has been offered a choice between stock options or restricted stock units (RSUs), on a ratio of four options foregone for every one RSU offered. The RSUs vest in one-third increments at 12 months, 24 months and 36 months after the date of grant.
The following table summarizes fair values calculated (and assumptions utilized) using the Black-Scholes option pricing model for all options granted in the periods presented:
 
 
Nine Months Ended
September 30,
 
2012
 
2011
Options granted (in millions)
.9

 
1.0

Aggregate grant date fair value
$
4.0

 
$
4.9

Weighted-average per share grant date fair value
$
4.68

 
$
4.90

Risk-free interest rate
1.9
%
 
2.7
%
Expected life in years
7.2

 
7.1

Expected volatility (over expected life)
34.4
%
 
33.3
%
Expected dividend yield (over expected life)
4.8
%
 
4.7
%
Cash payments to employees elected in lieu of options
$
.3

 
$
.3

 

12
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


(2)
Stock-Based Retirement Plans
We have two stock-based retirement plans: the tax-qualified Stock Bonus Plan (SBP) for non-highly compensated employees, and the non-qualified Executive Stock Unit Program (ESUP) for highly compensated employees. We make matching contributions to both plans. In addition to the automatic 50% match, we will make another matching contribution of up to 50% of the employee’s contributions for the year if certain profitability levels as defined in the SBP and the ESUP are obtained.
SBP participants may direct their contributions into Company stock or several other investment options. Company matching contributions are invested in Company stock until the participant is vested. After vesting, the participant may re-direct company matching contributions into any of the investments offered under the plan.
Since April 1, 2011, ESUP participant contributions are credited to a diversified investment account consisting of various mutual funds and retirement target funds selected by the participant. At every bi-weekly contribution date, we add a premium contribution equal to 17.65% of the participant’s contribution to the diversified investment accounts. Participants may change investment elections in the diversified investment accounts, but cannot purchase Company common stock or stock units in these accounts. All company matching contributions are credited to participant’s accounts in the form of Company stock units. Participants may not diversify this portion of their accounts.
We have purchased investments intended to mirror the diversified investments selected by the participants that are a component of “Sundry” long-term assets in the accompanying Consolidated Condensed Balance Sheet. Investment experience of the actual funds, whether positive or negative, are eventually paid out in cash. All amounts deferred under this program are unfunded, unsecured obligations of the Company and are presented as a component of the “Other long-term liabilities” in the accompanying Consolidated Condensed Balance Sheet. Both the asset and liabilities associated with this program are presented in Note 13 and are adjusted to fair value at each reporting period.
 
(3)
Performance Stock Unit Awards
We also grant Performance Stock Unit (PSU) awards in the first quarter of each year to selected officers and other key managers. These awards contain the following conditions:
•
A service requirement—Awards generally “cliff” vest three years following the grant date; and
•
A market condition—Awards are based on our Total Shareholder Return [TSR = (Change in Stock Price + Dividends) / Beginning Stock Price] as compared to the TSR of a group of peer companies. The peer group consists of all the companies in the Industrial, Materials and Consumer Discretionary sectors of the S&P 500 and S&P Midcap 400 (approximately 320 companies). Participants will earn from 0% to 175% of the base award depending upon how our Total Shareholder Return ranks within the peer group at the end of the 3-year performance period.
Grant date fair values are calculated using a Monte Carlo simulation of stock and volatility data for Leggett and each of the comparator companies and are based upon assumptions similar to those used for stock options. Grant date fair values are amortized using the straight-line method over the three-year vesting period.
Below is a summary of the number of shares and related grant date fair value of PSU’s for the periods presented:
 
 
Nine Months Ended
September 30,
 
2012
 
2011
Total shares base award (in millions)
.3

 
.3

Grant date per share fair value
$
23.79

 
$
25.41

The three-year performance cycle of the 2009 award was completed on December 31, 2011. Our TSR performance, relative to the peer group, ranked at 51st percentile; accordingly, participants earned 73.6% of the base award and .4 million shares were distributed in January 2012.
 
Beginning with the 2010 award (that will be settled in 2013), 35%  of awards will be paid out in cash. We intend to pay out the remaining 65% in shares of our common stock, although we reserve the right to pay up to 100% in cash. The 35% portion is recorded as a liability and is adjusted to fair value at each reporting period.
 

13
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


 
September 30,
2012
 
December 31,
2011
PSU liability to be settled in cash
$
4.9

 
$
3.1

10. ACQUISITIONS
On January 12, 2012, we acquired 100% of Western Pneumatic Tube Holding, LLC (Western). Western is a leading provider of integral components for critical aircraft systems, and forms the new Aerospace Products business unit within the Tubing Group. Western specializes in fabricating thin-walled, large diameter, welded tubing and specialty formed products from titanium, nickel and other specialty materials for leading aerospace suppliers and OEMs. The cash purchase price of $188 was financed with proceeds from the sale of commercial paper notes under our existing commercial paper program.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition during the periods presented, and any additional consideration paid for prior years’ acquisitions:
 
 
Nine Months Ended
September 30,
 
2012
 
2011
Accounts receivable
$
8.8

 
$
1.5

Inventory
18.9

 
1.8

Property, plant and equipment
12.0

 
1.1

Goodwill
54.3

 
1.9

Other intangible assets (average weighted amortization period of 16.5 years)
102.4

 
—

Accounts payable and accrued liabilities
(6.8
)
 
(1.2
)
Other assets and liabilities, net
.6

 
(.4
)
Additional consideration for prior year’s acquisitions
.1

 
1.9

Net cash consideration
$
190.3

 
$
6.6

The following table presents acquisitions for the periods presented. We are finalizing all of the information required to complete the purchase price allocations related to the most recent acquisitions and do not anticipate material modifications. Preliminary information used in the fair value assessments in the Western acquisition is primarily related to certain accruals and contingencies and the tax basis of assets acquired.
 
Nine Months Ended
 
Number of
Acquisitions
 
Segment
 
Product
 
Goodwill
In Year of
Acquisition
 
Expected to
Provide
Income
Tax
Benefit
September 30, 2012
 
2

 
Industrial
Materials
 
Tubing for the
aerospace industry;
Tube fabrication
 
$
54.3

 
$
54.3

September 30, 2011
 
2

 
Residential
Furnishings
 
Geo Textiles; Furniture Hardware
 
$
1.9

 
$
1.9

Factors that contributed to a purchase price resulting in the recognition of goodwill included Western’s competitive position, and its fit with our strategy to seek businesses with secure, leading positions in growing, profitable, attractive markets.
The results of operations of the above acquired companies have been included in the consolidated financial statements since the dates of acquisition. While we expect future activity to be incremental to the Industrial Materials segment, the unaudited pro forma consolidated net sales, net earnings and earnings per share as though the 2012 acquisitions had occurred on January 1 of the prior period presented is not materially different from the amounts reflected in the accompanying financial statements.

Certain of our acquisition agreements provide for additional consideration to be paid in cash at a later date and are recorded as a liability at the acquisition date. At September 30, 2012, there was no substantial remaining consideration payable.
In the third quarter 2012, we invested $22.4 to acquire a non-controlling interest in a potential acquisition. This amount is

14
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


included in "Sundry" long-term assets in the accompanying balance sheet. We have no contractual right or obligation to make any additional investment. At the time of the investment, we secured certain rights that allow us to liquidate our position without loss if we decide to no longer pursue this business as an acquisition.
11. EMPLOYEE BENEFIT PLANS
The following table provides interim information as to our domestic and foreign defined benefit pension plans. Expected 2012 employer contributions are not significantly different than the $7 previously reported at December 31, 2011.
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Components of net pension expense
 
 
 
 
 
 
 
Service cost
$
2.2

 
$
1.8

 
$
.8

 
$
.6

Interest cost
9.5

 
10.0

 
3.2

 
3.3

Expected return on plan assets
(11.0
)
 
(10.2
)
 
(3.7
)
 
(3.5
)
Recognized net actuarial loss
4.7

 
2.9

 
1.6

 
.9

Net pension expense
$
5.4

 
$
4.5

 
$
1.9

 
$
1.3


 
12. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME
 
 
Nine Months Ended September 30, 2012
 
Total
Equity
 
Retained
Earnings
 
Common
Stock &
Additional
Contributed
Capital
 
Treasury
Stock
 
Noncontrolling
Interest
 
Accumulated
Other
Comprehensive
Income
Beginning balance, January 1, 2012
$
1,307.7

 
$
2,027.4

 
$
458.9

 
$
(1,254.3
)
 
$
10.5

 
$
65.2

Net earnings
176.5

 
176.5

 
—

 
—

 
—

 
—

(Earnings) loss attributable to noncontrolling interest, net of tax
—

 
(1.8
)
 
—

 
—

 
1.8

 
—

Dividends declared
(119.4
)
 
(122.7
)
 
3.3

 
—

 
—

 
—

Treasury stock purchased
(24.1
)
 
—

 
—

 
(24.1
)
 
—

 
—

Treasury stock issued
29.5

 
—

 
(24.8
)
 
54.3

 
—

 
—

Foreign currency translation adjustments
12.0

 
—

 
—

 
—

 
—

 
12.0

Cash flow hedges, net of tax
(4.5
)
 
—

 
—

 
—

 
—

 
(4.5
)
Defined benefit pension plans, net of tax
2.5

 
—

 
—

 
—

 
—

 
2.5

Stock options and benefit plan transactions, net of tax
20.6

 
—

 
20.6

 
—

 
—

 
—

Ending balance, September 30, 2012
$
1,400.8

 
$
2,079.4

 
$
458.0

 
$
(1,224.1
)
 
$
12.3

 
$
75.2

 

15
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


 
Nine Months Ended September 30, 2011
 
Total
Equity
 
Retained
Earnings
 
Common
Stock &
Additional
Contributed
Capital
 
Treasury
Stock
 
Noncontrolling
Interest
 
Accumulated
Other
Comprehensive
Income
Beginning balance, January 1, 2011
$
1,524.4

 
$
2,033.3

 
$
465.2

 
$
(1,093.0
)
 
$
17.1

 
$
101.8

Net earnings
147.1

 
147.1

 
—

 
—

 
—

 
—

(Earnings) loss attributable to noncontrolling interest, net of tax
—

 
(2.5
)
 
—

 
—

 
2.5

 
—

Dividends declared
(116.2
)
 
(119.1
)
 
2.9

 
—

 
—

 
—

Acquisition of noncontrolling interest
(21.0
)
 
—

 
(10.8
)
 
—

 
(10.2
)
 
—

Treasury stock purchased
(229.7
)
 
—

 
—

 
(229.7
)
 
—

 
—

Treasury stock issued
30.2

 
—

 
(31.2
)
 
61.4

 
—

 
—

Foreign currency translation adjustments
(5.6
)
 
—

 
—

 
—

 
.5

 
(6.1
)
Cash flow hedges, net of tax
(20.7
)
 
—

 
—

 
—

 
—

 
(20.7
)
Defined benefit pension plans, net of tax
1.4

 
—

 
—

 
—

 
—

 
1.4

Stock options and benefit plan transactions, net of tax
28.2

 
—

 
28.2

 
—

 
—

 
—

Ending balance, September 30, 2011
$
1,338.1

 
$
2,058.8

 
$
454.3

 
$
(1,261.3
)
 
$
9.9

 
$
76.4


The following tables set forth the components of and changes in each component of accumulated other comprehensive income (loss) for each of the periods presented:
 
 
Foreign
Currency
Translation
Adjustments
 
Cash
Flow
Hedges
 
Defined
Benefit
Pension
Plans
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance January 1, 2012
$
147.6

 
$
(21.5
)
 
$
(60.9
)
 
$
65.2

Period change—Gross
12.0

 
(7.4
)
 
4.1

 
8.7

Period change—Attributable to noncontrolling interest
—

 
—

 
—

 
—

Period change—Income tax effect
—

 
2.9

 
(1.6
)
 
1.3

Balance September 30, 2012
$
159.6

 
$
(26.0
)
 
$
(58.4
)
 
$
75.2

Balance January 1, 2011
$
151.1

 
$
1.4

 
$
(50.7
)
 
$
101.8

Period change—Gross
(5.6
)
 
(33.3
)
 
2.2

 
(36.7
)
Period change—Attributable to noncontrolling interest
(.5
)
 
—

 
—

 
(.5
)
Period change—Income tax effect
—

 
12.6

 
(.8
)
 
11.8

Balance September 30, 2011
$
145.0

 
$
(19.3
)
 
$
(49.3
)
 
$
76.4

13. FAIR VALUE
Fair value measurements are established using a three level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following categories:
•
Level 1: Quoted prices for identical assets or liabilities in active markets.
•
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Short-term investments in this category are valued using discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. Derivative assets and liabilities in this category are valued using models that consider various assumptions and information from market-corroborated sources. The models used are primarily industry-standard models that consider items such as quoted prices, market interest rate curves applicable to the instruments being valued as of the end of each period, discounted cash flows,

16
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


volatility factors, current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
•
Level 3: Unobservable inputs that are not corroborated by market data.
Items measured at fair value on a recurring basis
 
 
As of September 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Bank time deposits with original maturities of three months or less
$
—

 
$
123.4

 
$
—

 
$
123.4

Derivative assets
—

 
1.5

 
—

 
1.5

Diversified investments associated with the ESUP
6.3

 
—

 
—

 
6.3

Total assets
$
6.3

 
$
124.9

 
$
—

 
$
131.2

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
.9

 
$
.7

 
$
—

 
$
1.6

Liabilities associated with the ESUP
6.3

 
—

 
—

 
6.3

Total liabilities
$
7.2

 
$
.7

 
$
—

 
$
7.9

 
 
 
As of December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Bank time deposits with original maturities of three months or less
$
—

 
$
111.8

 
$
—

 
$
111.8

Derivative assets
—

 
3.2

 
—

 
3.2

Diversified investments associated with the ESUP
2.5

 
—

 
—

 
2.5

Total assets
$
2.5

 
$
115.0

 
$
—

 
$
117.5

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
2.2

 
$
34.8

 
$
—

 
$
37.0

Liabilities associated with the ESUP
2.5

 
—

 
—

 
2.5

Total liabilities
$
4.7

 
$
34.8

 
$
—

 
$
39.5

The fair value for fixed rate debt (Level 2) was greater than its $1,030.0 carrying value by $54.1 at September 30, 2012 and greater than its $730.0 carrying value by $29.2 at December 31, 2011. We value this debt using discounted cash flow and secondary market rates provided by Bloomberg.
Items measured at fair value on a non-recurring basis
The primary areas in which we use fair value measurements of non-financial assets and liabilities are allocating purchase price to the assets and liabilities of acquired companies and evaluating long-term assets for potential impairment.
Goodwill
We perform an annual review for potential goodwill impairment in June of each year and as triggering events occur. The goodwill impairment review performed in June 2012 indicated no goodwill impairments.
The ten reporting units for goodwill purposes are one level below the operating segments, and are the same as the business groups disclosed in Item 1. Business in Form 10-K. Fair market values of the reporting units are estimated using a

17
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


discounted cash flow model and comparable market values for similar entities using price to earnings ratios. Key assumptions and estimates used in the cash flow model include discount rate, internal sales growth, margins, capital expenditure requirements, and working capital requirements. Recent performance of the reporting unit is an important factor, but not the only factor, in the assessment. If actual results differ from estimates used in these calculations, we could incur future impairment charges.
Reporting units’ fair values in relation to their respective carrying values and significant assumptions used in the June 2012 review are presented in the table below. The 10-25% category below includes information for one reporting unit (Fixture & Display). The fair value of this unit exceeded its book value by 10% at June 30, 2012.
 
Percentage of fair value in excess of carrying value
September 30, 2012
goodwill value
 
Sales 10-year
compound
annual growth
rate range
 
Terminal
values long-
term growth
rate
 
Discount rate
ranges
10-25%
$
111.8

 
3.9%
 
3%
 
11.0%
25%+
873.3

 
1.4
%
-
6.4%
 
3%
 
7.5
%
-
9.5%
 
$
985.1

 
1.4
%
-
6.4%
 
3%
 
7.5
%
-
11%
Fixed Assets
We test long-lived assets for recoverability at year-end and whenever events or changes in circumstances indicate the carrying value may not be recoverable. The table below summarizes fixed asset impairments for the periods presented.
 
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Total asset impairments
$
1.0

 
$
3.4

 
$
—

 
$
—

2012 impairments costs were primarily associated with the 2011 Restructuring Plan as discussed in Note 6. Fair value and the resulting impairment charges were based primarily upon offers from potential buyers or third party estimates of fair value less selling costs.
14. RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS
Risk Management Strategy & Objectives
We are subject to market and financial risks related to interest rates, foreign currency, and commodities. In the normal course of business, we utilize derivative instruments (individually or in combinations) to manage these risks. We seek to use derivative contracts that qualify for hedge accounting treatment; however, some instruments may not qualify for this treatment. It is our policy not to speculate using derivative instruments.
Cash Flow Hedges
Derivative financial instruments that we use to hedge forecasted transactions and anticipated cash flows are as follows:
•
Commodity Cash Flow Hedges—The commodity cash flow hedges manage natural gas commodity price risk. We are no longer hedging our commodity price risk so these hedges will continue to get smaller until all of the current hedges expire.
•
Interest Rate Cash Flow Hedges—On August 15, 2012, we issued $300 of 10-year notes with a coupon rate of 3.40%. As a part of this transaction, we settled our $200 forward starting interest rate swaps we had entered into during 2010 and recognized a loss of $42.7, which will be amortized over the life of the notes.
•
Currency Cash Flow Hedges—The currency hedges manage risk associated with exchange rate volatility of various foreign currencies.
The effective changes in fair value of unexpired contracts are recorded in accumulated other comprehensive income and reclassified to income or expense in the period in which earnings are impacted. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged. (Settlements associated with the sale or production of product are presented in operating cash flows and settlements associated with debt issuance are presented in financing cash flows.) 


18
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


Fair Value Hedges
Our fair value hedges manage foreign currency risk associated with subsidiaries’ inter-company assets and liabilities. Hedges designated as fair value hedges recognize gain or loss currently in earnings. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged.
Hedge Effectiveness
We have deemed all ineffectiveness to be immaterial, and as a result, have not recorded any amounts for ineffectiveness. If a hedge was not highly effective, the portion of the change in fair value considered to be ineffective would be recognized immediately in the consolidated condensed statements of operations.
Derivatives Not Qualifying for Hedge Accounting Treatment
At December 31, 2011, we had derivative transactions that did not qualify for hedge accounting treatment, which we liquidated in second quarter 2012. Gains or losses on these transactions are recorded directly to income and expense in the period impacted, and offset the majority of gains and losses on the underlying Euro inter-company debt.

We have recorded the following assets and liabilities representing the fair value for our most significant derivative financial instruments. The fair values of the derivatives reflect the change in the market value of the derivative from the date of the trade execution, and do not consider the offsetting underlying hedged item.
 
 
Maturity
 
Total USD
Equivalent
Notional
Amount
 
As of September 30, 2012
 
Assets
 
Liabilities
Other
Current
Assets
 
Sundry
 
Other Current
Liabilities
 
Other Long-Term
Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Commodity hedges
Dec 2013
 
$
3.4

 
$
—

 
$
—

 
$
.8

 
$
.1

Currency Hedges:
 
 
 
 
 
 
 
 
 
 
 
Future USD sales of Canadian subsidiaries
Dec 2013
 
21.0

 
.7

 
.1

 
—

 
—

Future USD sales of Chinese subsidiaries
Oct 2013
 
14.0

 
—

 
—

 
.1

 
—

Future USD cost of goods sold of European subsidiary
Dec 2013
 
7.1

 
.1

 
—

 
—

 
—

Total cash flow hedges
 
 
 
 
.8

 
.1

 
.9

 
.1

Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
USD inter-company note receivable on a Canadian subsidiary
Oct 2012
 
8.8

 
.3

 
—

 
—

 
—

ZAR asset on a USD subsidiary
Oct 2012
 
22.1

 
—

 
—

 
.4

 
—

USD inter-company note receivable on a European subsidiary
Nov 2012
 
3.5

 
—

 
—

 
.2

 
—

USD inter-company note receivables on a Swiss subsidiary
Jan 2013
 
14.5

 
.3

 
—

 
—

 
—

Total fair value hedges
 
 
 
 
.6

 
—

 
.6

 
—

 
 
 
 
 
$
1.4

 
$
.1

 
$
1.5

 
$
.1



19
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
 


 
 
Maturity
 
Total USD
Equivalent
Notional
Amount
 
As of December 31, 2011
 
Assets
 
Liabilities
Other Current
Assets
 
Sundry
 
Other Current
Liabilities
 
Other Long-Term
Liabilities
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Commodity hedges
Dec 2013
 
$
6.2

 
$
—

 
$
—

 
$
1.9

 
$
.3

Interest rate hedges
Aug 2012
 
200.0

 
—

 
—

 
32.4

 
—

Currency Hedges:
 
 
 
 
 
 
 
 
 
 
 
Future USD cost of goods sold of Canadian subsidiaries
Dec 2012
 
7.6

 
.5

 
—

 
—

 
—

Future USD sales of a Chinese subsidiary
Dec 2012
 
44.1

 
.1

 
—

 
—

 
—

Future MXP cost of goods sold of a US subsidiary
Dec 2012
 
1.1

 
—

 
—

 
.1

 
—

Future EUR cost of goods sold of a US subsidiary
June 2012
 
1.6

 
—

 
—