LEG 06.30.2013 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 June 30, 2013
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 July 23, 2013: 142,010,704




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
June 30,
2013
 
December 31,
2012
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
280.3

 
$
359.1

Trade receivables, net
504.4

 
412.6

Other receivables, net
48.6

 
33.6

Inventories
 
 
 
Finished goods
279.0

 
275.7

Work in process
53.9

 
55.0

Raw materials and supplies
243.7

 
229.4

LIFO reserve
(66.2
)
 
(71.1
)
Total inventories, net
510.4

 
489.0

Other current assets
43.5

 
44.8

Total current assets
1,387.2

 
1,339.1

PROPERTY, PLANT AND EQUIPMENT—AT COST
 
 
 
Machinery and equipment
1,158.0

 
1,161.7

Buildings and other
601.2

 
603.2

Land
44.6

 
45.3

Total property, plant and equipment
1,803.8

 
1,810.2

Less accumulated depreciation
1,241.7

 
1,237.4

Net property, plant and equipment
562.1

 
572.8

OTHER ASSETS
 
 
 
Goodwill
982.9

 
991.5

Other intangibles, less accumulated amortization of $132.6 and $129.1 as of June 30, 2013 and December 31, 2012, respectively
209.6

 
206.3

Sundry
136.9

 
145.2

Total other assets
1,329.4

 
1,343.0

TOTAL ASSETS
$
3,278.7

 
$
3,254.9

CURRENT LIABILITIES
 
 
 
Current maturities of long-term debt
$
1.8

 
$
201.5

Accounts payable
338.3

 
285.4

Accrued expenses
213.7

 
218.9

Other current liabilities
76.9

 
25.2

Total current liabilities
630.7

 
731.0

LONG-TERM LIABILITIES
 
 
 
Long-term debt
973.9

 
853.9

Other long-term liabilities
158.5

 
158.2

Deferred income taxes
81.9

 
69.6

Total long-term liabilities
1,214.3

 
1,081.7

COMMITMENTS AND CONTINGENCIES

 

EQUITY
 
 
 
Common stock
2.0

 
2.0

Additional contributed capital
468.1

 
458.6

Retained earnings
2,146.3

 
2,109.6

Accumulated other comprehensive income
46.8

 
71.0

Treasury stock
(1,238.3
)
 
(1,206.7
)
Total Leggett & Platt, Inc. equity
1,424.9

 
1,434.5

Noncontrolling interest
8.8

 
7.7

Total equity
1,433.7

 
1,442.2

TOTAL LIABILITIES AND EQUITY
$
3,278.7

 
$
3,254.9

See accompanying notes to consolidated condensed financial statements.


2


LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Six Months Ended
June 30,
 
Three Months Ended
June 30,
(Amounts in millions, except per share data)
2013
 
2012
 
2013
 
2012
Net sales
$
1,891.5

 
$
1,877.9

 
$
958.8

 
$
934.6

Cost of goods sold
1,503.5

 
1,512.7

 
759.7

 
747.9

Gross profit
388.0

 
365.2

 
199.1

 
186.7

Selling and administrative expenses
206.0

 
188.9

 
98.8

 
91.8

Amortization of intangibles
11.1

 
12.6

 
5.4

 
6.4

Other (income) expense, net
(7.0
)
 
1.0

 
(3.6
)
 
1.7

Earnings from continuing operations before interest and income taxes
177.9

 
162.7

 
98.5

 
86.8

Interest expense
23.7

 
19.1

 
10.9

 
9.6

Interest income
4.5

 
3.3

 
1.8

 
1.6

Earnings from continuing operations before income taxes
158.7

 
146.9

 
89.4

 
78.8

Income taxes
44.2

 
44.3

 
24.3

 
21.5

Earnings from continuing operations
114.5

 
102.6

 
65.1

 
57.3

Earnings from discontinued operations (net of tax)
6.9

 
7.3

 
6.8

 
8.1

Net earnings
121.4

 
109.9

 
71.9

 
65.4

(Earnings) loss attributable to noncontrolling interest, net of tax
(1.0
)
 
(1.0
)
 
(.6
)
 
(.5
)
Net earnings attributable to Leggett & Platt, Inc. common shareholders
$
120.4

 
$
108.9

 
$
71.3

 
$
64.9

Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
.78

 
$
.71

 
$
.44

 
$
.39

Diluted
$
.77

 
$
.70

 
$
.44

 
$
.39

Earnings per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
.05

 
$
.05

 
$
.05

 
$
.06

Diluted
$
.05

 
$
.05

 
$
.05

 
$
.06

Net earnings per share attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
.83

 
$
.76

 
$
.49

 
$
.45

Diluted
$
.81

 
$
.75

 
$
.48

 
$
.45

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
.58

 
$
.56

 
$
.29

 
$
.28

 
 
 
 
 
 
 
 
Average shares outstanding
 
 
 
 
 
 
 
Basic
145.9

 
143.8

 
145.8

 
144.1

Diluted
148.0

 
145.3

 
148.1

 
145.4

See accompanying notes to consolidated condensed financial statements.

3


LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Six Months Ended
June 30,
 
Three Months Ended
June 30,
(Amounts in millions)
2013
 
2012
 
2013
 
2012
Net earnings
$
121.4

 
$
109.9

 
$
71.9

 
$
65.4

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(27.5
)
 
(7.4
)
 
(11.2
)
 
(23.6
)
Cash flow hedges
.9

 
(4.3
)
 
.1

 
(7.2
)
Defined benefit pension plans
2.5

 
1.8

 
1.1

 
1.0

Other comprehensive (loss) income
(24.1
)
 
(9.9
)
 
(10.0
)
 
(29.8
)
Comprehensive income
97.3

 
100.0

 
61.9

 
35.6

Less: comprehensive (income) loss attributable to noncontrolling interest
(1.1
)
 
(.9
)
 
(.7
)
 
(.4
)
Comprehensive income (loss) attributable to Leggett & Platt, Inc.
$
96.2

 
$
99.1

 
$
61.2

 
$
35.2

See accompanying notes to consolidated condensed financial statements.

4

LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
June 30,
(Amounts in millions)
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net earnings
$
121.4

 
$
109.9

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
45.0

 
45.1

Amortization of intangibles and debt issuance costs
14.1

 
12.6

Provision for losses on accounts and notes receivable
3.2

 
3.5

Writedown of inventory
11.4

 
5.7

Asset impairment charges
2.3

 
1.0

Net gain from sales of assets and businesses
(7.7
)
 
(2.6
)
Deferred income tax expense (benefit)
10.5

 
(5.2
)
Stock-based compensation
20.2

 
18.3

Other, net
(.3
)
 
4.7

Other changes, excluding effects from acquisitions and divestitures:
 
 
 
Increase in accounts and other receivables
(112.3
)
 
(45.1
)
Increase in inventories
(34.6
)
 
(66.0
)
Increase in other current assets
(1.4
)
 
(3.9
)
Increase in accounts payable
53.5

 
65.1

(Decrease) increase in accrued expenses and other current liabilities
(2.1
)
 
3.2

NET CASH PROVIDED BY OPERATING ACTIVITIES
123.2

 
146.3

INVESTING ACTIVITIES
 
 
 
Additions to property, plant and equipment
(41.9
)
 
(37.3
)
Purchases of companies, net of cash acquired
(10.1
)
 
(189.8
)
Proceeds from sales of assets and businesses
14.4

 
7.4

Other, net
(4.4
)
 
(5.8
)
NET CASH USED FOR INVESTING ACTIVITIES
(42.0
)
 
(225.5
)
FINANCING ACTIVITIES
 
 
 
Payments on long-term debt
(202.1
)
 
(9.9
)
Change in commercial paper and short-term debt
128.8

 
189.6

Dividends paid
(41.4
)
 
(78.2
)
Issuances of common stock
32.5

 
4.4

Purchases of common stock
(82.2
)
 
(7.2
)
Excess tax benefits from stock-based compensation
5.9

 
1.3

NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(158.5
)
 
100.0

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(1.5
)
 
(2.6
)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(78.8
)
 
18.2

CASH AND CASH EQUIVALENTS—January 1,
359.1

 
236.3

CASH AND CASH EQUIVALENTS—June 30,
$
280.3

 
$
254.5

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, 2012 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 ("GAAP"). 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, 2012.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 2013 presentation:
•In the Consolidated Statements of Operations and all related notes - Prior periods have been retrospectively adjusted to reflect the reclassification of certain operations to discontinued operations. (See Note 5)
2. NEW ACCOUNTING GUIDANCE
In February 2013 the Financial Accounting Standards Board (FASB) issued ASU 2013-02 "Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires separate disclosure about amounts reclassified out of accumulated other comprehensive income by component. We adopted this guidance in first quarter 2013 and have included all required disclosures in Note 11.
The FASB has issued other 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 55% 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 remaining quarters.
The following table contains the LIFO benefit included in earnings for each of the periods presented.
 
 
Six Months Ended
June 30,
 
Three Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
LIFO benefit
$
4.8

 
$
2.1

 
$
2.2

 
$
2.6




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



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
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.
 
External
Sales
 
Inter-
Segment
Sales
 
Total
Sales
 
EBIT
Three Months Ended June 30, 2013:
 
 
 
 
 
 
 
Residential Furnishings
$
484.8

 
$
4.0

 
$
488.8

 
$
42.4

Commercial Fixturing & Components
126.2

 
1.2

 
127.4

 
7.9

Industrial Materials
155.8

 
60.9

 
216.7

 
21.9

Specialized Products
192.0

 
16.4

 
208.4

 
28.4

Intersegment eliminations
 
 
 
 
 
 
(4.3
)
Change in LIFO reserve
 
 
 
 
 
 
2.2

 
$
958.8

 
$
82.5

 
$
1,041.3

 
$
98.5

Three Months Ended June 30, 2012:
 
 
 
 
 
Residential Furnishings
$
472.4

 
$
2.3

 
$
474.7

 
$
40.0

Commercial Fixturing & Components
113.7

 
1.2

 
114.9

 
3.1

Industrial Materials
167.3

 
65.9

 
233.2

 
18.3

Specialized Products
181.2

 
13.8

 
195.0

 
26.0

Intersegment eliminations
 
 
 
 
 
 
(3.2
)
Change in LIFO reserve
 
 
 
 
 
 
2.6

 
$
934.6

 
$
83.2

 
$
1,017.8

 
$
86.8


 



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



 
External
Sales
 
Inter-
Segment
Sales
 
Total
Sales
 
EBIT
Six Months Ended June 30, 2013:
 
 
 
 
 
 
 
Residential Furnishings
$
969.7

 
$
5.9

 
$
975.6

 
$
84.7

Commercial Fixturing & Components
240.8

 
2.2

 
243.0

 
9.5

Industrial Materials
315.4

 
124.5

 
439.9

 
43.6

Specialized Products
365.6

 
29.1

 
394.7

 
44.1

Intersegment eliminations
 
 
 
 
 
 
(8.8
)
Change in LIFO reserve
 
 
 
 
 
 
4.8

 
$
1,891.5

 
$
161.7

 
$
2,053.2

 
$
177.9

Six Months Ended June 30, 2012:
 
 
 
 
 
Residential Furnishings
$
963.0

 
$
4.3

 
$
967.3

 
$
80.2

Commercial Fixturing & Components
226.9

 
2.2

 
229.1

 
10.3

Industrial Materials
331.9

 
136.5

 
468.4

 
31.0

Specialized Products
356.1

 
23.6

 
379.7

 
44.3

Intersegment eliminations
 
 
 
 
 
 
(5.2
)
Change in LIFO reserve
 
 
 
 
 
 
2.1

 
$
1,877.9

 
$
166.6

 
$
2,044.5

 
$
162.7



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. Amounts for 2012 have been retrospectively adjusted to reflect discontinued operations as discussed in Note 5.
 
 
June 30,
2013
 
December 31,
2012
Residential Furnishings
$
587.8

 
$
602.9

Commercial Fixturing & Components
149.9

 
159.1

Industrial Materials
242.8

 
237.1

Specialized Products
223.0

 
225.4

Average current liabilities included in segment numbers above
447.9

 
439.1

Unallocated assets (1)
1,578.2

 
1,685.5

Difference between average assets and period-end balance sheet
49.1

 
(94.2
)
Total assets
$
3,278.7

 
$
3,254.9

 
(1)
Primarily goodwill, other intangibles, cash, LIFO reserves, deferred tax assets and businesses sold or classified as held for sale during the second quarter of 2013.

5. DISCONTINUED OPERATIONS
 
In the second quarter of 2013 we exited three small operations:

•
We closed our final location that produced fabricated wire components used in large home appliances, thereby discontinuing that line of business. This operation, which was previously in our Industrial Materials segment, was part of a restructuring plan that began in the fourth quarter of 2011. Tax benefits related to this business were recorded in the second quarters of both 2012 and 2013.
•
We divested the specialty trailers portion of the Commercial Vehicle Products Unit. This branch was previously part of the Specialized Products segment. No significant gains or losses were realized on the sale of this business.
•
We placed for sale a cotton-based erosion control products operation that was previously part of the Industrial Materials Segment. Charges of $1.9 were recorded in the second quarter of 2013 to reflect estimates of fair value less

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



costs to sell, including $1.5 of fixed asset impairments as discussed in Note 12. The remaining net book value of assets held for sale related to this business is $.8.
 
Businesses divested in prior years and related subsequent activity have also been reported as discontinued operations as follows:

•
We received a cash litigation settlement in the second quarter of 2012 associated with our former Prime Foam Products unit.  This unit was sold in March 2007 and was previously part of the Residential Furnishings segment. 

The table below includes activity related to these operations:
 
Six Months Ended June 30,
 
Three Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
External sales:
 
 
 
 
 
 
 
Industrial Materials - fabricated wire components used in large home appliances
$
4.1

 
$
6.1

 
$
1.2

 
$
3.2

Specialized Products - the specialty trailers portion of the Commercial Vehicles Products Unit
.5

 
1.6

 
.1

 
1.0

Total external sales
4.6

 
7.7

 
1.3

 
4.2

 
 
 
 
 
 
 
 
Earnings (loss):
 
 
 
 
 
 
 
Residential Furnishings - Prime Foam Products Unit
—

 
3.9

 
—

 
3.9

Industrial Materials:
 
 
 
 
 
 
 
    Fabricated wire components used in large home appliances
1.0

 
(.8
)
 
.2

 
(.2
)
    Cotton-based erosion control products
(2.6
)
 
(.6
)
 
(2.3
)
 
(.3
)
Specialized Products - the specialty trailers portion of the Commercial Vehicles Products Unit
(.7
)
 
(.5
)
 
(.4
)
 
(.1
)
Earnings (loss) before interest and income taxes
(2.3
)
 
2.0

 
(2.5
)
 
3.3

Income tax benefit
9.2

 
5.3

 
9.3

 
4.8

Earnings from discontinued operations (net of tax)
$
6.9

 
$
7.3

 
$
6.8

 
$
8.1

 
























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




6. EARNINGS PER SHARE

Basic and diluted earnings per share were calculated as follows:
 
Six Months Ended June 30,
 
Three Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Earnings:
 
 
 
 
 
 
 
Earnings from continuing operations
$
114.5

 
$
102.6

 
$
65.1

 
$
57.3

(Earnings) attributable to noncontrolling interest, net of tax
(1.0
)
 
(1.0
)
 
(.6
)
 
(.5
)
Net earnings from continuing operations attributable to Leggett & Platt, Inc. common shareholders
113.5

 
101.6

 
64.5

 
56.8

Earnings (loss) from discontinued operations, net of tax
6.9

 
7.3

 
6.8

 
8.1

Net earnings attributable to Leggett & Platt, Inc. common shareholders
$
120.4

 
$
108.9

 
$
71.3

 
$
64.9

 
 
 
 
 
 
 
 
Weighted average number of shares:
 
 
 
 
 
 
 
Weighted average number of common shares used in basic EPS
145.9

 
143.8

 
145.8

 
144.1

Additional dilutive shares principally from the assumed exercise of outstanding stock options
2.1

 
1.5

 
2.3

 
1.3

Weighted average number of common shares and dilutive potential common shares used in diluted EPS
148.0

 
145.3

 
148.1

 
145.4

 
 
 
 
 
 
 
 
Basic and Diluted EPS:
 
 
 
 
 
 
 
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Continuing operations
$
.78

 
$
.71

 
$
.44

 
$
.39

Discontinued operations
.05
 
.05
 
.05
 
.06
Basic EPS attributable to Leggett & Platt common shareholders
$
.83

 
$
.76

 
$
.49

 
$
.45

Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Continuing operations
$
.77

 
$
.70

 
$
.44

 
$
.39

Discontinued operations
.05

 
.05

 
.05

 
.06

Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
$
.81

 
$
.75

 
$
.48

 
$
.45

 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
Shares issuable under employee and non-employee stock options
6.7

 
11.5

 
6.7

 
11.5

Anti-dilutive shares excluded from diluted EPS computation
—

 
3.0

 
—

 
3.3












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



7. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consisted of the following:
 
 
June 30, 2013
 
December 31, 2012
 
Current
 
Long-term
 
Current
 
Long-term
Trade accounts receivable
$
523.3

 
$
—

 
$
430.4

 
$
—

Trade notes receivable
.8

 
2.2

 
1.1

 
2.9

Total trade receivables
524.1

 
2.2

 
431.5

 
2.9

Other notes receivable:
 
 
 
 
 
 
 
Notes received as partial payment for divestitures
.5

 
5.6

 
.5

 
6.1

Other
.1

 
4.4

 
.5

 
4.3

Income tax receivables
20.1

 
—

 
8.6

 
—

Other receivables
28.0

 
—

 
24.3

 
—

Subtotal other receivables
48.7

 
10.0

 
33.9

 
10.4

Total accounts and other receivables
572.8

 
12.2

 
465.4

 
13.3

Allowance for doubtful accounts:
 
 
 
 
 
 
 
Trade accounts receivable
(19.7
)
 
—

 
(18.9
)
 
—

Trade notes receivable
—

 
(.3
)
 
—

 
(.8
)
Total trade receivables
(19.7
)
 
(.3
)
 
(18.9
)
 
(.8
)
Other notes receivable:
 
 
 
 
 
 
 
Other
(.1
)
 
(.8
)
 
(.3
)
 
(.6
)
Total allowance for doubtful accounts
(19.8
)
 
(1.1
)
 
(19.2
)
 
(1.4
)
Total net receivables
$
553.0

 
$
11.1

 
$
446.2

 
$
11.9

Notes are evaluated individually for impairment. Our investment in notes that were past due more than 90 days was approximately $1.0 at June 30, 2013, all of which had been placed on non-accrual status; and less than $2.0 at December 31, 2012, of which approximately $1.0 had been placed on non-accrual status.
Activity related to the allowance for doubtful accounts is reflected below:
 
 
Balance at December 31, 2012
 
2013
Charges
 
2013
Charge-
offs,
net of
recoveries
 
Balance at June 30, 2013
Trade accounts receivable
$
18.9

 
$
3.2

 
$
2.4

 
$
19.7

Trade notes receivable
.8

 
—

 
.5

 
.3

Total trade receivables
19.7

 
3.2

 
2.9

 
20.0

Other notes receivable:
 
 
 
 
 
 
 
Other
.9

 
—

 
—

 
.9

Total allowance for doubtful accounts
$
20.6

 
$
3.2

 
$
2.9

 
$
20.9











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



8. STOCK-BASED COMPENSATION
The following table recaps the components of stock-based and stock-related compensation for each period presented:
 
 
Six Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
To be settled with stock
 
To be settled in cash
 
To be settled with stock
 
To be settled in cash
Options (1):
 
 
 
 
 
 
 
         Amortization of the grant date fair value
$
1.0

 
$
—

 
$
3.2

 
$
—

         Cash payments in lieu of options
—

 
.8

 
—

 
.3

Stock-based retirement plans contributions
3.9

 
.7

 
3.3

 
.6

Discounts on various stock awards:

 
 
 

 
 
Deferred Stock Compensation Program
1.0

 
—

 
.6

 
—

Stock-based retirement plans
.7

 
—

 
.7

 
—

Discount Stock Plan
.5

 
—

 
.5

 
—

Performance Stock Unit awards (2)
3.2

 
3.4

 
3.3

 
—

Profitable Growth Incentive awards (1)
.5

 
.5

 
—

 
—

Restricted Stock Unit awards
2.6

 
—

 
1.4

 
—

Other, primarily non-employee directors restricted stock
.7

 
—

 
.4

 
—

Total stock-related compensation expense
14.1

 
$
5.4

 
13.4

 
$
.9

Employee contributions for above stock plans
6.1

 
 
 
4.9

 
 
Total stock-based compensation
$
20.2

 
 
 
$
18.3

 
 
Recognized tax benefits on stock-based compensation expense
$
5.4

 
 
 
$
5.1

 
 

 
Three Months Ended
June 30,
 
Three Months Ended
June 30,
 
2013
 
2012
 
To be settled with stock
 
To be settled in cash
 
To be settled with stock
 
To be settled in cash
Options (1):
 
 
 
 
 
 
 
         Amortization of the grant date fair value
$
.5

 
$
—

 
$
.9

 
$
—

         Cash payments in lieu of options
—

 
—

 
—

 
—

Stock-based retirement plans contributions
1.6

 
.2

 
1.4

 
.2

Discounts on various stock awards:
 
 
 
 
 
 
 
Deferred Stock Compensation Program
.3

 
—

 
.1

 
—

Stock-based retirement plans
.2

 
—

 
.2

 
—

Discount Stock Plan
.2

 
—

 
.3

 
—

Performance Stock Unit awards (2)
1.6

 
(.9
)
 
1.6

 
.1

Profitable Growth Incentive awards (1)
.3

 
.3

 
—

 
—

Restricted Stock Unit awards
.9

 
—

 
.6

 
—

Other, primarily non-employee directors restricted stock
.2

 
—

 
.2

 
—

Total stock-related compensation expense
5.8

 
$
(.4
)
 
5.3

 
$
.3

Employee contributions for above stock plans
2.9

 
 
 
2.5

 
 
Total stock-based compensation
$
8.7

 
 
 
$
7.8

 
 
Recognized tax benefits on stock-based compensation expense
$
2.3

 
 
 
$
2.0

 
 
 



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


(1)
Stock Option Grants and Profitable Growth Incentive Awards
Our most significant stock options have historically been granted annually on a discretionary basis to a broad group of employees.
Previous to 2013, we offered two different option choice programs. One group of employees was offered the choice to receive stock options or to receive a cash alternative equal to approximately one-half of the Black-Scholes value of the option grant foregone. Another group of employees, generally higher level employees, was offered a choice between stock options or restricted stock units (RSUs), on a ratio of four options foregone for each RSU offered. The RSUs vest in one-third increments at 12 months, 24 months and 36 months after the date of grant.
Starting in 2013, options are only offered in conjunction with the Deferred Compensation Program. In addition, certain key management employees participate in a new Profitable Growth Incentive (PGI) program. Options for other employees have been replaced with either cash awards or RSUs as offered in 2011 and 2012.
The PGI awards are issued as growth performance stock units (GPSUs). The GPSUs vest (0% to 250%) at the end of a two-year performance period. Vesting is based on the Company's or applicable profit center's Revenue Growth adjusted by a GDP factor when applicable and EBITDA Margin of the Company or applicable profit center at the end of a two-year performance period. The 2013 base PGI award was 130,920 shares. We intend to pay half in shares of our common stock and half in cash, although we reserve the right to pay up to 100% in cash. Both components are adjusted to fair value at each reporting period.
       
(2) 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.
Below is a summary of the number of shares and related grant date fair value of PSU’s for the periods presented. 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 listed below. Grant date fair values are amortized using the straight-line method over the three-year vesting period.
 
Six Months Ended
June 30,
 
2013
 
2012
Total shares base award
234,117
 
282,040
Grant date per share fair value
$
27.60

 
$
23.79

Risk-free interest rate
.4
%
 
.4
%
Expected life in years
3.0

 
3.0

Expected volatility (over expected life)
29.1
%
 
35.0
%
Expected dividend yield (over expected life)
4.2
%
 
4.8
%
The three-year performance cycle of the 2010 award was completed on December 31, 2012. Our TSR performance, relative to the peer group, ranked at 46th percentile (with 1% being best); accordingly, participants earned 91.0% of the base award and .3 million shares were distributed in January 2013.
 
The above information represents the 65% portion of the award that we intend to pay in shares of our common stock, although we reserve the right to pay up to 100% in cash. There is also an additional amount that represents 35% of the award that we will settle in cash. It 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)
 


9. ACQUISITIONS
The following table contains the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions during the periods presented, and any additional consideration paid for prior years’ acquisitions. We are finalizing all the information required to complete the purchase price allocations related to certain recent acquisitions and do not anticipate any material modifications.
 
Six Months Ended
June 30,
 
2013
 
2012
Accounts receivable
$
1.5

 
$
8.8

Inventory
1.5

 
18.9

Property, plant and equipment
2.0

 
12.0

Goodwill (1)
5.2

 
54.3

Other intangible assets
4.0

 
102.4

Other current and long-term assets
.1

 
.6

Current and long-term liabilities
(4.3
)
 
(7.3
)
Additional consideration for prior years’ acquisitions
.1

 
.1

Net cash consideration
$
10.1

 
$
189.8

(1) Goodwill associated with the 2013 acquisition is not expected to provide an income tax benefit. Goodwill associated with the 2012 acquisitions is expected to provide an income tax benefit.
The following table summarizes acquisitions for the periods presented.
Six Months Ended
 
Number of Acquisitions
 
Segment
 
Product/Service
June 30, 2013
 
1
 
Industrial Materials
 
Tubing for the aerospace industry
June 30, 2012
 
2
 
Industrial Materials
 
Tubing for the aerospace industry; Tube fabrication
On January 12, 2012, we acquired Western Pneumatic Tube Holding, LLC (Western) for a cash purchase price of $188. 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. 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. The unaudited pro forma consolidated net sales, net earnings and earnings per share are 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 June 30, 2013, there was no material remaining consideration payable.
10. EMPLOYEE BENEFIT PLANS
The following table provides interim information as to our domestic and foreign defined benefit pension plans. Expected 2013 employer contributions are not significantly different than the $1.5 previously reported at December 31, 2012.
 
 
Six Months Ended
June 30,
 
Three Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Components of net pension expense
 
 
 
 
 
 
 
Service cost
$
1.7

 
$
1.4

 
$
.8

 
$
.7

Interest cost
6.0

 
6.3

 
3.0

 
3.1

Expected return on plan assets
(7.6
)
 
(7.3
)
 
(3.8
)
 
(3.6
)
Recognized net actuarial loss
3.2

 
3.1

 
1.7

 
1.5

Net pension expense
$
3.3

 
$
3.5

 
$
1.7

 
$
1.7





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


11. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME
 
Six Months Ended June 30, 2013
 
Total
Equity
 
Retained
Earnings
 
Common
Stock &
Additional
Contributed
Capital
 
Treasury
Stock
 
Noncontrolling
Interest
 
Accumulated
Other
Comprehensive
Income
Beginning balance, January 1, 2013
$
1,442.2

 
$
2,109.6

 
$
460.6

 
$
(1,206.7
)
 
$
7.7

 
$
71.0

Net earnings
121.4

 
121.4

 
—

 
—

 
—

 
—

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

 
(1.0
)
 
—

 
—

 
1.0

 
—

Dividends declared
(82.6
)
 
(83.7
)
 
1.1

 
—

 
—

 
—

Treasury stock purchased
(90.0
)
 
—

 
—

 
(90.0
)
 
—

 
—

Treasury stock issued
46.2

 
—

 
(12.2
)
 
58.4

 
—

 
—

Foreign currency translation adjustments
(27.5
)
 
—

 
—

 
—

 
.1

 
(27.6
)
Cash flow hedges, net of tax
.9

 
—

 
—

 
—

 
—

 
.9

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, June 30, 2013
$
1,433.7

 
$
2,146.3

 
$
470.1

 
$
(1,238.3
)
 
$
8.8

 
$
46.8

 
 
Six Months Ended June 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
109.9

 
109.9

 
—

 
—

 
—

 
—

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

 
(1.0
)
 
—

 
—

 
1.0

 
—

Dividends declared
(78.6
)
 
(80.7
)
 
2.1

 
—

 
—

 
—

Treasury stock purchased
(9.0
)
 
—

 
—

 
(9.0
)
 
—

 
—

Treasury stock issued
11.4

 
—

 
(19.3
)
 
30.7

 
—

 
—

Foreign currency translation adjustments
(7.4
)
 
—

 
—

 
—

 
(.1
)
 
(7.3
)
Cash flow hedges, net of tax
(4.3
)
 
—

 
—

 
—

 
—

 
(4.3
)
Defined benefit pension plans, net of tax
1.8

 
—

 
—

 
—

 
—

 
1.8

Stock options and benefit plan transactions, net of tax
15.5

 
—

 
15.5

 
—

 
—

 
—

Ending balance, June 30, 2012
$
1,347.0

 
$
2,055.6

 
$
457.2

 
$
(1,232.6
)
 
$
11.4

 
$
55.4











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


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, 2013
$
163.5

 
$
(25.5
)
 
$
(67.0
)
 
$
71.0

Other comprehensive income (loss) before reclassifications, pretax
(27.5
)
 
(.6
)
 
.5

 
(27.6
)
Amounts reclassified from accumulated other comprehensive income, pretax:


 


 


 


Cost of goods sold; selling and administrative expenses
—

 
.2

 
3.2

 
3.4

Interest expense
—

 
2.0

 
—

 
2.0

Subtotal of reclassifications, pretax
—

 
2.2

 
3.2

 
5.4

Other comprehensive income (loss), pretax
(27.5
)
 
1.6

 
3.7

 
(22.2
)
Income tax effect
—

 
(.7
)
 
(1.2
)
 
(1.9
)
Attributable to noncontrolling interest
(.1
)
 
—

 
—

 
(.1
)
Balance June 30, 2013
$
135.9

 
$
(24.6
)
 
$
(64.5
)
 
$
46.8

 
 
 
 
 
 
 
 
Balance January 1, 2012
$
147.6

 
$
(21.5
)
 
$
(60.9
)
 
$
65.2

Other comprehensive income (loss) before reclassifications, pretax
(8.1
)
 
(8.3
)
 
(.2
)
 
(16.6
)
Amounts reclassified from accumulated other comprehensive income, pretax:


 


 


 


Cost of goods sold; selling and administrative expenses
—

 
1.3

 
3.1

 
4.4

Other income/expense, net
.7

 
—

 
—

 
.7

Subtotal of reclassifications, pretax
.7

 
1.3

 
3.1

 
5.1

Other comprehensive income (loss), pretax
(7.4
)
 
(7.0
)
 
2.9

 
(11.5
)
Income tax effect
—

 
2.7

 
(1.1
)
 
1.6

Attributable to noncontrolling interest
.1

 
—

 
—

 
.1

Balance June 30, 2012
$
140.3

 
$
(25.8
)
 
$
(59.1
)
 
$
55.4

12. 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, 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.




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


Items measured at fair value on a recurring basis
 
 
As of June 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Bank time deposits with original maturities of three months or less
$
—

 
$
155.5

 
$
—

 
$
155.5

Derivative assets
—

 
.4

 
—

 
.4

Diversified investments associated with the Executive Unit Stock Program (ESUP)
10.6

 
—

 
—

 
10.6

Total assets
$
10.6

 
$
155.9

 
$
—

 
$
166.5

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
.2

 
$
2.0

 
$
—

 
$
2.2

Liabilities associated with the ESUP
10.5

 
—

 
—

 
10.5

Total liabilities
$
10.7

 
$
2.0

 
$
—

 
$
12.7

 
 
As of December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Bank time deposits with original maturities of three months or less
$
—

 
$
125.6

 
$
—

 
$
125.6

Derivative assets
—

 
1.2

 
—

 
1.2

Diversified investments associated with the ESUP
7.0

 
—

 
—

 
7.0

Total assets
$
7.0

 
$
126.8

 
$
—

 
$
133.8

Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$
.5

 
$
1.3

 
$
—

 
$
1.8

Liabilities associated with the ESUP
7.1

 
—

 
—

 
7.1

Total liabilities
$
7.6

 
$
1.3

 
$
—

 
$
8.9

There were no transfers between Level 1 and Level 2 for any of the periods presented.
The fair value for fixed rate debt (Level 2) was greater than its $830 carrying value by $10 at June 30, 2013 and $46 greater than its $1,030 carrying value at December 31, 2012. 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 2013 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 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.

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


Reporting units’ fair values in relation to their respective carrying values and significant assumptions used in the June 2013 review are presented in the table below. The 10-25% category below includes information for two reporting units (Store Fixtures and Commercial Vehicle Products). The fair value of each of these units exceeded its book value by 24% and 14%, respectively, at June 30, 2013.
 
Percentage of fair value in excess of carrying value
June 30, 2013
goodwill value
 
Sales 10-year
compound
annual growth
rate range
 
Terminal
values long-
term growth
rate
 
Discount rate
ranges
10-25%
$
184.9

 
3.3
%
-
4.2%
 
3%
 
10.0
%
-
10.5%
25%+
798.0

 
1.5
%
-
5.0%
 
3%
 
8.0
%
-
10.0%
 
$
982.9

 
1.5
%
-
5.0%
 
3%
 
8.0
%
-
10.5%
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 impairment for the periods presented.
 
Six Months Ended
June 30,
 
Three Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Continuing operations
$
.8

 
$
.1

 
$
.6

 
$
—

Discontinued operations
1.5

 
.9

 
1.5

 
.9

Total asset impairments
$
2.3

 
$
1.0

 
$
2.1

 
$
.9

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.
13. 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.
•
Interest Rate Cash Flow Hedges—In August 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 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 June 30, 2013 and December 31, 2012, we had a limited number of derivative transactions that did not qualify for hedge accounting treatment. 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 hedged item.
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 June 30, 2013
 
Assets
 
Liabilities
Other
Current
Assets