Edgar Filing: LEGGETT & PLATT INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

LEG 09.30.2013 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 September 30, 2013



¨	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.

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 18, 2013: 141,211,179

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)



(Amounts in millions)	September 30, 2013			December 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$	298.9		$	359.1
Trade receivables, net	536.3			412.6
Other receivables, net	38.4			33.6
Inventories
Finished goods	250.9			275.7
Work in process	59.4			55.0
Raw materials and supplies	239.8			229.4
LIFO reserve	(61.2		)	(71.1		)
Total inventories, net	488.9			489.0
Other current assets	45.4			44.8
Total current assets	1,407.9			1,339.1
PROPERTY, PLANT AND EQUIPMENT—AT COST
Machinery and equipment	1,182.3			1,161.7
Buildings and other	613.2			603.2
Land	46.2			45.3
Total property, plant and equipment	1,841.7			1,810.2
Less accumulated depreciation	1,261.8			1,237.4
Net property, plant and equipment	579.9			572.8
OTHER ASSETS
Goodwill	992.2			991.5
Other intangibles, less accumulated amortization of $131.9 and $129.1 as of September 30, 2013 and December 31, 2012, respectively	210.7			206.3
Sundry	114.4			145.2
Total other assets	1,317.3			1,343.0
TOTAL ASSETS	$	3,305.1		$	3,254.9
CURRENT LIABILITIES
Current maturities of long-term debt	$	1.1		$	201.5
Accounts payable	326.2			285.4
Accrued expenses	226.8			220.5
Other current liabilities	84.7			23.6
Total current liabilities	638.8			731.0
LONG-TERM LIABILITIES
Long-term debt	957.5			853.9
Other long-term liabilities	158.2			158.2
Deferred income taxes	86.9			69.6
Total long-term liabilities	1,202.6			1,081.7
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock	2.0			2.0
Additional contributed capital	473.4			458.6
Retained earnings	2,174.0			2,109.6
Accumulated other comprehensive income	70.0			71.0
Treasury stock	(1,263.9		)	(1,206.7		)
Total Leggett & Platt, Inc. equity	1,455.5			1,434.5
Noncontrolling interest	8.2			7.7
Total equity	1,463.7			1,442.2
TOTAL LIABILITIES AND EQUITY	$	3,305.1		$	3,254.9

See accompanying notes to consolidated condensed financial statements.

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)	2013			2012			2013			2012
Net sales	$	2,849.2		$	2,856.0		$	957.7		$	978.1
Cost of goods sold	2,268.2			2,285.9			764.7			773.2
Gross profit	581.0			570.1			193.0			204.9
Selling and administrative expenses	298.1			283.0			92.1			94.1
Amortization of intangibles	16.5			19.1			5.4			6.5
Other (income) expense, net	(17.7		)	.4			(10.7		)	(.6		)
Earnings from continuing operations before interest and income taxes	284.1			267.6			106.2			104.9
Interest expense	34.3			30.4			10.6			11.3
Interest income	6.2			4.9			1.7			1.6
Earnings from continuing operations before income taxes	256.0			242.1			97.3			95.2
Income taxes	69.9			72.9			25.7			28.6
Earnings from continuing operations	186.1			169.2			71.6			66.6
Earnings from discontinued operations (net of tax)	7.3			7.3			.4			—
Net earnings	193.4			176.5			72.0			66.6
(Earnings) loss attributable to noncontrolling interest, net of tax	(1.7		)	(1.8		)	(.7		)	(.8		)
Net earnings attributable to Leggett & Platt, Inc. common shareholders	$	191.7		$	174.7		$	71.3		$	65.8
Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
Basic	$	1.27		$	1.16		$	.49		$	.46
Diluted	$	1.25		$	1.15		$	.48		$	.45
Earnings per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
Basic	$	.05		$	.05		$	—		$	—
Diluted	$	.05		$	.05		$	—		$	—
Net earnings per share attributable to Leggett & Platt, Inc. common shareholders
Basic	$	1.32		$	1.21		$	.49		$	.46
Diluted	$	1.30		$	1.20		$	.49		$	.45

Cash dividends declared per share	$	.88		$	.85		$	.30		$	.29

Average shares outstanding
Basic	145.6			144.0			144.9			144.4
Diluted	147.7			145.5			147.0			146.1

See accompanying notes to consolidated condensed financial statements.

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)



	Nine Months Ended September 30,						Three Months Ended September 30,
(Amounts in millions)	2013			2012			2013			2012
Net earnings	$	193.4		$	176.5		$	72.0		$	66.6
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(6.3		)	12.0			21.2			19.4
Cash flow hedges	2.5			(4.5		)	1.6			(.2		)
Defined benefit pension plans	2.9			2.5			.4			.7
Other comprehensive (loss) income	(.9		)	10.0			23.2			19.9
Comprehensive income	192.5			186.5			95.2			86.5
Less: comprehensive (income) loss attributable to noncontrolling interest	(1.8		)	(1.8		)	(.7		)	(.9		)
Comprehensive income (loss) attributable to Leggett & Platt, Inc.	$	190.7		$	184.7		$	94.5		$	85.6

See accompanying notes to consolidated condensed financial statements.

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine Months Ended September 30,
(Amounts in millions)	2013			2012
OPERATING ACTIVITIES
Net earnings	$	193.4		$	176.5
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	67.0			68.6
Amortization of intangibles and debt issuance costs	21.3			20.6
Provision for losses on accounts and notes receivable	4.3			4.3
Writedown of inventory	10.3			8.4
Asset impairment charges	2.3			1.0
Net gain from sales of assets and businesses	(8.6		)	(3.0		)
Bargain purchase gain from acquisition	(8.7		)	—
Deferred income tax expense (benefit)	7.8			(3.5		)
Stock-based compensation	28.5			26.0
Other, net	(3.2		)	(2.8		)
Other changes, excluding effects from acquisitions and divestitures:
Increase in accounts and other receivables	(118.8		)	(87.2		)
Decrease (increase) in inventories	4.1			(20.2		)
Increase in other current assets	(1.5		)	(3.2		)
Increase in accounts payable	26.7			34.7
Increase in accrued expenses and other current liabilities	13.9			20.8
NET CASH PROVIDED BY OPERATING ACTIVITIES	238.8			241.0
INVESTING ACTIVITIES
Additions to property, plant and equipment	(60.0		)	(53.5		)
Purchases of companies, net of cash acquired	(26.5		)	(190.3		)
Proceeds from sales of assets and businesses	16.8			9.3
Liquidation of (investment in) unconsolidated entity	21.2			(22.4		)
Other, net	(5.4		)	(6.4		)
NET CASH USED FOR INVESTING ACTIVITIES	(53.9		)	(263.3		)
FINANCING ACTIVITIES
Payments on long-term debt	(203.2		)	(10.5		)
Additions to long-term debt	—			299.1
Change in commercial paper and short-term debt	111.2			(77.2		)
Liquidation of interest rate swap agreement	—			(42.7		)
Dividends paid	(82.6		)	(117.5		)
Issuances of common stock	35.6			14.4
Purchases of common stock	(113.7		)	(15.7		)
Excess tax benefits from stock-based compensation	6.5			2.7
Other, net	(1.5		)	(3.1		)
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES	(247.7		)	49.5
EFFECT OF EXCHANGE RATE CHANGES ON CASH	2.6			1.4
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(60.2		)	28.6
CASH AND CASH EQUIVALENTS—January 1,	359.1			236.3
CASH AND CASH EQUIVALENTS—September 30,	$	298.9		$	264.9

See accompanying notes to consolidated condensed financial statements.

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, primarily in the Consolidated Statements of Operations and all related notes in which 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 fourth quarter.

The following table contains the LIFO benefit included in earnings for each of the periods presented.



	Nine Months Ended September 30,				Three Months Ended September 30,
	2013		2012		2013		2012
LIFO benefit	$	9.7	$	7.8	$	4.9	$	5.7

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 September 30, 2013:
Residential Furnishings	$	500.3	$	8.3	$	508.6	$	47.0
Commercial Fixturing & Components	128.2		1.3		129.5		8.4
Industrial Materials	150.7		55.3		206.0		16.2
Specialized Products	178.5		13.5		192.0		21.9
Bargain purchase gain from acquisition							8.7
Intersegment eliminations							(.9		)
Change in LIFO reserve							4.9
	$	957.7	$	78.4	$	1,036.1	$	106.2
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	156.7		58.9		215.6		19.2
Specialized Products	180.2		9.6		189.8		22.9
Intersegment eliminations							(1.8		)
Change in LIFO reserve							5.7
	$	978.1	$	71.8	$	1,049.9	$	104.9

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	External Sales		Inter- Segment Sales		Total Sales		EBIT
Nine Months Ended September 30, 2013:
Residential Furnishings	$	1,470.0	$	14.2	$	1,484.2	$	131.7
Commercial Fixturing & Components	369.0		3.5		372.5		17.9
Industrial Materials	466.1		179.8		645.9		59.8
Specialized Products	544.1		42.6		586.7		66.0
Bargain purchase gain from acquisition							8.7
Intersegment eliminations							(9.7		)
Change in LIFO reserve							9.7
	$	2,849.2	$	240.1	$	3,089.3	$	284.1
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	488.6		195.4		684.0		50.2
Specialized Products	536.3		33.2		569.5		67.2
Intersegment eliminations							(7.0		)
Change in LIFO reserve							7.8
	$	2,856.0	$	238.4	$	3,094.4	$	267.6

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. Amounts for 2012 have been retrospectively adjusted to reflect discontinued operations as discussed in Note 5.



	September 30, 2013		December 31, 2012
Residential Furnishings	$	591.2	$	602.9
Commercial Fixturing & Components	150.4		159.1
Industrial Materials	245.9		237.1
Specialized Products	223.8		225.4
Average current liabilities included in segment numbers above	454.2		439.1
Unallocated assets (1)	1,599.7		1,685.5
Difference between average assets and period-end balance sheet	39.9		(94.2		)
Total assets	$	3,305.1	$	3,254.9


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

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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

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 $.6.

Businesses divested in prior years and related subsequent activity have also been reported as discontinued operations as follows:


•	We received an additional cash payment in the third quarter of 2013 related to the sale of our former Fibers Unit. This unit was sold in 2008 and was previously part of the Residential Furnishings segment.


•	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 2007 and was previously part of the Residential Furnishings segment.

The table below includes activity related to these operations:



	Nine Months Ended September 30,						Three Months Ended September 30,
	2013			2012			2013			2012
External sales:
Industrial Materials:
Fabricated wire components used in large home appliances	$	4.1		$	8.9		$	—		$	2.8
Cotton-based erosion control products	.1			.1			.1			.1
Specialized Products - the specialty trailers portion of the Commercial Vehicles Products Unit	.5			2.8			—			1.2
Total external sales	4.7			11.8			.1			4.1

Earnings (loss):
Residential Furnishings:
Prime Foam Products Unit	—			3.9			—			—
Fibers Unit	.7			—			.7			—
Industrial Materials:
Fabricated wire components used in large home appliances (1)	1.0			(.4		)	—			.4
Cotton-based erosion control products	(2.8		)	(.9		)	(.2		)	(.3		)
Specialized Products - the specialty trailers portion of the Commercial Vehicles Products Unit	(.7		)	(.6		)	—			(.1		)
Earnings (loss) before interest and income taxes	(1.8		)	2.0			.5			—
Income tax benefit (expense) (1)	9.1			5.3			(.1		)	—
Earnings from discontinued operations (net of tax)	$	7.3		$	7.3		$	.4		$	—

(1) Tax benefits related to a worthless stock deduction and the excess outside tax basis of this subsidiary were recorded in 2013 and 2012, respectively.

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:



	Nine Months Ended September 30,						Three Months Ended September 30,
	2013			2012			2013			2012
Earnings:
Earnings from continuing operations	$	186.1		$	169.2		$	71.6		$	66.6
(Earnings) attributable to noncontrolling interest, net of tax	(1.7		)	(1.8		)	(.7		)	(.8		)
Net earnings from continuing operations attributable to Leggett & Platt, Inc. common shareholders	184.4			167.4			70.9			65.8
Earnings (loss) from discontinued operations, net of tax	7.3			7.3			.4			—
Net earnings attributable to Leggett & Platt, Inc. common shareholders	$	191.7		$	174.7		$	71.3		$	65.8

Weighted average number of shares:
Weighted average number of common shares used in basic EPS	145.6			144.0			144.9			144.4
Additional dilutive shares principally from the assumed exercise of outstanding stock options	2.1			1.5			2.1			1.7
Weighted average number of common shares and dilutive potential common shares used in diluted EPS	147.7			145.5			147.0			146.1

Basic and Diluted EPS:
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
Continuing operations	$	1.27		$	1.16		$	.49		$	.46
Discontinued operations	.05			.05			—			—
Basic EPS attributable to Leggett & Platt common shareholders	$	1.32		$	1.21		$	.49		$	.46
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
Continuing operations	$	1.25		$	1.15		$	.48		$	.45
Discontinued operations	.05			.05			—			—
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders	$	1.30		$	1.20		$	.49		$	.45

Other information:
Anti-dilutive shares excluded from diluted EPS computation	—			2.5			—			1.7

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. ACCOUNTS AND OTHER RECEIVABLES

Accounts and other receivables consisted of the following:



	September 30, 2013						December 31, 2012
	Current			Long-term			Current			Long-term
Trade accounts receivable	$	550.9		$	—		$	430.4		$	—
Trade notes receivable	2.8			2.1			1.1			2.9
Total trade receivables	553.7			2.1			431.5			2.9
Other notes receivable:
Notes received as partial payment for divestitures	.5			5.6			.5			6.1
Other	3.3			1.5			.5			4.3
Income tax receivables	6.3			—			8.6			—
Other receivables	28.3			—			24.3			—
Subtotal other receivables	38.4			7.1			33.9			10.4
Total accounts and other receivables	592.1			9.2			465.4			13.3
Allowance for doubtful accounts:
Trade accounts receivable	(16.6		)	—			(18.9		)	—
Trade notes receivable	(0.8		)	(1.1		)	—			(.8		)
Total trade receivables	(17.4		)	(1.1		)	(18.9		)	(.8		)
Other notes receivable:
Other	—			(.8		)	(.3		)	(.6		)
Total allowance for doubtful accounts	(17.4		)	(1.9		)	(19.2		)	(1.4		)
Total net receivables	$	574.7		$	7.3		$	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 September 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 September 30, 2013
Trade accounts receivable	$	18.9	$	4.0	$	6.3		$	16.6
Trade notes receivable	.8		.3		(.8		)	1.9
Total trade receivables	19.7		4.3		5.5			18.5
Other notes receivable:
Other	.9		—		.1			.8
Total allowance for doubtful accounts	$	20.6	$	4.3	$	5.6		$	19.3

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:



	Nine Months Ended September 30,				Nine Months Ended September 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	$	1.4	$	—	$	3.8	$	—
Cash payments in lieu of options	—		.8		—		.3
Stock-based retirement plans contributions	5.4		1.0		4.8		.8
Discounts on various stock awards:
Deferred Stock Compensation Program	1.2		—		.9		—
Stock-based retirement plans	.9		—		.9		—
Discount Stock Plan	.7		—		.7		—
Performance Stock Unit awards (2)	4.8		1.7		4.9		1.8
Profitable Growth Incentive awards (1)	.5		.5		—		—
Restricted Stock Unit awards	3.4		—		1.7		—
Other, primarily non-employee directors restricted stock	1.0		—		.7		—
Total stock-related compensation expense	19.3		$	4.0	18.4		$	2.9
Employee contributions for above stock plans	9.2				7.6
Total stock-based compensation	$	28.5			$	26.0
Recognized tax benefits on stock-based compensation expense	$	7.3			$	7.0



	Three Months Ended September 30,					Three Months Ended September 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	$	.4	$	—		$	.6	$	—
Cash payments in lieu of options	—		—			—		—
Stock-based retirement plans contributions	1.5		.3			1.5		.2
Discounts on various stock awards:
Deferred Stock Compensation Program	.2		—			.3		—
Stock-based retirement plans	.2		—			.2		—
Discount Stock Plan	.2		—			.2		—
Performance Stock Unit awards (2)	1.6		(1.7		)	1.6		1.8
Profitable Growth Incentive awards (1)	—		—			—		—
Restricted Stock Unit awards	.8		—			.3		—
Other, primarily non-employee directors restricted stock	.3		—			.3		—
Total stock-related compensation expense	5.2		$	(1.4	)	5.0		$	2.0
Employee contributions for above stock plans	3.1					2.7
Total stock-based compensation	$	8.3				$	7.7
Recognized tax benefits on stock-based compensation expense	$	2.0				$	1.9

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. RSU awards of 226,738 shares were granted during the nine months ended September 30, 2013 for employees, officers and directors.

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.



	Nine Months Ended September 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.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. ACQUISITIONS

The following table contains the estimated fair values (using inputs as discussed in Note 12) 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.



	Nine Months Ended September 30,
	2013			2012
Accounts receivable	$	12.8		$	8.8
Inventory	15.1			18.9
Property, plant and equipment	16.1			12.0
Goodwill (1)	6.1			54.3
Other intangible assets	10.3			102.4
Other current and long-term assets	.1			.6
Current liabilities	(19.3		)	(6.8		)
Long-term liabilities	(6.0		)	—
Additional consideration for prior years’ acquisitions	—			.1
Fair value of net identifiable assets	35.2			190.3
Less: Bargain purchase gain	8.7			—
Net cash consideration	$	26.5		$	190.3

(1) Goodwill associated with 2013 acquisitions 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.

During third quarter 2013, we acquired an aerospace tubing manufacturer based in France for a cash purchase price of $14.4. This business was acquired at a price less than the fair value of the net identifiable assets, and we recorded an $8.7 non-taxable bargain purchase gain. The bargain purchase gain is reported in the "Other (income) expense, net" line of our income statement. We have assessed the key valuation assumptions and business combination accounting procedures for this acquisition and believe the recognition of a bargain purchase gain is appropriate for this acquisition; however, we are still finalizing all information required to complete this purchase price allocation. Factors that contributed to the bargain purchase price were: (i) The seller of this business will continue to purchase these products in the future. Due to the unique nature of the products and limited number of potential buyers for this business, it was important to the seller that the acquiring company was a financially sound, integrated manufacturer. The seller found it advantageous to accept our purchase price based upon our demonstrated ability to operate similar businesses, and financial strength that will enable us to be a long-term supplier of quality products into the future, and (ii) We were able to complete the acquisition without a financing contingency, which was an important attribute for the seller.

In January 2012, we acquired Western Pneumatic Tube Holding, LLC (Western) for a cash purchase price of $188.2, forming the Aerospace Products business unit within the Tubing Group. Western is a leading provider of integral components for critical aircraft systems, and 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.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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, 2013, there was no material remaining consideration payable.

In addition, in the third quarter of 2012, we invested $22.4 to acquire an interest in an unconsolidated entity related to a potential acquisition. We had no contractual right or obligation to make any additional investment and liquidated our position in the 3rd quarter of 2013 for $21.2, plus $1.8 in interest.

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.



	Nine Months Ended September 30,						Three Months Ended September 30,
	2013			2012			2013			2012
Components of net pension expense
Service cost	$	2.4		$	2.2		$	.7		$	.8
Interest cost	9.0			9.5			3.0			3.2
Expected return on plan assets	(11.4		)	(11.0		)	(3.8		)	(3.7		)
Recognized net actuarial loss	4.7			4.7			1.5			1.6
Net pension expense	$	4.7		$	5.4		$	1.4		$	1.9

11. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME



	Nine Months Ended September 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	193.4			193.4			—			—			—			—
(Earnings) loss attributable to noncontrolling interest, net of tax	—			(1.7		)	—			—			1.7			—
Dividends declared	(126.4		)	(127.3		)	2.2			—			(1.3		)	—
Treasury stock purchased	(123.1		)	—			—			(123.1		)	—			—
Treasury stock issued	53.1			—			(12.8		)	65.9			—			—
Foreign currency translation adjustments	(6.3		)	—			—			—			.1			(6.4		)
Cash flow hedges, net of tax	2.5			—			—			—			—			2.5
Defined benefit pension plans, net of tax	2.9			—			—			—			—			2.9
Stock options and benefit plan transactions, net of tax	25.4			—			25.4			—			—			—
Ending balance, September 30, 2013	$	1,463.7		$	2,174.0		$	475.4		$	(1,263.9	)	$	8.2		$	70.0

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	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

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:

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	Foreign Currency Translation Adjustments			Cash Flow Hedges			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Beginning balance, January 1, 2013	$	163.5		$	(25.5	)	$	(67.0	)	$	71.0
Other comprehensive income (loss) before reclassifications, pretax	(6.3		)	.5			.1			(5.7		)
Amounts reclassified from accumulated other comprehensive income, pretax:
Cost of goods sold; selling and administrative expenses	—			.4			4.7			5.1
Interest expense	—			3.0			—			3.0
Subtotal of reclassifications, pretax	—			3.4			4.7			8.1
Other comprehensive income (loss), pretax	(6.3		)	3.9			4.8			2.4
Income tax effect	—			(1.4		)	(1.9		)	(3.3		)
Attributable to noncontrolling interest	(.1		)	—			—			(.1		)
Ending balance, September 30, 2013	$	157.1		$	(23.0	)	$	(64.1	)	$	70.0

Beginning balance, January 1, 2012	$	147.6		$	(21.5	)	$	(60.9	)	$	65.2
Other comprehensive income (loss) before reclassifications, pretax	11.3			(9.9		)	(.5		)	.9
Amounts reclassified from accumulated other comprehensive income, pretax:
Cost of goods sold; selling and administrative expenses	—			1.8			4.7			6.5
Interest expense	—			.7			—			.7
Other income/expense, net	.7			—			—			.7
Subtotal of reclassifications, pretax	.7			2.5			4.7			7.9
Other comprehensive income (loss), pretax	12.0			(7.4		)	4.2			8.8
Income tax effect	—			2.9			(1.7		)	1.2
Attributable to noncontrolling interest	—			—			—			—
Ending balance, September 30, 2012	$	159.6		$	(26.0	)	$	(58.4	)	$	75.2

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.

Items measured at fair value on a recurring basis

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)



	As of September 30, 2013
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Bank time deposits with original maturities of three months or less	$	—	$	163.0	$	—	$	163.0
Derivative assets	—		1.2		—		1.2
Diversified investments associated with the Executive Stock Unit Program (ESUP)	11.9		—		—		11.9
Total assets	$	11.9	$	164.2	$	—	$	176.1
Liabilities:
Derivative liabilities	$	.1	$	.2	$	—	$	.3
Liabilities associated with the ESUP	11.8		—		—		11.8
Total liabilities	$	11.9	$	.2	$	—	$	12.1



	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 $6 at September 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.

Determination of fair values of acquired assets and assumed liabilities requires significant judgment and are calculated utilizing a variety of methods. In general, long lived assets (primarily buildings and machinery) are valued at an estimated replacement cost for an asset of comparable age and condition. Market pricing of comparable assets are used to estimate replacement cost where available. The most common identified intangible assets acquired are Customer Relationships and Tradenames. Customer relationships are valued using an excess earnings method, using various inputs such as the estimated customer attrition rate, future earnings forecast, the amount of contributory asset charges, and a discount rate. Tradenames are valued using a relief from royalty method, which is based upon comparable market royalty rates for Tradenames of similar value. Fair values determined using these models utilize significant Level 3 inputs, which cannot be readily verified by independent comparable data. Inventory is valued at current replacement cost for raw materials, with a step-up for Work in Process and Finished Goods items that reflects the amount of ultimate profit earned as the date of the acquisition. Other working capital items are generally recorded at face value, unless there are known conditions that would impact the ultimate settlement amount of the particular item.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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.

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	September 30, 2013 goodwill value		Sales 10-year compound annual growth rate range				Terminal values long- term growth rate	Discount rate ranges
10-25%	$	185.8	3.3	%	-	4.2%	3%	10.0	%	-	10.5%
25%+	806.4		1.5	%	-	5.0%	3%	8.0	%	-	10.0%
	$	992.2	1.5	%	-	5.0%