Edgar Filing: LEGGETT & PLATT INC

LEG 12.31.2013 10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



Title of Each Class		Name of each exchange on which registered
Common Stock, $.01 par value		New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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	x		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 Act). Yes ¨ No ý

The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing price of our common stock on the New York Stock Exchange) on June 28, 2013 was $4,242,267,870.

There were 138,895,256 shares of the registrant’s common stock outstanding as of February 14, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

Part of Item 10, and all of Items 11, 12, 13 and 14 of Part III are incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 2014.

Table of Contents

TABLE OF CONTENTS

LEGGETT & PLATT, INCORPORATED—FORM 10-K

FOR THE YEAR ENDED December 31, 2013



		Page Number
Forward-Looking Statements		1
PART I
Item 1.	Business	2

Item 1A.	Risk Factors	17

Item 1B.	Unresolved Staff Comments	20

Item 2.	Properties	20

Item 3.	Legal Proceedings	21

Item 4.	Mine Safety Disclosures	21

Supp. Item.	Executive Officers of the Registrant	22
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24

Item 6.	Selected Financial Data	26

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	59

Item 8.	Financial Statements and Supplementary Data	60

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	60

Item 9A.	Controls and Procedures	60

Item 9B.	Other Information	61
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	62

Item 11.	Executive Compensation	65

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65

Item 13.	Certain Relationships and Related Transactions, and Director Independence	65

Item 14.	Principal Accounting Fees and Services	65
PART IV
Item 15.	Exhibits, Financial Statement Schedules	66

Signatures		119

Exhibit Index		121

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Forward-Looking Statements

This Annual Report on Form 10-K and our other public disclosures, whether written or oral, may contain “forward-looking” statements including, but not limited to: projections of revenue, income, earnings, capital expenditures, dividends, capital structure, cash flows or other financial items; possible plans, goals, objectives, prospects, strategies or trends concerning future operations; statements concerning future economic performance, possible goodwill or other asset impairment; and the underlying assumptions relating to the forward-looking statements. These statements are identified either by the context in which they appear or by use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” or the like. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by the cautionary statements described in this provision.

Any forward-looking statement reflects only the beliefs of the Company or its management at the time the statement is made. Because all forward-looking statements deal with the future, they are subject to risks, uncertainties and developments which might cause actual events or results to differ materially from those envisioned or reflected in any forward-looking statement. Moreover, we do not have, and do not undertake, any duty to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement was made. For all of these reasons, forward-looking statements should not be relied upon as a prediction of actual future events, objectives, strategies, trends or results.

Readers should review Item 1A Risk Factors in this Form 10-K for a description of important factors that could cause actual events or results to differ materially from forward-looking statements. It is not possible to anticipate and list all risks, uncertainties and developments which may affect the future operations or performance of the Company, or which otherwise may cause actual events or results to differ materially from forward-looking statements. However, the known, material risks and uncertainties include the following:


•	factors that could affect the industries or markets in which we participate, such as growth rates and opportunities in those industries;


•	adverse changes in inflation, currency, political risk, U.S. or foreign laws or regulations (including tax law changes), consumer sentiment, housing turnover, employment levels, interest rates, trends in capital spending and the like;


•	factors that could impact raw materials and other costs, including the availability and pricing of steel scrap and rod and other raw materials, the availability of labor, wage rates and energy costs;


•	our ability to pass along raw material cost increases through increased selling prices;


•	price and product competition from foreign (particularly Asian and European) and domestic competitors;


•	our ability to improve operations and realize cost savings (including our ability to fix under-performing operations and to generate future earnings from restructuring-related activities);


•	our ability to maintain profit margins if our customers change the quantity and mix of our components in their finished goods;


•	our ability to realize 25-35% contribution margin on incremental unit volume growth;


•	our ability to achieve expected levels of cash flow;


•	our ability to maintain and grow the profitability of acquired companies;


•	our ability to maintain the proper functioning of our internal business processes and information systems and avoid modification or interruption of such systems, through cyber-security breaches or otherwise;


•	a decline in the long-term outlook for any of our reporting units that could result in asset impairment;


•	our ability to control expenses related to "conflict mineral" regulations and to effectively manage our supply chains to avoid loss of customers;


•	decisions from the Department of Commerce and International Trade Commission regarding the extension of antidumping duties on imported mattress innersprings from China, South Africa and Vietnam; and


•	litigation including product liability and warranty, taxation, environmental, intellectual property, antitrust, option backdating and workers’ compensation expense.

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PART I

Item 1. Business.

Summary

Leggett & Platt, Incorporated was founded as a partnership in Carthage, Missouri in 1883 and was incorporated in 1901. The Company, a pioneer of the steel coil bedspring, has become an international diversified manufacturer that conceives, designs and produces a wide range of engineered components and products found in many homes, offices, retail stores, automobiles and commercial aircraft. As discussed below, our operations are organized into 20 business units, which are divided into 10 groups under our four segments: Residential Furnishings; Commercial Fixturing & Components; Industrial Materials; and Specialized Products.

Overview of Our Segments

Residential Furnishings Segment

Our Residential Furnishings segment began in 1883 with the manufacture of steel coiled bedsprings. Today, we supply a variety of components used by bedding and upholstered furniture manufacturers in the assembly of their finished products. Our range of products offers our customers a single source for many of their component needs.

Efficient manufacturing methods, internal production of key raw materials and machinery, and numerous manufacturing and assembly locations allow us to supply many customers with components at a lower cost than they can produce themselves. In addition to cost savings, sourcing components from us allows our customers to focus on designing, merchandising and marketing their products.

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Products

Products manufactured or distributed by our Residential Furnishings groups include:

Bedding Group


•	Innersprings (sets of steel coils, bound together, that form the core of a mattress)


•	Wire forms for mattress foundations

Furniture Group


•	Steel mechanisms and hardware (enabling furniture to recline, tilt, swivel, rock and elevate) for reclining chairs and sleeper sofas


•	Springs and seat suspensions for chairs, sofas and love seats


•	Steel tubular seat frames


•	Bed frames, ornamental beds, and “top-of-bed” accessories


•	Adjustable beds

Fabric & Carpet Underlay Group


•	Structural fabrics for mattresses, residential furniture and industrial uses


•	Carpet underlay materials (bonded scrap foam, felt, rubber and prime foam)


•	Geo components (synthetic fabrics and various other products used in ground stabilization, drainage protection, erosion and weed control, as well as silt fencing)

Customers


•	Manufacturers of finished bedding (mattresses and foundations) and upholstered furniture


•	Retailers and distributors of adjustable and ornamental beds, bed frames and carpet underlay


•	Contractors, landscapers, road construction companies and government agencies using geo components

Commercial Fixturing & Components Segment

Our Store Fixtures group designs, produces, installs and manages our customers’ store fixtures projects. Our Office Furniture Components group designs, manufactures, and distributes a wide range of engineered components and products primarily for the office seating market.

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Products

Products manufactured or distributed by our Commercial Fixturing & Components groups include:

Store Fixtures Group


•	Custom-designed, full store fixture packages for retailers, including shelving, counters, showcases and garment racks


•	Standardized shelving used by large retailers, grocery stores and discount chains

Office Furniture Components Group


•	Bases, columns, back rests, casters and frames for office chairs, and control devices that allow office chairs to tilt, swivel and elevate


•	Select lines of private label finished furniture

Customers

Customers of the Commercial Fixturing & Components segment include:


•	Retail chains and specialty shops


•	Office, institutional and commercial furniture manufacturers

Industrial Materials Segment

We believe that the quality of our products and services, together with low cost, have made us the leading U.S. supplier of drawn steel wire. Our Wire group operates a steel rod mill with an annual output of approximately 500,000 tons, of which a substantial majority is used by our own wire mills. We have four wire mills that supply virtually all the wire consumed by our other domestic businesses. Our Steel Tubing business unit also supplies a portion of our internal needs for welded steel tubing. In addition to supporting our internal requirements, we supply many external customers with wire and steel tubing products.

In 2012, we completed the acquisition of Western Pneumatic Tube (Western). Western is a leading provider of integral components for critical aircraft systems, and formed the 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. In 2013, we expanded our Aerospace Products business unit with the acquisition of two companies. The first was a UK-based business that extended our capability in aerospace tube fabrication. The second was a French-based company that

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added small-diameter, high-pressure seamless tubing to our product portfolio. For further information about acquisitions, see Note R on page 109 of the Notes to Consolidated Financial Statements.

Products

Products manufactured or distributed by our Industrial Materials groups include:

Wire Group


•	Steel rod


•	Drawn wire


•	Steel billets


•	Fabricated wire products

Tubing Group


•	Welded steel tubing


•	Fabricated tube components


•	Titanium and nickel tubing for the aerospace industry

Customers

We use about half of our wire output and roughly 15-20% of our steel tubing output to manufacture our own products. For example, we use our wire and steel tubing to make:


•	Bedding and furniture components


•	Motion furniture mechanisms


•	Commercial fixtures and shelving


•	Automotive seat components

The Industrial Materials segment also has a diverse group of external customers, including:


•	Bedding and furniture makers


•	Automotive seating manufacturers


•	Aerospace suppliers and OEMs


•	Mechanical spring makers


•	Waste recyclers and waste removal businesses

Specialized Products Segment

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Our Specialized Products segment designs, produces and sells components for automotive seating, specialized machinery and equipment, and service van interiors. Our established design capability and focus on product development have made us a leader in innovation. We also benefit from our broad geographic presence and our internal production of key raw materials and components.

Products

Products manufactured or distributed by our Specialized Products groups include:

Automotive Group


•	Manual and power lumbar support and massage systems for automotive seating


•	Seat suspension systems


•	Automotive control cables


•	Low voltage motors and motion assemblies


•	Formed metal and wire components for seat frames

Machinery Group


•	Full range of quilting machines for mattress covers


•	Machines used to shape wire into various types of springs


•	Industrial sewing/finishing machines

Commercial Vehicle Products Group


•	Van interiors (the racks, shelving and cabinets installed in service vans)

Customers

Our primary customers for the Specialized Products segment include:


•	Automobile seating manufacturers


•	Bedding manufacturers


•	Telecommunication, cable, home service and delivery companies

Strategic Direction

Key Financial Metric

Total Shareholder Return (TSR), relative to peer companies, is the key financial measure that we use to assess long-term performance. TSR = (Change in Stock Price + Dividends)/Beginning Stock Price). Our goal is to achieve TSR in the top 1/3 of the S&P 500 companies over rolling three-year periods through a balanced approach that employs all four TSR sources: revenue growth, margin expansion, dividends, and share repurchases. For the three-year measurement period that ended December 31, 2013 we generated TSR of 56% (16% per year on average), which placed us in the top one half of the S&P 500.

Our incentive programs reward return generation and profitable growth. Senior executives participate in a TSR-based incentive program (based on our performance compared to a group of approximately 320 peers). Business unit bonuses emphasize the achievement of higher returns on the assets under the unit’s direct control.

Returning Cash to Shareholders

During the past three years, we generated $1.2 billion of operating cash, and we returned much of this cash to shareholders in the form of dividends and share repurchases. Dividends and share repurchases are expected to remain significant contributors to long-term TSR.

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We currently pay a quarterly dividend of $.30 per share. Our dividend payout target is 50-60% of earnings; however we have been above that target in recent years. Our dividend payout ratio (dividends declared per share/earnings per share) was 106%, 67% and 88% in 2011, 2012 and 2013, respectively. As our markets recover, we expect to move into our target payout range. In the meantime, we expect to generate enough cash to continue to pay and modestly grow the dividend. The Company has consistently (for over 20 years) generated operating cash in excess of our annual requirement for capital expenditures and dividends.

We expect to use cash (after repayment of debt and funding capital expenditures, dividends, and growth opportunities) for share repurchases. During the past three years, we have repurchased 18 million shares of our stock (and issued 11 million shares through employee benefit plans), which reduced the net outstanding shares by approximately 5%. In 2013, we repurchased 6 million shares at an average per share price of $30.81 (and issued 3 million shares through employee benefit plans). In 2013, our shares outstanding was reduced by approximately 2% to 139.4 million at year-end.

Portfolio Management

We utilize a rigorous strategic planning process to help guide future decisions regarding business unit roles, capital allocation priorities, and new areas in which to grow. We review the portfolio classification of each unit on an annual basis to determine its appropriate role (Grow, Core, Fix, or Divest). This review includes criteria such as competitive position, market attractiveness, business unit size, and fit within our overall objectives, as well as financial indicators such as growth of EBIT (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation and amortization), operating cash flows, and return on assets. Business units in the Grow category should provide avenues for profitable growth from competitively advantaged positions in attractive markets. Core business units are expected to enhance productivity, maintain market share, and generate cash flow from operations while using minimal capital. To remain in the portfolio, business units are expected to consistently generate after-tax returns in excess of our cost of capital. Business units that fail to consistently attain minimum return goals will be moved to the Fix or Divest categories.

Disciplined Growth

Long-term, we aim to achieve consistent, profitable growth of 4-5% annually. To attain this goal, we will need to supplement the approximate 2-3% growth that our markets typically produce (in normal economic times) with two additional areas of opportunity. First, we must enhance our success rate at developing and commercializing innovative new products within markets in which we already enjoy strong competitive positions. Second, we need to uncover new growth platforms: opportunities in markets new to us containing margins and growth higher than the Company's average, and in which we would possess a competitive advantage.

Our long-term, 4-5% annual growth objective envisions periodic acquisitions. We seek acquisitions within our Grow businesses, and look for opportunities to enter new, higher growth markets (carefully screened for sustainable competitive advantage). We expect all acquisitions to (a) have a clear strategic rationale, a sustainable competitive advantage, a strong fit with the Company, and be in an attractive and growing market; (b) create value by enhancing Total Shareholder Return; (c) for stand-alone companies: generally, revenue in excess of $50 million, strong management and future growth opportunity with a strong market position in a market growing faster than GDP; and (d) for add-on companies: generally, revenue in excess of $15 million, significant synergies, and a strategic fit with an existing business unit.

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Acquisitions

In 2013, we expanded our Aerospace Products business unit with the acquisition of two companies. The first was a UK-based business acquired in May that extended our capability in aerospace tube fabrication. The second was a French-based company acquired in July that added small-diameter, high-pressure seamless tubing to our product portfolio. With these acquisitions, our Aerospace Products business unit, which is part of the Industrial Materials segment, has an annual revenue run rate in excess of $120 million.

In 2012, we acquired for a cash purchase price of $188 million, Western Pneumatic Tube, which produces thin-walled, large diameter, welded tubing and specialty formed products for aerospace applications. Western fabricates products from specialty materials, such as titanium, nickel, stainless steel, and other high strength metals for use in aircraft systems, including fuel, hydraulic, pneumatic, environmental, life support, stability, and cooling systems. Western operates two facilities, one in Kirkland, Washington, and another in Poway, California, and is part of the Aerospace Products business unit.

We had no significant acquisitions in 2011.

For further information about acquisitions, see Note R on page 109 of the Notes to Consolidated Financial Statements.

Divestitures

There were no significant divestitures in 2011, 2012 or 2013.

For further information about divestitures and discontinued operations, see Note B on page 78 of the Notes to Consolidated Financial Statements.

Segment Financial Information

For information about sales to external customers, sales by product line, EBIT, and total assets of each of our segments, refer to Note F on page 84 of the Notes to Consolidated Financial Statements.

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PART I

Foreign Operations

The percentages of our external sales related to products manufactured outside the United States for the previous three years are shown below.

Our international operations are principally located in China, Europe, Canada and Mexico. The products we make in these countries primarily consist of:

China


•	Innersprings for mattresses


•	Recliner mechanisms and bases for upholstered furniture


•	Formed wire for upholstered furniture


•	Retail store fixtures and gondola shelving


•	Office furniture components, including chair bases and casters


•	Formed metal products, lumbar and seat suspension systems for automotive seating


•	Cables and small electric motors used in lumbar systems for automotive seating


•	Machinery and replacement parts for machines used in the bedding industry

Europe


•	Innersprings for mattresses


•	Wire and wire products


•	Seamless tubing and specialty formed products for aerospace applications


•	Lumbar and seat suspension systems for automotive seating


•	Machinery and equipment designed to manufacture innersprings for mattresses and other bedding-related components

Canada


•	Fabricated wire for the furniture and automotive industries


•	Chair bases, table bases and office chair controls


•	Lumbar supports for automotive seats


•	Wire and steel storage systems and racks for service vans and utility vehicles

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Mexico


•	Innersprings and fabricated wire for the bedding industry


•	Retail point-of-purchase displays


•	Automotive control cable systems and seating components


•	Shafts for the appliance industry

Our international expansion strategy is to locate our operations where we believe we would possess a competitive advantage and where demand for components is growing. Also, in instances where our customers move the production of their finished products overseas, we have located facilities nearby to supply them more efficiently.

Our international operations face the risks associated with any operation in a foreign country. These risks include:


•	Foreign currency fluctuation


•	Foreign legal systems that make it difficult to protect intellectual property and enforce contract rights


•	Credit risks


•	Increased costs due to tariffs, customs and shipping rates


•	Potential problems obtaining raw materials, and disruptions related to the availability of electricity and transportation during times of crisis or war


•	Inconsistent interpretation and enforcement, at times, of foreign tax laws


•	Political instability in certain countries

Our Specialized Products segment, which derives roughly 76% of its trade sales from foreign operations, is particularly subject to the above risks. These and other foreign-related risks could result in cost increases, reduced profits, the inability to carry on our foreign operations and other adverse effects on our business.

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Geographic Areas of Operation

We have manufacturing facilities in countries around the world, as shown below.




	Residential Furnishings	Commercial Fixturing & Components	Industrial Materials	Specialized Products
North America
Canada	n	n		n
Mexico	n		n	n
United States	n	n	n	n
Europe
Austria				n
Belgium				n
Croatia	n			n
Denmark	n
France			n
Germany				n
Hungary				n
Italy		n		n
Switzerland				n
United Kingdom	n		n	n
South America
Brazil	n
Asia
China	n	n		n
India				n
South Korea				n
Africa
South Africa	n

For further information concerning our external sales related to products manufactured outside the United States and our tangible long-lived assets outside the United States, refer to Note F on page 84 of the Notes to Consolidated Financial Statements.

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Sales by Product Line

The following table shows our approximate percentage of external sales by classes of similar products for the last three years:



Product Line	2013		2012		2011
Furniture Group	18	%	18	%	18	%
Bedding Group	18		18		18
Fabric & Carpet Underlay Group	16		15		15
Automotive Group	13		13		12
Wire Group	12		12		14
Store Fixtures Group	7		8		9
Tubing Group	5		4		2
Office Furniture Components Group	5		5		5
Machinery Group	3		3		3
Commercial Vehicle Products Group	3		4		4

Distribution of Products

In each of our segments, we sell and distribute our products primarily through our own personnel. However, many of our businesses have relationships and agreements with outside sales representatives and distributors. We do not believe any of these agreements or relationships would, if terminated, have a material adverse effect on the consolidated financial condition, operating cash flows or results of operations of the Company.

Raw Materials

The products we manufacture require a variety of raw materials. We believe that worldwide supply sources are readily available for all the raw materials we use. Among the most important are:


•	Various types of steel, including scrap, rod, wire, coil, sheet, stainless and angle iron


•	Foam scrap


•	Woven and non-woven fabrics


•	Titanium and nickel-based alloys and other high strength metals

We supply our own raw materials for many of the products we make. For example, we produce steel rod that we make into steel wire, which we then use to manufacture:


•	Innersprings and foundations for mattresses


•	Springs and seat suspensions for chairs and sofas


•	Automotive seating components

We supply a substantial majority of our domestic steel rod requirements through our own rod mill. Our wire drawing mills supply nearly all of our U.S. requirements for steel wire. We also produce welded steel tubing, both for our own consumption and for sale to external customers.

Customer Concentration

We serve thousands of customers worldwide, sustaining many long-term business relationships. In 2013, our largest customer accounted for approximately 6% of our consolidated revenues. Our top 10 customers accounted for approximately 23% of these consolidated revenues. The loss of one or more of these customers could have a

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material adverse effect on the Company, as a whole, or on the respective segment in which the customer’s sales are reported, including our Residential Furnishings, Commercial Fixturing & Components and Specialized Products segments.

Patents and Trademarks

The chart below shows the approximate number of patents issued, patents in process, trademarks registered and trademarks in process held by our operations as of December 31, 2013. No single patent or group of patents, or trademark or group of trademarks, is material to our operations, as a whole. Most of our patents relate to products sold in the Specialized Products segment, while a substantial majority of our trademarks relate to products sold in the Residential Furnishings and Specialized Products segments.

Some of our most significant trademarks include:


•	Semi-Flex^® (box spring components and foundations)


•	Mira-Coil^®, VertiCoil^®, Lura-Flex^®,Superlastic^® and Comfort Core^® (mattress innersprings)


•	Active Support Technology^® (mattress innersprings)


•	Wall Hugger^® (recliner chair mechanisms)


•	Super Sagless^® (motion and sofa sleeper mechanisms)


•	No-Sag^® (wire forms used in seating)


•	Tack & Jump^® and Pattern Link^® (quilting machines)


•	Hanes^® (fiber materials)


•	Schukra^®, Pullmaflex^® and Flex-O-Lator^® (automotive seating products)


•	Spuhl^® (mattress innerspring manufacturing machines)


•	Gribetz^® and Porter^® (quilting and sewing machines)


•	Quietflex^® and Masterack^® (equipment and accessories for vans and trucks)

Research and Development

We maintain research, development and testing centers in Carthage, Missouri and at many of our other facilities. We are unable to calculate precisely the cost of research and development because the personnel involved

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in product and machinery development also spend portions of their time in other areas. However, we estimate the cost of research and development was $20 million in 2011, $22 million in 2012 and $24 million in 2013.

Employees

As of December 31, 2013, we had approximately 18,800 employees, of which roughly 13,200 were engaged in production. Of the 18,800, approximately 9,100 were international employees (5,200 in China). Roughly 14% of our employees are represented by labor unions that collectively bargain for work conditions, wages or other issues. We did not experience any material work stoppage related to contract negotiations with labor unions during 2013. Management is not aware of any circumstances likely to result in a material work stoppage related to contract negotiations with labor unions during 2014. The chart below shows the approximate number of employees by segment.

As of December 31, 2012, we had approximately 18,300 employees.

Competition

Many companies offer products that compete with those we manufacture and sell. The number of competing companies varies by product line, but many of the markets for our products are highly competitive. We tend to attract and retain customers through product quality, innovation, competitive pricing and customer service. Many of our competitors try to win business primarily on price but, depending upon the particular product, we experience competition based on quality, performance and availability as well. In general, our competitors tend to be smaller, private companies.

We believe we are the largest U.S. manufacturer, in terms of revenue, of the following:


•	Components for residential furniture and bedding


•	Carpet underlay


•	Adjustable bed bases

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•	Components for office furniture


•	Drawn steel wire


•	Automotive seat support and lumbar systems


•	Bedding industry machinery for wire forming, sewing and quilting


•	Thin-walled, titanium, nickel and other specialty tubing for the aerospace industry

We continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products offshore. In addition to lower labor rates, foreign competitors benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. We typically remain price competitive, even versus many foreign manufacturers, as a result of our efficient operations, low labor content, vertical integration in steel and wire, logistics and distribution efficiencies, and large scale purchasing of raw materials and commodities. However, we have also reacted to foreign competition in certain cases, by selectively adjusting prices, and by developing new proprietary products that help our customers reduce total costs.

Premium non-innerspring mattresses (those that have either a foam or air core) experienced rapid growth in the U.S. bedding market in recent years. These products represent a relatively small portion of the bedding market in units (approximately 10%-12%), but comprise a larger portion of the market in dollars (approximately 25%-30%) due to their higher average selling prices. In 2013, non-innerspring mattress sales declined and the proportion of the total bedding market that they represent also decreased. Most traditional bedding manufacturers (who are our customers) now offer mattresses that combine an innerspring core with top layers comprised of specialty foam and gel. These hybrid products, which allow our customers to address a consumer preference for the feel of a specialty mattress and the characteristics of an innerspring, have been well received by consumers.

For the past five years, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. The orders remain in effect while the Department of Commerce (DOC) and the International Trade Commission (ITC) conduct separate reviews to determine whether to extend the duties through February 2019 (for China) and December 2018 (for South Africa and Vietnam). If it is determined that the revocation of the duties would likely lead to the continuation or recurrence of dumping of innersprings (determined by the DOC) and material injury to the U.S. innerspring industry (determined by the ITC), the duties will be extended. We believe that, without the extension, it is likely that dumping will recur and the U.S. innerspring industry will be materially injured. As a result, we are actively participating in the DOC and ITC reviews. We expect the DOC and ITC to issue their respective determinations in March 2014. If the duties are not extended, they will be retroactively revoked to February 2014 (for China) and December 2013 (for South Africa and Vietnam).

In addition, because of the documented evasion of antidumping orders by shipping of goods through third countries and falsely identifying the countries of origin, Leggett, along with several U.S. manufacturers have formed a coalition and are working with members of Congress, the DOC, and U.S. Customs and Border Protection to seek stronger enforcement of existing antidumping and/or countervailing duty orders.

Seasonality

As a diversified manufacturer, we generally have not experienced significant seasonality. The timing of acquisitions, dispositions, and economic factors in any year can distort the underlying seasonality in certain of our businesses. Historically, for the Company as a whole, the second and third quarters typically have proportionately greater sales, while the first and fourth quarters are generally lower.


•	Residential Furnishings: typically does not exhibit any significant seasonality, except for a reduction in fourth quarter sales.

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•	Commercial Fixturing & Components: generally has stronger third quarter sales of its store fixture products, with the fourth quarter significantly lower. This aligns with the retail industry’s normal construction cycle—the opening of new stores and completion of remodeling projects in advance of the holiday season.


•	Industrial Materials: minimal variation in sales throughout the year.


•	Specialized Products: relatively little quarter-to-quarter variation in sales, although the automotive business is typically somewhat heavier in the second and fourth quarters of the year and lower in the third quarter due to model changeovers and plant shutdowns in the automobile industry during the summer.

Backlog

Our customer relationships and our manufacturing and inventory practices do not create a material amount of backlog orders for any of our segments. Production and inventory levels are geared primarily to the level of incoming orders and projected demand based on customer relationships.

Working Capital Items

For information regarding working capital items, see the discussion of “Cash from Operations” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 39.

Government Contracts

The Company does not have a material amount of sales derived from Government contracts subject to renegotiation of profits or termination at the election of any Government.

Environmental Regulation

Our operations are subject to federal, state, and local laws and regulations related to the protection of the environment. We have policies intended to ensure that our operations are conducted in compliance with applicable laws. While we cannot predict policy changes by various regulatory agencies, management expects that compliance with these laws and regulations will not have a material adverse effect on our competitive position, capital expenditures, financial condition, liquidity or results of operations.

Internet Access to Information

We routinely post information for investors to our website (www.leggett.com) under the Investor Relations section. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available, free of charge, on our website as soon as reasonably practicable after electronically filed with, or furnished to, the SEC. In addition to these reports, the Company’s Financial Code of Ethics, Code of Business Conduct and Ethics, and Corporate Governance Guidelines, as well as charters for the Audit, Compensation, and Nominating & Corporate Governance Committees of our Board of Directors, can be found on our website under the Corporate Governance section. Information contained on our website does not constitute part of this Annual Report on Form 10-K.

Discontinued Operations

Some of our prior businesses are disclosed in our annual financial statements as discontinued operations since (i) the operations and cash flows of the businesses were clearly distinguished and have been or will be

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eliminated from our ongoing operations; (ii) the businesses have either been disposed of or are classified as held for sale; and (iii) we will not have any significant continuing involvement in the operations of the businesses after the disposal transactions.

For information on discontinued operations, see Note B on page 78 of the Notes to Consolidated Financial Statements.

Item 1A. Risk Factors.

Investing in our securities involves risk. Set forth below and elsewhere in this report are risk factors that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. We may amend or supplement these risk factors from time to time by other reports we file with the SEC.

We have exposure to economic and other factors that affect market demand for our products which may negatively impact our sales, operating cash flow and earnings.

As a supplier of products to a variety of industries, we are adversely affected by general economic downturns. Our operating performance is heavily influenced by market demand for our components and products. Market demand for the majority of our products is most heavily influenced by consumer confidence. To a lesser extent, market demand is impacted by other broad economic factors, including disposable income levels, employment levels, housing turnover and interest rates. All of these factors influence consumer spending on durable goods, and drive demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one-third of our sales.

Demand weakness in our markets can lead to lower unit orders, sales and earnings in our businesses. Several factors, including a weak global economy, a depressed housing market, or low consumer confidence could contribute to conservative spending habits by consumers around the world. Short lead times in most of our markets allow for limited visibility into demand trends. Many consumers continue to postpone spending on larger ticket items such as bedding and furniture. If economic and market conditions deteriorate, we may experience material negative impacts on our business, financial condition, operating cash flows and results of operations.

Costs of raw materials could negatively affect our profit margins and earnings.

Raw material cost increases (and our ability to respond to cost increases through selling price increases) can significantly impact our earnings. We typically have short-term commitments from our suppliers; therefore, our raw material costs generally move with the market. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs. Inability to recover cost increases (or a delay in the recovery time) can negatively impact our earnings. Conversely, if raw material costs decrease, we generally pass through reduced selling prices to our customers. Reduced selling prices combined with higher cost inventory can reduce our segment margins and earnings.

Steel is our principal raw material. The global steel markets are cyclical in nature and have been volatile in recent years. This volatility can result in large swings in pricing and margins from year to year. In late 2013, steel costs increased unexpectedly, and the timing of the increase (late in the year) resulted in a concentration of LIFO expense in the fourth quarter. We are implementing price increases in early 2014 to recover these higher costs. Our operations can also be impacted by changes in the cost of fabrics and foam scrap. We experienced significant fluctuations in the cost of these commodities in recent years.

As a producer of steel rod, we are also impacted by volatility in metal margins (the difference in the cost of steel scrap and the market price for steel rod). In the later half of 2013, metal margins within our rod production operation were compressed due to downward pressure on steel rod prices from Chinese imports. Also, if scrap costs

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raise more rapidly than the price of steel rod, the metal margins will be compressed. In either instance, compressed metal margins could negatively impact our result of operations.

Higher raw material costs in recent years led some of our customers to modify their product designs, changing the quantity and mix of our components in their finished goods. In some cases, higher cost components were replaced with lower cost components. This primarily impacted our Residential Furnishings and Industrial Materials product mix and decreased profit margins. This trend could further negatively impact our results of operations.

Competition could adversely affect our market share, sales, profit margins and earnings.

We operate in markets that are highly competitive. We believe that most companies in our lines of business compete primarily on price, but, depending upon the particular product, we experience competition based on quality, performance and availability as well. We face ongoing pressure from foreign competitors as some of our customers source a portion of their components and finished products from Asia and Europe. In addition to lower labor rates, foreign competitors benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. If we are unable to purchase key raw materials, such as steel, at prices competitive with those of foreign suppliers, our ability to maintain market share and profit margins could be harmed by foreign competitors.

Premium non-innerspring mattresses (those that have either a foam or air core) have experienced rapid growth in the U.S. bedding market in recent years. While still a relatively small portion of the total market in units (approximately 10%-12%), these products represent a much larger portion of the total market in dollars (approximately 25%-30%) due to their higher average selling prices. If sales of foam or air core mattresses continue to grow appreciably, it could reduce our market share in the U.S. bedding market, and negatively impact our sales and earnings.

The revocation of duties on imports of innersprings from China, South Africa and Vietnam could reduce our market share, sales, profit margins and earnings.

For the past five years, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. The orders remain in effect while the Department of Commerce (DOC) and the International Trade Commission (ITC) conduct separate reviews to determine whether to extend the duties through early 2019 (for China) and late 2018 (for South Africa and Vietnam). If it is determined that the revocation of the duties would likely lead to the continuation or recurrence of dumping of innersprings (determined by the DOC) and material injury to the U.S. innerspring industry (determined by the ITC), the duties will be extended. We believe that, without the extension, it is likely that dumping will recur and the U.S. innerspring industry will be materially injured. As a result, we are actively participating in the DOC and ITC reviews. We expect the DOC and ITC to issue their respective determinations in March 2014. If the DOC and ITC revoke the duties it could reduce our share in the innersprings market, our sales, profit margins and earnings.

Our goodwill and other long-lived assets are subject to potential impairment which could negatively impact our earnings.

A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. At December 31, 2013, goodwill and other intangible assets represented approximately $1.1 billion, or approximately 36% of our total assets. In addition, net property, plant and equipment and sundry assets totaled approximately $696 million, or approximately 22% of total assets. If actual results differ from the assumptions and estimates used in the goodwill and long-lived asset valuation calculations, we could incur impairment charges, which could negatively impact our earnings.

We review our ten reporting units for potential goodwill impairment in June as part of our annual goodwill impairment testing, and more often if an event or circumstance occurs making it likely that impairment exists. In addition, we test for the recoverability of long-lived assets at year end, and more often if an event or circumstance

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indicates the carrying value may not be recoverable. We conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations. The annual goodwill impairment review performed in June 2013 indicated no goodwill impairments, but fair market value for one of our ten reporting units (Store Fixtures) exceeded book value by approximately 18%. The goodwill associated with the Store Fixtures reporting unit was approximately $109 million at December 31, 2013. The unit is dependent upon capital spending by retailers on both new stores and remodeling of existing stores. Although 2012 performance was better than expected, 2013 fell short of expectations. The predictability of future results is less certain than that of our other reporting units due to the project nature of this business. If we are not able to achieve projected performance levels in Store Fixtures, future impairments could be possible, which would negatively impact our earnings.

We had been reviewing the Commercial Vehicle Products (CVP) group, which is part of the Specialized Products segment, as part of our ongoing strategic planning process with one possible strategic alternative being to divest all or part of the group. During this process, an unexpected decline in CVP group sales, earnings and operating cash flows occurred. Consequently, we received a lower than previously expected indication of value relating to the potential disposition of the business. As a result, we conducted an interim valuation of the CVP group goodwill and other long-lived assets and, in December, concluded that an impairment charge was required primarily relating to goodwill of the CVP group. We recorded a goodwill impairment charge of $63 million in the fourth quarter. A further decline in the CVP group business could result in future impairments which would negatively impact our earnings.

We are exposed to foreign currency risk which may negatively impact our competitiveness, profit margins and earnings.

We expect that international sales will continue to represent a significant percentage of our total sales, which exposes us to currency exchange rate fluctuations. In 2013, 28% of our sales were generated by international operations. The revenues and expenses of our foreign operations are generally denominated in local currencies; however, certain of our operations experience currency-related gains and losses where sales or purchases are denominated in currencies other than their local currency. Further, our competitive position may be affected by the relative strength of the currencies in countries where our products are sold. Foreign currency exchange risks inherent in doing business in foreign countries may have a material adverse effect on our future operations and financial results.

Technology failures or cyber security breaches could have a material adverse effect on our operations.

We rely on information systems to obtain, process, analyze and manage data, as well as to facilitate the manufacture and distribution of inventory to and from our facilities. We receive, process and ship orders, manage the billing of, and collections from, our customers, and manage the accounting for, and payment to, our vendors. Security breaches of this infrastructure can create system disruptions or unauthorized disclosure of confidential information. If this occurs, our operations could be disrupted, or we may suffer financial loss because of lost or misappropriated information. We cannot be certain that advances in criminal capabilities or new discoveries in the field of cryptography will not compromise our technology protecting information systems. If these systems are interrupted or damaged by these events or fail for any extended period of time, then our results of operations could be adversely affected.

We may not be able to realize deferred tax assets on our balance sheet depending upon the amount and source of future taxable income.

Our ability to realize deferred tax assets on our balance sheet is dependent upon the amount and source of future taxable income. Economic uncertainty or tax law changes could impact our underlying assumptions on which valuation reserves are established and negatively affect future period earnings and balance sheets.

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We are exposed to legal contingencies related to various lawsuits and other claims that, if realized, could have a material negative impact on our earnings and cash flows.

We are a defendant in various legal proceedings, including antitrust lawsuits related to the alleged price fixing of prime foam and carpet underlay products, and other proceedings and claims. When it is probable, in management's judgment, that we may incur monetary damages or other costs resulting from these proceedings or other claims, and we can reasonably estimate the amounts, we record appropriate liabilities in the financial statements and make charges against earnings. If our assumptions or analysis regarding these contingencies is incorrect, we could incur damages which could have a material negative impact on our earnings and cash flows.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Company’s corporate office is located in Carthage, Missouri. We currently have 131 manufacturing locations, of which 85 are located across the United States and 46 are located in 17 foreign countries. We also have various sales, warehouse and administrative facilities. However, our manufacturing plants are our most important properties.

Manufacturing Locations by Segment



	Company- Wide	Subtotals by Segment
Manufacturing Locations	Company- Wide	Residential Furnishings	Commercial Fixturing & Components	Industrial Materials	Specialized Products
United States	85	50	10	12	13
Europe	17	3	1	3	10
Asia	14	4	2	—	8
Canada	8	2	2	—	4
Mexico	5	2	—	1	2
Other	2	2	—	—	—
Total	131	63	15	16	37

__________________________________________________________

Manufacturing locations that we own produced approximately 70% of our sales in 2013. We also lease many of our manufacturing, warehouse and other facilities on terms that vary by lease (including purchase options, renewals and maintenance costs). For additional information regarding lease obligations, see Note K on page 92 of the Notes to Consolidated Financial Statements.

In the opinion of management, the Company’s owned and leased facilities are suitable and adequate for the manufacture, assembly and distribution of our products. Our properties are located to allow quick and efficient delivery of products and services to our diverse customer base. Our productive capacity, in general, continues to exceed current operating levels. With our current utilization levels, we should be able to increase unit sales by approximately $400 million (based on current sales mix) without the need for large capital investment.

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Item 3. Legal Proceedings.

The information in Note T beginning on page 113 of the Notes to Consolidated Financial Statements is incorporated into this section by reference.

Environmental Matter Involving Potential Monetary Sanctions of $100,000 or More

On March 27, 2013, Region 5 of the U.S. Environmental Protection Agency issued a Notice of Violation("NOV") alleging that our subsidiary, Sterling Steel Company, violated the Clean Air Act and the Illinois State Implementation Plan currently in place. Sterling operates a steel rod mill in Sterling, Illinois. The NOV alleges that Sterling, since 2008, has exceeded the allowable annual particulate matter and manganese emission limits for its arc furnace. Sterling requested a conference with the EPA to discuss the alleged violations. The conference was held on May 20, 2013.

On July 23, 2013, the EPA issued a Finding of Violation alleging that Sterling violated the opacity limitations of its air permit and Federal and state regulations. A conference to discuss the Finding of Violation occurred in the third quarter.

Sterling intends to vigorously defend these matters in any enforcement action that may be pursued by the EPA. The EPA did not specify any amount of penalty or injunctive relief being sought in the NOV, Finding of Violation or in any conference. Any settlement or adverse finding could result in the payment by Sterling of fines, penalties, capital expenditures, or some combination thereof. Although the outcome of these matters cannot be predicted with certainty, we do not expect them, either individually or in the aggregate, to have a material adverse effect on our financial position, cash flows or results of operations.

Sunset Review Regarding Extension of Antidumping Duties on Innerspring Imports

For the past five years, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. The orders remain in effect while the U.S. Department of Commerce (DOC) and the International Trade Commission (ITC) each conduct separate reviews (one for each country) to determine whether to extend the duties through February 2019 (for China) and December 2018 (for South Africa and Vietnam). The DOC reviews (Case Nos. A-570-928; A-791-821; and A-552-803) and ITC reviews (Investigation Nos. 731-TA-1140; 731-TA-1141; and 731-TA-1142) were self-initiated on November 1, 2013. We filed three Statements of Intent to Participate in the DOC reviews on December 2, 2013 (one for each country). We also filed a Statement of Willingness to Participate in the ITC reviews on December 2, 2013 (one collective filing).

If it is determined that the revocation of the duties would likely lead to the continuation or recurrence of dumping of innersprings (determined by the DOC) and material injury to the U.S. innerspring industry (determined by the ITC), the duties will be extended. We have argued that, without the extension, it is likely that dumping will recur, the U.S. innerspring industry will be materially injured, and, as such, the duty orders should be extended. If the orders are revoked, the revocation would occur retroactively to February 19, 2014 (for China) and December 10, 2013 (for South Africa and Vietnam). We expect the DOC and ITC to issue their respective determinations in March 2014.

Item 4. Mine Safety Disclosures.

Not applicable.

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Supplemental Item. Executive Officers of the Registrant.

The following information is included in accordance with the provisions of Part III, Item 10 of Form 10-K and Item 401(b) of Regulation S-K.

The table below sets forth the names, ages and positions of all executive officers of the Company. Executive officers are normally appointed annually by the Board of Directors.



Name	Age	Position
David S. Haffner	61	Board Chair and Chief Executive Officer
Karl G. Glassman	55	President and Chief Operating Officer
Matthew C. Flanigan	52	Executive Vice President and Chief Financial Officer
Jack D. Crusa	59	Senior Vice President, Specialized Products
Perry E. Davis	54	Senior Vice President, Residential Furnishings
David M. DeSonier	55	Senior Vice President, Strategy & Investor Relations
Scott S. Douglas	54	Senior Vice President, General Counsel
Joseph D. Downes, Jr.	69	Senior Vice President, Industrial Materials
John G. Moore	53	Senior Vice President, Chief Legal & HR Officer and Secretary
Dennis S. Park	59	Senior Vice President, Commercial Fixturing & Components
William S. Weil	55	Vice President, Corporate Controller and Chief Accounting Officer

______________________________

Subject to the employment and severance benefit agreements with Mr. Haffner, Mr. Glassman and Mr. Flanigan, listed as exhibits to this Report, the executive officers generally serve at the pleasure of the Board of Directors. Our employment agreement with Mr. Haffner provides that he may terminate the agreement if not nominated as a director and appointed to the Board's executive committee. Employment agreements with Mr. Glassman and Mr. Flanigan provide that they may terminate their agreements if not nominated as a director of the Company. In addition, each may terminate their respective agreement if not elected to their current executive officer position. See Exhibit Index on page 122 for reference to the agreements.

David S. Haffner was elected Board Chair of the Company in 2013 and continues to serve as Chief Executive Officer since his appointment in 2006. He previously served as President from 2002 to 2013, Chief Operating Officer from 1999 to 2006, and as Executive Vice President from 1995 to 2002. He has served the Company in various capacities since 1983.

Karl G. Glassman was appointed President of the Company in 2013 and has served as Chief Operating Officer since 2006. He previously served as Executive Vice President from 2002 to 2013, President of Residential Furnishings from 1999 to 2006, Senior Vice President from 1999 to 2002 and in various capacities since 1982.

Matthew C. Flanigan was appointed Executive Vice President of the Company in 2013 and has served as Chief Financial Officer since 2003. He previously served as Senior Vice President from 2005 to 2013, Vice President from 2003 to 2005, President of the Office Furniture Components Group from 1999 to 2003 and in various capacities since 1997.

Jack D. Crusa was appointed Senior Vice President in 1999 and President of Specialized Products in 2004. He previously served as President of Industrial Materials from 1999 to 2004, and President of the Automotive Group from 1996 to 1999. He has served the Company in various capacities since 1986.

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Perry E. Davis was appointed Senior Vice President and President of Residential Furnishings in 2012. He previously served as Vice President of the Company, President—Bedding Group from 2006 to 2012, as Vice President of the Company, Executive VP of the Bedding Group and President—U.S. Spring beginning in 2005. He also served as Executive VP of the Bedding Group and President—U.S. Spring from 2004 to 2005, President—Central Division Bedding Group from 2000 to 2004, and in various capacities since 1981.

David M. DeSonier was appointed Senior Vice President—Strategy & Investor Relations in 2011. He previously served as Vice President—Strategy & Investor Relations from 2007 to 2011 and served as Vice President—Investor Relations and Assistant Treasurer from 2002 to 2007. He joined the Company as Vice President—Investor Relations in 2000.

Scott S. Douglas was appointed Senior Vice President—General Counsel in 2011. He previously served the Company as Vice President beginning in 2008, and General Counsel beginning in 2010. He also served as Vice President—Law and Deputy General Counsel from 2008 to 2010, Associate General Counsel—Mergers & Acquisitions from 2001 to 2007, and Assistant General Counsel from 1991 to 2001. He has served the Company in various legal capacities since 1987.

Joseph D. Downes, Jr. was appointed Senior Vice President of the Company in 2005 and President of the Industrial Materials Segment in 2004. He previously served the Company as President of the Wire Group from 1999 to 2004 and in various capacities since 1976.

John G. Moore was appointed Senior Vice President, Chief Legal and HR Officer and Secretary in 2011. He was appointed Secretary in 2010, Chief Legal and HR Officer in 2009 and Vice President—Corporate Affairs & Human Resources in 2008. He served as Vice President—Corporate Governance from 2006 to 2008, Vice President and Associate General Counsel from 2001 to 2006, and as Managing Counsel and Assistant General Counsel from 1998 to 2001. He has served the Company in various legal capacities since 1993.

Dennis S. Park was appointed Senior Vice President and President of Commercial Fixturing & Components in 2006. He previously served as Vice President and President of Home Furniture and Consumer Products from 2004 to 2006, and Vice President and President of Home Furniture Components from 1996 to 2004. He has served the Company in various capacities since 1977.

William S. Weil was appointed Chief Accounting Officer in 2004, Vice President in 2000 and Corporate Controller in 1991. He previously served the Company in various other accounting capacities since 1983.

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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on the New York Stock Exchange (symbol LEG). The table below highlights quarterly and annual stock market information for the last two years.



	Price Range				Volume of Shares Traded (in Millions)	Dividend Declared
	High		Low		Volume of Shares Traded (in Millions)	Dividend Declared
2013
First Quarter	$	33.80	$	27.24	74.0	$	0.29
Second Quarter	34.28		29.59		74.7	0.29
Third Quarter	32.52		28.59		63.1	0.30
Fourth Quarter	31.33		28.00		65.2	0.30
For the Year	$	34.28	$	27.24	277.0	$	1.18
2012
First Quarter	$	23.73	$	21.26	119.0	$	0.28
Second Quarter	23.98		19.26		129.9	0.28
Third Quarter	25.24		20.50		107.9	0.29
Fourth Quarter	27.89		24.35		84.8	0.29
For the Year	$	27.89	$	19.26	441.6	$	1.14

______________________________

Price and volume data reflect composite transactions; price range reflects intra-day prices; data source is Bloomberg.

Shareholders and Dividends

As of February 14, 2014, we had 9,196 shareholders of record.

We expect to continue to pay dividends on our common stock and we are targeting a dividend payout ratio (dividends declared per share/earnings per share) of 50-60%, though it has been and will likely be higher for the near term. Our dividend payout ratio was 106%, 67% and 88% in 2011, 2012 and 2013, respectively. See the discussion of the Company’s targeted dividend payout under “Pay Dividends” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 43.

During 2012, the Company declared four quarterly dividends, but paid five of them, given its decision to accelerate the first quarter 2013 dividend payment into December 2012 in anticipation of individual tax rate increases. For 2013, the Company returned to its typical dividend practice and paid the fourth quarter dividend in 2014. The five dividend payments in 2012 utilized approximately $200 million of cash while the three payments in 2013 utilized roughly $125 million of cash.

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Issuer Purchases of Equity Securities

The table below is a listing of our purchases of the Company’s common stock during each calendar month of the fourth quarter of 2013.



Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2)
October 2013	351,046	$	30.02	351,046	6,315,750
November 2013	770,797	$	29.59	766,505	5,549,245
December 2013	884,023	$	30.67	883,332	4,665,913
Total	2,005,866	$	30.14	2,000,883

______________________________


(1)	This number includes 4,983 shares which were not repurchased as part of a publicly announced plan or program, all of which were shares surrendered in transactions permitted under the Company’s benefit plans. It does not include shares withheld for taxes for option exercises and stock unit conversions.

(2)

On August 4, 2004, the Board authorized management to repurchase up to 10 million shares each calendar year beginning January 1, 2005. This standing authorization was first reported in the quarterly report on Form 10-Q for the period ended June 30, 2004, filed August 5, 2004, and will remain in force until repealed by the Board of Directors. As such, effective January 1, 2014, the Company was authorized by the Board of Directors to repurchase up to 10 million shares in 2014. No specific repurchase schedule has been established.

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Item 6. Selected Financial Data.



(Unaudited)	2013 ¹			2012 ^2,3			2011 ^2,4			2010 ²			2009 ²
(Dollar amounts in millions, except per share data)
Summary of Operations
Net Sales from Continuing Operations	$	3,746		$	3,706		$	3,619		$	3,340		$	3,015
Earnings from Continuing Operations	193			243			174			187			119
(Earnings) Attributable to Noncontrolling Interest, net of tax	(3		)	(2		)	(3		)	(6		)	(3		)
Earnings (loss) from Discontinued Operations, net of tax	7			7			(18		)	(4		)	(4		)
Net Earnings	197			248			153			177			112
Earnings per share from Continuing Operations
Basic	1.31			1.67			1.17			1.20			.73
Diluted	1.29			1.65			1.16			1.18			.73
Earnings (Loss) per share from Discontinued Operations
Basic	.05			.05			(.12		)	(.03		)	(.03		)
Diluted	.05			.05			(.12		)	(.03		)	(.03		)
Net Earnings (Loss) per share
Basic	1.36			1.72			1.05			1.17			.70
Diluted	1.34			1.70			1.04			1.15			.70
Cash Dividends declared per share	1.18			1.14			1.10			1.06			1.02
Summary of Financial Position
Total Assets	$	3,108		$	3,255		$	2,915		$	3,001		$	3,061
Long-term Debt, including capital leases	$	688		$	854		$	833		$	762		$	789

______________________________


¹	In the fourth quarter of 2013, we incurred $67 million of charges related to the Commercial Vehicle Products group ($63 million goodwill impairment charge and $4 million accelerated amortization of a customer-related intangible asset). In the third quarter of 2013, we recorded a $9 million bargain purchase gain related to an acquisition.


²	Amounts for 2012 through 2009 were retrospectively adjusted to reflect the reclassification of certain businesses from continuing to discontinued operations in 2013. For information about discontinued operations, see Note B on page 78 of the Notes to Consolidated Financial Statements.


³	Net earnings for 2012 include a $27 million net tax benefit primarily related to the release of valuation allowances on certain Canadian deferred tax assets, partially offset by deferred withholding taxes on earnings in China.


⁴	The Company incurred asset impairment charges and restructuring-related charges totaling $44 million in 2011. Of these charges, $25 million were associated with continuing operations and $19 million were related to discontinued operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2013 HIGHLIGHTS

Acquisitions contributed to modest sales growth in 2013. Same location sales (excluding acquisitions) were essentially flat, with slightly higher unit volume offset by lower trade sales from our rod mill. Sales growth continued in Automotive and Carpet Underlay but these gains were largely offset by declines in Store Fixtures, Commercial Vehicle Products (CVP), and Adjustable Bed.

As discussed throughout the year, we have been considering strategic alternatives for our CVP business. Late in 2013, it became apparent that current market values for certain CVP assets had fallen below recorded book values, and we recognized non-cash impairment and other charges related to the goodwill and other intangible assets of the business. Earnings in 2013 decreased (versus 2012) as result of these charges and the non-recurrence of a significant tax benefit from 2012.

We expanded our Aerospace Products business unit in 2013 with the acquisition of two companies. These new European-based operations added small diameter, high pressure seamless tubing to our product portfolio and extended our capability in aerospace tube fabrication.

Operating cash for the full year was strong, helped in part by improvements in working capital levels. We again generated more than enough cash from operations to comfortably fund dividends and capital expenditures, something we've accomplished for over 20 years.

2013 marked the 42nd consecutive annual dividend increase for the company, with a compound annual growth rate of 13% over that time period. Only one other S&P 500 company can claim as high a rate of dividend growth for as many years.

Our financial profile remains strong. We ended 2013 with net debt to net capital below the conservative end of our long-standing targeted range. In April we repaid $200 million of notes that matured and ended the year with nearly all of our $600 million commercial paper program and revolver facility available.

We assess our overall performance by comparing our Total Shareholder Return (TSR) to that of peer companies on a rolling three-year basis. We target TSR in the top one-third of the S&P 500 over the long term. For the three years ended December 31, 2013, we generated TSR of 16% per year on average. That places us in the top half of the S&P 500, but shy of our top one-third goal.

These topics are discussed in more detail in the sections that follow.

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INTRODUCTION

Total Shareholder Return

Total Shareholder Return (TSR), relative to peer companies, is the key financial measure that we use to assess long-term performance. TSR is driven by the change in our share price and the dividends we pay [TSR = (Change in Stock Price + Dividends) / Beginning Stock Price]. We seek to achieve TSR in the top one-third of the S&P 500 over the long-term through a balanced approach that employs all four TSR sources: revenue growth, margin expansion, dividends, and share repurchases.

We monitor our TSR performance (relative to the S&P 500) on a rolling three-year basis. For the three-year measurement period that ended December 31, 2013, we generated TSR of 16% per year on average, matching the return of the S&P 500 index. That performance placed us in the top half of the S&P 500 companies, but shy of our goal to be in the top third.

Customers

We serve a broad suite of customers, with our largest customer representing approximately 6% of our sales. Many are companies whose names are widely recognized; they include most manufacturers of furniture and bedding, a variety of other manufacturers, and many major retailers.

Major Factors That Impact Our Business

Many factors impact our business, but those that generally have the greatest impact are market demand, raw material cost trends, and competition.

Market Demand

Market demand (including product mix) is impacted by several economic factors, with consumer confidence being most significant. Other important factors include disposable income levels, employment levels, housing turnover, and interest rates. All of these factors influence consumer spending on durable goods, and therefore affect demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one-third of our sales.

We continue to retain more production capacity than we currently utilize. Accordingly, unit sales can increase by approximately $400 million (based on current sales mix) without the need for large capital investment. We have meaningful operating leverage that should benefit earnings as market demand improves. Until our spare capacity is fully utilized, each additional $100 million of sales from incremental unit volume is expected to generate approximately $25 million to $35 million of additional pre-tax earnings.

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Raw Material Costs

In many of our businesses, we enjoy a cost advantage from being vertically integrated into steel wire and rod. This is a benefit that our competitors do not have. We also experience favorable purchasing leverage from buying large quantities of raw materials. Still, our costs can vary significantly as market prices for raw materials (many of which are commodities) fluctuate.

We typically have short-term commitments from our suppliers; accordingly, our raw material costs generally move with the market. Our ability to recover higher costs (through selling price increases) is crucial. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs. Conversely, when costs decrease significantly, we generally pass those lower costs through to our customers. The timing of our price increases or decreases is important; we typically experience a lag in recovering higher costs, so we also expect to realize a lag as costs decline.

Steel is our principal raw material. At various times in past years we have experienced extreme cost fluctuations in this commodity. In most cases, the major changes (both increases and decreases) were passed through to customers with selling price adjustments. In late 2013, steel costs increased unexpectedly, and the timing of the increase (late in the year) resulted in a concentration of LIFO expense in the fourth quarter. We are implementing price increases in early 2014, and expect to recover these higher costs.

As a producer of steel rod, we are also impacted by volatility in metal margins (the difference in the cost of steel scrap and the market price for steel rod). Metal margins within the steel industry have been volatile during certain periods in recent years. In the back half of 2013, metal margins decreased due to downward pressure on steel rod prices from Chinese imports.

Our other raw materials include woven and non-woven fabrics, foam scrap, and chemicals. We have experienced changes in the cost of these materials in recent years, and in most years, have been able to pass them through to our customers.

When we raise our prices to recover higher raw material costs, this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components. We must continue to find ways to assist our customers in improving the functionality and reducing the cost of their products, while providing higher margin and profit contribution for our operations.

Competition

Many of our markets are highly competitive, with the number of competitors varying by product line. In general, our competitors tend to be smaller, private companies. Many of our competitors, both domestic and foreign, compete primarily on the basis of price. Our success has stemmed from the ability to remain price competitive, while delivering better product quality, innovation, and customer service.

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We continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products offshore. In addition to lower labor rates, foreign competitors benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. We typically remain price competitive, even versus many foreign manufacturers, as a result of our highly efficient operations, low labor content, vertical integration in steel and wire, logistics and distribution efficiencies, and large scale purchasing of raw materials and commodities. However, we have also reacted to foreign competition in certain cases by selectively adjusting prices, and by developing new proprietary products that help our customers reduce total costs.

For the past five years, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. The orders remain in effect while the Department of Commerce (DOC) and the International Trade Commission (ITC) conduct separate reviews to determine whether to extend the duties through February 2019 (for China) and December 2018 (for South Africa and Vietnam). If it is determined that the revocation of the duties would likely lead to the continuation or recurrence of dumping of innersprings (determined by the DOC) and material injury to the U.S. innerspring industry (determined by the ITC), the duties will be extended. We have argued that, without the extension, it is likely that dumping will recur, the U.S. innerspring industry will be materially injured, and as such, the duty orders should be extended. If the orders are revoked, the revocation would occur retroactively to February 19, 2014 (for China) and December 10, 2013 (for South Africa and Vietnam). We expect the DOC and ITC to issue their respective determinations in March 2014.

2011 Restructuring Plan

In December 2011, we approved a restructuring plan to reduce our overhead costs and improve ongoing profitability. The activities primarily entailed the closure of four underperforming facilities. We incurred a $37 million pre-tax (largely non-cash) charge in 2011 primarily related to this plan, of which $18 million related to continuing operations and $19 million was associated with discontinued operations. These activities were substantially complete by the end of 2012.

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RESULTS OF OPERATIONS—2013 vs. 2012

Sales grew modestly in 2013 as a result of acquisitions. Same location sales were essentially flat with slightly higher unit volume offset by lower trade sales at our steel rod mill (sales shifted from trade to intra-segment).

Earnings decreased in 2013 (versus 2012) as a result of impairment and other charges related to the goodwill and other intangible assets of our CVP business, and the non-recurrence of a significant tax benefit from 2012.

Further details about our consolidated and segment results are discussed below.

Consolidated Results

The following table shows the changes in sales and earnings during 2013, and identifies the major factors contributing to the changes.



(Dollar amounts in millions, except per share data)	Amount			%
Net sales:
Year ended December 31, 2012	$	3,706
Same location sales decrease:
Lower steel mill trade sales	(33		)	(1	)%
Approximate unit volume increase	30			1	%
Same location sales decrease	(3		)	—	%
Acquisition sales growth	43			1	%
Year ended December 31, 2013	$	3,746		1	%
Net earnings attributable to Leggett & Platt:
(Dollar amounts, net of tax)
Year ended December 31, 2012	$	248
CVP impairment and related charges	(45		)
Non-recurrence of 2012 significant net tax benefit	(27		)
Acquisition-related bargain purchase gain	9
Lower effective tax rate	13
Other factors, including higher sales and acquisition earnings offset by higher raw material costs	(1		)
Year ended December 31, 2013	$	197
Earnings Per Share—2012	$	1.70
Earnings Per Share—2013	$	1.34
¹2012 amounts have been retrospectively adjusted to reflect the reclassification of certain operations to discontinued operations.

Same location sales were essentially flat, with 1% unit volume growth offset by a 1% revenue decline from lower trade sales at our rod mill. Sales grew primarily from market strength and new program awards in Automotive and raw material-related price increases in Carpet Underlay. These improvements were partially offset by declines in Store Fixtures, CVP, and Adjustable Bed. The decrease in trade sales of steel rod during 2013 was offset by an increase in intra-segment rod sales, and the rod mill continued to operate at full capacity.

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Earnings decreased as a result of non-cash impairment and other charges related to the goodwill and other intangible assets of our CVP business, and the non-recurrence of a significant tax benefit from 2012. Operationally, the earnings benefit from modest unit volume growth and acquisitions was essentially offset by an increase in steel costs late in the year that resulted in higher LIFO expense. We are implementing price increases in early 2014, and expect to recover the higher costs. The other items detailed in the table above also collectively contributed to the change in earnings.

LIFO Impact

All of our segments use the first-in, first-out (FIFO) method for valuing inventory. In our consolidated financials, an adjustment is made at the corporate level (i.e., outside the segments) to convert about 55% of our inventories to the last-in, first-out (LIFO) method. These are primarily our domestic, steel-related inventories. In 2012, lower commodity costs led to a LIFO benefit of $15 million. Steel inflation in late 2013 resulted in a significant change in our full-year LIFO estimates (interim expectations for a full-year LIFO benefit of $13 million changed instead to a full year expense of $2 million as steel costs increased late in the year) and a concentration of LIFO expense in the fourth quarter.

For further discussion of inventories, see Note A to the Consolidated Financial Statements on page 74.

Interest and Income Taxes

Net interest expense in 2013 was flat with 2012.

The 2013 worldwide effective income tax rate on our continuing operations was 22%, compared to 21% for 2012. In both years the tax rate reflects necessary tax reserve reductions and other tax benefits that lowered the overall rate. The 2013 tax rate includes $17 million of favorable adjustments primarily related to the impact of Mexico tax law changes, the settlement of certain foreign and state tax audits, and a non-taxable bargain purchase gain. The impact of these items on the tax rate was magnified by our fourth quarter CVP impairment. In 2012, the tax rate benefited from the release of a $38 million valuation allowance on certain Canadian deferred tax assets, partially offset by the accrual of $11 million of China withholding taxes.

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Segment Results

In the following section we discuss 2013 sales and EBIT (earnings before interest and taxes) for each of our segments. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated EBIT in Note F to the Consolidated Financial Statements on page 84. 2012 amounts have been retrospectively adjusted to reflect the reclassification of certain operations to discontinued operations. For further information about discontinued operations, see Note B to the Consolidated Financial Statements on page 78.



(Dollar amounts in millions)	2013			2012			Change in Sales					% Change Same Location Sales (1)
(Dollar amounts in millions)	2013			2012			$			%		% Change Same Location Sales (1)
Sales
Residential Furnishings	$	1,967		$	1,904		$	63		3	%	3	%
Commercial Fixturing & Components	456			483			(27		)	(6	)%	(6	)%
Industrial Materials	844			871			(27		)	(3	)%	(8	)%
Specialized Products	790			757			33			4	%	4	%
Total	4,057			4,015			42
Intersegment sales elimination	(311		)	(309		)	(2		)
External sales	$	3,746		$	3,706		$	40		1	%	—	%

	2013			2012			Change in EBIT					EBIT Margins (2)
	2013			2012			$			%		2013		2012
EBIT
Residential Furnishings	$	172		$	154		$	18		12	%	8.7	%	8.1	%
Commercial Fixturing & Components	15			30			(15		)	(50	)%	3.4	%	6.3	%
Industrial Materials	73			66			7			11	%	8.6	%	7.6	%
Specialized Products	27			87			(60		)	(69	)%	3.4	%	11.5	%
Intersegment eliminations & other	—			(9		)	9
Change in LIFO reserve	(2		)	15			(17		)
Total	$	285		$	343		$	(58	)	(17	)%	7.6	%	9.3	%

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(1)	This is the change in sales not attributable to acquisitions or divestitures. These are sales that come from the same plants and facilities that we owned one year earlier.


(2)	Segment margins are calculated on total sales. Overall company margin is calculated on external sales.

Residential Furnishings

Residential Furnishings sales increased 3% in 2013 from unit volume growth in certain product categories and raw material-related price increases in carpet underlay. Volume grew primarily in European spring, seating components, sofa sleepers, and carpet underlay. These gains were partially offset by lower adjustable bed volume. Within our U.S. Spring business, we experienced unit volume growth in box springs and Comfort Core® (which is our pocketed coil innerspring), however total domestic innerspring units decreased modestly. Furniture hardware unit volumes also decreased for the full year.

EBIT and EBIT margins increased in 2013, primarily due to higher sales, cost improvements, and favorable product mix in U.S. Spring.

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Commercial Fixturing & Components

Sales in Commercial Fixturing & Components decreased 6% in 2013. Volumes in the Store Fixtures business were down 8% for the year, reflecting continued weak capital spending by retailers. Sales in our Office Furniture Components business decreased 3%, which we believe was consistent with demand trends in the office seating market.

EBIT and EBIT margins decreased in 2013, primarily from lower sales.

Industrial Materials

Sales in the segment decreased 3% in 2013, with revenue from acquisitions more than offset by lower trade sales from our rod mill and steel-related price deflation. The decrease in trade sales of steel rod during the year was more than offset by an increase in intra-segment rod sales, and the rod mill continued to operate at full capacity. A change in the mix of rod sales from trade to intra-segment is generally positive to earnings since that change tends to also shift the production mix to higher-value high carbon rods.

EBIT and EBIT margins improved versus 2012, primarily due to the absence of acquisition-related costs at Western Pneumatic Tube and earnings from acquisitions. These gains were partially offset by lower metal margins in steel rod in the second half of 2013.

We expanded our Aerospace Products business unit in 2013 with the acquisition of two companies. The first was a U.K.-based business acquired in May that extended our capability in aerospace tube fabrication. The second was a French-based company acquired in July that added small diameter, high pressure seamless tubing to our product portfolio. The Aerospace Products business unit, which now has an annual revenue run rate in excess of $120 million, continues to perform very well and earnings should further benefit as we fully integrate these recent acquisitions.

Specialized Products

In Specialized Products, sales increased 4% in 2013, with growth in Automotive partially offset by a decline in Commercial Vehicle Products. Machinery sales grew modestly. Our Automotive business continued to experience strong growth from a combination of factors, including market strength in North America and Asia, participation in additional vehicle platforms, and expanded component content (via upgraded features).

EBIT decreased $60 million in 2013. We recognized impairment and other charges (of $67 million) related to the goodwill and other intangible assets of our CVP business, and this was partially offset by the positive impact from higher sales.

We have been considering strategic alternatives for our CVP group, including possible divestiture of the business. Late in 2013, performance of the business deteriorated. As a result, it became apparent that current market values for certain CVP assets had fallen below recorded book values, and impairment charges related to the goodwill and other intangible assets were recognized. This decline in current market values of the assets resulted from lower expectations of future revenue and profitability, reflecting reduced market demand for the racks, shelving, and cabinets used in telecom, cable, and delivery vans.

Results from Discontinued Operations

Full year earnings from discontinued operations, net of tax, were $7 million in both 2013 and 2012. Amounts in both years were primarily attributable to tax benefits. In addition, 2012 included a $2 million gain from a litigation settlement associated with a previously divested business.

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RESULTS OF OPERATIONS—2012 vs. 2011

Demand improved in many of our markets during 2012. Growth in unit volumes was partially offset by lower trade sales at our steel mill (sales shifted from trade to intra-segment) and changes in currency rates.

Earnings increased significantly, from $153 million in 2011 to $248 million in 2012. This improvement reflects several factors, including lower restructuring-related costs, higher unit volumes, significant net tax benefits, cost improvements, and earnings from the Western Pneumatic Tube acquisition.

Further details about our consolidated and segment results are discussed below.

Consolidated Results

The following table shows the changes in sales and earnings during 2012, and identifies the major factors contributing to the changes.



(Dollar amounts in millions, except per share data)	Amount ¹			%
Net sales:
Year ended December 31, 2011	$	3,619
Same location sales increase:
Lower steel mill trade sales and currency	(70		)	(2	)%
Approximate unit volume increase	108			3	%
Same location sales increase	38			1	%
Acquisition sales growth	75			2	%
Divestitures	(26		)	(1	)%
Year ended December 31, 2012	$	3,706		2	%
Net earnings attributable to Leggett & Platt:
(Dollar amounts, net of tax)
Year ended December 31, 2011	$	153
Non-recurrence of restructuring-related costs (from December 2011)	23
Non-recurrence of building gains	(6		)
Significant net tax benefits	27
Higher effective tax rate	(7		)
Higher interest expense	(4		)
Other factors, including higher unit volumes, cost improvements, and acquisition earnings	62
Year ended December 31, 2012	$	248
Earnings Per Share—2011	$	1.04
Earnings Per Share—2012	$	1.70
¹Amounts have been retrospectively adjusted to reflect the reclassification of certain operations to discontinued operations.

Improved demand in several of our markets led to higher sales in 2012. Same location sales increased 1%, with 3% unit volume growth partially offset by a 2% revenue decline from lower trade sales at our steel mill and changes in currency rates. Unit volumes grew during the year in Automotive, U.S. Spring, Adjustable Bed, Geo Components, Carpet Underlay, and certain parts of our home furniture components business. The decrease in trade sales of steel rod during 2012 was largely offset by an increase in intra-segment rod sales, so total rod production for the year was roughly flat with 2011.

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Earnings increased significantly in 2012 due to several factors. Operationally, these included higher unit volumes, cost improvements, and earnings from the Western Pneumatic Tube acquisition. The other items detailed in the table above also collectively contributed to the earnings increase. In 2011, earnings were reduced by restructuring-related costs primarily associated with the December 2011 Plan discussed on page 30. In 2012, earnings benefited from various tax items, including the elimination of a valuation allowance on Canadian deferred tax assets.

LIFO Impact

Moderate inflation resulted in LIFO expense of $14 million in 2011. In 2012, lower commodity costs led to a LIFO benefit of $15 million.

For further discussion of inventories, see Note A to the Consolidated Financial Statements on page 74.

Interest and Income Taxes

Net interest expense in 2012 was $5 million higher than in 2011, primarily due to the issuance in August 2012 of $300 million of long-term notes.

The 2012 effective income tax rate of 21% on continuing operations was lower than the 26% incurred in 2011. The 2012 tax rate benefited from the release of a $38 million valuation allowance on certain Canadian deferred tax assets (primarily tax loss carryforwards). As a result of an increase in operating earnings in Canada, the amalgamation of two Canadian subsidiaries, and the restructuring of intercompany debt attributable in part to a change in Canadian tax law, we now expect those carryforwards and other deferred tax assets to be utilized in future years. This benefit was partially offset by an accrual of $11 million of withholding taxes on earnings in China, which was required since we no longer had specific plans to reinvest all these earnings within China. We also experienced other, less significant, discrete tax items (both favorable and unfavorable) that substantially offset for the year.

The 2011 tax rate benefited from changes in our mix of earnings among taxing jurisdictions, one-time tax planning strategies, and the settlement of our 2004 through 2008 IRS examination. As a result of the tax planning strategies and tax audit, we recognized tax benefits of $5 million in 2011.

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Segment Results

In the following section we discuss 2012 sales and EBIT for each of our segments. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated EBIT in Note F to the Consolidated Financial Statements on page 84. Amounts have been retrospectively adjusted to reflect the reclassification of certain operations to discontinued operations. For further information about discontinued operations, see Note B to the Consolidated Financial Statements on page 78.



(Dollar amounts in millions)	2012			2011			Change in Sales					% Change Same Location Sales (1)
(Dollar amounts in millions)	2012			2011			$			%		% Change Same Location Sales (1)
Sales
Residential Furnishings	$	1,904		$	1,837		$	67		4	%	3	%
Commercial Fixturing & Components	483			507			(24		)	(5	)%	—	%
Industrial Materials	871			847			24			3	%	(5	)%
Specialized Products	757			731			26			4	%	4	%
Total	4,015			3,922			93
Intersegment sales elimination	(309		)	(303		)	(6		)
External sales	$	3,706		$	3,619		$	87		2	%	1	%

	2012			2011			Change in EBIT					EBIT Margins (2)
	2012			2011			$			%		2012		2011
EBIT
Residential Furnishings	$	154		$	138		$	16		12	%	8.1	%	7.5	%
Commercial Fixturing & Components	30			16			14			88	%	6.3	%	3.1	%
Industrial Materials	66			55			11			20	%	7.6	%	6.6	%
Specialized Products	87			77			10			13	%	11.5	%	10.6	%
Intersegment eliminations & other	(9		)	(7		)	(2		)
Change in LIFO reserve	15			(14		)	29
Total	$	343		$	265		$	78		29	%	9.3	%	7.3	%

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(1)	This is the change in sales not attributable to acquisitions or divestitures. These are sales that come from the same plants and facilities that we owned one year earlier.


(2)	Segment margins are calculated on total sales. Overall company margin is calculated on external sales.

Residential Furnishings

Residential Furnishings sales increased 4% in 2012, from higher unit volumes and small acquisitions. Demand improved in several of our residential markets during the year. In our U.S. Spring business, innerspring unit volumes increased 4%, in large part from growth of Comfort Core®, which is our pocketed coil innerspring. Strong market reception of hybrid mattresses helped to drive growth in this category. We had significant growth in adjustable beds, with unit volumes up 27% in 2012. Sales also grew in geo components, carpet underlay, seating components, and sofa sleepers. These improvements were partially offset by a 4% decrease in furniture hardware unit volumes and declines in our International Spring business.

EBIT and EBIT margins increased in 2012, primarily due to higher sales and the absence of the December 2011 restructuring-related costs (of $7 million).

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Commercial Fixturing & Components

Sales in Commercial Fixturing & Components decreased 5% in 2012, due to the divestiture of our U.K.-based point-of-purchase display operation in January 2012. Apart from the divestiture, sales in the segment were flat with 2011. Volumes in the Store Fixtures business were roughly flat in 2012, with significantly lower spending by certain retailers offset by large programs associated with a major customer's re-branding initiative. Sales in our Office Furniture Components business were also essentially unchanged in 2012, which we believe was consistent with demand trends in the office seating market.

EBIT and EBIT margins increased in 2012, primarily benefiting from prior cost improvement initiatives and the absence of the December 2011 restructuring-related costs (of $3 million).

Industrial Materials

Sales in the segment increased 3% in 2012, with revenue from acquisitions partially offset by lower trade sales from our steel mill. The decrease in trade sales of steel rod during 2012 was largely offset by an increase in intra-segment rod sales, so total rod production for the year was roughly flat with 2011. The rod mill continued to operate at full capacity. Despite the negative sales comparisons they create, lower trade sales of rod are generally neutral to earnings if production levels are stable and we consume the rod in our own wire mills.

EBIT and EBIT margins increased versus 2011 primarily due to cost improvements, earnings from acquisitions, and the absence of the December 2011 restructuring-related costs (of $3 million). EBIT margins also increased during the year as a result of the change in sales from trade to intra-segment at our steel rod mill. This sales shift was beneficial to margins since it decreased our reported sales while preserving comparable EBIT levels.

Specialized Products

In Specialized Products, sales increased 4% in 2012, with growth in Automotive partially offset by changes in currency exchange rates. Sales also increased slightly in Commercial Vehicle Products, but Machinery volumes were down versus the prior year. Our Automotive business continued to experience strong growth during 2012 in North America and Asia, but sales declined in Europe from currency impacts and ongoing economic weakness.

EBIT and EBIT margins increased in 2012 primarily from higher sales and the absence of the December 2011 restructuring-related costs (of $5 million).

Results from Discontinued Operations

Full year earnings from discontinued operations, net of tax, increased to $7 million in 2012 versus a loss of $17 million in 2011, primarily due to the absence of December 2011 restructuring-related costs (of $12 million, net of tax) and a $6 million tax benefit in 2012.

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LIQUIDITY AND CAPITALIZATION

Our operations provide most of the cash we require, and debt may also be used to fund a portion of our needs. Cash from operations was once again strong in 2013, however declined modestly versus 2012 due to less improvement in working capital. For over 20 years, our operations have provided more than enough cash to fund both capital expenditures and dividend payments. We expect this once again to be the case in 2014.

With fewer acquisitions completed in 2013, share repurchases increased. We bought back 6 million shares of our stock during the year. We ended 2013 with net debt to net capital at 27%, well below the conservative end of our long-standing targeted range of 30-40%. The calculation of net debt as a percent of net capital is presented on page 45.

In April 2013, we repaid $200 million of 4.7% notes that matured. We ended the year with $584 million of our $600 million commercial paper program available.

Cash from Operations

Cash from operations is our primary source of funds. Earnings and changes in working capital levels are the two broad factors that generally have the greatest impact on our cash from operations.

Cash from operations was $417 million during 2013, down from $450 million in 2012. Cash from operations in 2012 benefited from significant year-end reductions in working capital levels (primarily accounts receivable).

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We continue to closely monitor our working capital levels, and ended 2013 with adjusted working capital at 10.1% of annualized sales¹, notably better than our 15% target. The table below shows this non-GAAP calculation. We eliminate cash and current debt maturities from working capital to monitor our performance related to operating efficiency and believe this provides a more useful measurement.



(Dollar amounts in millions)	2013			2012
Current assets	$	1,282		$	1,339
Current liabilities ²	(829		)	(731		)
Working capital	453			608
Cash and cash equivalents	(273		)	(359		)
Current debt maturities	181			202
Adjusted working capital	$	361		$	451
Annualized sales ¹	$	3,588		$	3,400
Adjusted working capital as a percent of annualized sales	10.1		%	13.3		%

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1.	Annualized sales equal 4th quarter sales ($897 million in 2013 and $850 million in 2012) multiplied by 4. We believe measuring our working capital against this sales metric is more useful, since efficient management of working capital includes adjusting those net asset levels to reflect current business volume.


2.	Current liabilities at December 31, 2012 were unusually low due to the accelerated payment of the fourth quarter 2012 dividend ($41 million).

The following table presents dollar amounts related to key working capital components at the end of the past two years.



	Amount (in millions)
	2013		2012		Change
Trade Receivables, net	$	435	$	413	$	22
Inventory, net	496		489		7
Accounts Payable	339		285		54

Accelerated payments by some of our large customers late in 2012 resulted in much lower levels of trade receivables at the end of that year. In 2013, trade receivables were also seasonally low at year-end but increased versus 2012 in part from acquisitions.

Inventory increased primarily from acquisitions.

Accounts Payable also increased primarily due to the timing of raw material purchases, extended payment terms with vendors, and acquisitions.

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The next chart shows recent trends in key working capital components (expressed in numbers of days at the end of the past five quarters).

Working Capital Trends


1.	The trade receivables ratio represents the days of sales outstanding calculated as: ending net trade receivables ÷ (quarterly net sales ÷ number of days in the quarter).


2.	The inventory ratio represents days of inventory on hand calculated as: ending net inventory ÷ (quarterly cost of goods sold ÷ number of days in the quarter).


3.	The accounts payable ratio represents the days of payables outstanding calculated as: ending accounts payable ÷ (quarterly cost of goods sold ÷ number of days in the quarter).

Changes in the quarterly Days Sales Outstanding (DSO) reflect normal seasonal fluctuations due to the timing of cash collection and other factors. Changes in the DSO reflected in the table above are consistent with our historical range, and are not indicative of changes in payment trends or credit worthiness of customers. We experienced reductions in our DSO over the last two years driven by improved payment patterns of several large customers, certain customers taking advantage of cash discounts, and other programs with incentives for early payment offered in conjunction with third parties. Payment trends by major customers were stable during 2013, resulting in full-year bad debt expense that was similar to 2012 levels.

Our Days Inventory on Hand (DIO) typically fluctuates within a reasonably narrow range as a result of differences in the timing of sales, production levels, and inventory purchases. After inventory increased at the end of 2012 primarily due to decisions to take advantage of temporarily lower commodity costs, inventory has since returned to more normal levels. Expense associated with slow moving and obsolete inventories in 2013 was generally in line with that of 2012.

We actively strive to optimize payment terms with our vendors, and we have also implemented various programs with our vendors and third parties that allow flexible payment options. As a result of these activities, we have increased our Days Payable Outstanding (DPO) by more than ten days over the past several years, and we expect that we will be able to make further improvements going forward.

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Working capital levels vary by segment. The Commercial Fixturing & Components segment typically has relatively higher accounts receivable balances due to the longer credit terms required to service certain customers of the Store Fixtures group. This business group also generally requires higher inventory investments due to the custom nature of its products, longer manufacturing lead times (in certain cases), and the needs of many customers to receive large volumes of product within short periods of time.

Uses of Cash

Finance Capital Requirements

Cash is readily available to fund selective growth, both internally (through capital expenditures) and externally (through acquisitions).

Capital expenditures include investments we make to maintain, modernize, and expand manufacturing capacity. We also invest to support new product introductions and specific product categories that are rapidly growing. With current capacity utilization rates still relatively low, our need to invest in additional productive capacity is limited. In 2014, we expect capital expenditures to approximate $100 million. As volumes improve, we expect capital expenditure levels to increase, but longer-term they should remain below total depreciation and amortization. Our incentive plans emphasize returns on capital, which include net fixed assets and working capital. This emphasis heightens the focus on asset utilization and helps ensure that we are investing additional capital dollars where attractive return potential exists.

Our strategic, long-term, 4-5% annual growth objective envisions periodic acquisitions. We are seeking acquisitions primarily within our Grow businesses, and are looking for opportunities to enter new, higher growth markets (carefully screened for sustainable competitive advantage). In January 2012, we purchased Western Pneumatic Tube for $188 million. This acquisition aligns extremely well with our strategy to seek businesses with secure, leading positions in growing, profitable, attractive markets. Western established for us a strong competitive position in the higher return, higher growth aerospace market. In 2013, we acquired two smaller, complementary businesses in this aerospace tubing platform.

Additional details about acquisitions can be found in Note R to the Consolidated Financial Statements on page 109.

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Pay Dividends

Dividends are one of the primary means by which we return cash to shareholders. During 2012, we declared four quarterly dividends, but paid five, given our decision to accelerate into December 2012 the dividend typically paid in January 2013 (of $41 million) in anticipation of individual tax rate increases. The chart above reflects that accelerated dividend payment. In 2013, we returned to our prior practice and paid the fourth quarter dividend in 2014. Therefore, the cash requirement for dividends in 2013 was lower, at approximately $125 million. In 2014, we plan to return to our typical dividend payment schedule.

Maintaining and increasing the dividend remains a high priority. In 2013, we increased the quarterly dividend to $.30 per share and extended to 42 years our record of consecutive annual dividend increases, at an average compound growth rate of 13%. Our targeted dividend payout ratio is approximately 50-60% of net earnings. Actual payout ratio has been higher in recent years, but as earnings grow, we expect to move into that target range.

Repurchase Stock

Stock repurchases are the other means by which we return cash to shareholders. During the past three years, we repurchased a total of 18 million shares of our stock and issued 11 million shares through employee benefit and stock purchase plans, reducing outstanding shares by 5%. Given the $188 million cash outlay to acquire Western Pneumatic Tube early in 2012, our share repurchases in that year were much lower (as anticipated). In 2013, we repurchased 6 million shares (at an average of $30.81) and issued 3 million shares (at an average of $21.47). Issuances were largely related to employee stock option exercises.

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Consistent with our stated priorities, we expect to use remaining operating cash (after funding capital expenditures, dividends, and acquisitions) to prudently buy back our stock, subject to the outlook for the economy, our level of cash generation, and other potential opportunities to strategically grow the company. We have been authorized by the Board to repurchase up to 10 million shares each year, but we have established no specific repurchase commitment or timetable.

Capitalization

This table presents key debt and capitalization statistics at the end of the three most recent years.



(Dollar amounts in millions)	2013			2012			2011
Long-term debt outstanding:
Scheduled maturities	$	673		$	854		$	763
Average interest rates ⁽¹⁾	4.6		%	4.7		%	4.6		%
Average maturities in years ⁽¹⁾	4.7			4.9			3.8
Revolving credit/commercial paper	16			—			70
Average interest rate	.2		%	—			.3		%
Total long-term debt	689			854			833
Deferred income taxes and other liabilities	191			228			188
Equity	1,399			1,442			1,308
Total capitalization	$	2,279		$	2,524		$	2,329
Unused committed credit:
Long-term	$	584		$	600		$	530
Short-term	—			—			—
Total unused committed credit	$	584		$	600		$	530
Current maturities of long-term debt	$	181		$	202		$	3
Cash and cash equivalents	$	273		$	359		$	236
Ratio of earnings to fixed charges ⁽²⁾	5.0 x			6.1 x			5.4 x

___________________________________________


(1)	These rates include current maturities, but exclude commercial paper to reflect the averages of outstanding debt with scheduled maturities. The rates also include amortization of interest rate swaps.


(2)	Fixed charges include interest expense, capitalized interest, plus implied interest included in operating leases. Earnings consist principally of income from continuing operations before income taxes, plus fixed charges.

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The next table shows the percent of long-term debt to total capitalization at December 31, 2013 and 2012, calculated in two ways:


•	Long-term debt to total capitalization as reported in the previous table.


•	Long-term debt to total capitalization each reduced by total cash and increased by current maturities of long-term debt.

We believe that adjusting this measure for cash and current maturities allows a more useful comparison to periods during which cash fluctuates significantly. We use these adjusted measures to monitor our financial leverage.



(Dollar amounts in millions)	2013			2012
Long-term debt	$	689		$	854
Current debt maturities	181			202
Cash and cash equivalents	(273		)	(359		)
Net debt	$	597		$	697
Total capitalization	$	2,279		$	2,524
Current debt maturities	181			202
Cash and cash equivalents	(273		)	(359		)
Net capitalization	$	2,187		$	2,367
Long-term debt to total capitalization	30.2		%	33.8		%
Net debt to net capitalization	27.3		%	29.4		%

Total debt (which includes long-term debt and current debt maturities) decreased $186 million in 2013, primarily from the repayment of $200 million in notes discussed below.

In August 2012, we issued $300 million aggregate principal of 10-year notes at a rate of 3.4% per year. As a part of this issuance, we also unwound the $200 million forward starting interest swaps we had entered into during 2010 and recognized a loss of approximately $43 million, which will be amortized over the life of the notes. This results in a fully weighted effective interest rate of 5.0% associated with these notes.

On April 1, 2013, we repaid $200 million of 4.7% notes that matured. We funded the payoff with a combination of cash and commercial paper.

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Short Term Borrowings

We can raise cash by issuing up to $600 million in commercial paper through a program that is backed by a $600 million revolving credit agreement with a syndicate of 13 lenders. This agreement was renewed in 2011, with a five-year term ending in 2016. In 2013, we extended the term by one year to 2017. The credit agreement allows us to issue letters of credit totaling up to $250 million. When we issue letters of credit in this manner, our capacity under the agreement, and consequently, our ability to issue commercial paper, is reduced by a corresponding amount. Amounts outstanding related to our commercial paper program were:



(Dollar amounts in millions)	2013			2012		2011
Total program authorized	$	600		$	600	$	600
Commercial paper outstanding (classified as long-term debt)	(16		)	—		(70		)
Letters of credit issued under the credit agreement	—			—		—
Total program usage	(16		)	—		(70		)
Total program available	$	584		$	600	$	530

The average and maximum amount of commercial paper outstanding during 2013 was $118 million and $198 million, respectively. During the fourth quarter, the average and maximum amounts outstanding were $130 million and $162 million respectively. At year end, we had no letters of credit outstanding under the credit agreement, but we had $76 million of stand-by letters of credit outside the agreement to take advantage of more attractive fee pricing.

In November 2014, we have $180 million of 4.65% notes that mature. With operating cash flows, our commercial paper program, and our ability to issue debt in the capital markets, we believe we have sufficient funds available to repay maturing debt, as well as support our ongoing operations, pay dividends, fund future growth, and repurchase stock.

Accessibility of Cash

At December 31, 2013, we had cash and cash equivalents of $273 million primarily invested in interest-bearing bank accounts and in bank time deposits with original maturities of three months or less.

A substantial portion of these funds are held in the international accounts of our foreign operations. Though we do not rely on this foreign cash as a source of funds to support our ongoing domestic liquidity needs, we believe we could bring most of this cash back to the U.S. over a period of two to three years without material cost. However, due to capital requirements in various jurisdictions, approximately $50 million of this cash is currently inaccessible for repatriation. Additionally, if we had to bring all of the foreign cash back immediately in the form of dividends, we would incur incremental tax expense of up to approximately $63 million. In 2013, 2012, and 2011, we brought back $119 million, $50 million, and $89 million (respectively) of cash, in each case at little to no added tax cost.

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CONTRACTUAL OBLIGATIONS

The following table summarizes our future contractual cash obligations and commitments at December 31, 2013:



			Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
(Dollar amounts in millions)
Long-term debt ¹	$	865	$	180	$	202	$	170	$	313
Capitalized leases	4		1		2		1		—
Operating leases	101		31		41		15		14
Purchase obligations ²	298		298		—		—		—
Interest payments ³	144		35		41		30		38
Deferred income taxes	63		—		—		—		63
Other obligations (including pensions and reserves for tax contingencies)	135		3		16		21		95
Total contractual cash obligations	$	1,610	$	548	$	302	$	237	$	523

_______________________________________________________________________________


1.	The long-term debt payment schedule presented above could be accelerated if we were not able to make the principal and interest payments when due.


2.	Purchase obligations primarily include open short-term (30-120 days) purchase orders that arise in the normal course of operating our facilities.


3.	Interest payments are calculated on debt outstanding at December 31, 2013 at rates in effect at the end of the year.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. To do so, we must make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosures. If we used different estimates or judgments our financial statements would change, and some of those changes could be significant. Our estimates are frequently based upon historical experience and are considered by management, at the time they are made, to be reasonable and appropriate. Estimates are adjusted for actual events, as they occur.

“Critical accounting estimates” are those that are: a) subject to uncertainty and change, and b) of material impact to our financial statements. Listed below are the estimates and judgments which we believe could have the most significant effect on our financial statements.

We provide additional details regarding our significant accounting policies in Note A to the Consolidated Financial Statements on page 74.



Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Goodwill
Goodwill is assessed for impairment annually as of June 30 and as triggering events occur. In the past three years, no impairments have been recorded as a result of the annual impairment reviews. In December 2013, we concluded that an impairment was required relating to the goodwill of the Commercial Vehicle Products (CVP) group. A non-cash charge of $63 million was recorded in the fourth quarter of 2013.	In order to assess goodwill for potential impairment, judgment is required to estimate the fair market value of each reporting unit (which is one level below reportable segments) using the combination of a discounted cash flow model and a market approach using price to earnings ratios for comparable publicly traded companies with characteristics similar to the reporting unit. The cash flow model contains uncertainties related to the forecast of future results as many outside economic and competitive factors can influence future performance. Margins, sales growth, and discount rates are the most critical estimates in determining enterprise values using the cash flow model.	The remaining goodwill associated with the CVP reporting unit is $13 million. A further decline in the long-term outlook for the business could result in future impairments. Fair value for one of the 10 reporting units (Store Fixtures) exceeded book value by approximately 18%. The goodwill associated with this reporting unit is $109 million. This business is dependent upon capital spending by retailers for both new stores and remodeling of existing stores. Although 2012 performance was better than expected, 2013 fell short of expectations. The predictability of future results is less certain than that of other reporting units because of the project nature of this business. If we are not able to meet projected performance levels, future impairments could be possible.

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Goodwill (cont.)
	The market approach requires judgment to determine the appropriate price to earnings ratio. Ratios are derived from comparable publicly-traded companies that operate in the same or similar industry as the reporting unit.	The remaining reporting units have fair market values that exceed carrying value by more than 40%, and have goodwill of $818 million. Information regarding material assumptions used to determine if a goodwill impairment exists can be found in Note C on page 79.
Other Long-lived Assets
Other long-lived assets are tested for recoverability at year-end and whenever events or circumstances indicate the carrying value may not be recoverable. For other long-lived assets we estimate fair value at the lowest level where cash flows can be measured (usually at a branch level).	Impairments of other long-lived assets usually occur when major restructuring activities take place, or we decide to discontinue product lines completely. Our impairment assessments have uncertainties because they require estimates of future cash flows to determine if undiscounted cash flows are sufficient to recover carrying values of these assets. For assets where future cash flows are not expected to recover carrying value, fair value is estimated which requires an estimate of market value based upon asset appraisals for like assets.	These impairments are unpredictable. Impairments were $2 million in 2013 and 2012, and $35 million in 2011. The 2011 impairments were largely the result of lowered future business expectations at several underperforming locations that resulted in the decision to exit some unprofitable lines of business. Prior forecasts assumed a recovery in business levels (primarily housing related industries) that had not materialized by late 2011.
Inventory Reserves
We reduce the carrying value of inventories to reflect an estimate of net realizable value for obsolete and slow-moving inventory.	Our inventory reserve contains uncertainties because the calculation requires management to make assumptions about the value of products that are obsolete or slow-moving (i.e. not selling very quickly).	At December 31, 2013, the reserve for obsolete and slow-moving inventory was $36 million (approximately 6% of FIFO inventories). This is consistent with the December 31, 2012 and 2011 reserves of $36 million and $39 million, representing 6% and 7% of FIFO inventories, respectively.

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Inventory Reserves (cont.)
We value inventory at net realizable value (what we think we will recover.) Generally a reserve is not required unless we have more than a one-year's supply of the product. If we have had no sales of a given product for 12 months, those items are generally deemed to have no value and are written down completely.	Changes in customer behavior and requirements can cause inventory to quickly become obsolete or slow moving. The calculation also uses an estimate of the ultimate recoverability of items identified as slow moving based upon historical experience (65% on average).	Additions to inventory reserves in 2013 were $12 million, which were comparable to the previous year. We do not expect obsolescence to change from current levels.
Workers’ Compensation
We are substantially self-insured for costs related to workers’ compensation, and this requires us to estimate the liability associated with this obligation.	Our estimates of self-insured reserves contain uncertainties regarding the potential amounts we might have to pay (since we are self-insured). We consider a number of factors, including historical claim experience, demographic factors, and potential recoveries from third party insurance carriers.	Over the past five years, we have incurred, on average, $9 million annually for costs associated with workers’ compensation. Average year-to-year variation over the past five years has been approximately $1 million. At December 31, 2013, we had accrued $35 million to cover future self-insurance liabilities. Internal safety statistics and cost trends have improved in the last several years and are expected to remain at current lower levels for the foreseeable future.
Credit Losses
For accounts and notes receivable, we estimate a bad debt reserve for the amount that will ultimately be uncollectible. When we become aware of a specific customer’s potential inability to pay, we record a bad debt reserve for the amount we believe may not be collectible.	Our bad debt reserve contains uncertainties because it requires management to estimate the amount uncollectible based upon an evaluation of several factors such as the length of time that receivables are past due, the financial health of the customer, industry and macroeconomic considerations, and historical loss experience.	A significant change in the financial status of a large customer could impact our estimates. The average annual amount of customer-related bad debt expense was $5 million (less than 1% of annual net sales) over the last three years. At December 31, 2013, our reserves for doubtful accounts totaled $17 million (about 4% of our accounts and customer-related notes receivable of $452 million).

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Credit Losses (cont.)
	Our customers are diverse and many are small-to-medium sized companies, with some being highly leveraged. Bankruptcy can occur with some of these customers relatively quickly and with little warning.	We have not experienced any significant individual customer bankruptcies in the past three years. We believe the financial health of our major customers has modestly improved, but some are highly leveraged, and this could cause circumstances to change in the future. At December 31, 2013, we had $11 million of non-customer notes receivable, primarily related to divested businesses, and have recorded reserves of $1 million for these notes. Most of these notes are to be paid by highly leveraged entities, which could result in the need for additional reserves in the future.
Pension Accounting
For our pension plans, we must estimate the cost of benefits to be provided (well into the future) and the current value of those benefit obligations.	The pension liability calculation contains uncertainties because it requires management to estimate an appropriate discount rate to calculate the present value of future benefits paid, which also impacts current year pension expense. Determination of pension expense requires an estimate of expected return on pension assets based upon the mix of investments held (bonds and equities). Other assumptions include rates of compensation increases, withdrawal and mortality rates, and retirement ages. These estimates impact the pension expense or income we recognize and our reported benefit obligations.	The discount rates used to calculate the pension liability for our most significant plans increased approximately 80 basis points in 2013 due to higher corporate bond yields. Each 25 basis point increase in the discount rate decreases pension expense by $.6 million and decreases the plans’ benefit obligation by $9 million. The expected return on assets was 6.6% in 2013 and 2012, and 6.7% in 2011. A 25 basis point reduction in the expected return on assets would increase pension expense by $.5 million, but have no effect on the plans’ funded status. Assuming a long-term investment horizon, we do not expect a material change to the return on asset assumption.

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Income Taxes
In the ordinary course of business, we must make estimates of the tax treatment of many transactions, even though the ultimate tax outcome may remain uncertain for some time. These estimates become part of the annual income tax expense reported in our financial statements. Subsequent to year end, we finalize our tax analysis and file income tax returns. Tax authorities periodically audit these income tax returns and examine our tax filing positions, including (among other things) the timing and amounts of deductions, and the allocation of income among tax jurisdictions. We adjust income tax expense in our financial statements in the periods in which the actual outcome becomes more certain.	Our tax liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures related to our various filing positions. Our effective tax rate is also impacted by changes in tax laws, the current mix of earnings by taxing jurisdiction, and the results of current tax audits and assessments. At December 31, 2013 and 2012, we had $43 million and $39 million, respectively, of net deferred tax assets on our balance sheet related to operating loss and tax credit carryforwards. The ultimate realization of these deferred tax assets is dependent upon the amount, source, and timing of future taxable income. Valuation allowances are established against future potential tax benefits to reflect the amounts we believe have no more than a 50% probability of being realized. In addition, assumptions have been made regarding the non-repatriation of earnings from certain subsidiaries. Those assumptions may change in the future, thereby affecting future period results for the tax impact of possible repatriation.	Potential changes in tax laws could impact assumptions related to the non-repatriation of certain foreign earnings. If all non-repatriated earnings were taxed, we would incur additional taxes of approximately $63 million. Audits by various taxing authorities continue to increase as governments look for ways to raise additional revenue. Based upon past experience, we do not expect any material changes to our tax liability as a result of this increased audit activity; however, we could incur additional tax expense if we have audit adjustments higher than recent historical experience. The recovery of net operating losses (NOL’s) has been closely evaluated for the likelihood of recovery based upon factors such as the age of losses, viable tax planning strategies, and future taxable earnings expectations. We believe that appropriate valuation allowances have been recorded as necessary. However, if earnings expectations or other assumptions change such that additional valuation allowances are required, we could incur additional tax expense.

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Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Contingencies
We evaluate various legal, environmental, and other potential claims against us to determine if an accrual or disclosure of the contingency is appropriate. If it is probable that an ultimate loss will be incurred, we accrue a liability for the reasonable estimate of the ultimate loss.	Our disclosure and accrual of loss contingencies (i.e., losses that may or may not occur) contain uncertainties because they are based on our assessment of the likelihood that the expenses will actually occur, and our estimate of the likely cost. Our estimates and judgments are subjective and can involve matters in litigation, the results of which are generally unpredictable.	Legal contingencies are related to numerous lawsuits and claims described beginning on page 54. Over the past five years, the largest annual cost for litigation claims was $6 million (excluding legal fees). As discussed in Note T on page 113, we are defendants in a group of antitrust lawsuits related to alleged price fixing of prime foam and carpet underlay products. We will vigorously defend ourselves in this matter. However, if we are not able to prevail in future court proceedings this could have a negative impact on future cash flows and earnings. Due to the number of variables and uncertainties in this matter, we are unable to estimate the range of potential exposure at this time.

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CONTINGENCIES

Our disclosure and accrual of loss contingencies (i.e., losses that may or may not occur) are based on our assessment of the probability that the expenses will actually occur, and our reasonable estimate of the likely cost. Our estimates and judgments are subjective and can involve matters in litigation, the results of which are generally very unpredictable.

Shareholder Derivative Lawsuit

On August 10, 2010, a shareholder derivative suit was filed by the New England Carpenters Pension Fund in the Circuit Court of Jasper County, Missouri as Case No. 10AO-CC284. The suit was purportedly brought on our behalf, naming us as a nominal defendant, and certain current and former officers and directors as individual defendants including David S. Haffner, Karl G. Glassman, Matthew C. Flanigan, Ernest C. Jett, Harry M. Cornell, Jr., Felix E. Wright, Robert Ted Enloe, III, Richard T. Fisher, Judy C. Odom, Maurice E. Purnell, Jr., Ralph W. Clark and Michael A. Glauber. The plaintiff alleged, among other things, that the individual defendants: breached their fiduciary duties; backdated and received backdated stock options violating our stock plans; caused or allowed us to issue false and misleading financial statements and proxy statements; sold our stock while possessing material non-public information; committed gross mismanagement; wasted corporate assets; committed fraud; violated the Missouri Securities Act; and were unjustly enriched.

The plaintiff is seeking, among other things: unspecified monetary damages against the individual defendants; certain equitable and other relief relating to the profits from the alleged improper conduct; the adoption of certain corporate governance proposals; the imposition of a constructive trust over the defendants’ stock options and proceeds; punitive damages; the rescission of certain unexercised options; and the reimbursement of litigation costs. The plaintiff is not seeking monetary relief from us. We have director and officer liability insurance in force subject to customary limits and exclusions.

We and the individual defendants filed motions to dismiss the suit in late October 2010, asserting: the plaintiff failed to make demand on our Board and shareholders as required by Missouri law, and this failure to make demand should not be excused; the dismissal of the substantially similar suit in 2009 precludes the 2010 suit; the plaintiff is not a representative shareholder; the suit was based on a statistical analysis of stock option grants and our stock prices that we believe was flawed; the plaintiff failed to state a substantive claim; the common law fraud claim was not pled with sufficient particularity; and the statute of limitations has expired on the fraud claim and all the alleged challenged grants except the December 30, 2005 grant. As to this grant, the motions to dismiss advised the Court that it was made under our Deferred Compensation Program, which (i) provided that options would be dated on the last business day of December, and (ii) was filed with the SEC on December 2, 2005 setting out the pricing mechanism well before the grant date. On April 6, 2011, the suit was dismissed without prejudice.

On May 12, 2011, the plaintiff filed an appeal to the Missouri Court of Appeals. On November 28, 2012, the Missouri Court of Appeals reversed the trial court's dismissal finding that plaintiff sufficiently pleaded it would be futile to make demand on the Board and shareholders. The Court of Appeals did not address the other grounds that had been raised in the motions to dismiss. We filed a request for transfer to the Missouri Supreme Court on December 12, 2012, which was denied by the Court of Appeals. On January 3, 2013, we filed a transfer petition to the Missouri Supreme Court. On February 26, 2013, the Missouri Supreme Court denied our request. The case was sent back to Jasper County, Missouri for further proceedings. At the parties' request, on June 4, 2013, the circuit court stayed all proceedings to allow the parties to mediate the dispute. The stay of litigation remains in effect.

We do not expect that the outcome of this matter will have a material adverse effect on our financial condition, operating cash flows or results of operations.

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Antitrust Lawsuits

Beginning in August 2010, a series of civil lawsuits was initiated in several U.S. federal courts and in Canada against over 20 defendants alleging that competitors of our carpet underlay business unit and other manufacturers of polyurethane foam products had engaged in price fixing in violation of U.S. and Canadian antitrust laws.

A number of these lawsuits have been voluntarily dismissed, most without prejudice. Of the U.S. cases remaining, we have been named as a defendant in (a) three direct purchaser class action cases (the first on November 15, 2010) and a consolidated amended class action complaint filed on February 28, 2011 on behalf of a class of all direct purchasers of polyurethane foam products; (b) an indirect purchaser class consolidated amended complaint filed on March 21, 2011; and an indirect purchaser class action case filed on May 23, 2011; (c) 39 individual direct purchaser cases filed between March 22, 2011 and October 16, 2013; and (d) two individual cases alleging direct and indirect purchaser claims under the Kansas Restraint of Trade Act, one filed on November 29, 2012 and the other on April 11, 2013. All of the pending U.S. federal cases in which we have been named as a defendant, have been filed in or have been transferred to the U.S. District Court for the Northern District of Ohio under the name In re: Polyurethane Foam Antitrust Litigation, Case No. 1:10-MD-2196.

In the U.S. actions, the plaintiffs, on behalf of themselves and/or a class of purchasers, seek three times the amount of unspecified damages allegedly suffered as a result of alleged overcharges in the price of polyurethane foam products from at least 1999 to the present. Each plaintiff also seeks attorney fees, pre-judgment and post-judgment interest, court costs, and injunctive relief against future violations. On April 15 and May 6, 2011, we filed motions to dismiss the U.S. direct purchaser and indirect purchaser class actions in the consolidated case in Ohio, for failure to state a legally valid claim. On July 19, 2011, the Ohio Court denied the motions to dismiss. Discovery is underway in the U.S. actions. Motions for class certification have been filed on behalf of both direct and indirect purchasers. A hearing on the motions was held January 15, 2014. A decision on class certification is expected in the upcoming weeks.

We have been named in two Canadian class action cases (for direct and indirect purchasers of polyurethane foam products), both under the name Hi Neighbor Floor Covering Co. Limited and Hickory Springs Manufacturing Company, et.al. in the Ontario Superior Court of Justice (Windsor), Court File Nos. CV-10-15164 (amended November 2, 2011) and CV-11-17279 (issued December 30, 2011). In each of the Canadian cases, the plaintiffs, on behalf of themselves and/or a class of purchasers, seek from over 13 defendants restitution of the amount allegedly overcharged, general and special damages in the amount of $100 million, punitive damages of $10 million, pre-judgment and post-judgment interest, and the costs of the investigation and the action. We are not yet required to file our defenses in the Canadian actions. In addition, on July 10, 2012, plaintiff in a class action case (for direct and indirect purchasers of polyurethane foam products) styled Option Consommateurs and Karine Robillard v. Produits Vitafoam Canada Limitée, et. al. in the Quebec Superior Court of Justice (Montréal), Court File No. 500-6-524-104, filed an amended motion for authorization seeking to add us and other manufacturers of polyurethane foam products as defendants in this case.

On June 22, 2012, we were also made party to a lawsuit brought in the 16^th Judicial Circuit Court, Jackson County, Missouri, Case Number 1216-CV15179 under the caption “Dennis Baker, on Behalf of Himself and all Others Similarly Situated vs. Leggett & Platt, Incorporated.” The plaintiff, on behalf of himself and/or a class of indirect purchasers of polyurethane foam products in the State of Missouri, alleged that we violated the Missouri Merchandising Practices Act based upon our alleged illegal price inflation of flexible polyurethane foam products. The plaintiff seeks unspecified actual damages, punitive damages and the recovery of reasonable attorney fees. We filed a motion to dismiss this action, which was denied on November 5, 2012. Discovery has commenced and plaintiff has filed a motion for class certification. The parties’ briefing is completed, and a hearing on the motion was held on February 20, 2014.

We deny all of the allegations in all of the above actions and will vigorously defend ourselves. These contingencies are subject to many uncertainties. Therefore, based on the information available to date, we cannot reasonably estimate the amount or range of potential loss, if any, because, at this juncture of the proceedings;

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discovery is incomplete, all expert liability reports have not been exchanged; and because the litigation involves unsettled legal theories.

Brazilian Value-Added Tax Matters

On December 22, 2011, the Brazilian Finance Ministry, Federal Revenue Office issued a notice of violation against our wholly-owned subsidiary, Leggett & Platt do Brasil Ltda. (“L&P Brazil”) in the amount of $3.1 million, under Case No. 10855.724660/2011-43. The Brazilian Revenue Office claimed that for the period beginning November 2006 and continuing through December 2007, L&P Brazil used an incorrect tariff code for the collection and payment of value-added tax primarily on the sale of mattress innerspring units in Brazil. L&P Brazil responded to the notice of violation on January 25, 2012 denying the violation. The Federal Revenue Office, on August 9, 2013, denied L&P Brazil's defenses and upheld the assessment at the first administrative level. L&P Brazil was notified about this judgment on October 16, 2013, and has filed an appeal.

On December 17, 2012, the Brazilian Revenue Office issued an additional notice of violation in the amount of $5.5 million under MPF Case No. 10855.725260/2012-36 covering the period from January 1, 2008 through December 31, 2010 on the same subject matter. L&P Brazil responded to the notice of violation on January 17, 2013 denying the violation. The Brazilian Revenue Office, on June 13, 2013, denied L&P Brazil's defenses and upheld the assessment at the first administrative level. L&P Brazil appealed this decision on July 8, 2013. The Brazilian Revenue Office, on December 18, 2013, also issued an audit notice for years 2011 and 2012, which may result in additional assessments.

In addition, L&P Brazil received assessments on December 22, 2011, and June 26, July 2 and November 5, 2012, and September 13, 2013 from the Brazilian Revenue Office where the Revenue Office challenged L&P Brazil's use of certain tax credits in the years 2006 through 2010. Such credits are generated based upon the tariff classification and rate used by L&P Brazil for value-added tax on the sale of mattress innersprings. Combined with prior assessments, L&P Brazil has received assessments totaling $1.7 million on the same or similar denial of tax credit matters.

L&P Brazil is also party to a proceeding involving the State of Sao Paulo, Brazil where the State of Sao Paulo, on April 16, 2009, issued a Notice of Tax Assessment and Imposition of Fine to L&P Brazil seeking $2.4 million for the tax years 2006 and 2007, under Case No. 3.111.006 (DRT n°.04-256.169/2009). The State of Sao Paulo argued that L&P Brazil was using an incorrect tariff code for the collection and payment of value-added tax on sales of mattress innerspring units in the State of Sao Paulo. On September 29, 2010, the Court of Tax and Fees of the State of Sao Paulo ruled in favor of L&P Brazil nullifying the tax assessment. The State filed a special appeal and the Special Appeals court remanded the case back to the Court of Tax and Fees for further findings. On November 9, 2012, the Court of Tax and Fees again ruled in favor of L&P Brazil and nullified the tax assessment. On November 28, 2012, the State filed another special appeal. The determination to accept the special appeal was made on December 26, 2012, and L&P Brazil responded to this special appeal on January 24, 2013.

We were also informed on October 4, 2012 that the State of Sao Paulo issued an Auto-Infringement and Imposition of a Fine dated May 29, 2012 under Procedure Number 4.003.484 against L&P Brazil in the amount of $2.0 million for the tax years 2009 through 2011. Similar to the prior assessment, the State of Sao Paulo argues that L&P Brazil was using an incorrect tax rate for the collection and payment of value-added tax on sales of mattress innerspring units in the State of Sao Paulo. On June 21, 2013, the State of Sao Paulo's attorneys converted the Auto-Infringement and Imposition of a Fine No. 4.003.484 to a fiscal execution action against L&P Brazil in the amount of $2.6 million, under Sorocaba Judicial District Court, Case No. 3005528-50.2013.8.26.0602. L&P Brazil filed its response on January 27, 2014 denying the allegations.

On December 18, 2012, the State of Minas Gerais, Brazil issued a tax assessment to L&P Brazil relating to L&P Brazil's classifications of innersprings for the collection and payment of value-added tax on the sale of mattress innersprings in Minas Gerais from March 1, 2008 through August 31, 2012 in the amount of $.6 million, under PTA Case No. 01.000.182756-62. L&P Brazil filed its response denying any violation on January 17, 2013. On October 22, 2013, the first administrative level ruled against us but did reduce the tax to $.3 million (plus

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interest and penalties). We appealed to the second administrative level on December 30, 2013, which affirmed the first administrative level ruling.

On February 1, 2013, the Brazilian Finance Ministry filed suit against L&P Brazil in the Camanducaia Judicial District Court, Case No. 0002222-35.2013.8.13.0878, alleging the untimely payment of $.2 million of social contributions (social security and social assistance payments). L&P Brazil filed its response on July 11, 2013, denying the allegations. L&P Brazil argued the payments were not required to be made because of the application of certain tax credits that were generated by L&P Brazil's use of a tariff code for the classification of value-added tax on the sale of mattress innersprings (i.e., the same underlying issue at stake in the other Brazilian matters). L&P Brazil posted a bond and filed its response on July 11, 2013, denying the allegations.

We deny all of the allegations in these actions. We believe that we have valid bases upon which to contest such actions and will vigorously defend ourselves. However, these contingencies are subject to many uncertainties.

Patent Infringement Claim

On January 24, 2012, in a case in the United States District Court for the Central District of California, the jury entered a verdict against us in the amount of $5 million based upon an allegation by plaintiff that we infringed three patents on an automatic stapling machine and on methods used to assemble box springs. This action was originally filed on October 4, 2010, as case number CV10-7416 RGK (SSx) under the caption Imaginal Systematic, LLC v. Leggett & Platt, Incorporated; Simmons Bedding Company; and Does 1 through 10, inclusive. Leggett is contractually obligated to defend and indemnify Simmons Bedding Company against a claim for infringement.

On summary judgment motions, we unsuccessfully disputed each patent's validity and denied that we infringed any patent. At the jury trial on damages issues, the plaintiff alleged damages of $16.2 million. The court denied plaintiff's attempt to win an attorney fee award and triple the pre-verdict damages.

On April 9, 2012 we appealed the case to the Federal Circuit Court of Appeals. Oral argument was held on February 6, 2013 before a three judge appeal panel in the Federal Circuit in Washington D.C. On February 14, 2013, the Court of Appeals issued a judgment affirming the $5 million verdict against us, which was fully accrued for in the first quarter of 2013 and then paid in the second quarter of 2013. We filed a petition for a rehearing of the Court of Appeals decision on March 18, 2013, which was denied by the Court of Appeals.

The plaintiff requested royalties for post-verdict use of the machines, and requested pre-judgment interest in the amount of $.7 million. On July 3, 2013, the District Court ruled that the plaintiff was not entitled to additional ongoing royalties for our continued use of the machines, but did award pre-judgment interest of $.5 million. On August 2, 2013, both parties filed a notice of appeal of this order to the Federal Circuit Court of Appeals, but plaintiff has since withdrawn its appeal.

In 2011, we also filed reexamination proceedings in the Patent Office (Case Nos. 95/001,543 filed February 11, 2011; 95/001,546 and 95/001,547 filed February 16, 2011), challenging the validity of each patent at issue in the lawsuit the plaintiff brought. The Patent Office examiner ruled in our favor on the key claims of one of the three patents. The Patent Office examiner initially ruled in our favor on the pertinent claims of the second of the patents, but subsequently reversed that decision. With respect to the third patent, the Patent Office's examiner decision upheld the validity of all claims. All three of these proceedings were appealed to the Board of Patent Appeals. Due to a change made to all of the machines, we do not believe that the machines currently use the feature alleged to have infringed the third patent. On April 25, 2013, the plaintiff filed petitions to terminate all re-examination proceedings based on the final ruling of the Federal Circuit Court of Appeals. We opposed those petitions. The Patent Office terminated all three re-examination proceedings, two on December 16, and one on December 18, 2013.

On July 29, 2013, the plaintiff filed a second lawsuit in the United States District Court for the Central District of California, Case No. CV13-05463 alleging that we and Simmons Bedding Company have continued to infringe the three patents on an automatic stapl