Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from             to
Commission File Number 001-07845
LEGGETT & PLATT, INCORPORATED
(Exact name of registrant as specified in its charter)
 
Missouri
 
44-0324630
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
No. 1 Leggett Road
Carthage, Missouri
 
64836
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (417) 358-8131
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
  
 
Accelerated filer
¨
 
 
 
 
 
 
Non-accelerated filer
¨
 
 
Smaller reporting company
¨
 
 
 
 
 
 
 
 
  
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨     No   ý
Common stock outstanding as of November 2, 2018: 130,417,754



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Amounts in millions)
September 30,
2018
 
December 31,
2017
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
363.5

 
$
526.1

Trade receivables, net
600.7

 
522.3

Other receivables, net
24.8

 
72.8

Total receivables, net
625.5

 
595.1

Inventories
 
 
 
Finished goods
329.1

 
285.6

Work in process
48.2

 
53.0

Raw materials and supplies
332.3

 
283.4

LIFO reserve
(75.6
)
 
(50.9
)
Total inventories, net
634.0

 
571.1

Prepaid expenses and other current assets
44.0

 
74.2

Total current assets
1,667.0

 
1,766.5

PROPERTY, PLANT AND EQUIPMENT—AT COST
 
 
 
Machinery and equipment
1,277.0

 
1,210.6

Buildings and other
651.1

 
626.0

Land
43.0

 
40.6

Total property, plant and equipment
1,971.1

 
1,877.2

Less accumulated depreciation
1,248.1

 
1,213.3

Net property, plant and equipment
723.0

 
663.9

OTHER ASSETS
 
 
 
Goodwill
840.3

 
822.2

Other intangibles, less accumulated amortization of $162.9 and $151.7 as of September 30, 2018 and December 31, 2017, respectively
188.4

 
169.1

Sundry
130.4

 
129.1

Total other assets
1,159.1

 
1,120.4

TOTAL ASSETS
$
3,549.1

 
$
3,550.8

CURRENT LIABILITIES
 
 
 
Current maturities of long-term debt
$
3.6

 
$
153.8

Accounts payable
428.7

 
430.3

Accrued expenses
269.5

 
303.4

Other current liabilities
83.1

 
88.7

Total current liabilities
784.9

 
976.2

LONG-TERM LIABILITIES
 
 
 
Long-term debt
1,353.2

 
1,097.9

Other long-term liabilities
157.4

 
202.9

Deferred income taxes
87.6

 
83.0

Total long-term liabilities
1,598.2

 
1,383.8

COMMITMENTS AND CONTINGENCIES

 

EQUITY
 
 
 
Common stock
2.0

 
2.0

Additional contributed capital
521.7

 
514.7

Retained earnings
2,611.7

 
2,511.3

Accumulated other comprehensive income (loss)
(58.7
)
 
(9.5
)
Treasury stock
(1,911.2
)
 
(1,828.3
)
Total Leggett & Platt, Inc. equity
1,165.5

 
1,190.2

Noncontrolling interest
.5

 
.6

Total equity
1,166.0

 
1,190.8

TOTAL LIABILITIES AND EQUITY
$
3,549.1

 
$
3,550.8

See accompanying notes to consolidated condensed financial statements.

2


LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Nine Months Ended
 
Three Months Ended
 
September 30,
 
September 30,
(Amounts in millions, except per share data)
2018
 
2017
 
2018
 
2017
Net sales
$
3,222.8

 
$
2,959.3

 
$
1,091.5

 
$
1,009.7

Cost of goods sold
2,547.3

 
2,285.4

 
864.4

 
793.2

Gross profit
675.5

 
673.9

 
227.1

 
216.5

Selling and administrative expenses
313.2

 
306.2

 
100.7

 
95.4

Amortization of intangibles
15.3

 
16.0

 
5.2

 
6.2

Impairments
.3

 
4.6

 
.1

 
4.5

Other (income) expense, net
(6.2
)
 
(.3
)
 
(3.3
)
 
1.2

Earnings from continuing operations before interest and income taxes
352.9

 
347.4

 
124.4

 
109.2

Interest expense
43.5

 
31.2

 
13.1

 
10.2

Interest income
6.8

 
5.2

 
2.0

 
1.7

Earnings from continuing operations before income taxes
316.2

 
321.4

 
113.3

 
100.7

Income taxes
63.2

 
64.2

 
23.3

 
17.2

Earnings from continuing operations
253.0

 
257.2

 
90.0

 
83.5

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

 
(.9
)
 
—

 
(.9
)
Net earnings
253.0

 
256.3

 
90.0

 
82.6

Earnings attributable to noncontrolling interest, net of tax
(.1
)
 
—

 
—

 
—

Net earnings attributable to Leggett & Platt, Inc. common shareholders
$
252.9

 
$
256.3

 
$
90.0

 
$
82.6

Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
1.88

 
$
1.89

 
$
.67

 
$
.62

Diluted
$
1.87

 
$
1.87

 
$
.67

 
$
.61

Earnings (loss) per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
—

 
$
(.01
)
 
$
—

 
$
(.01
)
Diluted
$
—

 
$
(.01
)
 
$
—

 
$
(.01
)
Net earnings per share attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Basic
$
1.88

 
$
1.88

 
$
.67

 
$
.61

Diluted
$
1.87

 
$
1.86

 
$
.67

 
$
.60

 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
134.4

 
136.1

 
133.8

 
135.7

Diluted
135.4

 
137.5

 
134.7

 
136.9

See accompanying notes to consolidated condensed financial statements.

3


LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Nine Months Ended
 
Three Months Ended
 
September 30,
 
September 30,
(Amounts in millions)
2018
 
2017
 
2018
 
2017
Net earnings
$
253.0

 
$
256.3

 
$
90.0

 
$
82.6

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments, including acquisition of non-controlling interest
(50.0
)
 
69.9

 
(10.9
)
 
25.8

Cash flow hedges
(.7
)
 
5.4

 
.6

 
.8

Defined benefit pension plans
1.5

 
1.5

 
.4

 
.4

Other comprehensive income (loss)
(49.2
)
 
76.8

 
(9.9
)
 
27.0

Comprehensive income
203.8

 
333.1

 
80.1

 
109.6

Less: comprehensive income attributable to noncontrolling interest
(.1
)
 
(.1
)
 
(.1
)
 
—

Comprehensive income attributable to Leggett & Platt, Inc.
$
203.7

 
$
333.0

 
$
80.0

 
$
109.6

See accompanying notes to consolidated condensed financial statements.

4

LEGGETT & PLATT, INCORPORATED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended September 30,
(Amounts in millions)
2018
 
2017
OPERATING ACTIVITIES
 
 
 
Net earnings
$
253.0

 
$
256.3

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation
77.4

 
71.2

Amortization of intangibles and debt issuance costs
23.6

 
23.2

Long-lived asset impairments
.3

 
3.3

Goodwill impairment
—

 
1.3

Provision for losses on accounts and notes receivable
1.9

 
.3

Writedown of inventories
4.9

 
2.9

Net (gain) loss from sales of assets and businesses
(1.8
)
 
.2

Deferred income tax expense
2.0

 
6.0

Stock-based compensation
26.6

 
28.1

Pension contributions, net of expense
(18.7
)
 
(7.9
)
Other, net
3.4

 
(5.7
)
Increases/decreases in, excluding effects from acquisitions and divestitures:
 
 
 
Accounts and other receivables
(76.2
)
 
(79.3
)
Inventories
(45.8
)
 
(39.5
)
Other current assets
.9

 
(11.5
)
Accounts payable
(.6
)
 
14.4

Accrued expenses and other current liabilities
.2

 
(1.8
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
251.1

 
261.5

INVESTING ACTIVITIES
 
 
 
Additions to property, plant and equipment
(122.6
)
 
(119.0
)
Purchases of companies, net of cash acquired
(107.9
)
 
(39.0
)
Proceeds from sales of assets and businesses
3.7

 
12.6

Other, net
(13.5
)
 
(10.1
)
NET CASH USED FOR INVESTING ACTIVITIES
(240.3
)
 
(155.5
)
FINANCING ACTIVITIES
 
 
 
Additions to long-term debt
—

 
.6

Payments on long-term debt
(152.3
)
 
(6.4
)
Change in commercial paper and short-term debt
251.8

 
234.2

Dividends paid
(144.2
)
 
(138.0
)
Issuances of common stock
4.3

 
2.0

Purchases of common stock
(112.2
)
 
(156.8
)
Purchase of remaining interest in noncontrolling interest
—

 
(2.6
)
Additional consideration paid on prior year acquisitions
(8.6
)
 
(2.0
)
Other, net
9.0

 
—

NET CASH USED FOR FINANCING ACTIVITIES
(152.2
)
 
(69.0
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(21.2
)
 
24.0

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(162.6
)
 
61.0

CASH AND CASH EQUIVALENTS—January 1,
526.1

 
281.9

CASH AND CASH EQUIVALENTS—September 30,
$
363.5

 
$
342.9

See accompanying notes to consolidated condensed financial statements.

5


LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except per share data)
1. INTERIM PRESENTATION
The interim financial statements of Leggett & Platt, Incorporated (we, us or our) included herein have not been audited by an independent registered public accounting firm. The statements include all adjustments, including normal recurring accruals, which management considers necessary for a fair statement of our financial position and operating results for the periods presented. We have prepared the statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year.
The December 31, 2017 financial position data included herein was derived from the audited consolidated financial statements included in Form 10-K, but does not include all disclosures required by GAAP. For further information, refer to the financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2017.

Reclassifications
Due to required retrospective application, certain reclassifications have been made to the prior period's information in the Consolidated Condensed Statements of Operations to conform to the 2018 presentation of "Cost of goods sold", "Selling and administrative expenses" and "Other (income) expense, net" for new accounting guidance associated with pension costs (see Note 2 - Accounting Standard Updates).

2. ACCOUNTING STANDARD UPDATES
    
The Financial Accounting Standards Board (FASB) regularly issues updates to the FASB Accounting Standards Codification that are communicated through issuance of an Accounting Standards Update (ASU).   Below is a summary of the ASUs, effective for current or future periods, most relevant to our financial statements. The FASB has issued accounting guidance, in addition to the items discussed below, effective for future periods which we do not believe will have a material impact on our future financial statements.

Adopted in 2018:
 
•
On January 1, 2018, we adopted ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) as discussed in Note 3.

•
ASU 2017-07 “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”:  This ASU requires employers to disaggregate the service cost from other components of net periodic benefit costs and to disclose the income statement line item in which each component is included.  This guidance requires service costs to be reported in the same line item as other compensation costs, and the other components of net periodic benefit costs (which include interest costs, expected return on plan assets and actuarial gains and losses) to be reported outside of operating income. We adopted this guidance on January 1, 2018.  Application was required on a retrospective basis and resulted in a reclassification of $2.9 and $1.0 of expense from “Cost of goods sold” and “Selling and administrative expenses” into “Other (income) expense, net” for the nine months ended and three months ended September 30, 2017, respectively.  Refer to Note 11 for further information.

•
ASU 2018-05 “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118” (SAB 118):  This ASU allows SEC registrants to record provisional amounts in earnings due to the complexities involved in accounting for the enactment of the Tax Cuts and Jobs Act (TCJA). We recognized the estimated income tax effects of the TCJA in accordance with SAB 118. Refer to Note 15 for further information.


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

•
ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”:  We adopted this guidance on January 1, 2018, and it did not materially impact our financial statements.
 
To be adopted in future years:

•
ASU 2016-02 “Leases” (Topic 842): Requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. In July 2018, the FASB issued ASU 2018-11, which provides entities with a new transition method where comparative periods presented in financial statements in the period of adoption will not need to be restated.  Under the new transition method, an entity initially applies the provisions of Topic 842 at the adoption date, versus at the beginning of the earliest period presented, and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  We expect to elect this transition method at our adoption date of January 1, 2019.  We also intend to elect the available package of practical expedients not to reassess (1) whether a contract is or contains a lease, (2) lease classification, and (3) initial direct costs. We also intend to elect the practical expedient to use hindsight when determining lease term.

Our cross-functional implementation team continues to assess all potential impacts of the standard.  The implementation team has gathered the data required to account for leases under the new standard and is in the process of implementing our selected third-party lease accounting software.  In addition, we continue to identify and implement the appropriate changes to business processes and controls to support recognition and disclosure under the new standard.  We believe our assets and liabilities will materially increase for the adoption of this standard through the recording of these right-of-use assets and corresponding lease liabilities.  We continue to evaluate its impact on our statements of operations and cash flows.
 
•
ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”: This ASU is intended to simplify and clarify the accounting and disclosure requirements for hedging activities by more closely aligning the results of cash flow and fair value hedge accounting with the risk management activities of an entity. The amendments in this ASU are effective January 1, 2019, with early adoption permitted. We are currently evaluating the effect of the ASU on our results of operations, financial condition and cash flows.

•
ASU 2018-02 “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”: This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recorded.  The ASU will be effective January 1, 2019. Early adoption is permitted and the provisions of the ASU should be applied in either the period of adoption or retrospectively to each period in which the effect of the change in federal corporate income tax rate in the TCJA is recognized.  We are currently evaluating this guidance, and do not expect it to materially impact our future financial statements.

•
ASU 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment": This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under this ASU, the annual goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value up to the total amount of goodwill for the reporting unit. This ASU will be effective January 1, 2020, with early adoption permitted. We are currently evaluating this guidance, and do not expect it to materially impact our future financial statements.

•
ASU 2016-13 “Financial Instruments - Credit Losses” (Topic 326): This ASU is effective January 1, 2020 and amends the impairment model by requiring a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments including trade receivables. We are currently evaluating this guidance. However, we do not expect it to materially impact our future financial statements.

•
ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”:  This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.  This ASU will be effective January 1, 2020, with early adoption permitted.  We are currently evaluating this guidance.


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


 
3. REVENUE
    
Initial adoption of new ASU

On January 1, 2018, we adopted ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all the related amendments using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as a $2.3 reduction to the opening balance of "Retained earnings". The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the new standard to be immaterial to our sales, net earnings, balance sheet and cash flows on an ongoing basis.

Substantially all of our revenue continues to be recognized when products are shipped from our facilities or upon delivery to our customers' facilities. Topic 606 also provided clarity that resulted in reclassifications to or from "Net sales" and "Cost of goods sold".
The cumulative effect of applying Topic 606 to our Consolidated Condensed Balance Sheet was as follows:
 
Balance at December 31, 2017 as Previously Reported
 
Topic 606 Adjustments
 
Balance at January 1, 2018
Current assets
$
1,766.5

 
$
—

 
$
1,766.5

Net property, plant and equipment
663.9

 
—

 
663.9

Other assets 1
1,120.4

 
.7

 
1,121.1

Total assets
$
3,550.8

 
$
.7

 
$
3,551.5

 
 
 
 
 
 
Other current liabilities 2
$
88.7

 
$
3.0

 
$
91.7

All other current liabilities
887.5

 
—

 
887.5

Long-term liabilities
1,383.8

 
—

 
1,383.8

Retained earnings
2,511.3

 
(2.3
)
 
2,509.0

Other equity
(1,320.5
)
 
—

 
(1,320.5
)
Total liabilities and equity
$
3,550.8

 
$
.7

 
$
3,551.5


1 This adjustment represents the deferred tax impact related to Topic 606.
2 This adjustment is associated with constraint on the amount of variable consideration.


8


The effect of applying Topic 606 on our Consolidated Condensed Statement of Operations and Balance Sheet was as follows:
 
For the nine months ended
September 30, 2018
 
For the three months ended
September 30, 2018
 
Amounts as Reported
 
Topic 606 Adjustments
 
Amounts Without Adoption of Topic 606
 
Amounts as Reported
 
Topic 606 Adjustments
 
Amounts Without Adoption of Topic 606
Net sales 3
$
3,222.8

 
$
10.4

 
$
3,233.2

 
$
1,091.5

 
$
2.2

 
$
1,093.7

Cost of goods sold 3
2,547.3

 
10.0

 
2,557.3

 
864.4

 
2.2

 
866.6

Gross profit
675.5

 
.4

 
675.9

 
227.1

 
—

 
227.1

Selling and administrative expenses
313.2

 
—

 
313.2

 
100.7

 
—

 
100.7

All other
9.4

 
—

 
9.4

 
2.0

 
—

 
2.0

Earnings from continuing operations before interest and income taxes
352.9

 
.4

 
353.3

 
124.4

 
—

 
124.4

Net interest expense
36.7

 
—

 
36.7

 
11.1

 
—

 
11.1

Income taxes
63.2

 
.1

 
63.3

 
23.3

 
—

 
23.3

(Earnings) attributable to noncontrolling interest, net of tax
(.1
)
 
—

 
(.1
)
 
—

 
—

 
—

Net earnings
$
252.9

 
$
.3

 
$
253.2

 
$
90.0

 
$
—

 
$
90.0


3 Adjustments are primarily associated with a reclassification of customer reimbursements of tooling cost from "Net sales" to "Cost of goods sold" and adjustments for variable consideration.

 
September 30, 2018
 
Amounts as Reported
 
Topic 606 Adjustments
 
Amounts Without Adoption of Topic 606
Current assets
$
1,667.0

 
$
—

 
$
1,667.0

Net property, plant and equipment
723.0

 
—

 
723.0

Other assets
1,159.1

 
(.7
)
 
1,158.4

Total assets
$
3,549.1

 
$
(.7
)
 
$
3,548.4

 
 
 
 
 
 
Other current liabilities
$
83.1

 
$
(2.9
)
 
$
80.2

All other current liabilities
701.8

 
—

 
701.8

Long-term liabilities
1,598.2

 
—

 
1,598.2

Retained earnings
2,611.7

 
2.2

 
2,613.9

Other equity
(1,445.7
)
 
—

 
(1,445.7
)
Total liabilities and equity
$
3,549.1

 
$
(.7
)
 
$
3,548.4


Performance Obligations and Shipping and Handling Costs
We recognize revenue when performance obligations under the terms of a contract with our customers are satisfied. For the nine and three months ended September 30, 2018, substantially all of our revenue was recognized upon transfer of control of our products to our customers, which was generally upon shipment from our facilities or upon delivery to our customers' facilities and was dependent on the terms of the specific contract. This conclusion considers the point at which our customers have the ability to direct the use of and obtain substantially all of the remaining benefits of the products that were transferred. Substantially all of any unsatisfied performance obligations as of September 30, 2018, will be satisfied within one year or less. Shipping and handling costs are included as a component of "Cost of goods sold".
Sales, value added, and other taxes collected in connection with revenue-producing activities are excluded from revenue.

9


Sales Allowances and Returns
The amount of consideration we receive and revenue we recognize varies with changes in various sales allowances, discounts and rebates (variable consideration) that we offer to our customers. We reduce revenue by our estimates of variable consideration based on contract terms and historical experience. Changes in estimates of variable consideration for the nine and three months ended September 30, 2018 were not material.
Some of our products transferred to customers can be returned, and we recognize the following for this right:
•
An estimated refund liability and a corresponding reduction to revenue based on historical returns experience.
•
An asset and a corresponding reduction to cost of sales for our right to recover products from customers upon settling the refund liability. We reduce the carrying amount of these assets by estimates of costs associated with the recovery and any additional expected reduction in value.

Our refund liability and the corresponding asset associated with our right to recover products from our customers were immaterial at September 30, 2018.
Practical Expedients
We have elected to apply the following practical expedients.
•
The existence of a significant financing component—We expect that at contract inception, the time period between when we transfer a promised good to our customer and our receipt of payment from that customer for that good will be one year or less (our typical trade terms are 30 to 60 days for U.S. customers and up to 90 days for our international customers).
•
Costs of obtaining a contract—We generally expense costs of obtaining a contract because the amortization period would be one year or less.
Revenue by Category
We disaggregate revenue by customer group, which is the same as our product lines for each of our segments, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
 
Nine Months Ended September 30, 2018
 
Three Months Ended September 30, 2018
 
 
Residential Products
 
 
 
Bedding group
$
679.3

 
$
236.9

Fabric & Flooring Products group 4
555.2

 
194.2

Machinery group
48.9

 
15.4

 
1,283.4

 
446.5

Industrial Products
 
 
 
Wire group
275.8

 
97.4

 
275.8

 
97.4

Furniture Products
 
 
 
Home Furniture group
291.9

 
91.9

Work Furniture group
217.5

 
71.6

Consumer Products group
357.4

 
130.6

 
866.8

 
294.1

Specialized Products
 
 
 
Automotive group
623.5

 
195.7

Aerospace Products group
112.6

 
35.8

Hydraulic Cylinders group
60.7

 
22.0

 
796.8

 
253.5

 
$
3,222.8

 
$
1,091.5

4 Name changed from Fabric & Carpet Cushion Group as of March 31, 2018

10



4. SEGMENT INFORMATION
We have four operating segments that supply a wide range of products:

•
Residential Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products. We also produce or distribute flooring underlayment, fabric, and geo components.
•
Industrial Products: These operations primarily supply steel rod and drawn steel wire to our other operations and to external customers. Our customers use this wire to make mechanical springs and many other end products.
•
Furniture Products: Operations in this segment supply a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture, adjustable bed bases, fashion beds, and bed frames.
•
Specialized Products: From this segment we supply lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries.

Our reportable segments are the same as our operating segments, which also correspond with our management structure. Each reportable segment has an executive vice president that reports to the chief executive officer, who is the chief operating decision maker (CODM). The operating results and financial information reported through the segment structure are regularly reviewed and used by the CODM to evaluate segment performance, allocate overall resources and determine management incentive compensation.
The accounting principles used in the preparation of the segment information are the same as those used for the consolidated financial statements. We evaluate performance based on Earnings Before Interest and Taxes (EBIT). Intersegment sales are made primarily at prices that approximate market-based selling prices. Centrally incurred costs are allocated to the segments based on estimates of services used by the segment. Certain of our general and administrative costs and miscellaneous corporate income and expenses are allocated to the segments based on sales or other appropriate metrics. These allocated corporate costs include depreciation and other costs and income related to assets that are not allocated or otherwise included in the segment assets.

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

A summary of segment results from continuing operations are shown in the following tables.
 
Trade
Sales
 
Inter-
Segment
Sales
 
Total
Sales
 
EBIT
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
Residential Products
$
446.5

 
$
3.4

 
$
449.9

 
$
43.0

Industrial Products
97.4

 
76.0

 
173.4

 
25.2

Furniture Products
294.1

 
3.9

 
298.0

 
14.0

Specialized Products
253.5

 
.7

 
254.2

 
43.5

Intersegment eliminations and other
 
 
 
 
 
 
(1.3
)
 
$
1,091.5

 
$
84.0

 
$
1,175.5

 
$
124.4

Three Months Ended September 30, 2017
 
 
 
 
 
Residential Products
$
426.7

 
$
4.5

 
$
431.2

 
$
50.5

Industrial Products
71.2

 
63.8

 
135.0

 
1.1

Furniture Products
284.0

 
3.7

 
287.7

 
24.5

Specialized Products
227.8

 
1.9

 
229.7

 
34.2

Intersegment eliminations and other
 
 
 
 
 
 
(1.1
)
 
$
1,009.7

 
$
73.9

 
$
1,083.6

 
$
109.2

 
Trade
Sales
 
Inter-
Segment
Sales
 
Total
Sales
 
EBIT
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
Residential Products
$
1,283.4

 
$
12.7

 
$
1,296.1

 
$
118.0

Industrial Products
275.8

 
220.5

 
496.3

 
47.6

Furniture Products
866.8

 
10.4

 
877.2

 
48.3

Specialized Products
796.8

 
2.0

 
798.8

 
141.5

Intersegment eliminations and other
 
 
 
 
 
 
(2.5
)
 
$
3,222.8

 
$
245.6

 
$
3,468.4

 
$
352.9

Nine Months Ended September 30, 2017
 
 
 
 
 
Residential Products
$
1,225.8

 
$
13.5

 
$
1,239.3

 
$
143.2

Industrial Products
216.9

 
192.7

 
409.6

 
17.0

Furniture Products
816.0

 
14.4

 
830.4

 
65.1

Specialized Products
700.6

 
5.5

 
706.1

 
121.3

Intersegment eliminations and other
 
 
 
 
 
 
.8

 
$
2,959.3

 
$
226.1

 
$
3,185.4

 
$
347.4


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

Average assets for our segments are shown in the table below and reflect the basis for return measures used by management to evaluate segment performance. These segment totals include working capital (all current assets and current liabilities) plus net property, plant and equipment. Segment assets for all years are reflected at their estimated average for the periods presented. 
 
September 30,
2018
 
December 31,
2017
Residential Products
$
605.2

 
$
554.6

Industrial Products
164.4

 
150.0

Furniture Products
281.4

 
245.7

Specialized Products
340.3

 
271.7

Average current liabilities included in segment numbers above
641.7

 
557.0

Unallocated assets 1
1,391.3

 
1,693.1

Difference between average assets and period-end balance sheet
124.8

 
78.7

Total assets
$
3,549.1

 
$
3,550.8

 
1 Unallocated assets consist primarily of goodwill, other intangibles, cash, businesses sold and deferred tax assets.    

5. DIVESTITURES

We divested our final Commercial Vehicle Products operation in the third quarter of 2017. It did not meet discontinued operations criteria, and was part of the Specialized Products Segment. We realized a pretax loss of $3.3 related to the sale of this business and also completed the sale of real estate associated with this operation, realizing a pretax gain of $23.4 in the fourth quarter of 2017. External sales for this business were $3.7 and EBIT was ($1.0) for the three months ended September 30, 2017. For the nine months ended September 30, 2017, external sales for this business were $25.1 and EBIT was ($2.3).
 
6. IMPAIRMENT CHARGES

Pretax impact of impairment charges is summarized in the following table.

Other long-lived asset impairments are reported in "Other (income) expense, net."
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
Goodwill
 
Other Long-Lived Assets
 
Total
 
Goodwill
 
Other Long-Lived Assets
 
Total
 
Goodwill
 
Other Long-Lived Assets
 
Total
 
Goodwill
 
Other Long-Lived Assets
 
Total
Industrial Products - Drawn Wire Unit
$
—

 
$
.3

 
$
.3

 
$
1.3

 
$
3.3

 
$
4.6

 
$
—

 
$
.1

 
$
.1

 
$
1.3

 
$
3.3

 
$
4.6

Furniture Products
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(.1
)
 
(.1
)
Total impairment charges
$
—

 
$
.3

 
$
.3

 
$
1.3

 
$
3.3

 
$
4.6

 
$
—

 
$
.1

 
$
.1

 
$
1.3

 
$
3.2

 
$
4.5


Other Long-Lived Assets
 
We test other long-lived assets for recoverability at year-end and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value and the resulting impairment charges noted above were based primarily upon offers from potential buyers or third party estimates of fair value less selling costs.
 

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


Goodwill Impairment Reviews
 
We test goodwill for impairment at the reporting unit level (the business groups that are one level below the operating segments) when triggering events occur, or at least annually. We perform our annual goodwill impairment review in the second quarter. The 2018 and 2017 goodwill impairment reviews indicated no goodwill impairments.
For the 2018 testing, we elected to test goodwill for all reporting units for impairment using a quantitative approach.  The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the table below:
Fair Value over Carrying Value divided by Carrying Value
 
September 30, 2018 Goodwill Value
 
10-year Compound Annual Growth Rate Range for Sales
 
Terminal Values Long-term Growth Rate for Debt-Free Cash Flow
 
Discount Rate Ranges
Less than 100% 1
 
$
180.9

 
4.7% - 5.2%
 
3
%
 
9.0% - 9.5%
101% - 300%
 
505.7

 
1.8% - 5.0%
 
3
%
 
8.5% - 10.0%
301% - 600%
 
153.7

 
5.7% - 12.4%
 
3
%
 
9.0% - 10.0%
 
 
$
840.3

 
1.8% - 12.4%
 
3
%
 
8.5% - 10.0%
1 All reporting units in this category exceeded 90%, except for the Hydraulic Cylinders reporting unit (acquired in the first quarter of 2018), to which carrying value approximates fair value.

During the third quarter of 2017, two Drawn Wire operations within the Industrial Products segment reached held-for-sale status. Because fair value less costs to sell had fallen below the carrying amount, we fully impaired $1.3 of goodwill and also impaired $3.3 of other long-lived assets in the third quarter of 2017.

    

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

7. EARNINGS PER SHARE

Basic and diluted earnings per share were calculated as follows:
 
Nine Months Ended 
 September 30,
 
Three Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Earnings:
 
 
 
 
 
 
 
Earnings from continuing operations
$
253.0

 
$
257.2

 
$
90.0

 
$
83.5

Earnings attributable to noncontrolling interest, net of tax
(.1
)
 
—

 
—

 
—

Net earnings from continuing operations attributable to Leggett & Platt, Inc. common shareholders
252.9

 
257.2

 
90.0

 
83.5

Earnings from discontinued operations, net of tax
—

 
(.9
)
 
—

 
(.9
)
Net earnings attributable to Leggett & Platt, Inc. common shareholders
$
252.9

 
$
256.3

 
$
90.0

 
$
82.6

 
 
 
 
 
 
 
 
Weighted average number of shares (in millions):
 
 
 
 
 
 
 
Weighted average number of common shares used in basic EPS
134.4

 
136.1

 
133.8

 
135.7

Dilutive effect of stock-based compensation
1.0

 
1.4

 
.9

 
1.2

Weighted average number of common shares and dilutive potential common shares used in diluted EPS
135.4

 
137.5

 
134.7

 
136.9

 
 
 
 
 
 
 
 
Basic and Diluted EPS:
 
 
 
 
 
 
 
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Continuing operations
$
1.88

 
$
1.89

 
$
.67

 
$
.62

Discontinued operations
—

 
(.01
)
 
—

 
(.01
)
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
$
1.88

 
$
1.88

 
$
.67

 
$
.61

Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
 
 
 
 
 
 
 
Continuing operations
$
1.87

 
$
1.87

 
$
.67

 
$
.61

Discontinued operations
—

 
(.01
)
 
—

 
(.01
)
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
$
1.87

 
$
1.86

 
$
.67

 
$
.60

 
 
 
 
 
 
 
 
Other information:
 
 
 
 
 
 
 
Anti-dilutive shares excluded from diluted EPS computation
.1

 
—

 
—

 
.1

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
1.12

 
$
1.06

 
$
.38

 
$
.36



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

8. ACCOUNTS AND OTHER RECEIVABLES
Accounts and other receivables consisted of the following:
 
September 30, 2018
 
December 31, 2017
 
Current
 
Long-term
 
Current
 
Long-term
Trade accounts receivable
$
604.7

 
$
—

 
$
526.1

 
$
—

Trade notes receivable
1.8

 
1.7

 
1.0

 
1.2

Total trade receivables
606.5

 
1.7

 
527.1

 
1.2

Other notes receivable
—

 
24.7

 
—

 
24.7

Insurance receivables 1
1.5

 
—

 
43.0

 
—

Taxes receivable, including income taxes
12.3

 
—

 
15.0

 
—

Other receivables
11.0

 
—

 
14.8

 
—

Subtotal other receivables
24.8

 
24.7

 
72.8

 
24.7

Total trade and other receivables
631.3

 
26.4

 
599.9

 
25.9

Allowance for doubtful accounts:
 
 
 
 
 
 
 
  Trade accounts receivable
(5.8
)
 
—

 
(4.7
)
 
—

  Trade notes receivable
—

 
—

 
(.1
)
 
(.1
)
Total trade receivables
(5.8
)
 
—

 
(4.8
)
 
(.1
)
  Other notes receivable
—

 
—

 
—

 
—

Total allowance for doubtful accounts
(5.8
)
 
—

 
(4.8
)
 
(.1
)
Total net receivables
$
625.5

 
$
26.4

 
$
595.1

 
$
25.8

1 The December 31, 2017 amount was primarily associated with an insured vehicle-related personal injury claim that was fully resolved and paid in the second quarter of 2018.
Notes that were past due more than 90 days or had been placed on non-accrual status were not significant for the periods presented.
Activity related to the allowance for doubtful accounts is reflected below:
 
 
Balance at December 31, 2017
 
Add:
Charges
 
Less:
Net Charge-offs/
(Recoveries)
 
Balance at September 30, 2018
Trade accounts receivable
$
4.7

 
$
2.1

 
$
1.0

 
$
5.8

Trade notes receivable
.2

 
(.2
)
 
—

 
—

Total trade receivables
4.9

 
1.9

 
1.0

 
5.8

Other notes receivable
—

 
—

 
—

 
—

Total allowance for doubtful accounts
$
4.9

 
$
1.9

 
$
1.0

 
$
5.8



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

9. STOCK-BASED COMPENSATION
The following table recaps the components of stock-based and stock-related compensation for each period presented:
 
 
Nine Months Ended 
 September 30, 2018
 
Nine Months Ended 
 September 30, 2017
 
To be settled with stock
 
To be settled in cash
 
To be settled with stock
 
To be settled in cash
Stock-based retirement plans contributions 1
$
3.7

 
$
.9

 
$
4.2

 
$
.9

Discounts on various stock awards:

 
 
 

 
 
Deferred Stock Compensation Program
1.4

 
—

 
1.6

 
—

Stock-based retirement plans
.9

 
—

 
1.0

 
—

Discount Stock Plan
.8

 
—

 
.9

 
—

Performance Stock Unit (PSU) awards: 2
 
 
 
 
 
 
 
     2018 PSU - TSR based 2A
.9

 
.8

 
—

 
—

     2018 PSU - EBIT CAGR based 2B
2.3

 
2.5

 
—

 
—

     2017 and prior PSU awards 2C
2.8

 
(.9
)
 
4.0

 
(.7
)
Restricted Stock Unit awards
1.6

 
—

 
1.9

 
—

Profitable Growth Incentive (PGI) awards 3
1.4

 
1.4

 
1.1

 
1.1

Other, primarily non-employee directors restricted stock
.6

 
—

 
.7

 
—

Total stock-based compensation expense
16.4

 
$
4.7

 
15.4

 
$
1.3

Employee contributions for above stock plans
10.2

 
 
 
12.7

 
 
Total stock-based compensation
$
26.6

 
 
 
$
28.1

 
 
 
 
 
 
 
 
 
 
Tax benefits on stock-based compensation expense
$
3.9

 
 
 
$
5.5

 
 
Tax benefits on stock-based compensation payments
3.4

 
 
 
11.4

 
 
Total tax benefits associated with stock-based compensation
$
7.3

 
 
 
$
16.9

 
 
 
 
 
 
 
 
 
 

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

 
Three Months Ended
 
Three Months Ended 
 
September 30, 2018
 
September 30, 2017
 
To be settled with stock
 
To be settled in cash
 
To be settled with stock
 
To be settled in cash
Stock-based retirement plans contributions 1
$
(.4
)
 
$
.4

 
$
.6

 
$
.2

Discounts on various stock awards:
 
 
 
 
 
 
 
Deferred Stock Compensation Program
.5

 
—

 
.4

 
—

Stock-based retirement plans
.4

 
—

 
.3

 
—

Discount Stock Plan
.2

 
—

 
.3

 
—

Performance Stock Unit (PSU) awards: 2
 
 
 
 
 
 
 
     2018 PSU - TSR based 2A
.3

 
.2

 
—

 
—

     2018 PSU - EBIT CAGR based 2B
.8

 
.9

 
—

 
—

     2017 and prior PSU awards 2C
.9

 
(.9
)
 
1.3

 
(2.8
)
Restricted Stock Unit awards
.6

 
—

 
.7

 
—

Profitable Growth Incentive (PGI) awards 3
.2

 
.2

 
.3

 
.2

Other, primarily non-employee directors restricted stock
.2

 
—

 
.2

 
—

Total stock-based compensation expense
3.7

 
$
.8

 
4.1

 
$
(2.4
)
Employee contributions for above stock plans
3.7

 
 
 
3.8

 
 
Total stock-based compensation
$
7.4

 
 
 
$
7.9

 
 
 
 
 
 
 
 
 
 
Tax benefits on stock-based compensation expense
$
.9

 
 
 
$
1.4

 
 
Tax benefits on stock-based compensation payments
2.5

 
 
 
1.3

 
 
Total tax benefits associated with stock-based compensation
$
3.4

 
 
 
$
2.7

 
 
 
 
 
 
 
 
 
 
 
Included below is the activity in our most significant stock-based plans:

1 Stock-Based Retirement Plans

We have two stock-based retirement plans: the tax-qualified Stock Bonus Plan (SBP) for non-highly compensated employees and the non-qualified Executive Stock Unit Program (ESUP) for highly compensated employees. We make matching contributions to both plans. In addition to the automatic 50% match, we will make another matching contribution of up to 50% of the employee’s contributions for the year if certain profitability levels, as defined in the SBP and the ESUP, are obtained.

We plan to merge the SBP with our 401(k) plan on December 31, 2018. After the merger, our common stock will be added to the 401(k) plan as an investment option and participants may elect up to 20% of their contributions into our common stock beginning on January 1, 2019. Currently participants may contribute up to 100% of their contributions into our common stock.

2 PSU Awards
In November 2017, the Compensation Committee approved changes to merge the PSU and PGI award programs for the 2018 award. The 2018 PSU awards have a component based on relative Total Shareholder Return (TSR) and another component based on Earnings Before Interest and Taxes (EBIT) Compound Annual Growth Rate (CAGR). These components are discussed below.

For outstanding 2018 awards, we intend to pay 50% in shares of our common stock and 50% in cash; although, we reserve the right to pay up to 100% in cash.

For outstanding 2016 and 2017 awards, we intend to pay 65% in shares of our common stock and 35% in cash; although, we reserve the right to pay up to 100% in cash.


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

Cash settlements are recorded as a liability and adjusted to fair value at each reporting period. We elected to pay the 2015 award (paid in the first quarter 2018) in cash.

 2A 2018 PSU - TSR based
Most of the 2018 PSU awards are based 50% upon our TSR compared to a peer group. A small number of PSU awards are based 100% upon relative TSR for certain business unit employees to complement their particular mix of incentive compensation. Grant date fair values are calculated using a Monte Carlo simulation of stock and volatility data for Leggett and each of the peer companies. Grant date fair values are amortized using the straight-line method over the three-year vesting period.
The relative TSR vesting condition of the 2018 PSU award contains the following conditions:
•
A service requirement—awards generally “cliff” vest three years following the grant date; and
•
A market condition—awards are based on our TSR [(Change in Stock Price + Dividends) / Beginning Stock Price] as compared to the TSR of a group of peer companies. The peer group consists of all the companies in the Industrial, Materials and Consumer Discretionary sectors of the S&P 500 and S&P Midcap 400 (approximately 320 companies). Participants will earn from 0% to 200% of the base award depending upon how our TSR ranks within the peer group at the end of the three-year performance period.

2B 2018 PSU - EBIT CAGR based
50% of each 2018 PSU award is based upon our or the applicable segment's EBIT CAGR. Grant date fair values are calculated using the grant date stock price discounted for dividends over the vesting period. Expense is adjusted every quarter over the three-year vesting period based on the number of shares expected to vest.
The EBIT CAGR portion of this award contains the following conditions:
•
A service requirement—Awards generally “cliff” vest three years following the grant date; and
•
A performance condition—Awards are based on achieving specified EBIT CAGR performance targets for our or the applicable segment's EBIT during the third year of the performance period compared to the EBIT during the fiscal year immediately preceding the performance period. Participants will earn from 0% to 200% of the base award.
In connection with the decision to move a significant portion of the long-term incentive opportunity from a two-year to a three-year performance period by eliminating PGI awards, in January 2018, we also granted participants a one-time transition PSU award, based upon EBIT CAGR over a two-year performance period.

2C 2017 and Prior PSU Awards
The 2017 and prior PSU awards are based solely on relative TSR. Vesting conditions are the same as (2A) above other than a maximum payout of 175% of the base award.

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

Below is a summary of the number of shares and related grant date fair value of PSU’s based on TSR for the periods presented.
 
Nine Months Ended September 30,
 
2018
 
2017
Total shares base award
.1

 
.1

Grant date per share fair value
$
42.60

 
$
50.75

Risk-free interest rate
2.4
%
 
1.5
%
Expected life in years
3.0

 
3.0

Expected volatility (over expected life)
19.9
%
 
19.5
%
Expected dividend yield (over expected life)
3.3
%
 
2.8
%
Three-Year Performance Cycle
Award Year
 
Completion Date
 
TSR Performance
Relative to the  Peer Group (1%=Best)
 
Payout as a
Percent of the
Base Award
 
Number of Shares
Distributed
 
Cash Portion
 
Distribution Date
2014
 
December 31, 2016
 
10
 
175.0%
 
.4 million
 
$
9.8

 
First quarter 2017
2015
 
December 31, 2017
 
57
 
61.0%
 
—
 
$
6.9

 
First quarter 2018

Below is a summary of the number of shares and related grant date fair value of PSU’s based on EBIT CAGR for the periods presented.
 
Nine Months Ended September 30,
 
2018
Total shares base award
.1

Grant date per share fair value
$
40.92

Vesting period in years
2.5


3 PGI Awards

In 2017 and prior years certain key management employees participated in a PGI program. The PGI awards were issued as growth performance stock units (GPSUs). The GPSUs vest (0% to 250%) at the end of a two-year performance period. Vesting is based on our or the applicable profit center's revenue growth (adjusted by a GDP factor when applicable) and EBITDA margin at the end of a two-year performance period. The 2017 base target PGI awards were less than .1 shares. If earned, we intend to pay half in shares of our common stock and half in cash; although, we reserve the right to pay up to 100% in cash. We elected to pay the 2016 award (paid in the first quarter of 2018) in cash. Both components are adjusted to fair value at each reporting period.
Two-Year Performance Cycle
Award Year
 
Completion Date
 
Average Payout as a
Percent of the
Base Award
 
Number of  Shares
Distributed
 
Cash Portion
 
Distribution Date
2015
 
December 31, 2016
 
36.0%
 
<.1 million
 
$
.8

 
First quarter 2017
2016
 
December 31, 2017
 
44.0%
 
—
 
$
2.0

 
First quarter 2018









20
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


10. ACQUISITIONS
The following table contains the estimated fair values (using inputs as discussed in Note 13) of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions during the periods presented. A portion of the goodwill included in the table below is expected to provide an income tax benefit.
 
Nine Months Ended September 30,
 
2018
 
2017
Accounts receivable
$
19.6

 
$
10.0

Inventory
26.1

 
6.3

Property, plant and equipment
28.2

 
14.6

Goodwill
27.7

 
12.8

Other intangible assets, primarily customer-related intangibles
28.9

 
19.5

Other current and long-term assets
.8

 
1.1

Current liabilities
(12.3
)
 
(4.6
)
Long-term liabilities
(10.2
)
 
(5.6
)
Non-controlling interest
—

 
(.5
)
Fair value of net identifiable assets
108.8

 
53.6

Less: Additional consideration payable
.9

 
2.8

Less: Common stock issued for acquired companies
—

 
11.8

Net cash consideration
$
107.9

 
$
39.0


The following table summarizes acquisitions for the periods presented.
Nine Months Ended
 
Number of Acquisitions
 
Segment
 
Product/Service
September 30, 2018
 
3
 
Residential Products;

Specialized Products
 
Manufacturer/distributor of geo components; Manufacturer and distributor of silt fence; Global manufacturer of engineered hydraulic cylinders
 
 
 
 
 
 
 
September 30, 2017
 
3
 
Residential Products;

Furniture Products
 
Distributor and installer of geosynthetic products; Carpet cushion; Surface-critical bent tube components
We are finalizing all the information required to complete the purchase price allocations related to certain recent acquisitions and do not anticipate any material modifications.

The results of operations of the above acquired companies have been included in the consolidated condensed financial statements since the dates of acquisition. The unaudited pro forma consolidated net sales, net earnings and earnings per share as though the 2018 and 2017 acquisitions had occurred on January 1 of the comparable prior annual reporting period are not materially different from the amounts reflected in the accompanying financial statements.

Certain of our acquisition agreements provide for additional consideration to be paid in cash at a later date and are recorded as liabilities at the acquisition date. At September 30, 2018 and December 31, 2017, our liability for these future payments was $12.0 ($2.6 current and $9.4 long-term) and $16.5 ($8.9 current and $7.6 long-term), respectively.  Components of the liability are based on estimates and contingent upon future events, therefore, the amounts may fluctuate materially until the payment dates. Additional consideration, including interest, paid on prior year acquisitions was $8.6 and $2.0 for the nine months ended September 30, 2018 and 2017, respectively.


21
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

A brief description of our acquisition activity by year for the periods presented is included below.
2018
In September 2018, in our Geo Components business unit, we acquired a manufacturer and distributor of innovative home and garden products found at most major retailers for $19.3. This acquisition provides a solid foundation on which to continue growing our retail market presence in Geo Components.
In May 2018, we acquired a manufacturer and distributor of silt fence, a core product for our Geo Components business unit, for $2.6.
In January 2018, we acquired Precision Hydraulic Cylinders (PHC), a leading global manufacturer of engineered hydraulic cylinders primarily for the materials handling market. The purchase price was $86.9 and added $26.3 of goodwill. PHC serves a market of mainly large Original Equipment Manufacturer (OEM) customers utilizing highly engineered, co-designed components with long product life-cycles, yet representing a small percentage of the end product’s cost. PHC represents a new growth platform and forms a new business group entitled Hydraulic Cylinders within the Specialized Products segment.
2017
We acquired three businesses in the first nine months of 2017:
•
A distributor and installer of geosynthetic products, expanding the geographic scope and capabilities of our Geo Components business.
•
A manufacturer of surface-critical bent tube components in support of the private-label finished seating strategy in our Work Furniture business.
•
A carpet underlay manufacturer, provides additional production capacity in our Flooring Products business.
These businesses broaden our geographic scope, capabilities, and product offerings, and added $12.8 ($8.9 to Residential Products and $3.9 to Furniture Products) of goodwill. We also acquired the remaining 20% ownership in an Asian joint venture in our Work Furniture business for $2.6.
Leggett Agrees to Purchase Elite Comfort Solutions, Inc.

On November 6, 2018, we entered into a definitive agreement to purchase all of the capital stock of Elite Comfort Solutions, Inc. (ECS) for a cash purchase price of $1,250.0, subject to customary post closing adjustments. ECS, headquartered in Newnan, Georgia, is a leader in specialized foam technology, primarily for the bedding and furniture industries. Following the closing of the transaction, ECS is expected to become a separate business unit and operate within the Residential Products segment. The definitive agreement contains customary closing conditions and is subject to regulatory approvals. We expect to close the transaction in January 2019. For additional details on this transaction, please refer to the Management's Discussion and Analysis on page 36.



22
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

11. EMPLOYEE BENEFIT PLANS
Employer contributions for 2018 are expected to approximate $22.0. This increase compared to our 2017 employer contributions of $14.9 is due to our current year funding strategy, which incorporates, among other things, Pension Benefit Guaranty Corporation premiums, tax planning, and expectations of future funding requirements.

The following table provides interim information as to our domestic and foreign defined benefit pension plans:
 
 
Nine Months Ended 
 September 30,
 
Three Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Components of net pension expense
 
 
 
 
 
 
 
Service cost
$
3.1

 
$
3.8

 
$
1.1

 
$
1.3

Interest cost
6.1

 
8.3

 
2.0

 
2.7

Expected return on plan assets
(8.8
)
 
(10.1
)
 
(3.0
)
 
(3.4
)
Recognized net actuarial loss
2.1

 
3.5

 
.7

 
1.2

Net pension expense
$
2.5

 
$
5.5

 
$
.8

 
$
1.8


The components of net pension expense other than the service cost component are included in the line item "Other (income) expense, net" in the Consolidated Condensed Statements of Operations.


12. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
Nine Months Ended September 30, 2018
 
Total
Equity
 
Retained
Earnings
 
Common
Stock &
Additional
Contributed
Capital
 
Treasury
Stock
 
Noncontrolling
Interest
 
Accumulated
Other
Comprehensive
Income (Loss)
Beginning balance, January 1, 2018
$
1,190.8

 
$
2,511.3

 
$
516.7

 
$
(1,828.3
)
 
$
.6

 
$
(9.5
)
Effect of accounting change on prior years (Topic 606-See Note 3)
(2.3
)
 
(2.3
)
 
—

 
—

 
—

 
—

Adjusted beginning balance, January 1, 2018
1,188.5

 
2,509.0

 
516.7

 
(1,828.3
)
 
.6

 
(9.5
)
Net earnings
253.0

 
253.0

 
—

 
—

 
—

 
—

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

 
(.1
)
 
—

 
—

 
.1

 
—

Dividends declared
(146.2
)
 
(150.2
)
 
4.0

 
—

 
—

 
—

Dividends paid to noncontrolling interest
(.2
)
 
—

 
—

 
—

 
(.2
)
 
—

Treasury stock purchased
(113.2
)
 
—

 
—

 
(113.2
)
 
—

 
—

Treasury stock issued
14.2

 
—

 
(16.1
)
 
30.3

 
—

 
—

Foreign currency translation adjustments
(50.0
)
 
—

 
—

 
—

 
—

 
(50.0
)
Cash flow hedges, net of tax
(.7
)
 
—

 
—