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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)          
x   

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

    

 

For the fiscal year ended December 31, 2011

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

 

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  x    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  x

 

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  x    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  x    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.  x

 

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  x

 

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 30, 2011 was approximately $3,312,000,000.

 

There were 140,020,723 shares of the registrant’s common stock outstanding as of February 15, 2012.

 

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 10, 2012.

 



Table of Contents

TABLE OF CONTENTS

LEGGETT & PLATT, INCORPORATED—FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2011

 

     Page
Number


Forward-Looking Statements

       1
PART I

Item 1.

  

Business

       3

Item 1A.

  

Risk Factors

     19

Item 1B.

  

Unresolved Staff Comments

     22

Item 2.

  

Properties

     22

Item 3.

  

Legal Proceedings

     22

Item 4.

  

Mine Safety Disclosures

     23

Supp. Item.

  

Executive Officers of the Registrant

     23
PART II

Item 5.

  

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

     25

Item 6.

  

Selected Financial Data

     27

Item 7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     28

Item 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

     62

Item 8.

  

Financial Statements and Supplementary Data

     63

Item 9.

  

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     63

Item 9A.

  

Controls and Procedures

     63

Item 9B.

  

Other Information

     64
PART III

Item 10.

  

Directors, Executive Officers and Corporate Governance

     65

Item 11.

  

Executive Compensation

     69

Item 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     69

Item 13.

  

Certain Relationships and Related Transactions, and Director Independence

     69

Item 14.

  

Principal Accounting Fees and Services

     69
PART IV

Item 15.

  

Exhibits, Financial Statement Schedules

     70

Signatures

   125

Exhibit Index

   127


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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; 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, some of these 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, 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 achieve expected levels of cash flow;

   

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

 

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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; and

   

litigation including product liability and warranty, taxation, environmental, intellectual property, anti-trust and workers’ compensation expense.

 

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PART I

 

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 and automobiles. 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

 

LOGO

 

Our Residential Furnishings segment began with an 1885 patent of the steel coil bedspring. 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 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 loveseats

   

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

 

Most of our Residential Furnishings customers are manufacturers of finished bedding products (mattresses and foundations) or upholstered furniture for residential use. We also sell many products, including ornamental beds, bed frames, adjustable beds, carpet underlay, and top-of-bed accessories, directly to retailers and distributors. We sell Geo Components products primarily to dealers, contractors, landscapers, road construction companies and government agencies.

 

Commercial Fixturing & Components Segment

 

LOGO

 

Our Fixture & Display 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 targeted for the office seating market.

 

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PART I

 

Products

 

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

 

Fixture & Display 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

 

Customers

 

Customers of the Commercial Fixturing & Components segment include:

   

Retail chains and specialty shops

   

Office, institutional and commercial furniture manufacturers

 

Industrial Materials Segment

 

LOGO

 

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 and a major producer of welded steel tubing. 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 five wire mills that supply virtually all the wire consumed by our other domestic businesses. Our Steel Tubing business unit operates two major plants that also supply nearly all of our internal needs for welded steel tubing. In addition to supporting our internal requirements, we also supply many external customers with wire and steel tubing products.

 

On January 12, 2012, we completed the acquisition of Western Pneumatic Tube Holding, LLC (Western). Western is a leading provider of integral components for critical aircraft systems, and forms the new Aerospace Products business unit within the Tubing Group. Western specializes in fabricating thin-walled, large diameter, welded tubing and specialty formed products from titanium, nickel and other specialty materials for leading aerospace suppliers and OEMs.

 

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PART I

 

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 about one-quarter 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 and frames

 

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

   

Bedding and furniture makers

   

Automotive seating manufacturers

   

Aerospace suppliers and OEMs

   

Lawn and garden equipment manufacturers

   

Mechanical spring makers

   

Waste recyclers and waste removal businesses

   

Medical supply businesses

 

Specialized Products Segment

 

LOGO

 

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PART I

 

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)

   

Docking stations that mount computers and other electronic equipment inside vehicles

   

Specialty trailers used by telephone, cable and utility companies

 

Customers

 

Our primary customers for the Specialized Products segment include:

   

Automobile seating manufacturers

   

Bedding manufacturers

   

Telecom, 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 Received)/Beginning Stock Price. Our goal is to achieve TSR in the top 1/3 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, 2011 we generated TSR of 21% per year, on average, which places us in the top 38% of the S&P 500. In addition, our TSR has exceeded that of the S&P 500 index for four consecutive years.

 

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PART I

 

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

 

More Cash to Shareholders

 

During the past three years, we generated approximately $1.26 billion of cash flow from operations. Capital expenditures were $75 million in 2011, compared to $68 million in 2010, and $83 million in 2009.

 

Since late 2007, we have raised quarterly dividends by 56%, from $.18 per share to $.28 per share currently. During the past three years, we have also repurchased roughly 27 million shares of our stock (and issued approximately 11 million shares through employee benefit plans), which reduced the net outstanding shares by approximately 11%. In 2011, we repurchased approximately 10 million shares at an average per share price of $22.86 (and issued approximately 3 million shares through employee benefit plans). As discussed in more detail below under “Acquisitions,” we completed the acquisition of Western Pneumatic Tube for a cash purchase price of $188 million in January 2012. As such, we do not anticipate repurchasing a significant number of shares in 2012.

 

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 EBIT and EBITDA growth, 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 eventually 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, and in which we would possess a competitive advantage.

 

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PART I

 

Our long-term, 4-5% annual growth objective envisions periodic acquisitions. We seek acquisitions within our growth 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, and a strong fit with the Company; (b) create value by enhancing Total Shareholder Return, have an internal rate of return in excess of 10% and have positive discounted cash flow; (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.

 

Acquisitions

 

We had no significant acquisitions in 2009, 2010 or 2011.

 

In January 2012, we acquired Western Pneumatic Tube, which produces thin-walled, larger diameter, welded tubing and specialty formed products for aerospace applications. Western specializes in fabricating products from specialty materials, such as titanium and other refractory alloys, nickel-based alloys, stainless steel and other high strength metals. Western supplies its products primarily to the commercial aerospace market, but also to the defense and industrial markets. Western’s products are utilized in aircraft systems and aircraft engine systems, including fuel, hydraulic, pneumatic, environmental, life support, stability and cooling systems. Western operates two facilities: one in Kirkland, Washington, and another near San Diego, California. Western had 2011 sales of $57 million and is part of our Industrial Materials segment. The cash purchase price of $188 million was financed with proceeds from the sale of commercial paper notes under our existing commercial paper program, as discussed in Note U on page 122 of the Notes to Consolidated Financial Statements. For further information about acquisitions, see Note R on page 115 of the Notes to Consolidated Financial Statements.

 

Divestitures

 

2011 Divestiture

 

There were no significant divestitures in 2011.

 

2010 Divestiture

 

We divested the Storage Products business unit (previously in the Commercial Fixturing & Components segment) in the third quarter of 2010. No significant gains or losses were realized on the sale of this business unit. Storage Products is reflected as a discontinued operation with 2010 revenue of approximately $37 million.

 

2009 Divestiture

 

We divested the Coated Fabrics business unit (previously in the Residential Furnishings segment) in the third quarter of 2009. No significant gains or losses were realized on the sale of this unit. Coated Fabrics is reflected as a discontinued operation with 2009 revenue of approximately $12 million.

 

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PART I

 

We also divested five other businesses in 2008 as part of our 2007 strategic alignment, including our former Aluminum Products segment. For further information about divestitures and discontinued operations, see Note B on page 84 of the Notes to Consolidated Financial Statements.

 

Segment Financial Information

 

For information about sales to external customers, sales by product line, earnings before interest and taxes, and total assets of each of our segments, refer to Note F on page 91 of the Notes to Consolidated Financial Statements.

 

Foreign Operations

 

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

 

LOGO

 

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

 

Europe

   

Innersprings for mattresses

   

Wire and wire products

   

Lumbar and seat suspension systems for automotive seating

   

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

 

China

   

Innersprings for mattresses

   

Recliner mechanisms and bases for upholstered furniture

   

Formed wire for upholstered furniture

 

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PART I

 

   

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

 

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 the interior of service vans and utility vehicles

 

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

   

Nationalization of private enterprises

   

Political instability in certain countries

 

Our Specialized Products segment, which derives 75% 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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PART I

 

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               

Germany

                  n

Hungary

                  n

Italy

        n         n

Switzerland

                  n

United Kingdom

   n              n

South America

                   

Uruguay

   n               

Brazil

   n               

Asia / Pacific

                   

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 91 of the Notes to Consolidated Financial Statements.

 

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PART I

 

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    2011      2010      2009  

Bedding Group

     18      19      21

Furniture Group

     17         18         18   

Fabric & Carpet Underlay Group

     15         15         16   

Wire Group

     15         13         12   

Automotive Group

     12         11         8   

Fixture & Display Group

     9         11         11   

Office Furniture Components Group

     5         5         5   

Commercial Vehicle Products Group

     4         3         4   

Machinery Group

     3         3         3   

Tubing Group

     2         2         2   

 

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 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 the 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.

 

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PART I

 

Customer Concentration

 

We serve thousands of customers worldwide, sustaining many long-term business relationships. In 2011, our largest customer accounted for less than 6% of our consolidated revenues. Our top 10 customers accounted for approximately 22% of these consolidated revenues. The loss of one or more of these customers could have a 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, 2011. 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.

 

LOGO

 

Some of our most significant trademarks include:

   

Semi-Flex® (box spring components and foundations)

   

Mira-Coil®, VertiCoil®, Lura-Flex®, Superlastic® and ComfortCore®(mattress innersprings)

   

S-cape® and Active Support Technology® (power foundations)

   

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)

 

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PART I

 

   

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, engineering and testing centers in Carthage, Missouri and do additional research and development work at many of our other facilities. We are unable to calculate precisely the cost of research and development because the personnel involved in product and machinery development also spend portions of their time in other areas. However, we estimate the cost of research and development to be approximately $20 million per year in each of the last three years.

 

Employees

 

As of December 31, 2011, we had approximately 18,300 employees, of which roughly 12,900 were engaged in production. Of the 18,300, approximately 8,600 were international employees (4,900 in China). Labor unions represented roughly 15% of our employees. We did not experience any material work stoppage related to contract negotiations with labor unions during 2011. Management is not aware of any circumstances likely to result in a material work stoppage related to contract negotiations with labor unions during 2012. The chart below shows the approximate number of employees by segment.

 

LOGO

 

As of December 31, 2010, we had approximately 19,000 employees.

 

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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.

 

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

   

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 highly efficient operations, low labor content, vertical integration in steel and wire, 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) 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%), these products represent a much larger portion of the total market in dollars (approximately 25%-30%) due to their higher average selling prices. We expect these products to continue to grow. Some of our traditional bedding customers are beginning to offer mattresses that combine an innerspring core with top layers comprised of specialty foam and gel. These hybrid products allow our bedding customers to address a consumer preference for the feel of a specialty mattress and the characteristics of an innerspring.

 

In late 2007, we filed an antidumping suit related to innerspring imports from China, South Africa and Vietnam. We saw a distinct decline in unfair imports during 2008 after the antidumping investigations began. As a result, we regained market share and performance in our Bedding Group improved. The investigations were brought to a favorable conclusion in early 2009. The current antidumping duty rates on innersprings from these countries are significant, ranging from 116% to 234%, and should remain in effect at least until early 2014. Imported innersprings from these countries are now supposed to be sold at fair prices, however the duties on certain innersprings are being evaded by various means including shipping the goods through a third country and falsely identifying the country of origin. Leggett, along with several U.S. manufacturers of products with active antidumping or antidumping/countervailing duty orders, formed a

 

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coalition and are working with Members of Congress, the U.S. Department of Commerce, 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.

   

Commercial Fixturing & Components: generally has modestly 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 46.

 

Government Contracts

 

The Company does not have a significant 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

 

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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 and 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 eliminated from our ongoing operations; (ii) the businesses have been disposed of; and (iii) we do not have any significant continuing involvement in the operations of the businesses. The discontinued operations include:

 

   

Coated Fabrics unit (previously reported in the Residential Furnishings segment). We divested the Coated Fabrics unit in the third quarter of 2009. It sold non-slip rug underlay and shelf liners primarily to retailers and distributors.

 

   

Storage Products unit (previously reported in the Commercial Fixturing & Components segment). The Storage Products unit was divested in the third quarter of 2010. It sold storage racks and carts used in the food service and healthcare industries.

 

For further information on these discontinued operations and 2009 activity primarily related to the Aluminum Products Segment that was divested in 2008, see Note B on page 84 of the Notes to Consolidated Financial Statements.

 

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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.

 

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, energy costs and interest rates. All of these factors influence consumer spending on durable goods, and drive demand for our products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one-quarter 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. In 2011, stagnant demand negatively impacted our major residential markets. Many consumers continued to postpone spending on larger ticket items such as bedding and furniture in the face of ongoing economic weakness. If economic and market conditions deteriorate, we may experience material negative impacts on our business, financial condition, operating cash flows and results of operations.

 

Deteriorating financial condition of our customers could negatively affect our financial position, results of operations, cash flows and liquidity.

 

We serve customers in a variety of industries, some of which have and are continuing to experience low levels of demand due to a weak global economy. A sustained economic downturn increases the possibility that one or more of our significant customers, or a group of less significant customers, could become insolvent, which could adversely impact our sales, net earnings, financial condition, cash flow and liquidity.

 

Costs of raw materials could negatively affect our operating results.

 

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 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 tied to higher cost inventory reduces our segment margins and earnings.

 

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Steel is our most significant 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. 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.

 

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.

 

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 change our underlying assumptions on which valuation reserves are established and negatively affect future period earnings and balance sheets.

 

Competition could adversely affect our operating results.

 

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%), 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.

 

Our goodwill and other long-lived assets are subject to potential impairment.

 

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, 2011, goodwill and other intangible assets represented approximately $1.04 billion, or approximately 36% of our total assets. In addition, net property, plant and equipment and sundry assets totaled approximately $648 million, or approximately 22% of total assets.

 

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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 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 2011 indicated no goodwill impairments, but fair market value for one of our ten reporting units (Fixture & Display) only exceeded book value by approximately 15%. The fair market values of all other reporting units exceeded book value by more than 30%. The goodwill associated with the Fixture & Display reporting unit was $112 million at December 31, 2011. The unit is dependent upon capital spending by retailers on both new stores and remodeling of existing stores. Retailer activity was moderately lower in 2011, and the unit did not meet expectations. If actual performance does not improve and remains at current levels, future goodwill impairments could be possible.

 

In December 2011, management approved a restructuring plan which primarily related to the closure of four underperforming plants. This resulted in long-lived asset impairment of $31 million. Prior to that event, our last material asset impairment occurred in 2007.

 

If actual results differ from the assumptions and estimates used in the goodwill and long-lived asset calculations, we could incur impairment charges, which could negatively impact our results of operations.

 

We are exposed to foreign currency risk.

 

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 2011, 29% 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.

 

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Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

The Company’s corporate office is located in Carthage, Missouri. We currently have 132 manufacturing locations, of which 89 are located across the United States and 43 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


      Residential
Furnishings


     Commercial
Fixturing &
Components


     Industrial
Materials


     Specialized
Products


 

United States

     89         51         10         15         13   

Asia

     14         4         2                 8   

Europe

     13         3         1                 9   

Canada

     8         1         2                 5   

Mexico

     5         2                 1         2   

Other

     3         3                           
    


  


  


  


  


Total

     132         64         15         16         37   

 

Manufacturing facilities that we own produced approximately 70% of our sales in 2011. 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 99 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 readily accommodate over $4 billion in revenue (assuming current sales mix).

 

To trim unproductive capacity and reduce overhead costs, management, in December 2011, approved a restructuring plan which included the closure of four underperforming branches. Of the closed branches, one was in the Residential Furnishings segment, one was in Commercial Fixturing & Components and two were in the Industrial Materials segment.

 

Item 3. Legal Proceedings.

 

The information in Note T on page 119 of the Notes to Consolidated Financial Statements is incorporated into this section by reference.

 

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Item 4. Mine Safety Disclosures.

 

Not applicable.

 

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

     59       President and Chief Executive Officer

Karl G. Glassman

     53       Executive Vice President and Chief Operating Officer

Jack D. Crusa

     57       Senior Vice President, Specialized Products

Perry E. Davis1

     52       Senior Vice President, Residential Furnishings

David M. DeSonier

     53       Senior Vice President, Strategy & Investor Relations

Scott S. Douglas

     52       Senior Vice President, General Counsel

Joseph D. Downes, Jr.

     67       Senior Vice President, Industrial Materials

Matthew C. Flanigan

     50       Senior Vice President and Chief Financial Officer

Paul R. Hauser2

     60       Senior Vice President, Residential Furnishings

John G. Moore

     51       Senior Vice President, Chief Legal & HR Officer and Secretary

Dennis S. Park

     57       Senior Vice President, Commercial Fixturing & Components

William S. Weil

     53       Vice President, Corporate Controller and Chief Accounting Officer

1 Mr. Davis was appointed Senior Vice President, Residential Furnishings effective February 18, 2012.
2 Mr. Hauser retired from the Company effective February 18, 2012.

 

Subject to the employment and severance benefit agreements with Mr. Haffner and Mr. Glassman, and the employment agreement with Mr. Flanigan, listed as exhibits to this Report, the executive officers generally serve at the pleasure of the Board of Directors.

 

David S. Haffner was appointed Chief Executive Officer in 2006 and has served as President of the Company since 2002. He served as Chief Operating Officer from 1999 to 2006 and as the Company’s Executive Vice President from 1995 to 2002. He has served the Company in various capacities since 1983.

 

Karl G. Glassman was appointed Chief Operating Officer in 2006 and has served as Executive Vice President of the Company since 2002. He served as President of the Residential Furnishings Segment from 1999 to 2006, as Senior Vice President of the Company from 1999 to 2002 and as President of Bedding Components from 1996 to 1998. He has served the Company in various capacities since 1982.

 

Jack D. Crusa has served the Company as Senior Vice President since 1999 and President of Specialized Products since 2003. He previously served as President of the Industrial Materials Segment from 1999 through 2004, as President of the Automotive Group from 1996 through 1999 and in various capacities since 1986.

 

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Perry E. Davis was appointed Senior Vice President and President of the Residential Furnishings Segment effective February 18, 2012. He previously served as Vice President of the Company, President—Bedding Group beginning in 2006, 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 named Senior Vice President—Strategy & Investor Relations in 2011. He was appointed Vice President—Strategy & Investor Relations in 2007 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 named Senior Vice President—General Counsel in 2011. He served the Company as Vice President beginning in 2008, and General Counsel beginning in 2010. He previously 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.

 

Matthew C. Flanigan has served the Company as Senior Vice President since 2005 and as Chief Financial Officer since 2003. Mr. Flanigan previously served the Company as Vice President from 2003 to 2005, as Vice President and President of the Office Furniture Components Group from 1999 to 2003 and as Staff Vice President of Operations from 1997 to 1999.

 

Paul R. Hauser retired from the Company effective February 18, 2012. Until his retirement, Mr. Hauser served as Senior Vice President of the Company beginning in 2005 and President of the Residential Furnishings Segment beginning in 2006. He previously served as Vice President of the Company and President of the Bedding Group from 1999 to 2006. He served in various other capacities since 1980.

 

John G. Moore was named Senior Vice President, Chief Legal and HR Officer and Secretary in 2011. He was previously appointed Secretary in January 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, as 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 became Senior Vice President and President of the Commercial Fixturing & Components Segment in 2006. In 2004, he was named President of the Home Furniture and Consumer Products Group and became Vice President of the Company and President of Home Furniture Components in 1996. He has served the Company in various capacities since 1977.

 

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

 

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PART II

 

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

       

2011

                                   

First Quarter

   $ 24.68       $ 22.16         82.9       $ .27   

Second Quarter

     26.95         22.56         99.2         .27   

Third Quarter

     24.99         17.80         129.5         .28   

Fourth Quarter

     24.84         18.37         107.5         .28   
    


  


  


  


For the Year

   $ 26.95       $ 17.80         419.1       $ 1.10   
                      


  


2010

                                   

First Quarter

   $ 21.99       $ 17.89         97.3       $ .26   

Second Quarter

     25.15         19.99         121.0         .26   

Third Quarter

     23.33         18.83         90.2         .27   

Fourth Quarter

     24.33         19.71         103.5         .27   
    


  


  


  


For the Year

   $ 25.15       $ 17.89         412.0       $ 1.06   
                      


  



 

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

 

Shareholders and Dividends

 

As of February 15, 2012, we had approximately 10,000 shareholders of record.

 

We are targeting a dividend payout ratio (dividends per share divided by earnings per share) of 50-60%, though it has been and will likely be higher for the near term. Our dividend payout percentage was 146%, 92% and 106% in 2009, 2010 and 2011, 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 44.

 

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Issuer Repurchases of Equity Securities

 

The table below is a listing of our repurchases of the Company’s common stock during the fourth quarter of 2011.

 

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 2011

     9,740       $ 23.18         0         640,811   

November 2011

     3,279       $ 21.90         3,279         637,532   

December 2011

     0       $ 0         0         637,532   
    


  


  


        

Total

     13,019       $ 22.86         3,279            
    


           


        

(1) This number includes 9,740 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 in net option exercises and net stock unit conversions during the quarter.
(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, 2012, the Company was authorized by the Board of Directors to repurchase up to 10 million shares in 2012. No specific repurchase schedule has been established. Moreover, with the $188 million cash acquisition of Western Pneumatic Tube in January 2012, the Company does not expect to purchase a significant number of shares under this authority in 2012.

 

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Item 6. Selected Financial Data.

 

(Unaudited)    20111

    2010

    2009

    200824

    200734

 
(Dollar amounts in millions, except per share data)                               

Summary of Operations

                                        

Net Sales from Continuing Operations

   $ 3,636      $ 3,359      $ 3,055      $ 4,076      $ 4,250   

Earnings from Continuing Operations

     156        184        121        128        65   

(Earnings) attributable to Noncontrolling Interest, net of tax

     (3     (6     (3     (5     (6

Earnings (loss) from Discontinued Operations, net of tax

     (0     (1     (6     (19     (70

Net Earnings (Loss)

     153        177        112        104        (11

Earnings per share from Continuing Operations

                                        

Basic

     1.05        1.17        .74        .73        .33   

Diluted

     1.04        1.16        .74        .73        .33   

Earnings (Loss) per share from Discontinued Operations

                                        

Basic

     (.00     (.00     (.04     (.11     (.39

Diluted

     (.00     (.01     (.04     (.11     (.39

Net Earnings (Loss) per share

                                        

Basic

     1.05        1.17        .70        .62        (.06

Diluted

     1.04        1.15        .70        .62        (.06

Cash Dividends declared per share

     1.10        1.06        1.02        1.00        .78   
    


 


 


 


 


Summary of Financial Position

                                        

Total Assets

   $ 2,915      $ 3,001      $ 3,061      $ 3,162      $ 4,072   

Long-term Debt, including capital leases

   $ 833      $ 762      $ 789      $ 851      $ 1,001   
    


 


 


 


 



1 

The Company incurred asset impairment charges and restructuring-related charges totaling $44 million in 2011. All of these charges were recognized in continuing operations.

2 

The Company incurred asset impairment and restructuring-related charges totaling $84 million in 2008. Of these charges, approximately $33 million were associated with continuing operations and $51 million related to discontinued operations.

3 

The Company incurred asset impairment and restructuring-related charges totaling $305 million in 2007. Of these charges, approximately $159 million were associated with continuing operations and $146 million related to discontinued operations.

4 

Amounts for 2007 and 2008 were retrospectively adjusted to reflect the reclassification of noncontrolling interests from “Other expense (income), net” to “(Earnings) attributable to noncontrolling interest, net of tax” in the Consolidated Statement of Operations.

 

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

 

2011 HIGHLIGHTS

 

Demand improved in certain of our markets during 2011, with automotive and office furniture leading the way. In contrast, stagnant demand negatively impacted our major residential markets. Many consumers continued to postpone spending on larger-ticket items such as bedding and furniture in the face of ongoing economic weakness.

 

Sales growth in 2011 was driven primarily by factors that bring little incremental earnings. The main revenue catalyst was raw material-related price inflation, but currency and a change in sales at our steel mill (from intra-segment to trade) also contributed to the year-over-year increase. Across the remainder of the company as a whole, unit volume was up slightly. Earnings decreased in 2011, largely due to restructuring-related charges associated with the decision to close manufacturing facilities in certain businesses facing persistently weak market demand. With concerns about weak markets, we continued to closely monitor working capital levels, and ended the year with working capital as a percent of annualized sales well below our target.

 

Operating cash for the full year once again exceeded the amount required to fund capital expenditures and dividends. In August, we raised the quarterly dividend to $.28 per share and extended to 40 years our record of consecutive annual dividend increases at a 14% compound annual growth rate. We also repurchased 10 million shares of our stock during 2011.

 

Our financial profile remains strong. We ended 2011 with net debt to net capital below our long-term targeted range and over $500 million available under our existing commercial paper program and revolver facility. The revolving credit agreement was renewed in 2011, with a five-year term ending in 2016.

 

Late in the year, we announced our plan to purchase Western Pneumatic Tube, a leading provider to the aerospace industry of integral components for critical aircraft systems. This acquisition aligns extremely well with our strategy to seek businesses with secure, leading positions in growing, profitable, attractive markets. We completed the acquisition in early 2012.

 

We assess our overall performance by comparing our Total Shareholder Return (TSR), on a rolling three-year basis, to that of peer companies. We target TSR in the top one-third of the S&P 500 over the long-term. For the three years ended December 31, 2011, we generated TSR of 21% per year on average. That places us in the top 38% of the S&P 500, just 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, 2011, we generated TSR of 21% per year on average, while the S&P 500 index generated average TSR of 14% per year. That places us in the top 38% of the S&P 500, just shy of our top one-third goal.

 

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

 

Customers

 

We serve a broad suite of customers, with our largest customer representing less than 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 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-quarter of our sales.

 

Demand improved in certain of our markets during 2011, with automotive and office furniture leading the way. In contrast, stagnant demand negatively impacted our major residential markets. Many consumers continued to postpone spending on larger-ticket items such as bedding and furniture in the face of ongoing economic weakness.

 

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It is our belief that the U.S. economy will face headwinds for longer than we previously expected. We are no longer willing to wait for an economic recovery to bolster earnings, and as a result, we have taken further steps to improve ongoing profitability. We have closed some production facilities and reduced overhead costs. While these activities improve our cost structure, capacity utilization levels in the majority of our operations remain low. Our current productive capacity should readily accommodate sales of over $4 billion (assuming current sales mix). 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.

 

Raw Material Costs

 

In many of our businesses, we enjoy a cost advantage from buying large quantities of raw materials. This purchasing leverage is a benefit that many of our competitors generally do not have. 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 and 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 2009 and early 2010, steel costs increased, and we raised our selling prices to recover the majority of the higher costs. By the end of 2010, we were facing further inflation in steel costs, and we implemented additional price increases in early 2011. By mid-year, market prices for certain types of steel had begun to decrease. The margin pressure we experienced in the last half of 2011 resulted in part from lowering our selling prices (selectively) in advance of our average cost of steel declining, in order to maintain market share and minimize deterioration in product mix.

 

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). Scrap costs increased in 2010, and while market prices for steel rod also increased, those increases did not keep pace with escalating scrap costs. As a result, metal margins within the steel industry (and in our rod producing operation) were lower during 2010. Scrap costs increased further in early 2011 but market prices for steel rod also increased. Metal margins for the full year 2011 were slightly improved.

 

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. In late 2010 these costs began increasing, and in early 2011, we implemented price increases to recover the majority of the higher costs.

 

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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 experienced this de-contenting effect in our Residential Furnishings segment in the last half of 2011 (however selective selling price reductions helped contain this activity). As our customers changed the quantity and mix of components in their finished goods to address commodity inflation, our profit margins were negatively impacted. 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.

 

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, 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.

 

We experienced a temporary loss of market share during the last half of 2010 as certain of our bedding customers purchased a portion of their innerspring requirements from European suppliers. The opportunity to buy these components at a lower price resulted from a combination of factors: i) the weaker Euro; ii) temporarily lower wire costs; and iii) greater excess capacity as a result of economic turmoil in Europe. By the end of 2010, we had regained the majority of the lost volume. The margin pressure we experienced in the last half of 2011 resulted in part from price competition in other of our businesses as we reduced prices (selectively) to maintain market share in light of depressed industry volume.

 

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%), these products represent a much larger portion of the total market in dollars (approximately 25%-30%) due to their higher average selling prices. We expect these products to continue to grow. Some of our traditional bedding customers are beginning to offer mattresses that combine an innerspring core with top layers comprised of specialty foam and gel. These hybrid products allow our bedding customers to address a consumer preference for the feel of a specialty mattress and the characteristics of an innerspring.

 

In late 2007, we filed an antidumping suit related to innerspring imports from China, South Africa and Vietnam. We saw a distinct decline in unfair imports during 2008 after

 

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the antidumping investigations began. As a result, we regained market share and performance in our Bedding group improved. The investigations were brought to a favorable conclusion in early 2009. The current antidumping duty rates on innersprings from these countries are significant, ranging from 116% to 234%, and should remain in effect at least until early 2014. Imported innersprings from these countries are now supposed to be sold at fair prices, however the duties on certain innersprings are being evaded by various means including shipping the goods through a third country and falsely identifying the country of origin. Leggett, along with several U.S. manufacturers of products with active antidumping or antidumping/countervailing duty orders, formed a coalition and are working with Members of Congress, the U.S. Department of Commerce, and U.S. Customs and Border Protection to seek stronger enforcement of existing antidumping and/or countervailing duty orders.

 

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 the 4th quarter of 2011 primarily related to this plan, which included $31 million of long-lived asset impairments and $6 million of other restructuring-related costs. We expect an additional $2 million of restructuring costs in 2012, with these plant closures complete by mid-year.

 

Earnings should benefit in 2012 from the cost savings associated with the 2011 Restructuring Plan and other restructuring activity initiated in the latter part of 2011. Our 2012 forecast anticipates an approximate $15-$20 million pre-tax earnings benefit ($.07-$.10 per share) from these activities.

 

Discontinued Operations and Divestitures

 

We divested seven businesses as a part of the strategic realignment we announced in late 2007. The bulk of this activity (five of the seven divestitures) was complete by the end of 2008. In 2009, we sold the Coated Fabrics business unit, and in 2010 we divested the Storage Products business unit. Results of operations for these businesses are classified as discontinued operations in our financial statements. For more information about discontinued operations and the divestitures, see Note B to the Consolidated Financial Statements on page 84.

 

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RESULTS OF OPERATIONS—2011 vs. 2010

 

Sales growth in 2011 was driven primarily by factors that bring little incremental earnings. The main revenue catalyst was raw material-related price inflation, but currency and a change in sales at our steel mill (from intra-segment to trade) also contributed to the year-over-year increase. Across the remainder of the company as a whole, unit volume was up slightly. Full-year earnings decreased, from $177 million in 2010 to $153 million in 2011 primarily from higher restructuring-related costs.

 

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

 

Consolidated Results

 

The following table shows the changes in sales and earnings during 2011, and identifies the major factors contributing to the changes.

 

(Dollar amounts in millions, except per share data)    Amount

    %

 

Net sales:

                

Year ended December 31, 2010

   $ 3,359           

Acquisition sales growth

     3        —  

Small divestitures

     (1     —  

Internal sales increase:

                

Approximate inflation and currency

     159        4.7

Approximate unit volume increase

     116        3.5
    


 


Internal sales increase

     275        8.2
    


 


Year ended December 31, 2011

   $ 3,636        8.2
    


 


Net earnings attributable to Leggett & Platt:

                
(Dollar amounts, net of tax)             

Year ended December 31, 2010

   $ 177           

Higher restructuring-related costs

     (23        

Lower effective tax rate

     6           

Other factors, including slightly higher unit volume offset by higher selling and administrative, and other costs

     (7        
    


       

Year ended December 31, 2011

   $ 153           
    


       

Earnings Per Share—2010

   $ 1.15           
    


       

Earnings Per Share—2011

   $ 1.04           
    


       

 

Sales grew 8% in 2011, largely from inflation and currency rate changes. Unit volumes grew 3% primarily due to a shift in the mix of sales at our steel mill (from intra-segment to trade). Across the bulk of our businesses, in aggregate, market demand increased slightly.

 

Demand improved in certain of our markets during 2011, with automotive and office furniture leading the way. In contrast, stagnant demand negatively impacted our major residential markets. Many consumers continued to postpone spending on larger-ticket items such as bedding and furniture in the face of ongoing economic weakness.

 

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Earnings decreased in 2011, largely due to restructuring-related costs associated with the decision (in the fourth quarter) to close manufacturing facilities in certain businesses facing persistently weak market demand. Other factors, including slightly higher unit volume, a lower effective tax rate, and higher selling, administrative, and other costs essentially offset during the year.

 

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 60% of our inventories to the last-in, first-out (LIFO) method. These are primarily our domestic, steel-related inventories. In both 2011 and 2010, moderate inflation led to full-year LIFO expense ($14 million in 2011 and $15 million in 2010).

 

For further discussion of inventories, see Note A to the Consolidated Financial Statements on page 79.

 

Interest and Income Taxes

 

Net interest expense in 2011 was roughly flat with 2010.

 

The 2011 consolidated worldwide effective income tax rate of 24.2% was lower than the 28.1% incurred in 2010. Several factors contributed to the reduction, including changes in our mix of earnings among taxing jurisdictions, one-time benefits from tax planning strategies, and tentative agreement reached with the IRS regarding the examination of our 2004 through 2008 tax years. As a result of the tax planning strategies and audit, we recognized tax benefits of $5 million in 2011. This is comparable to a tax benefit realized in 2010 related to the IRS examination in that year of certain tax credit claims, which was substantially offset by incremental taxes from the repatriation of certain foreign earnings in that year. We also experienced other less significant, discrete tax items (both favorable and unfavorable) that substantially offset for the year.

 

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Segment Results

 

In the following section we discuss 2011 sales and earnings before interest and taxes (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 91.

 

(Dollar amounts in millions)    2011

    2010

    Change in Sales

    % Change
Same Location
Sales (1)


       
       $

    %

     

Sales

                                                

Residential Furnishings

   $ 1,837      $ 1,747      $ 90        5     5        

Commercial Fixturing & Components

     507        535        (28     (5 %)      (5 %)         

Industrial Materials

     857        725        132        18     18        

Specialized Products

     736        629        107        17     17        
    


 


 


 


 


       

Total

     3,937        3,636        301                           

Intersegment sales elimination

     (301     (277     (24                        
    


 


 


 


 


       

External sales

   $ 3,636      $ 3,359      $ 277        8     8        
    


 


 


 


 


       
     2011

    2010

    Change in EBIT

    EBIT Margins (2)

 
       $

    %

    2011

    2010

 

EBIT

                                                

Residential Furnishings

   $ 138      $ 160      $ (22     (14 %)      7.5     9.1

Commercial Fixturing & Components

     16        23        (7     (30 %)      3.1     4.3

Industrial Materials

     28        55        (27     (49 %)      3.3     7.6

Specialized Products

     77        66        11        17     10.5     10.5

Intersegment eliminations & other

     (7     (1     (6                        

Change in LIFO reserve

     (14     (15     1                           
    


 


 


 


 


 


Total

   $ 238      $ 288      $ (50     (17 %)      6.5     8.6
    


 


 


 


 


 



(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 in 2011, primarily from inflation and currency, which generated little profit. Unit volume in the segment was flat. Demand in most of our residential markets continued to be soft as consumers postponed spending on larger-ticket items such as bedding and furniture in the face of an ongoing weak economy. Full-year unit volumes were essentially flat in our U.S. Spring business but declined in International Spring and Furniture Hardware (from pronounced market weakness mid-year). The only business in the segment that posted meaningful unit growth was our Adjustable Bed business, where unit volumes grew 44% for the full year.

 

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EBIT and EBIT margins decreased versus 2010, primarily due to higher restructuring-related costs (of $9 million), less favorable sales mix, inflation, and other operating cost increases.

 

We initiated restructuring activities in the last half of 2011 in an effort to improve ongoing profitability, and part of that activity occurred in Residential Furnishings. We consolidated four operations in the segment, including two carpet underlay plants, a Canadian spring facility, and a fabric coating business. We expect segment margins to benefit in 2012 from the cost savings associated with these activities.

 

Commercial Fixturing & Components

 

Sales decreased in 2011, largely from lower demand in our Store Fixtures business, as some of the large, value-oriented retailers significantly curtailed both new store construction and remodeling activity during the year. In contrast, market demand continued to improve in Office Furniture Components as that business posted strong growth for the full year. EBIT and EBIT margins also decreased versus the prior year, primarily due to lower sales.

 

Our efforts to improve ongoing profitability resulted in the decision late in 2011 to consolidate one of our six remaining store fixture locations. The majority of the sales from this operation will be supplied through two of our remaining facilities. In addition, consistent with our stated plan to continually assess our portfolio and exit non-core businesses, we divested our small, U.K.-based point-of-purchase display operation in January 2012.

 

Industrial Materials

 

2011 sales increased, reflecting steel-related price inflation and higher trade sales from our steel mill, both of which generated little incremental profit. Full-year unit volumes declined in both Wire Drawing and Steel Tubing, reflecting weak bedding, furniture, and store fixtures end markets.

 

EBIT and EBIT margins decreased versus 2010, mainly from higher restructuring-related costs (of $23 million). EBIT margins also decreased during the year as a result of a change in sales from intra-segment to trade at our steel rod mill. These trade sales have positive earnings contribution in addition to covering overhead costs, and have kept the mill running at full capacity while internal demand for steel rod has been down. However, this sales shift is dilutive to margins since it increases our reported sales while preserving comparable EBIT levels.

 

Restructuring activities in late 2011 involved the closure of two facilities in the segment. We closed one of our six domestic wire drawing operations and consolidated that volume into two of the remaining plants. We also announced the closing of a wire forming operation that was a supplier of coated wire dishwasher racks into the domestic appliance industry. These activities should improve capacity utilization within the segment in 2012 and benefit future earnings and margins.

 

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Specialized Products

 

In Specialized Products, sales increased in 2011, primarily reflecting improved demand across the major businesses in the segment. Changes in currency exchange rates also added to year-over-year sales growth. Automotive growth continues to be driven by the recovery in global industry production levels.

 

EBIT increased versus the prior year with the impact of higher sales partially offset by higher restructuring-related costs (of $7 million), raw material cost inflation, and currency impacts. EBIT margins were flat.

 

Results from Discontinued Operations

 

Full year earnings from discontinued operations, net of tax, was not material in either year (2010 or 2011).

 

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RESULTS OF OPERATIONS—2010 vs. 2009

 

During 2010, sales increased 10%, reflecting improved market demand in several of our businesses. Full-year earnings also increased, from $121 million in 2009 to $184 million in 2010.

 

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

 

Consolidated Results

 

The following table shows the changes in sales and earnings during 2010, and identifies the major factors contributing to the changes.

 

(Dollar amounts in millions, except per share data)    Amount

    %

 

Net sales:

                

Year ended December 31, 2009

   $ 3,055           

Acquisition sales growth

     1        —   

Small divestitures

     (24     (0.7 )% 

Internal sales increase:

                

Approximate inflation

     —              

Approximate unit volume increase

     327        10.7
    


 


Internal sales increase

     327        10.7
    


 


Year ended December 31, 2010

   $ 3,359        10.0
    


 


Net earnings attributable to Leggett & Platt:

                
(Dollar amounts, net of tax)             

Year ended December 31, 2009

   $ 112           

Non-recurrence of divestiture note write-down

     7           

Non-recurrence of bad debt expense associated with a customer bankruptcy

     6           

Non-recurrence of unusual tax items

     6           

Benefit associated with the sale of a building

     8           

Lower effective tax rate

     16           

Other factors, including higher unit volume offset by lower metal margins

     22           
    


       

Year ended December 31, 2010

   $ 177           
    


       

Earnings Per Share—2009

   $ 0.70           
    


       

Earnings Per Share—2010

   $ 1.15           
    


       

 

In 2010, sales increased 10% versus 2009. Demand improved in many of our end markets during the year. The automotive and office furniture markets experienced significant improvement from very depressed demand levels in 2009. Retail fixturing demand was also reasonably strong. Our residential bedding and furniture markets started 2010 strong but weakened in the last half of the year as consumer spending on larger-ticket items slowed.

 

Full-year earnings increased in 2010, primarily reflecting higher unit volumes, a lower effective tax rate, and the non-recurrence of three significant expense items from 2009

 

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(detailed in the table above). These earnings improvements were partially offset by lower metal margins. As a producer of steel rod, we are impacted by volatility in metal margins (the difference in the cost of steel scrap and the market price for steel rod). Scrap costs increased in 2010, and while market prices for steel rod also increased, those increases did not keep pace with escalating scrap costs. As a result, metal margins within the steel industry (and in our rod producing operation) were lower during 2010.

 

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 60% of our inventories to the last-in, first-out (LIFO) method. These are primarily our domestic, steel-related inventories. We experienced a large swing in the LIFO impact in recent years. In 2009, significant steel cost decreases resulted in a LIFO benefit of $67 million. In 2010, moderate inflation led to full-year LIFO expense of $15 million. The LIFO impact recognized at the corporate level is generally offset each year by FIFO impacts at the segment level. Segment-level earnings in 2009 were significantly burdened (primarily in the first half of the year) as we consumed higher cost steel while selling prices decreased. In 2010, segment-level earnings benefitted under the FIFO method from the effect of rising commodity costs.

 

For further discussion of inventories, see Note A to the Consolidated Financial Statements on page 79.

 

Interest and Income Taxes

 

Net interest expense in 2010 was roughly flat with 2009.

 

The consolidated worldwide effective income tax rate for 2010 was lower, at 28.1%, versus 39.0% in 2009. In 2010, the tax rate benefitted from the higher level of earnings, changes in the mix of earnings among tax jurisdictions, and tentative settlements of tax examinations. During 2010, we reached tentative agreement with the IRS on their examination of certain tax credit claims, and recognized tax benefits of $5 million associated with those claims. These benefits were partially offset by incremental taxes resulting from the repatriation of certain foreign earnings. During 2010, we repatriated $108 million of foreign earnings, which resulted in a net tax charge of $5 million. In 2009, the higher tax rate reflected unfavorable tax adjustments resulting from Mexican tax law changes, which caused us to re-evaluate our deferred tax assets and liabilities in that jurisdiction. As a result, we recorded a $6 million tax charge to earnings related to 2009 and prior year losses that might expire before they could be utilized to reduce taxable earnings.

 

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Segment Results

 

In the following section we discuss 2010 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 91.

 

(Dollar amounts in millions)    2010

    2009

    Change in Sales

    % Change
Same Location
Sales (1)


       
           $    

        %    

     

Sales

                                                

Residential Furnishings

   $ 1,747      $ 1,693      $ 54        3     3        

Commercial Fixturing & Components

     535        491        44        9     9        

Industrial Materials

     725        647        78        12     16        

Specialized Products

     629        501        128        26     26        
    


 


 


 


 


       

Total

     3,636        3,332        304                           

Intersegment sales elimination

     (277     (277     —                             
    


 


 


 


 


       

External sales

   $ 3,359      $ 3,055      $ 304        10     11        
    


 


 


 


 


       
     2010

    2009

    Change in EBIT

    EBIT Margins (2)

 
       $

    %

    2010

    2009

 

EBIT

                                                

Residential Furnishings

   $ 160      $ 90      $ 70        78     9.1     5.3

Commercial Fixturing & Components

     23        8        15        188     4.3     1.6

Industrial Materials

     55        60        (5     (8 %)      7.6     9.3

Specialized Products

     66        17        49        288     10.5     3.4

Intersegment eliminations & other

     (1     (12     11                           

Change in LIFO reserve

     (15     67        (82                        
    


 


 


 


 


 


Total

   $ 288      $ 230      $ 58        25     8.6     7.5
    


 


 


 


 


 



(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 in 2010, primarily due to market share gains in our furniture components business. Demand in most of our residential markets was relatively strong during the first half of the year but weakened noticeably in the last half as consumer demand for large ticket items (such as mattress sets and upholstered furniture) slowed.

 

EBIT and EBIT margins increased versus 2009, with the earnings impact from higher unit volumes augmented by pricing discipline, significantly reduced bad debt expense, and a benefit associated with the sale of a building.

 

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Commercial Fixturing & Components

 

Sales increased in 2010 due to relatively strong demand in our Store Fixtures business by value-oriented retailers, and improved market demand in Office Furniture Components. EBIT and EBIT margins also increased versus the prior year, largely due to higher sales.

 

Industrial Materials

 

2010 sales increased, reflecting steel-related price inflation and improved market demand. EBIT and EBIT margins decreased versus 2009, as higher sales were more than offset by lower metal margins within the steel industry.

 

Specialized Products

 

Sales increased in 2010, reflecting improved demand across all the major businesses in the segment. EBIT and EBIT margins increased versus the prior year with the impact of higher sales bolstered by cost reductions.

 

Results from Discontinued Operations

 

Full year earnings from discontinued operations, net of tax, increased $5 million, from a loss of $6 million in 2009 to a loss of $1 million in 2010. This earnings increase was primarily due to the non-recurrence of $3 million (net of tax) of environmental charges related to an aluminum property and lower long-lived asset and goodwill impairment charges associated with the divestitures (which were complete by late 2010).

 

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LIQUIDITY AND CAPITALIZATION

 

In this section, we provide details, reflecting both continuing and discontinued operations, about our:

 

   

Uses of cash

 

   

Cash from operations

 

   

Working capital trends

 

   

Debt position and total capitalization

 

We use cash for the following:

 

   

Finance capital requirements (e.g. productivity, growth and acquisitions)

 

   

Pay dividends

 

   

Repurchase our stock

 

Our operations provide most of the cash we require, but debt may also be used to fund a portion of our needs. For more than 20 years, our operations have provided more than sufficient cash to fund both capital expenditures and dividend payments. In 2009, we generated the second highest level of cash from operations in our history, at $565 million, which included a significant reduction in working capital as sales contracted. With a slight increase in working capital in 2010 (due to sales growth), operating cash was $363 million. In 2011, cash flow from operations decreased to $329 million, but still readily exceeded our annual requirement for capital expenditures and dividends. We expect 2012 cash flow from operations to again exceed $300 million. We ended 2011 with net debt to net capital of 29%, below the conservative end of our long-term targeted range of 30%-40%. Page 49 presents a table of the calculation of net debt as a percent of net capital at the end of the past two years.

 

Uses of Cash

 

Finance Capital Requirements

 

Improving returns of the existing asset base will continue to be a key focus. However, cash is available to fund selective growth, both internally (through capital expenditures) and externally (through acquisitions).

 

LOGO

  

LOGO

 

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Capital expenditures include investments we make to maintain, modernize, and expand manufacturing capacity. The chart above shows that capital expenditures have been relatively stable in recent years, although well below levels of the previous decade. We expect capital expenditures to approximate $100 million in 2012. In all of our businesses, we continue to invest in the maintenance of facilities and equipment. However, with excess productive capacity across our operations (from continued low demand levels), we have reduced spending on expansion projects. The anticipated increase in 2012 relates primarily to specific new automotive programs that we have been awarded, and that should contribute to earnings and cash flow beginning in 2013.

 

In 2008, we began assigning each Business Unit a specific role (e.g. Grow, Core, Fix, Divest) within our portfolio of businesses. This changed our long-term priorities for allocating capital and reduced capital spending levels. We actively pursue disciplined growth within our Grow business units and earmark expansion capital for these opportunities. Operations designated as Core business units receive capital primarily for productivity enhancements.

 

Our strategic, long-term, 4-5% annual growth objective envisions periodic acquisitions. We are seeking acquisitions within our growth businesses, and are looking for opportunities to enter new, higher growth markets (carefully screened for sustainable competitive advantage). During the past few years, acquisitions were a lower priority as we primarily focused on completing the divestitures and improving margins and returns of our existing businesses. As a result, no significant acquisitions were completed in 2009, 2010, and 2011. We recently turned our focus onto acquisitions and have begun actively soliciting opportunities while maintaining our screening discipline.

 

On December 20, 2011, we announced our plan to purchase, for $188 million, Western Pneumatic Tube, a leading provider to the aerospace industry of integral components for critical aircraft systems. With 2011 sales of $57 million, these operations will constitute a new, stand-alone business unit within our Industrial Materials segment. This acquisition aligns extremely well with our strategy to seek businesses with secure, leading positions in growing, profitable, attractive markets—and that make sense to be a part of Leggett & Platt. We completed the acquisition on January 12, 2012.

 

Additional details about acquisitions can be found in Note R to the Consolidated Financial Statements on page 115.

 

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Pay Dividends

 

LOGO

 

We expect to continue returning cash to shareholders through dividends and share repurchases. In 2011 we modestly increased the quarterly dividend, to $.28 per share, and extended to 40 years our record of consecutive annual dividend increases, at an average compound growth rate of 14%. Our targeted dividend payout is approximately 50-60% of net earnings, but actual payout has been higher recently and will likely remain above targeted levels in the near term. Maintaining and increasing the dividend remains a high priority. We anticipate spending approximately $160 million on dividends in 2012. Cash from operations has been, and is expected to continue to be, more than sufficient to readily fund both capital expenditures and dividends.

 

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Repurchase Stock

 

LOGO

 

During the past three years, we repurchased a total of 27 million shares of our stock (and issued 11 million shares through employee benefit and stock purchase plans), reducing outstanding shares by 11%. In 2011, we repurchased 10 million shares at an average per-share price of $22.86. During the year, we issued 3 million shares through employee benefit plans (including shares that were purchased by employees in lieu of cash compensation).

 

For the past few years, we have made few acquisitions; instead, we used excess cash (including divestiture proceeds) largely to repurchase shares. With the acquisition of Western Pneumatic Tube, the amount of stock repurchased during 2012 will likely be significantly lower. Although no specific repurchase schedule has been established, we have been authorized by the Board to repurchase up to 10 million shares in 2012.

 

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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. As shown in the chart below (and discussed in the paragraph that follows), most of the variability in cash from operations in recent years has come from changes in working capital.

 

LOGO

 

In 2011, cash from operations decreased primarily due to lower earnings. The decrease in 2010 operating cash (versus 2009) was due to the change in working capital levels (as shown in the chart above). Cash from operations in 2009 benefitted from a $186 million reduction in working capital that occurred as a result of the economy-induced sales contraction.

 

The following table presents key working capital measures at the end of the past two years.

 

     Amount (in millions)

     # Days Outstanding

 
     2011

     2010

     Change

     2011

     2010

     Change

 

Accounts Receivable, net (1) 

   $ 504       $ 479         $25         51         52         (1

Inventory, net (2) 

   $ 441       $ 435         $  6         54         59         (5

Accounts Payable (3)

   $ 257       $ 226         $31         32         31         1   

(1) 

The accounts receivable ratio represents the days of sales outstanding calculated as: ending net accounts receivable ÷ (net sales ÷ number of days in the year).

(2) 

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

(3) 

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

 

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Accounts Receivable and Days Sales Outstanding (DSO): The dollar amount of accounts receivable increased from year-end 2010 levels, primarily due to inflation-driven sales increases. We continue to focus on collection efforts to ensure customer accounts are paid on time. As part of our accounts receivable review process, we evaluate individual customers’ payment histories, financial health, industry prospects, and current macroeconomic events in determining if outstanding amounts are collectible. In 2011, we incurred $9 million of bad debt expense as compared to $7 million in 2010.

 

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. Instead, DSO fluctuates from year to year with normal differences in the timing of sales and cash receipts.

 

   

Inventory and Days Inventory on Hand (DIO): Although the unit volume of our inventories was down from year-end 2010 levels, the dollar value of inventories increased slightly due to inflation in raw material costs. During 2011, we recognized expense of $10 million associated with obsolete and slow moving inventories; in 2010 this expense totaled $13 million. We do not expect significant changes in customer or industry trends that would materially increase the exposure to inventory obsolescence.

 

Our DIO typically fluctuates within a reasonably narrow range as a result of differences in the timing of sales, production levels, and inventory purchases. Our DIO decreased compared to the prior year due to lower unit volumes of inventory. This improvement reflects a continued focus on optimizing returns and a reduction of inventory in response to persistent demand weakness in certain markets.

 

   

Accounts Payable and Days Payable Outstanding (DPO): The dollar value of accounts payable increased in 2011 primarily due to inflation in raw material costs.

 

We actively strive to optimize payment terms with our vendors, and over the last few years, have increased our DPO by approximately ten days. Changes in the DPO reflected in the table above are the result of normal fluctuation in our operating activity.

 

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 Fixture & Display 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.

 

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Capitalization

 

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

 

(Dollar amounts in millions)


   2011

    2010

    2009

 

Long-term debt outstanding:

                        

Scheduled maturities

   $ 763      $ 762      $ 764   

Average interest rates (1)

     4.6     4.6     4.6

Average maturities in years (1)

     3.8        4.7        5.6   

Revolving credit/commercial paper

     70        —          25   
    


 


 


Total long-term debt

     833        762        789   

Deferred income taxes and other liabilities

     188        192        161   

Equity

     1,308        1,524        1,576   
    


 


 


Total capitalization

   $ 2,329      $ 2,478      $ 2,526   
    


 


 


Unused committed credit:

                        

Long-term

   $ 530      $ 522      $ 491   

Short-term

     —          —          —     
    


 


 


Total unused committed credit

   $ 530      $ 522      $ 491   
    


 


 


Current maturities of long-term debt

   $ 3      $ 2      $ 10   
    


 


 


Cash and cash equivalents

   $ 236      $ 244      $ 260   
    


 


 


Ratio of earnings to fixed charges (2)

     4.8 x        5.8 x        4.6 x   
    


 


 



(1) 

These calculations include current maturities, but exclude commercial paper to reflect the averages of outstanding debt with scheduled maturities.

(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.

 

The next table shows the percent of long-term debt to total capitalization at December 31, 2011 and 2010, 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.

 

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

 

(Dollar amounts in millions)    2011

    2010

 

Long-term debt

   $ 833      $ 762   

Current debt maturities

     3        2   

Cash and cash equivalents

     (236     (244
    


 


Net debt

   $ 600      $ 520   
    


 


Total capitalization

   $ 2,329      $ 2,478   

Current debt maturities

     3        2   

Cash and cash equivalents

     (236     (244
    


 


Net capitalization

   $ 2,096      $ 2,236   
    


 


Long-term debt to total capitalization

     35.8     30.8
    


 


Net debt to net capitalization

     28.6     23.3
    


 


 

Total debt (which includes long-term debt and current debt maturities) increased $72 million in 2011. During the year, we increased our commercial paper borrowings by $70 million.

 

In anticipation of long-term debt maturing in April 2013, we entered into forward starting interest rate swaps in 2010. The swap contracts manage benchmark interest rate risk associated with $200 million of potential future debt issuance, and mature in August 2012. The swaps have a weighted average interest rate of 4.0%. They do not hedge the credit spread over treasuries, our credit worthiness, or the market price of credit related to any future debt issuances. For more information on our interest rate swaps, see Note S to the Consolidated Financial Statements on page 117.

 

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. The credit agreement allows us to issue letters of credit 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)    2011

    2010

 

Total program authorized

   $ 600      $ 600   

Commercial paper outstanding (classified as long-term debt)

     (70     —     

Letters of credit issued under the credit agreement

     —          (78
    


 


Total program usage

     (70     (78
    


 


Total program available

   $ 530      $ 522   
    


 


 

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The average and maximum amount of commercial paper outstanding during 2011 was $118 million and $195 million, respectively. During the fourth quarter, the average and maximum amounts outstanding were $131 million and $174 million respectively. Commercial paper amounts fluctuated during the year due to normal changes in working capital funding requirements. At year end, we had no letters of credit outstanding under the credit agreement, but we had $74 million of stand-by letters of credit outside the agreement to take advantage of more attractive fee pricing.

 

On January 10, 2012, we increased the amount of commercial paper outstanding to $341 million. These proceeds were used primarily to finance the acquisition of Western Pneumatic Tube (cash purchase price of $188 million), but also for ordinary working capital needs and other general purposes.

 

With anticipated operating cash flows, our commercial paper program, and our expected ability to issue debt in the capital markets, we believe we have sufficient funds available to support our ongoing operations, pay dividends, fund future growth, repurchase stock, and repay maturing debt.

 

Accessibility of Cash

 

At December 31, 2011, we had cash and cash equivalents of $236 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, if we had to bring all the foreign cash back immediately, we could incur incremental taxes of up to $53 million.

 

In 2010, we brought back $121 million of foreign cash at an incremental tax cost of $5 million. In 2011, we brought back an additional $89 million through payments on intercompany loans at no added tax cost.

 

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CONTRACTUAL OBLIGATIONS

 

The following table summarizes our future contractual cash obligations and commitments at December 31, 2011:

 

            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

   $ 829       $ 1       $ 381       $ 280       $ 167   

Capitalized leases

     7         2         3         1         1   

Operating leases

     104         31         40         23         10   

Purchase obligations ²

     255         255         —           —           —     

Interest payments ³

     127         36         54         25         12   

Deferred income taxes

     58         —           —           —           58   

Other obligations (including acquisitions, pensions, and reserves for tax contingencies)

     328         195         18         8         107   
    


  


  


  


  


Total contractual cash obligations

   $ 1,708       $ 520       $ 496       $ 337       $ 355   
    


  


  


  


  



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, 2011 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 79.

 

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 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 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 levels, and discount rates are the most critical estimates in determining enterprise values using the cash flow model.

 

Fair market values for one of the 10 reporting units (Fixture & Display) exceeded book value by approximately 15%. The goodwill associated with this reporting unit is $112 million, and is dependent on capital spending by retailers on both new stores and remodeling of existing stores. Retailer activity was moderately lower in 2011. The Fixture & Display reporting unit did not meet expectations for 2011, but is expected to recover to forecasted earnings levels over the next two years. If actual performance does not improve and remains at current levels, future goodwill impairments could be possible.

 

The remaining reporting units have fair market values that exceed carrying value by more than 30%, and have goodwill of $815 million.

 

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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.  

Information regarding material assumptions used to determine if a goodwill impairment exists can be found in Note C on

page 86.

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 $35 million in 2011, $2 million in 2010, and $3 million in 2009.

 

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 did not materialize. We have several operations that are dependent on the housing and retail industries that could also experience future impairments if these operations’ cash flows do not improve from current levels.

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, 2011, the reserve for obsolete and slow-moving inventory was $39 million (approximately 7% of FIFO inventories).

 

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Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions

Inventory Reserves (cont.)

       
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. If we have more than a one-year’s supply of a product, we value that inventory at net realizable value (what we think we will recover).  

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 2011 were $10 million, which was comparable to the previous year. These additions in 2011 were incurred generally among all segments and considered to be a normal level of obsolescence. We incurred write-downs of $2 million related to the 2011 restructuring plan.

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, $11 million annually for costs associated with workers’ compensation. Average year-to-year variation over the past five years has been approximately $2 million. At December 31, 2011, we had accrued $37 million to cover future self-insurance liabilities.

 

Internal safety statistics and cost trends have improved in the last several years. We expect worker compensation costs 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 credit losses was $11 million (less than 1% of annual net sales) over the last three years. At December 31, 2011, our reserves for doubtful accounts totaled $23 million (about 5% of our accounts and customer-related notes receivable of $467 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.

 

In 2011 and 2010, bad debt expense averaged $8 million, which is a return to more normal levels compared to 2009. We did not experience any significant individual customer bankruptcies during the past two years. We believe the financial health of our major customers is stable, but some are highly leveraged, and this could cause circumstances to change in the future.

 

We recognized an $11 million loss in 2009 related to the Aluminum divestiture note. At December 31, 2011, we had $20 million of non-customer notes outstanding, primarily related to divested businesses, and have recorded reserves of $3 million for these notes. Most of these notes are held 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).

  The discount rates used to calculate the pension liability and pension expense for our most significant plans decreased approximately 85 basis points in 2011 due to lower corporate bond yields. Each 25 basis point decrease in the discount rate increases pension expense by $.4 million and increases the plans’ benefit obligation by $8.3 million.

 

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Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions

Pension Accounting (cont.)

       
   

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 expected return on assets in 2011 decreased to 6.7%, compared to 6.8% in 2010 and 6.9% in 2009. 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.

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.

 

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 $53 million.

 

Tax audits by various taxing authorities are expected to increase as governments continue to look for ways to raise additional revenue. Based upon past experience, we do not expect any major 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.

 

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Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions

Income Taxes (cont.)

       
    At December 31, 2011 and 2010, we had $14 million and $13 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.   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.

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 very unpredictable.  

We have several environmental clean-up activities related to current and closed facilities that mostly involve soil and groundwater contamination. Based upon facts available at this time, we believe reserves are adequate, however cost estimates could change as we determine more about the severity and cost of remediation.

 

Legal contingencies are related to numerous lawsuits and claims described in Note T on page 119. Over the past five years, the largest annual cost for litigation claims was $8 million (excluding legal fees). Historically, actual settlements have been reasonably close to original loss estimates.

 

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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 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 very unpredictable.

 

NPI Lawsuit

 

On January 18, 2008, National Products, Inc. (“NPI”) sued Gamber-Johnson, LLC (“Gamber”), our wholly-owned subsidiary, in Case C08-0049C-JLR, in the United States District Court, Western District of Washington, alleging that portions of a Gamber marketing video contained false and misleading statements. NPI and Gamber compete in the market for vehicle computer mounting systems. NPI sought: (a) injunctive relief requiring Gamber to stop using the video and to notify customers; (b) damages for its alleged lost profits; and (c) disgorgement of Gamber’s profits in an unspecified amount.

 

Although part of the claims were dismissed by the Court before and during trial, a jury, on April 12, 2010, found four statements in the video were false and deliberate and awarded $10 million in disgorgement damages against Gamber. On August 16, 2010, the Court: (a) reduced the jury verdict to approximately $0.5 million; (b) granted NPI attorney fees and costs in an amount to be determined; and (c) granted an injunction requiring Gamber to notify its distributors and resellers of the verdict. The Court subsequently awarded NPI $2.0 million in attorney fees and costs.

 

On September 17, 2010, NPI filed an appeal to the Ninth Circuit Court of Appeals. Gamber also filed an appeal. On September 7, 2011, a three judge panel of the Court of Appeals affirmed the trial court’s decision. Each party filed a request for rehearing en banc (a rehearing by the full court), which was denied on October 24, 2011. On November 22, 2011, our insurance carrier paid the judgment and attorney fee awards in full (roughly $2.5 million). Therefore, this matter is resolved.

 

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-CC00284 (“2010 Suit”). The 2010 Suit was substantially similar to a prior suit filed by the same plaintiff, in the same court, on February 5, 2009 (“2009 Suit”). The 2009 Suit was dismissed without prejudice based on the plaintiff’s failure to make demand on our Board and shareholders. As before, the plaintiff did not make such demand. On April 6, 2011, the 2010 Suit was dismissed without prejudice. On May 12, 2011, the plaintiff filed an appeal to the Missouri Court of Appeals. The briefing process began January 2012. We do not expect a ruling from the Court of Appeals for several months.

 

The 2010 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.

 

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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 was 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 was 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 2010 Suit in late October 2010, asserting: the plaintiff failed to make demand on our Board and shareholders as required by Missouri law, and, consistent with the Court’s ruling in the 2009 Suit, this failure to make demand should not be excused; the plaintiff is not a representative shareholder; the 2010 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.

 

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.

 

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 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 (although the underlying lawsuits do not name us as a defendant); and an indirect purchaser class action case filed on May 23, 2011; and (c) eleven individual direct purchaser cases, one filed March 22, 2011, another amended August 24, 2011 to remove class allegations, one amended August 25, 2011 to name us as a defendant, four others filed October 31, 2011, one filed November 4, 2011 and three filed

 

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December 6, 19 and 30, respectively. All of the pending U.S. cases in which we have been named as a defendant, have been filed in or 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-02196.

 

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.

 

We have been named in two Canadian class action cases (for direct and indirect purchasers of polyurethane foam products), as amended on November 2, 2011, 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 and CV-11-17279. In each of the Canadian cases, the plaintiffs, on behalf of themselves and/or a class of purchasers, seek from over 15 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 action. We have not yet filed our defenses in the Canadian actions.

 

We deny all of the allegations in these actions and will vigorously defend ourselves. This contingency is subject to many uncertainties. Therefore, based on the information available to date, we cannot estimate the amount or range of potential loss, if any.

 

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 approximately $4 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 tax rate for the collection and payment of value-added tax primarily on the sale of mattress innersprings in Brazil. The Brazilian Revenue Office has communicated that it will likely expand the audit to the tax years 2008 through January 2011. As a result, it is possible that we may receive an additional notice of violation on the same subject matter. L&P Brazil responded to the notice of violation on January 25, 2012 denying the violation.

 

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 approximately $3.3 million for the tax years 2006 and 2007. The State of Sao Paulo argued that L&P Brazil was using an incorrect tax rate for the collection and payment of value-added tax on mattress innerspring sales 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 an appeal, which is currently pending.

 

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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. At this time, we do not believe it is probable that this matter will have a material adverse effect on our financial condition, operating cash flows or results of operations.

 

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 CV10-07416 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.

 

At trial, the plaintiff alleged damages of $16.2 million. We disputed each patent’s validity; the methodology used to calculate damages; and denied that we infringed any patent. The plaintiff has also requested pre-judgment interest and royalties for future use of the machines and attorneys fees and costs. We intend to object to all of these claims.

 

We intend to appeal the case to the Federal Circuit Court of Appeals and believe we have valid bases upon which to appeal. We do not believe that it is probable that the judgment will be upheld on appeal in its current form. 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. The Patent Office ruled in our favor on the pertinent claims of two of the three patents. Imaginal may appeal those rulings. With respect to the third patent, we intend to appeal the Patent Office’s decision upholding validity; however, due to a change made to all of the machines we do not believe that the machines are currently using the feature alleged to have infringed the third patent. At this time, we do not believe it is probable that this matter will have a material adverse effect on our financial condition, operating cash flows or results of operations.

 

NEW ACCOUNTING STANDARDS

 

We adopted new accounting guidance in 2011 as discussed in Note A to the Consolidated Financial Statements on page 84. The Financial Accounting Standards Board has also issued accounting guidance effective for future periods (that we have not yet adopted), but we do not believe this new guidance will have a material impact on our future financial statements.

 

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

 

(Unaudited)

(Dollar amounts in millions)

 

Interest Rates

 

The table below provides information about the Company’s debt obligations sensitive to changes in interest rates. Substantially all of the debt shown in the table below is denominated in United States dollars. The fair value of fixed rate debt was greater than its carrying value by $29.2 at December 31, 2011, and greater than its carrying value by $6.0 at December 31, 2010. The increase in the fair market value of the Company’s debt is primarily due to the decrease in credit spreads over risk-free rates as compared to the prior year end. The fair value of fixed rate debt was calculated using a Bloomberg secondary market rate, as of December 31, 2011 for similar remaining maturities, plus an estimated “spread” over such Treasury securities representing the Company’s interest costs under its medium-term note program. The fair value of variable rate debt is not significantly different from its recorded amount.

 

    Scheduled Maturity Date

             

Long-term debt as of December 31,


  2012

    2013

    2014

    2015

    2016

    Thereafter

    2011

    2010

 

Principal fixed rate debt

  $ —        $ 200.0      $ 180.0      $ 200.0      $ —        $ 150.0      $ 730.0      $ 730.0   

Average interest rate

    —       4.70     4.65     5.00     —       4.40     4.71     4.71

Principal variable rate debt

    0.5        —          —          —          2.3        17.6        20.4        20.9   

Average interest rate

    0.24     —       —       —       0.29     0.31     0.30     0.55

Miscellaneous debt*

                                                    85.4        13.5   
                                                   


 


Total debt

                                                    835.8        764.4   

Less: current maturities

                                                    (2.5     (2.2
                                                   


 


Total long-term debt

                                                  $ 833.3      $ 762.2   
                                                   


 



* Includes $70.4 and $0 of commercial paper in 2011 and 2010, respectively, supported by a $600 revolving credit agreement which terminates in 2016.

 

Derivative Financial Instruments

 

The Company is subject to market and financial risks related to interest rates, foreign currency, and commodities. In the normal course of business, the Company utilizes derivative instruments (individually or in combinations) to reduce or eliminate these risks. The Company seeks to use derivative contracts that qualify for hedge accounting treatment; however, some instruments may not qualify for hedge accounting treatment. It is the Company’s policy not to speculate using derivative instruments. Information regarding cash flow hedges and fair value hedges is provided in Note S on page 117 to the Notes to the Consolidated Financial Statements and is incorporated by reference into this section.

 

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Investment in Foreign Subsidiaries

 

The Company views its investment in foreign subsidiaries as a long-term commitment, and does not hedge translation exposures. The investment in a foreign subsidiary may take the form of either permanent capital or notes. The Company’s net investment (i.e., total assets less total liabilities subject to translation exposure) in foreign subsidiaries at December 31 is as follows:

 

Functional Currency


   2011

     2010

 

European Currencies

   $ 298.4       $ 316.4   

Chinese Renminbi

     249.9         208.3   

Canadian Dollar

     217.9         235.1   

Mexican Peso

     31.1         36.2   

Other

     61.9         60.3   
    


  


Total

   $ 859.2       $ 856.3   
    


  


 

Item 8. Financial Statements and Supplementary Data.

 

The Consolidated Financial Statements, Financial Statement Schedule and supplementary financial information included in this Report are listed in Item 15, begin immediately after Item 15, and are incorporated by reference.

 

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

 

Not applicable.

 

Item 9A. Controls and Procedures.

 

Effectiveness of the Company’s Disclosure Controls and Procedures

 

An evaluation as of December 31, 2011, was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures were effective, as of December 31, 2011, to provide assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures, include without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

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Management’s Annual Report on Internal Control over Financial Reporting and Auditor’s Attestation Report

 

Management’s Annual Report on Internal Control over Financial Reporting can be found on page 71, and the Report of Independent Registered Public Accounting Firm regarding the effectiveness of the Company’s internal control over financial reporting can be found on page 72 of this Form 10-K. Each is incorporated by reference into this Item 9A.

 

Changes in the Company’s Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The subsections entitled “Proposal 1—Election of Directors,” “Corporate Governance,” “Board and Committee Composition and Meetings,” “Consideration of Director Nominees and Diversity,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Director Independence” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 10, 2012, are incorporated by reference.

 

Directors of the Company

 

Directors are elected annually at the Annual Meeting of Shareholders and hold office until the next annual meeting of shareholders or until their successors are elected and qualified. All current directors have been nominated for re-election at the Company’s Annual Meeting of Shareholders to be held May 10, 2012. If a nominee fails to receive a majority of the votes cast in the director election, the Nominating & Corporate Governance Committee (N&CG Committee) will make a recommendation to the Board of Directors whether to accept or reject the director’s resignation and whether any other action should be taken. If a director’s resignation is not accepted, that director will continue to serve until the Company’s next annual meeting and his or her successor is duly elected and qualified. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy. The Company’s Bylaws and Corporate Governance Guidelines set the director retirement age at 72; however, the Board Chair, CEO or President may request a waiver for any director. At the request of Leggett’s CEO, the N&CG Committee recommended, and the full Board granted, retirement age waivers for Directors Enloe, Fisher and Purnell so they may stand for re-election at the 2012 annual meeting.

 

Brief biographies of the Company’s Board of Directors are provided below. Our employment agreements with Mr. Haffner and Mr. Glassman provide that they may terminate the agreement if not re-elected as a director. See the Exhibit Index on page 127 for reference to the agreements.

 

Robert E. Brunner, age 54, was the Executive Vice President of Illinois Tool Works (ITW), a diversified manufacturer of advanced industrial technology, from 2006 until his retirement was announced in 2011. He previously served ITW as President—Global Auto beginning in 2005 and President—North American Auto from 2003. Mr. Brunner holds a degree in finance from the University of Illinois and a master’s degree in business administration from Baldwin-Wallace College. Mr. Brunner’s experience and leadership with ITW, a diversified manufacturer with a global footprint, provides valuable insight to our Board on operational and international issues. He was first elected as a director of the Company in 2009.

 

Ralph W. Clark, age 71, held various executive positions at International Business Machines Corporation (IBM) from 1988 until 1994, including Division President—General and Public Sector. He also served as Chairman of Frontec AMT Inc., a software company,

 

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from 1994 until his retirement in 1998 when the company was sold. Mr. Clark holds a master’s degree in economics from the University of Missouri. Through Mr. Clark’s career with IBM and Frontec and his current board service with privately-held companies, he has valuable experience in general management, marketing, information technology, finance and strategic planning. He was first elected as a director of the Company in 2000.

 

R. Ted Enloe, III, age 73, has been Managing General Partner of Balquita Partners, Ltd., a family securities and real estate investment partnership, since 1996. Previously, he served as President and Chief Executive Officer of Optisoft, Inc., a manufacturer of intelligent traffic systems, from 2003 to 2005. His former positions include Vice Chairman of the Board and member of the Office of the Chief Executive for Compaq Computer Corporation and President of Lomas Financial Corporation and Liberte Investors. He holds a degree in petroleum engineering from Louisiana Polytechnic University and a law degree from Southern Methodist University. Mr. Enloe currently serves as a director of Silicon Laboratories Inc., a designer of mixed-signal integrated circuits, and Live Nation, Inc., a venue operator, promoter and producer of live entertainment events. Mr. Enloe’s professional background and experience, previously held senior-executive level positions, financial expertise and service on other company boards, qualifies him to serve as a member of our Board of Directors. Further, his wide-ranging experience combined with his intimate knowledge of the Company from over forty years on the Board provides an exceptional mix of familiarity and objectivity. He was first elected as a director of the Company in 1969.

 

Richard T. Fisher, age 73, has been Senior Managing Director of Oppenheimer & Co., an investment banking firm, since 2002. He served as Managing Director of CIBC World Markets Corp., an investment banking firm, from 1990 to 2002. Mr. Fisher holds a degree in economics from the Wharton School of the University of Pennsylvania. Mr. Fisher’s career in investment banking provides the Board with a unique perspective on the Company’s strategic initiatives, financial outlook and investor markets. His valuable business skills and long-term perspective of the Company bolster his leadership as the Company’s independent Board Chair. He was first elected as a director of the Company in 1972 and has served as the independent Board Chair since 2008.

 

Matthew C. Flanigan, age 50, was appointed Senior Vice President—Chief Financial Officer of the Company in 2005. He previously served the Company as Vice President—Chief Financial Officer from 2003 to 2005, President of the Office Furniture Components Group from 1999 to 2003, and in various capacities since 1997. Mr. Flanigan holds a degree in finance and business administration from the University of Missouri. He serves as a director of Jack Henry Associates, Inc., a provider of core information processing solutions for financial institutions. As the Company’s CFO, Mr. Flanigan adds valuable knowledge of the Company’s finance, risk and compliance functions to the Board. In addition, his prior experience as one of the Company’s group presidents provides valuable operations insight. He was first elected as a director of the Company in 2010.

 

Karl G. Glassman, age 53, was appointed Chief Operating Officer of the Company in 2006 and Executive Vice President in 2002. He previously served the Company as President of the Residential Furnishings Segment from 1999 to 2006, Senior Vice President from 1999 to 2002, President of Bedding Components from 1996 to 1998, and in various capacities since 1982. Mr. Glassman holds a degree in business management and finance

 

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from California State University—Long Beach. With over two decades experience leading the Company’s largest segment and serving as its Chief Operating Officer, Mr. Glassman provides in-depth operational knowledge to the Board and is a key interface between the Board’s oversight and strategic planning and its implementation at all levels of the Company around the world. He also serves on the Board of Directors of the National Association of Manufacturers. Mr. Glassman was first elected as a director of the Company in 2002.

 

Ray A. Griffith, age 58, has been the President and Chief Executive Officer of Ace Hardware Corporation, the largest hardware cooperative in the United States, since 2005. He was previously the Executive Vice President and Chief Operating Officer of Ace from 2004 to 2005, the Executive Vice President—Retail from 2000 to 2004, and served Ace in various other capacities since 1994. Mr. Griffith holds a degree in marketing and finance from Southern Illinois University. As CEO of Ace, Mr. Griffith has significant leadership and operations experience, while adding valuable retailing, consumer marketing, sourcing and distribution knowledge to the Board. He was first elected as a director of the Company in 2010.

 

David S. Haffner, age 59, was appointed Chief Executive Officer of the Company in 2006 and has served as President of the Company since 2002. He previously served as the Company’s Chief Operating Officer from 1999 to 2006, Executive Vice President from 1995 to 2002 and in other capacities since 1983. He holds a degree in engineering from the University of Missouri and an MBA from the University of Wisconsin-Oshkosh. Mr. Haffner serves as a director of Bemis Company, Inc., a manufacturer of flexible packaging and pressure sensitive materials. As the Company’s CEO, Mr. Haffner provides comprehensive insight to the Board across the spectrum from strategic planning to implementation to execution and reporting, as well as its relationships with investors, the finance community and other key stakeholders. Mr. Haffner was first elected as a director of the Company in 1995.

 

Joseph W. McClanathan, age 59, served as President and Chief Executive Officer of the Energizer Household Products Division of Energizer Holdings, Inc., a manufacturer of portable power solutions, from November 2007 through his pending retirement in May 2012. Previously, he served Energizer as President and Chief Executive Officer of the Energizer Battery Division from 2004 to 2007, as President—North America from 2002 to 2004, and as Vice President—North America from 2000 to 2002. Mr. McClanathan holds a degree in management from Arizona State University. Through his leadership experience at Energizer and as a director of the Retail Industry Leaders Association, Mr. McClanathan offers an exceptional perspective to the Board on manufacturing operations, marketing and development of international capabilities. He was first elected as a director of the Company in 2005.

 

Judy C. Odom, age 59, served, until her retirement in 2002, as Chief Executive Officer and Chairman of the Board at Software Spectrum, Inc., a global business to business software services company which she co-founded in 1983. Prior to founding Software Spectrum, she was a partner with the international accounting firm, Grant Thornton. Ms. Odom is a licensed Certified Public Accountant and holds a degree in business administration from Texas Tech University. She is a director of Harte-Hanks, a direct marketing service company. Ms. Odom’s director experience with several companies offers a broad leadership perspective on strategic and operating issues. Her experience

 

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co-founding Software Spectrum and growing it to a global Fortune 1000 enterprise before selling it to another public company provides the insight of a long-serving CEO with international operating experience. Ms. Odom was first elected as a director of the Company in 2002.

 

Maurice E. Purnell, Jr., age 72, was Of Counsel to the law firm of Locke Lord Bissell & Liddell LLP, or its predecessor firm, from 2002 until his retirement in 2010. Previously, he had been a partner of that firm since 1972. Mr. Purnell holds a degree in history from Washington & Lee University, an MBA from the Wharton School of the University of Pennsylvania and a law degree from Southern Methodist University. With over forty years of experience in securities law, financing and acquisitions in his corporate law practice, Mr. Purnell is well suited to advise the Board on business and compliance matters and chair our Nominating & Corporate Governance Committee. He was first elected as a director of the Company in 1988.

 

Phoebe A. Wood, age 58, has been a principal in CompaniesWood, a consulting firm specializing in early stage investments, since her 2008 retirement as Vice Chairman and Chief Financial Officer of Brown-Forman Corporation, a diversified consumer products manufacturer, where she served since 2001. Ms. Wood previously held various positions at Atlantic Richfield Company, an oil and gas company, from 1976 to 2000. She holds a degree in psychology from Smith College and an MBA from UCLA. Ms. Wood is a director of Invesco, Ltd., an independent global investment manager, and Coca-Cola Enterprises, Inc., a major bottler and distributor of Coca-Cola products. From her career in business and various directorships, Ms. Wood provides the Board with a wealth of understanding of the strategic, financial, and accounting issues the Board faces in its oversight role. Ms. Wood was first elected as a director of the Company in 2005.

 

Please see the “Supplemental Item” in Part I hereof, for a listing of and a description of the positions and offices held by the executive officers of the Company.

 

The Company has adopted a code of ethics that applies to its chief executive officer, chief financial officer, principal accounting officer and corporate controller called the Leggett & Platt, Incorporated Financial Code of Ethics. The Company has also adopted a Code of Business Conduct and Ethics for directors, officers and employees and Corporate Governance Guidelines. The Financial Code of Ethics, the Code of Business Conduct and Ethics and the Corporate Governance Guidelines are available on the Company’s website at www.leggett.com. Each of these documents is available in print to any person, without charge, upon request. Such requests may be made to the Company’s Secretary at Leggett & Platt, Incorporated, No. 1 Leggett Road, Carthage, Missouri 64836.

 

On January 16, 2012, the Company’s Nominating & Corporate Governance Committee amended the Company’s procedure for shareholder nominations of directors as that procedure applies to the 2013 annual meeting of shareholders. Prior to the amendment, a shareholder nomination was required to include, “A supporting statement which describes the candidate’s reasons for seeking election to the Board of Directors and documents his or her ability to satisfy the director qualifications . . .” This provision was amended to also require, in the supporting statement, the nominating shareholder’s reasons for nominating the candidate. The complete shareholder nomination procedure can be found at www.leggett.com, under Corporate Governance, Director Nomination Procedure.

 

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The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting any amendment or waiver to its Financial Code of Ethics, within four business days, on its website at the above address for at least a 12 month period. We routinely post important information to our website. However, the Company’s website does not constitute part of this Annual Report on Form 10-K.

 

Item 11. Executive Compensation.

 

The subsections entitled “Board’s Oversight of Risk Management,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation” together with the entire section entitled “Executive Compensation and Related Matters” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 10, 2012, are incorporated by reference.

 

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

 

The entire sections entitled “Security Ownership” and “Equity Compensation Plan Information” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 10, 2012, are incorporated by reference.

 

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

 

The subsections entitled “Transactions with Related Persons,” “Director Independence” and “Board and Committee Composition and Meetings” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 10, 2012, are incorporated by reference.

 

Item 14. Principal Accounting Fees and Services.

 

The subsections entitled “Audit and Non-Audit Fees” and “Pre-Approval Procedures for Audit and Non-Audit Services” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 10, 2012, are incorporated by reference.

 

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PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a) Financial Statements and Financial Statement Schedules.

 

The Reports, Financial Statements, supplementary financial information and Financial Statement Schedule listed below are included in this Form 10-K:

 

     Page No.

 

•      Management’s Annual Report on Internal Control Over Financial Reporting

     71   

•     Report of Independent Registered Public Accounting Firm

     72   

•      Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2011

     74   

•      Consolidated Statements of Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2011

     75   

•     Consolidated Balance Sheets at December 31, 2011 and 2010

     76   

•      Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2011

     77   

•      Consolidated Statements of Changes in Equity for each of the years in the three-year period ended December 31, 2011

     78   

•     Notes to Consolidated Financial Statements

     79   

•     Quarterly Summary of Earnings (Unaudited)

     123   

•     Schedule II—Valuation and Qualifying Accounts and Reserves

     124   

 

We have omitted other information schedules because the information is inapplicable, not required, or in the financial statements or notes.

 

(b) Exhibits—See Exhibit Index beginning on page 127.

 

We did not file other long-term debt instruments because the total amount of securities authorized under any of these instruments does not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of such instruments to the SEC upon request.

 

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Management’s Annual Report on Internal Control Over Financial Reporting

 

Management of Leggett & Platt, Incorporated is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Leggett & Platt’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:

   

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Leggett & Platt;

   

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of Leggett & Platt are being made only in accordance with authorizations of management and directors of Leggett & Platt; and

   

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Leggett & Platt assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Under the supervision and with the participation of management (including ourselves), we conducted an evaluation of the effectiveness of Leggett & Platt’s internal control over financial reporting, as of December 31, 2011, based on the criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under this framework, we concluded that Leggett & Platt’s internal control over financial reporting was effective as of December 31, 2011.

 

Leggett & Platt’s internal control over financial reporting, as of December 31, 2011, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page 72 of this Form 10-K.

 

/s/    DAVID S. HAFFNER


     

/s/    MATTHEW C. FLANIGAN


David S. Haffner

President and Chief Executive Officer

     

Matthew C. Flanigan

Senior Vice President and

Chief Financial Officer

February 24, 2012       February 24, 2012

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of

Leggett & Platt, Incorporated:

 

In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 15(a) present fairly, in all material respects, the financial position of Leggett & Platt, Incorporated and its subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are

 

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being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ PRICEWATERHOUSECOOPERS LLP

 

St. Louis, MO

February 24, 2012

 

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LEGGETT & PLATT, INCORPORATED

 

Consolidated Statements of Operations

 

     Year ended December 31

 
(Amounts in millions, except per share data)    2011

    2010

    2009

 

Net sales

   $ 3,636.0      $ 3,359.1      $ 3,055.1   

Cost of goods sold

     2,970.7        2,703.7        2,425.4   
    


 


 


Gross profit

     665.3        655.4        629.7   

Selling and administrative expenses

     382.1        354.3        363.0   

Amortization of intangibles

     18.8        19.8        20.7   

Other expense (income), net

     26.6        (6.7     15.7   
    


 


 


Earnings from continuing operations before interest and income taxes

     237.8        288.0        230.3   

Interest expense

     38.3        37.7        37.4   

Interest income

     6.7        5.2        5.5   
    


 


 


Earnings from continuing operations before income taxes

     206.2        255.5        198.4   

Income taxes

     49.8        71.9        77.3   
    


 


 


Earnings from continuing operations

     156.4        183.6        121.1   

Loss from discontinued operations, net of tax

     —          (.8     (6.1
    


 


 


Net earnings

     156.4        182.8        115.0   

(Earnings) attributable to noncontrolling interest, net of tax

     (3.1     (6.2     (3.2
    


 


 


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

   $ 153.3      $ 176.6      $ 111.8   
    


 


 


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

                        

Basic

   $ 1.05      $ 1.17      $ .74   
    


 


 


Diluted

   $ 1.04      $ 1.16      $ .74   
    


 


 


Loss per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders

                        

Basic

   $ —        $ (.00   $ (.04
    


 


 


Diluted

   $ —        $ (.01   $ (.04
    


 


 


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

                        

Basic

   $ 1.05      $ 1.17      $ .70   
    


 


 


Diluted

   $ 1.04      $ 1.15      $ .70   
    


 


 


 

The accompanying notes are an integral part of these financial statements.

 

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LEGGETT & PLATT, INCORPORATED

 

Consolidated Statements of Comprehensive Income (Loss)

 

     Year ended December 31

 
(Amounts in millions)    2011

    2010

    2009

 

Net earnings

   $ 156.4      $ 182.8      $ 115.0   

Other comprehensive income (loss), net of tax:

                        

Foreign currency translation adjustments

     (2.8     4.5        96.0   

Cash flow hedges

     (22.9     1.3        .4   

Defined benefit pension plans

     (10.2     (8.2     (2.2
    


 


 


Other comprehensive income (loss)

     (35.9     (2.4     94.2   
    


 


 


Comprehensive income

     120.5        180.4        209.2   

Less: comprehensive (income) loss attributable to noncontrolling interest

     (3.8     (6.8     (4.0
    


 


 


Comprehensive income attributable to Leggett & Platt, Inc.

   $ 116.7      $ 173.6      $ 205.2   
    


 


 


 

The accompanying notes are an integral part of these financial statements.

 

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LEGGETT & PLATT, INCORPORATED

 

Consolidated Balance Sheets

 

    December 31

 
(Amounts in millions, except per share data)           2011        

            2010        

 

ASSETS

               

Current Assets

               

Cash and cash equivalents

  $ 236.3      $ 244.5   

Accounts and other receivables, net

    503.6        478.9   

Inventories

               

Finished goods

    261.3        241.1   

Work in process

    41.5        47.7   

Raw materials and supplies

    223.9        218.2   

LIFO reserve

    (85.7     (71.7
   


 


Total inventories, net

    441.0        435.3   

Other current assets

    43.1        60.4   
   


 


Total current assets

    1,224.0        1,219.1   

Property, Plant and Equipment—at cost

               

Machinery and equipment

    1,120.1        1,136.6   

Buildings and other

    608.5        613.0   

Land

    45.2        48.5   
   


 


Total property, plant and equipment

    1,773.8        1,798.1   

Less accumulated depreciation

    1,193.2        1,173.9   
   


 


Net property, plant and equipment

    580.6        624.2   

Other Assets

               

Goodwill

    926.6        930.3   

Other intangibles, less accumulated amortization of $106.2 and $107.8 at December 31, 2011 and 2010, respectively

    116.6        152.3   

Sundry

    67.3        75.1   
   


 


Total other assets

    1,110.5        1,157.7   
   


 


TOTAL ASSETS

  $ 2,915.1      $ 3,001.0   
   


 


LIABILITIES AND EQUITY

               

Current Liabilities

               

Current maturities of long-term debt

  $ 2.5      $ 2.2   

Accounts payable

    256.6        226.4   

Accrued expenses

    209.6        209.5   

Other current liabilities

    117.3        84.9   
   


 


Total current liabilities

    586.0        523.0   

Long-term Liabilities

               

Long-term debt

    833.3        762.2   

Other long-term liabilities

    130.3        121.9   

Deferred income taxes

    57.8        69.5   
   


 


Total long-term liabilities

    1,021.4        953.6   

Commitments and Contingencies

               

Equity

               

Capital stock

               

Preferred stock—authorized, 100.0 shares; none issued; Common stock—authorized, 600.0 shares of $.01 par value; 198.8 shares issued

    2.0        2.0   

Additional contributed capital

    456.9        463.2   

Retained earnings

    2,027.4        2,033.3   

Accumulated other comprehensive income

    65.2        101.8   

Less treasury stock—at cost (59.4 and 52.6 shares at December 31, 2011 and 2010, respectively)

    (1,254.3     (1,093.0
   


 


Total Leggett & Platt, Inc. equity

    1,297.2        1,507.3   

Noncontrolling interest

    10.5        17.1   
   


 


Total equity

    1,307.7        1,524.4   
   


 


TOTAL LIABILITIES AND EQUITY

  $ 2,915.1      $ 3,001.0   
   


 


 

The accompanying notes are an integral part of these financial statements.

 

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LEGGETT & PLATT, INCORPORATED

 

Consolidated Statements of Cash Flows

 

     Year ended December 31

 
(Amounts in millions)    2011

    2010

    2009

 

Operating Activities

                        

Net earnings

   $ 156.4      $ 182.8      $ 115.0   

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

                        

Depreciation

     98.1        103.0        109.6   

Amortization

     18.8        19.8        20.7   

Impairment charges:

                        

Goodwill

     —          —          3.0   

Other long-lived assets

     34.9        2.4        2.8   

Provision for losses on accounts and notes receivable

     8.6        6.9        29.5   

Writedown of inventories

     10.4        12.6        16.2   

Net (gain) loss from sales of assets and businesses

     (10.9     (11.6     (3.0

Deferred income tax expense

     (1.1     30.2        44.0   

Stock-based compensation

     35.3        37.6        38.0   

Other

     (7.8     (3.7     3.9   

Other changes, excluding effects from acquisitions and divestitures:

                        

(Increase) decrease in accounts and other receivables

     (29.5     (34.7     105.7   

(Increase) decrease in inventories

     (16.3     (31.2     87.6   

(Increase) decrease in other current assets

     (1.7     21.6        1.4   

Increase (decrease) in accounts payable

     29.4        24.9        18.4   

Increase (decrease) in accrued expenses and other current liabilities

     4.3        1.9        (27.5
    


 


 


Net Cash Provided by Operating Activities

     328.9        362.5        565.3   

Investing Activities

                        

Additions to property, plant and equipment

     (75.0     (67.7     (83.0

Purchases of companies, net of cash acquired

     (6.6     (4.9     (2.8

Proceeds from sales of assets and businesses

     26.8        28.9        14.1   

Maturity (purchases) of short-term investments with original maturities greater than three months

     22.8        (21.5     (1.3

Other

     (4.6     .1        .5   
    


 


 


Net Cash Used for Investing Activities

     (36.6     (65.1     (72.5

Financing Activities

                        

Additions to debt

     146.7        82.4        57.9   

Payments on debt

     (81.6     (128.2     (122.1

Dividends paid

     (155.9     (154.9     (157.2

Issuances of common stock

     20.5        23.8        4.0   

Purchases of common stock

     (225.3     (130.1     (192.0

Acquisition of noncontrolling interest

     (13.6     (7.6