Form 10-K
Table of Contents

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, 2010

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, 2010 was approximately $2,830,000,000.

 

There were 146,401,741 shares of the Registrant’s common stock outstanding as of February 15, 2011.

 

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 12, 2011.

 



Table of Contents

TABLE OF CONTENTS

LEGGETT & PLATT, INCORPORATED—FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2010

 

     Page
Number


Forward-Looking Statements

   1
PART I

Item 1.

  

Business

   3

Item 1A.

  

Risk Factors

   21

Item 1B.

  

Unresolved Staff Comments

   23

Item 2.

  

Properties

   23

Item 3.

  

Legal Proceedings

   24

Item 4.

  

(Removed and Reserved)

   24

Supp. Item.

  

Executive Officers of the Registrant

   25
PART II

Item 5.

  

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

   27

Item 6.

  

Selected Financial Data

   29

Item 7.

  

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

   30

Item 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

   63

Item 8.

  

Financial Statements and Supplementary Data

   64

Item 9.

  

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

   64

Item 9A.

  

Controls and Procedures

   65

Item 9B.

  

Other Information

   65
PART III

Item 10.

  

Directors, Executive Officers and Corporate Governance

   66

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

   70

Item 14.

  

Principal Accounting Fees and Services

   70
PART IV

Item 15.

  

Exhibits, Financial Statement Schedules

   71

Signatures

   126

Exhibit Index

   128


Table of Contents

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, interest rates, housing turnover, employment levels, consumer sentiment, trends in capital spending and the like;

   

factors that could impact raw materials and other costs, including the availability and pricing of steel rod and scrap 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);

   

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;

 

1


Table of Contents
   

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, product advertising, taxation, environmental, intellectual property, anti-trust and workers’ compensation expense.

 

2


Table of Contents

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 19 business units, which are divided into 10 groups under our four segments: Residential Furnishings; Commercial Fixturing & Components; Industrial Materials; and Specialized Products. In addition, certain of our former businesses are classified as discontinued operations.

 

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.

 

Long production runs, 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.

 

3


Table of Contents

PART I

 

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

   

Power foundations

 

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, power foundations, 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 and point-of-purchase projects. Our Office Furniture Components group designs, manufactures, and distributes a wide range of engineered components targeted for the office seating market.

 

4


Table of Contents

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

   

Point-of-purchase displays

 

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

   

Brand name marketers and distributors of consumer products

   

Office, institutional and commercial furniture manufacturers

 

Industrial Materials Segment

 

LOGO

 

We believe that the quality of the Industrial Materials segment’s 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 six wire mills that supply virtually all the wire consumed by our other domestic businesses. Our Tubing group operates two major plants that also supply nearly all of our internal needs for welded steel tubing. In addition to supporting our internal requirements, the Industrial Materials segment supplies many external customers with wire and tubing products.

 

5


Table of Contents

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

 

Customers

 

We use about half of our wire output and about one-quarter of our welded 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, point-of-purchase displays 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

   

Lawn and garden equipment manufacturers

   

Mechanical spring makers

   

Waste recyclers and waste removal businesses

   

Medical supply businesses

 

Specialized Products Segment

 

LOGO

 

6


Table of Contents

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, such as shift cables, cruise-control cables, seat belt cables, accelerator cables, seat control cables and latch release cables

   

Low voltage motors and actuation 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

 

In November 2007 we outlined significant changes to the Company’s strategy. We adopted a new primary financial metric, Total Shareholder Return, (TSR = (Change in Stock Price + Dividends Received) / Beginning Stock Price), changed the priorities for use of cash, adopted role-based portfolio management and implemented more rigorous strategic planning. Our goals were to: i) divest or fix low performing businesses, ii) return more cash to investors, iii) improve margins and returns on the businesses we keep, and iv) then begin to carefully and conservatively grow the Company (at 4-5% of annual revenue).

 

7


Table of Contents

PART I

 

We have made significant progress over the past three years. The divestitures were largely complete by the end of 2008; margins and returns have improved; and we have returned much of our excess cash to our shareholders through higher dividends and share repurchases. Our focus now is two-part: i) continue improving margins, and ii) begin laying the groundwork for long-term 4-5% growth.

 

Some of the activities associated with the change in strategy led to asset impairment and restructuring costs during the past three years. For information related to those costs, see Note C on page 86 and Note D on page 90 in the Notes to Consolidated Financial Statements.

 

Key Financial Metric

 

TSR is the primary financial metric we use to monitor performance. Our goal is to achieve TSR in the top 1/3 of the S&P 500, over the long term. For the three-year period ended December 31, 2010 we generated TSR of 16% per year, on average, which places us in the top 8% of the S&P 500.

 

We employ four key levers to achieve TSR: i) revenue growth, ii) margin expansion, iii) dividends, and iv) share repurchases. In 2008, dividends and stock buyback largely drove our TSR; during 2009, we benefited significantly from margin improvement; and in 2010, revenue growth (from improved market demand) boosted TSR. We expect that this balanced approach will generate consistently higher TSR.

 

Consistent with the change in our strategy, we modified some of our incentive plans to emphasize the importance of TSR. Beginning in January 2008, we introduced a new performance incentive for senior executives based solely on 3-year TSR relative to a group of 320 peers. We also modified business unit bonuses to give more importance to achieving higher returns on the assets under their direct control.

 

More Cash to Shareholders

 

The strategic changes have increased available cash. We expect to continue returning much of this cash to shareholders through dividends and share repurchases.

 

During the past three years, we generated approximately $1.8 billion of cash flow from operations and divestitures. Furthermore, as anticipated, since 2007 we’ve reduced combined annual spending for acquisitions and capital expenditures by over 70% (to $73 million in 2010).

 

Since late 2007, we have raised quarterly dividends by 50%, from $.18 per share to $.27 per share currently. During the past three years, we have also spent over $600 million to repurchase 33 million shares of our stock, which reduced outstanding shares by approximately 13%. In 2010, we repurchased over 6 million shares at an average per share price of $21.64 (and issued 4 million shares through employee benefit plans) (most of these shares are purchased by employees in lieu of cash compensation).

 

8


Table of Contents

PART I

 

Portfolio Management

 

We manage our business units as a portfolio, with different roles (Grow, Core, Fix, Divest) for each business unit based upon competitive advantages, strategic position, and financial health. We undergo a rigorous strategic planning process, in part to assess each business unit’s portfolio role. Business units in the Grow category should provide avenues for profitable growth in competitively advantaged positions. Core business units are expected to enhance productivity, maintain market share, and generate cash flow from operations while using minimal capital. Business units in the Fix category will be given a limited time in which to significantly improve performance. Finally, a few small business units (or portions of business units) are considered non-strategic, and may be divested as the M&A market recovers and allows for reasonable sales prices.

 

To remain in the portfolio, business units are expected to consistently generate after-tax returns in excess of the Company’s cost of capital. Each business unit has opportunity to improve, and may employ a variety of means to achieve higher returns including trimming expenses, introducing new products, improving productivity, adopting more disciplined pricing, reducing working capital, and consolidating assets. Business units that fail to consistently generate after-tax returns in excess of our cost of capital will move to the Fix or Divest categories.

 

During 2009 and 2010 significant effort went into improving margins. EBIT margin for 2009 was 7.5% on $3.06 billion of sales while EBIT margin for 2010 was 8.6% on sales of $3.36 billion. Gross margin for 2009 and 2010 was 20.6% and 19.5%, respectively.

 

Disciplined Growth

 

Consistent with the plan we unveiled in 2007, we are now beginning to devote resources to the next phase of our strategy. We aim to eventually achieve consistent, long-term, profitable growth of 4-5% annually. To achieve 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 Leggett would possess a competitive advantage.

 

Both efforts are receiving significant management attention and priority, and we are making progress in both areas. We have had success this past year with new products introduced in our office components, automotive, and home furniture components businesses. Though individually those were modest successes, collectively they added to sales and earnings growth in 2010. In addition, we have instituted some of the processes that need to be in place to identify new market opportunities. Successful development of new growth platforms will take time; we do not anticipate significant contributions from these activities in the near term.

 

9


Table of Contents

PART I

 

Acquisitions and Divestitures

 

Historically, our typical acquisition targets have been small, private, profitable, entrepreneurial companies that manufacture goods either within our existing product lines or “one step away” from those product lines and complementary to our existing businesses. As part of our change in strategic direction, we expect fewer and more strategic acquisitions to be completed. All acquisitions should create value by enhancing TSR; they should have clear strategic rationale and sustainable competitive advantage in attractive markets.

 

Acquisitions

 

We have had no significant acquisitions in the last three years. For further information about acquisitions, see Note R on page 118 of the Notes to Consolidated Financial Statements.

 

Divestitures

 

During the past three years we divested seven businesses (as a part of our strategic realignment), including the entire Aluminum Products segment, for total after-tax cash proceeds of $433 million. The largest portion of these proceeds ($408 million) related to the divestitures completed in 2008.

 

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.

 

2008 Divestitures

 

We divested five significant businesses in 2008 with annualized sales of approximately $780 million. The largest divestiture (approximately $485 million in annualized revenue) was the Aluminum Products segment which was sold in July 2008. We also sold four other business units in 2008 – Wood Products and Fibers (previously in the Residential Furnishings segment); Plastics (previously in the Commercial Fixturing & Components segment); and the dealer portion of Commercial Vehicle Products (previously in the Specialized Products segment). All of these businesses have been classified as discontinued operations.

 

10


Table of Contents

PART I

 

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 94 of the Notes to Consolidated Financial Statements.

 

Foreign Operations

 

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

 

LOGO

 

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

 

China

   

Innersprings for mattresses

   

Recliner mechanisms and bases for upholstered furniture

   

Formed wire for upholstered furniture

   

Retail store fixtures and gondola shelving

   

Office furniture components, including chair bases and casters

   

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

   

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

   

Machinery and replacement parts for machines used in the bedding industry

 

Europe

   

Innersprings for mattresses

   

Wire and wire products

 

11


Table of Contents

PART I

 

   

Lumbar and seat suspension systems for automotive seating

   

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

   

Design and distribution of point-of-purchase displays for retailers

 

Canada

   

Innersprings for mattresses

   

Fabricated wire for the bedding, 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 shelving and 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 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 77% 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.

 

12


Table of Contents

PART I

 

Geographic Areas of Operation

 

We have production, warehousing and distribution facilities in countries around the world. Below is a list of countries where we have facilities associated with continuing operations:

 

     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         n

South America

                   

Uruguay

   n               

Brazil

   n               

Asia / Pacific

                   

Australia

   n               

China

   n    n         n

India

                  n

South Korea

                  n

Africa

                   

South Africa

   n               

 

For further information concerning our external sales from continuing operations related to products manufactured outside the United States and our tangible long-lived assets outside the United States, refer to Note F on page 94 of the Notes to Consolidated Financial Statements.

 

13


Table of Contents

PART I

 

Sales by Product Line

 

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

 

Product Line    2010      2009      2008  

Bedding Group

     19      21      19

Furniture Group

     18         18         16   

Fabric & Carpet Underlay Group

     15         16         16   

Wire Group

     13         12         14   

Fixture & Display Group

     11         11         12   

Automotive Group

     11         8         8   

Office Furniture Components Group

     5         5         5   

Commercial Vehicle Products Group

     3         4         4   

Machinery Group

     3         3         3   

Tubing Group

     2         2         3   

 

Distribution of Products

 

In each of our segments, we sell and distribute our products primarily through our own sales 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 in continuing operations require a variety of raw materials. Among the most important are:

   

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

   

Foam scrap

   

Woven and non-woven fabrics

 

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

   

Displays, shelving and racks for retailers

   

Automotive seating components

 

We supply the majority of our steel rod requirements through our own rod mill. Our own 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. In addition, we believe that worldwide supply sources are available for all the raw materials we use.

 

We have experienced volatility in raw material prices over the past few years, most notably in steel. In most cases, the major changes (both increases and decreases) were

 

14


Table of Contents

PART I

 

passed through to customers with selling price adjustments. Significant steel cost increases in 2008 were followed by significant cost decreases in 2009 as global economies weakened. In both cases, we generally adjusted pricing to our customers to reflect the changes in commodity costs. In late 2009 and early 2010, steel costs increased, and again we implemented price increases to recover the majority of the higher costs. By the end of 2010, we were facing further inflation in steel costs, and announced and began implementing additional price increases in early 2011.

 

The degree to which we are able to mitigate or recover higher costs, should they occur, could influence our future earnings. Also, if raw material costs decrease there may be downward pressure on selling prices, temporarily resulting in lower segment margins, as we consume higher cost inventories.

 

Higher raw material costs in recent years have 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 have been replaced with lower cost components, causing us to shift production accordingly. This has primarily impacted profit margins in our Residential Furnishings and Industrial Materials segments. We are responding by developing new products (including new types of innersprings, box springs and reclining chair mechanisms) that enable our customers to reduce their total costs, and in certain instances, provide higher margin and profit contribution for our operations.

 

Customer Concentration

 

We serve thousands of customers worldwide, sustaining many long-term business relationships. In 2010, our largest customer accounted for approximately 6% of our consolidated revenues from continuing operations. 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.

 

15


Table of Contents

PART I

 

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. No single patent or group of patents, or trademark or group of trademarks, is material to our continuing operations.

 

LOGO

 

Some of our most significant trademarks include:

   

Semi-Flex® (boxspring components and foundations)

   

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

   

Lifestyles™, S-cape® and Adjustables® by Leggett & Platt® (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)

   

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 associated with continuing operations ranged from $20 to $30 million per year in each of the last three years.

 

16


Table of Contents

PART I

 

Employees

 

As of December 31, 2010, we had approximately 19,000 employees, of which roughly 13,600 were engaged in production. Of the 19,000, approximately 8,700 were international employees (5,000 in China). Labor unions represented roughly 11% of our employees. We did not experience any material work stoppage related to contract negotiations with labor unions during 2010. Management is not aware of any circumstances likely to result in a material work stoppage related to contract negotiations with labor unions during 2011. The chart below shows the approximate number of employees by segment.

 

LOGO

 

As of December 31, 2009, we had approximately 18,500 employees.

 

Competition

 

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

 

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

   

Components for residential furniture and bedding

   

Carpet underlay

   

Power foundations

   

Components for office furniture

   

Drawn steel wire

   

Automotive seat support and lumbar systems

   

Bedding industry machinery for wire forming, sewing and quilting

 

17


Table of Contents

PART I

 

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 related to safety and environmental matters. 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. In instances where our customers move production of their finished products overseas, our operations must be located nearby to supply them efficiently. We currently operate 10 facilities in China.

 

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 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.

 

We experienced a temporary loss of market share during the last half of 2010 as certain of our 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 that benefited European suppliers in the early summer: i) the weaker Euro, ii) temporarily lower raw material costs in Europe, and iii) greater excess capacity as a result of last summer’s economic turmoil in Europe. Because of the slowing of consumer demand for mattresses in the last half of 2010, it took longer for these imported products to be consumed, but by year-end, we had regained the majority of the volume.

 

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. However, in 2010, sales in the first and second quarters were higher on strength in our Residential Furnishings and Commercial Fixturing & Components segments. Consumer demand for bedding and furniture was stronger during the first half of the year, we believe in part due to larger income tax refunds and home purchasing incentives. Demand for store fixtures was also

 

18


Table of Contents

PART I

 

stronger in the first half of the year, as retailers increased store remodeling activity (a larger portion of which occurred in the earlier part of the year) and decreased new store construction. Notwithstanding 2010, our four segments tend to experience seasonality as follows:

 

   

Residential Furnishings: typically has the strongest sales in the second and third quarters due to increased consumer demand for bedding and furniture during those periods.

   

Commercial Fixturing & Components: generally has heavy third quarter sales of its store fixture products, with the first and fourth quarters normally 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 further 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 48.

 

Environmental Regulation

 

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

 

The U.S. Congress has considered legislation to address climate change that is intended to reduce overall green house gas emissions, including carbon dioxide. Similar initiatives have also been pursued at the state level. In addition, the U.S. Environmental Protection Agency has made a determination that green house gas emissions may be a threat to human health and the environment. It is uncertain if, when, and in what form, a mandatory carbon dioxide emissions reduction program may be enacted either through legislation or regulation. However, if enacted, this type of program could materially

 

19


Table of Contents

PART I

 

increase our operating costs, including costs of raw materials, transportation and electricity. In that event, our intent would be to raise prices in order to cover the cost increases.

 

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 its Audit, Compensation, and Nominating and Corporate Governance Committees of our Board of Directors can be found on our website. Information contained on our website does not constitute part of this Annual Report on Form 10-K.

 

Discontinued Operations

 

Several 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:

 

   

Aluminum Products segment. We divested this segment in July 2008. It produced and sold non-automotive aluminum, zinc and magnesium die castings, and new and refurbished dies (also known as molds or tools) for all types and sizes of die casting machines. It also provided machining, coating, finishing, sub-assembly and other value-added services for die cast components. These products and services were sold into various end markets.

 

   

Wood Products unit, Fibers unit and the Coated Fabrics unit (each previously reported in the Residential Furnishings segment).

 

  (i) We divested the Wood Products unit in the third quarter of 2008. It sold wood frames and cut-to-size dimension lumber to bedding manufacturers.
  (ii) We divested the Fibers unit in the fourth quarter of 2008. It sold fiber cushioning material primarily to bedding and upholstered furniture manufacturers.
  (iii) 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.

 

   

Plastics unit and the Storage Products unit (each previously reported in the Commercial Fixturing & Components segment).

 

  (i) The Plastics unit, which was divested in the third quarter of 2008, sold injection molded plastic components primarily for manufacturers of lawn care equipment and power tools.
  (ii) 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.

 

20


Table of Contents

PART I

 

   

An automotive seating components operation and the dealer portion of the Commercial Vehicle Products unit (each previously reported in the Specialized Products segment).

 

  (i) The automotive seating components operation, which we divested in the first quarter of 2008, sold welded assemblies, and wire and tubular frames for automotive seating.
  (ii) We divested the dealer portion of the Commercial Vehicle Products unit in the third quarter of 2008. It sold truck bodies for cargo vans, flatbed trucks, service trucks and dump trucks primarily to end-users of light-to-medium duty commercial trucks.

 

For further information on discontinued operations, see Note B on page 84 of the Notes to Consolidated Financial Statements.

 

Item 1A. Risk Factors.

 

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

 

We have exposure to economic and other factors that affect market demand for our products.

 

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. 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.

 

21


Table of Contents

PART I

 

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 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. Also, 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.

 

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 has 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.

 

Asian and European 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. 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.

 

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, 2010, goodwill and other intangible assets represented approximately $1.08 billion, or approximately 36% of our total assets. In addition, net property, plant and equipment, sundry assets and non-current assets held for sale totaled approximately $700 million, or approximately 23% of total assets.

 

22


Table of Contents

PART I

 

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 2010 indicated no goodwill impairments. At December 31, 2010, goodwill associated with reporting units whose fair values exceeded the carrying value by 10-25% was approximately $190 million; and $740 million of goodwill was associated with reporting units that had fair values in excess of the carrying values by greater than 25%.

 

For the year ended 2010, other long-lived asset impairments were $2.4 million, of which $1.5 million was recognized in continuing operations.

 

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 2010, 28% of our sales from continuing operations 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.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

The Company’s corporate office is located in Carthage, Missouri. At December 31, 2010, we had 222 production, warehouse, sales and administrative facilities associated with continuing operations, of which 157 were located across the United States and 65 were located in foreign countries.

 

23


Table of Contents

PART I

 

Properties by Location and Segment

 

     Company-
Wide


     Subtotals by Segment

 

Locations


      Residential
Furnishings


     Commercial
Fixturing &
Components


     Industrial
Materials


     Specialized
Products


 

United States

     157         98         18         22         19   

Asia

     23         8         4                 11   

Europe

     18         5         2                 11   

Canada

     12         4         3                 5   

Mexico

     7         3                 1         3   

Other

     5         5                           
    


  


  


  


  


Total

     222         123         27         23         49   

 

 

Properties by Use and Segment

 

     Company-
Wide


     Subtotals by Segment

 

Use


      Residential
Furnishings


     Commercial
Fixturing &
Components


     Industrial
Materials


     Specialized
Products


 

Production1

     138         67         19         16         36   

Warehouse

     49         37         4         4         4   

Administration

     21         12         2         2         5   

Sales

     14         7         2         1         4   
    


  


  


  


  


Total

     222         123         27         23         49   

1

Includes some multi-purpose facilities with additional warehouse, sales and/or administrative uses.

 

Facilities that we own produced approximately 70% of our sales from continuing operations in 2010. We also lease many of our production, 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 102 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. We face decisions about further facility consolidation but have chosen to retain excess capacity because we believe that eventually market demand will improve. With our currently low utilization levels, we should be able to readily accommodate that demand improvement up to approximately $4 billion in revenue (assuming current sales mix).

 

Item 3. Legal Proceedings.

 

The information in Note T on page 121 of the Notes to Consolidated Financial Statements is incorporated into this section by reference.

 

Item 4. (Removed and Reserved).

 

Not applicable.

 

24


Table of Contents

PART I

 

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

     58       President and Chief Executive Officer

Karl G. Glassman

     52       Executive Vice President and Chief Operating Officer

Jack D. Crusa

     56       Senior Vice President, Specialized Products

Joseph D. Downes, Jr.

     66       Senior Vice President, Industrial Materials

Matthew C. Flanigan

     49       Senior Vice President and Chief Financial Officer

Paul R. Hauser

     59       Senior Vice President, Residential Furnishings

Dennis S. Park

     56       Senior Vice President, Commercial Fixturing & Components

David M. DeSonier

     52       Vice President, Strategy & Investor Relations

Scott S. Douglas

     51       Vice President, General Counsel

John G. Moore

     50       Vice President, Chief Legal & HR Officer and Secretary

William S. Weil

     52       Vice President, Corporate Controller and Chief Accounting Officer

 

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 other 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 other 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 other capacities since 1986.

 

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 other 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

 

25


Table of Contents

PART I

 

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 became Senior Vice President of the Company in 2005 and President of the Residential Furnishings Segment 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 capacities in the Company’s Bedding Group since 1980.

 

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 served the Company in various other capacities since 1977.

 

David M. DeSonier was appointed Vice President—Strategy & Investor Relations in 2007. He served as Vice President—Investor Relations and Assistant Treasurer from 2002 to 2007. He joined the Company as Vice President—Investor Relations in 2000. Prior to his employment with Leggett & Platt, he worked for Atlantic Richfield (a major integrated oil company) from 1980 to 2000 in strategic planning, investor relations, financial management and analysis, and technical positions.

 

Scott S. Douglas has served the Company as Vice President since 2008, and General Counsel since May of 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 other capacities since 1987.

 

John G. Moore was appointed Secretary in January 2010, Chief Legal and HR Officer in 2009 and Vice President—Corporate Affairs & Human Resources in 2008. He previously 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 other capacities since 1993.

 

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.

 

26


Table of Contents

PART II

 

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

       

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   
                      


  


2009

                                   

First Quarter

   $ 15.87       $ 10.03         143.7       $ .25   

Second Quarter

     16.66         12.58         113.9         .25   

Third Quarter

     19.98         13.88         96.8         .26   

Fourth Quarter

     21.44         18.06         104.1         .26   
    


  


  


  


For the Year

   $ 21.44       $ 10.03         458.5       $ 1.02   
                      


  



 

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

 

Shareholders and Dividends

 

As of February 15, 2011, we had approximately 10,400 shareholders of record.

 

We are targeting a dividend payout ratio (annual dividends divided by net earnings) of 50-60%, though it has been and will likely be higher for the near term. Our dividend payout percentage was 161%, 146% and 92% in 2008, 2009 and 2010, 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 46.

 

27


Table of Contents

PART II

 

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 2010.

 

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 2010

     160,000       $ 20.46         160,000         5,459,585   

November 2010

     67,886       $ 19.90         67,886         5,391,699   

December 2010

     982,963       $ 22.75         911,973         4,479,726   
    


  


  


        

Total

     1,210,849       $ 22.29         1,139,859            
    


           


        

(1) This number includes 70,990 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, 2011, the Company was authorized by the Board of Directors to repurchase up to 10 million shares in 2011.

 

Sale of Unregistered Shares of Common Stock

 

The Company issued 6,000 shares of common stock for $120,310 (at fair market value) to David S. Haffner, President and Chief Executive Officer in the fourth quarter of 2010 as set out below.

 

Name


   Date of
Issuance


     Number of
Shares


     Price
per Share


     Administrative
Fee


     Total
Purchase
Price


 

David S. Haffner

     10/25/10         1,000       $ 20.29       $ 20       $ 20,310   
       11/02/10         5,000       $ 19.98       $ 100       $ 100,000   
             


           


  


Totals

              6,000                $ 120       $ 120,310   

 

The shares were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, in that the transactions did not involve a public offering.

 

28


Table of Contents

PART II

 

Item 6. Selected Financial Data.

 

(Unaudited)    2010

    2009

    20081, 3

    20072, 3

    20063

 
(Dollar amounts in millions, except per share data)                               

Summary of Operations

                                        

Net Sales from Continuing Operations

   $ 3,359      $ 3,055      $ 4,076      $ 4,250      $ 4,267   

Earnings from Continuing Operations

     184        121        128        65        240   

(Earnings) attributable to Noncontrolling Interest, net of tax

     (6     (3     (5     (6     (4

Earnings (loss) from Discontinued Operations, net of tax

     (1     (6     (19     (70     64   

Net Earnings (Loss)

     177        112        104        (11     300   

Earnings per share from Continuing Operations

                                        

Basic

     1.17        .74        .73        .33        1.26   

Diluted

     1.16        .74        .73        .33        1.26   

Earnings (Loss) per share from Discontinued Operations

                                        

Basic

     (.00     (.04     (.11     (.39     .35   

Diluted

     (.01     (.04     (.11     (.39     .35   

Net Earnings (Loss) per share

                                        

Basic

     1.17        .70        .62        (.06     1.61   

Diluted

     1.15        .70        .62        (.06     1.61   

Cash Dividends declared per share

     1.06        1.02        1.00        .78        .67   
    


 


 


 


 


Summary of Financial Position

                                        

Total Assets

   $ 3,001      $ 3,061      $ 3,162      $ 4,072      $ 4,265   

Long-term Debt, including capital leases

   $ 762      $ 789      $ 851      $ 1,001      $ 1,060   
    


 


 


 


 



1

As discussed in Notes C and D beginning on pages 86 and 90 respectively, 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.

2

As discussed in Notes C and D beginning on pages 86 and 90 respectively, 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.

3

Amounts for 2006 through 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.

 

29


Table of Contents

PART II

 

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

 

2010 HIGHLIGHTS

 

Demand improved in many of our markets during 2010. 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.

 

Improved market demand led to higher sales and earnings in 2010. Activities completed over the past few years (including the divestiture of businesses under our strategic plan, closure of certain underperforming and underutilized facilities, elimination of sales with unacceptable margins, and other cost reduction initiatives) improved our cost position and enabled earnings to benefit notably from the higher volume.

 

During 2010, we completed the sale of the seventh, and final divestiture identified as a part of our strategic realignment. The seven divestitures collectively generated $433 million of after-tax cash proceeds (over the past three years), exceeding our original $400 million goal.

 

Operating cash for the full year significantly exceeded the amount required to fund capital expenditures and dividends. Our focus on return optimization was reflected in part through the low level of working capital that was maintained as sales began to recover. In August, we raised the quarterly dividend to $.27 per share and extended to 39 years our record of consecutive annual dividend increases at a 14% compound annual growth rate. We also repurchased over 6 million shares of our stock during 2010.

 

Our financial profile remains strong. We ended 2010 with net debt to net capital well below our long-term targeted range, no significant fixed term debt maturing until 2013, and over $500 million available under our existing commercial paper program and revolver facility.

 

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, which we believe will require average TSR of 12-15% per year. For the three years ended December 31, 2010, we generated TSR of 16% per year on average, which places us in the top 8% of the S&P 500.

 

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

 

30


Table of Contents

PART II

 

INTRODUCTION

 

What We Do

 

Leggett & Platt is a diversified manufacturer, and member of the S&P 500 index, that conceives, designs, and produces a wide range of engineered components and products found in most homes, offices, and automobiles, and many retail stores. We make components that are often hidden within, but integral to, our customers’ products.

 

We are the leading U.S. manufacturer of: components for residential furniture and bedding, power foundations, carpet underlay, components for office furniture, drawn steel wire, automotive seat support and lumbar systems, and bedding industry machinery.

 

Our Segments

 

Our continuing operations are composed of 19 business units in four segments, with approximately 19,000 employees and 140 production facilities located in 18 countries around the world. Our segments are described below.

 

LOGO

 

Residential Furnishings

 

This segment supplies a variety of components mainly used by bedding and upholstered furniture manufacturers in the assembly of their finished products. We also sell carpet cushion, power foundations, bed frames, ornamental beds, and geo components.

 

Commercial Fixturing & Components

 

Operations in this segment manufacture and sell store fixtures and point-of-purchase displays used in retail stores. We also produce chair controls, bases, and other components for office furniture manufacturers, as well as select lines of private-label finished furniture.

 

31


Table of Contents

PART II

 

Industrial Materials

 

These operations primarily supply steel rod, drawn steel wire, steel billets, and welded steel tubing to other Leggett operations and to external customers. Our customers use this wire and tubing to make bedding, furniture, automotive seats, mechanical springs, and many other end products. We also supply fabricated wire products, such as shaped wire for automotive and medical supply application; tying heads, boxed wire, and parts for automatic baling equipment; coated wire products, including dishwasher racks, and wire retail fixtures and point-of-purchase displays.

 

Specialized Products

 

From this segment we supply lumbar support systems and seat suspension systems used by automotive seating manufacturers. We manufacture and install the racks, shelving and cabinets used to outfit fleets of service vans. We also produce quilting, sewing, and wire forming machinery, some of which is used by other Leggett operations as well as external customers, including bedding manufacturers.

 

Discontinued Operations and Divestitures

 

During the past three years, we divested seven businesses (approximately 15% of our portfolio) that we identified as a part of the strategic realignment announced in late 2007 (discussed below). In 2008, we sold our Aluminum Products segment and four smaller business units (Wood Products, Fibers, Plastics, and the dealer portion of Commercial Vehicle Products). In 2009, we sold the Coated Fabrics business unit, and in 2010 we divested the Storage Products business unit. We received after-tax cash proceeds of $433 million for these seven businesses, exceeding our original estimate of approximately $400 million. Results of operations for all of 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.

 

Strategic Direction

 

In late 2007, we outlined significant changes to the Company’s strategy. We adopted a new primary financial metric (Total Shareholder Return), adopted role-based portfolio management, implemented more rigorous strategic planning, and changed the priorities for use of cash. Our goals, in sequential order, were to i) divest low performing businesses, ii) return more cash to investors, iii) improve margins and returns, and iv) begin to carefully and conservatively grow the company at 4-5% of annual revenue. We have made significant progress over the past three years. The divestitures were largely complete by the end of 2008; margins and returns have improved; and we have returned much of our excess cash to our shareholders through higher dividends and share repurchases. Our focus now is two-part: i) continue improving margins, and ii) begin laying the groundwork for long-term 4-5% growth.

 

Total Shareholder Return (TSR) is the key financial measure that we use to monitor 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

 

32


Table of Contents

PART II

 

that employs all four TSR sources: revenue growth, margin expansion, dividends, and share repurchases. In 2008, dividends and stock buybacks largely drove our TSR; during 2009, we benefited significantly from margin improvement; and in 2010, revenue growth (from improved market demand) boosted TSR. Beginning in 2008, we introduced TSR-based incentives (based on our performance compared to the performance of a group of 320 peers) for senior executives and we modified business unit bonuses to give more importance to achieving higher returns on the assets under their direct control. We monitor our TSR performance, relative to the S&P 500, on a rolling three-year basis. For the three-year period ended December 31, 2010, our TSR performance placed us within the top 8% of the S&P 500 companies. So far, for the first two years of the next three-year measurement period (which will end on December 31, 2011), our TSR performance ranks slightly above the midpoint (but not among the top one-third) of the companies in the S&P 500.

 

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 EBITDA growth, operating cash flows, and return on assets. 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.

 

The majority of our business units are categorized as “Core”. A smaller percentage are categorized as “Grow”; consequently, we recognize as a strategic imperative the need to expand the Grow category by improving i) our success rate at developing innovative new products and ii) our abilities to identify new growth platforms. A few small business units are considered “Fix”, and must improve their performance within a reasonable time frame. Finally, a few small business units (or portions of business units) are considered non-strategic, and may be divested as the M&A market recovers and allows for reasonable sales prices.

 

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 Leggett would possess a competitive advantage. These growth efforts are receiving significant management attention and priority, and we are making progress in both areas. We have had success this past year, with new products introduced in our office components, automotive, and home furniture components businesses. Though individually those were modest successes, collectively they added to 2010’s sales and earnings growth. In addition, we have instituted some of the processes that need to be in place to identify new market opportunities. Successful development of new growth platforms will take time; we do not anticipate significant contributions from these activities in the near term.

 

The strategic changes have increased available cash. We expect to continue returning much of this cash to shareholders through dividends and share repurchases.

 

33


Table of Contents

PART II

 

Customers

 

We serve a broad suite of customers, with our largest customer representing 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 many of our markets during 2010. 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.

 

Improved market demand led to higher sales and earnings in 2010. Activities completed over the past few years (including the divestiture of businesses under our strategic plan, closure of certain underperforming and underutilized facilities, elimination of sales with unacceptable margins, and other cost reduction initiatives) improved our cost position and enabled earnings to benefit notably from higher sales. Capacity utilization levels in the majority of our operations remain low. We face decisions about possible further facility consolidation but have chosen to retain excess capacity because we believe that market demand will continue to improve. Our current productive capacity should readily accommodate sales of approximately $4 billion (assuming current sales mix), or levels roughly 20% higher than those of 2010. Until our productive capacity is fully utilized, each additional $100 million of sales (from incremental unit volume) should 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.

 

Purchasing arrangements vary across the company. We typically have short-term commitments from our suppliers; accordingly, our raw material costs generally move with the market. In certain of our businesses, we have longer-term purchase contracts with

 

34


Table of Contents

PART II

 

pricing terms that provide stability under reasonable market conditions. However, when commodities experience extreme inflation, vendors do not always honor those contracts.

 

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. Significant steel cost increases in 2008 were followed by significant cost decreases in 2009 as global economies weakened. In both cases, we generally adjusted pricing to our customers to reflect the changes in commodity costs. In late 2009 and early 2010, steel costs increased, and again we implemented price increases to recover the majority of the higher costs. By the end of 2010, we were facing further inflation in steel costs, and announced and began implementing additional price increases in early 2011.

 

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. We anticipate further compression in these margins in early 2011 as scrap costs have increased again in recent months.

 

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 increased, and in early 2011 we announced and began implementing price increases to recover the higher costs.

 

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 and Industrial Materials segments in recent years. As our customers changed the quantity and mix of components in their finished goods to address steel and chemical inflation, our profit margins were negatively impacted. We are responding by developing new products (including new types of mattress innersprings, boxsprings, and reclining chair mechanisms) that enable our customers to reduce their total costs, and in certain instances, provide 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.

 

We believe we gain competitive advantage in our global markets through low cost operations, significant internal production of key raw materials, manufacturing expertise

 

35


Table of Contents

PART II

 

and product innovation, higher quality products, extensive customer service capabilities, and financial strength. 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 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 related to safety and environmental matters. 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. In instances where our customers move production of their finished products overseas, our operations must be located nearby to supply them efficiently. We currently operate 10 facilities in China.

 

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 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.

 

We experienced a temporary loss of market share during the last half of 2010 as certain of our 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 that benefited European suppliers in the early summer: i) the weaker Euro; ii) temporarily lower wire costs; and iii) greater excess capacity as a result of economic turmoil in Europe. Because of the slowing of consumer demand for mattresses in the last half of 2010, it took longer for these imported products to be consumed, but by year-end, we had regained the majority of the lost volume.

 

36


Table of Contents

PART II

 

RESULTS OF OPERATIONS—2010 vs. 2009

 

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

 

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

 

Consolidated Results (continuing operations)

 

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

 

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

    %

 

Net sales from continuing operations:

                

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
    


 


Earnings from continuing operations:

                
(Dollar amounts, net of tax)             

Year ended December 31, 2009

   $ 121           

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

     20           
    


       

Year ended December 31, 2010

   $ 184           
    


       

Earnings Per Share (continuing operations)—2009

   $ 0.74           
    


       

Earnings Per Share (continuing operations)—2010

   $ 1.16           
    


       

 

In 2010, sales from continuing operations 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.

 

37


Table of Contents

PART II

 

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

 

38


Table of Contents

PART II

 

Segment Results (continuing operations)

 

In the following section we discuss 2010 sales and earnings before interest and taxes (EBIT) from continuing operations 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 94.

 

Residential Furnishings

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2010

   $ 1,747      $ 160        9.1

Year ended December 31, 2009

     1,693        90        5.3
    


 


       

Increase

   $ 54      $ 70           
    


 


       

% increase

     3     78        

Internal sales increase

     3                

Acquisitions (net of small divestitures)

     —                  

 

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.

 

Commercial Fixturing & Components

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2010

   $ 535      $ 23        4.3

Year ended December 31, 2009

     491        8        1.6
    


 


       

Increase

   $ 44      $ 15           
    


 


       

% increase

     9     188        

Internal sales increase

     9                

Acquisitions (net of small divestitures)

     —                  

 

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.

 

39


Table of Contents

PART II

 

Industrial Materials

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2010

   $ 725      $ 55        7.6

Year ended December 31, 2009

     647        60        9.3
    


 


       

Increase (decrease)

   $ 78      $ (5        
    


 


       

% increase (decrease)

     12     (8 )%         

Internal sales increase

     16                

Small divestitures (net of acquisitions)

     (4 )%                 

 

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

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2010

   $ 629      $ 66        10.5

Year ended December 31, 2009

     501        17        3.4
    


 


       

Increase

   $ 128      $ 49           
    


 


       

% increase

     26     288        

Internal sales increase

     26                

Acquisitions (net of small divestitures)

     —                  

 

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 are now complete).

 

40


Table of Contents

PART II

 

RESULTS OF OPERATIONS—2009 vs. 2008

 

During 2009, sales from continuing operations decreased 25%, reflecting a combination of weak market demand, steel-related price deflation, and our decision to exit some specific sales with unacceptable margins. In the majority of our global markets, demand stabilized at low levels in early 2009.

 

Despite the significant sales decline, full-year earnings from continuing operations decreased only modestly, from $128 million in 2008 to $121 million in 2009. Cost structure improvements and pricing discipline offset nearly all the impact from lower sales.

 

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

 

Consolidated Results (continuing operations)

 

The following table shows the changes in sales and earnings from continuing operations during 2009, and identifies the major factors contributing to the changes.

 

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

    %

 

Net sales from continuing operations:

                

Year ended December 31, 2008

   $ 4,076           

Acquisition sales growth

     1        —    % 

Small divestitures

     (36     (0.9 )% 

Internal sales decline:

                

Approximate deflation

     (90     (2.2 )% 

Approximate exited volume

     (175     (4.3 )% 

Approximate unit volume decline

     (721     (17.7 )% 
    


 


Internal sales decline

     (986     (24.2 )% 
    


 


Year ended December 31, 2009

   $ 3,055        (25.1 )% 
    


 


Earnings from continuing operations:

                
(Dollar amounts, net of tax)             

Year ended December 31, 2008

   $ 128           

Lower restructuring-related charges

     5           

Lower asset impairments

     8           

Bad debt expense associated with a customer bankruptcy

     (6        

Divestiture note write-down

     (7        

Lower net interest expense

     5           

Unusual tax items

     (6        

Other factors, including lower unit volume offset by cost savings and pricing discipline

     (6        
    


       

Year ended December 31, 2009

   $ 121           
    


       

Earnings Per Share (continuing operations)—2008

   $ 0.73           
    


       

Earnings Per Share (continuing operations)—2009

   $ 0.74           
    


       

 

Sales from continuing operations decreased 25% versus 2008, reflecting weak market demand, inflation-related price decreases, and our decision to exit specific customer

 

41


Table of Contents

PART II

 

programs with unacceptable profit margins (the largest portion in our Store Fixtures business).

 

Full-year earnings from continuing operations also decreased in 2009. The earnings impact from lower unit volume was largely offset by cost reduction initiatives and pricing discipline. Other factors impacting the year-over-year earnings comparison are presented in the table above. The divestiture note write-down (identified in the table) occurred when we learned in 2009 that the aluminum operations divested in July 2008 needed a capital infusion from the buyer due to deterioration in business conditions. This led to a reduction in the value of the note we accepted in 2008 as partial payment for the divesture. Leggett accepted a more subordinate position in the capital structure of the divested operations.

 

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 large swings in the LIFO impact in recent years. In 2008, significant steel cost inflation along with moderately higher inventory levels resulted in LIFO expense from continuing operations of $62 million. In 2009, steel cost decreases and lower inventory levels resulted in a LIFO benefit from continuing operations of $67 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 2008 generally benefited under the FIFO method from the effect of rising commodity costs, but in the first half of 2009, were significantly burdened as we consumed higher cost steel while selling prices decreased.

 

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

 

Interest and Income Taxes

 

Net interest expense decreased $8 million versus 2008, primarily the result of lower commercial paper borrowings and lower interest rates in 2009.

 

The consolidated worldwide effective income tax rate for 2009 was higher, at 39.0%, versus 33.8% in 2008. This increase is primarily due to i) tax adjustments resulting from Mexican tax law changes, and ii) the lower level of earnings and mix among tax jurisdictions. In 2009, tax law changes in Mexico caused us to re-evaluate our deferred tax assets and liabilities in that jurisdiction. As a result of our analysis, we recorded a $6 million tax charge to earnings related to 2009 and prior year losses that may expire before they can be utilized to reduce taxable earnings. In 2008, a tax benefit associated with the write-off of an acquired company’s stock was offset by increased reserves for uncertain tax positions and valuation allowances against deferred tax assets for certain foreign entities.

 

42


Table of Contents

PART II

 

Segment Results (continuing operations)

 

In the following section we discuss 2009 sales and earnings before interest and taxes (EBIT) from continuing operations 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 94.

 

Residential Furnishings

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2009

   $ 1,693      $ 90        5.3

Year ended December 31, 2008

     2,120        151        7.1
    


 


       

Decrease

   $ (427   $ (61        
    


 


       

% decrease

     (20 )%      (40 )%         

Internal sales decrease

     (19 )%                 

Small divestitures

     (1 )%                 

 

Residential Furnishings sales decreased in 2009, reflecting weak market demand and steel-related price deflation. Demand in our residential markets was weak throughout 2009 as consumers world-wide continued to defer purchases of large ticket items (such as mattress sets and upholstered furniture) that contain our products.

 

EBIT and EBIT margins decreased versus 2008, with the earnings impact from significantly lower unit volumes partially offset by cost reductions, pricing discipline, elimination of poorly performing operations, and the absence of 2008’s restructuring-related and other costs ($18 million).

 

Commercial Fixturing & Components

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2009

   $ 491      $ 8        1.6

Year ended December 31, 2008

     711        14        2.0
    


 


       

Decrease

   $ (220   $ (6        
    


 


       

% decrease

     (31 )%      (43 )%         

Internal sales decrease

     (31 )%                 

Acquisitions (net of small divestitures)

     —    %                 

 

Sales decreased in 2009 due to our decision in the Store Fixtures business to exit specific customer programs with unacceptable margins, reduced capital spending by retailers, and market softness in Office Furniture Components.

 

EBIT and EBIT margins also decreased versus the prior year, as the impact from lower sales more than offset benefits from cost reductions, prior elimination of poorly performing facilities, and other operating improvements, as well as the absence of 2008’s restructuring-related costs ($11 million).

 

43


Table of Contents

PART II

 

Industrial Materials

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2009

   $ 647      $ 60        9.3

Year ended December 31, 2008

     966        96        9.9
    


 


       

Decrease

   $ (319   $ (36        
    


 


       

% decrease

     (33 )%      (38 )%         

Internal sales decrease

     (33 )%                 

Acquisitions (net of small divestitures)

     —    %                 

 

2009 sales decreased, reflecting weak demand in many of our markets (including bedding, furniture, and automotive) and steel-related price deflation.

 

EBIT and EBIT margins also decreased versus 2008, as lower sales more than offset cost reductions.

 

Specialized Products

 

(Dollar amounts in millions)    Sales

    EBIT

    EBIT
Margins


 

Year ended December 31, 2009

   $ 501      $ 17        3.4

Year ended December 31, 2008

     682        45        6.6
    


 


       

Decrease

   $ (181   $ (28        
    


 


       

% decrease

     (27 )%      (62 )%         

Internal sales decrease

     (27 )%                 

Acquisitions (net of small divestitures)

     —    %                 

 

Sales decreased in 2009, reflecting weak global demand in our markets.

 

EBIT and EBIT margins decreased versus the prior year, as the impact from lower sales more than offset benefits from cost reduction initiatives and other operating improvements, as well as the absence of 2008’s restructuring-related costs ($5 million).

 

Results from Discontinued Operations

 

Full year earnings from discontinued operations, net of tax, increased $13 million, from a loss of $19 million in 2008 to a loss of $6 million in 2009. This earnings increase was primarily due to lower asset impairments and restructuring-related charges, partially offset by $3 million (net of tax) of environmental charges related to an aluminum property.

 

44


Table of Contents

PART II

 

LIQUIDITY AND CAPITALIZATION

 

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

 

   

Uses of cash

 

   

Cash from operations

 

   

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, and debt may also be used to fund a portion of our needs. In 2008, cash proceeds from completed divestitures were an additional significant source of funds. In 2009, we generated our 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, still readily exceeding our annual requirement for capital expenditures and dividends. For 2011, we expect cash flow from operations to again exceed $300 million. We ended 2010 with net debt to net capital of 23.3%, its lowest level since 2004 and well below our long-term target of 30%-40%. Page 51 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

 

45


Table of Contents

PART II

 

Capital expenditures include investments we make to maintain, modernize, and expand manufacturing capacity. The chart above shows that capital expenditures have declined in recent years; they should approximate $85 million in 2011. In all of our businesses, we continue to invest in the maintenance of facilities and equipment. However, with the sales volume contraction (versus 2008 levels) and the resulting excess productive capacity across our operations, we have significantly reduced spending on expansion projects in recent years.

 

With the move to role-based portfolio management, we changed our long-term priorities for allocating capital and this has also impacted capital spending levels. We are actively pursuing disciplined growth within our Grow business units. Expansion capital is predominantly earmarked for these opportunities. Operations designated as Core business units receive capital primarily for productivity enhancements.

 

We are also 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 were primarily focused on completing the divestitures and improving margins and returns of our existing businesses. As a result of this temporarily lower priority, and more stringent screening criteria, no significant acquisitions were completed in 2008, 2009, and 2010. We have recently turned our focus back toward acquisitions and have begun actively soliciting opportunities while maintaining our screening discipline. We expect acquisitions to contribute modestly to our long-term growth. Additional details about acquisitions can be found in Note R to the Consolidated Financial Statements on page 118.

 

Pay Dividends

 

LOGO

 

With continued improvement in margins and returns, a decrease in capital spending and acquisitions, and the completion of the divestitures, we expect (and since 2008 have had) more available cash to return to shareholders. Higher annual dividends are one means by which that should continue to occur. In 2010 we modestly increased the quarterly dividend, to $.27 per share, and extended to 39 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 has been higher recently and will

 

46


Table of Contents

PART II

 

likely remain above targeted levels in the near term. Maintaining and increasing the dividend remains a high priority. We anticipate spending approximately $155 million on dividends in 2011, roughly the same as in 2010, with expected share repurchases offsetting expected dividend increases. Cash from operations has been, and is expected to continue to be, sufficient to readily fund both capital expenditures and dividends.

 

Repurchase Stock

 

LOGO

 

Share repurchases are the other means by which we return cash to shareholders. During the past three years, we repurchased a total of 33 million shares of our stock and reduced outstanding shares by 13%. In 2010, we repurchased over 6 million shares at an average per-share price of $21.64 and issued 4 million shares through employee benefit plans (most of these shares were purchased by employees in lieu of cash compensation). We expect to repurchase additional shares in 2011, with the amount of purchases dependent on factors such as general economic conditions, level of demand in our end markets, and the availability of excess cash. Although no specific repurchase schedule has been established, we have been authorized by the Board to repurchase up to 10 million shares in 2011.

 

47


Table of Contents

PART II

 

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.

 

LOGO

 

Meaningful sales and earnings improvement contributed to our 2010 cash from operations, and was partially offset by increased working capital levels associated with those higher sales. Although working capital dollars increased, working capital as a percent of sales decreased slightly from year-end 2009 levels. Cash from operations in 2009 benefitted from a $186 million reduction in working capital during that year (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

 
     2010

     2009

     Change

     2010

     2009

     Change

 

Accounts Receivable, net (1)

   $ 479       $ 469         $10         52         56         (4

Inventory, net (2)

   $ 435       $ 409         $26         59         62         (3

Accounts Payable (3)

   $ 226       $ 199         $27         31         30         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).

 

   

Accounts Receivable — The dollar amount of accounts receivable increased from year-end 2009 levels, primarily due to higher sales. As part of our accounts receivable review process, we evaluate individual customers’ payment histories, financial health, industry prospects, and current macroeconomic events in

 

48


Table of Contents

PART II

 

 

determining if outstanding amounts are collectible. In 2010, we incurred $7 million of bad debt expense as compared to $30 million in 2009. The higher expense in 2009 was primarily due to a single customer bankruptcy in the Residential Furnishings segment ($10 million) and the write-down of the aluminum segment divestiture note receivable ($11 million) as discussed on page 42.

 

   

Days Sales Outstanding (DSO)—We experienced an increase in our DSO in 2009 as customers slowed payments during the economic downturn. Our DSO decreased in 2010 as our markets began to improve, and we continued to focus on collection efforts to ensure customer accounts were paid on time. We do not believe the decrease in DSO indicates a significant change in credit risk or has material implications on our liquidity, but instead is caused by normal differences (from year to year) in the timing of sales and cash receipts.

 

   

Inventory—The dollar value of our inventories increased from year-end 2009 levels, primarily due to inflation in raw material costs. During 2010, we recognized expense of $13 million associated with obsolete and slow moving inventories; in 2009 this expense totaled $16 million. We do not expect significant changes in customer or industry trends that would materially increase the exposure to inventory obsolescence.

 

   

Days Inventory on Hand (DIO)—Our DIO decreased compared to the prior year as our operations continue to focus on optimizing return on assets.

 

   

Accounts Payable—The dollar value of accounts payable increased in 2010 compared to year-end 2009, primarily due to inflation in raw material costs and also from our continued efforts to optimize payment terms with our vendors.

 

   

Days Payable Outstanding (DPO)—Our DPO has increased slightly in 2010 as we continue to work with vendors to extend our standard payment terms.

 

Cash from operations in 2008 was strong despite weak market demand in the latter part of that year. Lower working capital (versus the prior year) contributed favorably to operating cash. Fourth quarter production cuts led to lower inventory levels (compared to year-end 2007). Accounts receivable also declined primarily due to extremely weak sales late in that year.

 

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.

 

49


Table of Contents

PART II

 

Capitalization

 

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

 

(Dollar amounts in millions)


   2010

    2009

    2008

 

Long-term debt outstanding:

                        

Scheduled maturities

   $ 762      $ 764      $ 774   

Average interest rates (1)

     4.6     4.6     4.7

Average maturities in years (1)

     4.7        5.6        6.4   

Revolving credit/commercial paper

     —          25        77   
    


 


 


Total long-term debt

     762        789        851   

Deferred income taxes and other liabilities

     192        161        116   

Equity

     1,524        1,576        1,671   
    


 


 


Total capitalization

   $ 2,478      $ 2,526      $ 2,638   
    


 


 


Unused committed credit:

                        

Long-term

   $ 522      $ 491      $ 523   

Short-term

     —          —          —     
    


 


 


Total unused committed credit

   $ 522      $ 491      $ 523   
    


 


 


Current maturities of long-term debt

   $ 2      $ 10      $ 22   
    


 


 


Cash and cash equivalents

   $ 244      $ 260      $ 165   
    


 


 


Ratio of earnings to fixed charges (2)

     5.8 x        4.6 x        3.7 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, 2010 and 2009, 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.

 

50


Table of Contents

PART II

 

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)    2010

    2009

 

Long-term debt

   $ 762      $ 789   

Current debt maturities

     2        10   

Cash and cash equivalents

     (244     (260
    


 


Net debt

   $ 520      $ 539   
    


 


Total capitalization

   $ 2,478      $ 2,526   

Current debt maturities

     2        10   

Cash and cash equivalents

     (244     (260
    


 


Net capitalization

   $ 2,236      $ 2,276   
    


 


Long-term debt to total capitalization

     30.8     31.2
    


 


Net debt to net capitalization

     23.3     23.7
    


 


 

Total debt (which includes long-term debt and current debt maturities) decreased $35 million in 2010. During the year, we reduced our commercial paper borrowings by $25 million and paid off $10 million of other long-term debt that came due.

 

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 future debt issuance, and mature in August 2012. The swaps have a weighted average interest rate of 4.0% and hedge the benchmark rate of the future issuance of $200 million of debt. The credit spread over the benchmark bonds will continue to fluctuate until the contracts are settled (either upon an issuance of debt or upon their expiration). For more information on our interest rate swaps, see Note S to the Consolidated Financial Statements on page 119.

 

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 14 lenders that terminates in 2012. The credit agreement allows us to issue letters of credit up to $250 million. When we issue these letters of credit, 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)    2010

    2009

 

Total program authorized

   $ 600      $ 600   

Less: commercial paper outstanding (classified as long-term debt)

     —          (25

Letters of credit issued under the credit agreement

     (78     (84
    


 


Total program usage

     (78     (109
    


 


Total program available

   $ 522      $ 491   
    


 


 

51


Table of Contents

PART II

 

The average and maximum amount of commercial paper outstanding during 2010 was $99 million and $198 million, respectively. Commercial paper amounts fluctuated during the year due to normal changes in working capital funding requirements. The amounts of letters of credit outstanding throughout the year were not materially different from the amounts outstanding at year-end.

 

Based on the information currently available to us, we believe that the participating banks continue to have the ability to meet their obligations under the revolving credit agreement. In the unlikely event that a disruption in the credit market was to become so severe that we were unable to issue commercial paper, we have the contractual right to draw funds directly on the revolving credit agreement. In such event, the cost of borrowing under the revolving credit agreement could be higher than the cost of commercial paper borrowing.

 

We also maintain an active shelf registration. With anticipated operating cash flows, our commercial paper program, and our expected ability to issue debt through our active shelf, we believe we have sufficient funds available to support our ongoing operations, pay dividends, repurchase stock, fund future growth, and repay maturing debt.

 

Accessibility of Cash

 

At December 31, 2010, we had cash and cash equivalents of $244 million primarily invested in money market funds and interest-bearing bank accounts. A smaller portion was invested in bank time deposits with original maturities of three months or less.

 

A substantial portion of these funds are held in international accounts and represent undistributed earnings from our foreign operations. The tax rules governing this area are complex. However, subject to constantly changing facts and laws, we believe we could access a significant portion of the cash without material incremental cost.

 

52


Table of Contents

PART II

 

CONTRACTUAL OBLIGATIONS

 

The following table summarizes our future contractual cash obligations and commitments:

 

            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 *

   $ 759       $ 1       $ 201       $ 381       $ 176   

Capitalized leases

     5         1         3         1         —     

Operating leases

     112         34         44         25         9   

Purchase obligations **

     278         278         —           —           —     

Interest payments ***

     161         35         64         43         19   

Deferred income taxes

     70         —           —           —           70   

Other obligations (including pensions and reserves for tax contingencies)

     135         7         17         8         103   
    


  


  


  


  


Total contractual cash obligations

   $ 1,520       $ 356       $ 329       $ 458       $ 377   
    


  


  


  


  



* 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.
** Purchase obligations primarily include open short-term (30-120 days) purchase orders that arise in the normal course of operating our facilities.
*** Interest payments are calculated on debt outstanding at December 31, 2010 at rates in effect at the end of the year.

 

53


Table of Contents

PART II

 

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.

 

As a result of the deterioration in the economic and financial climate in the fourth quarter 2008, an interim goodwill impairment analysis was performed confirming that estimated fair value exceeded carrying values for all reporting units.

 

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 two of the 10 reporting units exceeded book value by approximately 20%. The goodwill associated with these reporting units is $190 million. Both of these reporting units are dependent on business capital spending which has been substantially reduced in the recent economic downturn. Both reporting units exceeded expectations for 2010, and are expected to show further improvement in 2011. 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 25%, and have goodwill of $740 million.

 

54


Table of Contents

 

PART II

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 very unpredictable, and are difficult to anticipate. Impairments were $2 million in 2010, $3 million in 2009, and $13 million in 2008.

 

We believe that future restructuring and shut-down activities should be equal to or less than those in 2010. However this could change if certain product lines or businesses do not meet return expectations. This could cause us to decide to exit a business which could trigger long-lived asset impairment.

Inventory Reserves        

We reduce the carrying value of inventories to reflect an estimate of net realizable value for obsolete and slow-moving inventory.

 

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).

 

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).

 

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).

 

At December 31, 2010, we had recorded an inventory reserve of $43 million (approximately 8% of FIFO inventories) to account for obsolete inventories.

 

Prior to 2010, additions to inventory reserves averaged $22 million per year. In 2010, additions to reserves decreased to $13 million due to improved inventory optimization in the Residential Furnishings and Commercial Fixturing & Components segments. Approximately two-thirds of historical write-downs relate to the Commercial Fixturing & Components and Specialized Products segments due to the custom nature of their products.

 

55


Table of Contents

 

PART II

Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions
Inventory Reserves (cont.)        
        We have implemented new inventory optimization processes in many of our businesses that should reduce the impact of write-downs in the future. We do not expect any significant changes in customer or industry trends that would increase the exposure to inventory obsolescence.

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, $13 million annually for costs associated with workers’ compensation. Average year-to-year variation over the past five years has been approximately $3 million. At December 31, 2010, we had accrued $42 million to cover future self-insurance liabilities.

 

Internal safety statistics indicate improving safety trends in the last two years. Usually, safety statistics are leading indicators of exposure trends. As a result of headcount reductions and improved safety trends, we expect worker compensation costs to remain at current lower levels for the foreseeable future.

 

56


Table of Contents

 

PART II

Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions
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.

 

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.

 

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 $16 million (less than 1% of annual net sales) over the last three years. At December 31, 2010, our reserves for doubtful accounts totaled $23 million (about 5% of our accounts and notes receivable of $445 million).

 

Weak market demand intensified pressure on highly leveraged customers in some of our industries. In each of 2008 and 2009, we experienced bad debt expense that was approximately $15 million higher than pre-2008 levels. In 2010, bad debt expense returned to more normal levels, however if weak market demand persists, other bankruptcies could be possible.

 

We also recognized an $11 million loss in 2009 related to the Aluminum divestiture note. At December 31, 2010, we had $24 million of notes outstanding, primarily related to divested businesses, and have concluded that no material reserve is required for these notes.

 

57


Table of Contents

 

PART II

Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions
Pension Accounting        
For our pension plans, we must estimate the cost of benefits to be provided (well into the future) and the current value of those benefit obligations.  

The pension liability calculation contains uncertainties because it requires management to estimate an appropriate discount rate to calculate the present value of future benefits paid, which also impacts current year pension expense.

 

Determination of pension expense requires an estimate of expected return on pension assets based upon the mix of investments held (bonds and equities).

 

Other assumptions include rates of compensation increases, withdrawal and mortality rates, and retirement ages. These estimates impact the pension expense or income we recognize and our reported benefit obligations.

 

The discount rates used to calculate the pension liability and pension expense for our most significant plans decreased approximately 50 basis points in 2010 due to lower corporate bond yields. Each 25 basis point decrease in the discount rate increases pension expense by approximately $.4 million and decreases the plans’ funded status by approximately $7.2 million.

 

The expected return on assets in 2010 held steady at 6.8%, compared to 6.9% in 2009 (after decreasing from 7.9% in 2008). The reduction in the rate during 2009 was primarily driven by a change in asset allocation toward more conservative investments (i.e. bonds). A 25 basis point reduction in the expected return on assets would increase pension expense by $.4 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.

 

58


Table of Contents

 

PART II

Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions
Income Taxes        
In the ordinary course of business, we must make estimates of the tax treatment of many transactions, even though the ultimate tax outcome may remain uncertain for some time. These estimates become part of the annual income tax expense reported in our financial statements. Subsequent to year end, we finalize our tax analysis and file income tax returns. Tax authorities periodically audit these income tax returns and examine our tax filing positions, including (among other things) the timing and amounts of deductions, and the allocation of income among tax jurisdictions. We adjust income tax expense in our financial statements in the periods in which the actual outcome becomes more certain.  

Our tax liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures related to our various filing positions.

 

Our effective tax rate is also impacted by changes in tax laws, the current mix of earnings by taxing jurisdiction, and the results of current tax audits and assessments.

 

At December 31, 2010 and 2009, we had $12 million and $28 million, respectively, of net deferred tax assets on our balance sheet related to operating loss and tax credit carryforwards. The ultimate realization of these deferred tax assets is dependent upon the amount, source, and timing of future taxable income. Valuation allowances are established against future potential tax benefits to reflect the amounts we believe have no more than a 50% probability of being realized. In addition, assumptions have been made regarding the non-repatriation of earnings from certain subsidiaries. Those assumptions may change in the future, thereby affecting future period results for the tax impact of possible repatriation.

 

Potential changes in tax laws could impact assumptions related to the non-repatriation of certain foreign earnings. If all non-repatriated earnings were taxed, we would incur additional taxes of approximately $41 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.

 

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.

 

59


Table of Contents

 

PART II

Description  

Judgments and

Uncertainties

  Effect if Actual Results
Differ From Assumptions
Contingencies        
We evaluate various legal, environmental, and other potential claims against us to determine if an accrual or disclosure of the contingency is appropriate. If it is probable that an ultimate loss will be incurred, we accrue a liability for the 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.

 

60


Table of Contents

PART II

 

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”), a wholly-owned subsidiary of the Company, 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, 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’s fees and costs.

 

We believe that Gamber has valid bases upon which the appellate court could overturn the verdict and the award of attorney fees and costs. We intend to vigorously pursue an appeal. NPI has also filed an appeal. We established an accrual for this suit in an amount we believe is probable. Also, we believe that it is probable that at least part of the verdict, attorney’s fees and costs will be covered by insurance, but that coverage is subject to the insurance company’s reservation of rights.

 

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. The suit is substantially similar to a prior suit filed by the same plaintiff, in the same court, on February 5, 2009. The prior suit was dismissed without prejudice based on its failure to make demand on the Company’s Board and shareholders. As before, the plaintiff has not made such demand.

 

The new suit was purportedly brought on the Company’s behalf, naming it as a nominal defendant, and certain current and former officers and directors as individual defendants including David S. Haffner, Karl G. Glassman, Matthew C. Flanigan, Ernest C. Jett, Harry M. Cornell, Jr., Felix E. Wright, Robert Ted Enloe, III, Richard T. Fisher, Judy C. Odom, Maurice E. Purnell, Jr., Ralph W. Clark and Michael A. Glauber.

 

The plaintiff alleges, among other things, that the individual defendants: breached their fiduciary duties; backdated and received backdated stock options violating the

 

61


Table of Contents

PART II

 

company’s stock plans; caused or allowed the Company to issue false and misleading financial statements and proxy statements; sold Company stock while possessing material non-public information; committed gross mismanagement; wasted corporate assets; committed fraud; violated the Missouri Securities Act; and were unjustly enriched.

 

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

 

The Company and the individual defendants filed motions to dismiss the suit in late October, asserting: the plaintiff failed to make demand on the Company’s Board and shareholders as required by Missouri law, and, consistent with the court’s ruling in the prior suit, this failure to make demand should not be excused; the plaintiff is not a representative shareholder; the suit is based on a statistical analysis of stock option grants and Company stock prices that the Company believes is 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 the Company’s 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. The hearing on the motions to dismiss is scheduled for March 15, 2011.

 

We expect that the outcome of this suit will not have a material adverse effect on the Company’s 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 alleging that competitors of the Company’s carpet underlay division and other manufacturers of polyurethane foam products had engaged in price fixing in violation of U.S. antitrust laws. To date, over 40 cases have been filed on behalf of purchasers of polyurethane foam products against over 20 defendants. The Company has been named as a defendant in six cases; five of which have been transferred to the U.S. District Court for the Northern District of Ohio under the name In re: Polyurethane Foam Antitrust Litigation, Case No. 1:10-MD-02196. The first case in which the Company was named as a party: Martin Furniture & Bedding, Inc. v. FXI-Foamex Innovations, Inc., et al., Case No. 5:10-cv-00178 (Western District of North Carolina) was instituted on November 15, 2010, and is also expected to be transferred.

 

In the suits to which the Company is a party, the plaintiffs, on behalf of the 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 during the period

 

62


Table of Contents

PART II

 

1979 to the present in one case, and from at least 2001 to the present in the other five cases. Each plaintiff also seeks attorneys’ fees, pre-judgment and post-judgment interest, court costs, and injunctive relief against future violations. We expect the plaintiffs to file an amended complaint in the consolidated case on or before February 28, 2011.

 

The Company denies all of the allegations and will vigorously defend itself. 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. At this time, we do not believe that it is probable that the outcome will have a material effect on the Company’s financial condition, operating cash flows or results of operations.

 

NEW ACCOUNTING STANDARDS

 

We adopted new accounting guidance in 2010 as discussed in Note A to the Consolidated Financial Statements on page 83. 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.

 

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 $6.0 at December 31, 2010, and less than its carrying value by $71.1 at December 31, 2009. 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, 2010 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,


  2011

    2012

    2013

    2014

    2015

    Thereafter

    2010

    2009

 

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     4.72

Principal variable rate debt

    0.5        0.5        —          —          —          19.9        20.9        31.0   

Average interest rate

    0.50     0.50     —       —       —       0.56     0.55     0.52

Miscellaneous debt*

                                                    13.5        38.4   
                                                   


 


Total debt

                                                    764.4        799.4   

Less: current maturities

                                                    (2.2     (10.1
                                                   


 


Total long-term debt

                                                  $ 762.2      $ 789.3   
                                                   


 


 

63


Table of Contents

PART II

 


* Includes $0 and $25 of commercial paper in 2010 and 2009, respectively, supported by a $600 revolving credit agreement which terminates in 2012.

 

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, fair value hedges and net investment hedges is provided in Note S on page 119 to the Notes to the Consolidated Financial Statements and is incorporated by reference into this section.

 

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, including those held for sale, at December 31 is as follows:

 

Functional Currency


   2010

     2009

 

European Currencies

   $ 316.4       $ 324.8   

Canadian Dollar

     235.1         236.3   

Chinese Renminbi

     208.3         157.9   

Mexican Peso

     36.2         38.4   

Other

     60.3         63.2   
    


  


Total

   $ 856.3       $ 820.6   
    


  


 

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.

 

64


Table of Contents

PART II

 

Item 9A. Controls and Procedures.

 

Effectiveness of the Company’s Disclosure Controls and Procedures

 

An evaluation as of December 31, 2010 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, 2010, 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.

 

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 72, 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 73 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, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information.

 

None.

 

65


Table of Contents

PART III

 

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 12, 2011, 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 12, 2011. If a nominee fails to receive a majority of the votes cast in the director election, the Nominating & Corporate Governance 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.

 

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 129 for reference to the agreements.

 

Robert E. Brunner, age 53, has been the Executive Vice President of Illinois Tool Works (ITW), a diversified manufacturer of advanced industrial technology, since 2006. 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, as a diversified manufacturer with a global footprint, provides valuable insight to our Board on operational and international issues. As a director of the National Association of Manufacturers, his familiarity with public policy issues and advocacy affecting the Company is a great asset. He was first elected as a director of the Company in 2009.

 

Ralph W. Clark, age 70, 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, 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.

 

66


Table of Contents

PART III

 

R. Ted Enloe, III, age 72, 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 72, has been Senior Managing Director, Midwest Division 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 49, 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 other 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 52, 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 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.

 

67


Table of Contents

PART III

 

Ray A. Griffith, age 57, has been the President and Chief Executive Officer of Ace Hardware Corporation (Ace), 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 58, 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. 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 58, has served as President and Chief Executive Officer of the Energizer Household Products Division of Energizer Holdings, Inc., a manufacturer of portable power solutions, since November 2007. Prior to his current position, 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 58, 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 facing companies today. Her experience 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 71, was, until his retirement in July, Of Counsel to the law firm of Locke Lord Bissell & Liddell LLP, or its predecessor firm, since 2002, where he had been a partner 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

 

68


Table of Contents

PART III

 

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 57, 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 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 Coke 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 Internet 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.

 

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 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 12, 2011, 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 12, 2011, are incorporated by reference.

 

69


Table of Contents

PART III

 

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 12, 2011, 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 12, 2011, are incorporated by reference.

 

70


Table of Contents

PART IV

 

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

     72   

•   Report of Independent Registered Public Accounting Firm

     73   

•   Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2010

     75   

•   Consolidated Balance Sheets at December 31, 2010 and 2009

     76   

•   Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2010

     77   

•   Consolidated Statements of Changes in Equity and Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2010

     78   

•   Notes to Consolidated Financial Statements

     79   

•   Quarterly Summary of Earnings (Unaudited)

     124   

•   Schedule II—Valuation and Qualifying Accounts and Reserves

     125   

 

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 128.

 

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.

 

71


Table of Contents

PART IV

 

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, 2010, 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, 2010.

 

Leggett & Platt’s internal control over financial reporting, as of December 31, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page 73 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, 2011       February 24, 2011

 

72


Table of Contents

PART IV

 

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, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 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, 2010, 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

 

73


Table of Contents

PART IV

 

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, 2011

 

74


Table of Contents

LEGGETT & PLATT, INCORPORATED

 

Consolidated Statements of Operations

 

     Year ended December 31

 
(Amounts in millions, except per share data)    2010

    2009

    2008

 

Net sales

   $ 3,359.1      $ 3,055.1      $ 4,076.1   

Cost of goods sold

     2,703.7        2,425.4        3,384.9   
    


 


 


Gross profit

     655.4        629.7        691.2   

Selling and administrative expenses

     354.3        363.0        423.2   

Amortization of intangibles

     19.8        20.7        24.5   

Other (income) expense, net

     (6.7     15.7        11.2   
    


 


 


Earnings from continuing operations before interest and income taxes

     288.0        230.3        232.3   

Interest expense

     37.7        37.4        48.4   

Interest income

     5.2        5.5        8.7   
    


 


 


Earnings from continuing operations before income taxes

     255.5        198.4        192.6   

Income taxes

     71.9        77.3        65.1   
    


 


 


Earnings from continuing operations

     183.6        121.1        127.5   

Loss from discontinued operations, net of tax

     (.8     (6.1     (18.5
    


 


 


Net earnings

     182.8        115.0        109.0   

(Earnings) attributable to noncontrolling interest, net of tax

     (6.2     (3.2     (4.6
    


 


 


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

   $ 176.6      $ 111.8      $ 104.4   
    


 


 


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

                        

Basic

   $ 1.17      $ .74      $ .73   
    


 


 


Diluted

   $ 1.16      $ .74      $ .73   
    


 


 


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

                        

Basic

   $ (.00   $ (.04   $ (.11
    


 


 


Diluted

   $ (.01   $ (.04   $ (.11
    


 


 


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

                        

Basic

   $ 1.17      $ .70      $ .62   
    


 


 


Diluted

   $ 1.15      $ .70      $ .62   
    


 


 


 

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

 

75


Table of Contents

LEGGETT & PLATT, INCORPORATED

 

Consolidated Balance Sheets

 

     December 31

 
(Amounts in millions, except per share data)            2010        

            2009        

 

ASSETS

                

Current Assets

                

Cash and cash equivalents

   $ 244.5      $ 260.5   

Accounts and other receivables, net

     478.9        469.5   

Inventories

                

Finished goods

     241.1        221.9   

Work in process

     47.7        44.7   

Raw materials and supplies

     218.2        201.2   

LIFO reserve

     (71.7     (58.7
    


 


Total inventories, net

     435.3        409.1   

Other current assets

     60.4        58.1   

Current assets held for sale

     —          16.4   
    


 


Total current assets

     1,219.1        1,213.6   

Property, Plant and Equipment—at cost

                

Machinery and equipment

     1,136.6        1,127.7   

Buildings and other

     613.0        612.8   

Land

     48.5        49.6   
    


 


Total property, plant and equipment

     1,798.1        1,790.1   

Less accumulated depreciation

     1,173.9        1,121.5   
    


 


Net property, plant and equipment

     624.2        668.6   

Other Assets

                

Goodwill

     930.3        928.2   

Other intangibles, less accumulated amortization of $107.8 and $98.2 at December 31, 2010 and 2009, respectively

     152.3        171.1   

Sundry

     50.2        52.5   

Non-current assets held for sale

     24.9        27.2   
    


 


Total other assets

     1,157.7        1,179.0   
    


 


TOTAL ASSETS

   $ 3,001.0      $ 3,061.2   
    


 


LIABILITIES AND EQUITY

                

Current Liabilities

                

Current maturities of long-term debt

   $ 2.2      $ 10.1   

Accounts payable

     226.4        199.4   

Accrued expenses

     209.5        229.7   

Other current liabilities

     84.9        92.7   

Current liabilities held for sale

     —          3.2   
    


 


Total current liabilities

     523.0        535.1   

Long-term Liabilities

                

Long-term debt

     762.2        789.3   

Other long-term liabilities

     121.9        112.3   

Deferred income taxes

     69.5        49.0   
    


 


Total long-term liabilities

     953.6        950.6   

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

     463.2        467.7   

Retained earnings

     2,033.3        2,013.3   

Accumulated other comprehensive income

     101.8        104.8   

Less treasury stock—at cost (52.6 and 50.0 shares at December 31, 2010 and 2009, respectively)

     (1,093.0     (1,033.8
    


 


Total Leggett & Platt, Inc. equity

     1,507.3        1,554.0   

Noncontrolling interest

     17.1        21.5   
    


 


Total equity

     1,524.4        1,575.5   
    


 


TOTAL LIABILITIES AND EQUITY

   $ 3,001.0      $ 3,061.2   
    


 


 

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

 

76


Table of Contents

LEGGETT & PLATT, INCORPORATED

 

Consolidated Statements of Cash Flows

 

     Year ended December 31

 
(Amounts in millions)    2010

    2009

    2008

 

Operating Activities

                        

Net earnings

   $ 182.8      $ 115.0      $ 109.0   

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

                        

Depreciation

     103.0        109.6        115.9   

Amortization

     19.8        20.7        24.5   

Impairment charges:

                        

Goodwill

     —          3.0        25.6   

Other long-lived assets

     2.4        2.8        19.2   

Provision for losses on accounts and notes receivable

     6.9        29.5        23.4   

Writedown of inventories

     12.6        16.2        27.1   

Net (gain) loss from sales of assets

     (11.6     (3.0     2.3   

Deferred income tax expense

     30.2        44.0        25.5   

Stock-based compensation

     37.6        38.0        41.6   

Other

     (3.7     3.9        (10.7

Other changes, excluding effects from acquisitions and divestitures:

                        

(Increase) decrease in accounts and other receivables

     (34.7     105.7        36.5   

(Increase) decrease in inventories

     (31.2     87.6        49.9   

Decrease in other current assets

     21.6        1.4        9.5   

Increase (decrease) in accounts payable

     24.9        18.4        (46.8

Increase (decrease) in accrued expenses and other current liabilities

     1.9        (27.5     (16.3
    


 


 


Net Cash Provided by Operating Activities

     362.5        565.3        436.2   

Investing Activities

                        

Additions to property, plant and equipment

     (67.7     (83.0     (118.3

Purchases of companies, net of cash acquired

     (4.9     (2.8     (10.3

Proceeds from sales of assets

     28.9        14.1        407.6   

Other

     (21.4     (.8     (15.7
    


 


 


Net Cash (Used for) Provided by Investing Activities

     (65.1     (72.5     263.3   

Financing Activities

                        

Additions to debt

     82.4        57.9        248.0   

Payments on debt

     (128.2     (122.1     (523.8

Dividends paid

     (154.9     (157.2     (165.1

Issuances of common stock

     23.8        4.0        5.9   

Purchases of common stock

     (130.1     (192.0     (296.5

Other

     (6.6     .7        (2.0
    


 


 


Net Cash Used for Financing Activities

     (313.6     (408.7     (733.5
    


 


 


Effect of Exchange Rate Changes on Cash

     .2        11.7        (6.7
    


 


 


(Decrease) increase in Cash and Cash Equivalents

     (16.0     95.8        (40.7

Cash and Cash Equivalents—Beginning of Year

     260.5        164.7        205.4   
    


 


 


Cash and Cash Equivalents—End of Year

   $ 244.5      $ 260.5      $ 164.7   
    


 


 


Supplemental Information

                        

Interest paid

   $ 37.2      $ 37.8      $ 49.7   

Income taxes paid

     62.7        44.7        51.6   

Property, plant and equipment acquired through capital leases

     3.0        2.3        1.6   

Liabilities assumed of acquired companies

     1.2        .2        .2   

Long-term notes received for divestitures

     7.1        .2        27.4   

 

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

 

77


Table of Contents

LEGGETT & PLATT, INCORPORATED

 

Consolidated Statement of Changes in Equity and Comprehensive Income (Loss)

 

(Amounts in millions, except per
share data)
  Common Stock

    Additional
Contributed
Capital


    Retained
Earnings


    Accumulated
Other
Comprehensive
Income


    Treasury Stock

    Noncontrolling
Interest


    Total
Equity

    Comprehensive Income (Loss)
Attributable to


 
  Shares

    Amount

          Shares

    Amount

        Noncontrolling
Interest


    Leggett &
Platt, Inc.
Before
Noncontrolling
Interest


 

Balance, January 1, 2008

    198.8      $  2.0      $  500.0      $  2,122.3      $  193.5        (30.1   $ (685.1   $  15.5      $  2,148.2                   

Adjustment to apply pension measurement date provision

    —          —          —          .5        —          —          —          —          .5                   

Net earnings

    —          —          —          109.0        —          —          —          —          109.0              $ 109.0   

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

    —          —          —          (4.6     —          —          —          4.6        —        $ (4.6        

Dividends declared (A)

    —          —          3.4        (165.1     —          —          —          —          (161.7                

Dividends paid to noncontrolling interest

    —          —          —          —          —          —          —          (2.7     (2.7                

Treasury stock purchased

    —          —          —          —          —          (15.8     (297.9     —          (297.9                

Treasury stock issued

    —          —          (16.7     —          —          2.9        64.4        —          47.7                   

Foreign currency translation adjustments

    —          —          —          —          (146.5     —          —          .6        (145.9     (.6     (145.9

Cash flow hedges, net of tax

    —          —          —          —          (1.9     —          —          —          (1.9             (1.9

Net investment hedges, net of tax

    —          —          —          —          2.3        —          —          —          2.3                2.3   

Defined benefit pension plans, net of tax

    —          —