UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~June 30, 2018~~March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from to

Commission File Number 001-07845

LEGGETT & PLATT, INCORPORATED

(Exact name of registrant as specified in its charter)



Missouri		44-0324630
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

No. 1 Leggett Road Carthage, Missouri		64836
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (417) 358-8131

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý		Accelerated filer	¨

Non-accelerated filer	¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨

			Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Securities registered pursuant to Section 12(b) of the Act:



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

Common stock outstanding as of ~~July 27, 2018: 130,160,438~~April 26, 2019: 131,268,662

LEGGETT & PLATT, INCORPORATED

FORM 10-Q

TABLE OF CONTENTS



		Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets at March 31, 2019 and December 31, 2018	2
	Consolidated Condensed Statements of Operations for the three months ended March 31, 2019 and 2018	3
	Consolidated Condensed Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018	4
	Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2019 and 2018	5
	Notes to Consolidated Condensed Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	48
SIGNATURES		50

PART I. FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements.

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


(Amounts in millions)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
CURRENT ASSETS
Cash and cash equivalents	$	446.4		$	526.1		$	263.3		$	268.1
Trade receivables, net	610.0			522.3			642.8			545.3
Other receivables, net	39.8			72.8			22.5			26.3
Total receivables, net	649.8			595.1			665.3			571.6
Inventories
Finished goods	332.2			285.6
Work in process	51.4			53.0
Raw materials and supplies	320.3			283.4
LIFO reserve	(69.7		)	(50.9		)
Total inventories, net	634.2			571.1			676.8			633.9
Prepaid expenses and other current assets	52.4			74.2			53.6			51.0
Total current assets	1,782.8			1,766.5			1,659.0			1,524.6
PROPERTY, PLANT AND EQUIPMENT—AT COST
Machinery and equipment	1,256.8			1,210.6			1,351.3			1,281.7
Buildings and other	639.9			626.0			682.0			656.8
Land	42.8			40.6			43.1			42.4
Total property, plant and equipment	1,939.5			1,877.2			2,076.4			1,980.9
Less accumulated depreciation	1,230.2			1,213.3			1,266.1			1,252.4
Net property, plant and equipment	709.3			663.9			810.3			728.5
OTHER ASSETS
Goodwill	839.0			822.2			1,395.5			833.8
Other intangibles, less accumulated amortization of $156.9 and $151.7 as of June 30, 2018 and December 31, 2017, respectively	182.5			169.1
Other intangibles, less accumulated amortization of $174.4 and $161.7 as of March 31, 2019 and December 31, 2018, respectively							807.9			178.7
Operating lease right-of-use assets							157.9			—
Sundry	130.4			129.1			123.2			116.4
Total other assets	1,151.9			1,120.4			2,484.5			1,128.9
TOTAL ASSETS	$	3,644.0		$	3,550.8		$	4,953.8		$	3,382.0
CURRENT LIABILITIES
Current maturities of long-term debt	$	153.7		$	153.8		$	51.4		$	1.2
Current portion of operating lease liabilities							38.1			—
Accounts payable	450.6			430.3			431.2			465.4
Accrued expenses	254.4			303.4			248.1			262.7
Other current liabilities	78.2			88.7			98.2			86.4
Total current liabilities	936.9			976.2			867.0			815.7
LONG-TERM LIABILITIES
Long-term debt	1,298.0			1,097.9			2,409.6			1,167.8
Operating lease liabilities							119.1			—
Other long-term liabilities	191.5			202.9			146.8			155.3
Deferred income taxes	89.0			83.0			216.1			85.6
Total long-term liabilities	1,578.5			1,383.8			2,891.6			1,408.7
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock	2.0			2.0			2.0			2.0
Additional contributed capital	519.7			514.7			524.8			527.1
Retained earnings	2,572.6			2,511.3			2,623.9			2,613.8
Accumulated other comprehensive income (loss)	(48.7		)	(9.5		)
Accumulated other comprehensive loss							(64.4		)	(77.6		)
Treasury stock	(1,917.4		)	(1,828.3		)	(1,891.6		)	(1,908.3		)
Total Leggett & Platt, Inc. equity	1,128.2			1,190.2			1,194.7			1,157.0
Noncontrolling interest	.4			.6			.5			.6
Total equity	1,128.6			1,190.8			1,195.2			1,157.6
TOTAL LIABILITIES AND EQUITY	$	3,644.0		$	3,550.8		$	4,953.8		$	3,382.0

See accompanying notes to consolidated condensed financial statements.

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	Six Months Ended						Three Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
(Amounts in millions, except per share data)	2018			2017			2018			2017			2019			2018
Net sales	$	2,131.3		$	1,949.6		$	1,102.5		$	989.3		$	1,155.1		$	1,028.8
Cost of goods sold	1,682.9			1,492.2			871.5			758.6			922.1			811.4
Gross profit	448.4			457.4			231.0			230.7			233.0			217.4
Selling and administrative expenses	212.5			210.8			107.8			104.7			118.6			104.7
Amortization of intangibles	10.1			9.8			5.1			4.7			14.1			5.0
Impairments													2.9			.2
Other (income) expense, net	(2.7		)	(1.4		)	(3.0		)	(1.0		)	(.8		)	.1
Earnings from continuing operations before interest and income taxes	228.5			238.2			121.1			122.3
Earnings before interest and income taxes													98.2			107.4
Interest expense	30.4			21.0			16.0			10.4			21.4			14.4
Interest income	4.8			3.5			2.4			1.5			1.4			2.4
Earnings from continuing operations before income taxes	202.9			220.7			107.5			113.4
Earnings from before income taxes													78.2			95.4
Income taxes	39.9			47.0			22.4			25.8			17.1			17.5
Earnings from continuing operations	163.0			173.7			85.1			87.6
Earnings (loss) from discontinued operations, net of tax	—			—			—			—
Net earnings	163.0			173.7			85.1			87.6			61.1			77.9
Earnings attributable to noncontrolling interest, net of tax	(.1		)	—			(.1		)	—
Loss attributable to noncontrolling interest, net of tax													.1			—
Net earnings attributable to Leggett & Platt, Inc. common shareholders	$	162.9		$	173.7		$	85.0		$	87.6		$	61.2		$	77.9
Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
Basic	$	1.21		$	1.27		$	.63		$	.64
Diluted	$	1.20		$	1.26		$	.63		$	.64
Earnings (loss) per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
Basic	$	—		$	—		$	—		$	—
Diluted	$	—		$	—		$	—		$	—
Net earnings per share attributable to Leggett & Platt, Inc. common shareholders
Basic	$	1.21		$	1.27		$	.63		$	.64		$	.46		$	.58
Diluted	$	1.20		$	1.26		$	.63		$	.64		$	.45		$	.57

Cash dividends declared per share	$	.74		$	.70		$	.38		$	.36

Weighted average shares outstanding
Basic	134.7			136.4			134.1			136.0			134.4			135.3
Diluted	135.7			137.8			135.0			137.4			135.0			136.3

See accompanying notes to consolidated condensed financial statements.

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Six Months Ended					Three Months Ended					Three Months Ended
	June 30,					June 30,					March 31,
(Amounts in millions)	2018			2017		2018			2017		2019		2018
Net earnings	$	163.0		$	173.7	$	85.1		$	87.6	$	61.1	$	77.9
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, including acquisition of non-controlling interest	(39.1		)	44.1		(55.8		)	29.8
Foreign currency translation adjustments											8.8		16.7
Cash flow hedges	(1.3		)	4.6		(3.6		)	2.1		3.9		2.3
Defined benefit pension plans	1.1			1.1		.7			.5		.5		.4
Other comprehensive income	(39.3		)	49.8		(58.7		)	32.4
Other comprehensive income (loss)											13.2		19.4
Comprehensive income	123.7			223.5		26.4			120.0		74.3		97.3
Less: comprehensive income attributable to noncontrolling interest	—			—		—			—
Add: comprehensive loss attributable to noncontrolling interest											.1		—
Comprehensive income attributable to Leggett & Platt, Inc.	$	123.7		$	223.5	$	26.4		$	120.0	$	74.4	$	97.3

See accompanying notes to consolidated condensed financial statements.

LEGGETT & PLATT, INCORPORATED

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
(Amounts in millions)	2018			2017			2019			2018
OPERATING ACTIVITIES
Net earnings	$	163.0		$	173.7		$	61.1		$	77.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	51.5			47.7			29.1			25.5
Amortization of intangibles and debt issuance costs	15.7			14.5			17.2			7.9
Long-lived asset impairments	.2			.1			2.9			.2
Provision for losses on accounts and notes receivable	1.4			.8			.9			.2
Writedown of inventories	3.1			4.0			4.7			1.8
Net gain from sales of assets and businesses	(1.7		)	(.5		)	(.2		)	(.2		)
Deferred income tax expense	1.3			5.1			3.8			1.7
Stock-based compensation	19.2			20.2			7.8			8.7
Other, net	4.3			.1			(3.1		)	(1.7		)
Increases/decreases in, excluding effects from acquisitions and divestitures:
Accounts and other receivables	(86.3		)	(72.4		)	(17.4		)	(39.2		)
Inventories	(53.4		)	(51.8		)	13.9			(21.1		)
Other current assets	(7.7		)	(7.2		)	(2.9		)	(.6		)
Accounts payable	19.9			24.2			(67.1		)	(7.9		)
Accrued expenses and other current liabilities	(5.9		)	(2.4		)	(19.3		)	(9.1		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	124.6			156.1			31.4			44.1
INVESTING ACTIVITIES
Additions to property, plant and equipment	(81.2		)	(79.1		)	(31.8		)	(40.3		)
Purchases of companies, net of cash acquired	(90.2		)	(38.8		)	(1,244.3		)	(85.8		)
Proceeds from sales of assets and businesses	1.9			1.6			.2			1.6
Other, net	(2.9		)	(7.8		)	(1.3		)	(2.5		)
NET CASH USED FOR INVESTING ACTIVITIES	(172.4		)	(124.1		)	(1,277.2		)	(127.0		)
FINANCING ACTIVITIES
Additions to long-term debt							993.3			—
Payments on long-term debt	(1.7		)	(5.7		)	(.9		)	(1.0		)
Change in commercial paper and short-term debt	191.7			220.7			296.9			144.8
Dividends paid	(94.8		)	(90.4		)	(49.6		)	(47.5		)
Issuances of common stock	.5			1.9			6.5			.3
Purchases of common stock	(107.8		)	(115.2		)	(8.5		)	(55.2		)
Purchase of remaining interest in noncontrolling interest	—			(2.6		)
Additional consideration paid on prior year acquisitions	(8.0		)	(1.8		)
Other, net	(.2		)	—			(1.0		)	(.3		)
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES	(20.3		)	6.9
NET CASH PROVIDED BY FINANCING ACTIVITIES							1,236.7			41.1
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(11.6		)	14.3			4.3			10.3
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(79.7		)	53.2
DECREASE IN CASH AND CASH EQUIVALENTS							(4.8		)	(31.5		)
CASH AND CASH EQUIVALENTS—January 1,	526.1			281.9			268.1			526.1
CASH AND CASH EQUIVALENTS—June 30,	$	446.4		$	335.1
CASH AND CASH EQUIVALENTS—March 31,							$	263.3		$	494.6

See accompanying notes to consolidated condensed financial statements.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in millions, except per share data)

1. INTERIM PRESENTATION

The interim financial statements of Leggett & Platt, Incorporated ~~(“we”, “us”~~(we, us or ~~“our”)~~our) included herein have not been audited by an independent registered public accounting firm. The statements include all adjustments, including normal recurring accruals, which management considers necessary for a fair statement of our financial position and operating results for the periods presented. We have prepared the statements pursuant to the rules and regulations of the Securities and Exchange ~~Commission.~~Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America ~~("GAAP")~~(GAAP) have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year.

The December 31, ~~2017~~2018 financial position data included herein was derived from the audited consolidated financial statements, ~~included in Form 10-K,~~ but does not include all disclosures required by GAAP. ~~For further information, refer to the financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2017.~~

~~Reclassifications~~

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

2. ACCOUNTING STANDARD UPDATES

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

Adopted in ~~2018:~~2019:


•	On January 1, 2019, we adopted ASU 2016-02 “Leases” (Topic 842) as discussed in Note 5.

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

ASU 2017-07 “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”: This ASU requires employers to disaggregate the service cost from other components of net periodic benefit costs and to disclose the income statement line item in which each component is included. This guidance requires service costs to be reported in the same line item as other compensation costs, and the other components of net periodic benefit costs (which include interest costs, expected return on plan assets and actuarial gains and losses) to be reported outside of operating income. We adopted this guidance on January 1, 2018. Application was required on a retrospective basis and resulted in a reclassification of $1.9 and $.9 of expense from “Cost of goods sold” and “Selling and administrative expenses” into “Other (income) expense, net” for the six months ended and three months ended June 30, 2017, respectively. Refer to Note 11 for further information.

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

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

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

~~To be adopted in future years:~~

ASU 2016-02 “Leases” (Topic 842): Requires an entity to recognize both assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. We plan to adopt the standard as of the first quarter of 2019. We have assembled a cross-functional implementation team and are assessing all potential impacts of the standard. The implementation team has gathered the data required to account for leases under the new standard, and has selected a third-party lease accounting software. In addition, we continue to identify and implement the appropriate changes to business processes and controls to support recognition and disclosure under the new standard. We believe our assets and liabilities will increase for the adoption of this standard through the recording of these right-of-use assets and corresponding lease liabilities. We continue to evaluate its impact on our statements of operations and cash flows.

ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”: This ASU is intended to simplify and clarify the accounting and disclosure requirements for hedging activities by more closely aligning the results of cash flow and fair value hedge accounting with the risk management activities of an entity. ~~The amendments in this ASU are~~This guidance was effective January 1, 2019 ~~with early adoption permitted. We are currently evaluating the effect of the ASU~~and it did not have a material impact on our results of operations, financial condition and cash flows.

To be adopted in future years:

ASU ~~2018-02 “Income Statement - Reporting Comprehensive Income~~2016-13 “Financial Instruments—Credit Losses” (Topic ~~220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”~~326): This ASU provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income in each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is ~~recorded. The ASU will be~~ effective January 1, ~~2019. Early adoption is permitted~~2020 and amends the ~~provisions~~impairment model by requiring a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of ~~the ASU should be applied in either the period of adoption or retrospectively to each period in which the effect of the change in federal corporate income tax rate in the TCJA is recognized.~~financial instruments including trade receivables. We are currently evaluating this guidance. However, we do not expect it to materially impact our future financial statements.

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

ASU ~~2016-13 “Financial Instruments - Credit Losses” (Topic 326)~~2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”: This ASU iswill be effective January 1, 2020 and ~~amends~~aligns the ~~impairment model by requiring~~requirements for capitalizing implementation costs incurred in a ~~forward-looking approach based on expected losses rather than~~hosting arrangement that is a service contract with the requirements for

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

capitalizing implementation costs incurred ~~losses~~ to ~~estimate credit losses on certain types of financial instruments including trade receivables.~~develop or obtain internal-use software. We are currently evaluating this guidance. ~~However,~~

The FASB has issued accounting guidance, in addition to the issuance discussed above, effective for current and future periods. This guidance did not have a material impact on our current financial statements, and we do not ~~expect~~believe it ~~to materially~~will have a material impact on our future financial statements.

3. REVENUE

~~Initial adoption of new ASU~~

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

Substantially all of our revenue continues to be recognized when products are shipped from our facilities or upon delivery to our customers' facilities. Topic 606 also provided clarity that resulted in reclassifications to or from "Net sales" and "Cost of goods sold".

~~The cumulative effect of applying Topic 606 to our Consolidated Condensed Balance Sheet was as follows:~~

Balance at December 31, 2017 as Previously Reported Topic 606 Adjustments Balance at January 1, 2018
Current assets $ 1,766.5
$ —
$ 1,766.5
Net property, plant and equipment 663.9
—
663.9
Other assets ¹
1,120.4
.7
1,121.1
Total assets $ 3,550.8
$ .7
$ 3,551.5

Other current liabilities ²
$ 88.7
$ 3.0
$ 91.7
All other current liabilities 887.5
—
887.5
Long-term liabilities 1,383.8
—
1,383.8
Retained earnings 2,511.3
(2.3 ) 2,509.0
Other equity (1,320.5 ) —
(1,320.5 )
Total liabilities and equity $ 3,550.8
$ .7
$ 3,551.5

¹~~This represents the deferred tax impact related to Topic 606.~~

²~~This adjustment is associated with constraint on the amount of variable consideration.~~

~~The effect of applying Topic 606 on our Consolidated Condensed Statement of Operations and Balance Sheet was as follows:~~

For the six months ended June 30, 2018 For the three months ended June 30, 2018
Amounts as Reported Topic 606 Adjustments Amounts Without Adoption of Topic 606 Amounts as Reported Topic 606 Adjustments Amounts Without Adoption of Topic 606
Net sales ³
$ 2,131.3
$ 8.2
$ 2,139.5
$ 1,102.5
$ 5.8
$ 1,108.3
Cost of goods sold ³
1,682.9
7.8
1,690.7
871.5
4.8
876.3
Gross profit 448.4
.4
448.8
231.0
1.0
232.0
Selling and administrative expenses 212.5
—
212.5
107.8
—
107.8
All other 7.4
—
7.4
2.1
—
2.1
Earnings from continuing operations before interest and income taxes 228.5
.4
228.9
121.1
1.0
122.1
Net interest expense 25.6
—
25.6
13.6
—
13.6
Income taxes 39.9
.1
40.0
22.4
.2
22.6
(Earnings) attributable to noncontrolling interest, net of tax (.1 ) —
(.1 ) (.1 ) —
(.1 )
Net earnings $ 162.9
$ .3
$ 163.2
$ 85.0
$ .8
$ 85.8

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

June 30, 2018
Amounts as Reported Topic 606 Adjustments Amounts Without Adoption of Topic 606
Current assets $ 1,782.8
$ —
$ 1,782.8
Net property, plant and equipment 709.3
—
709.3
Other assets 1,151.9
(.7 ) 1,151.2
Total assets $ 3,644.0
$ (.7 ) $ 3,643.3

Other current liabilities $ 78.2
$ (2.9 ) $ 75.3
All other current liabilities 858.7
—
858.7
Long-term liabilities 1,578.5
—
1,578.5
Retained earnings 2,572.6
2.2
2,574.8
Other equity (1,444.0 ) —
(1,444.0 )
Total liabilities and equity $ 3,644.0
$ (.7 ) $ 3,643.3

Performance Obligations and Shipping and Handling Costs

We recognize revenue when performance obligations under the terms of a contract with our customers are satisfied. ~~For the six and three months ended June 30, 2018, substantially~~Substantially all of our revenue ~~was~~is recognized upon transfer of control of our products to our customers, which ~~was~~is generally upon shipment from our facilities or upon delivery to our customers' facilities and ~~was~~is dependent on the terms of the specific contract. This conclusion considers the point at which our customers have the ability to direct the use of and obtain substantially all of the remaining benefits of the products that ~~were~~are transferred. Substantially all of any unsatisfied performance obligations as of ~~June 30, 2018,~~March 31, 2019, will be satisfied within one year or less. Shipping and handling costs are included as a component of "Cost of goods sold".

Sales, value added, and other taxes collected in connection with revenue-producing activities are excluded from revenue.

Sales Allowances and Returns

The amount of consideration we receive and revenue we recognize varies with changes in various sales allowances, discounts and rebates (variable consideration) that we offer to our customers. We reduce revenue by our estimates of variable consideration based on contract terms and historical experience. Changes in estimates of variable consideration for the ~~six and three months ended June 30, 2018~~periods presented were not material.

Some of our products transferred to customers can be returned, and we recognize the following for this right:

An estimated refund liability and a corresponding reduction to revenue based on historical returns experience.

An asset and a corresponding reduction to cost of sales for our right to recover products from customers upon settling the refund liability. We reduce the carrying amount of these assets by estimates of costs associated with the recovery and any additional expected reduction in value.

Our refund liability and the corresponding asset associated with our right to recover products from our customers were immaterial at ~~June 30, 2018.~~March 31, 2019.

~~Practical Expedients~~Other

~~We have elected to apply the following practical expedients.~~

~~The existence of a significant financing component -~~ We expect that at contract inception, the time period between when we transfer a promised good to our customer and our receipt of payment from that customer for that good will be one year or less (our typical trade terms are 30 to 60 days for U.S. customers and up to 90 days for our international customers).

~~Costs of obtaining a contract -~~

We generally expense costs of obtaining a contract because the amortization period would be one year or less.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Revenue by ~~Category~~Product Line

We disaggregate revenue by customer group, which is the same as our product lines for each of our segments, as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.



	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
	Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Residential Products
Bedding group ¹	$	350.5	$	221.0
Fabric & Flooring Products group	173.7		161.3
Machinery group	12.2		15.8
	536.4		398.1
Industrial Products
Wire group	89.1		82.0
	89.1		82.0
Furniture Products
Home Furniture group	90.9		100.6
Work Furniture group	73.2		71.7
Consumer Products group	102.6		109.0
	266.7		281.3
Specialized Products
Automotive group	196.1		212.1
Aerospace Products group	39.4		39.8
Hydraulic Cylinders group ²	27.4		15.5
	262.9		267.4
	$	1,155.1	$	1,028.8

Six Months Ended June 30, 2018 Three Months Ended June 30, 2018

Residential Products
Bedding group $ 442.4
$ 221.4
Fabric & Flooring Products group ⁴
361.0
199.7
Machinery group 33.5
17.7
836.9
438.8
Industrial Products
Wire group 178.4
96.4
178.4
96.4
Furniture Products
Home Furniture group 200.0
99.4
Work Furniture group 145.9
74.2
Consumer Products group 226.8
117.8
572.7
291.4
Specialized Products
Automotive group 427.8
215.7
Aerospace Products group 76.8
37.0
Hydraulic Cylinders group 38.7
23.2
543.3
275.9
$ 2,131.3
$ 1,102.5
¹On January 16, 2019, we completed the acquisition of Elite Comfort Solutions, Inc. (ECS) as discussed in Note 10.

⁴²~~Name changed from Fabric & Carpet Cushion Group as of March~~This group was formed January 31, 2018, with the acquisition of a manufacturer of hydraulic cylinders. See Note 10.

4. SEGMENT INFORMATION

We have four operating segments that supply a wide range of products:


•	Residential Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products, as well as producing private-label finished mattresses for bedding brands. We also produce or distribute flooring underlayment, fabric, and geo components.


•	Industrial Products: This segment primarily supplies steel rod and drawn steel wire to our other operations and to external customers. Our customers use this wire to make mechanical springs and many other end products.


•	Furniture Products: This segment supplies a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture and adjustable bed bases.


•	Specialized Products: This segment supplies lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries.

~~Residential Products:~~ This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products. We also produce or distribute flooring underlayment, fabric, and geo components.

~~Industrial Products:~~ ~~These operations primarily supply steel rod and drawn steel wire to our other operations and to external customers. Our customers use this wire to make mechanical springs and many other end products.~~

~~Furniture Products:~~ Operations in this segment supply a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture, adjustable bed bases, fashion beds, and bed frames.

~~Specialized Products:~~ From this segment we supply lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries.

Our reportable segments are the same as our operating segments, which also correspond with our management structure. Each reportable segment has an executive vice president ~~that reports~~who has accountability to ~~the~~and maintains regular contact with our chief executive officer, who is the chief operating decision maker (CODM). The operating results and financial information reported through the segment structure are regularly

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

reviewed and used by the CODM to evaluate segment performance, allocate overall resources and determine management incentive compensation.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The accounting principles used in the preparation of the segment information are the same as those used for the consolidated financial statements. We evaluate performance based on Earnings Before Interest and Taxes (EBIT). Intersegment sales are made primarily at prices that approximate market-based selling prices. Centrally incurred costs are allocated to the segments based on estimates of services used by the segment. Certain of our general and administrative costs and miscellaneous corporate income and expenses are allocated to the segments based on sales or other appropriate metrics. These allocated corporate costs include depreciation and other costs and income related to assets that are not allocated or otherwise included in the segment assets.

A summary of segment results from continuing operations are shown in the following tables.


	Trade Sales		Inter- Segment Sales		Total Sales		EBIT			Trade Sales		Inter- Segment Sales		Total Sales		EBIT
Three Months Ended June 30, 2018
Three Months Ended March 31, 2019
Residential Products	$	438.8	$	4.7	$	443.5	$	40.0		$	536.4	$	2.8	$	539.2	$	31.9
Industrial Products	96.4		74.1		170.5		13.4			89.1		78.9		168.0		24.1
Furniture Products	291.4		3.6		295.0		16.3			266.7		3.0		269.7		6.4
Specialized Products	275.9		.6		276.5		51.9			262.9		.9		263.8		35.7
Intersegment eliminations and other							(.5		)							.1
	$	1,102.5	$	83.0	$	1,185.5	$	121.1		$	1,155.1	$	85.6	$	1,240.7	$	98.2
Three Months Ended June 30, 2017
Three Months Ended March 31, 2018
Residential Products	$	407.8	$	4.2	$	412.0	$	50.2		$	398.1	$	4.6	$	402.7	$	35.0
Industrial Products	75.9		63.3		139.2		7.1			82.0		70.4		152.4		9.0
Furniture Products	267.2		4.4		271.6		20.3			281.3		2.9		284.2		18.0
Specialized Products	238.4		1.7		240.1		44.1			267.4		.7		268.1		46.1
Intersegment eliminations and other							.6									(.7		)
	$	989.3	$	73.6	$	1,062.9	$	122.3		$	1,028.8	$	78.6	$	1,107.4	$	107.4

Trade
Sales

Inter-
Segment
Sales

Total
Sales
EBIT
Six Months Ended June 30, 2018
Residential Products $ 836.9
$ 9.3
$ 846.2
$ 75.0
Industrial Products 178.4
144.5
322.9
22.4
Furniture Products 572.7
6.5
579.2
34.3
Specialized Products 543.3
1.3
544.6
98.0
Intersegment eliminations and other (1.2 )
$ 2,131.3
$ 161.6
$ 2,292.9
$ 228.5
Six Months Ended June 30, 2017
Residential Products $ 799.1
$ 9.0
$ 808.1
$ 92.7
Industrial Products 145.7
128.9
274.6
15.9
Furniture Products 532.0
10.7
542.7
40.6
Specialized Products 472.8
3.6
476.4
87.1
Intersegment eliminations and other 1.9
$ 1,949.6
$ 152.2
$ 2,101.8
$ 238.2

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

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


	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Residential Products	$	597.8	$	554.6	$	771.5	$	609.4
Industrial Products	162.3		150.0		168.3		163.8
Furniture Products	271.5		245.7		259.4		279.8
Specialized Products	335.9		271.7		357.7		342.5
Average current liabilities included in segment numbers above	626.2		557.0		765.2		661.8
Unallocated assets ¹	1,570.7		1,693.1		2,569.3		1,278.0
Difference between average assets and period-end balance sheet	79.6		78.7		62.4		46.7
Total assets	$	3,644.0	$	3,550.8	$	4,953.8	$	3,382.0

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

5. ~~DIVESTITURES~~LEASES

Initial adoption of new ASU

Effective January 1, 2019, we adopted ASU 2016-02 “Leases” (Topic 842), which requires the recognition of lease assets and liabilities for items classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest year presented. In August 2018, the FASB issued ASU 2018-11 “Targeted

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Improvements to ASC 842” that included an option to not restate comparative periods in transition and elect to use the effective date of Topic 842 as the date of initial application of transition, which we elected. Adoption of the new standard resulted in the recording of additional net operating lease assets and lease liabilities of $135.9 and $135.8, respectively, as of January 1, 2019. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings. The accounting for finance leases (capital leases) was substantially unchanged. The standard did not materially impact our statements of operations and cash flows.

The cumulative effect of applying Topic 842 to our Consolidated Condensed Balance Sheet was as follows:



	Balance at December 31, 2018 as Previously Reported			Topic 842 Adjustments			Balance at January 1, 2019
Current assets ¹	$	1,524.6		$	(1.3	)	$	1,523.3
Net property, plant and equipment ²	728.5			(5.1		)	723.4
Other assets ³	1,128.9			142.3			1,271.2
Total assets	$	3,382.0		$	135.9		$	3,517.9

Accrued expenses ⁴	$	262.7		$	(.4	)	$	262.3
Current portion of operating lease liabilities ³	—			32.0			32.0
All other current liabilities	553.0			—			553.0
Long-term liabilities ³	1,408.7			104.2			1,512.9
Retained earnings	2,613.8			.1			2,613.9
Other equity	(1,456.2		)	—			(1,456.2		)
Total liabilities and equity	$	3,382.0		$	135.9		$	3,517.9

¹This adjustment is to reclass prepaid rent balances to be presented within Other assets with the operating lease right-of-use assets.

²This adjustment is to reclass our finance lease right-of-use assets to be presented within Other assets with the operating lease right-of-use assets.

³This adjustment is to record the assets and liabilities arising from leases.

⁴This adjustment is to reclass lease liabilities to be presented within Current portion of operating lease liabilities.

Practical Expedients

For the initial adoption, we elected the available package of practical expedients not to reassess (i) whether a contract is or contains a lease, (ii) lease classification, and (iii) initial direct costs. These elections applied to leases that commenced before the effective date. We also elected an additional practical expedient to use hindsight when determining the lease term.

Both lease and non-lease components are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases.

Lease Details

Substantially all our operating lease right-of-use assets and operating lease liabilities represent leases for certain operating facilities, warehouses, office space, trucking equipment, and various other assets. Finance lease balances represent substantially all our vehicle leases. We are not involved in any material sale and leaseback transactions, and our sublease arrangements were not material for the periods presented.

At the inception of a contract we assess whether a contract is, or contains, a lease. Our assessment is based on whether the contract involves the use of a distinct identified asset, whether we obtain the right to substantially all the economic benefit of the asset, and whether we have the right to direct the use of the asset.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Our leases have remaining lease terms that expire at various dates through 2032, some of which include options to extend or terminate the leases at our discretion. Where renewal or termination options are reasonably likely to be exercised, we recognize the option as part of the right-of-use asset and lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of the lease payments. We apply a portfolio approach for determining the incremental borrowing rate based on the applicable lease terms and the economic environment in the various regions where our operations are located.

At March 31, 2019, we do not have a material amount of leases that have not yet commenced.

Supplemental balance sheet information related to leases was as follows:



	March 31, 2019
Operating Leases
Operating lease right-of-use assets	$	157.9

Current portion of operating lease liabilities	38.1
Operating lease liabilities	119.1
Total operating lease liabilities	$	157.2

Finance Leases
Sundry	$	5.3

Other current liabilities	1.4
Other long-term liabilities	3.7
Total finance lease liabilities	$	5.1

The components of lease expense were as follows:



	Three Months Ended
	March 31,
	2019
Operating lease cost:
Lease cost	$	10.4
Variable lease cost	2.9
Total operating lease cost	$	13.3

Short-term lease cost	$	1.1

Finance lease cost:
Amortization of right-of-use assets	$	.8
Interest on lease liabilities	.1
Total finance lease cost	$	.9

Total lease cost	$	15.3

Variable lease costs consist primarily of taxes, insurance, and common-area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred by the lessor.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Supplemental cash flow information related to leases was as follows:



	Three Months Ended March 31,
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	10.0
Operating cash flows from finance leases	.1
Financing cash flows from finance leases	.8

Right-of-use assets obtained in exchange for new operating lease liabilities	9.1
Right-of-use assets obtained in exchange for new finance lease liabilities	1.1

In connection with the ECS transaction discussed in Note 10, we acquired operating right-of-use assets of approximately $24.0 (including a favorable lease position of $2.4). The operating lease liability associated with these right-of-use assets was approximately $21.6. Finance right-of-use assets acquired in the ECS transaction and the related finance lease liabilities were immaterial.

The weighted average remaining lease terms and discount rates for all of our leases were as follows:



	March 31, 2019
Weighted average remaining lease term (years)
Operating leases	4.9
Finance leases	2.8

Weighted average discount rate
Operating leases	3.3	%
Finance leases	4.3	%

The following table reconciles the undiscounted cash flows for the operating and finance leases at March 31, 2019 to the operating and finance lease liabilities recorded on the balance sheet:



	Operating Leases		Finance Leases
2019 Remainder	$	32.7	$	1.9
2020	38.4		1.8
2021	33.2		1.1
2022	25.6		.6
2023	17.7		.1
2024 and thereafter	23.4		—
Total	171.0		5.5
Less: Interest	13.8		.4
Lease Liability	$	157.2	$	5.1

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Our future minimum lease commitments as of December 31, 2018, under Topic 840, the predecessor to Topic 842, were as follows:



	Operating Leases
2019	$	35.9
2020	30.7
2021	26.2
2022	19.9
2023	13.1
Thereafter	18.0
Total	$	143.8

6. RESTRUCTURING AND IMPAIRMENT CHARGES

We ~~divested~~implemented various cost reduction initiatives to improve our ~~remaining Commercial Vehicle~~operating cost structures in the periods presented. These cost initiatives have, among other actions, included workforce reductions and the closure or consolidation of certain operations. Except for the 2018 Restructuring Plan discussed below, none of these initiatives has individually resulted in a material charge to earnings.

In December 2018, we committed to a restructuring plan primarily associated with our Home Furniture Group and Fashion Bed business, both of which report within the Furniture Products ~~operation~~segment.

Our Home Furniture Group (which produces furniture components for the upholstered furniture industry) and Fashion Bed business (which supplies ornamental beds, bed frames and other accessories sold to retailers) have underperformed expectations primarily from weaker demand and higher raw material costs. Accordingly, we are exiting low margin business, reducing operating costs and eliminating excess capacity in our Home Furniture business which should be substantially complete by the end of the second quarter 2019. In late March, we announced the closure of the Fashion Bed business which should be substantially complete by the end of the third quarter 2019.

We previously disclosed costs for these activities would approximate $33.0. This estimate remains materially unchanged. To date we have incurred $22.6 of ~~2017. It did not meet discontinued operations criteria,~~costs, and ~~was part~~we expect to incur $10.4 during the remainder of the ~~Specialized Products Segment. We realized a pretax loss~~year. The following table presents information associated with this plan:



	Total Amount Incurred to Date		Three Months Ended March 31, 2019		Total Incurred Full Year 2018
2018 Restructuring Plan
Restructuring and restructuring-related	$	14.8	$	3.6	$	11.2
Impairment costs associated with this plan	7.8		2.7		5.1
	$	22.6	$	6.3	$	16.3
Amount of total that represents cash charges	$	8.1	$	1.2	$	6.9

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The table below presents all restructuring and restructuring-related activity for the periods presented; the majority of ~~$3.3~~the 2019 costs are related to the ~~sale of this business~~2018 Restructuring Plan:



	Three Months Ended March 31,
	2019		2018
Charged to other (income) expense, net:
Severance and other restructuring costs	$	1.2	$	.1
Charged to cost of goods sold:
Inventory obsolescence and other	2.4		.1
Total restructuring and restructuring-related costs	$	3.6	$	.2
Amount of total that represents cash charges	$	1.2	$	.1

Restructuring and ~~also completed the sale of real estate~~restructuring-related charges by segment were as follows:



	Three Months Ended March 31,
	2019		2018
Residential Products	$	.1	$	—
Industrial Products	—		.2
Furniture Products	3.5		—
Total	$	3.6	$	.2

The accrued liability associated with ~~this operation, realizing a pretax gain~~our total restructuring initiatives consisted of ~~$23.4~~the following:



	Balance at December 31, 2018		Add: 2019 Charges		Less: 2019 Payments		Balance at March 31, 2019
Termination benefits	$	6.6	$	1.2	$	1.2	$	6.6
Other restructuring costs	.6		—		.1		.5
	$	7.2	$	1.2	$	1.3	$	7.1

Impairment charges

Impairment charges are reported in "Impairments" in the ~~fourth quarter~~Consolidated Condensed Statements of ~~2017. External sales~~Operations and are summarized in the following table:



	Three Months Ended March 31,
	2019		2018
	Other Long-Lived Assets Impairments		Other Long-Lived Assets Impairments
Residential Products	$	.2	$	—
Industrial Products	—		.2
Furniture Products	2.7		—
Total impairment charges	$	2.9	$	.2

We test other long-lived assets for ~~this business~~recoverability at year end and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value and the resulting impairment charges noted above were ~~$12.6~~based primarily upon offers from potential buyers or third party estimates of fair value less selling costs and ~~EBIT was $.1 for the three months ended June 30, 2017. For the six months ended June 30, 2017, external sales for this business were $21.4 and EBIT was ($1.3).~~estimated future cash flows.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. EARNINGS PER SHARE

Basic and diluted earnings per share were calculated as follows:



	Three Months Ended March 31,
	2019		2018
Net earnings:
Net earnings	$	61.1	$	77.9
Loss attributable to noncontrolling interest, net of tax	.1		—
Net earnings attributable to Leggett & Platt, Inc. common shareholders	$	61.2	$	77.9

Weighted average number of shares (in millions):
Weighted average number of common shares used in basic EPS	134.4		135.3
Dilutive effect of stock-based compensation	.6		1.0
Weighted average number of common shares and dilutive potential common shares used in diluted EPS	135.0		136.3

Basic and Diluted EPS:
Basic EPS attributable to Leggett & Platt, Inc. common shareholders	$	.46	$	.58

Diluted EPS attributable to Leggett & Platt, Inc. common shareholders	$	.45	$	.57

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

Cash dividends declared per share	$	.38	$	.36

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

8. ACCOUNTS AND OTHER RECEIVABLES

Accounts and other receivables consisted of the following:



	March 31, 2019						December 31, 2018
	Current			Long-term			Current			Long-term
Trade accounts receivable ¹	$	647.9		$	—		$	548.8		$	—
Trade notes receivable	1.6			1.3			1.7			1.4
Total trade receivables	649.5			1.3			550.5			1.4
Other notes receivable ¹	—			24.2			—			24.2
Taxes receivable, including income taxes	13.3			—			12.9			—
Other receivables	9.2			—			13.4			—
Subtotal other receivables	22.5			24.2			26.3			24.2
Total trade and other receivables	672.0			25.5			576.8			25.6
Allowance for doubtful accounts:
Trade accounts receivable ¹	(6.7		)	—			(5.2		)	—
Trade notes receivable	—			—			—			—
Total trade receivables	(6.7		)	—			(5.2		)	—
Other notes receivable ¹	—			(15.0		)	—			(15.0		)
Total allowance for doubtful accounts	(6.7		)	(15.0		)	(5.2		)	(15.0		)
Total net receivables	$	665.3		$	10.5		$	571.6		$	10.6

¹The "Trade accounts receivable" and "Other notes receivable" line items above include $27.2 and $26.7 as of March 31, 2019 and December 31, 2018, respectively, from a customer in our Residential Products segment who is experiencing financial difficulty and liquidity problems and, during the fourth quarter of 2018, became delinquent in our trade accounts receivable balances. In December 2018, we concluded that an impairment existed with regard to this customer, and we established a reserve of $15.9 ($15.0 for the note and $.9 for the trade receivable) to reflect the estimated amount of the probable credit loss and placed the note on nonaccrual status. The note receivable was restructured during the first quarter of 2019 in conjunction with an overall refinancing plan by the customer. The reserve balance at March 31, 2019 was $16.0.

Activity related to the allowance for doubtful accounts is reflected below:



	Balance at December 31, 2018		Add: Charges		Less: Net Charge-offs/ (Recoveries)			Balance at March 31, 2019
Trade accounts receivable	$	5.2	$	.9	$	(.6	)	$	6.7
Trade notes receivable	—		—		—			—
Total trade receivables	5.2		.9		(.6		)	6.7
Other notes receivable	15.0		—		—			15.0
Total allowance for doubtful accounts	$	20.2	$	.9	$	(.6	)	$	21.7

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. STOCK-BASED COMPENSATION

The following table recaps the components of stock-based and stock-related compensation for each period presented:



	Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
	To be settled with stock		To be settled in cash		To be settled with stock		To be settled in cash
Stock-based retirement plans contributions ¹	$	.6	$	.1	$	1.9	$	.2
Discounts on various stock awards:
Deferred Stock Compensation Program	.6		—		.5		—
Stock-based retirement plans	.2		—		.2		—
Discount Stock Plan	.3		—		.3		—
Performance Stock Unit (PSU) awards: ²
2018 PSU - TSR based ^2A	.7		.8		.3		.3
2018 PSU - EBIT CAGR based ^2B	1.6		2.0		.6		.7
2017 and prior PSU awards ^2C	.5		.4		.9		(.1		)
Restricted Stock Unit awards	.5		—		.5		—
Profitable Growth Incentive (PGI) awards ³	—		—		.5		.5
Other, primarily non-employee directors restricted stock	.2		—		.3		—
Total stock-based compensation expense	5.2		$	3.3	6.0		$	1.6
Employee contributions for above stock plans	2.6				2.7
Total stock-based compensation	$	7.8			$	8.7

Tax benefits on stock-based compensation expense	$	1.2			$	1.4
Tax benefits on stock-based compensation payments	1.9				.6
Total tax benefits associated with stock-based compensation	$	3.1			$	2.0

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

¹Stock-Based Retirement Plans

Previous to 2019, we had two stock-based retirement plans: the tax-qualified Stock Bonus Plan (SBP) for non-highly compensated employees and the non-qualified Executive Stock Unit Program (ESUP) for highly compensated employees. We made matching contributions to both plans for the year if certain profitability levels were obtained.

For 2019, the provisions of the ESUP plan are unchanged. On December 31, 2018 we merged the SBP with our 401(k) plan. Our common stock is now an investment option in the 401(k) plan and participants may elect up to 20% of their contributions into our common stock. Previously participants could contribute up to 100% of their contributions into our common stock.

²PSU Awards

During 2018, we merged our PSU and PGI award programs. The 2018 and later PSU awards have a component based on relative Total Shareholder Return (TSR = (Change in Stock Price + Dividends)/Beginning Stock Price) and another component based on Earnings Before Interest and Taxes (EBIT) Compound Annual Growth Rate (CAGR). These components are discussed below.

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

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

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Cash settlements are recorded as a liability and adjusted to fair value at each reporting period. We elected to pay 100% of the 2015 award (paid in the first quarter 2018) in cash.

^2A2018 (and later) PSU - TSR based

Most of the 2018 and later PSU awards are based 50% upon our TSR compared to a peer group. A small number of PSU awards are based 100% upon relative TSR for certain business unit employees to complement their particular mix of incentive compensation. Grant date fair values are calculated using a Monte Carlo simulation of stock and volatility data for Leggett and each of the peer companies. Grant date fair values are amortized using the straight-line method over the three-year vesting period.

The relative TSR vesting condition of the 2018 and later PSU awards contains the following conditions:

A service requirement—Awards generally “cliff” vest three years following the grant date; and

A market condition—Awards are based on our TSR as compared to the TSR of a group of peer companies. The peer group consists of all the companies in the Industrial, Materials and Consumer Discretionary sectors of the S&P 500 and S&P Midcap 400 (approximately 320 companies). Participants will earn from 0% to 200% of the base award depending upon how our TSR ranks within the peer group at the end of the three-year performance period.

^2B2018 (and later) PSU - EBIT CAGR based

Most of the 2018 and later PSU awards are based 50% upon our or the applicable segment's EBIT CAGR. Grant date fair values are calculated using the grant date stock price discounted for dividends over the vesting period. Expense is adjusted every quarter over the three-year vesting period based on the number of shares expected to vest.

The EBIT CAGR portion of these awards contains the following conditions:

A service requirement—Awards generally “cliff” vest three years following the grant date; and

A performance condition—Awards are based on achieving specified EBIT CAGR performance targets for our or the applicable segment's EBIT during the third year of the performance period compared to the EBIT during the fiscal year immediately preceding the performance period. Participants will earn from 0% to 200% of the base award.

In connection with the decision to move a significant portion of the long-term incentive opportunity from a two-year to a three-year performance period by eliminating PGI awards, in January 2018, we also granted participants a one-time transition PSU award, based upon EBIT CAGR over a two-year performance period.

^2C2017 and Prior PSU Awards

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

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Below is a summary of the number of shares and related grant date fair value of PSU’s for the periods presented:



	Three Months Ended March 31,
	2019			2018
TSR-based
Total shares base award	.1			.1
Grant date per share fair value	$	57.86		$	42.60
Risk-free interest rate	2.4		%	2.4		%
Expected life in years	3.0			3.0
Expected volatility (over expected life)	21.5		%	19.9		%
Expected dividend yield (over expected life)	3.4		%	3.3		%

EBIT CAGR-based
Total shares base award	.1			.1
Grant date per share fair value	$	39.98		$	40.92
Vesting period in years	3.0			2.5



Three-Year Performance Cycle
Award Year	Completion Date	TSR Performance Relative to the Peer Group (1%=Best)	Payout as a Percent of the Base Award	Number of Shares Distributed	Cash Portion		Distribution Date
2015	December 31, 2017	57	61.0%	—	$	6.9	First quarter 2018
2016	December 31, 2018	78	—%	—	$	—	First quarter 2019

³PGI Awards

In 2017 and prior years certain key management employees participated in a PGI program. The PGI awards were eliminated during 2018, and were replaced with the PSU-EBIT CAGR award discussed above. These awards vested (0% to 250%) at the end of a two-year performance period based on our or the applicable profit center's revenue growth (adjusted by a GDP factor when applicable) and EBITDA margin at the end of a two-year performance period. We paid the 2017 award half in shares of our common stock and half in cash. We elected to pay the 2016 award (paid in the first quarter of 2018) in cash. Both components were adjusted to fair value at each reporting period.



Two-Year Performance Cycle
Award Year	Completion Date	Average Payout as a Percent of the Base Award	Number of Shares Distributed	Cash Portion		Distribution Date
2016	December 31, 2017	44.0%	—	$	2.0	First quarter 2018
2017	December 31, 2018	155.0%	.1 million	$	2.2	First quarter 2019

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

10. ACQUISITIONS

The following table contains the estimated fair values (using inputs as discussed in Note 14) of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions during the periods presented. Of the goodwill included in the table below, $126.4 is expected to be deductible for tax purposes.



	Three Months Ended March 31,
	2019			2018
Accounts receivable	$	72.4		$	12.1
Inventory	60.1			14.9
Property, plant and equipment	80.2			26.2
Goodwill	558.8			23.3
Other intangible assets:
Customer relationships (10 to 15-year life)	372.7			17.8
Technology (5 to 14-year life)	173.3			2.2
Trademarks and trade names (15-year life)	65.8			6.5
Non-compete agreements and other (5-year life)	28.1			.8
Other current and long-term assets	27.4			.8
Current liabilities	(43.8		)	(9.3		)
Deferred income taxes	(129.0		)	(9.7		)
Other long-term liabilities	(21.6		)	(.8		)
Fair value of net identifiable assets	1,244.4			84.8
Additional consideration for prior years’ acquisitions	(.1		)	—
Less: Additional consideration payable (receivable)	—			(1.0		)
Net cash consideration	$	1,244.3		$	85.8

The following table summarizes acquisitions for the periods presented.

We are finalizing all the information required to complete the purchase price allocations related to recent acquisitions and do not anticipate any material modifications.

Certain of our acquisition agreements provide for additional consideration to be paid in cash at a later date and are recorded as liabilities at the acquisition date. At March 31, 2019 and December 31, 2018, our liability for these future payments was $10.7 ($10.7 current) and $10.8 ($.8 current and $10.0 long-term), respectively. Components of the liability are based on estimates and contingent upon future events, therefore, the amounts may fluctuate materially until the payment dates. Additional consideration, including interest, paid on prior year acquisitions was $.1 for both three months ended March 31, 2019 and 2018.

A brief description of our acquisition activity by year for the periods presented is included below.

2019

In January 2019, we completed the acquisition of ECS, a leader in proprietary specialized foam technology, primarily for the bedding and furniture industries. Through this acquisition, we gained critical capabilities in proprietary foam technology, along with scale in the production of private-label finished mattresses. The purchase price was $1,244.4 and added $558.8 of goodwill. There was no contingent consideration associated with this acquisition.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

2018

In January 2018, we acquired Precision Hydraulic Cylinders (PHC), a leading global manufacturer of engineered hydraulic cylinders primarily for the materials handling market. The purchase price was $87.4 and added $26.9 of goodwill. PHC serves a market of mainly large Original Equipment Manufacturer (OEM) customers utilizing highly engineered components with long product life-cycles, yet representing a small percentage of the end product’s cost. PHC represents a new growth platform and forms a new business group entitled Hydraulic Cylinders within the Specialized Products segment.

Pro forma Results

The following table summarizes, on a pro forma basis, the combined results of operations of Leggett and ECS as though the acquisition had occurred as of January 1, 2018. We have not provided pro forma results of operations of the first quarter 2018 acquisition of PHC as these results were not material.

The unaudited pro forma financial information below is not necessarily indicative of the results of operations that would have been realized had the ECS acquisition occurred as of January 1, 2018, nor is it meant to be indicative of any future results of operations. The unaudited pro forma financial information does not include benefits expected from revenue or product mix enhancements, operating synergies or cost savings that may be realized or any estimated future costs that may be incurred to integrate the ECS business.



	Three Months Ended
	March 31,
	2019		2018
Net sales	$	1,176.7	$	1,174.0
Net earnings	62.9		63.2
EPS basic	.47		.47
EPS diluted	.47		.46

The information above reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including:

Amortization and depreciation adjustments relating to fair value estimates of intangible and tangible assets;

Incremental interest expense on debt incurred in connection with the ECS acquisition;

Amortization of the fair value adjustment to inventory as though the transaction occurred on January 1, 2018;

Recognition of transaction costs as though the transaction occurred on January 1, 2018; and

Estimated tax impacts of the pro forma adjustments.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. INVENTORIES

~~Approximately~~ The following table recaps the components of inventory for each period presented:



	March 31, 2019			December 31, 2018
Finished goods	$	342.7		$	331.6
Work in process	49.0			49.6
Raw materials and supplies	367.3			334.9
LIFO reserve	(82.2		)	(82.2		)
Total inventories, net	$	676.8		$	633.9

All inventories are stated at the lower of cost or net realizable value. We generally use standard costs which include materials, labor and production overhead at normal production capacity. The last-in, first-out (LIFO) method is primarily used to value our domestic steel-related inventories. For the remainder of the inventories, we principally use the first-in, first-out (FIFO) method, which is representative of our standard costs. For these inventories, the FIFO cost for the periods presented approximated expected replacement cost. Prior to 2019 the LIFO method represented approximately 50% of our inventories. With the acquisition of ECS in the first quarter of 2019, LIFO now represents approximately 40% of our inventories, ~~are valued using~~as ECS does not utilize the ~~Last-In, First-Out (LIFO) cost method and~~LIFO method.

With relatively stable steel costs since the ~~remainder using~~beginning of the ~~First-In, First-Out (FIFO) cost method.~~year, there was no LIFO expense in the first quarter of 2019. We calculate our LIFO reserve on an annual basis. During interim periods, we estimate the current year annual change in the LIFO reserve (i.e., the annual LIFO expense or benefit) and allocate that change ratably to the four quarters. Because accurately predicting inventory prices for the year is difficult, the change in the LIFO reserve for the full year could be significantly different from the amount currently estimated. In addition, a variation in expected ending inventory levels could also impact total change in the LIFO reserve for the year.

The following table contains the LIFO expense ~~included in continuing operations~~ for each of the periods presented.



	Three Months Ended March 31,
	2019		2018
LIFO expense	$	—	$	6.0

Six Months Ended June 30, Three Months Ended June 30,
2018 2017 2018 2017
LIFO expense $ 18.8
$ 2.5
$ 12.8
$ 2.1

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~7. EARNINGS PER SHARE~~

~~Basic and diluted earnings per share were calculated as follows:~~

Six Months Ended
June 30, Three Months Ended
June 30,
2018 2017 2018 2017
Earnings:
Earnings from continuing operations $ 163.0
$ 173.7
$ 85.1
$ 87.6
Earnings attributable to noncontrolling interest, net of tax (.1 ) —
(.1 ) —
Net earnings from continuing operations attributable to Leggett & Platt, Inc. common shareholders 162.9
173.7
85.0
87.6
Earnings from discontinued operations, net of tax —
—
—
—
Net earnings attributable to Leggett & Platt, Inc. common shareholders $ 162.9
$ 173.7
$ 85.0
$ 87.6

Weighted average number of shares (in millions):
Weighted average number of common shares used in basic EPS 134.7
136.4
134.1
136.0
Dilutive effect of stock-based compensation 1.0
1.4
.9
1.4
Weighted average number of common shares and dilutive potential common shares used in diluted EPS 135.7
137.8
135.0
137.4

Basic and Diluted EPS:
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
Continuing operations $ 1.21
$ 1.27
$ .63
$ .64
Discontinued operations —
—
—
—
Basic EPS attributable to Leggett & Platt, Inc. common shareholders $ 1.21
$ 1.27
$ .63
$ .64
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
Continuing operations $ 1.20
$ 1.26
$ .63
$ .64
Discontinued operations —
—
—
—
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders $ 1.20
$ 1.26
$ .63
$ .64

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

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~8. ACCOUNTS AND OTHER RECEIVABLES~~

~~Accounts and other receivables consisted of the following:~~

June 30, 2018 December 31, 2017
Current Long-term Current Long-term
Trade accounts receivable $ 614.2
$ —
$ 526.1
$ —
Trade notes receivable 1.2
1.4
1.0
1.2
Total trade receivables 615.4
1.4
527.1
1.2
Other notes receivable —
24.7
—
24.7
Insurance receivables .9
—
43.0
—
Taxes receivable, including income taxes 26.1
—
15.0
—
Other receivables 12.8
—
14.8
—
Subtotal other receivables 39.8
24.7
72.8
24.7
Total trade and other receivables 655.2
26.1
599.9
25.9
Allowance for doubtful accounts:
  Trade accounts receivable (5.3 ) —
(4.7 ) —
  Trade notes receivable (.1 ) —
(.1 ) (.1 )
Total trade receivables (5.4 ) —
(4.8 ) (.1 )
  Other notes receivable —
—
—
—
Total allowance for doubtful accounts (5.4 ) —
(4.8 ) (.1 )
Total net receivables $ 649.8
$ 26.1
$ 595.1
$ 25.8

~~Notes that were past due more than 90 days or had been placed on non-accrual status were not significant for the periods presented.~~

~~Activity related to the allowance for doubtful accounts is reflected below:~~

Balance at December 31, 2017
Add:
Charges

Less:
Net Charge-offs/
(Recoveries)
Balance at June 30, 2018
Trade accounts receivable $ 4.7
$ 1.5
$ .9
$ 5.3
Trade notes receivable .2
(.1 ) —
.1
Total trade receivables 4.9
1.4
.9
5.4
Other notes receivable —
—
—
—
Total allowance for doubtful accounts $ 4.9
$ 1.4
$ .9
$ 5.4

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~9. STOCK-BASED COMPENSATION~~

~~The following table recaps the components of stock-based and stock-related compensation for each period presented:~~

Six Months Ended
June 30, 2018 Six Months Ended
June 30, 2017
To be settled with stock To be settled in cash To be settled with stock To be settled in cash
Stock-based retirement plans contributions ¹
$ 4.1
$ .5
$ 3.6
$ .7
Discounts on various stock awards:

Deferred Stock Compensation Program .9
—
1.2
—
Stock-based retirement plans .5
—
.7
—
Discount Stock Plan .6
—
.6
—
Performance Stock Unit (PSU) awards: ²

     2018 PSU - TSR based ^2A
.6
.6
—
—
     2018 PSU - EBIT CAGR based ^2B
1.5
1.6
—
—
     2017 and prior PSU awards ^2C
1.9
—
2.7
2.1
Restricted Stock Unit awards 1.0
—
1.2
—
Profitable Growth Incentive (PGI) awards ³
1.2
1.2
.8
.9
Other, primarily non-employee directors restricted stock .4
—
.5
—
Total stock-based compensation expense 12.7
$ 3.9
11.3
$ 3.7
Employee contributions for above stock plans 6.5
8.9

Total stock-based compensation $ 19.2
$ 20.2

Tax benefits on stock-based compensation expense $ 3.0
$ 4.1

Tax benefits on stock-based compensation payments .9
10.1

Total tax benefits associated with stock-based compensation $ 3.9
$ 14.2

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Three Months Ended Three Months Ended
June 30, 2018 June 30, 2017
To be settled with stock To be settled in cash To be settled with stock To be settled in cash
Stock-based retirement plans contributions ¹
$ 2.2
$ .3
$ 2.2
$ .3
Discounts on various stock awards:
Deferred Stock Compensation Program .4
—
.5
—
Stock-based retirement plans .3
—
.4
—
Discount Stock Plan .3
—
.3
—
Performance Stock Unit (PSU) awards: ²

     2018 PSU - TSR based ^2A
.3
.3
—
—
     2018 PSU - EBIT CAGR based ^2B
.9
.9
—
—
     2017 and prior PSU awards ^2C
1.0
.1
1.4
1.9
Restricted Stock Unit awards .5
—
.6
—
Profitable Growth Incentive (PGI) awards ³
.7
.7
.4
.4
Other, primarily non-employee directors restricted stock .1
—
.3
—
Total stock-based compensation expense 6.7
$ 2.3
6.1
$ 2.6
Employee contributions for above stock plans 3.8
3.8

Total stock-based compensation $ 10.5
$ 9.9

Tax benefits on stock-based compensation expense $ 1.6
$ 2.2

Tax benefits on stock-based compensation payments .3
1.3

Total tax benefits associated with stock-based compensation $ 1.9
$ 3.5

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

¹~~Stock-Based Retirement Plans~~

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

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

²~~PSU Awards~~

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

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

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

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

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

^2A~~2018 PSU - TSR based~~

50% of each 2018 PSU award is based upon the Company's TSR compared to a peer group. Grant date fair values are calculated using a Monte Carlo simulation of stock and volatility data for Leggett and each of the peer companies. Grant date fair values are amortized using the straight-line method over the three-year vesting period.

~~The Relative TSR vesting condition of the 2018 PSU award contains the following conditions:~~

~~A service requirement—Awards generally “cliff” vest three years following the grant date; and~~

A market condition—Awards are based on our TSR [(Change in Stock Price + Dividends) / Beginning Stock Price] as compared to the TSR of a group of peer companies. The peer group consists of all the companies in the Industrial, Materials and Consumer Discretionary sectors of the S&P 500 and S&P Midcap 400 (approximately 320 companies). Participants will earn from 0% to 200% of the base award depending upon how our TSR ranks within the peer group at the end of the three-year performance period.

^2B~~2018 PSU - EBIT CAGR based~~

50% of each 2018 PSU award is based upon the Company's or applicable segment's EBIT CAGR. Grant date fair values are calculated using the grant date stock price discounted for dividends over the vesting period. Expense is adjusted every quarter over the three-year vesting period based on the number of shares expected to vest.

~~The EBIT CAGR portion of this award contains the following conditions:~~

~~A service requirement—Awards generally “cliff” vest three years following the grant date; and~~

A performance condition—Awards are based on achieving specified EBIT CAGR performance targets for the Company's or applicable segment's EBIT during the third year of the performance period compared to the EBIT during the fiscal year immediately preceding the performance period. Participants will earn from 0% to 200% of the base award.

^2C~~2017 and Prior PSU Awards~~

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

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~Below is a summary of the number of shares and related grant date fair value of PSU’s based on TSR for the periods presented.~~

Six Months Ended June 30,
2018 2017
Total shares base award .1
.1
Grant date per share fair value $ 42.60
$ 50.75
Risk-free interest rate 2.4 % 1.5 %
Expected life in years 3.0
3.0
Expected volatility (over expected life) 19.9 % 19.5 %
Expected dividend yield (over expected life) 3.3 % 2.8 %

Three-Year Performance Cycle
Award Year Completion Date
TSR Performance
Relative to the Peer Group (1%=Best)

Payout as a
Percent of the
Base Award

Number of Shares
Distributed
Cash Portion Distribution Date
2014 December 31, 2016 10 175.0% .4 million $ 9.8
First quarter 2017
2015 December 31, 2017 57 61.0% — $ 6.9
First quarter 2018

~~Below is a summary of the number of shares and related grant date fair value of PSU’s based on EBIT CAGR for the periods presented.~~

Six Months Ended June 30,
2018
Total shares base award .1
Grant date per share fair value $ 40.92
Vesting period in years 2.5

³~~PGI Awards~~

In 2017 and prior years certain key management employees participated in a PGI program. The PGI awards were issued as growth performance stock units (GPSUs). The GPSUs vest (0% to 250%) at the end of a two-year performance period. Vesting is based on the Company's or applicable profit center's revenue growth (adjusted by a GDP factor when applicable) and EBITDA margin at the end of a two-year performance period. The 2017 base target PGI awards were less than .1 shares. If earned, we intend to pay half in shares of our common stock and half in cash; although, we reserve the right to pay up to 100% in cash. We elected to pay the 2016 award (paid in the first quarter of 2018) in cash. Both components are adjusted to fair value at each reporting period.

Two-Year Performance Cycle
Award Year Completion Date
Average Payout as a
Percent of the
Base Award

Number of Shares
Distributed
Cash Portion Distribution Date
2015 December 31, 2016 36.0% <.1 million $ .8
First quarter 2017
2016 December 31, 2017 44.0% — $ 2.0
First quarter 2018

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

~~10. ACQUISITIONS~~

The following table contains the estimated fair values (using inputs as discussed in Note 13) of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions during the periods presented. A portion of the goodwill included in the table below is expected to provide an income tax benefit.

Six Months Ended June 30,
2018 2017
Accounts receivable $ 12.9
$ 7.8
Inventory 16.0
5.3
Property, plant and equipment 26.5
4.5
Goodwill 26.4
13.1
Other intangible assets, primarily customer-related intangibles 26.5
17.9
Other current and long-term assets .8
.1
Current liabilities (10.1 ) (3.8 )
Long-term liabilities (10.2 ) (3.5 )
Non-controlling interest —
(.5 )
Fair value of net identifiable assets 88.8
40.9
Less: Additional consideration (receivable) payable (1.4 ) 2.1
Net cash consideration $ 90.2
$ 38.8

~~The following table summarizes acquisitions for the periods presented.~~

~~We are finalizing all the information required to complete the purchase price allocations related to certain recent acquisitions and do not anticipate any material modifications.~~

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

Certain of our acquisition agreements provide for additional consideration to be paid in cash at a later date and are recorded as a liability at the acquisition date. At June 30, 2018 and December 31, 2017, our liability for these future payments was $10.7 ($1.5 current and $9.2 long-term) and $16.5 ($8.9 current and $7.6 long-term), respectively. Components of the liability are based on estimates and future events, and the amounts may fluctuate significantly until the payment dates. Additional consideration, including interest, paid on prior year acquisitions was $8.0 and $1.8 for the six months ended June 30, 2018 and 2017, respectively.

~~A brief description of our acquisition activity by year for the periods presented is included below.~~

~~2018~~

~~On May 21, 2018, we acquired a manufacturer and distributor of silt fence, a core product for our Geo Components business unit, for $2.7.~~

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

On January 31, 2018, we acquired Precision Hydraulic Cylinders (PHC), a leading global manufacturer of engineered hydraulic cylinders primarily for the materials handling market. The purchase price was $86.1. PHC serves a market of mainly large Original Equipment Manufacturer (OEM) customers utilizing highly engineered, co-designed components with long product life-cycles, yet representing a small percentage of the end product’s cost. PHC represents a new growth platform and forms a new business group entitled Hydraulic Cylinders within the Specialized Products segment.

~~2017~~

~~We acquired two businesses in the first six months of 2017:~~

~~A distributor and installer of geosynthetic products, expanding the geographic scope and capabilities of our Geo Components business.~~

~~A manufacturer of surface-critical bent tube components in support of the private-label finished seating strategy in our Work Furniture business.~~

These businesses broaden our geographic scope, capabilities, and product offerings, and added $13.1 ($8.1 to Residential Products and $5.0 to Furniture Products) of goodwill. We also acquired the remaining 20% ownership in an Asian joint venture in our Work Furniture business for $2.6.

~~11.~~12. EMPLOYEE BENEFIT PLANS

Employer contributions for ~~2018~~2019 are expected to approximate $21.0. This increase compared to our 2017 employer contributions of $14.9 is due to our current year funding strategy, which incorporates, among other things, Pension Benefit Guaranty Corporation premiums, tax planning, and expectations of future funding requirements.$1.0.

The following table provides interim information as to our domestic and foreign defined benefit pension plans:



	Three Months Ended March 31,
	2019			2018
Components of net pension expense
Service cost	$	1.0		$	1.0
Interest cost	2.2			2.0
Expected return on plan assets	(2.9		)	(2.9		)
Recognized net actuarial loss	.8			.7
Net pension expense	$	1.1		$	.8

Six Months Ended
June 30, Three Months Ended
June 30,
2018 2017 2018 2017
Components of net pension expense
Service cost $ 2.0
$ 2.5
$ 1.0
$ 1.3
Interest cost 4.1
5.6
2.1
2.8
Expected return on plan assets (5.8 ) (6.7 ) (2.9 ) (3.3 )
Recognized net actuarial loss 1.4
2.3
.7
1.1
Net pension expense $ 1.7
$ 3.7
$ .9
$ 1.9

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

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~12.~~13. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)


	Six Months Ended June 30, 2018																		Three Months Ended March 31, 2019
	Total Equity			Retained Earnings			Common Stock & Additional Contributed Capital			Treasury Stock			Noncontrolling Interest			Accumulated Other Comprehensive Income (Loss)			Total Equity			Retained Earnings			Common Stock & Additional Contributed Capital			Treasury Stock			Noncontrolling Interest			Accumulated Other Comprehensive Income (Loss)
Beginning balance, January 1, 2018	$	1,190.8		$	2,511.3		$	516.7		$	(1,828.3	)	$	.6		$	(9.5	)
Effect of accounting change on prior years (Topic 606-See Note 3)	(2.3		)	(2.3		)	—			—			—			—
Adjusted beginning balance, January 1, 2018	1,188.5			2,509.0			516.7			(1,828.3		)	.6			(9.5		)
Beginning balance, January 1, 2019																			$	1,157.6		$	2,613.8		$	529.1		$	(1,908.3	)	$	.6		$	(77.6	)
Effect of accounting change on prior years (Topic 842-See Note 5)																			.1			.1			—			—			—			—
Adjusted beginning balance, January 1, 2019																			1,157.7			2,613.9			529.1			(1,908.3		)	.6			(77.6		)
Net earnings	163.0			162.9			—			—			.1			—			61.1			61.1			—			—			—			—
Dividends declared	(96.7		)	(99.3		)	2.6			—			—			—
Dividends paid to noncontrolling interest	(.2		)	—			—			—			(.2		)	—
(Earnings) loss attributable to noncontrolling interest, net of tax																			—			.1			—			—			(.1		)	—
Dividends declared (See Note 7)																			(49.9		)	(51.2		)	1.3			—			—			—
Treasury stock purchased	(107.8		)	—			—			(107.8		)	—			—			(11.7		)	—			—			(11.7		)	—			—
Treasury stock issued	7.0			—			(11.7		)	18.7			—			—			13.8			—			(14.6		)	28.4			—			—
Foreign currency translation adjustments	(39.1		)	—			—			—			(.1		)	(39.0		)	8.8			—			—			—			—			8.8
Cash flow hedges, net of tax	(1.3		)	—			—			—			—			(1.3		)	3.9			—			—			—			—			3.9
Defined benefit pension plans, net of tax	1.1			—			—			—			—			1.1			.5			—			—			—			—			.5
Stock-based compensation transactions, net of tax	14.1			—			14.1			—			—			—			11.0			—			11.0			—			—			—
Ending balance, June 30, 2018	$	1,128.6		$	2,572.6		$	521.7		$	(1,917.4	)	$	.4		$	(48.7	)
Ending balance, March 31, 2019																			$	1,195.2		$	2,623.9		$	526.8		$	(1,891.6	)	$	.5		$	(64.4	)



	Three Months Ended March 31, 2018
	Total Equity			Retained Earnings			Common Stock & Additional Contributed Capital			Treasury Stock			Noncontrolling Interest			Accumulated Other Comprehensive Income (Loss)
Beginning balance, January 1, 2018	$	1,190.8		$	2,511.3		$	516.7		$	(1,828.3	)	$	.6		$	(9.5	)
Effect of accounting change on prior years (Topic 606-See Note 3)	(2.3		)	(2.3		)	—			—			—			—
Adjusted beginning balance, January 1, 2018	1,188.5			2,509.0			516.7			(1,828.3		)	.6			(9.5		)
Net earnings	77.9			77.9			—			—			—			—
Dividends declared (See Note 7)	(47.2		)	(48.6		)	1.4			—			—			—
Dividends paid to noncontrolling interest	(.2		)	—			—			—			(.2		)	—
Treasury stock purchased	(55.3		)	—			—			(55.3		)	—			—
Treasury stock issued	3.9			—			(10.8		)	14.7			—			—
Foreign currency translation adjustments	16.7			—			—			—			—			16.7
Cash flow hedges, net of tax	2.3			—			—			—			—			2.3
Defined benefit pension plans, net of tax	.4			—			—			—			—			.4
Stock-based compensation transactions, net of tax	9.3			—			9.3			—			—			—
Ending balance, March 31, 2018	$	1,196.3		$	2,538.3		$	516.6		$	(1,868.9	)	$	.4		$	9.9

Six Months Ended June 30, 2017

Total
Equity

Retained
Earnings

Common
Stock &
Additional
Contributed
Capital

Treasury
Stock

Noncontrolling
Interest

Accumulated
Other
Comprehensive
Income (Loss)
Beginning balance, January 1, 2017 $ 1,094.0
$ 2,410.5
$ 508.2
$ (1,713.5 ) $ 2.4
$ (113.6 )
Effect of accounting change on prior years (Topic 740) 1.2
1.2
—
—
—
—
Adjusted beginning balance, January 1, 2017 1,095.2
2,411.7
508.2
(1,713.5 ) 2.4
(113.6 )
Net earnings 173.7
173.7
—
—
—
—
Dividends declared (92.7 ) (95.2 ) 2.5
—
—
—
Treasury stock purchased (118.3 ) —
—
(118.3 ) —
—
Treasury stock issued 12.5
—
(19.4 ) 31.9
—
—
Foreign currency translation adjustments 44.1
—
—
—
—
44.1
Cash flow hedges, net of tax 4.6
—
—
—
—
4.6
Defined benefit pension plans, net of tax 1.1
—
—
—
—
1.1
Stock-based compensation transactions, net of tax 16.0
—
16.0
—
—
—
Purchase of remaining interest in noncontrolling interest, net of acquisitions (2.6 ) —
(.7 ) —
(1.9 ) —
Ending balance, June 30, 2017 $ 1,133.6
$ 2,490.2
$ 506.6
$ (1,799.9 ) $ .5
$ (63.8 )

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following tables set forth the components of and changes in each component of accumulated other comprehensive income (loss) for each of the periods presented:



			Foreign Currency Translation Adjustments			Cash Flow Hedges			Defined Benefit Pension Plans			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2019			$	(26.5	)	$	(11.8	)	$	(39.3	)	$	(77.6	)
Other comprehensive income (loss)			8.8			3.1			(.2		)	11.7
Reclassifications, pretax ¹			—			1.9			.8			2.7
Income tax effect			—			(1.1		)	(.1		)	(1.2		)
Balance, March 31, 2019			$	(17.7	)	$	(7.9	)	$	(38.8	)	$	(64.4	)

Balance, January 1, 2018			$	40.5		$	(11.5	)	$	(38.5	)	$	(9.5	)
Other comprehensive income (loss)			16.7			2.3			(.2		)	18.8
Reclassifications, pretax ²			—			.3			.7			1.0
Income tax effect			—			(.3		)	(.1		)	(.4		)
Balance, March 31, 2018			$	57.2		$	(9.2	)	$	(38.1	)	$	9.9

	¹	2019 pretax reclassifications are comprised of:
		Net sales	$	—		$	1.0		$	—		$	1.0
		Cost of goods sold; selling and administrative expenses	—			(.2		)	—			(.2		)
		Interest expense	—			1.1			—			1.1
		Other income (expense), net	—			—			.8			.8
		Total reclassifications, pretax	$	—		$	1.9		$	.8		$	2.7

	²	2018 pretax reclassifications are comprised of:
		Net sales	$	—		$	(1.0	)	$	—		$	(1.0	)
		Cost of goods sold; selling and administrative expenses	—			.2			—			.2
		Interest expense	—			1.1			—			1.1
		Other income (expense), net	—			—			.7			.7
		Total reclassifications, pretax	$	—		$	.3		$	.7		$	1.0

Foreign
Currency
Translation
Adjustments

Cash
Flow
Hedges

Defined
Benefit
Pension
Plans

Accumulated
Other
Comprehensive
Income (Loss)
Balance, January 1, 2018 $ 40.5
$ (11.5 ) $ (38.5 ) $ (9.5 )
Other comprehensive income (loss) (39.1 ) (2.4 ) .1
(41.4 )
Reclassifications, pretax ¹
—
.8
1.4
2.2
Income tax effect —
.3
(.4 ) (.1 )
Attributable to noncontrolling interest .1
—
—
.1
Balance, June 30, 2018 $ 1.5
$ (12.8 ) $ (37.4 ) $ (48.7 )

Balance, January 1, 2017 $ (38.6 ) $ (17.8 ) $ (57.2 ) $ (113.6 )
Other comprehensive income (loss) 44.1
1.9
(.5 ) 45.5
Reclassifications, pretax ²
—
4.2
2.3
6.5
Income tax effect —
(1.5 ) (.7 ) (2.2 )
Balance, June 30, 2017 $ 5.5
$ (13.2 ) $ (56.1 ) $ (63.8 )

¹
2018 pretax reclassifications are comprised of:
Net sales $ —
$ (1.9 ) $ —
$ (1.9 )
Cost of goods sold; selling and administrative expenses —
.5
—
.5
Interest expense —
2.2
—
2.2
Other income (expense), net —
—
1.4
1.4
Total reclassifications, pretax $ —
$ .8
$ 1.4
$ 2.2

²
2017 pretax reclassifications are comprised of:
Net sales $ —
$ 1.8
$ —
$ 1.8
Cost of goods sold; selling and administrative expenses —
.3
—
.3
Interest expense —
2.1
—
2.1
Other income (expense), net —
—
2.3
2.3
Total reclassifications, pretax $ —
$ 4.2
$ 2.3
$ 6.5

~~13.~~14. FAIR VALUE

We utilize fair value measures for both financial and non-financial assets and liabilities.

Items measured at fair value on a recurring basis

Fair value measurements are established using a three level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following categories:

Level 1: Quoted prices for identical assets or liabilities in active markets.

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Short-term investments in this category are valued using discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. Derivative assets and liabilities in this category are valued using models that consider various assumptions and information from market-corroborated sources. The models used are primarily industry-standard models that consider items such as quoted prices, market interest rate curves applicable to the instruments being valued as of the end of each period, discounted cash flows, volatility factors, current market and contractual prices for the underlying instruments, as well as other relevant

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3: Unobservable inputs that are not corroborated by market data.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The areas in which we utilize fair value measures of financial assets and liabilities are presented in the table below.


	As of June 30, 2018								As of March 31, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Bank time deposits with original maturities of three months or less	$	—	$	269.9	$	—	$	269.9	$	—	$	163.3	$	—	$	163.3
Derivative assets (Note 14)	—		1.0		—		1.0
Derivative assets ¹ (Note 15)									—		2.9		—		2.9
Diversified investments associated with the Executive Stock Unit Program (ESUP) ¹	35.4		—		—		35.4		36.9		—		—		36.9
Total assets	$	35.4	$	270.9	$	—	$	306.3	$	36.9	$	166.2	$	—	$	203.1
Liabilities:
Derivative liabilities ¹ (Note 14)	$	—	$	4.2	$	—	$	4.2
Derivative liabilities ¹ (Note 15)									$	—	$	1.9	$	—	$	1.9
Liabilities associated with the ESUP ¹	35.6		—		—		35.6		37.1		—		—		37.1
Total liabilities	$	35.6	$	4.2	$	—	$	39.8	$	37.1	$	1.9	$	—	$	39.0


	As of December 31, 2017								As of December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Bank time deposits with original maturities of three months or less	$	—	$	236.4	$	—	$	236.4	$	—	$	159.1	$	—	$	159.1
Derivative assets ¹ (Note 14)	—		3.9		—		3.9
Derivative assets ¹ (Note 15)									—		1.2		—		1.2
Diversified investments associated with the ESUP ¹	34.0		—		—		34.0		32.7		—		—		32.7
Total assets	$	34.0	$	240.3	$	—	$	274.3	$	32.7	$	160.3	$	—	$	193.0
Liabilities:
Derivative liabilities ¹ (Note 14)	$	—	$	1.9	$	—	$	1.9
Derivative liabilities ¹ (Note 15)									$	—	$	4.7	$	—	$	4.7
Liabilities associated with the ESUP ¹	34.4		—		—		34.4		33.7		—		—		33.7
Total liabilities	$	34.4	$	1.9	$	—	$	36.3	$	33.7	$	4.7	$	—	$	38.4

¹Includes both current and long-term amounts.

There were no transfers between Level 1 and Level 2 for any of the periods presented.

The fair value for fixed rate debt (Level 2) was ~~not materially different from its June 30, 2018~~approximately $5.3 greater than carrying value of $1,584.0 at March 31, 2019 and was approximately $35.3 less than carrying value of $1,090.5 at December 31, ~~2017 $1,250.0 carrying value.~~2018.

Items measured at fair value on a non-recurring basis

The primary areas in which we use fair value measurements of non-financial assets and liabilities are allocating purchase price to the assets and liabilities of acquired companies as discussed in Note 10, and evaluating long-term assets (including goodwill) for potential impairment. Determining fair values for these items requires significant judgment and includes a variety of methods and models that utilize significant Level 3 inputs.

~~Long lived~~Long-lived assets, acquisitions and the second step (when necessary) of a goodwill impairment test utilize the following methodologies in determining fair value: (i) Buildings and machinery are valued at an estimated replacement cost for an asset of comparable age and condition. Market pricing of comparable assets is used to estimate replacement cost where available. (ii) The most common identified intangible assets are customer relationships, tradenames and ~~tradenames.~~developed technology. Customer relationships are valued using an excess earnings method, using various inputs such as the estimated customer attrition rate, future earnings forecast, the amount of contributory asset charges, and aan appropriate discount rate. Tradenames and developed technology are valued using a ~~relief from royalty~~relief-from-royalty method, ~~which is based upon~~with various inputs such as comparable market royalty rates for ~~tradenames~~items of similar ~~value.~~value, future earnings forecast, and an appropriate discount rate. (iii) Inventory is valued at current replacement cost for raw

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

materials, with a step-up for work in process and finished goods items that reflects the amount of ultimate profit earned as of the valuation date. (iv) Other working capital items are generally recorded at face value, unless there are known conditions that would impact the ultimate settlement amount of the particular item.

~~Goodwill Impairment Reviews~~

LEGGETT & PLATT, INCORPORATED

We test goodwill for impairment at the reporting unit level (the business groups that are one level below the operating segments) when triggering events occur, or at least annually. We perform our annual goodwill impairment review in the second quarter. The 2018 and 2017 goodwill impairment reviews indicated no goodwill impairments.NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

For the 2018 testing, we elected to test goodwill for all reporting units for impairment using a quantitative approach. The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the table below:

(Unaudited)

Fair Value over Carrying Value divided by Carrying Value June 30, 2018 Goodwill Value 10-year Compound Annual Growth Rate Range for Sales Terminal Values Long-term Growth Rate for Debt-Free Cash Flow Discount Rate Ranges
Less than 100% ¹
$ 181.3
4.7% - 5.2% 3 % 9.0% - 9.5%
101% - 300% 504.6
1.8% - 5.0% 3 % 8.5% - 10.0%
301% - 600% 153.1
5.7% - 12.4% 3 % 9.0% - 10.0%
$ 839.0
1.8% - 12.4% 3 % 8.5% - 10.0%

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

~~14.~~15. DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges

Derivative financial instruments that we use to hedge forecasted transactions and anticipated cash flows are as follows:

Currency Cash Flow Hedges—The foreign currency hedges manage risk associated with exchange rate volatility of various currencies.

Interest Rate Cash Flow Hedges—We have also occasionally used interest rate cash flow hedges to manage interest rate risks.

The effective changes in fair value of unexpired contracts are recorded in accumulated other comprehensive income and reclassified to income or expense in the period in which earnings are impacted. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged. (Settlements associated with the sale or production of product are presented in operating cash flows, and settlements associated with debt issuance are presented in financing cash flows.)

Fair Value Hedges and Derivatives not Designated as Hedging Instruments

These derivatives typically manage foreign currency risk associated with subsidiaries’ assets and liabilities, and gains or losses are recognized currently in earnings. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged.

Hedge Effectiveness

We have deemed ineffectiveness to be immaterial, and as a result, have not recorded any amounts for ineffectiveness. If a hedge was not highly effective, the portion of the change in fair value considered to be ineffective would be recognized immediately in the ~~consolidated condensed statements~~Consolidated Condensed Statements of ~~operations.~~Operations.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

The following table presents assets and liabilities representing the fair value of our most significant derivative financial instruments. The fair values of the derivatives reflect the change in the market value of the derivative from the date of the trade execution and do not consider the offsetting underlying hedged item.


	Expiring at various dates through:	Total USD Equivalent Notional Amount		As of June 30, 2018								Expiring at various dates through:	Total USD Equivalent Notional Amount		As of March 31, 2019
				Assets				Liabilities							Assets				Liabilities
					Other Current Assets	Sundry		Other Current Liabilities		Other Long-Term Liabilities						Other Current Assets	Sundry		Other Current Liabilities		Other Long-Term Liabilities
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments											Derivatives designated as hedging instruments
Cash flow hedges:
Currency hedges:
Future USD sales/purchases of Canadian, Chinese, European, South Korean and Swiss subsidiaries	Dec 2019	$	145.2	$	.2	$	.1	$	1.4	$	.4
Future DKK sales of Polish subsidiary	Mar 2020	26.3		—		—		.5		.2
Future EUR sales of UK, Chinese and Swiss subsidiaries	Dec 2019	41.0		.3		—		—		.1
Future USD sales/purchases of Canadian, Chinese, European, South Korean, Swiss and UK subsidiaries												Sep 2020	$	163.3	$	.7	$	.1	$	1.5	$	.1
Future EUR sales of Chinese and UK subsidiaries												Sep 2020	31.0		1.0		.1		—		—
Future MXN purchases of a USD subsidiary	Jun 2019	6.3		—		—		.3		—		Sep 2020	9.1		.3		—		—		—
Total cash flow hedges				.5		.1		2.2		.7					2.0		.2		1.5		.1
Fair value hedges:
Intercompany and third party receivables and payables exposed to multiple currencies (DKK, EUR, USD and ZAR) in various countries (CAD, CHF, GBP, PLN and USD)	Dec 2018	48.0		.3		—		.4		—
Intercompany and third party receivables and payables exposed to multiple currencies (DKK, EUR, MXN, USD and ZAR) in various countries (CAD, CHF, CNY, EUR, GBP, PLN and USD)												Dec 2019	70.6		.4		—		.3		—
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments											Derivatives not designated as hedging instruments
Non-deliverable hedges (EUR, JPY and USD) exposed to the CNY	Jun 2019	23.5		.1		—		.2		—
Hedge of USD Cash on CHF subsidiary	Aug 2018	25.4		—		—		.7		—
Total derivatives not designated as hedging instruments				.1		—		.9		—
Non-deliverable hedges (EUR and USD) exposed to the CNY												Mar 2020	15.4		.3		—		—		—
				$	.9	$	.1	$	3.5	$	.7				$	2.7	$	.2	$	1.8	$	.1

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)


	Expiring at various dates through:	Total USD Equivalent Notional Amount		As of December 31, 2017								Expiring at various dates through:	Total USD Equivalent Notional Amount		As of December 31, 2018
				Assets				Liabilities							Assets				Liabilities
					Other Current Assets	Sundry		Other Current Liabilities		Other Long-Term Liabilities						Other Current Assets	Sundry		Other Current Liabilities		Other Long-Term Liabilities
Derivatives designated as hedging instruments
Cash flow hedges:
Currency hedges:
Future USD sales/purchases of Canadian, Chinese, European, South Korean and Swiss subsidiaries	Mar 2019	$	158.1	$	2.2	$	.2	$	.5	$	—
Future USD sales/purchases of Canadian, Chinese, European, South Korean, Swiss and UK subsidiaries												Jun 2020	$	164.7	$	.5	$	.1	$	3.8	$	.2
Future MXN purchases of a USD subsidiary	Mar 2019	6.6		—		—		.5		—		Jun 2019	7.9		.1		—		—		—
Future JPY sales of a Chinese subsidiary	Dec 2018	11.2		.1		—		—		—
Future DKK sales of a Polish subsidiary	Dec 2018	16.0		.6		—		—		—
Future EUR sales of Chinese, Swiss and UK subsidiaries	Mar 2019	38.8		—		—		.3		.1
Future EUR sales of Chinese and UK subsidiaries												Jun 2020	32.3		.2		.1		.1		—
Total cash flow hedges				2.9		.2		1.3		.1					.8		.2		3.9		.2
Fair value hedges:
Intercompany and third party receivables and payables exposed to multiple currencies (DKK, EUR, USD and ZAR) in various countries (CAD, CHF, EUR and USD)	Dec 2018	35.9		.2		—		.5		—
Intercompany and third party receivables and payables exposed to multiple currencies (DKK, EUR, MXN, USD and ZAR) in various countries (CAD, CHF, CNY, EUR, GBP, PLN and USD)												Dec 2019	65.8		.1		—		.3		—
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments											Derivatives not designated as hedging instruments
Non-deliverable hedges (EUR, JPY and USD) exposed to the CNY	Nov 2018	17.0		.3		—		—		—
USD receivable on a CAD subsidiary	Jan 2018	19.0		.3		—		—		—
Total derivatives not designated as hedging instruments				.6		—		—		—
Non-deliverable hedges (EUR and USD) exposed to the CNY												Dec 2019	23.6		.1		—		.3		—
				$	3.7	$	.2	$	1.8	$	.1				$	1.0	$	.2	$	4.5	$	.2

The following table sets forth the pretax (gains) losses for our hedging activities for the years presented. This schedule includes reclassifications from accumulated other comprehensive income (see Note ~~12)~~13) as well as derivative settlements recorded directly to income or expense.



	Caption in Consolidated Condensed Statements of Operations	Amount of (Gain) Loss Recorded in Income Three Months Ended March 31,
	Caption in Consolidated Condensed Statements of Operations	2019			2018
Derivatives designated as hedging instruments
Interest rate cash flow hedges	Interest expense	$	1.1		$	1.1
Currency cash flow hedges	Net sales	.4			(1.5		)
Currency cash flow hedges	Cost of goods sold	(.3		)	.2
Total cash flow hedges		1.2			(.2		)
Fair value hedges	Other (income) expense, net	.4			.6

Derivatives not designated as hedging instruments	Other (income) expense, net	(.2		)	(.8		)
Total derivative instruments		$	1.4		$	(.4	)

Caption in Consolidated Condensed Statements of Operations Amount of (Gain) Loss Recorded in Income Six Months Ended
June 30, Amount of (Gain) Loss Recorded in Income Three Months Ended June 30,
2018 2017 2018 2017
Derivatives designated as hedging instruments
Interest rate cash flow hedges Interest expense $ 2.2
$ 2.1
$ 1.1
$ 1.0
Currency cash flow hedges Net sales (2.9 ) 1.4
(1.4 ) .1
Currency cash flow hedges Cost of goods sold .4
.1
.2
—
Total cash flow hedges (.3 ) 3.6
(.1 ) 1.1
Fair value hedges Other (income) expense, net .3
(.4 ) (.3 ) (.5 )

Derivatives not designated as hedging instruments Other (income) expense, net .2
(.7 ) 1.0
(.7 )
Total derivative instruments $ .2
$ 2.5
$ .6
$ (.1 )

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

~~15. INCOME TAXES~~

The U.S. statutory federal income tax rate was significantly impacted by the enactment of TCJA in the fourth quarter of 2017, which reduced our U.S. federal corporate income tax rate from 35% in 2017 to 21% in 2018. Our income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from these statutory federal income tax rates as follows:

Six Months Ended June 30, Three Months Ended June 30,
2018 2017 2018 2017
Statutory federal income tax rate 21.0 % 35.0 % 21.0 % 35.0 %
Increases (decreases) in rate resulting from:
Tax effect of foreign operations (1.0 ) (7.0 ) (1.0 ) (7.0 )
Foreign withholding taxes 2.0
—
2.0
—
Stock-based compensation (1.0 ) (4.0 ) —
(1.0 )
Tax on global intangible low-taxed income (GILTI) 1.0
—
—
—
Domestic production activities deduction —
(1.0 ) —
(1.0 )
Change in valuation allowance (2.0 ) (1.0 ) —
(2.0 )
Other, net —
(1.0 ) (1.0 ) (1.0 )
Effective Tax Rate 20.0 % 21.0 % 21.0 % 23.0 %

Due to changes in our GILTI assumptions and the corresponding revisions to our calculations, the impact of GILTI on our annual effective income tax rate was reduced. We continue to treat GILTI as a period cost in our estimated annual effective tax rate until such time that we establish our accounting policy, which we will do no later than the fourth quarter of 2018.

At December 31, 2017, we recorded certain estimated amounts related to TCJA in accordance with SAB 118. We refined this estimate in the first quarter and recorded a $3.9 measurement period adjustment related to certain state deferred tax assets as a discrete tax benefit. This item decreased our effective tax rate by 2% for the six months ended June 30, 2018. No SAB 118 adjustments have been identified or recorded for the three months ended June 30, 2018, based on provisional estimates as of July 18, 2018. However, our accounting for these items is also not yet final, but will be completed no later than the fourth quarter of 2018 in accordance with SAB 118 (see Note 2).

16. CONTINGENCIES

We are a party to various proceedings and matters involving employment, intellectual property, environmental, taxation, vehicle-related personal injury, antitrust and other laws. When it is probable, in management's judgment, that we may incur monetary damages or other costs resulting from these proceedings or other claims, and we can reasonably estimate the amounts, we record appropriate accruals in the financial statements and make charges against earnings. For all periods presented, we have recorded no material charges against earnings. Also, when it is reasonably possible that we may incur additional loss in excess of recorded accruals and we can reasonably estimate the additional losses or range of losses, we disclose such additional reasonably possible losses in these notes. Reference is made to Footnote S "Contingencies" in our Form 10-K filed February 22, 2018 and Note 16 “Contingencies” in our Form 10-Q filed May 8, 2018 for prior disclosure of the below contingencies.

For specific information regarding accruals, cash payments to settle litigation contingencies, and reasonably possible losses in excess of accruals, please see “Accruals and Reasonably Possible Losses in Excess of Accruals” below.

~~Vehicle-Related Personal Injury Claim~~

In July 2016, a Company driver was involved in a traffic accident that resulted in two deaths and injury to other vehicle occupants. In the third quarter of 2016, the Company accrued a liability that it believed to be probable in an immaterial, estimated amount based upon known facts, opinion of counsel, as well as comparative settlements of the Company and other companies in similar proceedings. The accrual did not take into account applicable insurance coverage.

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

The Company received information regarding the events surrounding the accident and preliminary expert reports from one family's attorney at the end of November 2017. No legal proceedings had been filed, no discovery had been taken, and investigation of the facts of the accident remained in its early stages. The Company and its insurance carriers attended a pre-litigation mediation conference regarding this matter on January 8, 2018, with a subsequent meeting on February 14, 2018, in Chicago, Illinois. At the mediation conference, the attorneys representing these claimants alleged the Company's driver was at fault and made a demand for monetary damages. Until the initial mediation session, no demand had been made against the Company.

Based on facts received from the investigation and mediation processes, the Company, through cooperation and consent of its insurance carriers, reached a settlement with these claimants on February 14, 2018. The settlement required the Company to pay a $5.0 self-insured retention amount and the remainder of the $48.0 settlement was the responsibility of the insurance carriers.

In the fourth quarter of 2017, the Company recorded a $43.0 receivable from the insurance carriers and a $43.0 liability related to this matter, that is included in current assets and current liabilities, respectively, in the Consolidated Condensed Balance Sheets as of December 31, 2017. The amount of self-insured retention to be paid by the Company had previously been accrued in the third quarter of 2016, and, therefore, the settlement had no impact on the Company's 2017 and 2018 earnings.

The settlement was subject to approval by the Cook County, Illinois, Circuit Court, and the Probate Division of the Circuit Court. The Circuit Court approved the reasonableness of the settlement amount on April 17, 2018 and the Probate Division approved the settlement on May 15, 2018. The Company paid the self-insured retention amount in the second quarter. The settlement did not have a material effect on the Company’s financial condition, cash flows or results of operations. This claim has been fully resolved. Other claimants have filed lawsuits related to the traffic accident but these lawsuits are not expected to have a material effect on the Company's financial condition, cash flows or results of operations.

Brazilian Value-Added Tax Matters

All dollar amounts ~~(in millions)~~ presented in this section have been updated since our last filing to reflect the U.S. Dollar (USD) equivalent of Brazilian Real (BRL).

We deny all allegations in the below Brazilian actions. We believe that we have valid bases to contest such actions and ~~will~~are vigorously ~~defend~~defending ourselves. However, these contingencies are subject to uncertainties, and based on current known facts, we believe that it is reasonably possible (but not probable) that we may incur losses of ~~$18.4~~approximately $15.0 including interest and attorney fees with respect to these assessments. Therefore, because it is not probable we will incur a loss, no accrual has been recorded for Brazilian ~~VAT~~value-added tax (VAT) matters. ~~For specific information regarding accruals, and reasonably possible losses in excess~~As of ~~accruals, please see "Accruals and Reasonably Possible Losses in Excess of Accruals" below.~~

WeApril 23, 2019, we have ~~$10.6~~$13.9 on deposit with the Brazilian government to partially mitigate interest and penalties that may accrue while we work through these matters. If we are successful in our defense of these assessments, the deposits are refundable with interest. These deposits are recorded as a long-term asset on our balance sheet.

Brazilian Federal Cases. On December 22 and December 29, 2011, and December 17, 2012, the Brazilian Finance Ministry, Federal Revenue Office (Finance Ministry) issued ~~a notice~~notices of violation against our wholly-owned subsidiary, Leggett & Platt do Brasil Ltda. ~~(“L~~(L&P ~~Brazil”)~~Brazil) in the amount of ~~$1.9,~~$2.0, $.1 and ~~$3.4,~~$3.5, respectively. The ~~Federal Revenue Office~~Finance Ministry claimed that for ~~the periods beginning~~ November 2006 and continuing through 2011, L&P Brazil used an incorrect tariff code for the collection and payment of ~~value-added tax~~VAT primarily on the sale of mattress innerspring units in ~~Brazil.~~Brazil (VAT Rate Dispute). L&P Brazil has denied the violations. On December 4, 2015, we filed an ~~Annulment Action~~action related to the ~~$3.4~~$3.5 assessment ~~(for which a $4.0 cash bond was posted, accounting for~~($4.3 with updated interest), in ~~Camanducaia Judicial District Court seeking~~Sorocaba Federal Court. On October 18, 2018, we filed an action related to the $2.0 assessment ($3.1 with updated interest), in Sorocaba Federal Court. Both actions seek to annul the entire ~~assessment. We are awaiting the first level decision with regard to the $3.4 assessment. On June 20, 2018, the Administrative Court of Appeals held a hearing related to the $1.9 assessment~~assessments, and ~~announced their decision to maintain the assessment against L&P Brazil. The written decision was formalized on July 18, 2018. We are awaiting the formal notification to determine our appeal options.~~remain pending.

In addition, L&P Brazil received assessments on December 22, 2011, and June 26, July 2 and November 5, 2012, and September 13, 2013, from the ~~Brazilian Federal Revenue Office~~Finance Ministry where ~~the Federal Revenue Office~~it challenged L&P Brazil’s use of tax credits in years 2005 through 2010. Such credits are generated based upon the ~~tariff classification and~~VAT rate used by L&P Brazil ~~for value-added tax~~ on the sale of mattress innersprings. On September 4, 2014, the ~~Federal Revenue Office~~Finance Ministry issued ~~five~~ additional assessments regarding this same issue, ~~(use of credits),~~but covering certain periods of 2011 and 2012. L&P Brazil filed its ~~defense~~defenses denying ~~these~~the assessments. ~~Combined with the prior assessments,~~ L&P Brazil has received aggregate assessments and penalties totaling ~~$2.3~~$1.8 ($2.5 updated with interest) on ~~the same or similar denial~~these denials of tax credit matters. L&P Brazil has denied the violations. Some of these cases have been administratively closed and combined with other actions, while the remaining cases are pending at the administrative level. On September 11, 2017,

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

L&P Brazil received an "isolated penalty" from the ~~Federal Revenue Office~~Finance Ministry in the amount of $.2 regarding the use of ~~certain of~~ these credits. L&P Brazil filed its defense disputing the penalty. These cases remain pending.

On February 1, 2013, the ~~Brazilian~~ Finance Ministry filed a Tax Collection action against L&P Brazil in the Camanducaia Judicial District Court, alleging the untimely payment of $.1 of social contributions (social security and social assistance payments) for ~~the period~~ September to October 2010. L&P Brazil argued the payments were not required to be made because of the application of tax credits ~~that were~~ generated by L&P Brazil's use of a correct ~~tariff code for the classification of value-added tax~~VAT rate on the sale of mattress ~~innersprings (i.e., the same underlying issue at stake in the other Brazilian matters).~~innersprings. On June 26, 2014, the ~~Brazilian Revenue Office~~Finance Ministry issued a new notice of violation against L&P Brazil in the amount of $.6 covering ~~the period from~~ 2011 through 2012 on the same subject matter. L&P Brazil has filed its ~~defense denying the assessments.~~defenses. These cases remain pending.

On July 1, 2014, the ~~Brazilian~~ Finance Ministry rendered a preliminary decision ~~to reject certain offsetting requests presented by L&P Brazil. The Brazilian Finance Ministry alleges~~alleging that L&P Brazil improperly offset $.1 of social contributions ~~otherwise~~ due in 2011. L&P Brazil ~~filed its response denying~~denied the allegations. L&P Brazil is defending on the basis that the social contribution ~~debts~~amounts were correctly offset with tax credits generated by L&P Brazil's use of a correct ~~tariff code classification for value-added tax~~VAT rate on the sale of mattress ~~innersprings (i.e., the same underlying issue at stake in the other Federal Brazilian matters).~~innersprings. On December 15, 2015, the ~~Brazilian Federal Revenue~~Finance Ministry issued an assessment against L&P Brazil in the amount of $.1 for ~~the period of~~ August 2010 through May 2011, as a penalty for L&P Brazil's requests to offset tax credits. We filed our defense denying the assessment. These cases remain pending.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

State of São Paulo, Brazil Cases.The State of SãSão Paulo, Brazil (SSP), on April 16, 2009, issued a Notice of Tax Assessment ~~and Imposition of Fine~~ to L&P Brazil ~~originally~~ seeking $1.5 for the tax years 2006 and 2007. ~~The State of S~~ã~~o Paulo~~SSP argued that L&P Brazil was using an incorrect tariff code for the collection and payment of ~~value-added tax~~VAT on sales of mattress innerspring units, the same VAT Rate Dispute but in the ~~State of S~~ã~~o Paulo.~~SSP. L&P Brazil denied the allegations. On April 17, 2014, the Court of Tax and Fees ruled in the ~~State's~~SSP's favor upholding the original assessment of $1.5. On July 31, 2014, L&P Brazil filed an ~~annulment~~ action in the Sorocaba State Court, seeking to have the ~~Court of Tax and Fees~~ ruling annulled for an updated assessment amount of $3.1 (which ~~included interest from the original assessment date)~~includes interest). The Court issued a ruling in our favor on October 27, 2017, ~~nullifying~~but the ~~$3.1 in assessments against L&P Brazil. On April 4, 2018, the State~~SSP appealed the ruling to the second judicial level. On July 24, 2018, the ~~Sao~~São Paulo State Court of Appeals ~~held a hearing related to the $3.1 assessment and announced their decision to uphold the favorable ruling~~agreed with nullifying the ~~assessment~~assessments against L&P Brazil. ~~The~~On September 13, 2018, the SSP filed a Special Appeal to the Superior Court of Justice. On November 14, 2018, the Special Appeals Court decided not to accept SSP's appeal. On February 12, 2019, the decision ~~will now be formalized~~to nullify the assessment was certified as final, resulting in ~~writing. The State will likely appeal~~a full victory for L&P Brazil on the $3.1 assessment. As such, this ~~ruling.~~claim has been fully resolved.

On October 4, 2012, ~~the State of S~~ã~~o Paulo~~SSP issued a Tax Assessment against L&P Brazil in the amount of $1.2 for the tax years 2009 through ~~2011. Similar to~~2011 regarding the ~~2009 assessment (referenced above), the State of S~~ã~~o Paulo argues that L&P Brazil was using an incorrect tax rate for the collection and payment of value-added tax on sales of mattress innerspring units~~VAT Rate Dispute in ~~the State of S~~ã~~o Paulo.~~SSP. On June 21, 2013, the ~~State of S~~ã~~o Paulo~~SSP converted the Tax Assessment to a tax collection action against L&P Brazil in the amount of$~~2.1~~2.0 in Sorocaba Judicial District Court. L&P Brazil has denied all allegations. These cases remain pending.

L&P Brazil also received a Notice of Tax Assessment ~~and Imposition of a Fine~~ from the ~~State of S~~ã~~o Paulo~~SSP dated March 27, 2014, in the amount of $.8 ~~(currently secured with a $.9 bond to update for interest)~~ for tax years January 2011 through August 2012 regarding the ~~same subject matter (i.e., the correct tax rate for the collection and payment of value-added tax on mattress innerspring units).~~VAT Rate Dispute in SSP. L&P Brazil filed its response denying the allegations, but the tax assessment was maintained at the administrative level. On June 9, 2016, L&P Brazil filed an ~~annulment~~ action in Sorocaba State Court to annul the entire ~~$.8 assessment.~~assessment in an updated amount of $.8. The Court ruled against L&P Brazil on the assessment, but lowered the interest amount. ~~We filed a motion for clarification. The Court upheld its ruling, and we filed an appeal to the Court of Appeals on May 15, 2017.~~ The Court of Appeals upheld the unfavorable ~~Sorocaba State Court~~ ruling, and we filed a Special and Extraordinary appeal to the High Court on October 10, ~~2017, and this final~~2017. The High Court denied our appeal on February 18, 2019. L&P Brazil filed an interlocutory appeal on March 20, 2019. This appeal remains pending.

State of Minas Gerais, Brazil Cases. On December 18, 2012, the State of Minas Gerais, Brazil issued a tax assessment to L&P Brazil relating to ~~L&P Brazil's classifications of innersprings for~~ the ~~collection and payment of value-added tax on the sale of mattress innersprings~~VAT Rate Dispute in Minas Gerais from March 2008 through August 2012 in the amount of $.4. L&P Brazil filed its response denying any violation. The Minas Gerais Taxpayer's Council ruled against us, and on June 5, 2014, L&P Brazil filed a Motion to Stay the Execution of the Judgment in Camanducaia Judicial District Court, ~~alleging the same tax assessment in the amount of $.5. The motion~~which remains pending.

~~LEGGETT & PLATT, INCORPORATED~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)~~

~~(Unaudited)~~

Accruals and Reasonably Possible Losses in Excess of Accruals

Accruals for Probable Losses

Although ~~the Company denies~~we deny liability in all currently threatened or pending litigation proceedings in which ~~it is~~we are or may be a party and ~~believes~~believe that ~~it has~~we have valid bases to contest all claims threatened or made against ~~it,~~us, we have recorded a litigation contingency accrual for our reasonable estimate of probable loss for pending and threatened litigation proceedings, in aggregate, in millions, as follows:



	Three Months Ended March 31,
	2019		2018
Litigation contingency accrual - Beginning of period	$	1.9	$	.4
Adjustment to accruals - expense (income)	—		—
Cash payments	—		(.4		)
Litigation contingency accrual - End of period	$	1.9	$	—

Six Months Ended June 30, Three Months Ended June 30,
2018 2017 2018 2017
Litigation contingency accrual - Beginning of period $ .4
$ 3.2
$ —
$ 3.2
Adjustment to accruals - expense (income) (.1 ) .2
(.1 ) .2
Cash (payments) receipts (.3 ) —
.1
—
Litigation contingency accrual - End of period $ —
$ 3.4
$ —
$ 3.4

The above litigation contingency accruals do not include accrued expenses related to workers compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters, some of which may contain a portion of litigation expense. However, any litigation expense associated with these categories is not anticipated to have a material effect on our financial condition, results of operations or cash flows. ~~For more information regarding accrued expenses, see Note H - Supplemental Balance Sheet Information under "Accrued expenses" on page 90 of the Company's Form 10-K filed February 22, 2018.~~

We have relied on several facts and circumstances to conclude that some loss is probable with respect to certain proceedings and matters, and to arrive at a reasonable estimate of loss or range of loss and record the accruals, including: the maturation of the pending proceedings and matters; our experience in settlement negotiations and mediation; comparative settlements of other companies in similar proceedings; discovery becoming or being substantially complete in certain proceedings; certain quantitative metrics used to value probable loss contingencies; and our willingness to settle certain proceedings to forgo the cost and risk of litigation and distraction to our senior executives.

LEGGETT & PLATT, INCORPORATED

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Reasonably Possible Losses in Excess of Accruals

Although there are a number of uncertainties and potential outcomes associated with all of our pending or threatened litigation proceedings, we believe, based on current known facts, that additional losses, if any, are not expected to materially affect our consolidated financial position, results of operations or cash flows. However, based upon current known facts, as of ~~June 30, 2018,~~March 31, 2019, aggregate reasonably possible (but not probable, and therefore not accrued) losses in excess of the accruals noted above are estimated to be ~~$21.0,~~$16.0, including ~~$18.4~~$15.0 for Brazilian VAT matters disclosed above and ~~$2.6~~ $1.0 for other matters. If our assumptions or analyses regarding these contingencies are incorrect, or if facts change, we could realize loss in excess of the recorded accruals ~~and even greater than our estimate of reasonably possible losses~~(and in excess of ~~recorded accruals.~~the $16.0 referenced above), which could have a material negative impact on our financial condition, results of operations and cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

What We Do

Leggett & Platt, Incorporated (the Company, we or our) 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 many homes, offices, and automobiles. We make components that are often hidden within, but integral to, our customers’ products.

We are the leading ~~U.S.~~U.S.-based manufacturer of: a) bedding components; b) automotive seat support and lumbar systems; c) specialty bedding foams and private-label finished mattresses; d) components for home furniture and work furniture; d)e) flooring underlayment; e)f) adjustable beds; f)g) high-carbon drawn steel wire; and g)h) bedding industry machinery.

Our Segments

Our operations are comprised of 1415 business units in four segments, with approximately ~~22,500~~23,000 employees, and ~~120~~145 production facilities located in 18 countries around the world. Our segments are described below.

Residential Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished ~~products.~~products, as well as producing private-label finished mattresses for bedding brands. We also produce or distribute carpet cushion, hard surface flooring underlayment, fabric, and geo components. This segment generated ~~37%~~43% of our total sales during the first ~~six~~three months of ~~2018.~~2019.

Industrial Products: These operations primarily supply steel rod and drawn steel wire to our other operations and to external customers. Our customers use this wire to make mechanical springs and many other end products. This segment generated 14% of our total sales during the first ~~six~~three months of ~~2018.~~2019.

Furniture Products: Operations in this segment supply a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture, and adjustable bed ~~bases, fashion beds, and bed frames.~~bases. This segment contributed ~~25%~~22% of our total sales in the first ~~six~~three months of ~~2018.~~2019.

Specialized Products: From this segment we supply lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries. This segment contributed ~~24%~~21% of our total sales in the first ~~six~~three months of ~~2018.~~2019.

Total Shareholder Return

Total Shareholder Return (TSR), relative to peer companies, is ~~the key~~a primary financial measure that we use to assess long-term performance. TSR = (Change in Stock Price + Dividends) / Beginning Stock Price. Our goal is to achieve TSR in the top third of the S&P 500 companies over the long term through an approach that employs four TSR sources: revenue growth, margin expansion, dividends, and share repurchases.

We monitor our TSR performance relative to the S&P 500 on a rolling three-year basis. ~~While our recent performance has not met our top-third target, we continue to~~We strongly believe our disciplined growth strategy, portfolio management, and prudent use of capital will support achievement of our goal over time.

In connection with the acquisition of ECS our debt levels increased, and we expect to focus on deleveraging by temporarily limiting share repurchases, reducing other acquisition spending and using operating cash flow to repay debt. The

ECS transaction does not change our long-term TSR targets and framework. In the near-term, revenue growth will benefit significantly from the initial impact of the acquisition. Increased interest expense will negatively impact TSR in 2019. As we pay down the acquisition debt, the corresponding reduction in interest expense should have a positive impact on TSR. The stock buyback component is expected to be slightly negative to our TSR due to the temporary limiting of share repurchases while we focus on deleveraging. Longer-term, the ECS acquisition is expected to benefit all four TSR sources through profitable growth and strong operating cash flow.

Senior executives participate in an incentive program with a three-year performance period based on two equal measures: (i) our TSR performance compared to the performance of a group of approximately 320 peers, and (ii) the ~~company~~Company or segment's EBIT CAGR.

Customers

We serve a broad suite of customers, with our largest customer representing approximately 5%6% of our sales in ~~2017.~~2018. Many are companies whose names are widely recognized. They include bedding, residential ~~furniture~~ and ~~bedding~~office furniture producers, automotive OEM and ~~office seating~~Tier 1 manufacturers, and a variety of other companies.

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 the most significant. Other important factors include disposable income levels, employment levels, housing turnover, and interest rates. All of these factors influence consumer spending on durable goods, and therefore affect demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one quarter of our sales.

Raw Material Costs

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

We typically have short-term commitments from our suppliers; accordingly, our raw material costs generally move with the market. Our ability to recover higher costs (through selling price increases) is crucial. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs. Conversely, when costs decrease significantly, we generally pass those lower costs through to our customers. The timing of our price increases or decreases is important; we typically experience a lag ~~(normally 90 days)~~ in recovering higher costs, and we also realize a lag as costs decline.

Steel is our principal raw material. At various times in past years we have experienced significant cost fluctuations in this commodity. In most cases, the major changes (both increases and decreases) were passed through to customers with selling price adjustments. Steel costs inflated ~~throughout~~in 2017 and ~~have continued to increase~~ in the first half of 2018. These costs have been relatively stable since mid-2018.

Depending on the type of steel input, we have seen varying degrees of inflation in the U.S. Long product, the steel industry term for rod and wire, ~~is up significantly since the end of 2017.~~saw significant inflation in 2017 and early 2018. Flat product ~~hot~~(hot or cold rolled sheet ~~steel,~~steel) which we purchase for use in several of our businesses, but most heavily in Home Furniture, is also ~~up significantly since the end of 2017.~~saw significant inflation in that time period. We ~~are implementing~~implemented price increases to recover most of the higher costs, but with the normal lag in realizing selling price increases, the cost inflation led to margin pressure in the ~~second half~~first quarter of ~~2017~~2018. However, with the moderation in steel costs since mid-2018, we are now caught up with the pricing lag in most of our businesses and steel cost inflation was not a major factor in the first ~~half~~quarter of 2018. In certain instances when our foreign competitors purchase steel in markets that have not experienced significant inflation, particularly flat product in China, it is more difficult for us to pass through U.S.-based steel price increases to our customers.2019.

As a producer of steel rod, we are also impacted by changes in metal margins (the difference in the cost of steel scrap and the market price for steel rod). Metal margins within the steel industry ~~were moderately compressed in late 2016,~~ began to increase modestly in the second half of 2017 and further expanded in the first half of 2018. Although steel scrap costs increased early in 2018, rod prices ~~continued~~increased to ~~increase~~a much larger degree. Both stabilized by mid-2018. Because of these factors, our steel rod mill experienced enhanced profitability in 2018 and the ~~second~~first quarter of ~~2018, steel scrap prices have remained relatively flat in the second quarter.~~2019. If these wider metal margins are sustained, our steel rod mill should continue to experience enhanced profitability.

With the acquisition of ECS we now have greater exposure to the cost of chemicals, including TDI, MDI, and polyol. The cost of these chemicals has fluctuated at times, but ECS has generally passed the changes through to its customers, with a lag that varies based on customer contract terms. Our other raw materials include woven and non-woven fabrics and foam ~~scrap, and chemicals.~~scrap. We have experienced changes in the cost of these materials in past years and generally have been able to pass them through to our customers.

When we raise our prices to recover higher raw material costs, this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components. We must continue providing product options to our customers that enable them to improve the functionality of their products and manage their costs, while providing higher profits for our operations.

Competition

Many of our markets are highly competitive, with the number of competitors varying by product line. In general, our competitors tend to be smaller, private companies. Many of our competitors, both domestic and foreign, compete primarily on the basis of price. Our success has stemmed from the ability to remain price competitive, while delivering innovation, better product quality, 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 ~~often~~ benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. We typically remain price competitive in most of our business units, even versus many foreign manufacturers, as a result of our highly efficient operations, low labor content, vertical integration in steel and wire, logistics and distribution efficiencies, and large scale purchasing of raw materials and commodities. However, we have also reacted to foreign competition in certain cases by selectively adjusting prices, developing new proprietary products that help our customers reduce total costs and shifting production offshore to take advantage of lower input costs.

Since 2009, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. In 2014, the Department of Commerce (DOC) and the International Trade Commission (ITC) determined that the orders should be extended for five years. In March 2019, ~~we expect~~ the DOC and the ITC ~~to conduct~~initiated a second sunset review to determine whether to extend the orders for an additional five years. If it is determined that the revocation of the orders would likely lead to the continuation or recurrence of dumping of innersprings (determined by the DOC) and material injury to the U.S. innerspring industry (determined by the ITC), the orders will be extended. We believe that, without the extension, it is likely that dumping will recur and the U.S. innerspring industry will be materially injured. As a result, we ~~plan to~~are actively ~~participate~~participating in the DOC and ITC sunset reviews.

Antidumping and countervailing duty cases filed by major U.S. steel wire rod producers ~~in 2014 and 2017~~ have resulted in the imposition of antidumping duties on imports of steel wire rod from Brazil, China, ~~(106% to 110%),~~ Belarus, ~~(280%),~~Indonesia, Italy, ~~(12% to 19%),~~ Korea, ~~(41%),~~Mexico, Moldova, Russia, ~~(437% to 757%),~~ South Africa, ~~(135% to 142%),~~ Spain, ~~(11% to 33%),~~Trinidad & Tobago, Turkey, ~~(5% to 8%),~~ Ukraine, ~~(35% to 44%),~~ United Arab Emirates, ~~(84%),~~ and the United Kingdom, ~~(148%)~~ranging from 1% to 757%, and countervailing duties on imports of steel wire rod from Brazil, China, ~~(178%~~Italy and Turkey, ranging from 3% to 193%~~), Italy (4% to 44%) and Turkey (4%)~~. These duties will continue through June 2019 (for Brazil, Indonesia, Mexico, Moldova, and Trinidad & Tobago), through December 2019 (for China), and through December 2022 ~~for~~(for Belarus, Italy, Korea, Russia, South Africa, Spain, Turkey, Ukraine, United Arab Emirates, and the ~~other countries;~~United Kingdom); at which times, respectively, the DOC and the ITC will conduct sunset reviews to determine whether to extend the orders for an additional five years.

We believe mattresses from China are being imported into the U.S. at low prices that violate our trade laws. In September 2018, we, along with other domestic mattress producers, filed an antidumping petition with the U.S. government on behalf of the mattress industry to attempt to remedy this situation. In November, the ITC made a preliminary determination that there is a reasonable indication that the domestic mattress producers are materially injured by reason of the unfairly priced imported mattresses. Demand for ECS's proprietary specialty foams and downstream products has been strong even while the U.S. bedding industry continues to be impacted by the Chinese mattresses that are the subject of the antidumping petition. Since the filing of the case with the ITC, we have seen a notable increase in imported mattresses from China which has impacted ECS's sales growth. The DOC is now investigating the dumping allegations and is expected to make its preliminary determination in late May. If duties are imposed, we expect our Bedding businesses, along with the U.S. bedding industry, to benefit.

Acquisition of Elite Comfort Solutions

Completion of the Acquisition of Elite Comfort Solutions

On January 16, 2019, we completed the previously announced acquisition of Elite Comfort Solutions, Inc. (ECS) for a cash purchase price of approximately $1.25 billion (the “ECS Acquisition”). ECS, headquartered in Newnan, Georgia, is a leader in specialized foam technology, primarily for the bedding and furniture industries. With 16 facilities across the United States, ECS operates a vertically-integrated model, developing many of the chemicals and additives used in foam production, producing specialty foam, and manufacturing private-label finished products. These innovative specialty foam products include finished mattresses sold through both traditional and online channels, mattress components, mattress toppers and pillows, and furniture foams. ECS has a diversified customer mix and a strong position in the high-growth compressed mattress market segment. ECS forms a separate business unit and operates within the Residential Products segment.

Financing the Elite Comfort Solutions Acquisition

As previously reported, in December 2018, we entered into a new credit agreement. The credit agreement is a five-year multi-currency credit facility providing us the ability to borrow, repay and re-borrow up to $1.2 billion under a revolving facility. The revolving facility acts as support for the marketability of our $1.2 billion commercial paper program. The credit agreement also provided for a one-time draw of up to $500 million under a five-year Tranche A Term Loan.

We financed approximately $750 million of the purchase price of the ECS Acquisition through commercial paper borrowings. At the January 16, 2019 closing, we had increased our outstanding commercial paper to an aggregate $898 million with an average weighted interest rate of 2.87% with various maturity dates, ranging from 1 to 30 days from closing.

The remainder of the purchase price was financed through the $500 million senior unsecured five-year “Tranche A Term Loan” under the credit agreement. We initially paid interest on the Tranche A Term Loan at the rate of 3.9%. We may elect different types of borrowings and interest periods during the term of the Tranche A Term Loan, which will adjust the rate of interest to be paid. We are required to pay principal on the Tranche A Term Loan each quarter (on the last day of March, June, September and December), commencing with June 2019, in the amount of $12.5 million, and pay the remaining outstanding principal under the Tranche A Term Loan on June 3, 2024.

On March 7, 2019, we issued $500 million principal amount of public senior unsecured 10-year 4.40% notes due 2029. The proceeds from the notes were used to repay a portion of the commercial paper indebtedness incurred to fund the ECS Acquisition.

We believe that operating cash flow, cash on hand and our ability to obtain debt financing will provide sufficient funds available to repay debt, as well as support our ongoing operations, pay dividends and fund future growth.

RESULTS OF OPERATIONS

Discussion of Consolidated Results ~~(Continuing Operations)~~

~~Second~~First Quarter:

Sales were ~~$1,102~~$1,155 million in the current quarter, ~~an 11%~~a 12% increase versus the same quarter last year. Acquisitions added 13% to sales growth in the quarter. Same location sales ~~increased 10%~~decreased 1%, with volume ~~up 6% and raw~~down 3%. Raw material-related selling price inflation ~~and currency impact contributing~~of 4%~~. Acquisitions added 3% to sales growth but were~~ was partially offset by ~~divestitures, which reduced sales by~~a negative currency impact of 2% ~~in the quarter.~~.

Earnings per share (EPS) ~~from continuing operations were $.63,~~was $.45, versus ~~$.64~~$.57 in the ~~second~~first quarter of ~~2017. The benefit~~2018, with the decrease from ~~sales growth was more than offset by~~restructuring-related charges in Furniture Products, volume declines in Furniture Products and Specialized Products, higher ~~raw material costs.~~interest expense and a higher effective tax rate.

Earnings Before Interest and Taxes (EBIT) decreased 1%9%, to ~~$121~~$98 million, ~~with the benefit~~ from ~~sales growth more than offset by higher steel costs (including LIFO expense)~~restructuring-related charges in Furniture Products and ~~the pricing lag we typically experience~~volume declines in ~~passing along commodity inflation.~~Furniture Products and Specialized Products.

LIFO/FIFO and the Effect of Changing Prices

~~Approximately~~The last-in, first-out (LIFO) method is primarily used to value our domestic steel-related inventories. Prior to 2019 the LIFO method represented approximately 50% of our inventories. With the acquisition of ECS in the first quarter of 2019, LIFO now represents approximately 40% of our inventories, ~~are valued on~~as ECS does not utilize the ~~last-in, first-out (LIFO)~~LIFO method. ~~These are primarily our domestic, steel-related inventories.~~

~~For~~With relatively stable steel costs since beginning of the ~~full~~ year, ~~2018, we estimate $37.5 million~~there was no LIFO expense in the first quarter of 2019. The LIFO ~~expense. This~~ estimate incorporates certain assumptions about year-end steel prices and inventory levels. Therefore, the LIFO calculation for the full year could be ~~significantly~~materially different from that currently estimated.

The following table contains the LIFO expense included for each of the periods presented:

Six Months Ended
June 30, Three Months Ended
June 30,
2018 2017 2018 2017
LIFO expense $ 18.8
$ 2.5
$ 12.8
$ 2.1



	Three Months Ended March 31,
	2019		2018
LIFO expense	$	—	$	6.0

Interest Expense and Income Taxes

~~2018~~First quarter 2019 interest expense was higher by ~~$9 million and $6~~$7 million than the ~~six and three months ended June 30, 2017, respectively,~~first quarter of 2018 primarily due to ~~the issuance of new~~increased debt in the ~~fourth~~first quarter ~~2017,~~2019 to fund the ECS acquisition and higher rates on commercial ~~paper, and activity associated with additional consideration to be paid for a prior year acquisition.~~paper.

~~Our worldwide effective income tax rate on continuing operations was 20% and 21% for~~While the ~~six and three months ended June 30, 2018, respectively, while the rates for the similar periods in 2017 were 21% and 23%, respectively. The~~ U.S. statutory federal income tax rate was ~~significantly impacted by the enactment of Tax Cuts and Jobs Act (TCJA) in the fourth quarter of 2017, which reduced our U.S. federal corporate income tax rate from 35% in 2017 to~~ 21% in ~~2018. Our income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from these statutory federal income tax rates as follows:~~

Six Months Ended June 30, Three Months Ended June 30,
2018 2017 2018 2017
Statutory federal income tax rate 21.0 % 35.0 % 21.0 % 35.0 %
Increases (decreases) in rate resulting from:
Tax effect of foreign operations (1.0 ) (7.0 ) (1.0 ) (7.0 )
Foreign withholding taxes 2.0
—
2.0
—
Stock-based compensation (1.0 ) (4.0 ) —
(1.0 )
Tax on global intangible low-taxed income 1.0
—
—
—
Domestic production activities deduction —
(1.0 ) —
(1.0 )
Change in valuation allowance (2.0 ) (1.0 ) —
(2.0 )
Other, net —
(1.0 ) (1.0 ) (1.0 )
Effective Tax Rate 20.0 % 21.0 % 21.0 % 23.0 %

~~Our~~both years, our worldwide effective tax rate was 22% for the ~~six months ended June 30,~~first quarter of 2019, compared to 18% for the same quarter last year. In both years, our tax rate benefited by 1% from earnings in non-U.S. jurisdictions and 2% from stock compensation payments, while foreign withholding and global intangible low-taxed income (“GILTI”) taxes added 4% to our effective rate in both years. In 2018, ~~includes~~our tax rate benefited by 4% from a ~~2% tax benefit due to a first quarter~~ change in the estimated amount we recorded ~~for the TCJA impact on our deferred tax assets~~ at December 31, ~~2017. No similar adjustments have been identified or recorded for the three months ended June 30, 2018, based on provisional estimates as of July 18, 2018. Further adjustments to our~~ 2017, provisional amount may be required in subsequent quarters until such time our accounting is finalized, which will be completed no later than the fourth quarter in accordance with Staff Accounting Bulletin (SAB) 118 (see Note 2related to the ~~Consolidated Condensed Financial Statements on page 6)~~deferred tax impact from the Tax Cuts and Jobs Act (“TCJA”). This benefit did not recur in 2019.

WeFor the full year, we anticipate an effective tax rate ~~for 2018~~ of approximately ~~21%~~24%, which includes anticipated tax effects associated with TCJA and certain other expected items, including stock compensation payments, which can fluctuate based on stock price and other factors. ~~Any~~Evolving guidance and possible interpretative changes with regard to ~~our 2017 provisional and 2018 expected~~certain provisions of TCJA ~~amounts~~ could ~~also~~ add some volatility to our anticipated tax rate during the year. Other factors such as our overall profitability, the mix of earnings among tax jurisdictions, the type of income earned, business acquisitions and dispositions, the impact of tax audits, the effect of other tax law changes, and prudent tax planning strategies can also influence our rate.

Discussion of Segment Results

~~Second~~First Quarter Discussion

A description of the products included in each segment, along with segment financial data, appear in Note 4 to the Consolidated Condensed Financial Statements on page ~~10.~~8. A summary of segment results is shown in the following tables.


Sales (Dollar amounts in millions)	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017			Change in Sales					% Change in Same Location		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Change in Sales					% Change in Same Location
Sales (Dollar amounts in millions)	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017			$			%		Sales ¹		Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			$			%		Sales ¹
Residential Products	$	443.5		$	412.0		$	31.5		7.6	%	6.5	%	$	539.2		$	402.7		$	136.5		33.9	%	3.0	%
Industrial Products	170.5			139.2			31.3			22.5		22.5		168.0			152.4			15.6			10.2		10.2
Furniture Products	295.0			271.6			23.4			8.6		8.6		269.7			284.2			(14.5		)	(5.1	)	(5.1	)
Specialized Products	276.5			240.1			36.4			15.2		11.3		263.8			268.1			(4.3		)	(1.6	)	(4.6	)
Total	1,185.5			1,062.9			122.6			11.5				1,240.7			1,107.4			133.3			12.0
Intersegment sales	(83.0		)	(73.6		)	(9.4		)					(85.6		)	(78.6		)	(7.0		)
Trade sales	$	1,102.5		$	989.3		$	113.2		11.4	%	10.0	%	$	1,155.1		$	1,028.8		$	126.3		12.3	%	(.6	)%


	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017		Change in EBIT					EBIT Margins ²				Three Months Ended March 31, 2019		Three Months Ended March 31, 2018			Change in EBIT					EBIT Margins ²
EBIT (Dollar amounts in millions)	Three Months Ended June 30, 2018			Three Months Ended June 30, 2017		$			%		Three Months Ended June 30, 2018		Three Months Ended June 30, 2017		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018			$			%		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Residential Products	$	40.0		$	50.2	$	(10.2	)	(20.3	)%	9.0	%	12.2	%	$	31.9	$	35.0		$	(3.1	)	(8.9	)%	5.9	%	8.7	%
Industrial Products	13.4			7.1		6.3			88.7		7.9		5.1		24.1		9.0			15.1			167.8		14.3		5.9
Furniture Products	16.3			20.3		(4.0		)	(19.7	)	5.5		7.5		6.4		18.0			(11.6		)	(64.4	)	2.4		6.3
Specialized Products	51.9			44.1		7.8			17.7		18.8		18.4		35.7		46.1			(10.4		)	(22.6	)	13.5		17.2
Intersegment eliminations & other	(.5		)	.6		(1.1		)							.1		(.7		)	.8
Total	$	121.1		$	122.3	$	(1.2	)	(1.0	)%	11.0	%	12.4	%	$	98.2	$	107.4		$	(9.2	)	(8.6	)%	8.5	%	10.4	%


¹	The change in same location sales excludes the effect of acquisitions or divestitures. These are sales that come from the same plants and facilities that we owned one year earlier.


²	Segment margins are calculated on total sales. Overall company margin is calculated on trade sales.

Residential Products

Total sales increased ~~$32~~$136 million, or 8%34%, ~~with same~~mostly due to acquisitions. Same location sales ~~up 7%.~~increased 3% from raw material-related selling price increases, net of currency impact. Sales volume ~~increased 4%, and raw material inflation and currency impact added 3% to sales in the quarter. Prior year acquisitions added 1%.~~was flat.

EBIT decreased ~~$10~~$3 million, with earnings from the ~~benefit from sales growth~~ECS acquisition (net of purchase accounting charges) more than offset by ~~higher raw material~~lower volume in several businesses, ECS transaction costs ~~(including LIFO expense).~~of $1 million and other smaller factors.

Industrial Products

Total sales increased ~~$31~~$16 million, or ~~23%~~10%, reflecting steel-related selling price increases of ~~16% and~~19% partially offset by volume ~~growth~~declines of 7%9%.

The segment’s EBIT increased $6$15 million, ~~with~~primarily from improved metal margins at our steel rod ~~mill partially offset by higher LIFO expense.~~mill.

Furniture Products

Total sales ~~increased $23~~decreased $14 million, or 9%5%, with growth from Work Furniture more than offset by our decision to exit Fashion Bed, planned declines in Home Furniture and lower sales in Adjustable Bed. Raw material-related selling price increases were offset by currency impact.

Segment EBIT decreased $12 million, primarily from restructuring-related charges of $6 million and lower volume.

Specialized Products

Total sales decreased $4 million, or 2%, with same location sales ~~up 9%. Sales volume increased 6% with strong growth~~down 5% primarily from a negative currency impact of 3% and softer demand in ~~Adjustable Bed and Work Furniture partially offset by declines in Home Furniture and Fashion Bed. Raw material-related price increases and currency benefit~~the automotive market. The Precision Hydraulic Cylinders acquisition added 3% to sales growth.

~~Segment~~ EBIT decreased ~~$4 million, with the benefit from sales growth more than offset by higher steel costs (including LIFO expense).~~

~~Specialized Products~~

Total sales increased $36 million, or 15%, with same location sales up 11%. Sales grew primarily from higher volume in Automotive and Aerospace and a favorable currency impact. The Precision Hydraulic Cylinders acquisition increased sales by 9%, partially offset (5%) by the CVP divestiture.

~~EBIT increased $8~~$10 million, primarily from ~~higher volume.~~

~~Six Month Discussion~~

~~A description of the products included~~lower volume and increased investment in ~~each segment, along with segment financial data, appear in Note 4~~Automotive product, program and strategy development to ~~the Consolidated Condensed Financial Statements on page 10. A summary of segment results is shown~~support long-term growth in the ~~following tables.~~business.

Sales (Dollar amounts in millions) Six Months Ended
June 30, 2018 Six Months Ended
June 30, 2017 Change in Sales
% Change in Same Location Sales ¹
$ %
Residential Products $ 846.2
$ 808.1
$ 38.1
4.7 % 3.7 %
Industrial Products 322.9
274.6
48.3
17.6
17.6
Furniture Products 579.2
542.7
36.5
6.7
6.0
Specialized Products 544.6
476.4
68.2
14.3
11.2
Total 2,292.9
2,101.8
191.1
9.1

Intersegment sales (161.6 ) (152.2 ) (9.4 )
Trade sales $ 2,131.3
$ 1,949.6
$ 181.7
9.3 % 7.9 %

Six Months Ended
June 30, 2018 Six Months Ended
June 30, 2017 Change in EBIT
EBIT Margins ²
EBIT (Dollar amounts in millions) $ % Six Months Ended
June 30, 2018 Six Months Ended
June 30, 2017
Residential Products $ 75.0
$ 92.7
$ (17.7 ) (19.1 )% 8.9 % 11.5 %
Industrial Products 22.4
15.9
6.5
40.9
6.9
5.8
Furniture Products 34.3
40.6
(6.3 ) (15.5 ) 5.9
7.5
Specialized Products 98.0
87.1
10.9
12.5
18.0
18.3
Intersegment eliminations & other (1.2 ) 1.9
(3.1 )
Total $ 228.5
$ 238.2
$ (9.7 ) (4.1 )% 10.7 % 12.2 %


¹	~~The change in same location sales excludes the effect of acquisitions or divestitures. These are sales that come from the same plants and facilities that we owned one year earlier.~~


²	~~Segment margins are calculated on total sales. Overall company margin is calculated on trade sales.~~

~~Residential Products~~

Total sales increased $38 million, or 5%, with same location sales up 4%. Sales volume increased slightly, with lower pass-through sales of adjustable beds reducing sales by 1% in the first half of 2018. This was augmented by growth from raw material inflation and currency impact (3%) and prior year acquisition (1%).

~~EBIT decreased $18 million primarily from higher raw material costs (including LIFO expense).~~

~~Industrial Products~~

~~Total sales increased $48 million, or 18%, with steel-related price increases contributing 14% to sales growth and volume up 4%.~~

~~EBIT increased $7 million, with improved metal margins at our steel rod mill partially offset by higher LIFO expense and other costs.~~

~~Furniture Products~~

Total sales increased $37 million, or 7%, with same location sales up 6%. Volume was up 3% with growth in Adjustable Bed and Work Furniture partially offset by declines in Home Furniture and Fashion Bed. Raw material-related price increases and currency benefit added 3% to sales. A small Work Furniture acquisition in 2017 added 1% to the segment's sales.

~~Segment EBIT decreased $6 million, with the benefit from sales growth more than offset by higher steel costs (including LIFO expense).~~

~~Specialized Products~~

Total sales increased $68 million, or 14%, with same location sales up 11%. Sales grew from a favorable currency impact (6%) and higher volume (5%). The Precision Hydraulic Cylinders acquisition increased sales by 8%, partially offset (5%) by the CVP divestiture.

~~EBIT increased $11 million primarily from higher sales volume.~~

LIQUIDITY AND CAPITALIZATION

Cash from Operations

Cash from operations is our primary source of funds. Earnings and changes in working capital levels are the two factors that generally have the greatest impact on our cash from operations. Cash from operations for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~$125~~$31 million, down from ~~$156~~$44 million for the same period last year, reflecting increased working capital ~~investment to support higher sales.~~investment. For ~~2018,~~2019, we expect cash from operations to approximate ~~$425 million.~~$550 million, increasing versus 2018 primarily due to the ECS acquisition.

We closely monitor our working capital levels, and ended the quarter with adjusted working capital at ~~12.6%~~13.4% of annualized sales. The table below explains this non-GAAP calculation. We eliminate cash, ~~and~~ current debt maturities and the current portion of operating lease liabilities from working capital to monitor our operating efficiency and performance related to trade receivables, inventories and accounts payable. We believe this provides a more useful measurement to investors since cash and current maturities can fluctuate significantly from period to period. As discussed on page ~~42,~~41, a substantial amount of our cash is held by international operations and may not be immediately available to reduce debt on a dollar-for-dollar basis.


(Amounts in millions)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Current assets	$	1,783		$	1,767		$	1,659		$	1,525
Current liabilities	937			976			867			816
Working capital	846			791			792			709
Cash and cash equivalents	446			526			263			268
Current debt maturities	154			154
Current debt maturities and current portion of operating lease liabilities							90			1
Adjusted working capital	$	554		$	419		$	619		$	442
Annualized sales ¹	$	4,408		$	3,936		$	4,620		$	4,188
Working capital as a percent of annualized sales	19.2		%	20.1		%	17.1		%	16.9		%
Adjusted working capital as a percent of annualized sales	12.6		%	10.6		%	13.4		%	10.6		%

¹Annualized sales equal ~~2nd~~1st quarter 2019 sales of $1,155 million and 4th quarter 2018 sales of ~~$1,102 million and 4th quarter 2017 sales of $984~~$1,047 million multiplied by 4. We believe measuring our working capital against this sales metric is more useful, since efficient management of working capital includes adjusting those net asset levels to reflect current business volume.

Three Primary Components of our Working Capital


	Amount (in millions)							Days			Amount (in millions)							Days
								Three Months Ended	Twelve Months Ended	Three Months Ended								Three Months Ended	Twelve Months Ended	Three Months Ended
	June 30, 2018		December 31, 2017		June 30, 2017			June 30, 2018	December 31, 2017	June 30, 2017	March 31, 2019		December 31, 2018		March 31, 2018			March 31, 2019	December 31, 2018	March 31, 2018
Trade Receivables	$	610.0	$	522.3	$	547.1	DSO ¹	50	45	50	$	642.8	$	545.3	$	578.0	DSO ¹	50	46	51

Inventories	$	634.2	$	571.1	$	580.0	DIO ^{2, 4}	66	65	70	$	676.8	$	633.9	$	610.6	DIO ²	66	65	68

Accounts Payable	$	450.6	$	430.3	$	388.3	DPO ^{3, 4}	47	47	47	$	431.2	$	465.4	$	433.4	DPO ³	42	48	48


¹	Days sales outstanding

a. Quarterly: end of period trade receivables ÷ (quarterly net trade sales ÷ number of days in the period).

b. Annually: ((beginning of year trade receivables + end of period trade receivables)÷2) ÷ (net trade sales ÷ number of days in the period).


²	Days inventory on hand

a. Quarterly: end of period inventory ÷ (quarterly cost of goods sold ÷ number of days in the period).

b. Annually: ((beginning of year inventory + end of period inventory)÷2) ÷ (cost of goods sold ÷ number of days in the period).


³	Days payables outstanding

a. Quarterly: end of period accounts payable ÷ (quarterly cost of goods sold ÷ number of days in the period).

b. Annually: ((beginning of year accounts payable + end of period accounts payable)÷2) ÷ (cost of goods sold ÷ number of days in the period).


⁴	2017 ratios have been retrospectively adjusted to reflect the adoption of ASU 2017-07 that resulted in reclassifications between "Cost of goods sold" and "Selling and administrative expenses" into "Other (income) expense, net". See Note 2 to the Consolidated Condensed Financial Statements on page 6.

Trade Receivables - Our trade receivables ~~and our days sales outstanding~~increased $98 million at ~~June 30, 2018 increased~~March 31, 2019 compared to year end, with $71 million attributable to the ECS acquisition. The remaining increase is primarily due to ~~increased sales, acquisitions, and~~ timing of ~~payments. Our~~ sales ~~to international customers, which are predominantly~~ in the ~~Specialized Products segment, continue to increase and typically have longer payment terms.~~quarter. We do not believe that the increase in days sales outstanding from year end is indicative of a deterioration of the creditworthiness of our customers, or is reasonably likely to materially impact our liquidity position. Rather, we believe the increase is within a reasonable range of change caused by differences in the timing of sales and cash receipts. Sales to international customers, which are predominantly in the Specialized Products segment, typically have longer payment terms. We continue to look for ways to improve speed of customer payments, including third party programs with early payment incentives in certain circumstances.

Our annual provision for losses on trade accounts receivable has averaged $2$1 million ~~and~~for the last three years. On the balance sheet, our allowance for ~~bad debt~~doubtful trade receivables as a percentage of our net trade receivables has ~~averaged 2%~~approximated 1% for the ~~last three years.~~same time period. We monitor all accounts for possible ~~loss, and~~loss. Although we recorded a reserve in the fourth quarter of 2018 related to a customer note receivable, we have experienced favorable trends in write-offs on trade receivables over the last few years. We obtain credit applications, credit reports, bank and trade references, and periodic financial statements from our customers to establish credit limits and terms as appropriate. In cases where a customer’s payment performance or financial condition begins to deteriorate or in the event of a customer bankruptcy, we tighten our credit limits and terms and make appropriate reserves ~~when deemed necessary.~~based upon the facts and circumstances for each individual customer.

Inventories - ~~The increase in~~ Our inventories increased $43 million at ~~June 30, 2018~~March 31, 2019 compared to ~~year-end is~~year end. The ECS acquisition added $60 million and was offset by inventory reductions in selected businesses, primarily ~~due~~related to ~~inflation, higher levels necessary to support sales growth and new programs and acquisitions.~~restructuring activities. Days inventory on hand at ~~June 30, 2018~~March 31, 2019 is within a reasonable historical range. We believe we have established adequate reserves for any ~~slow-moving~~slower-moving or obsolete inventories. We continuously monitor our ~~slow-moving~~slower-moving and potentially obsolete inventory through reports on inventory quantities compared to usage within the previous ~~120 days.~~12 months. We also utilize cycle counting programs and complete physical counts of our inventory. When potential inventory obsolescence is indicated by these controls, we will take charges for write-downs to maintain an adequate level of reserves. ~~We have averaged~~Additions to inventory ~~obsolescence charges of~~reserves in 2018 were $10 million, which was slightly higher than our $8 million ~~annually for~~three-year average. First quarter 2019 additions to reserves were also slightly higher than prior year. These increases are primarily associated with the ~~last three years.~~2018 Restructuring Plan. Our reserve balances ~~(not including our LIFO reserves)~~ as a percentage of ~~our~~ period-end inventory were ~~approximately 5% at June 30, 2018, which is~~ consistent with our historical average.

Accounts Payable - Accounts payable decreased $34 million at March 31, 2019 compared to year end, although the ECS acquisition added $30 million of acquired accounts payable. This decrease is the result of timing of payments and inventory

~~Accounts Payable~~ - ~~The increase in accounts payable~~purchases, along with wind-down activity at ~~June 30, 2018 compared to year-end is primarily due to increased inventory costs and acquisitions.~~restructured locations. Our payment terms did not change meaningfully since ~~year-end.~~year end. We continue to look for ways to optimize payment terms through our significant purchasing power and also utilize third party services that allow flexible payment options to enhance our DPO.

Uses of Cash

Finance Capital Requirements

~~Cash is readily available to fund growth.~~

In certain of our businesses and product lines we have minimal excess production capacity, and we are therefore investing to support continued growth. In Automotive, we are expanding capacity to support new programs that will begin production over the next few years. In Bedding, we are investing in equipment to support ongoing growth in ComfortCore^® innersprings and newer product features such as Quantum^® Edge. ~~We are also investing to support rapid growth in Adjustable Bed.~~

We will continue to make investments to support expansion in businesses and product lines where sales are profitably growing, and for efficiency improvement and maintenance. ~~Due to recently awarded business in Bedding and Adjustable Bed we have increased our full year estimate for~~We expect capital expenditures ~~by $25 million and expect~~ to ~~spend approximately $185~~approximate $195 million in ~~2018.~~2019. Our employee incentive plans emphasize returns on capital, which include net fixed assets and working capital. This emphasis focuses our management on asset utilization and helps ensure that we are investing additional capital dollars where attractive return potential exists.

In some of our businesses, we have capacity to accommodate additional volume. For each $10 million of sales from incremental unit volume produced utilizing spare capacity, we expect to generate approximately $2.5 million to $3.5 million of additional pretax earnings. The earnings and margin improvement that we have realized over the past several years reflects, in part, higher utilization in our businesses from market share gains and higher market demand.

Our long-term, 6-9% annual revenue growth objective envisions periodic acquisitions. We are seeking strategic acquisitions ~~primarily in our Grow business units,~~such as the ECS acquisition discussed on page 34, and we are looking for opportunities to enter new growth markets (carefully screened for sustainable competitive advantage). such as the 2018 Precision Hydraulic Cylinders acquisition. As a reminder, in connection with the acquisition of ECS, our debt levels increased, and we are focused on deleveraging by, among other factors, temporarily reducing other acquisition spending.

In the ~~second~~first quarter of ~~2018~~2019, we acquired ECS, a ~~small producer~~leader in the production of ~~geo components~~proprietary specialized foam used primarily for ~~a purchase price~~the bedding and furniture industries, for total consideration of ~~$2.7 million.~~approximately $1.25 billion. Additional details about acquisitions are discussed ~~in Note 10~~ on page 1934, and in Note 10 on page 20 to the Consolidated Condensed Financial Statements.

Pay Dividends

Dividends are one of the primary means by which we return cash to shareholders. The cash requirement for dividends in ~~2018~~2019 should approximate ~~$195~~$205 million.

In ~~May,~~February, we declared a quarterly dividend of $.38 per share, which represented a $.02, or 5.6%, increase versus ~~second~~first quarter of ~~2017. This year marks our 47th consecutive annual dividend increase.~~2018. Our targeted dividend payout ratio is approximately ~~50-60%~~50% of ~~continuing operations~~ adjusted EPS (which ~~exclude~~excludes special items such as significant tax law impacts, divestiture gains, impairment charges, restructuring-related charges, litigation accruals and settlement proceeds). ~~We expect future dividend growth to approximate earnings growth.~~ Payout for ~~2018~~2019 is expected to be ~~near~~above the ~~midpoint~~target. Continuing our long track record of increasing the ~~target range.~~dividend remains a high priority. This year marks the Company's 48th annual dividend increase, a record of consecutive dividend increases that only ten S&P 500 companies currently exceed. Leggett & Platt is proud of its dividend record and plans to extend it.

Repurchase Stock

Share repurchases are the other means by which we return cash to shareholders. During the ~~second quarter~~first three months of ~~2018,~~2019, we repurchased ~~1.3~~.3 million shares of our stock (at an average price of ~~$41.02~~$42.38 per share) ~~and~~; those were primarily shares surrendered by employees for options exercises. We issued ~~0.1~~1.0 million shares primarily through employee benefit plans and option exercises. At quarter-end, the number of shares outstanding ~~decreased to 130.1~~was 131.2 million. ~~For the full year, we expect to repurchase approximately 2.5 to 3 million shares and issue approximately 1 million shares for employee benefit plans and option exercises.~~

Our ~~top~~long-term priorities for use of cash ~~remain~~remain: fund organic growth, ~~(via capital expenditures),~~pay dividends, fund strategic acquisitions, and repurchase stock with available cash. With the increase in leverage from our acquisition of ECS, as previously discussed, we are prioritizing debt repayment after funding organic growth and dividends, and ~~strategic acquisitions. After funding those priorities, to the extent there is remaining cash available, we generally intend to repurchase stock.~~as a result, are temporarily limiting share repurchases and reducing acquisition spending. We have been authorized by the Board to repurchase up to 10 million shares each year, but we have established no specific repurchase commitment or timetable.

Capitalization

The following table presents Leggett’s key debt and capitalization statistics:


(Dollar amounts in millions)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Long-term debt outstanding:
Scheduled maturities	$	1,098		$	1,098

Total debt excluding revolving credit/commercial paper							$	2,093		$	1,099
Less: Current maturities of long-term debt ³							51			1
Scheduled maturities of long-term debt							2,042			1,098
Average interest rates ¹	3.7		%	3.6		%	3.8		%	3.6		%
Average maturities in years ¹	6.5			6.9			6.7			6.7
Revolving credit/commercial paper ²	200			—			368			70
Average interest rate on period-end balance	2.4		%	—		%	2.7		%	2.6		%
Average interest rate during the period	2.3		%	1.4		%	2.8		%	2.4		%
Total long-term debt	1,298			1,098
Total long-term debt ³							2,410			1,168
Deferred income taxes and other liabilities	281			286			482			241
Shareholders’ equity and noncontrolling interest	1,129			1,191			1,195			1,158
Total capitalization	$	2,708		$	2,575		$	4,087		$	2,567
Unused committed credit:
Long-term	$	600		$	800		$	832		$	730
Short-term	—			—			—			—
Total unused committed credit ²	$	600		$	800		$	832		$	730
Current maturities of long-term debt	$	154		$	154		$	51		$	1
Cash and cash equivalents	$	446		$	526		$	263		$	268
Ratio of earnings to fixed charges ³	6.1 x			8.1 x



¹	These rates include current maturities, but exclude commercial paper to reflect the averages of outstanding debt with scheduled maturities. The rates also include amortization of interest rate swaps.
²	The unused committed credit amount is based on our revolving credit facility and commercial paper program which, at year end ~~2017~~2018 and at the end of the ~~second~~first quarter of ~~2018,~~2019 had total authorized program amounts of $800 ~~million of borrowing capacity.~~and $1,200, respectively.
³	~~As presented in Exhibit 12, fixed charges include interest expense, capitalized interest, plus implied interest included in operating leases. Earnings consist principally~~Total long-term debt and current maturities of ~~income from continuing operations before income taxes, plus fixed charges.~~long-term debt increased versus year-end 2018 levels primarily to fund the ECS Acquisition.

Commercial Paper Program

~~The next table shows the percentage of long-term debt to total capitalization, calculated in two ways:~~

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

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

We believe that adjusting this measure for cash and current maturities allows a more useful comparison to periods during which cash fluctuates significantly. We use these adjusted (non-GAAP) measures as supplemental information to track leverage trends across time periods with variable levels of cash. Our long-term target is to have net debt as a percentage of net capital in the 30%-40% range. As discussed on page 42, a substantial amount of cash is held by our international operations. Therefore,In January 2019, we ~~may not be able to use all of our cash to reduce our debt on a dollar-for-dollar basis, as reflected in the net debt to net capital ratio.~~

(Amounts in millions) June 30, 2018 December 31, 2017
Debt to total capitalization:
Long-term debt $ 1,298
$ 1,098
Current debt maturities 154
154
Cash and cash equivalents (446 ) (526 )
Net debt $ 1,006
$ 726

Total capitalization $ 2,708
$ 2,575
Current debt maturities 154
154
Cash and cash equivalents (446 ) (526 )
Net capitalization $ 2,416
$ 2,203

Long-term debt to total capitalization 47.9 % 42.6 %

Net debt to net capitalization 41.6 % 33.0 %

Total debt (which includes long-term debt and current debt maturities) grew $200 million versus year-end 2017 levels due to an increase in commercial paper borrowing. We retired $150 million of 4.4% notes due July 1, 2018 at maturity.

~~Short Term Borrowings~~

~~We can raise cash by issuing commercial paper through a program that is backed by our revolving credit facility with a syndicate of 14 lenders. In November 2017, we increased~~expanded the borrowing capacity under ~~the~~our credit facility from ~~$750~~$800 million to ~~$800 million and~~$1.2 billion, extended the term ~~from May 2021~~by two years to ~~November 2022.~~January 2024 and correspondingly increased permitted borrowings under our commercial paper program primarily to finance the ECS Acquisition. The ECS Acquisition was financed through the issuance of approximately $750 million of commercial paper (of which roughly $500 million was subsequently refinanced through the public issuance of notes) and the issuance of a $500 million five-year Tranche A Term Loan with our current bank group. The credit facility allows us to issue letters of credit totaling up to ~~$250~~$125 million. When we issue letters of credit under the facility, we reduce our available credit and commercial paper capacity by a corresponding amount. Amounts outstanding related to our commercial paper program were:


(Amounts in millions)	June 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Total program authorized	$	800	$	800
Total authorized program					$	1,200	$	800
Commercial paper outstanding (classified as long-term debt)	200		—		368		70
Letters of credit issued under the credit agreement	—		—		—		—
Total program usage	200		—		368		70
Total program available	$	600	$	800	$	832	$	730

The average and maximum amounts of commercial paper outstanding during the ~~second~~first quarter of ~~2018~~2019 were ~~$164~~$717 million and ~~$200~~$924 million, respectively. At quarter-end, we had no letters of credit outstanding under the credit facility, but we had issued ~~$51~~$47 million of stand-by letters of credit under other bank agreements to take advantage of better pricing. Over the long term, and subject to our capital needs, market conditions and alternative capital market opportunities, we expect to maintain the indebtedness under the program by continuously repaying and reissuing the commercial paper notes until such time as the outstanding notes are replaced with long-term debt. We view the notes as a source of long-term funds and have classified the borrowings under the commercial paper program as long-term borrowings on our balance sheet. We have the

intent to roll over such obligations on a long-term basis and have the ability to refinance these borrowings on a long-term basis as evidenced by our $1.2 billion revolving credit agreement maturing in 2024 discussed above. However, we expect that our commercial paper balances may increase or decrease in the short term due to acquisition or divestiture activity and our working capital needs.

With cash on hand, operating cash flow, our commercial paper program, and our ability to ~~access the capital markets~~obtain debt financing, we believe we have sufficient funds available to repay maturing debt, as well as support our ongoing operations, pay dividends, fund future growth, ~~(both internally and externally),~~ and repurchase stock. However, with the acquisition of ECS, we have temporarily realigned our capital allocation priorities and will limit share repurchases and other acquisition spending in order to focus on deleveraging to our long-term leverage target.

Our revolving credit facility and certain other long-term debt obligations contain restrictive ~~covenants. Based on our planned use~~covenants, of ~~cash,~~which we ~~could utilize the full $800 million of commercial paper, and we would expect to remain~~are comfortably in ~~compliance with all of the covenants.~~compliance. The covenants currently limit: a) ~~our total amount~~as of the last day of each fiscal quarter, the leverage ratio of consolidated funded indebtedness to ~~65% of our total capitalization~~consolidated EBITDA (each as defined in the revolving credit facility), for the trailing four fiscal quarters must not exceed 4.25 to 1.00, with a single step-down to 3.50 to 1.00 at March 31, 2020, b) the amount of total secured debt to 15% of our total consolidated assets, and c) our ability to sell, lease, transfer, or dispose of all or substantially all of total consolidated assets. For more information about long-term debt, see Note IK of the Notes to ~~the~~ Consolidated Financial Statements on page 94 in our Form 10-K filed February ~~22, 2018.~~27, 2019.

Accessibility of Cash

At ~~June 30, 2018~~March 31, 2019, we had cash and cash equivalents of ~~$446~~$263 million primarily invested in interest-bearing bank accounts and in bank time deposits with original maturities of three months or less. The majority of these funds are held in the international accounts of our foreign operations.

~~TCJA enacted at~~

Through the ~~end~~first quarter of ~~2017 imposed a one-time U.S. tax on the earnings that produced our~~2019, we were able to utilize $20 million of foreign ~~cash. This deemed repatriation tax totaled $56 million and is being paid on a graduated scale over the next eight years. In the second quarter, we repatriated $123~~entity cash to reduce debt. We currently expect to bring back approximately $170 million of foreign cash ~~and currently expect~~ to ~~repatriate approximately $300 million of cash~~reduce debt for the full ~~year. The exact timing and amounts of these cash repatriations are difficult to predict, and are, among other things, subject to local governmental requirements.~~year 2019.

If we were to bring all our foreign cash back immediately to the U.S. in the form of dividends, we would pay foreign withholding taxes of approximately ~~$25~~$19 million. However, due to capital requirements in various jurisdictions, approximately $28 million of this cash is currently inaccessible for repatriation. We repatriated ~~$123 million and $116~~$314 million at little to no added tax cost for the ~~second quarter 2018 and the~~ full year ~~2017, respectively.~~2018.

CONTRACTUAL OBLIGATIONS

Our contractual obligations table presented on page 48 in our Form 10-K filed February 27, 2019, had material changes from outside of the ordinary course of business due to the ECS acquisition and its financing as follows:

Long-term debt - increased $1.25 billion as follows:

Less than one year - $50 million

1-3 years - $100 million

3-5 years - $600 million

More than 5 years - $500 million

Operating Leases - increased $21 million as follows:

Less than one year - $6 million

1-3 years - $9 million

3-5 years - $5 million

More than 5 years - $1 million

Purchase obligations - reduced $1.25 billion for the acquisition price offset by $34 million for open purchase orders

Less than one year - $1.216 billion

Interest Payments - increased $337 million as follows:

Less than one year - $48 million

1-3 years - $90 million

3-5 years - $100 million

More than 5 years - $99 million

Deferred Income taxes - increased $129 million

More than 5 years - $129 million

CONTINGENCIES

Customer accounts receivable

Bankruptcy, financial difficulties or insolvency can ~~occur~~and has occurred with some of our customers ~~relatively quickly and could~~which can impact their ability to pay their debts to us. We have extended trade credit to some of these customers in a material amount, particularly in our ~~Consumer Products and~~ Bedding ~~Groups.~~group. Our bad debt reserve contains uncertainties because it requires management to estimate the amount of uncollectible receivables based upon the financial health and payment history of the customer, industry and macroeconomic considerations, and historical loss experience.

Some retailers that carry our products or our customers’ products may undergo restructurings or reorganizations because of financial difficulty. Also, certain of our customers have filed bankruptcy, and others, from time to time, ~~experienced bankruptcy, insolvency~~have become insolvent and/or ~~an inability~~do not have the ability to pay their debts to us as they come due. If our customers suffer significant financial difficulty, they may be unable to pay their debts to us, they may reject their contractual obligations to us under bankruptcy laws or otherwise, or we may have to negotiate significant discounts and/or extend financing terms with these customers. Any of these risks, if realized, could adversely affect our revenues and increase our operating expenses by requiring larger provisions for bad debt, which could have a material adverse effect on our financial condition, results of operations or cash flows.

Cybersecurity Risks

Although the Company has not experienced any material cybersecurity ~~incident,~~incidents, we have enhanced our cybersecurity protection efforts over the last few years. However, even with this expanded protection, technology failures or cybersecurity

breaches could still create system disruptions or unauthorized disclosure of confidential information. We cannot be certain that advances in the attacker’s capabilities will not compromise our technology protecting information systems. If these systems are

interrupted or damaged by any incident or fail for any extended period of time, then our results of operations could be adversely affected. We may incur remediation costs, increased cybersecurity protection costs, lost revenues resulting from unauthorized use of proprietary information, litigation and legal costs, reputational damage, damage to our competitiveness and negative impact on stock price and long-term shareholder value.

~~Contingencies~~Litigation

Accrual for Litigation Contingencies and Reasonably Possible Losses in Excess of Accruals

We are exposed to litigation contingencies that, if realized, could have a material negative impact on our financial condition, results of operations and cash flows. We deny liability in all currently threatened or pending litigation proceedings and believe we have valid bases to contest all claims made against us. ~~We had, at June 30, 2018, no aggregate~~At March 31, 2019, our litigation contingency accrual was $2 million (which does not include accrued expenses related to workers compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters). Based on current known facts, aggregate reasonably possible (but not probable, and therefore not recorded) losses in excess of accruals for litigation contingencies are estimated to be ~~$21~~$16 million, including ~~$18~~$15 million for Brazilian VAT matters and $3$1 million for other matters. If our assumptions or analyses regarding these contingencies are incorrect, or if facts change, we could realize loss in excess of the recorded accruals (and in excess of the ~~$21~~$16 million referenced above) which could have a material negative impact on our financial condition, results of operations and cash flows. For more information regarding our litigation contingencies, see Note 16 “Contingencies” on page 2729 of the Notes to Consolidated Condensed Financial Statements.

ACCOUNTING STANDARD UPDATES

~~As discussed in Note 2 to the Consolidated Condensed Financial Statements on page 6, the~~The FASB has issued accounting ~~standard updates~~guidance effective for the current and future periods. ~~Please refer to~~ See Note 2 to the Consolidated Condensed Financial Statements on page 6 for a more ~~information.~~complete discussion.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate

Substantially all of our debt is denominated in United States dollars. The fair value ~~for~~of fixed rate debt was ~~not materially~~approximately $5 million greater than ~~its $1,250 million~~ carrying value at ~~both June 30, 2018~~March 31, 2019 and approximately $35 million less than carrying value at December 31, ~~2017.~~2018. The fair value of fixed rate debt was calculated using a Bloomberg secondary market rate, as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, for similar remaining maturities, plus an estimated "spread" over such Treasury securities representing the Company's interest costs for its notes. The fair value of variable rate debt is not significantly different from its recorded amount.

Investment in Foreign Subsidiaries

We view our investment in foreign subsidiaries as a long-term commitment, and do not hedge translation exposures. This investment may take the form of either permanent capital or notes. Our net investment (i.e., total assets less total liabilities subject to translation exposure) in foreign operations with functional currencies other than the U.S. dollar was ~~$1.027 billion~~$979 million at ~~June 30, 2018,~~March 31, 2019, compared to ~~$1.085 billion~~$928 million at December 31, ~~2017.~~2018.

FORWARD-LOOKING STATEMENTS

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

Any forward-looking statement reflects only the beliefs of the Company or its management at the time the statement is made. Because all forward-looking statements deal with the future, they are subject to risks, uncertainties and developments which might cause actual events or results to differ materially from those envisioned or reflected in any forward-looking statement. Moreover, we do not have, and do not undertake, any duty to update or revise any forward-looking statement to

reflect events or circumstances after the date on which the statement was made. For all of these reasons, forward-looking statements should not be relied upon as a prediction of actual future events, objectives, strategies, trends or results.

Readers should review Item 1A Risk Factors in our Form 10-K, filed February ~~22, 2018~~27, 2019 and in this Form 10-Q for a description of important factors that could cause actual events or results to differ materially from forward-looking statements. It is not possible to anticipate and list all risks, uncertainties and developments which may affect the future operations or performance of the Company, or which otherwise may cause actual events or results to differ materially from forward-looking statements. However, the known, material risks and uncertainties include the following:

uncertainty of the financial performance of ECS and the Company following completion of the ECS Acquisition;

failure to realize the anticipated benefits of the ECS Acquisition, including as a result of delay in integrating the businesses of ECS;

difficulties and delays in achieving revenue synergies of ECS;

inability to retain key personnel and maintain relationships with customers and suppliers of ECS;

inability to “deleverage” after the ECS closing in the expected timeframe, due to increases or decreases in our capital needs, which may vary depending on a variety of factors, including, without limitation, any acquisition or divestiture activity and our working capital needs;

the Company's and ECS’s ability to achieve their respective short-term and longer-term operating targets;

inability to comply with the restrictive covenants in our credit agreement that may limit our operational flexibility and our ability to pay our debt when it comes due;

factors that could affect the industries or markets in which we participate, such as growth rates, market demand for our products, and opportunities in those industries;

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

factors that could impact raw materials and other costs, including the availability and pricing of steel scrap and rod, chemicals 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 maintain profit margins if our customers change the quantity and mix of our components in their finished goods;

our ability to ~~realize 25-35% contribution margin on incremental unit volume produced utilizing spare capacity;~~

~~our ability to achieve expected levels of cash flow;~~

~~our ability to identify and consummate strategically-screened acquisitions;~~

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

adverse changes in foreign currency, customs, shipping rates, political risk, and U.S. or foreign laws, regulations or legal systems (including ~~the Tax Cuts and Jobs Act and other~~ tax ~~laws)~~law changes);

our ability to realize deferred tax assets on our balance sheet;

tariffs imposed by the U.S. government that result in increased costs of imported raw materials and products that we purchase;

our ability to maintain the proper functioning of our internal business processes and information systems through technology failures or otherwise;

our ability to avoid modification or interruption of our information systems through ~~cybersecurity~~cyber security breaches;

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

~~the amount and timing of share repurchases;~~

the loss of one or more of our significant customers;

our ability to collect debts due to customer bankruptcy, financial difficulties or ~~insolvency~~insolvency;

our borrowing costs and access to liquidity resulting from credit rating changes;

business disruptions to our steel rod mill;

risks related to operating in foreign countries, including, without limitation, credit risks, increased customs and shipping rates, disruptions related to the availability of ~~our customers;~~electricity and transportation during times of crisis or war, and political instability in certain countries;

uncertainty related to the governing trade provisions between the United States, Mexico and Canada;

risks relating to the United Kingdom’s referendum, which called for its exit from the European Union (commonly known as “Brexit”);

the amount and timing of share repurchases; and

litigation accruals related to various contingencies including antitrust, intellectual property, product liability and warranty, taxation, environmental and workers’ compensation expense.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~See the~~The “Quantitative and Qualitative Disclosures About Market Risk” section under Item 2, Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Effectiveness of the Company's Disclosure Controls and Procedures

An evaluation as of ~~June 30, 2018~~March 31, 2019 was carried out by the Company’s management, with 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”)~~Exchange Act)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures are effective, as of ~~June 30, 2018,~~March 31, 2019, 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.

Changes in the Company's Internal Control Over Financial Reporting

Beginning January 1, 2019, we implemented ASU 2016-02 "Leases” (Topic 842). As a result, we implemented changes to our controls and procedures related to leasing arrangements. The changes included revisions to our existing lease policies, training, ongoing lease review requirements (as well as review of other contracts for embedded lease type arrangements), and gathering of information required for disclosures.

There were no other changes during the quarter ended ~~June 30, 2018~~March 31, 2019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 18, 2018, the Company, along with eight other domestic mattress producers, Corsicana Mattress Company, Elite Comfort Solutions (now a Leggett subsidiary), Future Foam, Inc., FXI, Inc., Innocor, Inc., Kolcraft Enterprises, Inc., Serta Simmons Bedding, LLC, and Tempur Sealy International, Inc., filed petitions with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) alleging that manufacturers of mattresses in China are unfairly selling their products in the United States at less than fair value (dumping) and seeking the imposition of duties on mattresses imported from China. The ITC has made a preliminary determination of material injury to the domestic mattress industry in this case, and the DOC has begun its investigation into the dumping allegations. If the DOC determines that dumping is present and the ITC reaches a final determination that the domestic industry has been materially injured by this unfair trade practice, the U.S. government will impose duties on mattresses imported from China at the dumping rate determined by the DOC. No assurance can be given that these determinations will be made, that duties will be imposed or as to the amount of any duties that may be imposed.

The information in Note 16 beginning on page 2729 of our Notes to Consolidated Condensed Financial Statements is incorporated into this section by reference. For a more complete description of all legal proceedings, reference is made to Footnote U in the Notes to Consolidated Financial Statements in our Form 10-K filed February 27, 2019.

ITEM 1A. RISK FACTORS

Our ~~2017~~2018 Annual Report on Form 10-K filed February ~~22, 2018~~27, 2019 includes a detailed discussion of our risk factors in Item 1A “Risk Factors.” The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form ~~10-K.~~10-K.

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.~~Securities and Exchange Commission.

~~Interruption in~~Revocation of antidumping duty orders on innerspring imports from China, South Africa and Vietnam could negatively impact our ~~customers’ business due to bankruptcy, financial difficulties or insolvency could result in their inability to pay their debts to us,~~sales and ~~could adversely affect our financial condition,~~ results of ~~operations or cash flows.~~operations.

~~Bankruptcy, financial difficulties or insolvency can occur with some~~Since 2009, there have been antidumping duty orders on innerspring imports from China, South Africa and Vietnam, ranging from 116% to 234%. In 2014, the Department of ~~our customers relatively quickly~~Commerce (DOC) and ~~could impact their ability~~the International Trade Commission (ITC) determined that the orders should be extended for five years. In March 2019, the DOC and the ITC initiated a second sunset review to ~~pay their debts~~determine whether to ~~us. We have extended trade credit to some of these customers in a material amount, particularly in our Consumer Products and Bedding Groups. Our bad debt reserve contains uncertainties because~~extend the orders for an additional five years. If it ~~requires management to estimate~~is determined that the ~~amount of uncollectible receivables based upon the financial health and payment history~~revocation of the ~~customer,~~orders would likely lead to the continuation or recurrence of dumping of innersprings (determined by the DOC) and material injury, or threat of such injury, to the U.S. innerspring industry (determined by the ITC), the orders will be extended for an additional five years. If the antidumping orders are not extended and ~~macroeconomic considerations,~~injurious dumping recurs, our sales and ~~historical loss experience.~~

Some retailers that carry our products or our customers’ products may undergo restructurings or reorganizations because of financial difficulty. Also, certain of our customers have from time to time experienced bankruptcy, insolvency and/or an inability to pay their debts to us as they come due. If our customers suffer significant financial difficulty, they may be unable to pay their debts to us, they may reject their contractual obligations to us under bankruptcy laws or otherwise, or we may have to negotiate significant discounts and/or extend financing terms with these customers. Any of these risks, if realized, could adversely affect our revenues and increase our operating expenses by requiring larger provisions for bad debt, which could have a material adverse effect on our financial condition, results of operations or cash flows.

~~Technology failures or cybersecurity breaches could have a material adverse effect on our results of operations, reputation, competitiveness, stock price and long-term shareholder value.~~

We rely on information systems to obtain, process, analyze and manage data, as well as to facilitate the manufacture and distribution of inventory to and from our facilities. We receive, process and ship orders, manage the billing of and collections from our customers, and manage the accounting for and payment to our vendors. Technology failures or cybersecurity breaches of a new or existing infrastructure could create system disruptions or unauthorized disclosure of confidential information. We cannot be certain that advances in attackers’ capabilities will not compromise our technology protecting information systems. If these systems are interrupted or damaged by these events or fail for any extended period of time, then our results of operations could be adversely affected. We may incur remediation costs, increased cybersecurity protection costs, lost revenues resulting from unauthorized use of proprietary information, litigation and legal costs, reputational damage, damage to our competitiveness and negative impact on stock price and long-term shareholder value.materially negatively impacted.

~~Tariffs imposed by the United States government resulting in increased costs of imports could have a material adverse effect on our results of operations.~~

The United States recently imposed broad-ranging tariffs of 25% on imports of steel products and 10% on imports of aluminum products. The Administration has also compiled a long list of products under consideration for potential tariffs on imports from China. After a period of notice and consultation, the list could be finalized and tariffs implemented, potentially including some products imported by us from China. Any tariffs that result in increased costs of imported products and materials could require us to increase prices to our domestic customers or, if we are unable to do so, result in lowering our gross margins on products sold. As a result, the tariffs could have a material adverse effect on our results of operations.

Business disruptions to our steel rod mill, if coupled with an inability to purchase an adequate and/or timely supply of quality steel rod from alternative sources, could have a material negative impact on our Residential Products and Industrial Products segments and Company results of operations.

We purchase steel scrap from third party suppliers. This scrap is converted into steel rod in our mill in Sterling, Illinois. Our steel rod mill has annual output of approximately 500,000 tons, a substantial majority of which is used by our three wire mills. Our wire mills convert the steel rod into drawn steel wire. This wire is used in the production of many of our products, including mattress innersprings.

A disruption to the operation of, or supply of steel scrap to, our steel rod mill could require us to purchase steel rod from alternative supply sources, subject to market availability. Ongoing trade actions by the Administration, along with the existence of antidumping and countervailing duty orders against multiple countries, could result in reduced market availability and/or higher cost of steel rod.

If we experience a disruption to our ability to produce steel rod in our mill, coupled with a reduction of adequate and/or timely supply from alternative market sources of quality steel rod, we could experience a material negative impact on our Residential Products and Industrial Products segments and Company results of operations.

We are exposed to litigation contingencies that, if realized, could have a material negative impact on our financial condition, results of operations and cash flows.

WeAlthough we deny liability in all currently threatened or pending litigation proceedings and believe that we have valid bases to contest all claims made against ~~us. We had,~~us, we have, at ~~June 30, 2018, no~~March 31, 2019, an aggregate litigation contingency accrual ~~(which does not include accrued expenses related to workers compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters).~~of $2 million. Based on current facts and circumstances, aggregate reasonably possible (but not probable) losses in excess of the recorded accruals for litigation contingencies (which include Brazilian ~~VAT~~value-added tax and other matters) are estimated to be ~~$21~~$16 million. If our assumptions or ~~analysis~~analyses regarding these contingencies isare incorrect, or if facts and circumstances change, we could realize loss in excess of the recorded accruals (and in excess of the ~~$21~~$16 million referenced above) which could have a material negative impact on our financial condition, results of operations and cash flows. For more information regarding our legal contingencies, please see Note 16 on page 2729 of the Notes to Consolidated Condensed Financial Statements.

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

A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. At ~~June 30, 2018,~~March 31, 2019, goodwill and other intangible assets represented ~~$1.0~~$2.2 billion, or ~~28%~~44% of our total assets. In addition, net property, plant and equipment, operating lease right-of-use assets, and sundry

assets totaled ~~$840 million,~~$1.1 billion, or ~~23%~~22% of total assets. If actual results differ from the assumptions and estimates used in the goodwill and long-lived asset valuation calculations, we could incur impairment charges, which would negatively impact our earnings.

We review our reporting units for potential goodwill impairment in the second quarter 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,~~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. If we are not able to achieve projected performance levels, future impairments could be possible, which would negatively impact our earnings.

For more information regarding potential goodwill and other long-lived asset impairment, please refer to Note 6 on page 13 of the Notes to Consolidated Condensed Financial Statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The table below is a listing of our purchases of the Company’s common stock by calendar month for the periods presented.

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
April 2018 212,479
$ 40.84
212,479
8,676,523
May 2018 1,058,942
$ 41.03
1,058,942
7,617,581
June 2018 —
$ —
—
7,617,581
Total 1,271,421
$ 41.00
1,271,421



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
January 2019	—	$	—	—	10,000,000
February 2019	89,419	$	44.61	16,042	9,983,958
March 2019	15,000	$	45.98	15,000	9,968,958
Total	104,419	$	44.81	31,042

~~All~~This number includes 73,377 shares which were not repurchased as part of a publicly announced plan or ~~program.~~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 option exercises, ~~and~~ stock unit conversions ~~as well as~~and forfeitures, ~~of stock units,~~ all of which totaled ~~9,704~~172,488 shares for the ~~second~~first 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 shall remain in force until repealed by the Board of Directors.



ITEM 6.	EXHIBITS

EXHIBIT INDEX



Exhibit No.		Description

10.1*2.1		~~Summary Sheet~~Stock Purchase Agreement by and among Leggett & Platt, Incorporated, Elite Comfort Solutions, Inc. and Elite Comfort Solutions LP, dated November 6, 2018, filed November 7, 2018, as Exhibit 2.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845) Schedules to the Stock Purchase Agreement have been omitted pursuant to Item 601(a)(5) of ~~Director Compensation.~~Regulation S-K. The Stock Purchase Agreement contains a list briefly identifying the omitted schedules. Leggett agrees to furnish, supplementally, a copy of any omitted schedule to the SEC upon request.

12*4.1		~~Computation~~Company Officers’ Certificate pursuant to Section 3.1 of ~~Ratio~~the Senior Indenture with Form of ~~Earnings~~4.40% Senior Notes due 2029, filed March 7, 2019, as Exhibit 4.3 to ~~Fixed Charges.~~the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

4.2		Senior Indenture dated May 6, 2005 between the Company and U.S. Bank National Association (successor in interest to The Bank of New York Mellon Trust Company, NA which was successor in interest to JPMorgan Chase Bank, N.A.), as Trustee, filed May 10, 2005 as Exhibit 4.1 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845)

4.3		Tri-Party Agreement under the May 6, 2005 Senior Indenture, between the Company, The Bank of New York Mellon Trust Company, NA (successor in interest to JPMorgan Chase Bank, N.A.) (as Prior Trustee) and U.S. Bank National Association (as Successor Trustee), dated February 20, 2009, filed February 25, 2009 as Exhibit 4.3.1 to the Company’s Form 10-K for the year ended December 31, 2008, is incorporated by reference. (SEC File No. 001-07845)

10.1		Third Amended and Restated Credit Agreement, dated as of December 12, 2018 among the Company, JP Morgan Chase Bank, N.A. as administrative agent, and the Lenders named therein, including Revolving Loans and Tranche A Term Loan, filed December 14, 2018 as Exhibit 10.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

10.2		Commercial Paper Issuing and Paying Agent Agreement between U.S. Bank National Association and the Company, dated December 2, 2014, including Master Note, filed December 5, 2014 as Exhibit 10.1 to the Company's Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

10.3		Form of Amended and Restated Commercial Paper Dealer Agreement filed December 5, 2014 as Exhibit 10.2 to the Company's Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

10.4		2019 Key Officers Incentive Plan, filed February 28, 2019, as Exhibit 10.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

10.5		2019 Award Formula for the 2019 Key Officers Incentive Plan, filed February 28, 2019, as Exhibit 10.2 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

10.6		2019 Form of Performance Stock Unit Award Agreement, filed March 13, 2019, as Exhibit 10.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 001-07845)

31.1*		Certification of Karl G. Glassman, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated ~~August 3, 2018.~~May 7, 2019.

31.2*		Certification of Matthew C. Flanigan, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated ~~August 3, 2018.~~May 7, 2019.

32.1*		Certification of Karl G. Glassman, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated ~~August 3, 2018.~~May 7, 2019.

32.2*		Certification of Matthew C. Flanigan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated ~~August 3, 2018.~~May 7, 2019.



Exhibit No.		Description

101.INS**		XBRL Instance Document.

101.SCH**		XBRL Taxonomy Extension Schema.

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase.

101.DEF**		XBRL Taxonomy Extension Definition Linkbase.

101.LAB**		XBRL Taxonomy Extension Label Linkbase.

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase.



*	Denotes filed herewith.
**	Filed as Exhibit 101 to this report are the following formatted in XBRL (eXtensible Business Reporting Language):
	(i) Consolidated Condensed Balance Sheets at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017;~~2018; (ii) Consolidated Condensed Statements of Operations for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~June 30, 2017;~~March 31, 2018; (iii) Consolidated Condensed Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~June 30, 2017;~~March 31, 2018; (iv) Consolidated Condensed Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~June 30, 2017;~~March 31, 2018; and (v) Notes to Consolidated Condensed Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	LEGGETT & PLATT, INCORPORATED

DATE: ~~August 3, 2018~~May 7, 2019	By:	/s/ KARL G. GLASSMAN
		Karl G. Glassman President and Chief Executive Officer

DATE: ~~August 3, 2018~~May 7, 2019	By:	/s/ MATTHEW C. FLANIGAN
		Matthew C. Flanigan Executive Vice President and Chief Financial Officer



	Balance at December 31, 2017 as Previously Reported			Topic 606 Adjustments			Balance at January 1, 2018
Current assets	$	1,766.5		$	—		$	1,766.5
Net property, plant and equipment	663.9			—			663.9
Other assets ¹	1,120.4			.7			1,121.1
Total assets	$	3,550.8		$	.7		$	3,551.5

Other current liabilities ²	$	88.7		$	3.0		$	91.7
All other current liabilities	887.5			—			887.5
Long-term liabilities	1,383.8			—			1,383.8
Retained earnings	2,511.3			(2.3		)	2,509.0
Other equity	(1,320.5		)	—			(1,320.5		)
Total liabilities and equity	$	3,550.8		$	.7		$	3,551.5



	For the six months ended June 30, 2018								For the three months ended June 30, 2018
	Amounts as Reported			Topic 606 Adjustments		Amounts Without Adoption of Topic 606			Amounts as Reported			Topic 606 Adjustments		Amounts Without Adoption of Topic 606
Net sales ³	$	2,131.3		$	8.2	$	2,139.5		$	1,102.5		$	5.8	$	1,108.3
Cost of goods sold ³	1,682.9			7.8		1,690.7			871.5			4.8		876.3
Gross profit	448.4			.4		448.8			231.0			1.0		232.0
Selling and administrative expenses	212.5			—		212.5			107.8			—		107.8
All other	7.4			—		7.4			2.1			—		2.1
Earnings from continuing operations before interest and income taxes	228.5			.4		228.9			121.1			1.0		122.1
Net interest expense	25.6			—		25.6			13.6			—		13.6
Income taxes	39.9			.1		40.0			22.4			.2		22.6
(Earnings) attributable to noncontrolling interest, net of tax	(.1		)	—		(.1		)	(.1		)	—		(.1		)
Net earnings	$	162.9		$	.3	$	163.2		$	85.0		$	.8	$	85.8



	Six Months Ended June 30,				Three Months Ended June 30,
	2018		2017		2018		2017
LIFO expense	$	18.8	$	2.5	$	12.8	$	2.1



	Six Months Ended June 30,					Three Months Ended June 30,
	2018			2017		2018			2017
Earnings:
Earnings from continuing operations	$	163.0		$	173.7	$	85.1		$	87.6
Earnings attributable to noncontrolling interest, net of tax	(.1		)	—		(.1		)	—
Net earnings from continuing operations attributable to Leggett & Platt, Inc. common shareholders	162.9			173.7		85.0			87.6
Earnings from discontinued operations, net of tax	—			—		—			—
Net earnings attributable to Leggett & Platt, Inc. common shareholders	$	162.9		$	173.7	$	85.0		$	87.6

Weighted average number of shares (in millions):
Weighted average number of common shares used in basic EPS	134.7			136.4		134.1			136.0
Dilutive effect of stock-based compensation	1.0			1.4		.9			1.4
Weighted average number of common shares and dilutive potential common shares used in diluted EPS	135.7			137.8		135.0			137.4

Basic and Diluted EPS:
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
Continuing operations	$	1.21		$	1.27	$	.63		$	.64
Discontinued operations	—			—		—			—
Basic EPS attributable to Leggett & Platt, Inc. common shareholders	$	1.21		$	1.27	$	.63		$	.64
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
Continuing operations	$	1.20		$	1.26	$	.63		$	.64
Discontinued operations	—			—		—			—
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders	$	1.20		$	1.26	$	.63		$	.64

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



	Balance at December 31, 2017		Add: Charges			Less: Net Charge-offs/ (Recoveries)		Balance at June 30, 2018
Trade accounts receivable	$	4.7	$	1.5		$	.9	$	5.3
Trade notes receivable	.2		(.1		)	—		.1
Total trade receivables	4.9		1.4			.9		5.4
Other notes receivable	—		—			—		—
Total allowance for doubtful accounts	$	4.9	$	1.4		$	.9	$	5.4



	Six Months Ended June 30, 2018				Six Months Ended June 30, 2017
	To be settled with stock		To be settled in cash		To be settled with stock		To be settled in cash
Stock-based retirement plans contributions ¹	$	4.1	$	.5	$	3.6	$	.7
Discounts on various stock awards:
Deferred Stock Compensation Program	.9		—		1.2		—
Stock-based retirement plans	.5		—		.7		—
Discount Stock Plan	.6		—		.6		—
Performance Stock Unit (PSU) awards: ²
2018 PSU - TSR based ^2A	.6		.6		—		—
2018 PSU - EBIT CAGR based ^2B	1.5		1.6		—		—
2017 and prior PSU awards ^2C	1.9		—		2.7		2.1
Restricted Stock Unit awards	1.0		—		1.2		—
Profitable Growth Incentive (PGI) awards ³	1.2		1.2		.8		.9
Other, primarily non-employee directors restricted stock	.4		—		.5		—
Total stock-based compensation expense	12.7		$	3.9	11.3		$	3.7
Employee contributions for above stock plans	6.5				8.9
Total stock-based compensation	$	19.2			$	20.2

Tax benefits on stock-based compensation expense	$	3.0			$	4.1
Tax benefits on stock-based compensation payments	.9				10.1
Total tax benefits associated with stock-based compensation	$	3.9			$	14.2



	Six Months Ended June 30, 2017
	Total Equity			Retained Earnings			Common Stock & Additional Contributed Capital			Treasury Stock			Noncontrolling Interest			Accumulated Other Comprehensive Income (Loss)
Beginning balance, January 1, 2017	$	1,094.0		$	2,410.5		$	508.2		$	(1,713.5	)	$	2.4		$	(113.6	)
Effect of accounting change on prior years (Topic 740)	1.2			1.2			—			—			—			—
Adjusted beginning balance, January 1, 2017	1,095.2			2,411.7			508.2			(1,713.5		)	2.4			(113.6		)
Net earnings	173.7			173.7			—			—			—			—
Dividends declared	(92.7		)	(95.2		)	2.5			—			—			—
Treasury stock purchased	(118.3		)	—			—			(118.3		)	—			—
Treasury stock issued	12.5			—			(19.4		)	31.9			—			—
Foreign currency translation adjustments	44.1			—			—			—			—			44.1
Cash flow hedges, net of tax	4.6			—			—			—			—			4.6
Defined benefit pension plans, net of tax	1.1			—			—			—			—			1.1
Stock-based compensation transactions, net of tax	16.0			—			16.0			—			—			—
Purchase of remaining interest in noncontrolling interest, net of acquisitions	(2.6		)	—			(.7		)	—			(1.9		)	—
Ending balance, June 30, 2017	$	1,133.6		$	2,490.2		$	506.6		$	(1,799.9	)	$	.5		$	(63.8	)



Fair Value over Carrying Value divided by Carrying Value	June 30, 2018 Goodwill Value		10-year Compound Annual Growth Rate Range for Sales	Terminal Values Long-term Growth Rate for Debt-Free Cash Flow		Discount Rate Ranges
Less than 100% ¹	$	181.3	4.7% - 5.2%	3	%	9.0% - 9.5%
101% - 300%	504.6		1.8% - 5.0%	3	%	8.5% - 10.0%
301% - 600%	153.1		5.7% - 12.4%	3	%	9.0% - 10.0%
	$	839.0	1.8% - 12.4%	3	%	8.5% - 10.0%

Three Months Ended

Number of Acquisitions

Product/Service

March 31, 2019

Residential Products

A leader in proprietary specialized foam technology, primarily for the bedding and furniture industries

March 31, 2018

Specialized Products

Global manufacturer of engineered hydraulic cylinders