10-K 1 leg201810k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number 001-07845
LEGGETT & PLATT, INCORPORATED
(Exact name of registrant as specified in its charter)
Missouri
 
44-0324630
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
No. 1 Leggett Road
Carthage, Missouri
 
64836
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code: (417) 358-8131
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
  
Name of each exchange on
which registered
Common Stock, $.01 par value
  
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ý     No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
  
Accelerated filer ¨
Non-accelerated filer
¨
 
Smaller reporting company ¨
 
 
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   ý
The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the closing price of our common stock on the New York Stock Exchange) on June 29, 2018 was $5,645,300,000 .
There were 131,071,610 shares of the registrant’s common stock outstanding as of February 18, 2019 .
DOCUMENTS INCORPORATED BY REFERENCE
Part of Item 10, and all of Items 11, 12, 13 and 14 of Part III are incorporated by reference from the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 2019 .



TABLE OF CONTENTS
LEGGETT & PLATT, INCORPORATED—FORM 10-K
FOR THE YEAR ENDED December 31, 2018
 
Page
Number
PART I
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Supp. Item.
PART II
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
PART III
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
PART IV
Item 15.
 
 
 
 
 
 
 
Item 16.
 
 



Forward-Looking Statements
 
This Annual Report on Form 10-K and our other public disclosures, whether written or oral, may contain “forward-looking” statements including, but not limited to: our ability to capitalize on current and future market trends, including growth of hybrid and specialty foam mattresses and the e-commerce mattress channel, and demand for compressed mattresses; our plans to maintain all Elite Comfort Solutions, Inc. (ECS) facilities; the financial results of ECS; the pro forma combined financial results of the Company and ECS; our expectation of maintaining the indebtedness under our commercial paper program until such time it is replaced with long-term debt; our belief that operating cash flow, cash on hand and our ability to obtain debt financing will provide sufficient funds available to repay commercial paper borrowings, as well as support our ongoing operations, pay dividends and fund future growth; projections of revenue, income, earnings, capital expenditures, dividends, capital structure, cash flows, tax impacts or other financial items; possible plans, goals, objectives, prospects, strategies or trends concerning future operations; statements concerning future economic performance, possible goodwill or other asset impairment; restructuring costs; and the underlying assumptions relating to the forward-looking statements. These statements are identified either by the context in which they appear or by use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should” or the like. All such forward-looking statements, whether written or oral, and whether made by us or on our behalf, are expressly qualified by the cautionary statements described in this provision.
 
Any forward-looking statement reflects only the beliefs of the Company or its management at the time the statement is made. Because all forward-looking statements deal with the future, they are subject to risks, uncertainties and developments which might cause actual events or results to differ materially from those envisioned or reflected in any forward-looking statement. Moreover, we do not have, and do not undertake, any duty to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement was made. For all of these reasons, forward-looking statements should not be relied upon as a prediction of actual future events, objectives, strategies, trends or results.
 
Readers should review Item 1A Risk Factors in this Form 10-K for a description of important factors that could cause actual events or results to differ materially from forward-looking statements. It is not possible to anticipate and list all risks, uncertainties and developments which may affect the future operations or performance of the Company, or which otherwise may cause actual events or results to differ materially from forward-looking statements. However, the known, material risks and uncertainties include the following:
 
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, market conditions, and alternative capital market opportunities, including, without limitation, the relative attractiveness of longer-term debt or equity financing;
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;
market and other factors or conditions that reduce or eliminate the Company’s ability to obtain long-term debt financing;
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;

1


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 tax 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 breaches;
a decline in the long-term outlook for any of our reporting units or assets that could result in impairment;
the loss of one or more of our significant customers;
our ability to collect customer debts due to bankruptcy, financial difficulties or 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 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.



2


PART I
 
Item 1. Business.

Summary
 
Leggett & Platt, Incorporated was founded as a partnership in Carthage, Missouri in 1883 and was incorporated in 1901. The Company, a pioneer of the steel coil bedspring, has become an international diversified manufacturer that conceives, designs and produces a wide range of engineered components and products found in many homes, offices, automobiles and aircraft. As discussed below, our operations are organized into 15 business units, which are divided into ten groups under our four segments: Residential Products; Industrial Products; Furniture Products; and Specialized Products.

Overview of Our Segments
 
Residential Products Segment

BEDDING GROUP
U.S. Spring
International Spring
Specialty Foam 1
 
FABRIC & FLOORING PRODUCTS GROUP
Fabric Converting
Geo Components
Flooring Products
 
MACHINERY GROUP
Machinery
                
1 Formed January 16, 2019, with the acquisition of Elite Comfort Solutions, Inc. (ECS)

Our Residential Products segment began in 1883 with the manufacture of steel coil bedsprings. Today, we supply 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. Our range of products offers our customers a single source for many of their component and finished product needs. We also produce or distribute carpet cushion, hard surface flooring underlayment, fabric, and geo components.
Innovative proprietary products and low cost have made us the largest U.S. manufacturer in many of these businesses. We strive to understand what drives consumer purchases in our markets and focus our product development activities on meeting end-consumer needs. We attain a cost advantage from efficient manufacturing methods, internal production of key raw materials, purchasing leverage, and large-scale production. Sourcing components from us allows our customers to focus on designing, merchandising and marketing their products.

On January 16, 2019, we completed the acquisition of ECS for cash consideration of approximately $1.25 billion. ECS, headquartered in Newnan, Georgia, is a leader in proprietary 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

3


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. The ECS management team will continue to lead the business. Leggett expects to maintain all 16 of ECS’s facilities.
P RODUCTS
Bedding Group
 
 
Innersprings (sets of steel coils, bound together, that form the core of a mattress)
 
 
Proprietary specialty foam for use primarily in bedding and furniture
 
 
Private-label finished mattresses, often sold compressed
 
 
Wire forms for mattress foundations
 
 
Machines that we use to shape wire into various types of springs
Fabric & Flooring Products Group
 
 
Structural fabrics for mattresses, residential furniture and industrial uses
 
 
Carpet cushion and hard surface flooring underlayment (made from bonded scrap foam, fiber, rubber and prime foam)
 
 
Geo components (synthetic fabrics and various other products used in ground stabilization, drainage protection, erosion and weed control)
Machinery Group
 
 
Quilting machines for mattress covers
 
 
Industrial sewing/finishing machines
 
 
Conveyor lines
 
 
Mattress packaging and glue-drying equipment
C USTOMERS
 
 
Manufacturers of finished bedding (mattresses and foundations)
 
 
Bedding brands and mattress retailers
 
 
Flooring retailers and distributors
 
 
Contractors, landscapers, road construction companies, and government agencies using geo components
 
 
Manufacturers of upholstered furniture, packaging, filtration and draperies

Industrial Products Segment

WIRE GROUP
Drawn Wire
Steel Rod

The quality of our products and service, together with low cost, have made Leggett & Platt the leading U.S. supplier of high-carbon drawn steel wire. Our Wire Group operates a steel rod mill with an annual output of approximately 500,000 tons, of which a substantial majority is used by our own wire mills. We have three wire mills that supply virtually all the

4


wire consumed by our other domestic businesses. We also supply steel wire to trade customers that operate in a broad range of markets.
P RODUCTS
Wire Group
 
 
Drawn wire
 
 
Steel rod
 
C USTOMERS
We use about 65% of our wire output to manufacture our own products, including:
 
 
Bedding and furniture components
 
 
Automotive seat suspension systems
The Industrial Products segment also has a diverse group of trade customers that include:
 
 
Mechanical spring manufacturers
 
 
Wire distributors
 
 
Packaging and baling companies

Furniture Products Segment

HOME FURNITURE GROUP
Home Furniture
 
WORK FURNITURE GROUP
Work Furniture
 
CONSUMER PRODUCTS GROUP
Consumer Products

In our Furniture Products segment, we design, manufacture, and distribute a wide range of components and finished products for the residential furniture, office and commercial furniture, and specialty bedding markets. We supply components used by home and work furniture manufacturers to provide comfort, motion and style in their finished products, as well as select lines of private-label finished furniture. We are also a major supplier of adjustable beds, with domestic manufacturing, distribution, e-commerce fulfillment and global sourcing capabilities.
P RODUCTS
Home Furniture Group
 
 
Steel mechanisms and motion hardware (enabling furniture to recline, tilt, swivel, rock and elevate) for reclining chairs, sofas, sleeper sofas and lift chairs
 
 
Springs and seat suspensions for chairs, sofas and loveseats

5


Work Furniture Group
 
 
Components and private-label finished goods for collaborative soft seating
 
 
Bases, columns, back rests, casters and frames for office chairs, and control devices that allow chairs to tilt, swivel and elevate
Consumer Products Group
 
 
Adjustable beds
 
 
Fashion beds and bed frames
 
C USTOMERS
 
 
Manufacturers of upholstered furniture
 
 
Office furniture manufacturers
 
 
Mattress and furniture retailers
 
 
Department stores and big box retailers
 
 
E-commerce retailers

Our Fashion Bed and Home Furniture businesses have underperformed expectations in recent quarters primarily from weaker demand and higher raw material costs. Accordingly, we are exiting low margin business, reducing operating costs and eliminating excess capacity. We incurred fourth quarter 2018 restructuring-related charges of $16 million ($7 million cash and $9 million non-cash) primarily attributable to the Fashion Bed and Home Furniture businesses. In 2019, we expect an additional estimated $17 million ($5 million cash and $12 million non-cash) in restructuring-related charges for these businesses. The restructuring activity should be substantially complete by the end of 2019.

Specialized Products Segment

AUTOMOTIVE GROUP
Automotive
 
AEROSPACE PRODUCTS GROUP
Aerospace Products
 
HYDRAULIC CYLINDERS GROUP
Hydraulic Cylinders
 
Our Specialized Products segment designs, manufactures and sells products including automotive seating components, tubing and fabricated assemblies for the aerospace industry, and hydraulic cylinders for the material handling, construction and transportation industries. In our automotive business, our technical capability and deep customer engagement allows us to compete on critical functionality, such as comfort, size, weight and noise. Our reliable product development and launch capability, coupled with our global footprint, makes us a trusted partner for our Tier 1 and OEM customers.

6


P RODUCTS
Automotive Group
 
 
Mechanical and pneumatic lumbar support and massage systems for automotive seating
 
 
Seat suspension systems
 
 
Motors and actuators, used in a wide variety of vehicle power features
 
 
Cables
Aerospace Products Group
 
 
Titanium, nickel and stainless-steel tubing, formed tube and tube assemblies, primarily used in fluid conveyance systems

  Hydraulic Cylinders Group
 
 
Engineered hydraulic cylinders

C USTOMERS
 
 
Automobile OEMs and Tier 1 suppliers
 
 
Aerospace suppliers
 
 
Mobile equipment OEMs, primarily serving material handling and construction markets

Strategic Direction
 
Primary Financial Metric
 
Total Shareholder Return (TSR), relative to peer companies, is 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 rolling three-year periods through an approach that employs four TSR drivers: revenue growth, margin expansion, dividends, and share repurchases.

Our incentive programs reward return generation and profitable growth. Senior executives participate in a TSR-based incentive program (based on our performance compared to a group of approximately 320 peers).

For information about our TSR targets, see the discussion under "Total Shareholder Return" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations on page 29 .

Returning Cash to Shareholders
 
During the past three years, we generated $1.44 billion of operating cash, and we returned much of this cash to shareholders in the form of dividends ($557 million) and share repurchases ($468 million). Our top priorities for use of cash are organic growth (capital expenditures), dividends, and strategic acquisitions. Historically, after funding those priorities, we generally repurchased stock with remaining available cash. Currently, in connection with the ECS acquisition our debt levels increased, and we expect to focus on deleveraging by temporarily limiting share repurchases, reducing acquisition spending, and using operating cash flow to repay debt.

For information about dividends and share repurchases, see the discussion under "Pay Dividends" and "Repurchase Stock" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 44 .


7


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

Disciplined Growth
 
We revised our TSR framework in 2016 to moderately increase the expected long-term contribution from revenue growth to 6-9% (from 4-5% previously). Over the last three years, the Company has generated combined unit volume and acquisition growth of 4% per year on average, but this growth was slightly offset by divestitures, commodity deflation and currency impact.

Our long-term 6-9% annual revenue growth objective envisions periodic acquisitions. We primarily seek acquisitions within our Grow businesses, and look for opportunities to enter new, higher growth markets (carefully screened for sustainable competitive advantage). We expect all acquisitions to (a) have a clear strategic rationale, a sustainable competitive advantage, a strong fit with the Company, and be in an attractive and growing market; (b) create value by enhancing TSR; (c) for stand-alone businesses: generally possess annual revenue in excess of $50 million, strong management and future growth opportunities with a strong market position in a market growing faster than GDP; and (d) for bolt-on businesses: generally possess annual revenue in excess of $15 million, significant synergies, and a strategic fit with an existing business unit. With the consummation of the ECS acquisition, the Company expects to temporarily reduce acquisition spending and use its operating cash flow to repay debt.

Acquisitions
 
2019

     On January 16, 2019, we completed the acquisition of Elite Comfort Solutions, Inc. (ECS) for cash consideration of approximately $1.25 billion. This business had revenues of $611 million for fiscal year ended September 2018. ECS is a leader in proprietary specialized foam technology, primarily for the bedding and furniture industries. 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 operates as a new business unit titled Specialty Foam within the Residential Products segment.

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 total consideration paid was $87 million. PHC serves a market of mainly large OEM customers utilizing highly engineered components with long product life-cycles that represent a small part of the end product’s cost. PHC represents a new growth platform and formed a new business group titled Hydraulic Cylinders within the Specialized Products segment.

We also acquired two small Geo Components businesses for total consideration of $22 million. They manufacture and distribute silt fencing and home and garden products.


8


2017

We acquired three businesses and the remaining interest in a joint venture for total consideration (including cash and stock) of $56 million. The first was a Canadian geosynthetic products distributor and installer for civil engineering and construction applications. The second was a Michigan-based surface-critical bent tube manufacturer supporting our private-label seating strategy in Work Furniture. We also acquired a North Carolina manufacturer of rebond carpet cushion. Finally, we acquired the remaining 20% ownership in an Asian joint venture in our Work Furniture business.

2016

We acquired three businesses and the remaining interest in a joint venture for total consideration of $65 million. The first was a U.S. manufacturer of aerospace tube assemblies. This business further expands our tube forming and fabrication capabilities, and also adds precision machining to our aerospace platform. We also acquired a distributor of geosynthetic products and a South African producer of mattress innersprings. Finally, we purchased the remaining interest in an Automotive joint venture in China. This business manufactures seat comfort products and lumbar support systems.

For more information regarding our acquisitions, please refer to Note S on page 114 and Note V on page 121 of the Notes to Consolidated Financial Statements.

Divestitures
 
2018

There were no divestitures in 2018.

2017

We divested our final Commercial Vehicle Products (CVP) business for total consideration of $9 million. This business unit was engaged in the manufacture of van interiors, including the racks, shelving and cabinets installed in service vans.

2016

We divested four businesses for net consideration of $72 million. We sold two wire operations, one that manufactured wire partitions, perimeter guarding and storage lockers, and another that manufactured automatic wire strapping equipment and related consumable wire products. We also sold a CVP operation that designed and assembled docking stations for mobile computing equipment in vehicles. Finally, we sold a Machinery business that assembled industrial sewing machines.

For further information about divestitures and discontinued operations, see Note C on page 81 of the Notes to Consolidated Financial Statements.


9


Foreign Operations
 
The percentages of our trade sales related to products manufactured outside the United States for the previous three years are shown below. The percentages of foreign trade sales were 34% for 2016, 37% for 2017 and 37% for 2018. Sales by ECS (acquired in January 2019) are not included in the table below. Substantially all ECS sales are in the United States.

chart-3d62da420e0f546298e.jpg
Our international operations are principally located in Europe, China, Canada and Mexico. Our products in these foreign locations primarily consist of:

Europe
Innersprings for mattresses
Lumbar and seat suspension systems for automotive seating and actuators for automotive applications
Seamless and welded tubing and fabricated assemblies for aerospace applications
Select lines of private-label finished furniture
Machinery and equipment designed to manufacture innersprings for mattresses
China
Lumbar and seat suspension systems for automotive seating and actuators for automotive applications
Cables, motors, and actuators for automotive applications
Recliner mechanisms and bases for upholstered furniture
Innersprings for mattresses
Work furniture components, including chair bases and casters
Canada
Lumbar supports for automotive seats
Fabricated wire for the furniture and automotive industries
Work furniture chair controls and bases

10


Mexico
Lumbar and seat suspension systems for automotive seating
Adjustable beds
Innersprings and fabricated wire for the bedding industry
Select lines of private-label finished furniture

Geographic Areas of Operation

As of December 31, 2018 , we had 129 manufacturing facilities; 75 located in the U.S. and 54 located in 17 foreign countries, as shown below. We also had various sales, warehouse and administrative facilities. However, our manufacturing plants are our most important properties.
 
Residential
Products
Industrial
Products
Furniture
Products
Specialized
Products
North America
 
 
 
 
Canada
n
 
n
n
Mexico
n
n
n
n
United States
n
n
n
n
Europe
 
 
 
 
Austria
 
 
 
n
Belgium
 
 
 
n
Croatia
n
 
 
 
Denmark
n
 
 
 
France
 
 
 
n
Hungary
 
 
 
n
Italy
n
 
 
 
Poland
 
 
n
 
Switzerland
n
 
 
 
United Kingdom
n
 
 
n
South America
 
 
 
 
Brazil
n
 
 
 
Asia
 
 
 
 
China
n
 
n
n
India
 
 
 
n
South Korea
 
 
 
n
Africa
 
 
 
 
South Africa
n
 
 
 


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Sales by Product Line
 
The following table shows our approximate percentage of trade sales by product line for the last three years:
Product Line
2018
 
2017
 
2016
Bedding Group
21
%
 
21

%
 
22

%
Automotive Group
19
 
 
20

 
 
19

 
Fabric & Flooring Products Group
17
 
 
18

 
 
18

 
Work Furniture Group
7
 
 
7

 
 
7

 
Consumer Products Group
11
 
 
10

 
 
8

 
Home Furniture Group
9
 
 
10

 
 
11

 
Wire Group 1
9
 
 
7

 
 
8

 
Aerospace Products Group
4
 
 
4

 
 
3

 
Hydraulic Cylinders Group 2
2
 
 

 
 

 
Machinery Group
1
 
 
2
 
 
2
 
Commercial Vehicle Products Group 3
 
 
1
 
 
2
 

1 Certain operations in the Wire Group were sold in 2016.
2 Formed in January 2018 with the acquisition of a manufacturer of hydraulic cylinders.
3 The two remaining Commercial Vehicle Products operations were sold in 2017 and 2016.

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

Raw Materials
 
The products we manufacture require a variety of raw materials. We believe that worldwide supply sources are readily available for all the raw materials we use. Among the most important are:
Various types of steel, including scrap, rod, wire, sheet and stainless
Chemicals used in foam production
Foam scrap
Woven and non-woven fabrics
Titanium and nickel-based alloys and other high strength metals

We supply our own raw materials for many of the products we make. For example, we produce steel rod that we make into steel wire, which we then use to manufacture:
Innersprings and foundations for mattresses
Springs and seat suspensions for chairs and sofas
Automotive seating suspension systems

We supply a substantial majority of our domestic steel rod requirements through our own rod mill. Our wire drawing mills supply nearly all of our U.S. requirements for steel wire.


12


Customer Concentration
 
We serve thousands of customers worldwide, sustaining many long-term business relationships. In 2018, our largest customer accounted for approximately 6% of our consolidated revenues. Our top 10 customers accounted for approximately 32% of these consolidated revenues. The loss of one or more of these customers could have a material adverse effect on the Company as a whole, or on the respective segment in which the customer’s sales are reported, including our Residential Products, Specialized Products and Furniture Products segments.

Patents and Trademarks
 
The chart below shows the number of patents issued, patents in process, trademarks registered and trademarks in process held by our operations as of December 31, 2018. No single patent or group of patents, or trademark or group of trademarks, is material to our operations as a whole. Substantially all of our patents relate to products manufactured by the Specialized Products, Furniture Products, and Residential Products segments, while over half of our trademarks relate to products manufactured by the Residential Products segment. We had 1,427 patents issued and 598 in process, and 980 trademarks registered and 143 in process.


chart-9a7667efbeabb2d9393.jpg
In addition to the above patents and trademarks, in January 16, 2019, we added, through the ECS acquisition, intellectual property related to the protection of technology around various foam applications including specialty polyols and additives that enhance foam performance by reducing heat retention, improving durability and diminishing odor.
 

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Some of our most significant trademarks include:
ComfortCore ® , Mira-Coil ® ,  VertiCoil ® ,  Quantum ® ,   Nanocoil ® ,   Softech ® ,  
Lura-Flex ® ,   Superlastic ®  and Active Support Technology ®   (mattress innersprings)
Energex ® Coolflow ®   (specialty foam products)
Semi-Flex ®   (box spring components and foundations)
Spuhl ®   (mattress innerspring manufacturing machines)
Wall Hugger ®   (recliner chair mechanisms)
Super Sagless ®   (motion and sofa sleeper mechanisms)
No-Sag ®   (wire forms used in seating)
LPSense ®   (capacitive sensing)
Hanes ®  (fabric materials)
Schukra ® , Pullmaflex ®  and Flex-O-Lator ®  (automotive seating products)
Gribetz ®   and Porter ®  (quilting and sewing machines)

Product Development

One of our strongest performing product categories across the company is ComfortCore ® , our fabric-encased innerspring coils used in hybrid and other mattresses.  Our ComfortCore ® volume continues to grow, and represented over 45% of our total innerspring units by the end of 2018.  A growing number of our ComfortCore ® innersprings contain a feature we call Quantum ® Edge.  These are narrow-diameter, fabric-encased coils that form a perimeter around a innerspring set, replacing foam in a finished mattress.  Over 35% of our ComfortCore ® innersprings have the Quantum ® Edge feature, and Quantum ® Edge continues to grow.  We have also developed very low height ComfortCore ® innersprings used as comfort layers in the top of mattresses that are a fast growing product.  In 2018, sales of these low height innersprings increased over 60%. We are investing in capacity and adding machinery, supplied by our Spuhl ® operation, to support the growth in ComfortCore ® and Quantum ® Edge.

With our January 2019 acquisition of Elite Comfort Solutions, Inc. (ECS), we gained important proprietary technologies in the production of specialty foams, primarily for the bedding and furniture industries.  ECS formulates many of the chemicals and additives used in foam production.  These branded, specialty polyols and additives enhance foam performance by reducing heat retention, improving durability and diminishing odor.  These innovations enable us to create quality mattresses that can be compressed, and we have a significant amount of intellectual property around these specialty chemical formulations.

Many of our other businesses are engaged in product development activities to protect our market position and support ongoing growth.

Employees
 
At December 31, 2018 , we had approximately 22,000 employees, of which 15,900 were engaged in production. Of the 22,000, approximately 12,500 were international employees (5,900 in China). Approximately 14% of our employees are represented by labor unions that collectively bargain for work conditions, wages or other issues. We did not experience any work stoppage related to contract negotiations with labor unions during 2018 . Management is not aware of any circumstances likely to result in a material work stoppage related to contract negotiations with labor unions during 2019. We had approximately 8,200 employees in Specialized Products; 6,300 in Residential Products; 5,600 in Furniture Products; and 1,100 in Industrial Products.


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chart-7126928a28b2e49c53f.jpg

At December 31, 2017 , we had approximately 22,200 employees.

As previously disclosed, the Company acquired ECS on January 16, 2019. ECS had 980 employees on the acquisition date.

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

We believe we are the largest U.S.-based manufacturer, in terms of revenue, of the following:
Bedding components
Automotive seat support and lumbar systems
Specialty bedding foams and private-label finished mattresses
Components for home furniture and work furniture
Flooring underlayment
Adjustable beds
High-carbon drawn steel wire
Bedding industry machinery

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

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For information about antidumping duty orders regarding innerspring, steel wire rod and mattress imports, please see "Competition" in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 31 .

Seasonality
 
As a diversified manufacturer, we generally have not experienced significant seasonality. However, unusual economic factors in any given year, along with acquisitions and divestitures, can create sales variability and obscure the underlying seasonality of our businesses. Historically, our operating cash flows are stronger in the fourth quarter primarily related to the timing of cash collections from customers and payments to vendors.

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

Working Capital Items
 
For information regarding working capital items, please see the discussion of "Cash from Operations" in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 41 .

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

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

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

Discontinued Operations
 
For information on discontinued operations, please see Note C on page 81 of the Notes to Consolidated Financial Statements.


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Item 1A. Risk Factors.
 
Investing in our securities involves risk. Set forth below and elsewhere in this report are risk factors that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. We may amend or supplement these risk factors from time to time by other reports we file with the SEC.

Inability to timely integrate and fully realize the benefit of the Elite Comfort Solutions, Inc. acquisition could negatively impact our ability to achieve our anticipated cash flows, results of operations, earnings per share, and stock price.
The Company completed the acquisition of Elite Comfort Solutions, Inc. (ECS) for a cash purchase price of approximately $1.25 billion on January 16, 2019. However, we may not be able to successfully integrate the ECS businesses. The financial performance of ECS and the combined company following completion of the transaction may not meet expectations due to a variety of factors, some of which may be outside of our control. The integration may divert management's resources and attention from running our other businesses, and we may fail to realize the anticipated benefits of the transaction, including as a result of delay in integrating ECS. Moreover, we may experience difficulties and delays in achieving revenue synergies associated with the transaction, or we may not achieve these synergies at all. Furthermore, additional unanticipated costs may be incurred in the integration of the ECS business. Finally, we may have difficulties in retaining key personnel and maintaining relationships with customers and suppliers of ECS. Our inability to successfully and timely integrate the ECS businesses could negatively impact our cash flows, results of operations, earnings per share, and stock price.
Our credit agreement contains covenants that may limit our operational flexibility. Furthermore, if we default on our obligations under the credit agreement, our operations may be interrupted and our business, results of operations and financial condition could be adversely affected.
We entered into the Third Amended and Restated Credit Agreement among us, JPMorgan Chase Bank, N.A., as administrative agent (“JPMorgan”) and twelve other lenders in our bank group (the “Credit Agreement”). The Credit Agreement is a five-year multi-currency credit facility providing us the ability, from time to time subject to certain customary conditions, to borrow, repay and re-borrow up to $1.2 billion. The Credit Agreement also provides for a one-time draw of up to $500 million under a five-year term loan facility, which we fully borrowed on January 16, 2019 to consummate the ECS acquisition. The Credit Agreement acts as support for the marketability of our commercial paper program, under which we had $898 million outstanding on January 16, 2019, the ECS acquisition closing date.
The Credit Agreement contains certain covenants, including a covenant that requires us to maintain, as of the last day of each quarter beginning March 31, 2019, a leverage ratio of consolidated funded indebtedness to consolidated EBITDA (each as defined in the Credit Agreement) for the trailing four fiscal quarters of not greater than 4.25 to 1.00, with a single step-down on March 31, 2020 and thereafter, to 3.50 to 1.00. This covenant may restrict our current and future operations, including (i) our flexibility to plan for, or react to, changes in our businesses and industries; and (ii) our ability to use our cash flows, or obtain additional financing, for future working capital, capital expenditures, acquisitions or other general corporate purposes.
Also, if we fail to comply with the covenants specified in the Credit Agreement, we may trigger an event of default, in which case the lenders would have the right to: (i) terminate their commitment to provide additional loans under the Credit Agreement, and (ii) declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. If the debt under the Credit Agreement were to be accelerated, we may not have sufficient cash to repay this debt, which would have an immediate material adverse effect on our business, results of operations and financial condition.
Costs of raw materials could negatively affect our profit margins and earnings.  
Raw material cost increases (and our ability to respond to cost increases through selling price increases) can significantly impact our earnings. We typically have short-term commitments from our suppliers; therefore, our raw material costs generally move with the market. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs. Inability to recover cost increases (or a delay in the recovery time) can negatively impact our earnings. Conversely, if raw material costs decrease, we generally pass through reduced selling prices to our customers. Reduced selling prices combined with higher cost inventory can reduce our segment margins and earnings.

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Steel is our principal raw material. The global steel markets are cyclical in nature and have been volatile in recent years. This volatility can result in large swings in pricing and margins from year to year. Our operations can also be impacted by changes in the cost of chemicals (including TDI, MDI, and polyol), fabrics and foam scrap, which may be subject to significant fluctuation and may negatively impact our profit margins and earnings.
As a producer of steel rod, we are also impacted by volatility in metal margins (the difference between the cost of steel scrap and the market price for steel rod). If market conditions cause scrap costs and rod pricing to change at different rates (both in terms of timing and amount), metal margins could be compressed and this would negatively impact our results of operations.
Higher raw material costs could lead some of our customers to modify their product designs, changing the quantity and mix of our components in their finished goods and replacing higher cost components with lower cost components. If this were to occur, it could negatively impact our results of operations. 
Competition could adversely affect our market share, sales, profit margins and earnings.  
We operate in markets that are highly competitive. We believe that most companies in our lines of business compete primarily on price, but, depending upon the particular product, we experience competition based on quality and performance. We face ongoing pressure from foreign competitors as some of our customers source a portion of their components and finished products from Asia and Europe. In addition to lower labor rates, foreign competitors benefit (at times) from lower raw material costs. They may also benefit from currency factors and more lenient regulatory climates. If we are unable to purchase key raw materials, such as steel, at prices competitive with those of foreign suppliers, our ability to maintain market share, sales, profit margins and earnings could be harmed by foreign competitors. 
Interruption in our customers’ businesses due to bankruptcy, financial difficulties or insolvency could result in their inability to pay their debts to us, and could adversely affect our sales, financial condition, results of operations or cash flows.
Bankruptcy, financial difficulties or insolvency can and has occurred with some of our customers 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 Bedding and Consumer Products Groups. 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, have become insolvent and/or 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 sales 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.
Tariffs by the United States government could result in increased costs of imports and could have a material adverse effect on our results of operations.
In 2018, the United States imposed broad-ranging tariffs of 25% on imports of steel products and 10% on imports of aluminum products. The Administration has also imposed tariffs on a broad variety of products imported from China. Additional tariffs may be imposed, or current tariffs increased, in the future. 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.
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.
Although 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 have, at December 31, 2018 , an aggregate litigation contingency

18


accrual 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 value-added tax and other matters) are estimated to be $17 million. If our assumptions or analysis regarding these contingencies is incorrect, or if facts and circumstances change, we could realize loss in excess of the recorded accruals (and in excess of the $17 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 U on page 119 of the Notes to Consolidated Financial Statements.
We are exposed to foreign currency risk which may negatively impact our competitiveness, profit margins and earnings.  
We expect that international sales will continue to represent a significant percentage of our total sales, which exposes us to currency exchange rate fluctuations. In 2018 , 37% of our sales were generated by international operations. Certain of our operations experience currency-related gains and losses where sales or purchases are denominated in currencies other than their local currency. Further, our competitive position may be affected by the relative strength of the currencies in countries where our products are sold. Foreign currency exchange risks inherent in doing business in foreign countries may have a material adverse effect on our competitiveness, profit margins and earnings.
Our goodwill and other long-lived assets are subject to potential impairment which could negatively impact our earnings.  
A significant portion of our assets consists of goodwill and other long-lived assets, the carrying value of which may be reduced if we determine that those assets are impaired. At December 31, 2018 , goodwill and other intangible assets represented $1.01 billion, or 30% of our total assets. In addition, net property, plant and equipment and sundry assets totaled $845 million, or 25% of total assets. After completing the ECS acquisition in January 2019, as discussed in Note V on page 121 of the Notes to Consolidated Financial Statements, our goodwill and other long-lived asset balances are expected to increase. 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, 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 D on page 82 and Note V on page 121 of the Notes to Consolidated Financial Statements.
Technology failures or cyber security breaches could have a material adverse effect on our operations.  
We rely on information systems to obtain, process, analyze and manage data, as well as to facilitate the manufacture and distribution of inventory to and from our facilities. We receive, process and ship orders, manage the billing of and collections from our customers, and manage the accounting for and payment to our vendors. Technology failures or security breaches of a new or existing infrastructure could create system disruptions or unauthorized disclosure of confidential information. If this occurs, our operations could be disrupted, or we may suffer financial loss because of lost or misappropriated information. We cannot be certain that advances in criminal capabilities will not compromise our technology protecting information systems. If these systems are interrupted or damaged by these events or fail for any extended period of time, then our results of operations could be adversely affected.
We may not be able to realize deferred tax assets on our balance sheet depending upon the amount and source of future taxable income.  
Our ability to realize deferred tax assets on our balance sheet is dependent upon the amount and source of future taxable income. Economic uncertainty or a reduction in the amount of taxable income or a change in the source of taxable income could impact our underlying assumptions on which valuation reserves are established and negatively affect future period earnings and balance sheets.

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We have exposure to economic and other factors that affect market demand for our products which may negatively impact our sales, operating cash flows and earnings.  
As a supplier of products to a variety of industries, we are adversely affected by general economic downturns. Our operating performance is heavily influenced by market demand for our components and products. Market demand for the majority of our products is most heavily influenced by consumer confidence. To a lesser extent, market demand is impacted by other broad economic factors, including disposable income levels, employment levels, housing turnover and interest rates. All of these factors influence consumer spending on durable goods, and drive demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one quarter of our sales.
Demand weakness in our markets can lead to lower sales and earnings in our businesses. Several factors, including a weak global economy, low consumer confidence, or a depressed housing market could contribute to reduced spending by consumers around the world. Short lead times in most of our markets allow for limited visibility into demand trends. If economic and market conditions deteriorate, we may experience material negative impacts on our sales, operating cash flows and earnings.
Changes in tax laws or challenges to our tax positions could negatively impact our earnings and cash flows.
We are subject to the tax laws and reporting rules of the U.S. (federal, state and local) and several foreign jurisdictions.  Current economic and political conditions make these tax rules (and governmental interpretation of these rules) in any jurisdiction, including the U.S., subject to significant change and uncertainty.  There have been proposals, most notably by the Organization for Economic Cooperation and Development and the European Union to reform tax laws or change interpretations of existing tax rules.  Some of these proposals, if adopted, could significantly impact how multinational corporations are taxed on their earnings and transactions.  Although we cannot predict whether or in what form these proposals will become law, or how they might be interpreted, such changes could have a material adverse effect on our earnings and cash flows.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA), resulting in significant changes to U.S. federal income tax law, including the reduction of the statutory federal income tax rate for corporations and the transition from a worldwide tax system to a modified territorial system. Although we expect TCJA will reduce our tax rate in future periods, this expectation is based on our current understanding of the legislation, the subsequent guidance which has been issued, and assumptions we have made. Recognized impacts could differ materially from current estimates based on additional analysis, any changes to our current interpretation of the legislation, actual financial results, additional regulatory guidance that might be issued, and other factors, including actions the Company may take as a result of TCJA.
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 action 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 the Company's results of operations.

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Our borrowing costs and access to liquidity may be impacted by our credit ratings.
Independent rating agencies evaluate our credit profile on an ongoing basis and have assigned ratings for our short-term and long-term debt. With the debt financing of the ECS acquisition, one rating agency lowered our long-term debt credit rating by one notch. This agency, along with one other, also placed our long-term debt rating on negative outlook. If our credit ratings further decline, our borrowing costs could increase, including increased costs under our commercial paper program, costs and fees under our credit facility, and our access to future sources of liquidity may be adversely affected.
We are exposed to risks associated with operating in foreign countries that could result in cost increases, reduced profits, the inability to carry on certain foreign operations and may negatively impact our results of operations, financial condition and cash flows.
In 2018 , 37% of our sales were generated by international operations.  Further, many of our businesses obtain products, components and raw materials from global suppliers. Accordingly, our business is subject to the political, regulatory, and legislative risks inherent in operating in numerous countries. These laws and regulations are complex and may change.  If the foreign governments adopt or change laws or regulations, this could negatively impact our results of operations, financial condition and cash flows. Our international locations also face risks associated with operating in a foreign country. These risks include:
Credit risks
Increased costs due to tariffs, customs and shipping rates
Potential problems obtaining raw materials, and disruptions related to the availability of electricity and transportation during times of crisis or war
Inconsistent interpretation and enforcement, at times, of foreign tax laws and regulations, and capital requirements
Political instability in certain countries

Our Specialized Products segment, which derives roughly 84% of its trade sales from products manufactured in foreign countries, is particularly subject to the above risks. These and other foreign-related risks could result in cost increases, reduced profits, the inability to carry on certain foreign operations and other adverse effects on our business.
The governing trade provisions between the United States, Mexico and Canada may become less favorable to the Company resulting in increased costs, reduced competitiveness and a negative impact on our results of operations.
On November 30, 2018, the United States, Mexico, and Canada signed the United States-Mexico-Canada Agreement (USMCA), the intended successor agreement to the North American Free Trade Agreement (NAFTA).  Each country must follow its domestic procedures before the agreement can be ratified and thus take effect. To date, the U.S. Administration has not formally provided notice of intent to withdraw from the existing NAFTA, which would start a 6-month clock, pressing Congress to either ratify USMCA or allow NAFTA to terminate.  There is uncertainty as to (i) whether the United States will withdraw from NAFTA, (ii) whether the USMCA will be ratified, or (iii) if the United States withdraws from NAFTA, but the USMCA is not ratified, what trade provisions will govern the relationships between the countries.  If the governing trade provisions between the United States, Mexico and Canada become less favorable to the Company, this could increase our costs, reduce our competitiveness and negatively impact our results of operations.
The United Kingdom's potential withdrawal from the European Union could adversely affect us.
In June 2016, the United Kingdom (UK) held a referendum in which voters approved an exit from the European Union (EU), commonly referred to as “Brexit.” The ultimate effect of Brexit on us is difficult to predict, but, because we conduct business in the UK and in the EU, the results of the referendum and any withdrawal could cause disruptions and create uncertainty to our businesses, including affecting our relationships with customers and suppliers, altering tariffs and currencies, and fluctuating the value of the British Pound and the Euro relative to the U.S. Dollar. Such disruptions and uncertainties could adversely affect our financial condition, results of operations and/or cash flows from operations.


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Item 1B. Unresolved Staff Comments.
 
None.

Item 2. Properties.

The Company’s corporate office is located in Carthage, Missouri. As of December 31, 2018 , we had 129 manufacturing locations, of which 75 are located across the United States and 54 are located in 17 foreign countries. We also had various sales, warehouse and administrative facilities. However, our manufacturing plants are our most important properties.

Manufacturing Locations by Segment

 
 
Company-
Wide
 
Subtotals by Segment
Manufacturing Locations
 
Residential
Products
 
Industrial
Products
 
Furniture
Products
 
Specialized
Products
United States
 
75
 
41
 
5
 
23
 
6
China
 
17
 
2
 
 
5
 
10
Europe
 
15
 
6
 
 
1
 
8
Canada
 
8
 
3
 
 
2
 
3
Mexico
 
8
 
3
 
1
 
2
 
2
Other
 
6
 
3
 
 
 
3
Total
 
129
 
58
 
6
 
33
 
32

For more information regarding the geographic location of our manufacturing facilities refer to “Geographic Areas of Operation” under Item 1 Business on page 11 .
Manufacturing Locations Owned or Leased by Segment

 
 
Company-
Wide
 
Subtotals by Segment
Manufacturing Locations
 
Residential
Products
 
Industrial
Products
 
Furniture
Products
 
Specialized
Products
Owned
 
69
 
34
 
6
 
17
 
12
Leased
 
60
 
24
 
 
16
 
20
Total
 
129
 
58
 
6
 
33
 
32

In addition to the above, upon the acquisition of Elite Comfort Solutions, Inc. (ECS) on January 16, 2019, we added 13 manufacturing facilities located across the United States, of which five are owned. All of these facilities are held within Residential Products.

We lease many of our manufacturing, warehouse and other facilities on terms that vary by lease (including purchase options, renewals and maintenance costs). For additional information regarding lease obligations, see Note L on page 95 of the Notes to Consolidated Financial Statements. Of our 129 manufacturing facilities, none are subject to liens or encumbrances that are material to the segment in which they are reported or to the Company as a whole.
 
None of our physical properties are, by themselves, material to the Company’s overall manufacturing processes, except for our steel rod mill in Sterling, Illinois, which is reported in Industrial Products. The rod mill consists of approximately 1 million square feet of production space, which we own, and has annual output of approximately 500,000 tons of steel rod, of which a substantial majority is used by our own 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

22


existence of antidumping and countervailing duty orders against multiple countries, could result in reduced market availability and/or the increase in the 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 the Company's results of operations.

In the opinion of management, the Company’s owned and leased facilities are suitable and adequate for the manufacture, assembly and distribution of our products. Our properties are located to allow timely and efficient delivery of products and services to our diverse customer base. In certain businesses, productive capacity continues to exceed current operating levels. However, utilization has increased in many of our businesses with improving market demand, and we are investing to support growth in some of our businesses, including Automotive and U.S. Spring.

Item 3. Legal Proceedings.
 
The information in Note U beginning on page 119 of the Notes to Consolidated Financial Statements is incorporated into this section by reference.
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 made a preliminary determination that there is a reasonable indication 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.

Item 4. Mine Safety Disclosures.
 
Not applicable.

Supplemental Item. Executive Officers of the Registrant.
 
The following information is included in accordance with the provisions of Part III, Item 10 of Form 10-K and Item 401(b) of Regulation S-K.
 
The table below sets forth the names, ages and positions of all executive officers of the Company. Executive officers are normally appointed annually by the Board of Directors.
 
Name
 
Age
 
Position
Karl G. Glassman
 
60
 
President and Chief Executive Officer
Matthew C. Flanigan
 
57
 
Executive Vice President and Chief Financial Officer
J. Mitchell Dolloff
 
53
 
Executive Vice President and Chief Operating Officer, President Specialized Products & Furniture Products
Perry E. Davis
 
59
 
Executive Vice President, President Residential Products & Industrial Products
Scott S. Douglas
 
59
 
Senior Vice President, General Counsel & Secretary
Russell J. Iorio
 
49
 
Senior Vice President, Corporate Development
Susan R. McCoy
 
54
 
Senior Vice President, Investor Relations
Tammy M. Trent
 
52
 
Senior Vice President, Chief Accounting Officer


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Subject to the severance benefit agreements with Mr. Glassman, Mr. Flanigan, Mr. Davis, Mr. Dolloff and Mr. Douglas listed as exhibits to this Report (and one other immaterial agreement with another executive officer), the executive officers generally serve at the pleasure of the Board of Directors. Please see Exhibit Index on page 124 for reference to the agreements.
 
Karl G. Glassman was appointed Chief Executive Officer of the Company in 2016 and President in 2013. He previously served the Company as Chief Operating Officer from 2006 to 2015. He also served as Executive Vice President from 2002 to 2013, President of Residential Furnishings from 1999 to 2006, Senior Vice President from 1999 to 2002 and in various capacities since 1982.
 
Matthew C. Flanigan was appointed Executive Vice President of the Company in 2013 and has served as Chief Financial Officer since 2003. He previously served as Senior Vice President from 2005 to 2013, Vice President from 2003 to 2005, Vice President and President of the Office Furniture Components Group from 1999 to 2003 and in various capacities since 1997. Although Mr. Flanigan has announced his retirement from the Company, his retirement date has not been determined as of the date of this Form 10-K.

J. Mitchell Dolloff was appointed Chief Operating Officer effective January 1, 2019. He was appointed Executive Vice President, President—Specialized Products & Furniture Products effective January 1, 2017. He previously served as Senior Vice President and President of the Specialized Products segment beginning in 2016. He served as Vice President of the Company and President of the Automotive Group from 2014 to 2015. He also served as President of Automotive Asia from 2011 to 2013, Vice President of the Specialized Products segment from 2009 to 2013, and Director of Business Development for Specialized Products from 2007 to 2009. He has served the Company in various other capacities since 2000.

Perry E. Davis was appointed Executive Vice President, President—Residential Products & Industrial Products effective January 1, 2017. He previously served as Senior Vice President and President of the Residential Furnishings segment beginning in 2012. He also served as Vice President of the Company, President—Bedding Group from 2006 to 2012, as Vice President of the Company, Executive VP of the Bedding Group and President—U.S. Spring beginning in 2005. He served as Executive VP of the Bedding Group and President—U.S. Spring from 2004 to 2005, President—Central Division Bedding Group from 2000 to 2004, and in various capacities since 1981.
 
Scott S. Douglas was appointed Senior Vice President and General Counsel in 2011. He was appointed Secretary of the Company in 2016. He previously served as Vice President and General Counsel from 2010 to 2011, as Vice President—Law and Deputy General Counsel from 2008 to 2010, as Associate General Counsel—Mergers & Acquisitions from 2001 to 2007, and as Assistant General Counsel from 1991 to 2001. He has served the Company in various legal capacities since 1987.
 
Russell J. Iorio was appointed Senior Vice President, Corporate Development in 2016. He previously served the Company as Senior Vice President, Mergers & Acquisitions from 2014 to 2016. He served the Company as Vice President, Mergers & Acquisitions from 2005 to 2014, and Director of Mergers, Acquisitions & Strategic Planning from 2002 to 2005.

Susan R. McCoy was appointed Senior Vice President, Investor Relations in 2019. She previously served as Vice President, Investor Relations from 2014 to 2019, Staff Vice President, Investor Relations from 2011 to 2014, and Director of Investor Relations from 2002 to 2011. She also served as Due Diligence Manager from 1999 to 2002, Manager of Financial Reporting in 1999 and in a series of progressively more responsible financial capacities since 1986.

Tammy M. Trent was appointed Senior Vice President in 2017 and has served as Chief Accounting Officer since 2015. She previously served as Vice President from 2015 to 2017, and Staff Vice President, Financial Reporting from 2007 to 2015. She has served the Company in a series of progressively more responsible financial capacities since 1998.  


24


PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Our common stock is traded on the New York Stock Exchange (symbol LEG). The table below highlights quarterly and annual stock market information for the last two years. 
 
Price Range 1
 
Volume of
Shares Traded 1
(in Millions)
 
Dividend
Declared
 
High
 
Low
 
2018
 
 
 
 
 
 
 
First Quarter
$
49.88

 
$
41.25

 
94.7

 
$
0.36

Second Quarter
45.39

 
39.57

 
78.8

 
0.38

Third Quarter
46.71

 
42.19

 
67.2

 
0.38

Fourth Quarter
44.22

 
33.48

 
93.7

 
0.38

For the Year
$
49.88

 
$
33.48

 
334.4

 
$
1.50

2017
 
 
 
 
 
 
 
First Quarter
$
50.89

 
$
46.24

 
61.1

 
$
0.34

Second Quarter
54.97

 
49.92

 
59.9

 
0.36

Third Quarter
53.96

 
43.17

 
59.9

 
0.36

Fourth Quarter
51.99

 
44.76

 
58.2

 
0.36

For the Year
$
54.97

 
$
43.17

 
239.1

 
$
1.42

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

Shareholders and Dividends
 
As of February 18, 2019 , we had 8,356 shareholders of record.
 
Increasing the dividend remains a high priority. In 2018 , we increased the quarterly dividend by $.02, or 5.6% to $.38 per share. For 30 years, we have generated operating cash in excess of our annual requirement for capital expenditures and dividends. We expect this again to be the case in 2019. We have no restrictions that materially limit our ability to pay such dividends or that we reasonably believe are likely to limit the future payment of dividends.



25


  Issuer Purchases of Equity Securities
 
The table below is a listing of our purchases of the Company’s common stock during each calendar month of the fourth quarter of 2018
Period
 
Total Number of
Shares Purchased 1
 
Average
Price
Paid per
Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs 2
 
Maximum Number of
Shares that May Yet
Be Purchased Under the
Plans or Programs 2
October 2018
 

 
$

 

 
7,572,661

November 2018
 
3,671

 
$
37.48

 

 
7,572,661

December 2018
 
462

 
$
36.19

 

 
7,572,661

Total
 
4,133

 
$
37.34

 

 
 

1 This number includes 4,133 shares which were not repurchased as part of a publicly announced plan or program, all of which were shares surrendered in transactions permitted under the Company’s benefit plans. It does not include shares withheld for taxes on option exercises and stock unit conversions, all of which totaled 4,573 shares for the fourth quarter.

2 On August 4, 2004, the Board authorized management to repurchase up to 10 million shares each calendar year beginning January 1, 2005. This standing authorization was first reported in the quarterly report on Form 10-Q for the period ended June 30, 2004, filed August 5, 2004, and will remain in force until repealed by the Board of Directors. As such, effective January 1, 2019, the Company was authorized by the Board of Directors to repurchase up to 10 million shares in 2019. No specific repurchase schedule has been established.

26


Item 6. Selected Financial Data.
 
(Unaudited)
2018 1
 
2017 2
 
2016 3
 
2015 4
 
2014 5
(Dollar amounts in millions, except per share data)
 
 
 
 
 
 
 
 
 
Summary of Operations
 
 
 
 
 
 
 
 
 
Net Sales from Continuing Operations
$
4,270

 
$
3,944

 
$
3,750

 
$
3,917

 
$
3,782

Earnings from Continuing Operations
306

 
294

 
367

 
328

 
225

(Earnings) Attributable to Noncontrolling Interest, net of tax

 

 

 
(4
)
 
(3
)
Earnings (loss) from Discontinued Operations, net of tax

 
(1
)
 
19

 
1

 
(124
)
Net Earnings attributable to Leggett & Platt, Inc. common shareholders
306

 
293

 
386

 
325

 
98

Earnings per share from Continuing Operations
 
 
 
 
 
 
 
 
 
Basic
2.28

 
2.16

 
2.66

 
2.30

 
1.57

Diluted
2.26

 
2.14

 
2.62

 
2.27

 
1.55

Earnings (Loss) per share from Discontinued Operations
 
 
 
 
 
 
 
 
 
Basic