NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except per share data)
1. INTERIM PRESENTATION
The interim financial statements of Leggett & Platt, Incorporated (we, us or our) included herein have not been audited by an independent registered public accounting firm. The statements include all adjustments, including normal recurring accruals, which management considers necessary for a fair statement of our financial position and operating results for the periods presented. We have prepared the statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of results to be expected for an entire year.
The December 31, 2018 financial position data included herein was derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP.
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 2019:
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•
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On January 1, 2019, we adopted ASU 2016-02 “Leases” (Topic 842) as discussed in
Note 5
.
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•
|
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. This guidance was effective January 1, 2019 and it did not have a material impact on our results of operations, financial condition and cash flows.
|
To be adopted in future years:
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•
|
ASU 2016-13 “Financial Instruments—Credit Losses” (Topic 326): This ASU is effective January 1, 2020 and amends the impairment model by requiring a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments including trade receivables. We are currently evaluating this guidance. However, we do not expect it to materially impact our future financial statements.
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•
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ASU 2017-04 "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. We are currently evaluating this guidance, and do not expect it to materially impact our future financial statements.
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•
|
ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”: This ASU will be effective January 1, 2020 and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
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LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
capitalizing implementation costs incurred to develop or obtain internal-use software. We are currently evaluating this guidance.
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 believe it will have a material impact on our future financial statements.
3. REVENUE
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".
Performance Obligations and Shipping and Handling Costs
We recognize revenue when performance obligations under the terms of a contract with our customers are satisfied. Substantially all of our revenue is recognized upon transfer of control of our products to our customers, which is generally upon shipment from our facilities or upon delivery to our customers' facilities and 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 are transferred. Substantially all unsatisfied performance obligations as of
June 30, 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 periods presented were not material.
Some of our products transferred to customers can be returned, and we recognize the following for this right:
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•
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An estimated refund liability and a corresponding reduction to revenue based on historical returns experience.
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•
|
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, 2019
.
Other
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).
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 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.
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Six Months Ended June 30,
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Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Residential Products
|
|
|
|
|
|
|
|
Bedding group
1
|
$
|
729.8
|
|
|
$
|
442.4
|
|
|
$
|
379.3
|
|
|
$
|
221.4
|
|
Fabric & Flooring Products group
|
389.6
|
|
|
361.0
|
|
|
215.9
|
|
|
199.7
|
|
Machinery group
|
23.7
|
|
|
33.5
|
|
|
11.5
|
|
|
17.7
|
|
|
1,143.1
|
|
|
836.9
|
|
|
606.7
|
|
|
438.8
|
|
Industrial Products
|
|
|
|
|
|
|
|
Wire group
|
169.5
|
|
|
178.4
|
|
|
80.4
|
|
|
96.4
|
|
|
169.5
|
|
|
178.4
|
|
|
80.4
|
|
|
96.4
|
|
Furniture Products
|
|
|
|
|
|
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|
Home Furniture group
|
178.2
|
|
|
200.0
|
|
|
87.3
|
|
|
99.4
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|
Work Furniture group
|
147.7
|
|
|
145.9
|
|
|
74.5
|
|
|
74.2
|
|
Consumer Products group
|
199.9
|
|
|
226.8
|
|
|
97.3
|
|
|
117.8
|
|
|
525.8
|
|
|
572.7
|
|
|
259.1
|
|
|
291.4
|
|
Specialized Products
|
|
|
|
|
|
|
|
Automotive group
|
398.0
|
|
|
427.8
|
|
|
201.9
|
|
|
215.7
|
|
Aerospace Products group
|
80.1
|
|
|
76.8
|
|
|
40.7
|
|
|
37.0
|
|
Hydraulic Cylinders group
2
|
51.8
|
|
|
38.7
|
|
|
24.4
|
|
|
23.2
|
|
|
529.9
|
|
|
543.3
|
|
|
267.0
|
|
|
275.9
|
|
|
$
|
2,368.3
|
|
|
$
|
2,131.3
|
|
|
$
|
1,213.2
|
|
|
$
|
1,102.5
|
|
1
On January 16, 2019, we completed the acquisition of Elite Comfort Solutions, Inc. (ECS) as discussed in
Note 10
.
2
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:
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•
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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 produces private-label finished mattresses for bedding brands. We also produce or distribute flooring underlayment, fabric, and geo components.
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•
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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.
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•
|
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.
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•
|
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.
|
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 who has accountability to 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 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 is shown in the following tables.
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Trade
Sales
|
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Inter-
Segment
Sales
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Total
Sales
|
|
EBIT
|
|
Depreciation and Amortization
|
Three Months Ended June 30, 2019
|
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|
|
|
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|
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|
Residential Products
|
$
|
606.7
|
|
|
$
|
3.6
|
|
|
$
|
610.3
|
|
|
$
|
44.4
|
|
|
$
|
26.0
|
|
Industrial Products
|
80.4
|
|
|
75.6
|
|
|
156.0
|
|
|
29.2
|
|
|
2.8
|
|
Furniture Products
|
259.1
|
|
|
2.2
|
|
|
261.3
|
|
|
20.9
|
|
|
4.0
|
|
Specialized Products
|
267.0
|
|
|
.7
|
|
|
267.7
|
|
|
41.5
|
|
|
10.4
|
|
Intersegment eliminations, unallocated assets and other
1
|
|
|
|
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—
|
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|
6.8
|
|
|
$
|
1,213.2
|
|
|
$
|
82.1
|
|
|
$
|
1,295.3
|
|
|
$
|
136.0
|
|
|
$
|
50.0
|
|
Three Months Ended June 30, 2018
|
|
|
|
|
|
|
|
Residential Products
|
$
|
438.8
|
|
|
$
|
4.7
|
|
|
$
|
443.5
|
|
|
$
|
40.0
|
|
|
$
|
11.7
|
|
Industrial Products
|
96.4
|
|
|
74.1
|
|
|
170.5
|
|
|
13.4
|
|
|
2.5
|
|
Furniture Products
|
291.4
|
|
|
3.6
|
|
|
295.0
|
|
|
16.3
|
|
|
4.4
|
|
Specialized Products
|
275.9
|
|
|
.6
|
|
|
276.5
|
|
|
51.9
|
|
|
9.8
|
|
Intersegment eliminations, unallocated assets and other
1
|
|
|
|
|
|
|
(.5
|
)
|
|
5.4
|
|
|
$
|
1,102.5
|
|
|
$
|
83.0
|
|
|
$
|
1,185.5
|
|
|
$
|
121.1
|
|
|
$
|
33.8
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
Trade
Sales
|
|
Inter-
Segment
Sales
|
|
Total
Sales
|
|
EBIT
|
|
Depreciation and Amortization
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
Residential Products
|
$
|
1,143.1
|
|
|
$
|
6.4
|
|
|
$
|
1,149.5
|
|
|
$
|
76.3
|
|
|
$
|
49.2
|
|
Industrial Products
|
169.5
|
|
|
154.5
|
|
|
324.0
|
|
|
53.3
|
|
|
5.4
|
|
Furniture Products
|
525.8
|
|
|
5.2
|
|
|
531.0
|
|
|
27.3
|
|
|
8.0
|
|
Specialized Products
|
529.9
|
|
|
1.6
|
|
|
531.5
|
|
|
77.2
|
|
|
20.6
|
|
Intersegment eliminations, unallocated assets and other
1
|
|
|
|
|
|
|
.1
|
|
|
13.1
|
|
|
$
|
2,368.3
|
|
|
$
|
167.7
|
|
|
$
|
2,536.0
|
|
|
$
|
234.2
|
|
|
$
|
96.3
|
|
Six Months Ended June 30, 2018
|
|
|
|
|
|
|
|
Residential Products
|
$
|
836.9
|
|
|
$
|
9.3
|
|
|
$
|
846.2
|
|
|
$
|
75.0
|
|
|
$
|
23.0
|
|
Industrial Products
|
178.4
|
|
|
144.5
|
|
|
322.9
|
|
|
22.4
|
|
|
5.1
|
|
Furniture Products
|
572.7
|
|
|
6.5
|
|
|
579.2
|
|
|
34.3
|
|
|
8.7
|
|
Specialized Products
|
543.3
|
|
|
1.3
|
|
|
544.6
|
|
|
98.0
|
|
|
18.9
|
|
Intersegment eliminations, unallocated assets and other
1
|
|
|
|
|
|
|
(1.2
|
)
|
|
11.5
|
|
|
$
|
2,131.3
|
|
|
$
|
161.6
|
|
|
$
|
2,292.9
|
|
|
$
|
228.5
|
|
|
$
|
67.2
|
|
1
Unallocated depreciation and amortization consists primarily of depreciation of non-operating assets and amortization of debt issuance costs.
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.
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|
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|
June 30,
2019
|
|
December 31,
2018
|
Residential Products
|
$
|
800.4
|
|
|
$
|
609.4
|
|
Industrial Products
|
169.6
|
|
|
163.8
|
|
Furniture Products
|
253.9
|
|
|
279.8
|
|
Specialized Products
|
358.9
|
|
|
342.5
|
|
Average current liabilities included in segment numbers above
|
756.3
|
|
|
661.8
|
|
Unallocated assets
1
|
2,691.2
|
|
|
1,278.0
|
|
Difference between average assets and period-end balance sheet
|
(28.3
|
)
|
|
46.7
|
|
Total assets
|
$
|
5,002.0
|
|
|
$
|
3,382.0
|
|
1
Unallocated assets consist primarily of goodwill, other intangibles, cash and deferred tax assets.
5. 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 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 under previous guidance) was substantially unchanged. The standard did not materially impact our statements of operations and cash flows.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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
|
|
1
This adjustment is to reclass prepaid rent balances to be presented within Other assets with the operating lease right-of-use assets.
2
This 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.
3
This adjustment is to record the assets and liabilities arising from leases.
4
This 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.
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.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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
June 30, 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:
|
|
|
|
|
|
June 30, 2019
|
Operating Leases
|
|
Operating lease right-of-use assets
|
$
|
169.8
|
|
|
|
Current portion of operating lease liabilities
|
38.5
|
|
Operating lease liabilities
|
131.4
|
|
Total operating lease liabilities
|
$
|
169.9
|
|
|
|
Finance Leases
|
|
Sundry
|
$
|
5.0
|
|
|
|
Current maturities of long-term debt
|
1.3
|
|
Long-term debt
|
3.5
|
|
Total finance lease liabilities
|
$
|
4.8
|
|
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Three Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2019
|
Operating lease cost:
|
|
|
|
Lease cost
|
$
|
21.8
|
|
|
$
|
11.4
|
|
Variable lease cost
|
5.7
|
|
|
2.8
|
|
Total operating lease cost
|
$
|
27.5
|
|
|
$
|
14.2
|
|
|
|
|
|
Short-term lease cost
|
$
|
2.2
|
|
|
$
|
1.1
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
Amortization of right-of-use assets
|
$
|
1.5
|
|
|
$
|
.7
|
|
Interest on lease liabilities
|
.1
|
|
|
—
|
|
Total finance lease cost
|
$
|
1.6
|
|
|
$
|
.7
|
|
|
|
|
|
Total lease cost
|
$
|
31.3
|
|
|
$
|
16.0
|
|
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:
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
18.3
|
|
Operating cash flows from finance leases
|
$
|
.1
|
|
Financing cash flows from finance leases
|
$
|
1.5
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
31.8
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
$
|
1.5
|
|
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 following table reconciles the undiscounted cash flows for the operating and finance leases at
June 30, 2019
to the operating and finance lease liabilities recorded on the balance sheet:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
Operating Leases
|
|
Finance Leases
|
2019 Remainder
|
$
|
22.3
|
|
|
$
|
1.3
|
|
2020
|
41.2
|
|
|
1.9
|
|
2021
|
36.5
|
|
|
1.2
|
|
2022
|
30.3
|
|
|
.6
|
|
2023
|
21.8
|
|
|
.1
|
|
2024 and thereafter
|
33.0
|
|
|
—
|
|
Total
|
185.1
|
|
|
5.1
|
|
Less: Interest
|
15.2
|
|
|
.3
|
|
Lease Liability
|
$
|
169.9
|
|
|
$
|
4.8
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
5.0
|
|
|
2.7
|
|
Weighted average discount rate
|
3.3
|
%
|
|
3.4
|
%
|
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
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
6. RESTRUCTURING AND IMPAIRMENT CHARGES
We implemented various cost reduction initiatives to improve our 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 (Plan) discussed below, none of these initiatives has individually resulted in a material charge to earnings.
In December 2018, we committed to the Plan primarily associated with 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). Both of these businesses report within the Furniture Products segment and had underperformed expectations primarily from weaker demand and higher raw material costs. In late March 2019, we announced the closure of the Fashion Bed business. We expect restructuring activities in the Furniture Products segment to be substantially complete by the end of the third quarter 2019.
In July 2019, we modified the Plan to include one small facility in the Residential Products segment that should be completed by the end of the year. Our total costs for this plan remains materially unchanged from our previously disclosed estimate of approximately
$33.0
. To date we have incurred
$22.6
of costs, and we expect to incur
$10.4
during the remainder of the year. The following table presents information associated with this plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount Incurred to Date
|
|
Six Months Ended
June 30, 2019
|
|
Total Incurred Full Year 2018
|
2018 Restructuring Plan
|
|
|
|
|
|
Restructuring and restructuring-related
|
$
|
13.4
|
|
|
$
|
2.2
|
|
|
$
|
11.2
|
|
Impairment costs associated with this plan
|
9.2
|
|
|
4.1
|
|
|
5.1
|
|
|
$
|
22.6
|
|
|
$
|
6.3
|
|
|
$
|
16.3
|
|
Amount of total that represents cash charges
|
$
|
8.8
|
|
|
$
|
1.9
|
|
|
$
|
6.9
|
|
The table below presents all restructuring and restructuring-related activity for the periods presented; the majority of the 2019 costs are related to the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Charged to other (income) expense, net:
|
|
|
|
|
|
|
|
Severance and other restructuring costs
|
$
|
1.9
|
|
|
$
|
.3
|
|
|
$
|
.7
|
|
|
$
|
.2
|
|
Charged to cost of goods sold:
|
|
|
|
|
|
|
|
Inventory obsolescence and other
|
.3
|
|
|
(.5
|
)
|
|
(2.1
|
)
|
|
(.6
|
)
|
Total restructuring and restructuring-related costs
|
$
|
2.2
|
|
|
$
|
(.2
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(.4
|
)
|
Amount of total that represents cash charges
|
$
|
1.9
|
|
|
$
|
.3
|
|
|
$
|
.7
|
|
|
$
|
.2
|
|
Restructuring and restructuring-related charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Residential Products
|
$
|
.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Industrial Products
|
—
|
|
|
(.5
|
)
|
|
—
|
|
|
(.7
|
)
|
Furniture Products
|
2.1
|
|
|
.3
|
|
|
(1.4
|
)
|
|
.3
|
|
Total
|
$
|
2.2
|
|
|
$
|
(.2
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(.4
|
)
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The accrued liability associated with our total restructuring initiatives consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
Add:
2019 Charges
|
|
Less:
2019 Payments
|
|
Balance at June 30, 2019
|
Severance costs
|
$
|
6.6
|
|
|
$
|
1.1
|
|
|
$
|
3.6
|
|
|
$
|
4.1
|
|
Other restructuring costs
|
.6
|
|
|
.8
|
|
|
.9
|
|
|
.5
|
|
|
$
|
7.2
|
|
|
$
|
1.9
|
|
|
$
|
4.5
|
|
|
$
|
4.6
|
|
Impairment charges
Impairment charges are reported in "Impairments" in the Consolidated Condensed Statements of Operations and are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Other Long-Lived Assets Impairments
|
|
Other Long-Lived Assets Impairments
|
|
Other Long-Lived Assets Impairments
|
|
Other Long-Lived Assets Impairments
|
Residential Products
|
$
|
.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Industrial Products
|
—
|
|
|
.2
|
|
|
—
|
|
|
—
|
|
Furniture Products
|
4.1
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
Total impairment charges
|
$
|
4.3
|
|
|
$
|
.2
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
We test other long-lived assets for recoverability at year end and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value and the resulting impairment charges noted above were based primarily upon offers from potential buyers or third party estimates of fair value less selling costs and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net earnings:
|
|
|
|
|
|
|
|
Net earnings
|
$
|
147.4
|
|
|
$
|
163.0
|
|
|
$
|
86.3
|
|
|
$
|
85.1
|
|
Loss attributable to noncontrolling interest, net of tax
|
—
|
|
|
(.1
|
)
|
|
(.1
|
)
|
|
(.1
|
)
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
$
|
147.4
|
|
|
$
|
162.9
|
|
|
$
|
86.2
|
|
|
$
|
85.0
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (in millions):
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS
|
134.5
|
|
|
134.7
|
|
|
134.7
|
|
|
134.1
|
|
Dilutive effect of stock-based compensation
|
.6
|
|
|
1.0
|
|
|
.5
|
|
|
.9
|
|
Weighted average number of common shares and dilutive potential common shares used in diluted EPS
|
135.1
|
|
|
135.7
|
|
|
135.2
|
|
|
135.0
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS:
|
|
|
|
|
|
|
|
Basic EPS attributable to Leggett & Platt, Inc. common shareholders
|
$
|
1.10
|
|
|
$
|
1.21
|
|
|
$
|
.64
|
|
|
$
|
.63
|
|
|
|
|
|
|
|
|
|
Diluted EPS attributable to Leggett & Platt, Inc. common shareholders
|
$
|
1.09
|
|
|
$
|
1.20
|
|
|
$
|
.64
|
|
|
$
|
.63
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted EPS computation
|
.3
|
|
|
.1
|
|
|
.4
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
$
|
.78
|
|
|
$
|
.74
|
|
|
$
|
.40
|
|
|
$
|
.38
|
|
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, 2019
|
|
December 31, 2018
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
Trade accounts receivable
1
|
$
|
678.8
|
|
|
$
|
—
|
|
|
$
|
548.8
|
|
|
$
|
—
|
|
Trade notes receivable
|
1.0
|
|
|
.7
|
|
|
1.7
|
|
|
1.4
|
|
Total trade receivables
|
679.8
|
|
|
.7
|
|
|
550.5
|
|
|
1.4
|
|
Other notes receivable
1
|
—
|
|
|
24.2
|
|
|
—
|
|
|
24.2
|
|
Taxes receivable, including income taxes
|
17.4
|
|
|
—
|
|
|
12.9
|
|
|
—
|
|
Other receivables
|
12.1
|
|
|
—
|
|
|
13.4
|
|
|
—
|
|
Subtotal other receivables
|
29.5
|
|
|
24.2
|
|
|
26.3
|
|
|
24.2
|
|
Total trade and other receivables
|
709.3
|
|
|
24.9
|
|
|
576.8
|
|
|
25.6
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
Trade accounts receivable
1
|
(9.0
|
)
|
|
—
|
|
|
(5.2
|
)
|
|
—
|
|
Trade notes receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total trade receivables
|
(9.0
|
)
|
|
—
|
|
|
(5.2
|
)
|
|
—
|
|
Other notes receivable
1
|
—
|
|
|
(15.0
|
)
|
|
—
|
|
|
(15.0
|
)
|
Total allowance for doubtful accounts
|
(9.0
|
)
|
|
(15.0
|
)
|
|
(5.2
|
)
|
|
(15.0
|
)
|
Total net receivables
|
$
|
700.3
|
|
|
$
|
9.9
|
|
|
$
|
571.6
|
|
|
$
|
10.6
|
|
1
The "Trade accounts receivable" and "Other notes receivable" line items above include
$27.1
and
$26.7
as of
June 30, 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
June 30, 2019
was
$16.1
.
Activity related to the allowance for doubtful accounts is reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
Add:
Charges
|
|
Less:
Net Charge-offs/
(Recoveries) and Other
|
|
Balance at June 30, 2019
|
Trade accounts receivable
|
$
|
5.2
|
|
|
$
|
2.2
|
|
|
$
|
(1.6
|
)
|
|
$
|
9.0
|
|
Trade notes receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total trade receivables
|
5.2
|
|
|
2.2
|
|
|
(1.6
|
)
|
|
9.0
|
|
Other notes receivable
|
15.0
|
|
|
—
|
|
|
—
|
|
|
15.0
|
|
Total allowance for doubtful accounts
|
$
|
20.2
|
|
|
$
|
2.2
|
|
|
$
|
(1.6
|
)
|
|
$
|
24.0
|
|
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, 2019
|
|
Six Months Ended
June 30, 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
|
$
|
1.5
|
|
|
$
|
.3
|
|
|
$
|
4.1
|
|
|
$
|
.5
|
|
Discounts on various stock awards:
|
|
|
|
|
|
|
|
Deferred Stock Compensation Program
|
1.1
|
|
|
—
|
|
|
.9
|
|
|
—
|
|
Stock-based retirement plans
|
.5
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
Discount Stock Plan
|
.6
|
|
|
—
|
|
|
.6
|
|
|
—
|
|
Performance Stock Unit (PSU) awards:
2
|
|
|
|
|
|
|
|
2018 PSU - TSR based
2A
|
1.5
|
|
|
.7
|
|
|
.6
|
|
|
.6
|
|
2018 PSU - EBIT CAGR based
2B
|
2.7
|
|
|
2.8
|
|
|
1.5
|
|
|
1.6
|
|
2017 and prior PSU awards
2C
|
.9
|
|
|
(.2
|
)
|
|
1.9
|
|
|
—
|
|
Restricted Stock Unit awards
|
1.0
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
Profitable Growth Incentive (PGI) awards
3
|
—
|
|
|
—
|
|
|
1.2
|
|
|
1.2
|
|
Other, primarily non-employee directors restricted stock
|
.5
|
|
|
—
|
|
|
.4
|
|
|
—
|
|
Total stock-based compensation expense
|
10.3
|
|
|
$
|
3.6
|
|
|
12.7
|
|
|
$
|
3.9
|
|
Employee contributions for above stock plans
|
6.2
|
|
|
|
|
6.5
|
|
|
|
Total stock-based compensation
|
$
|
16.5
|
|
|
|
|
$
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense
|
$
|
2.4
|
|
|
|
|
$
|
3.0
|
|
|
|
Tax benefits on stock-based compensation payments
|
2.3
|
|
|
|
|
.9
|
|
|
|
Total tax benefits associated with stock-based compensation
|
$
|
4.7
|
|
|
|
|
$
|
3.9
|
|
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
June 30, 2019
|
|
June 30, 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
|
$
|
.9
|
|
|
$
|
.2
|
|
|
$
|
2.2
|
|
|
$
|
.3
|
|
Discounts on various stock awards:
|
|
|
|
|
|
|
|
Deferred Stock Compensation Program
|
.5
|
|
|
—
|
|
|
.4
|
|
|
—
|
|
Stock-based retirement plans
|
.3
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
Discount Stock Plan
|
.3
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
Performance Stock Unit (PSU) awards:
2
|
|
|
|
|
|
|
|
2018 PSU - TSR based
2A
|
.8
|
|
|
(.1
|
)
|
|
.3
|
|
|
.3
|
|
2018 PSU - EBIT CAGR based
2B
|
1.1
|
|
|
.8
|
|
|
.9
|
|
|
.9
|
|
2017 and prior PSU awards
2C
|
.4
|
|
|
(.6
|
)
|
|
1.0
|
|
|
.1
|
|
Restricted Stock Unit awards
|
.5
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
Profitable Growth Incentive (PGI) awards
3
|
—
|
|
|
—
|
|
|
.7
|
|
|
.7
|
|
Other, primarily non-employee directors restricted stock
|
.3
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
Total stock-based compensation expense
|
5.1
|
|
|
$
|
.3
|
|
|
6.7
|
|
|
$
|
2.3
|
|
Employee contributions for above stock plans
|
3.6
|
|
|
|
|
3.8
|
|
|
|
Total stock-based compensation
|
$
|
8.7
|
|
|
|
|
$
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense
|
$
|
1.2
|
|
|
|
|
$
|
1.6
|
|
|
|
Tax benefits on stock-based compensation payments
|
.4
|
|
|
|
|
.3
|
|
|
|
Total tax benefits associated with stock-based compensation
|
$
|
1.6
|
|
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
Included below is the activity in our most significant stock-based plans:
1
Stock-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.
2
PSU Awards
During 2018, we merged our PSU and PGI award programs. PSU awards are now based on two equal measures: (i) Relative Total Shareholder Return (TSR = (Change in Stock Price + Dividends)/Beginning Stock Price) and (ii) 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.
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.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
2A
2018 (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 at the end of the
three
-year performance period; 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.
|
2B
2018 (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 performance period. Expense is adjusted every quarter over the
three
-year performance 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 at the end of the
three
-year performance period; and
|
|
|
•
|
A performance condition—Awards are based on achieving specified EBIT CAGR performance targets for our or the applicable segment's EBIT during the third year of the performance period compared to the EBIT during the fiscal year immediately preceding the performance period. Participants will earn from
0%
to
200%
of the base award.
|
In connection with the decision to move a significant portion of the long-term incentive opportunity from a
two
-year to a
three
-year performance period by eliminating PGI awards, in January 2018, we also granted participants a one-time transition PSU award, based upon EBIT CAGR over a
two
-year performance period.
2C
2017 and Prior PSU Awards
The 2017 and prior PSU awards are based solely on relative TSR. Vesting conditions are the same as (
2A
) above other than a maximum payout of
175%
of the base award.
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:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
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
|
3
PGI 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. As of first quarter 2019, all PGI awards have been paid out.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
$127.1
is expected to be deductible for tax purposes.
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2019
|
|
2018
|
Accounts receivable
|
$
|
70.7
|
|
|
$
|
12.9
|
|
Inventory
|
60.7
|
|
|
16.0
|
|
Property, plant and equipment
|
80.7
|
|
|
26.5
|
|
Goodwill
|
559.8
|
|
|
26.4
|
|
Other intangible assets:
|
|
|
|
Customer relationships (15-year life)
|
372.3
|
|
|
18.0
|
|
Technology (5 to 15-year life)
|
173.3
|
|
|
4.9
|
|
Trademarks and trade names (15-year life)
|
65.8
|
|
|
2.7
|
|
Non-compete agreements and other (5-year life)
|
28.1
|
|
|
.9
|
|
Other current and long-term assets
|
27.3
|
|
|
.8
|
|
Current liabilities
|
(44.3
|
)
|
|
(10.1
|
)
|
Deferred income taxes
|
(128.5
|
)
|
|
(9.4
|
)
|
Other long-term liabilities
|
(21.6
|
)
|
|
(.8
|
)
|
Fair value of net identifiable assets
|
1,244.3
|
|
|
88.8
|
|
Less: Additional consideration payable (receivable)
|
—
|
|
|
(1.4
|
)
|
Net cash consideration
|
$
|
1,244.3
|
|
|
$
|
90.2
|
|
The following table summarizes acquisitions for the periods presented.
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Number of Acquisitions
|
|
Segment
|
|
Product/Service
|
June 30, 2019
|
|
1
|
|
Residential Products
|
|
A leader in proprietary specialized foam technology, primarily for the bedding and furniture industries
|
|
|
|
|
|
|
|
June 30, 2018
|
|
2
|
|
Residential Products; Specialized Products
|
|
Manufacturer and distributor of silt fence; Global manufacturer of engineered hydraulic cylinders
|
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
June 30, 2019
and
December 31, 2018
, our liability for these future payments was
$9.5
(
$9.5
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
$1.1
and
$8.0
for the
six
months ended
June 30,
2019
and
2018
, respectively.
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. There was no contingent consideration associated with this acquisition.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
2018
In May 2018, we acquired a manufacturer and distributor of silt fence, a core product for our Geo Components business unit, for
$2.6
.
In January 2018, we acquired Precision Hydraulic Cylinders (PHC), a leading global manufacturer of engineered hydraulic cylinders primarily for the materials handling market. The purchase price was
$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 an unaudited pro forma basis, the combined results of operations of Leggett and ECS as though the acquisition had occurred as of January 1, 2018. It 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. It 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Three Months Ended
|
|
June 30,
|
|
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net sales
|
$
|
2,389.9
|
|
|
$
|
2,425.5
|
|
|
$
|
1,213.2
|
|
|
$
|
1,251.5
|
|
Net earnings
|
149.1
|
|
|
145.6
|
|
|
86.2
|
|
|
82.4
|
|
EPS basic
|
1.11
|
|
|
1.08
|
|
|
.64
|
|
|
.61
|
|
EPS diluted
|
1.11
|
|
|
1.07
|
|
|
.64
|
|
|
.61
|
|
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
The following table recaps the components of inventory for each period presented:
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Finished goods
|
$
|
323.5
|
|
|
$
|
331.6
|
|
Work in process
|
57.5
|
|
|
49.6
|
|
Raw materials and supplies
|
347.5
|
|
|
334.9
|
|
LIFO reserve
|
(71.8
|
)
|
|
(82.2
|
)
|
Total inventories, net
|
$
|
656.7
|
|
|
$
|
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, as ECS does not utilize the LIFO method.
With steel costs deflating in the first half of 2019, we recognized a LIFO benefit in the second 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 for each of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
LIFO benefit (expense)
|
$
|
10.4
|
|
|
$
|
(18.8
|
)
|
|
$
|
10.4
|
|
|
$
|
(12.8
|
)
|
12. EMPLOYEE BENEFIT PLANS
Employer contributions for
2019
are expected to approximate
$1.0
.
The following table provides interim information as to our domestic and foreign defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
Three Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Components of net pension expense
|
|
|
|
|
|
|
|
Service cost
|
$
|
2.0
|
|
|
$
|
2.0
|
|
|
$
|
1.0
|
|
|
$
|
1.0
|
|
Interest cost
|
4.3
|
|
|
4.1
|
|
|
2.1
|
|
|
2.1
|
|
Expected return on plan assets
|
(5.7
|
)
|
|
(5.8
|
)
|
|
(2.8
|
)
|
|
(2.9
|
)
|
Recognized net actuarial loss
|
1.6
|
|
|
1.4
|
|
|
.8
|
|
|
.7
|
|
Net pension expense
|
$
|
2.2
|
|
|
$
|
1.7
|
|
|
$
|
1.1
|
|
|
$
|
.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)
13. STATEMENT OF CHANGES IN EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Beginning balance, April 1, 2019
|
$
|
1,195.2
|
|
|
$
|
2,623.9
|
|
|
$
|
526.8
|
|
|
$
|
(1,891.6
|
)
|
|
$
|
.5
|
|
|
$
|
(64.4
|
)
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
86.3
|
|
|
86.2
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
Dividends declared (See
Note 7
)
|
(52.5
|
)
|
|
(53.9
|
)
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Treasury stock purchased
|
(.8
|
)
|
|
—
|
|
|
—
|
|
|
(.8
|
)
|
|
—
|
|
|
—
|
|
Treasury stock issued
|
3.1
|
|
|
—
|
|
|
(1.4
|
)
|
|
4.5
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustments
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Cash flow hedges, net of tax
|
.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.7
|
|
Defined benefit pension plans, net of tax
|
.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.5
|
|
Stock-based compensation transactions, net of tax
|
5.3
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance, June 30, 2019
|
$
|
1,238.8
|
|
|
$
|
2,656.2
|
|
|
$
|
532.1
|
|
|
$
|
(1,887.9
|
)
|
|
$
|
.6
|
|
|
$
|
(62.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Beginning balance, April 1, 2018
|
$
|
1,196.3
|
|
|
$
|
2,538.3
|
|
|
$
|
516.6
|
|
|
$
|
(1,868.9
|
)
|
|
$
|
.4
|
|
|
$
|
9.9
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
85.1
|
|
|
85.0
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
Dividends declared (See
Note 7
)
|
(49.5
|
)
|
|
(50.7
|
)
|
|
1.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Treasury stock purchased
|
(52.5
|
)
|
|
—
|
|
|
—
|
|
|
(52.5
|
)
|
|
—
|
|
|
—
|
|
Treasury stock issued
|
3.1
|
|
|
—
|
|
|
(.9
|
)
|
|
4.0
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustments
|
(55.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.1
|
)
|
|
(55.7
|
)
|
Cash flow hedges, net of tax
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.6
|
)
|
Defined benefit pension plans, net of tax
|
.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.7
|
|
Stock-based compensation transactions, net of tax
|
4.8
|
|
|
—
|
|
|
4.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance, June 30, 2018
|
$
|
1,128.6
|
|
|
$
|
2,572.6
|
|
|
$
|
521.7
|
|
|
$
|
(1,917.4
|
)
|
|
$
|
.4
|
|
|
$
|
(48.7
|
)
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
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 attributable to Leggett & Platt, Inc. common shareholders
|
147.4
|
|
|
147.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends declared (See
Note 7
)
|
(102.4
|
)
|
|
(105.1
|
)
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Treasury stock purchased
|
(12.5
|
)
|
|
—
|
|
|
—
|
|
|
(12.5
|
)
|
|
—
|
|
|
—
|
|
Treasury stock issued
|
16.9
|
|
|
—
|
|
|
(16.0
|
)
|
|
32.9
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustments
|
9.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.8
|
|
Cash flow hedges, net of tax
|
4.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Defined benefit pension plans, net of tax
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
Stock-based compensation transactions, net of tax
|
16.3
|
|
|
—
|
|
|
16.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance, June 30, 2019
|
$
|
1,238.8
|
|
|
$
|
2,656.2
|
|
|
$
|
532.1
|
|
|
$
|
(1,887.9
|
)
|
|
$
|
.6
|
|
|
$
|
(62.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Total
Equity
|
|
Retained
Earnings
|
|
Common
Stock &
Additional
Contributed
Capital
|
|
Treasury
Stock
|
|
Noncontrolling
Interest
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Beginning balance, January 1, 2018
|
$
|
1,190.8
|
|
|
$
|
2,511.3
|
|
|
$
|
516.7
|
|
|
$
|
(1,828.3
|
)
|
|
$
|
.6
|
|
|
$
|
(9.5
|
)
|
Effect of accounting change on prior years (Topic 606-See
Note 3
)
|
(2.3
|
)
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted beginning balance, January 1, 2018
|
1,188.5
|
|
|
2,509.0
|
|
|
516.7
|
|
|
(1,828.3
|
)
|
|
.6
|
|
|
(9.5
|
)
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
163.0
|
|
|
162.9
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
Dividends declared (See
Note 7
)
|
(96.7
|
)
|
|
(99.3
|
)
|
|
2.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends paid to noncontrolling interest
|
(.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.2
|
)
|
|
—
|
|
Treasury stock purchased
|
(107.8
|
)
|
|
—
|
|
|
—
|
|
|
(107.8
|
)
|
|
—
|
|
|
—
|
|
Treasury stock issued
|
7.0
|
|
|
—
|
|
|
(11.7
|
)
|
|
18.7
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustments
|
(39.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.1
|
)
|
|
(39.0
|
)
|
Cash flow hedges, net of tax
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
Defined benefit pension plans, net of tax
|
1.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
Stock-based compensation transactions, net of tax
|
14.1
|
|
|
—
|
|
|
14.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending balance, June 30, 2018
|
$
|
1,128.6
|
|
|
$
|
2,572.6
|
|
|
$
|
521.7
|
|
|
$
|
(1,917.4
|
)
|
|
$
|
.4
|
|
|
$
|
(48.7
|
)
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Cash
Flow
Hedges
|
|
Defined
Benefit
Pension
Plans
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Balance, April 1, 2019
|
$
|
(17.7
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(38.8
|
)
|
|
$
|
(64.4
|
)
|
Other comprehensive income (loss)
|
1.0
|
|
|
(1.3
|
)
|
|
(.1
|
)
|
|
(.4
|
)
|
Reclassifications, pretax
1
|
—
|
|
|
2.3
|
|
|
.8
|
|
|
3.1
|
|
Income tax effect
|
—
|
|
|
(.3
|
)
|
|
(.2
|
)
|
|
(.5
|
)
|
Balance, June 30, 2019
|
$
|
(16.7
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
(38.3
|
)
|
|
$
|
(62.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance, April 1, 2018
|
$
|
57.2
|
|
|
$
|
(9.2
|
)
|
|
$
|
(38.1
|
)
|
|
$
|
9.9
|
|
Other comprehensive income (loss)
|
(55.8
|
)
|
|
(4.7
|
)
|
|
.3
|
|
|
(60.2
|
)
|
Reclassifications, pretax
2
|
—
|
|
|
.5
|
|
|
.7
|
|
|
1.2
|
|
Income tax effect
|
.1
|
|
|
.6
|
|
|
(.3
|
)
|
|
.4
|
|
Balance, June 30, 2018
|
$
|
1.5
|
|
|
$
|
(12.8
|
)
|
|
$
|
(37.4
|
)
|
|
$
|
(48.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
1
|
2019 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
|
|
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
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
.8
|
|
|
$
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
2018 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
(.9
|
)
|
|
$
|
—
|
|
|
$
|
(.9
|
)
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
.3
|
|
|
—
|
|
|
.3
|
|
|
|
Interest expense
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
.7
|
|
|
.7
|
|
|
|
Total reclassifications, pretax
|
$
|
—
|
|
|
$
|
.5
|
|
|
$
|
.7
|
|
|
$
|
1.2
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
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)
|
9.8
|
|
|
1.8
|
|
|
(.3
|
)
|
|
11.3
|
|
Reclassifications, pretax
1
|
—
|
|
|
4.2
|
|
|
1.6
|
|
|
5.8
|
|
Income tax effect
|
—
|
|
|
(1.4
|
)
|
|
(.3
|
)
|
|
(1.7
|
)
|
Balance, June 30, 2019
|
$
|
(16.7
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
(38.3
|
)
|
|
$
|
(62.2
|
)
|
|
|
|
|
|
|
|
|
|
|
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
2
|
—
|
|
|
.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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
1
|
2019 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
(.4
|
)
|
|
—
|
|
|
(.4
|
)
|
|
|
Interest expense
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
|
|
Other income (expense), net
|
—
|
|
|
—
|
|
|
1.6
|
|
|
1.6
|
|
|
|
Total reclassifications, pretax
|
$
|
—
|
|
|
$
|
4.2
|
|
|
$
|
1.6
|
|
|
$
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
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
|
|
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 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, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Bank time deposits with original maturities of three months or less
|
$
|
—
|
|
|
$
|
191.1
|
|
|
$
|
—
|
|
|
$
|
191.1
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
Diversified investments associated with the Executive Stock Unit Program (ESUP)
1
|
38.4
|
|
|
—
|
|
|
—
|
|
|
38.4
|
|
Total assets
|
$
|
38.4
|
|
|
$
|
193.3
|
|
|
$
|
—
|
|
|
$
|
231.7
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
1
(
Note 15
)
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
Liabilities associated with the ESUP
1
|
38.5
|
|
|
—
|
|
|
—
|
|
|
38.5
|
|
Total liabilities
|
$
|
38.5
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
39.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Bank time deposits with original maturities of three months or less
|
$
|
—
|
|
|
$
|
159.1
|
|
|
$
|
—
|
|
|
$
|
159.1
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Diversified investments associated with the ESUP
1
|
32.7
|
|
|
—
|
|
|
—
|
|
|
32.7
|
|
Total assets
|
$
|
32.7
|
|
|
$
|
160.3
|
|
|
$
|
—
|
|
|
$
|
193.0
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
1
(
Note 15
)
|
$
|
—
|
|
|
$
|
4.7
|
|
|
$
|
—
|
|
|
$
|
4.7
|
|
Liabilities associated with the ESUP
1
|
33.7
|
|
|
—
|
|
|
—
|
|
|
33.7
|
|
Total liabilities
|
$
|
33.7
|
|
|
$
|
4.7
|
|
|
$
|
—
|
|
|
$
|
38.4
|
|
1
Includes 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 approximately
$29.6
greater than carrying value of
$1,584.6
at
June 30, 2019
and was approximately
$35.3
less than carrying value of
$1,090.5
at
December 31, 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 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 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 an appropriate discount rate. Tradenames and developed technology are valued using a relief-from-royalty method, with various inputs such as comparable market royalty rates for items of similar value, future earnings forecast, and an appropriate discount rate. (iii) Inventory is valued at current replacement cost for raw 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.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Goodwill Impairment Reviews
We test goodwill for impairment at the reporting unit level (the business groups that are one level below the operating segments) when triggering events occur, or at least annually. We perform our annual goodwill impairment review in the second quarter. The 2019 and 2018 goodwill impairment reviews indicated no goodwill impairments.
The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the tables below. If actual results differ materially from estimates used in these calculations, we could incur future impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
Fair Value over Carrying Value divided by Carrying Value
|
|
June 30, 2019 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 50%
1
|
|
$
|
59.2
|
|
|
1.4% - 5.8%
|
|
3
|
%
|
|
8.0% - 9.5%
|
50% - 100%
2
|
|
722.8
|
|
|
5.0%
|
|
3
|
%
|
|
8.5%
|
101% - 300%
|
|
393.3
|
|
|
1.3% - 5.5%
|
|
3
|
%
|
|
7.5% - 8.0%
|
301% - 600%
|
|
223.1
|
|
|
.2% - 11.1%
|
|
3
|
%
|
|
8.5%
|
|
|
$
|
1,398.4
|
|
|
.2% - 11.1%
|
|
3
|
%
|
|
7.5% - 9.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
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%
3
|
|
$
|
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
This category includes
two
reporting units:
•
The fair value of our Machinery reporting unit exceeded its carrying value by
12%
at June 30, 2019. This unit has
$33.4
of goodwill.
•
The fair value of our Hydraulic Cylinders reporting unit exceeded its carry value by
29%
at June 30, 2019. This reporting unit was acquired in the first quarter of 2018 and has performed as expected. Goodwill of
$25.8
is associated with this unit.
2
This category includes
one
reporting unit. The fair value of our Bedding reporting unit exceeded its carrying value by
50%
at June 30, 2019 as compared to
198%
at June 30, 2018. This decrease was due to the January 2019 ECS acquisition (as discussed in
Note 10
). At our testing date, the carrying value approximated fair value for the ECS business
.
3
The fair value of all reporting units in this category exceeded their carrying values by
90%
at June 30, 2018, except for the Hydraulic Cylinders reporting unit (acquired in the first quarter of 2018), to which carrying value approximated fair value
.
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.
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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 of Operations.
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, 2019
|
|
Assets
|
|
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, Swiss and UK subsidiaries
|
Dec 2020
|
|
$
|
162.4
|
|
|
$
|
.9
|
|
|
$
|
.1
|
|
|
$
|
1.0
|
|
|
$
|
.1
|
|
Future DKK sales of Polish subsidiary
|
Dec 2020
|
|
21.6
|
|
|
.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Future EUR sales of Chinese and UK subsidiaries
|
Dec 2020
|
|
31.7
|
|
|
.2
|
|
|
—
|
|
|
.1
|
|
|
.1
|
|
Future MXN purchases of a USD subsidiary
|
Dec 2020
|
|
9.5
|
|
|
.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total cash flow hedges
|
|
|
|
|
1.8
|
|
|
.1
|
|
|
1.1
|
|
|
.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, CNY, EUR, GBP, PLN and USD)
|
Dec 2019
|
|
67.9
|
|
|
.2
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Non-deliverable hedges (EUR and USD) exposed to the CNY
|
Mar 2020
|
|
8.1
|
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
$
|
2.1
|
|
|
$
|
.1
|
|
|
$
|
1.2
|
|
|
$
|
.2
|
|
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, 2018
|
|
Assets
|
|
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, Swiss and UK subsidiaries
|
Jun 2020
|
|
$
|
164.7
|
|
|
$
|
.5
|
|
|
$
|
.1
|
|
|
$
|
3.8
|
|
|
$
|
.2
|
|
Future MXN purchases of a USD subsidiary
|
Jun 2019
|
|
7.9
|
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Future EUR sales of Chinese and UK subsidiaries
|
Jun 2020
|
|
32.3
|
|
|
.2
|
|
|
.1
|
|
|
.1
|
|
|
—
|
|
Total cash flow hedges
|
|
|
|
|
.8
|
|
|
.2
|
|
|
3.9
|
|
|
.2
|
|
Fair value hedges:
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Non-deliverable hedges (EUR and USD) exposed to the CNY
|
Dec 2019
|
|
23.6
|
|
|
.1
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
|
|
|
|
$
|
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 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 Six Months Ended
June 30,
|
|
Amount of (Gain) Loss Recorded in Income Three Months Ended June 30,
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Interest rate cash flow hedges
|
Interest expense
|
|
$
|
2.2
|
|
|
$
|
2.2
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
Currency cash flow hedges
|
Net sales
|
|
1.5
|
|
|
(2.9
|
)
|
|
1.1
|
|
|
(1.4
|
)
|
Currency cash flow hedges
|
Cost of goods sold
|
|
(.7
|
)
|
|
.4
|
|
|
(.4
|
)
|
|
.2
|
|
Total cash flow hedges
|
|
|
3.0
|
|
|
(.3
|
)
|
|
1.8
|
|
|
(.1
|
)
|
Fair value hedges
|
Other (income) expense, net
|
|
.6
|
|
|
.3
|
|
|
.2
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
Other (income) expense, net
|
|
.1
|
|
|
.2
|
|
|
(.1
|
)
|
|
1.0
|
|
Total derivative instruments
|
|
|
$
|
3.7
|
|
|
$
|
.2
|
|
|
$
|
1.9
|
|
|
$
|
.6
|
|
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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.
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.
Brazilian Value-Added Tax Matters
All dollar amounts 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 are vigorously 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 approximately
$15.2
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 value-added tax (VAT) matters. As of the date of this filing, we have
$11.1
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 notices of violation against our wholly-owned subsidiary, Leggett & Platt do Brasil Ltda. (L&P Brazil) in the amount of
$2.1
,
$.1
and
$3.6
, respectively. The Finance Ministry claimed that for November 2006 and continuing through 2011, L&P Brazil used an incorrect tariff code for the collection and payment of VAT primarily on the sale of mattress innerspring units in Brazil (VAT Rate Dispute). L&P Brazil has denied the violations. On December 4, 2015, we filed an action related to the
$3.6
assessment (
$4.3
with updated interest), in Sorocaba Federal Court. On October 18, 2018, we filed an action related to the
$2.1
assessment (
$3.2
with updated interest), in Sorocaba Federal Court. The
$.1
assessment remains pending at the second administrative level. These actions seek to annul the entire assessments, and 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 Finance Ministry where it challenged L&P Brazil’s use of tax credits in years 2005 through 2010. Such credits are generated based upon the VAT rate used by L&P Brazil on the sale of mattress innersprings. On September 4, 2014, the Finance Ministry issued additional assessments regarding this same issue, but covering certain periods of 2011 and 2012. L&P Brazil filed its defenses denying the assessments. L&P Brazil has received aggregate assessments and penalties totaling
$1.8
(
$2.5
updated with interest) on 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, L&P Brazil received an "isolated penalty" from the Finance Ministry in the amount of
$.2
regarding the use of these credits. L&P Brazil filed its defense disputing the penalty. These cases remain pending.
On February 1, 2013, the 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 September to October 2010. L&P Brazil argued the payments were not required to be made because of the application of tax credits generated by L&P Brazil's use of a correct VAT rate on the sale of mattress innersprings. On June 26, 2014, the Finance Ministry issued a new notice of violation against L&P Brazil in the amount of
$.6
covering 2011 through 2012 on the same subject matter. L&P Brazil has filed its defenses. These cases remain pending.
On July 1, 2014, the Finance Ministry rendered a preliminary decision alleging that L&P Brazil improperly offset
$.1
of social contributions due in 2011. L&P Brazil denied the allegations. L&P Brazil is defending on the basis that the social contribution amounts were correctly offset with tax credits generated by L&P Brazil's use of a correct VAT rate on the sale of mattress innersprings. On December 15, 2015, the Finance Ministry issued an assessment against L&P Brazil in the amount of
LEGGETT & PLATT, INCORPORATED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
$.1
for 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.
State of S
ã
o Paulo, Brazil Cases.
The State of São Paulo, Brazil (SSP), on October 4, 2012, issued a Tax Assessment against L&P Brazil in the amount of
$1.2
for the tax years 2009 through 2011 regarding the same VAT Rate Dispute but as applicable to the sale of mattress innerspring units in the SSP (SSP VAT Rate Dispute). On June 21, 2013, the SSP converted the Tax Assessment to a tax collection action against L&P Brazil in the amount of
$2.0
in Sorocaba Judicial District Court. L&P Brazil has denied all allegations. This case remains pending.
L&P Brazil also received a Notice of Tax Assessment from the SSP dated March 27, 2014, in the amount of
$.8
for tax years January 2011 through August 2012 regarding the SSP VAT Rate Dispute. 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 action in Sorocaba State Court to annul the entire assessment in an updated amount of
$.9
. The Court ruled against L&P Brazil on the assessment, but lowered the interest amount. The Court of Appeals upheld the unfavorable ruling, and we filed a Special and Extraordinary appeal to the High Court on October 10, 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 the same VAT Rate Dispute but as applicable to the sale of mattress innerspring units 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, which remains pending.
Accruals and Reasonably Possible Losses in Excess of Accruals
Accruals for Probable Losses
Although we deny liability in all currently threatened or pending litigation proceedings in which we are or may be a party and believe that we have valid bases to contest all claims threatened or made against 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Litigation contingency accrual - Beginning of period
|
$
|
1.9
|
|
|
$
|
.4
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
Adjustment to accruals - expense (income)
|
.2
|
|
|
(.1
|
)
|
|
.2
|
|
|
(.1
|
)
|
Cash payments
|
—
|
|
|
(.3
|
)
|
|
—
|
|
|
.1
|
|
Litigation contingency accrual - End of period
|
$
|
2.1
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
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.
Reasonably Possible Losses in Excess of Accruals
Although there are a number of uncertainties and potential outcomes associated with 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, 2019
, aggregate reasonably possible (but not probable, and therefore not accrued) losses in excess of the accruals noted above are estimated to be
$16.2
, including
$15.2
for Brazilian VAT matters disclosed above and
$1.0
for other matters. I
f our assumptions or analyses regarding these contingencies are incorrect, or if facts change, we could realize losses in excess of the recorded accruals (and in excess of the
$16.2
referenced above), which could have a material negative impact on our financial condition, results of operations and cash flows.