Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Leggett & Platt, Incorporated:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Leggett & Platt, Incorporated and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note L to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control Over Financial Reporting, management has excluded Elite Comfort Solutions from its assessment of internal control over financial reporting as of December 31, 2019 because it was acquired by the Company in a purchase business combination during 2019. We have also excluded Elite Comfort Solutions from our audit of internal control over financial reporting. Elite Comfort Solutions is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5% and 12%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Acquisition of Elite Comfort Solutions - Valuation of Customer Relationship and Technology Intangible Assets
As described in Notes A and S to the consolidated financial statements, the Company completed the acquisition of Elite Comfort Solutions for net consideration of $1,244.3 million in 2019, which resulted in $545.6 million of customer relationship and technology intangible assets being recorded. Customer relationships are valued using an excess earnings method, using various inputs such as the estimated customer attrition rate, revenue growth rate and cost of sales, the amount of contributory asset charges, and an appropriate discount rate. Technology intangible assets 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, an appropriate discount rate and a replacement rate.
The principal considerations for our determination that performing procedures relating to the acquisition of Elite Comfort Solutions and valuation of customer relationship and technology intangible assets is a critical audit matter are there was significant judgment by management when developing the fair value estimates of the customer relationship and technology intangible assets acquired. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures relating to the fair value measurement of the customer relationship and technology intangibles and in evaluating the significant assumptions relating to the estimates, including revenue growth rate, replacement rate, customer attrition rate, cost of sales, royalty rate and discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge in evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationship and technology intangible assets and controls over the development of the significant assumptions, including revenue growth rate, replacement rate, customer attrition rate, cost of sales, royalty rate, and discount rate. These procedures also included, among others, testing management’s process for estimating the fair value of the customer relationship and technology intangible assets; testing the completeness and accuracy of data provided by management; and evaluating the appropriateness of the valuation methods and the reasonableness of significant assumptions used by management in developing these estimates, including revenue growth rate, replacement rate, customer attrition rate, cost of sales, royalty rate and discount rate, using professionals with specialized skill and knowledge to assist in doing so. Evaluating the significant assumptions relating to the estimates of the customer relationship and technology intangible assets involved evaluating whether the assumptions used were reasonable considering the past performance of the acquired business as well as economic and industry forecasts, and whether they were consistent with evidence obtained in other areas of the audit. The discount rate was evaluated by considering the cost of capital of comparable businesses and other industry factors.
Goodwill Impairment Assessment - Machinery Reporting Unit
As described in Notes A and D to the consolidated financial statements, the Company’s consolidated net goodwill balance was $1,406.3 million as of December 31, 2019, and the goodwill associated with the machinery reporting unit was $33.4 million. Management assesses goodwill for impairment annually and as triggering events occur. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value, including goodwill. Fair value of the reporting unit is determined by management using a combination of two valuation methods, a market approach and an income approach, with each method given equal weighting in determining the fair value assigned to each reporting unit. The market approach estimates fair value by first determining price-to-earnings ratios for comparable publicly traded companies with similar characteristics of the reporting unit. The price-to-earnings ratio for comparable companies is based upon current enterprise value compared to the projected earnings for the next two years. The enterprise value is based upon current market capitalization and includes a control premium. Projected earnings are based upon market analysts’ projections. The earnings ratios are applied to the projected earnings of the comparable reporting unit to estimate fair value. The income approach is based on projected future (debt-free) cash flow that is discounted to present value using factors that consider the timing and risk of future cash flows. Discounted cash flow projections are based on 10-year financial forecasts developed from operating plans and economic projections, sales growth, estimates of future expected changes in operating margins, terminal value growth rates, discount rates, future capital expenditures and changes in working capital requirements.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the machinery reporting unit is a critical audit matter are there was significant judgment by management when developing the fair value measurement of the reporting unit. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s fair value estimates, including significant assumptions related to price-to-earnings ratios for comparable companies, sales growth, estimates of future expected changes in operating margins, terminal value growth rates, discount rates, future capital expenditures and changes in working capital requirements. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over determination of the fair value of the Company’s reporting unit. These procedures also included, among others, testing management's process for developing the fair value estimate of the reporting unit, evaluating the appropriateness of the market and income approaches, testing the completeness, accuracy and relevance of underlying data used in both the market and income approaches, and evaluating the significant assumptions used by management in applying the market and income approaches, including price-to-earnings ratios for comparable companies, sales growth, estimates of future expected changes in operating margins, terminal value growth rates, discount rates, future capital expenditures and changes in working capital requirements. Evaluating management’s assumptions used in the income approach related to sales growth and estimates of future expected changes in operating margins involved evaluating whether the assumptions used by management were reasonable considering (i) past and present performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company's discounted cash flow model and certain significant assumptions used in the income approach, including the terminal value growth rates and the discount rates, as well as the price-to-earnings ratios for comparable companies assumptions used in the market approach.
/s/ PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
February 20, 2020
We have served as the Company’s auditor since 1991.
LEGGETT & PLATT, INCORPORATED
Consolidated Balance Sheets
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|
|
|
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|
|
|
|
|
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December 31
|
|
(Amounts in millions, except per share data)
|
2019
|
|
2018
|
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
247.6
|
|
|
$
|
268.1
|
|
|
Trade receivables, net
|
564.4
|
|
|
545.3
|
|
|
Other receivables, net
|
27.5
|
|
|
26.3
|
|
|
Total receivables, net
|
591.9
|
|
|
571.6
|
|
|
Total inventories, net
|
636.7
|
|
|
633.9
|
|
|
Prepaid expenses and other current assets
|
61.9
|
|
|
51.0
|
|
|
Total current assets
|
1,538.1
|
|
|
1,524.6
|
|
|
Property, Plant and Equipment—at cost
|
|
|
|
|
Machinery and equipment
|
1,388.8
|
|
|
1,281.7
|
|
|
Buildings and other
|
719.0
|
|
|
656.8
|
|
|
Land
|
43.5
|
|
|
42.4
|
|
|
Total property, plant and equipment
|
2,151.3
|
|
|
1,980.9
|
|
|
Less accumulated depreciation
|
1,320.5
|
|
|
1,252.4
|
|
|
Net property, plant and equipment
|
830.8
|
|
|
728.5
|
|
|
Other Assets
|
|
|
|
|
Goodwill
|
1,406.3
|
|
|
833.8
|
|
|
Other intangibles, net
|
764.0
|
|
|
178.7
|
|
|
Operating lease right-of-use assets
|
158.8
|
|
|
—
|
|
|
Sundry
|
118.4
|
|
|
116.4
|
|
|
Total other assets
|
2,447.5
|
|
|
1,128.9
|
|
|
TOTAL ASSETS
|
$
|
4,816.4
|
|
|
$
|
3,382.0
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Current maturities of long-term debt
|
$
|
51.1
|
|
|
$
|
1.2
|
|
|
Current portion of operating lease liabilities
|
39.3
|
|
|
—
|
|
|
Accounts payable
|
463.4
|
|
|
465.4
|
|
|
Accrued expenses
|
281.0
|
|
|
262.7
|
|
|
Other current liabilities
|
93.3
|
|
|
86.4
|
|
|
Total current liabilities
|
928.1
|
|
|
815.7
|
|
|
Long-term Liabilities
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|
|
|
|
Long-term debt
|
2,066.5
|
|
|
1,167.8
|
|
|
Operating lease liabilities
|
121.6
|
|
|
—
|
|
|
Other long-term liabilities
|
173.5
|
|
|
155.3
|
|
|
Deferred income taxes
|
214.2
|
|
|
85.6
|
|
|
Total long-term liabilities
|
2,575.8
|
|
|
1,408.7
|
|
|
Commitments and Contingencies
|
|
|
|
|
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|
Equity
|
|
|
|
|
Common stock: Preferred stock—authorized, 100.0 shares; none issued; Common stock—authorized, 600.0 shares of $.01 par value; 198.8 shares issued
|
2.0
|
|
|
2.0
|
|
|
Additional contributed capital
|
536.1
|
|
|
527.1
|
|
|
Retained earnings
|
2,734.5
|
|
|
2,613.8
|
|
|
Accumulated other comprehensive (loss)
|
(76.8
|
)
|
|
(77.6
|
)
|
|
Less treasury stock—at cost (67.0 and 68.3 shares at December 31, 2019 and 2018, respectively)
|
(1,883.8
|
)
|
|
(1,908.3
|
)
|
|
Total Leggett & Platt, Inc. equity
|
1,312.0
|
|
|
1,157.0
|
|
|
Noncontrolling interest
|
.5
|
|
|
.6
|
|
|
Total equity
|
1,312.5
|
|
|
1,157.6
|
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
4,816.4
|
|
|
$
|
3,382.0
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
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LEGGETT & PLATT, INCORPORATED
Consolidated Statements of Cash Flows
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|
Year Ended December 31
|
|
(Amounts in millions)
|
2019
|
|
2018
|
|
2017
|
|
Operating Activities
|
|
|
|
|
|
|
Net earnings
|
$
|
333.9
|
|
|
$
|
306.1
|
|
|
$
|
292.7
|
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
117.5
|
|
|
104.3
|
|
|
95.3
|
|
|
Amortization of intangibles and supply agreements
|
74.4
|
|
|
31.8
|
|
|
30.6
|
|
|
Impairments
|
7.8
|
|
|
5.4
|
|
|
4.9
|
|
|
Provision for losses on accounts and notes receivable
|
2.8
|
|
|
16.7
|
|
|
.8
|
|
|
Writedown of inventories
|
9.0
|
|
|
10.3
|
|
|
4.9
|
|
|
Net gain from sales of assets and businesses
|
(5.0
|
)
|
|
(2.1
|
)
|
|
(24.4
|
)
|
|
Deemed repatriation tax payable
|
—
|
|
|
(1.3
|
)
|
|
67.3
|
|
|
Deferred income tax expense (benefit)
|
7.6
|
|
|
(3.2
|
)
|
|
16.6
|
|
|
Stock-based compensation
|
33.0
|
|
|
35.5
|
|
|
36.6
|
|
|
Pension expense (benefit), net of contributions
|
4.3
|
|
|
(19.2
|
)
|
|
7.1
|
|
|
Other, net
|
2.2
|
|
|
2.0
|
|
|
(8.5
|
)
|
|
Increases/decreases in, excluding effects from acquisitions and divestitures:
|
|
|
|
|
|
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Accounts and other receivables
|
53.0
|
|
|
(25.8
|
)
|
|
(40.6
|
)
|
|
Inventories
|
53.3
|
|
|
(54.3
|
)
|
|
(48.1
|
)
|
|
Other current assets
|
(2.8
|
)
|
|
(1.9
|
)
|
|
(36.8
|
)
|
|
Accounts payable
|
(39.4
|
)
|
|
36.2
|
|
|
58.8
|
|
|
Accrued expenses and other current liabilities
|
16.4
|
|
|
(.2
|
)
|
|
(13.5
|
)
|
|
Net Cash Provided by Operating Activities
|
668.0
|
|
|
440.3
|
|
|
443.7
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
(143.1
|
)
|
|
(159.6
|
)
|
|
(159.4
|
)
|
|
Purchases of companies, net of cash acquired
|
(1,265.1
|
)
|
|
(109.2
|
)
|
|
(39.1
|
)
|
|
Proceeds from sales of assets and businesses
|
5.5
|
|
|
4.9
|
|
|
45.2
|
|
|
Other, net
|
(15.5
|
)
|
|
(13.9
|
)
|
|
(11.7
|
)
|
|
Net Cash Used for Investing Activities
|
(1,418.2
|
)
|
|
(277.8
|
)
|
|
(165.0
|
)
|
|
Financing Activities
|
|
|
|
|
|
|
|
Additions to long-term debt
|
993.3
|
|
|
—
|
|
|
493.4
|
|
|
Payments on long-term debt
|
(37.6
|
)
|
|
(155.4
|
)
|
|
(9.2
|
)
|
|
Change in commercial paper and short-term debt
|
(8.7
|
)
|
|
69.6
|
|
|
(202.7
|
)
|
|
Dividends paid
|
(204.6
|
)
|
|
(193.7
|
)
|
|
(185.6
|
)
|
|
Issuances of common stock
|
9.3
|
|
|
4.8
|
|
|
2.6
|
|
|
Purchases of common stock
|
(16.4
|
)
|
|
(112.4
|
)
|
|
(157.6
|
)
|
|
Purchase of remaining interest in noncontrolling interest
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
|
Additional consideration paid for acquisitions
|
(1.1
|
)
|
|
(9.3
|
)
|
|
(2.2
|
)
|
|
Other, net
|
(3.1
|
)
|
|
(.5
|
)
|
|
(.6
|
)
|
|
Net Cash Provided (Used) for Financing Activities
|
731.1
|
|
|
(396.9
|
)
|
|
(64.5
|
)
|
|
Effect of Exchange Rate Changes on Cash
|
(1.4
|
)
|
|
(23.6
|
)
|
|
30.0
|
|
|
(Decrease) Increase in Cash and Cash Equivalents
|
(20.5
|
)
|
|
(258.0
|
)
|
|
244.2
|
|
|
Cash and Cash Equivalents—Beginning of Year
|
268.1
|
|
|
526.1
|
|
|
281.9
|
|
|
Cash and Cash Equivalents—End of Year
|
$
|
247.6
|
|
|
$
|
268.1
|
|
|
$
|
526.1
|
|
|
Supplemental Information
|
|
|
|
|
|
|
Interest paid (net of amounts capitalized)
|
$
|
77.3
|
|
|
$
|
61.8
|
|
|
$
|
40.1
|
|
|
Income taxes paid
|
84.2
|
|
|
92.8
|
|
|
90.6
|
|
|
Common stock issued for acquired companies
|
—
|
|
|
—
|
|
|
11.8
|
|
|
Property, plant and equipment acquired through finance leases
|
2.1
|
|
|
1.9
|
|
|
2.4
|
|
|
Capital expenditures in accounts payable
|
6.8
|
|
|
6.7
|
|
|
6.7
|
|
|
Prepaid income taxes and taxes receivable (recovered) applied against the deemed repatriation tax liability
|
(.6
|
)
|
|
28.4
|
|
|
—
|
|
The accompanying notes are an integral part of these financial statements.
LEGGETT & PLATT, INCORPORATED
Consolidated Statements of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions, except
per share data)
|
Common Stock
|
|
Additional
Contributed
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Treasury Stock
|
|
Noncontrolling
Interest
|
|
Total
Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
Balance, December 31, 2016
|
198.8
|
|
|
$
|
2.0
|
|
|
$
|
506.2
|
|
|
$
|
2,410.5
|
|
|
$
|
(113.6
|
)
|
|
(65.3
|
)
|
|
$
|
(1,713.5
|
)
|
|
$
|
2.4
|
|
|
$
|
1,094.0
|
|
|
Effect of accounting change on prior years
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|
Adjusted beginning balance, January 1, 2017
|
198.8
|
|
|
2.0
|
|
|
506.2
|
|
|
2,411.6
|
|
|
(113.6
|
)
|
|
(65.3
|
)
|
|
(1,713.5
|
)
|
|
2.4
|
|
|
1,095.1
|
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
292.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
292.7
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
5.2
|
|
|
(192.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(187.7
|
)
|
|
Treasury stock purchased
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.3
|
)
|
|
(162.1
|
)
|
|
—
|
|
|
(162.1
|
)
|
|
Treasury stock issued
|
—
|
|
|
—
|
|
|
(16.1
|
)
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
47.3
|
|
|
—
|
|
|
31.2
|
|
Other comprehensive income, net of tax (See Note Q)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103.7
|
|
|
Stock-based compensation, net of tax
|
—
|
|
|
—
|
|
|
20.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20.0
|
|
|
Purchase of remaining interest in noncontrolling interest
|
—
|
|
|
—
|
|
|
(.6
|
)
|
|
—
|
|
|
.4
|
|
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
|
(2.6
|
)
|
|
Acquisition of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.5
|
|
|
.5
|
|
|
Balance, December 31, 2017
|
198.8
|
|
|
$
|
2.0
|
|
|
$
|
514.7
|
|
|
$
|
2,511.3
|
|
|
$
|
(9.5
|
)
|
|
(66.9
|
)
|
|
$
|
(1,828.3
|
)
|
|
$
|
.6
|
|
|
$
|
1,190.8
|
|
Effect of accounting change on prior years (See Note B)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
Adjusted beginning balance, January 1, 2018
|
198.8
|
|
|
2.0
|
|
|
514.7
|
|
|
2,509.0
|
|
|
(9.5
|
)
|
|
(66.9
|
)
|
|
(1,828.3
|
)
|
|
.6
|
|
|
1,188.5
|
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
305.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.2
|
|
|
306.1
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
5.3
|
|
|
(201.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(195.8
|
)
|
|
Dividends paid to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.2
|
)
|
|
(.2
|
)
|
|
Treasury stock purchased
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
|
(113.6
|
)
|
|
—
|
|
|
(113.6
|
)
|
|
Treasury stock issued
|
—
|
|
|
—
|
|
|
(16.6
|
)
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
33.6
|
|
|
—
|
|
|
17.0
|
|
Other comprehensive (loss), net of tax (See Note Q)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(68.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(68.1
|
)
|
|
Stock-based compensation, net of tax
|
—
|
|
|
—
|
|
|
23.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23.7
|
|
|
Balance, December 31, 2018
|
198.8
|
|
|
$
|
2.0
|
|
|
$
|
527.1
|
|
|
$
|
2,613.8
|
|
|
$
|
(77.6
|
)
|
|
(68.3
|
)
|
|
$
|
(1,908.3
|
)
|
|
$
|
.6
|
|
|
$
|
1,157.6
|
|
Effect of accounting change on prior years (See Note L)
|
—
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
Adjusted beginning balance, January 1, 2019
|
198.8
|
|
|
2.0
|
|
|
527.1
|
|
|
2,613.9
|
|
|
(77.6
|
)
|
|
(68.3
|
)
|
|
(1,908.3
|
)
|
|
.6
|
|
|
1,157.7
|
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
—
|
|
|
—
|
|
|
—
|
|
|
333.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
333.9
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
5.4
|
|
|
(213.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(207.8
|
)
|
|
Dividends paid to noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.2
|
)
|
|
(.2
|
)
|
|
Treasury stock purchased
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.7
|
)
|
|
(31.1
|
)
|
|
—
|
|
|
(31.1
|
)
|
|
Treasury stock issued
|
—
|
|
|
—
|
|
|
(22.3
|
)
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
55.6
|
|
|
—
|
|
|
33.3
|
|
Other comprehensive income, net of tax (See Note Q)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.8
|
|
|
Stock-based compensation, net of tax
|
—
|
|
|
—
|
|
|
25.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25.9
|
|
|
Balance, December 31, 2019
|
198.8
|
|
|
$
|
2.0
|
|
|
$
|
536.1
|
|
|
$
|
2,734.5
|
|
|
$
|
(76.8
|
)
|
|
(67.0
|
)
|
|
$
|
(1,883.8
|
)
|
|
$
|
.5
|
|
|
$
|
1,312.5
|
|
The accompanying notes are an integral part of these financial statements.
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements
(Dollar amounts in millions, except per share data)
December 31, 2019, 2018 and 2017
A—Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Leggett & Platt, Incorporated and its majority-owned subsidiaries (“we” or “our”). Management does not expect foreign exchange restrictions to significantly impact the ultimate realization of amounts consolidated in the accompanying financial statements for subsidiaries located outside the United States. All intercompany transactions and accounts have been eliminated in consolidation.
ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the accrual and disclosure of loss contingencies.
CASH EQUIVALENTS: Cash equivalents include cash in excess of daily requirements which is invested in various financial instruments with original maturities of three months or less.
TRADE AND OTHER RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS: Trade receivables are recorded at the invoiced amount and generally do not bear interest. Credit is also occasionally extended in the form of a note receivable to facilitate our customers’ operating cycles. Other notes receivable are established in special circumstances, such as in partial payment for the sale of a business or to support other business opportunities. Other notes receivable generally bear interest at market rates commensurate with the corresponding credit risk on the date of origination.
We have the option to participate in trade receivables sales programs with third-party banking institutions and trade receivables sales programs that have been implemented by certain of our customers, as in effect from time to time. Under each of these programs, we sell our entire interest in the trade receivable for 100% of face value, less a discount. Because control of the sold receivable is transferred to the buyer at the time of sale, accounts receivable balances sold are removed from the Consolidated Balance Sheets and the related proceeds are reported as cash provided by operating activities in the Consolidated Statements of Cash Flows. We had approximately $40.0 and $15.0 of trade receivables that were sold and removed from our Consolidated Balance Sheets at December 31, 2019 and 2018, respectively.
The allowance for doubtful accounts is an estimate of the amount of probable credit losses. Allowances and nonaccrual status designations are determined by individual account reviews by management and are based on several factors such as the length of time that receivables are past due, the financial health of the companies involved, industry and macroeconomic considerations, and historical loss experience. Account balances are charged against the allowance when it is probable the receivable will not be recovered. Interest income is not recognized for nonperforming accounts that are placed on nonaccrual status. For accounts on nonaccrual status, any interest payments received are applied against the balance of the nonaccrual account.
INVENTORIES: The following table recaps the components of inventory for each period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Finished goods
|
$
|
308.7
|
|
|
$
|
331.6
|
|
|
Work in process
|
54.4
|
|
|
49.6
|
|
|
Raw materials and supplies
|
323.5
|
|
|
334.9
|
|
|
LIFO reserve
|
(49.9
|
)
|
|
(82.2
|
)
|
|
Total inventories, net
|
$
|
636.7
|
|
|
$
|
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. Prior to 2019 this represented approximately 50% of our inventories. With the acquisition of ECS in the first quarter of 2019 (see Note S), this now represents approximately 40% of our inventories, as ECS does not utilize the LIFO method. 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.
Inventories are reviewed at least quarterly for slow-moving and potentially obsolete items using actual inventory turnover and, if necessary, are written down to estimated net realizable value. Restructuring activity and decisions to narrow product offerings (as discussed in Note F) also impact the estimated net realizable value of inventories. We have had no material changes in inventory writedowns or slow-moving and obsolete inventory reserves in any of the years presented.
The following table presents the activity in our LIFO reserve for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Balance, beginning of year
|
$
|
82.2
|
|
|
$
|
50.9
|
|
|
$
|
33.8
|
|
|
LIFO (benefit) expense
|
(32.3
|
)
|
|
31.3
|
|
|
18.6
|
|
|
Allocated to divested businesses
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
|
Balance, end of year
|
$
|
49.9
|
|
|
$
|
82.2
|
|
|
$
|
50.9
|
|
ACQUISITIONS: When acquisitions occur, we value the assets acquired, liabilities assumed, and any noncontrolling interest in acquired companies at estimated acquisition date fair values. Goodwill is measured as the excess amount of consideration transferred, compared to fair value of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value these items at the acquisition date (as well as contingent consideration where applicable), our estimates are inherently uncertain and subject to refinement during the measurement period, which may be up to one year from the acquisition date.
We utilize the following methodologies in determining fair value:
|
|
|
|
•
|
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.
|
|
|
|
|
•
|
Other working capital items are generally recorded at carrying value, unless there are known conditions that would impact the ultimate settlement amount of the particular item.
|
|
|
|
|
•
|
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.
|
|
|
|
|
•
|
The most common identified intangible assets are customer relationships, technology and tradenames. Discount rates discussed below are typically derived from a weighted-average cost of capital analysis and adjusted to reflect inherent risks.
|
|
|
|
|
◦
|
Customer relationships are valued using an excess earnings method, using various inputs such as the estimated customer attrition rate, revenue growth rate and cost of sales, the amount of contributory asset charges, and an appropriate discount rate. The economic useful life is determined based on historical customer turnover rates.
|
|
|
|
|
◦
|
Technology and tradenames 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, an appropriate discount rate and a replacement rate for technology. The economic useful life is determined based on the expected life of the technology and tradenames.
|
DIVESTITURES: Significant accounting policies associated with a decision to dispose of a business are discussed below:
Discontinued Operations—A business is classified as discontinued operations if the disposal represents a strategic shift that will have a major effect on operations or financial results and meets the criteria to be classified as held for sale or is disposed of by sale or otherwise. Significant judgments are involved in determining whether a business meets the criteria for discontinued operations reporting and the period in which these criteria are met.
If a business is reported as a discontinued operation, the results of operations through the date of sale, including any gain or loss recognized on the disposition, are presented on a separate line of the income statement. Interest on debt directly attributable to the discontinued operation is allocated to discontinued operations. Gains and losses related to the sale of businesses that do not meet the discontinued operation criteria are reported in continuing operations and separately disclosed if significant.
Assets Held for Sale—An asset or business is classified as held for sale when (i) management commits to a plan to sell and it is actively marketed; (ii) it is available for immediate sale and the sale is expected to be completed within one year; and (iii) it is unlikely significant changes to the plan will be made or that the plan will be withdrawn. In isolated instances, assets held for sale may exceed one year due to events or circumstances beyond our control. Upon being classified as held for sale, the recoverability of the carrying value must be assessed. Evaluating the recoverability of the assets of a business classified as held for sale follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill and other assets are assessed. After the valuation process is completed, the assets held for sale are reported at the lower of the carrying value or fair value less cost to sell, and the assets are no longer depreciated or amortized. An impairment charge is recognized if the carrying value exceeds the fair value less cost to sell. The assets and related liabilities are aggregated and reported on separate lines of the balance sheet.
Assets Held for Use—If a decision to dispose of an asset or a business is made and the held for sale criteria are not met, it is considered held for use. Assets of the business are evaluated for recoverability in the following order: (i) assets other than goodwill, property and intangibles; (ii) property and intangibles subject to amortization; and (iii) goodwill. In evaluating the recoverability of property and intangible assets subject to amortization, the carrying value is first compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition. If the carrying value exceeds the undiscounted expected cash flows, then a fair value analysis is performed. An impairment charge is recognized if the carrying value exceeds the fair value.
LOSS CONTINGENCIES: Loss contingencies are accrued when a loss is probable and reasonably estimable. If a range of outcomes are possible, the most likely outcome is used to accrue these costs. If no outcome is more likely, we accrue at the minimum amount of the range. Any insurance recovery is recorded separately if it is determined that a recovery is probable. Legal fees are accrued when incurred.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost, less accumulated depreciation. Assets are depreciated by the straight-line method and salvage value, if any, is assumed to be minimal. The table below presents the depreciation periods of the estimated useful lives of our property, plant and equipment. Accelerated methods are used for tax purposes.
|
|
|
|
|
|
|
|
|
Useful Life Range
|
|
Weighted Average Life
|
|
Machinery and equipment
|
3-20 years
|
|
10 years
|
|
Buildings
|
5-40 years
|
|
27 years
|
|
Other items
|
3-15 years
|
|
10 years
|
Property is reviewed for recoverability at year end and whenever events or changes in circumstances indicate that its carrying value may not be recoverable as discussed above.
GOODWILL: Goodwill results from the acquisition of existing businesses and is not amortized; it is assessed for impairment annually and as triggering events may occur. Our ten reporting units are the business groups one level below the operating segment level for which discrete financial information is available. We perform our annual review in the second quarter of each year using either a quantitative or qualitative analysis:
|
|
|
|
•
|
The qualitative assessment begins with determination of whether it is more likely than not that a reporting unit's fair value is less than its carrying value before applying a two-step goodwill impairment model. If after such an assessment, with regard to each reporting unit, we conclude that the goodwill of a reporting unit is not impaired, then no further action is required (commonly referred to as the Step Zero Analysis approach).
|
|
|
|
|
•
|
The quantitative analysis utilizes a two-step goodwill impairment model.
|
The first step of the two-step approach involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the process is necessary and
involves a comparison of the implied fair value and the carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
Fair value of reporting units is determined using a combination of two valuation methods: a market approach and an income approach. Each method is generally given equal weight in determining the fair value assigned to each reporting unit. Absent an indication of fair value from a potential buyer or similar specific transaction, we believe that the use of these two methods provides a reasonable estimate of a reporting unit’s fair value. Assumptions common to both methods are operating plans and economic projections, which are used to project future revenues, earnings, and after-tax cash flows for each reporting unit. These assumptions are applied consistently for both methods.
The market approach estimates fair value by first determining price-to-earnings ratios for comparable publicly-traded companies with similar characteristics of the reporting unit. The price-to-earnings ratio for comparable companies is based upon current enterprise value compared to the projected earnings for the next two years. The enterprise value is based upon current market capitalization and includes a control premium. Projected earnings are based upon market analysts’ projections. The earnings ratios are applied to the projected earnings of the comparable reporting unit to estimate fair value. Management believes this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to our reporting units.
The income approach is based on projected future (debt-free) cash flow that is discounted to present value using factors that consider the timing and risk of future cash flows. Management believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. Discounted cash flow projections are based on 10-year financial forecasts developed from operating plans and economic projections noted above, sales growth, estimates of future expected changes in operating margins, an appropriate discount rate, terminal value growth rates, future capital expenditures and changes in working capital requirements. There are inherent assumptions and judgments required in the analysis of goodwill impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the future.
OTHER INTANGIBLE ASSETS: Substantially all other intangible assets are amortized using the straight-line method over their estimated useful lives and are evaluated for impairment using a process similar to that used in evaluating the recoverability of property, plant and equipment.
|
|
|
|
|
|
|
|
|
Useful Life Range
|
|
Weighted Average Life
|
|
Other intangible assets
|
5-20 years
|
|
14 years
|
STOCK-BASED COMPENSATION: The cost of employee services received in exchange for all equity awards granted is based on the fair market value of the award as of the grant date. Expense is recognized net of an estimated forfeiture rate using the straight-line method over the vesting period of the award.
REVENUE RECOGNITION: On January 1, 2018, we adopted ASU 2014-09 "Revenue from Contracts with Customers" (Topic 606) as discussed in Note B. We recognize revenue when control of our products transfers to our customers, which is generally upon shipment from our facilities or upon delivery to our customers’ facilities. We reduce revenue for estimated sales allowances, discounts and rebates, which are our primary forms of variable consideration.
For the year ended December 31, 2017, we applied “Revenue Recognition” (Topic 605). We recognized sales when title and risk of loss passed to the customer. We had no significant or unusual price protection, right of return or acceptance provisions with our customers. Sales allowances, discounts and rebates were able to be reasonably estimated and were deducted from sales in arriving at net sales.
SHIPPING AND HANDLING FEES AND COSTS: Shipping and handling costs are included as a component of “Cost of goods sold.”
RESTRUCTURING COSTS: Restructuring costs are items such as employee termination, contract termination, plant closure and asset relocation costs related to exit activities or workforce reductions. Restructuring-related items are inventory writedowns and gains or losses from sales of assets recorded as the result of exit activities. We recognize a liability for costs associated with an exit or disposal activity when the liability is incurred. Certain termination benefits for which employees are required to render service are recognized ratably over the respective future service periods.
INCOME TAXES: The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of our assets and liabilities and are adjusted for changes in tax rates and laws, as appropriate. A valuation allowance is provided to reduce deferred tax assets when management cannot conclude that it is more likely than not that a tax benefit will be realized. A provision is also made for incremental withholding taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be indefinitely invested.
The calculation of our U.S., state, and foreign tax liabilities involves dealing with uncertainties in the application of complex global tax laws. We recognize potential liabilities for anticipated tax issues which might arise in the U.S. and other tax jurisdictions based on management’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. Conversely, if the estimate of tax liabilities proves to be less than the ultimate tax assessment, a further charge to tax expense would result.
CONCENTRATION OF CREDIT RISKS, EXPOSURES AND FINANCIAL INSTRUMENTS: We manufacture, market, and distribute products for the various end markets described in Note G. Our operations are principally located in the United States, although we also have operations in Europe, China, Canada, Mexico and other countries.
We maintain allowances for potential credit losses. We perform ongoing credit evaluations of our customers’ financial conditions and generally require no collateral from our customers, some of which are highly leveraged. Management also monitors the financial condition and status of other notes receivable. Other notes receivable have historically primarily consisted of notes accepted as partial payment for the divestiture of a business or to support other business opportunities. Some of these companies are highly leveraged and the notes are not fully collateralized.
We have no material guarantees or liabilities for product warranties which require disclosure.
From time to time, we will enter into contracts to hedge foreign currency denominated transactions and interest rates related to our debt. To minimize the risk of counterparty default, only highly-rated financial institutions that meet certain requirements are used. We do not anticipate that any of the financial institution counterparties will default on their obligations.
The carrying value of cash and short-term financial instruments approximates fair value due to the short maturity of those instruments.
OTHER RISKS: Although we obtain insurance for workers’ compensation, automobile, product and general liability, property loss and medical claims, we have elected to retain a significant portion of expected losses through the use of deductibles. Accrued liabilities include estimates for unpaid reported claims and for claims incurred but not yet reported. Provisions for losses are recorded based upon reasonable estimates of the aggregate liability for claims incurred utilizing our prior experience and information provided by our third-party administrators and insurance carriers.
DERIVATIVE FINANCIAL INSTRUMENTS: We utilize derivative financial instruments to manage market and financial risks related to foreign currency and interest rates. We seek to use derivative contracts that qualify for hedge accounting treatment; however, some instruments that economically manage currency risk may not qualify for hedge accounting treatment. It is our policy not to speculate using derivative instruments.
Under hedge accounting, we formally document our hedge relationships, including identification of the hedging instruments and the hedged items, as well as our risk management objectives and strategies for entering into the hedge transaction. The process includes designating derivative instruments as hedges of specific assets, liabilities, firm commitments or forecasted transactions. We also formally assess both at inception and on a quarterly basis thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be highly effective, deferred gains or losses are recorded in the Consolidated Statements of Operations.
On the date the contract is entered into, we designate the derivative as one of the following types of hedging instruments and account for it as follows:
Cash Flow Hedge—The hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability or anticipated transaction is designated as a cash flow hedge. The effective portion of the change in fair value is recorded in accumulated other comprehensive income. When the hedged item impacts the income statement, the gain or loss included in "Other comprehensive income (loss)" is reported on the same line of the Consolidated Statements of Operations as the hedged item to match the gain or loss on the derivative to the gain or loss on the hedged item. Any ineffective portion of the changes in the fair value is immediately reported in the Consolidated Statements of Operations on the same line as the hedged item. 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 Hedge—The hedge of a recognized asset or liability or an unrecognized firm commitment is designated as a fair value hedge. For fair value hedges, both the effective and ineffective portions of the changes in fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in the Consolidated Statements of Operations on the same line as the hedged item. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged.
FOREIGN CURRENCY TRANSLATION: The functional currency for most foreign operations is the local currency. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income and expense accounts using monthly average exchange rates. The cumulative effects of translating the functional currencies into the U.S. dollar are included in comprehensive income.
RECLASSIFICATIONS: Certain immaterial reclassifications have been made to the prior years’ information in the Notes to Consolidated Financial Statements to conform to the 2019 presentation.
NEW ACCOUNTING GUIDANCE: 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:
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 L.
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•
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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 or cash flows.
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To be adopted in future years:
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•
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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 finalizing the evaluation of this guidance, and 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 finalizing the evaluation of this guidance and do not expect it to materially impact our future financial statements.
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•
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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
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requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We are finalizing the evaluation of this guidance and do not expect it to materially impact our future financial statements.
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•
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ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”: This ASU will be effective January 1, 2021 (with early adoption permitted) and is a part of the FASB overall simplification initiative. We are currently evaluating this guidance.
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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.
B—Revenue
Initial adoption of new ASU
On January 1, 2018, we adopted ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all the related amendments using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as a $2.3 reduction to the opening balance of “Retained earnings.”
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 was recognized upon transfer of control of our products to our customers, which was generally upon shipment from our facilities or upon delivery to our customers' facilities and was dependent on the terms of the specific contract. This conclusion considers the point at which our customers have the ability to direct the use of and obtain substantially all of the remaining benefits of the products that were transferred. Substantially all of any unsatisfied performance obligations as of December 31, 2019, will be satisfied within one year or less. Shipping and handling costs are included as a component of “Cost of goods sold.”
Sales, value added, and other taxes collected in connection with revenue-producing activities are excluded from revenue.
Sales Allowances and Returns
The amount of consideration we receive and revenue we recognize varies with changes in various sales allowances, discounts and rebates (variable consideration) that we offer to our customers. We reduce revenue by our estimates of variable consideration based on contract terms and historical experience. Changes in estimates of variable consideration for the 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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•
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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.
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Our refund liability and the corresponding asset associated with our right to recover products from our customers were immaterial as of the periods presented.
Other
We have elected to apply the following practical expedients:
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•
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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
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typical trade terms are 30 to 60 days for U.S. customers and up to 90 days for our international customers).
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•
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We generally expense costs of obtaining a contract because the amortization period would be one year or less.
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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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Year Ended December 31
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|
2019
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2018
|
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2017
|
|
Residential Products
|
|
|
|
|
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|
Bedding group 1
|
$
|
1,502.0
|
|
|
$
|
905.1
|
|
|
$
|
837.2
|
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Fabric & Flooring Products group
|
776.4
|
|
|
735.8
|
|
|
720.1
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Machinery group
|
52.6
|
|
|
62.8
|
|
|
62.9
|
|
|
|
2,331.0
|
|
|
1,703.7
|
|
|
1,620.2
|
|
|
Industrial Products
|
|
|
|
|
|
|
Wire group
|
295.6
|
|
|
367.4
|
|
|
291.7
|
|
|
|
295.6
|
|
|
367.4
|
|
|
291.7
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|
Furniture Products
|
|
|
|
|
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Consumer Products group
|
404.6
|
|
|
460.2
|
|
|
413.3
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Home Furniture group
|
357.2
|
|
|
388.6
|
|
|
410.2
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|
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Work Furniture group
|
297.3
|
|
|
293.3
|
|
|
272.9
|
|
|
|
1,059.1
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|
|
1,142.1
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|
|
1,096.4
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|
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Specialized Products
|
|
|
|
|
|
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Automotive group
|
816.1
|
|
|
823.3
|
|
|
772.5
|
|
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Aerospace Products group
|
157.7
|
|
|
148.9
|
|
|
137.9
|
|
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Hydraulic Cylinders group 2
|
93.0
|
|
|
84.1
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|
|
—
|
|
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Commercial Vehicle Products (CVP) group 3
|
—
|
|
|
—
|
|
|
25.1
|
|
|
|
1,066.8
|
|
|
1,056.3
|
|
|
935.5
|
|
|
|
$
|
4,752.5
|
|
|
$
|
4,269.5
|
|
|
$
|
3,943.8
|
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1 The ECS acquisition occurred in January 2019. See Note S.
2 This group was formed January 2018 with the acquisition of a manufacturer of hydraulic cylinders. See Note S.
3 Our remaining CVP operation was sold in 2017. See Note C.
C—Divestitures and Discontinued Operations
During 2017, we divested our remaining CVP operation, and it did not meet the discontinued operations criteria. The following 2017 information is included in the Specialized Products segment:
•External sales for this business was $25.1 and EBIT was ($2.3).
•A pretax loss of $3.3 was recognized on the sale of this business.
•We completed the sale of real estate formerly associated with this operation, realizing a pretax gain of $23.4.
There was no other material divestiture or discontinued operations activity for the years presented.
D—Impairment Charges
Pretax impact of impairment charges is summarized in the following table:
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Year Ended
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2019
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2018
|
|
|
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2017
|
|
|
|
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Other Long-Lived Asset Impairments
|
|
Other Long-Lived Asset Impairments
|
|
Goodwill Impairment
|
|
Other Long-Lived Asset Impairments
|
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Total Impairments
|
|
Residential Products
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Industrial Products
|
—
|
|
|
.3
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|
|
1.3
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|
|
3.6
|
|
|
4.9
|
|
|
Furniture Products
|
6.7
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|
|
5.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
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Total impairment charges
|
$
|
7.8
|
|
|
$
|
5.4
|
|
|
$
|
1.3
|
|
|
$
|
3.6
|
|
|
$
|
4.9
|
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Other Long-Lived Assets
As discussed in Note A, 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.
In 2018, management approved the 2018 Restructuring Plan, as discussed in Note F, which resulted in impairment charges of $7.6 and $5.1 in 2019 and 2018, respectively.
In 2017, impairments were primarily associated with selected operations that reached held for sale status, as discussed below.
Goodwill
As discussed in Note A, goodwill is required to be tested for impairment at the reporting unit level (the business groups that are one level below the operating segments) as triggering events may occur, or at least annually. We perform our annual goodwill impairment review in the second quarter of each year. We concluded that the 2018 Restructuring Plan (as discussed in Note F) was not a triggering event and believe that it is more likely than not that the fair values for the reporting units associated with this Plan exceed their carrying values. If actual results differ materially from estimates used in these calculations, we could incur future impairment charges.
2019 Goodwill Impairment Review
The 2019 annual goodwill impairment review indicated no goodwill impairments.
For 2019, we tested goodwill for impairment in all reporting units using a quantitative approach. The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the table below:
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|
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Fair Value over Carrying Value divided by Carrying Value
|
|
December 31, 2019 Goodwill Value
|
|
10-year Compound Annual Growth Rate Range for Sales
|
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Terminal Values Long-term Growth Rate for Debt-Free Cash Flow
|
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Discount Rate Ranges
|
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Less than 50% 1
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$
|
59.4
|
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|
1.4% - 5.8%
|
|
3.0
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%
|
|
8.0% - 9.5%
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50% - 100% 2
|
|
722.9
|
|
|
5.0%
|
|
3.0
|
%
|
|
8.5%
|
|
101% - 300%
|
|
400.9
|
|
|
1.3% - 5.5%
|
|
3.0
|
%
|
|
7.5% - 8.0%
|
|
301% - 600%
|
|
223.1
|
|
|
.2% - 11.1%
|
|
3.0
|
%
|
|
8.5%
|
|
|
|
$
|
1,406.3
|
|
|
.2% - 11.1%
|
|
3.0
|
%
|
|
7.5% - 9.5%
|
1 This category includes two reporting units:
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|
|
•
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The fair value of our Machinery reporting unit exceeded its carrying value by 12%. This unit has $33.4 of goodwill at December 31, 2019.
|
|
|
|
|
•
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The fair value of our Hydraulic Cylinders reporting unit exceeded its carrying value by 29%. This reporting unit was acquired in the first quarter of 2018 and has $26.0 of goodwill at December 31, 2019.
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2 This category includes one reporting unit. The fair value of our Bedding reporting unit exceeded its carrying value by 50% at December 31, 2019 as compared to 198% at December 31, 2018. This decrease was due to the January 2019 ECS acquisition (as discussed in Note S). At our testing date, the carrying value approximates fair value for the ECS business.
2018 Goodwill Impairment Review
The 2018 annual goodwill impairment review indicated no goodwill impairments.
For 2018, we tested goodwill for impairment in all reporting units using a quantitative approach. The fair values of our reporting units in relation to their respective carrying values and significant assumptions used are presented in the table below:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value over Carrying Value divided by Carrying Value
|
|
December 31, 2018 Goodwill Value
|
|
10-year
Compound
Annual Growth
Rate Range for Sales
|
|
Terminal Values Long-term Growth
Rate for Debt-Free Cash Flow
|
|
Discount Rate Ranges
|
|
Less than 100% 1
|
|
$
|
180.7
|
|
|
4.7% - 5.2%
|
|
3.0
|
%
|
|
9.0% - 9.5%
|
|
101% - 300%
|
|
502.5
|
|
|
1.8% - 5.0%
|
|
3.0
|
%
|
|
8.5% - 10.0%
|
|
301% - 600%
|
|
150.6
|
|
|
5.7% - 12.4%
|
|
3.0
|
%
|
|
9.0% - 10.0%
|
|
|
|
$
|
833.8
|
|
|
1.8% - 12.4%
|
|
3.0
|
%
|
|
8.5% - 10.0%
|
1All reporting units in this category exceeded 90%, except for the Hydraulic Cylinders reporting unit (acquired in 2018), to which carrying value approximated fair value.
2017 Goodwill Impairment Review
The 2017 annual goodwill impairment review indicated no goodwill impairments.
We performed a Step Zero Analysis for our annual goodwill review for each of our reporting units and we considered i) the excess in fair value of the reporting unit over its carrying amount from the most recent quantitative analysis, ii) macroeconomic conditions, iii) industry and market trends, and iv) overall financial performance. We concluded that it was more likely than not that the fair value of all reporting units, except for two, exceeded their carrying values. Because sales and profits for two reporting units were less than expected, we performed a quantitative analysis for our Work Furniture and Aerospace reporting units under the two-step model. These reporting units were determined to have fair
values in excess of their carrying amounts of at least 75%. Goodwill associated with these two reporting units was $157.4 at December 31, 2017.
During the third quarter of 2017, two Drawn Wire operations within the Industrial Products segment reached held for sale status. Because fair value less costs to sell had fallen below the carrying amount, we fully impaired $1.3 of goodwill and $3.3 of other long-lived assets. During 2018, one operation was closed. The other operation continues to operate and no longer meets the held for sale criteria.
E—Goodwill and Other Intangible Assets
The changes in the carrying amounts of goodwill are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Products
|
|
Industrial
Products
|
|
Furniture
Products
|
|
Specialized
Products
|
|
Total
|
|
Net goodwill as of January 1, 2018
|
$
|
368.2
|
|
|
$
|
70.8
|
|
|
$
|
196.2
|
|
|
$
|
187.0
|
|
|
$
|
822.2
|
|
|
Additions for current year acquisitions
|
1.3
|
|
|
—
|
|
|
—
|
|
|
26.8
|
|
|
28.1
|
|
|
Adjustments to prior year acquisitions
|
(.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.2
|
)
|
|
Foreign currency translation adjustment
|
(5.8
|
)
|
|
(.1
|
)
|
|
(3.1
|
)
|
|
(7.3
|
)
|
|
(16.3
|
)
|
|
Net goodwill as of December 31, 2018
|
363.5
|
|
|
70.7
|
|
|
193.1
|
|
|
206.5
|
|
|
833.8
|
|
|
Additions for current year acquisitions
|
566.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
566.3
|
|
|
Adjustments to prior year acquisitions
|
.9
|
|
|
—
|
|
|
—
|
|
|
.2
|
|
|
1.1
|
|
|
Foreign currency translation adjustment
|
3.0
|
|
|
.1
|
|
|
(.1
|
)
|
|
2.1
|
|
|
5.1
|
|
|
Net goodwill as of December 31, 2019
|
$
|
933.7
|
|
|
$
|
70.8
|
|
|
$
|
193.0
|
|
|
$
|
208.8
|
|
|
$
|
1,406.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net goodwill as of December 31, 2019 is comprised of:
|
|
|
|
|
|
|
|
|
|
|
Gross goodwill
|
$
|
933.7
|
|
|
$
|
76.2
|
|
|
$
|
443.6
|
|
|
$
|
275.5
|
|
|
$
|
1,729.0
|
|
|
Accumulated impairment losses
|
—
|
|
|
(5.4
|
)
|
|
(250.6
|
)
|
|
(66.7
|
)
|
|
(322.7
|
)
|
|
Net goodwill as of December 31, 2019
|
$
|
933.7
|
|
|
$
|
70.8
|
|
|
$
|
193.0
|
|
|
$
|
208.8
|
|
|
$
|
1,406.3
|
|
The gross carrying amount and accumulated amortization by intangible asset class and intangible assets acquired during the periods presented included in "Other intangibles, net" on the Consolidated Balance Sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and
Trademarks
|
|
Technology
|
|
Non-compete
Agreements
|
|
Customer- Related Intangibles
|
|
Supply
Agreements
and Other
|
|
Total
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
133.9
|
|
|
$
|
178.1
|
|
|
$
|
42.1
|
|
|
$
|
591.1
|
|
|
$
|
41.1
|
|
|
$
|
986.3
|
|
|
Accumulated amortization
|
36.7
|
|
|
12.9
|
|
|
14.2
|
|
|
136.3
|
|
|
22.2
|
|
|
222.3
|
|
|
Net other intangibles as of December 31, 2019
|
$
|
97.2
|
|
|
$
|
165.2
|
|
|
$
|
27.9
|
|
|
$
|
454.8
|
|
|
$
|
18.9
|
|
|
$
|
764.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired during 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired related to business acquisitions
|
$
|
67.1
|
|
|
$
|
173.3
|
|
|
$
|
28.7
|
|
|
$
|
378.9
|
|
|
$
|
—
|
|
|
$
|
648.0
|
|
|
Acquired outside business acquisitions
|
1.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.9
|
|
|
7.5
|
|
|
Total acquired in 2019
|
$
|
68.7
|
|
|
$
|
173.3
|
|
|
$
|
28.7
|
|
|
$
|
378.9
|
|
|
$
|
5.9
|
|
|
$
|
655.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average amortization period in years for items acquired in 2019
|
15.1
|
|
|
15.0
|
|
|
5.2
|
|
|
15.0
|
|
|
7.6
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
65.8
|
|
|
$
|
4.7
|
|
|
$
|
15.8
|
|
|
$
|
212.5
|
|
|
$
|
41.6
|
|
|
$
|
340.4
|
|
|
Accumulated amortization
|
31.3
|
|
|
.9
|
|
|
8.6
|
|
|
98.8
|
|
|
22.1
|
|
|
161.7
|
|
|
Net other intangibles as of December 31, 2018
|
$
|
34.5
|
|
|
$
|
3.8
|
|
|
$
|
7.2
|
|
|
$
|
113.7
|
|
|
$
|
19.5
|
|
|
$
|
178.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired during 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired related to business acquisitions
|
$
|
2.7
|
|
|
$
|
.9
|
|
|
$
|
1.9
|
|
|
$
|
19.4
|
|
|
$
|
—
|
|
|
$
|
24.9
|
|
|
Acquired outside business acquisitions
|
1.3
|
|
|
—
|
|
|
.6
|
|
|
—
|
|
|
9.2
|
|
|
11.1
|
|
|
Total acquired in 2018
|
$
|
4.0
|
|
|
$
|
.9
|
|
|
$
|
2.5
|
|
|
$
|
19.4
|
|
|
$
|
9.2
|
|
|
$
|
36.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average amortization period in years for items acquired in 2018
|
16.5
|
|
|
5.0
|
|
|
4.5
|
|
|
14.4
|
|
|
8.3
|
|
|
11.6
|
|
Estimated amortization expense for the items above included in our December 31, 2019 Consolidated Balance Sheets in each of the next five years is as follows:
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
2020
|
$
|
65.0
|
|
|
2021
|
64.0
|
|
|
2022
|
61.0
|
|
|
2023
|
55.0
|
|
|
2024
|
54.0
|
|
F—Restructuring and Restructuring Related 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 Furniture Products segment, including the Home Furniture Group (which produces furniture components for the upholstered furniture industry) and the Fashion Bed business (which supplied ornamental beds, bed frames and other sleep accessories sold to retailers). Both of these businesses had underperformed expectations primarily from weaker demand and higher raw material costs. These restructuring activities were substantially complete as of December 31, 2019, including the closure of the Fashion Bed business.
In 2019, we modified the Plan to include three small facilities in the Residential Products segment and one operation in the Industrial Products segment, most of which were substantially complete by the end of the year. Our total costs for this Plan are expected to be approximately $32.0 and to date we have incurred costs of $31.4. The following table presents information associated with this Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount Incurred to Date
|
|
Total Incurred Full Year 2019
|
|
Total Incurred Full Year 2018
|
|
2018 Restructuring Plan
|
|
|
|
|
|
|
Restructuring and restructuring-related
|
$
|
18.7
|
|
|
$
|
7.5
|
|
|
$
|
11.2
|
|
|
Impairment costs associated with this plan
|
12.7
|
|
|
7.6
|
|
|
5.1
|
|
|
|
$
|
31.4
|
|
|
$
|
15.1
|
|
|
$
|
16.3
|
|
|
Amount of total that represents cash charges
|
$
|
14.9
|
|
|
$
|
8.0
|
|
|
$
|
6.9
|
|
The table below presents all restructuring and restructuring-related activity for the periods presented; the majority of the 2019 and 2018 costs are related to the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Charged to other expense (income), net:
|
|
|
|
|
|
|
Severance and other restructuring costs
|
$
|
8.1
|
|
|
$
|
7.8
|
|
|
$
|
.8
|
|
|
Charged to cost of goods sold:
|
|
|
|
|
|
|
Inventory obsolescence and other
|
(.5
|
)
|
|
4.6
|
|
|
.5
|
|
|
Total restructuring and restructuring-related costs
|
$
|
7.6
|
|
|
$
|
12.4
|
|
|
$
|
1.3
|
|
|
Amount of total that represents cash charges
|
$
|
8.1
|
|
|
$
|
7.8
|
|
|
$
|
.8
|
|
Restructuring and restructuring-related charges by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Residential Products
|
$
|
3.3
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
Industrial Products
|
1.0
|
|
|
.2
|
|
|
.8
|
|
|
Furniture Products
|
3.3
|
|
|
10.8
|
|
|
.5
|
|
|
Total
|
$
|
7.6
|
|
|
$
|
12.4
|
|
|
$
|
1.3
|
|
The accrued liability associated with our total restructuring initiatives consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
Add: 2018 Charges
|
|
Less: 2018 Payments
|
|
Balance at December 31, 2018
|
|
Add: 2019 Charges
|
|
Less: 2019 Payments
|
|
Balance at December 31, 2019
|
|
Termination benefits
|
$
|
.3
|
|
|
$
|
7.3
|
|
|
$
|
1.0
|
|
|
$
|
6.6
|
|
|
$
|
4.7
|
|
|
$
|
7.8
|
|
|
$
|
3.5
|
|
|
Contract termination costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
|
.4
|
|
|
—
|
|
|
Other restructuring costs
|
.5
|
|
|
.5
|
|
|
.4
|
|
|
.6
|
|
|
3.0
|
|
|
2.9
|
|
|
.7
|
|
|
|
$
|
.8
|
|
|
$
|
7.8
|
|
|
$
|
1.4
|
|
|
$
|
7.2
|
|
|
$
|
8.1
|
|
|
$
|
11.1
|
|
|
$
|
4.2
|
|
G—Segment Information
We have four operating segments that supply a wide range of products:
|
|
|
|
•
|
Residential Products: This segment supplies a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products, as well as produces private-label finished mattresses for bedding brands. We also produce or distribute flooring underlayment, fabric, and geo components.
|
|
|
|
|
•
|
Industrial Products: This segment primarily supplies steel rod and drawn steel wire to our other operations and to external customers. Our customers use this wire to make mechanical springs and many other end products.
|
|
|
|
|
•
|
Furniture Products: This segment supplies a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture and adjustable bed bases.
|
|
|
|
|
•
|
Specialized Products: This segment supplies lumbar support systems, seat suspension systems, motors and actuators, and control cables used by automotive manufacturers. We also produce and distribute tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in the material-handling and construction industries.
|
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.
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 for the periods presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
Trade 1
Sales
|
|
Inter-
Segment
Sales
|
|
Total Segment
Sales
|
|
EBIT
|
|
Depreciation and Amortization
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Residential Products
|
$
|
2,331.0
|
|
|
$
|
13.2
|
|
|
$
|
2,344.2
|
|
|
$
|
170.6
|
|
|
$
|
104.2
|
|
|
Industrial Products
|
295.6
|
|
|
299.6
|
|
|
595.2
|
|
|
97.5
|
|
|
11.0
|
|
|
Furniture Products
|
1,059.1
|
|
|
9.5
|
|
|
1,068.6
|
|
|
73.4
|
|
|
17.8
|
|
|
Specialized Products
|
1,066.8
|
|
|
3.2
|
|
|
1,070.0
|
|
|
170.5
|
|
|
41.8
|
|
|
Intersegment eliminations and other 3
|
|
|
|
|
|
|
1.4
|
|
|
17.1
|
|
|
|
$
|
4,752.5
|
|
|
$
|
325.5
|
|
|
$
|
5,078.0
|
|
|
$
|
513.4
|
|
|
$
|
191.9
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Residential Products
|
$
|
1,703.7
|
|
|
$
|
17.1
|
|
|
$
|
1,720.8
|
|
|
$
|
132.8
|
|
|
$
|
46.6
|
|
|
Industrial Products
|
367.4
|
|
|
295.0
|
|
|
662.4
|
|
|
68.4
|
|
|
10.3
|
|
|
Furniture Products
|
1,142.1
|
|
|
13.8
|
|
|
1,155.9
|
|
|
49.6
|
|
|
17.4
|
|
|
Specialized Products
|
1,056.3
|
|
|
2.7
|
|
|
1,059.0
|
|
|
189.0
|
|
|
39.0
|
|
|
Intersegment eliminations and other 3
|
|
|
|
|
|
|
(2.9
|
)
|
|
22.8
|
|
|
|
$
|
4,269.5
|
|
|
$
|
328.6
|
|
|
$
|
4,598.1
|
|
|
$
|
436.9
|
|
|
$
|
136.1
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Residential Products
|
$
|
1,620.2
|
|
|
$
|
18.6
|
|
|
$
|
1,638.8
|
|
|
$
|
184.0
|
|
|
$
|
45.8
|
|
|
Industrial Products
|
291.7
|
|
|
253.9
|
|
|
545.6
|
|
|
21.0
|
|
|
10.2
|
|
|
Furniture Products
|
1,096.4
|
|
|
16.8
|
|
|
1,113.2
|
|
|
81.5
|
|
|
16.2
|
|
|
Specialized Products
|
935.5
|
|
|
7.1
|
|
|
942.6
|
|
|
195.6
|
|
|
31.2
|
|
|
Intersegment eliminations and other 2,3
|
|
|
|
|
|
|
(14.2
|
)
|
|
22.5
|
|
|
|
$
|
3,943.8
|
|
|
$
|
296.4
|
|
|
$
|
4,240.2
|
|
|
$
|
467.9
|
|
|
$
|
125.9
|
|
1 See Note B for revenue by product line.
2 2017 EBIT: Included in other is a $15.3 pension settlement charge. (See Note N).
3 Depreciation and amortization: Other relates to non-operating assets (assets not included in segment assets) and is allocated to segment EBIT as discussed above.
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 year. Acquired companies’ long-lived assets as disclosed below include property, plant and equipment and other long-term assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
Assets
|
|
Additions
to
Property,
Plant and
Equipment
|
|
Acquired
Companies’
Long-Lived
Assets
|
|
2019
|
|
|
|
|
|
|
Residential Products
|
$
|
795.6
|
|
|
$
|
43.8
|
|
|
$
|
1,297.2
|
|
|
Industrial Products
|
168.8
|
|
|
27.3
|
|
|
—
|
|
|
Furniture Products
|
239.1
|
|
|
8.0
|
|
|
—
|
|
|
Specialized Products
|
346.4
|
|
|
29.3
|
|
|
.2
|
|
|
Average current liabilities included in segment numbers above
|
744.6
|
|
|
—
|
|
|
—
|
|
|
Unallocated assets and other
|
2,650.7
|
|
|
34.7
|
|
|
—
|
|
|
Difference between average assets and year-end balance sheet
|
(128.8
|
)
|
|
—
|
|
|
—
|
|
|
|
$
|
4,816.4
|
|
|
$
|
143.1
|
|
|
$
|
1,297.4
|
|
|
2018
|
|
|
|
|
|
|
Residential Products
|
$
|
609.4
|
|
|
$
|
48.0
|
|
|
$
|
6.0
|
|
|
Industrial Products
|
163.8
|
|
|
9.6
|
|
|
—
|
|
|
Furniture Products
|
279.8
|
|
|
19.7
|
|
|
—
|
|
|
Specialized Products
|
342.5
|
|
|
45.0
|
|
|
79.4
|
|
|
Average current liabilities included in segment numbers above
|
661.8
|
|
|
—
|
|
|
—
|
|
|
Unallocated assets and other
|
1,278.0
|
|
|
37.3
|
|
|
—
|
|
|
Difference between average assets and year-end balance sheet
|
46.7
|
|
|
—
|
|
|
—
|
|
|
|
$
|
3,382.0
|
|
|
$
|
159.6
|
|
|
$
|
85.4
|
|
|
2017
|
|
|
|
|
|
|
Residential Products
|
$
|
554.6
|
|
|
$
|
60.5
|
|
|
$
|
33.6
|
|
|
Industrial Products
|
150.0
|
|
|
14.3
|
|
|
—
|
|
|
Furniture Products
|
245.7
|
|
|
20.2
|
|
|
14.3
|
|
|
Specialized Products
|
271.7
|
|
|
51.7
|
|
|
—
|
|
|
Average current liabilities included in segment numbers above
|
557.0
|
|
|
—
|
|
|
—
|
|
|
Unallocated assets and other
|
1,693.1
|
|
|
12.7
|
|
|
—
|
|
|
Difference between average assets and year-end balance sheet
|
78.7
|
|
|
—
|
|
|
—
|
|
|
|
$
|
3,550.8
|
|
|
$
|
159.4
|
|
|
$
|
47.9
|
|
Trade sales and tangible long-lived assets are presented below, based on the geography of manufacture.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Trade sales
|
|
|
|
|
|
|
Foreign sales
|
|
|
|
|
|
|
Europe
|
$
|
508.5
|
|
|
$
|
525.6
|
|
|
$
|
475.3
|
|
|
China
|
449.9
|
|
|
494.7
|
|
|
481.6
|
|
|
Canada
|
312.8
|
|
|
286.8
|
|
|
265.1
|
|
|
Mexico
|
256.0
|
|
|
186.1
|
|
|
148.5
|
|
|
Other
|
92.6
|
|
|
94.8
|
|
|
85.5
|
|
|
Total foreign sales
|
1,619.8
|
|
|
1,588.0
|
|
|
1,456.0
|
|
|
United States
|
3,132.7
|
|
|
2,681.5
|
|
|
2,487.8
|
|
|
Total trade sales
|
$
|
4,752.5
|
|
|
$
|
4,269.5
|
|
|
$
|
3,943.8
|
|
|
|
|
|
|
|
|
|
Tangible long-lived assets
|
|
|
|
|
|
|
Foreign tangible long-lived assets
|
|
|
|
|
|
|
Europe
|
$
|
160.2
|
|
|
$
|
167.6
|
|
|
$
|
157.4
|
|
|
China
|
51.6
|
|
|
55.5
|
|
|
54.7
|
|
|
Canada
|
36.4
|
|
|
38.0
|
|
|
39.9
|
|
|
Mexico
|
10.1
|
|
|
10.1
|
|
|
6.5
|
|
|
Other
|
14.7
|
|
|
16.0
|
|
|
13.0
|
|
|
Total foreign tangible long-lived assets
|
273.0
|
|
|
287.2
|
|
|
271.5
|
|
|
United States
|
557.8
|
|
|
441.3
|
|
|
392.4
|
|
|
Total tangible long-lived assets
|
$
|
830.8
|
|
|
$
|
728.5
|
|
|
$
|
663.9
|
|
H—Earnings Per Share
Basic and diluted earnings per share were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Earnings:
|
|
|
|
|
|
|
Earnings from continuing operations
|
$
|
333.9
|
|
|
$
|
306.1
|
|
|
$
|
293.6
|
|
|
(Earnings) attributable to noncontrolling interest, net of tax
|
(.1
|
)
|
|
(.2
|
)
|
|
(.1
|
)
|
|
Net earnings from continuing operations attributable to Leggett & Platt common shareholders
|
333.8
|
|
|
305.9
|
|
|
293.5
|
|
|
Earnings (loss) from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
(.9
|
)
|
|
Net earnings attributable to Leggett & Platt common shareholders
|
$
|
333.8
|
|
|
$
|
305.9
|
|
|
$
|
292.6
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (in millions):
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS
|
134.8
|
|
|
134.3
|
|
|
136.0
|
|
|
Dilutive effect of equity-based compensation
|
.6
|
|
|
.9
|
|
|
1.3
|
|
|
Weighted average number of common shares and dilutive potential common shares used in diluted EPS
|
135.4
|
|
|
135.2
|
|
|
137.3
|
|
|
|
|
|
|
|
|
|
Basic and Diluted EPS:
|
|
|
|
|
|
|
Basic EPS attributable to Leggett & Platt common shareholders
|
|
|
|
|
|
|
Continuing operations
|
$
|
2.48
|
|
|
$
|
2.28
|
|
|
$
|
2.16
|
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
(.01
|
)
|
|
Basic EPS attributable to Leggett & Platt common shareholders
|
$
|
2.48
|
|
|
$
|
2.28
|
|
|
$
|
2.15
|
|
|
Diluted EPS attributable to Leggett & Platt common shareholders
|
|
|
|
|
|
|
Continuing operations
|
$
|
2.47
|
|
|
$
|
2.26
|
|
|
$
|
2.14
|
|
|
Discontinued operations
|
—
|
|
|
—
|
|
|
(.01
|
)
|
|
Diluted EPS attributable to Leggett & Platt common shareholders
|
$
|
2.47
|
|
|
$
|
2.26
|
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted EPS computation
|
.2
|
|
|
.1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
$
|
1.58
|
|
|
$
|
1.50
|
|
|
$
|
1.42
|
|
I—Accounts and Other Receivables
Accounts and other receivables at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
|
Trade accounts receivable 1
|
$
|
571.8
|
|
|
$
|
—
|
|
|
$
|
548.8
|
|
|
$
|
—
|
|
|
Trade notes receivable
|
1.1
|
|
|
.6
|
|
|
1.7
|
|
|
1.4
|
|
|
Total trade receivables
|
572.9
|
|
|
.6
|
|
|
550.5
|
|
|
1.4
|
|
|
Other notes receivable 1
|
—
|
|
|
23.4
|
|
|
—
|
|
|
24.2
|
|
|
Taxes receivable, including income taxes
|
15.8
|
|
|
—
|
|
|
12.9
|
|
|
—
|
|
|
Other receivables
|
11.7
|
|
|
—
|
|
|
13.4
|
|
|
—
|
|
|
Subtotal other receivables
|
27.5
|
|
|
23.4
|
|
|
26.3
|
|
|
24.2
|
|
|
Total trade and other receivables
|
600.4
|
|
|
24.0
|
|
|
576.8
|
|
|
25.6
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
Trade accounts receivable 1
|
(8.4
|
)
|
|
—
|
|
|
(5.2
|
)
|
|
—
|
|
|
Trade notes receivable
|
(.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total trade receivables
|
(8.5
|
)
|
|
—
|
|
|
(5.2
|
)
|
|
—
|
|
|
Other notes receivable 1
|
—
|
|
|
(15.0
|
)
|
|
—
|
|
|
(15.0
|
)
|
|
Total allowance for doubtful accounts
|
(8.5
|
)
|
|
(15.0
|
)
|
|
(5.2
|
)
|
|
(15.0
|
)
|
|
Total net receivables
|
$
|
591.9
|
|
|
$
|
9.0
|
|
|
$
|
571.6
|
|
|
$
|
10.6
|
|
1 The “Trade accounts receivable” and “Other notes receivable” line items above include $26.0 and $26.7 as of December 31, 2019 and December 31, 2018, respectively, from a customer in our Residential Products segment who is experiencing financial difficulty and liquidity problems and, during the fourth quarter of 2018, became delinquent in 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 December 31, 2019 was $16.0.
Activity related to the allowance for doubtful accounts is reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
Add: Charges
|
|
Less: Net Charge-offs/(Recoveries) and Other
|
|
Balance at December 31, 2018
|
|
Add:
Charges
|
|
Less: Net
Charge-offs/(Recoveries) and Other
|
|
Balance at December 31, 2019
|
|
Trade accounts receivable
|
$
|
4.7
|
|
|
$
|
1.9
|
|
|
$
|
1.4
|
|
|
$
|
5.2
|
|
|
$
|
2.7
|
|
|
$
|
(.5
|
)
|
|
$
|
8.4
|
|
|
Trade notes receivable
|
.2
|
|
|
(.2
|
)
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
|
.1
|
|
|
Total trade receivables
|
4.9
|
|
|
1.7
|
|
|
1.4
|
|
|
5.2
|
|
|
2.8
|
|
|
(.5
|
)
|
|
8.5
|
|
|
Other notes receivable
|
—
|
|
|
15.0
|
|
|
—
|
|
|
15.0
|
|
|
—
|
|
|
—
|
|
|
15.0
|
|
|
Total allowance for doubtful accounts
|
$
|
4.9
|
|
|
$
|
16.7
|
|
|
$
|
1.4
|
|
|
$
|
20.2
|
|
|
$
|
2.8
|
|
|
$
|
(.5
|
)
|
|
$
|
23.5
|
|
J—Supplemental Balance Sheet Information
Additional supplemental balance sheet details at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Sundry
|
|
|
|
|
|
$
|
11.5
|
|
|
$
|
20.2
|
|
Diversified investments associated with stock-based compensation plans (see Note M)
|
38.2
|
|
|
30.4
|
|
|
Investment in associated companies
|
4.3
|
|
|
7.1
|
|
Pension plan assets (see Note N)
|
1.4
|
|
|
1.6
|
|
Brazilian VAT deposits (see Note U)
|
10.5
|
|
|
13.9
|
|
Net long-term notes receivable (see Note I)
|
9.0
|
|
|
10.6
|
|
|
|
4.3
|
|
|
—
|
|
|
Other
|
39.2
|
|
|
32.6
|
|
|
|
$
|
118.4
|
|
|
$
|
116.4
|
|
|
Accrued expenses
|
|
|
|
Litigation contingency accruals (see Note U)
|
$
|
.7
|
|
|
$
|
1.9
|
|
|
Wages and commissions payable
|
80.9
|
|
|
71.5
|
|
|
Workers’ compensation, vehicle-related and product liability, medical/disability 1
|
42.9
|
|
|
49.2
|
|
|
Sales promotions
|
51.1
|
|
|
48.3
|
|
Liabilities associated with stock-based compensation plans (see Note M)
|
11.8
|
|
|
12.2
|
|
|
Accrued interest
|
14.4
|
|
|
7.9
|
|
|
General taxes, excluding income taxes
|
17.0
|
|
|
16.3
|
|
|
Environmental reserves
|
3.8
|
|
|
2.9
|
|
|
Other
|
58.4
|
|
|
52.5
|
|
|
|
$
|
281.0
|
|
|
$
|
262.7
|
|
|
Other current liabilities
|
|
|
|
|
Dividends payable
|
$
|
52.7
|
|
|
$
|
49.6
|
|
|
Customer deposits
|
11.9
|
|
|
11.8
|
|
|
Sales tax payable
|
5.0
|
|
|
3.9
|
|
Derivative financial instruments (see Note T)
|
.9
|
|
|
4.5
|
|
Liabilities associated with stock-based compensation plans (see Note M)
|
2.8
|
|
|
2.3
|
|
|
Outstanding checks in excess of book balances
|
10.4
|
|
|
10.6
|
|
|
Other
|
9.6
|
|
|
3.7
|
|
|
|
$
|
93.3
|
|
|
$
|
86.4
|
|
|
Other long-term liabilities
|
|
|
|
Liability for pension benefits (see Note N)
|
$
|
58.6
|
|
|
$
|
39.2
|
|
Liabilities associated with stock-based compensation plans (see Note M)
|
46.5
|
|
|
34.6
|
|
Deemed repatriation tax payable (see Note O)
|
32.8
|
|
|
32.2
|
|
|
Net reserves for tax contingencies
|
8.1
|
|
|
10.3
|
|
Deferred compensation (see Note M)
|
14.6
|
|
|
17.6
|
|
|
Other
|
12.9
|
|
|
21.4
|
|
|
|
$
|
173.5
|
|
|
$
|
155.3
|
|
K—Long-Term Debt
Long-term debt, interest rates and due dates at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Year-end Interest
Rate
|
|
Due Date
Through
|
|
Balance
|
|
Year-end Interest
Rate
|
|
Due Date
Through
|
|
Balance
|
|
Senior Notes 1
|
3.4
|
%
|
|
2022
|
|
$
|
300.0
|
|
|
3.4
|
%
|
|
2022
|
|
$
|
300.0
|
|
|
Senior Notes 1
|
3.8
|
%
|
|
2024
|
|
300.0
|
|
|
3.8
|
%
|
|
2024
|
|
300.0
|
|
|
Senior Notes 1
|
3.5
|
%
|
|
2027
|
|
500.0
|
|
|
3.5
|
%
|
|
2027
|
|
500.0
|
|
|
Senior Notes 1
|
4.4
|
%
|
|
2029
|
|
500.0
|
|
|
|
|
|
|
|
—
|
|
|
Term Loan 2
|
2.9
|
%
|
|
2024
|
|
462.5
|
|
|
|
|
|
|
|
—
|
|
|
Industrial development bonds, principally variable interest rates
|
1.6
|
%
|
|
2030
|
|
3.8
|
|
|
1.9
|
%
|
|
2030
|
|
3.8
|
|
|
Commercial paper 3
|
2.0
|
%
|
|
2024
|
|
61.5
|
|
|
2.6
|
%
|
|
2022
|
|
70.0
|
|
|
Finance leases (primarily vehicles)
|
|
|
|
|
4.2
|
|
|
|
|
|
|
4.7
|
|
|
Other, partially secured
|
|
|
|
|
.5
|
|
|
|
|
|
|
.6
|
|
|
Unamortized discounts and deferred loan cost
|
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
(10.1
|
)
|
|
Total debt
|
|
|
|
|
2,117.6
|
|
|
|
|
|
|
1,169.0
|
|
|
Less: current maturities
|
|
|
|
|
51.1
|
|
|
|
|
|
|
1.2
|
|
|
Total long-term debt
|
|
|
|
|
$
|
2,066.5
|
|
|
|
|
|
|
$
|
1,167.8
|
|
1 Senior Notes are unsecured and unsubordinated obligations. For each of the Senior Notes: (i) interest is paid semi-annually in arrears; (ii) principal is due at maturity with no sinking fund; and (iii) we may, at our option, at any time, redeem all or a portion of any of the debt at a make-whole redemption price equal to the greater of: (a) 100% of the principal amount of the notes being redeemed; and (b) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a specified discount rate determined by the terms of each respective note. The Senior Notes may also be redeemed by us within 90 days of maturity at 100% of the principal amount plus accrued and unpaid interest, and we are required to offer to purchase such notes at 101% of the principal amount, plus accrued and unpaid interest, if we experience a Change of Control Repurchase Event, as defined in the Senior Notes. Also, each respective Senior Note contains restrictive covenants, including a limitation on secured debt of 15% of our consolidated assets, a limitation on sale and leaseback transactions, and a limitation on certain consolidations, mergers, and sales of assets.
2 In January 2019, we issued a $500.0 five-year Tranche A Term Loan with our current bank group. We pay quarterly principal installments of $12.5 through the maturity date of January 2024, at which time we will pay the remaining principal. Additional principal payments, including a complete early payoff, are allowed without penalty. As of December 31, 2019, we had repaid $37.5, as scheduled, on the Tranche A Term Loan. The Tranche A Term Loan bears a variable interest rate as defined in the agreement and was 2.9% at December 31, 2019. Interest is payable based upon a time interval that depends on the selection of interest rate period, and at December 31, 2019, there was no material accrued interest payable on the Tranche A Loan.
3 The weighted average interest rate for the net commercial paper activity during the years ended December 31, 2019 and 2018 was 2.6% and 2.4%, respectively.
Maturities are as follows:
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
2020
|
$
|
51.1
|
|
|
2021
|
51.0
|
|
|
2022
|
350.2
|
|
|
2023
|
51.0
|
|
|
2024
|
621.9
|
|
|
Thereafter
|
992.4
|
|
|
|
$
|
2,117.6
|
|
In January 2019, we increased the size of the revolving facility from $800.0 to $1,200.0 (and increased permitted borrowings, subject to covenant restrictions, under our commercial paper program in a corresponding amount), added a five-year $500.0 term loan facility, and extended the term from 2022 to 2024.
Amounts outstanding at December 31 related to our commercial paper program were:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Total program authorized
|
$
|
1,200.0
|
|
|
$
|
800.0
|
|
|
|
|
|
|
|
Commercial paper outstanding (classified as long-term debt)
|
(61.5
|
)
|
|
(70.0
|
)
|
|
Letters of credit issued under the credit facility
|
—
|
|
|
—
|
|
|
Total program usage
|
(61.5
|
)
|
|
(70.0
|
)
|
|
Total program available
|
$
|
1,138.5
|
|
|
$
|
730.0
|
|
At December 31, 2019, subject to restrictive covenants we could raise cash by issuing commercial paper through a program that is backed by a $1,200.0 revolving credit facility with a syndicate of 13 lenders. The credit facility allows us to issue total letters of credit up to $125.0. When we issue letters of credit in this manner, our capacity under the revolving facility, and consequently, our ability to issue commercial paper, is reduced by a corresponding amount. We had no outstanding letters of credit under the facility at year end for the periods presented.
At December 31, 2019, the revolving credit facility and certain other long-term debt obligations contain restrictive covenants, of which we are comfortably in compliance. The covenants currently limit: a) as of the last day of each fiscal quarter, the leverage ratio of consolidated funded indebtedness to consolidated EBITDA (each as defined in the revolving credit facility) for the trailing four fiscal quarters must not exceed 4.25 to 1.00, with a single step-down to 3.50 to 1.00 at March 31, 2020, b) the amount of total secured debt to 15% of our total consolidated assets, and c) our ability to sell, lease, transfer, or dispose of all or substantially all of total consolidated assets.
Generally, we may elect one of four types of borrowing under the revolving credit facility, which determines the rate of interest to be paid on the outstanding principal balance. The interest rate would typically be commensurate with the currency borrowed and the term of the borrowing, as well as either (i) a competitive variable or fixed rate, or (ii) various published rates plus a pre-defined spread.
We are required to periodically pay accrued interest on any outstanding principal balance under the revolving credit facility at different time intervals based upon the elected interest rate and the elected interest period. Any outstanding principal under this facility will be due upon the maturity date. We may also terminate or reduce the lending commitments under this facility, in whole or in part, upon three business days’ notice.
L—Lease Obligations
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.
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.
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 December 31, 2019, we had $20.6 of additional operating leases that had not yet commenced. These operating leases will commence in 2020 with average lease terms of 9 years.
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Operating leases:
|
|
|
Operating lease right-of-use assets
|
$
|
158.8
|
|
|
|
|
|
Current portion of operating lease liabilities
|
39.3
|
|
|
Operating lease liabilities
|
121.6
|
|
|
Total operating lease liabilities
|
$
|
160.9
|
|
|
|
|
|
Finance leases:
|
|
|
Sundry
|
$
|
4.3
|
|
|
|
|
|
Current maturities of long-term debt
|
1.1
|
|
|
Long-term debt
|
3.1
|
|
|
Total finance lease liabilities
|
$
|
4.2
|
|
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
Operating lease costs:
|
|
|
Lease costs
|
$
|
45.0
|
|
|
Variable lease costs
|
12.9
|
|
|
Total operating lease costs
|
$
|
57.9
|
|
|
|
|
|
Short-term lease costs
|
$
|
5.0
|
|
|
|
|
|
Finance lease costs:
|
|
|
Amortization of right-of-use assets
|
$
|
2.7
|
|
|
Interest on lease liabilities
|
.2
|
|
|
Total finance lease costs
|
$
|
2.9
|
|
|
|
|
|
Total lease costs
|
$
|
65.8
|
|
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.
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
40.7
|
|
|
Operating cash flows from finance leases
|
.2
|
|
|
Financing cash flows from finance leases
|
2.7
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
40.7
|
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
2.1
|
|
In connection with the ECS transaction discussed in Note S, 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 December 31, 2019 to the operating and finance lease liabilities recorded on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
Operating Leases
|
|
Finance Leases
|
|
2020
|
$
|
43.9
|
|
|
$
|
1.9
|
|
|
2021
|
39.1
|
|
|
1.4
|
|
|
2022
|
32.7
|
|
|
.9
|
|
|
2023
|
23.4
|
|
|
.2
|
|
|
2024
|
16.1
|
|
|
—
|
|
|
Thereafter
|
19.1
|
|
|
—
|
|
|
Total
|
174.3
|
|
|
4.4
|
|
|
Less: Interest
|
13.4
|
|
|
.2
|
|
|
Lease Liability
|
$
|
160.9
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
4.7
|
|
|
2.5
|
|
|
Weighted average discount rate
|
3.3
|
%
|
|
3.5
|
%
|
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
|
|
M—Stock-Based Compensation
We use various forms of share-based compensation which are summarized below. One stock unit is equivalent to one common share for accounting and earnings-per-share purposes. Shares are issued from treasury for the majority of our stock plans’ activity. All share information is presented in millions.
Stock options and stock units are granted pursuant to our Flexible Stock Plan (the "Plan"). Each option counts as one share against the shares available under the Plan, but each share granted for any other awards will count as three shares against the Plan.
At December 31, 2019, the following common shares were authorized for issuance under the Plan:
|
|
|
|
|
|
|
|
|
|
|
Shares Available for Issuance
|
|
Maximum Number of Authorized Shares
|
|
Unexercised options
|
.6
|
|
|
.6
|
|
|
Outstanding stock units—vested
|
3.5
|
|
|
7.8
|
|
|
Outstanding stock units—unvested
|
1.1
|
|
|
3.3
|
|
|
Available for grant
|
5.0
|
|
|
5.0
|
|
|
Authorized for issuance at December 31, 2019
|
10.2
|
|
|
16.7
|
|
The following table recaps the impact of stock-based compensation on the results of operations for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
To Be Settled With Stock
|
|
To Be Settled In Cash
|
|
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 2
|
$
|
3.7
|
|
|
$
|
.6
|
|
|
$
|
5.6
|
|
|
$
|
1.0
|
|
|
$
|
5.5
|
|
|
$
|
1.2
|
|
|
Discounts on various stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Stock Compensation Program 1
|
2.1
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
Stock-based retirement plans 2
|
1.3
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
Discount Stock Plan 6
|
1.0
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
Performance Stock Unit (PSU) awards: 3
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 and later PSU - TSR based 3A
|
2.8
|
|
|
4.1
|
|
|
1.2
|
|
|
.8
|
|
|
—
|
|
|
—
|
|
|
2018 and later PSU - EBIT CAGR based 3B
|
3.8
|
|
|
5.3
|
|
|
2.9
|
|
|
2.5
|
|
|
—
|
|
|
—
|
|
|
2017 and prior PSU awards 3C
|
1.8
|
|
|
1.0
|
|
|
3.6
|
|
|
(1.3
|
)
|
|
5.4
|
|
|
(1.4
|
)
|
|
Profitable Growth Incentive (PGI) awards 4
|
—
|
|
|
—
|
|
|
.9
|
|
|
.9
|
|
|
1.4
|
|
|
1.4
|
|
|
Restricted Stock Units (RSU) awards 5
|
2.0
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
Other, primarily non-employee directors restricted stock
|
1.4
|
|
|
—
|
|
|
.9
|
|
|
—
|
|
|
.9
|
|
|
—
|
|
|
Total stock-related compensation expense
|
19.9
|
|
|
$
|
11.0
|
|
|
21.5
|
|
|
$
|
3.9
|
|
|
20.3
|
|
|
$
|
1.2
|
|
|
Employee contributions for above stock plans
|
13.1
|
|
|
|
|
14.0
|
|
|
|
|
16.3
|
|
|
|
|
Total stock-based compensation
|
$
|
33.0
|
|
|
|
|
$
|
35.5
|
|
|
|
|
$
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits on stock-based compensation expense
|
$
|
4.7
|
|
|
|
|
$
|
5.1
|
|
|
|
|
$
|
7.3
|
|
|
|
|
Tax benefits on stock-based compensation payments (As discussed below, we elected to pay selected awards in cash during 2018.)
|
5.6
|
|
|
|
|
3.9
|
|
|
|
|
9.9
|
|
|
|
|
Total tax benefits associated with stock-based compensation
|
$
|
10.3
|
|
|
|
|
$
|
9.0
|
|
|
|
|
$
|
17.2
|
|
|
|
The following table recaps the impact of stock-based compensation on assets and liabilities for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Current
|
|
Long-term
|
|
Total
|
|
Current
|
|
Long-term
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified investments associated with the Executive Stock Unit Program 2
|
$
|
2.8
|
|
|
$
|
38.2
|
|
|
$
|
41.0
|
|
|
$
|
2.3
|
|
|
$
|
30.4
|
|
|
$
|
32.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Stock Unit Program 2
|
$
|
2.8
|
|
|
$
|
37.8
|
|
|
$
|
40.6
|
|
|
$
|
2.3
|
|
|
$
|
31.4
|
|
|
$
|
33.7
|
|
|
Performance Stock Unit (TSR) award 3A
|
1.5
|
|
|
5.0
|
|
|
6.5
|
|
|
.6
|
|
|
.7
|
|
|
1.3
|
|
|
Performance Stock Unit (EBIT) award 3B
|
4.1
|
|
|
3.7
|
|
|
7.8
|
|
|
—
|
|
|
2.5
|
|
|
2.5
|
|
|
Profitable Growth Incentive award 4
|
—
|
|
|
—
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
4.3
|
|
|
Other - primarily timing differences between employee withholdings and related employer contributions to be submitted to various plans' trust accounts
|
6.2
|
|
|
—
|
|
|
6.2
|
|
|
7.4
|
|
|
—
|
|
|
7.4
|
|
|
Total liabilities associated with stock-based compensation
|
$
|
14.6
|
|
|
$
|
46.5
|
|
|
$
|
61.1
|
|
|
$
|
14.6
|
|
|
$
|
34.6
|
|
|
$
|
49.2
|
|
1 Stock Option Grants
We have granted stock options in conjunction with our Deferred Compensation Program, to senior executives on a discretionary basis, and historically to a broad group of employees.
Deferred Compensation Program
We offer a Deferred Compensation Program under which key managers and outside directors may elect to receive stock options, stock units or interest-bearing cash deferrals in lieu of cash compensation:
|
|
|
|
•
|
Stock options under this program are granted in the last month of the year prior to the year the compensation is earned. The number of options granted equals the deferred compensation times five, divided by the stock’s market price on the date of grant. The option has a 10-year term. It vests as the associated compensation is earned and becomes exercisable beginning 15 months after the grant date. Stock is issued when the option is exercised.
|
|
|
|
|
•
|
Deferred stock units (DSU) under this program are acquired every two weeks (when the compensation would have otherwise been paid) at a 20% discount to the market price of our common stock on each acquisition date, and they vest immediately. Expense is recorded as the compensation is earned. Stock units earn dividends at the same rate as cash dividends paid on our common stock. These dividends are used to acquire stock units at a 20% discount. Stock units are converted to common stock and distributed in accordance with the participant’s pre-set election. However, stock units may be settled in cash but only if there is not a sufficient amount of shares reserved for future issuance under the Flexible Stock Plan. Participants must begin receiving distributions no later than 10 years after the effective date of the deferral and installment distributions cannot exceed 10 years.
|
|
|
|
|
•
|
Interest-bearing cash deferrals under this program are reported in "Other long-term liabilities" on the Consolidated Balance Sheets and are disclosed in Note J.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Units
|
|
Cash
|
|
Aggregate amount of compensation deferred during 2019
|
$
|
.1
|
|
|
$
|
6.9
|
|
|
$
|
.6
|
|
Options granted to a broad group of employees on a discretionary basis
Options are generally offered only in conjunction with the Deferred Compensation Program discussed above. We occasionally grant options to senior executives in connection with promotions or retention purposes, and prior to 2013, we granted stock options annually on a discretionary basis to a broad group of employees. Those options have a maximum term of 10 years and exercise prices equal to Leggett’s closing stock price on the grant date.
Grant date fair values are calculated using the Black-Scholes option pricing model and are amortized by the straight-line method over the options’ total vesting period (typically three years), except for employees who are retirement eligible. Expense for employees who are retirement eligible is recognized immediately.
Stock Option Summary
Stock option information for the plans discussed above is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stock
Options
|
|
Weighted
Average
Exercise
Price per
Share
|
|
Weighted
Average
Remaining
Contractual
Life in Years
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2018
|
1.6
|
|
|
$
|
25.43
|
|
|
|
|
|
|
Granted
|
.1
|
|
|
36.25
|
|
|
|
|
|
|
Exercised
|
(1.1
|
)
|
|
22.40
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
.6
|
|
|
$
|
33.03
|
|
|
4.7
|
|
$
|
10.4
|
|
|
Vested or expected to vest
|
.6
|
|
|
$
|
33.03
|
|
|
4.7
|
|
$
|
10.4
|
|
|
Exercisable (vested) at December 31, 2019
|
.5
|
|
|
$
|
32.34
|
|
|
3.8
|
|
$
|
8.9
|
|
Additional information related to stock option activity for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Total intrinsic value of stock options exercised
|
$
|
23.6
|
|
|
$
|
8.8
|
|
|
$
|
11.7
|
|
|
Cash received from stock options exercised
|
9.3
|
|
|
4.8
|
|
|
2.6
|
|
|
Total fair value of stock options vested
|
.3
|
|
|
.8
|
|
|
1.2
|
|
The following table summarizes fair values calculated (and assumptions utilized) using the Black-Scholes option pricing model.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Aggregate grant date fair value
|
|
$
|
.5
|
|
|
$ <.1
|
|
$ <.1
|
|
Weighted-average per share grant date fair value
|
|
5.36
|
|
|
6.47
|
|
|
9.21
|
|
|
Risk-free interest rate
|
|
2.8
|
%
|
|
2.3
|
%
|
|
2.3
|
%
|
|
Expected life in years
|
|
7.8
|
|
|
6.0
|
|
|
6.0
|
|
|
Expected volatility (over expected life)
|
|
22.3
|
%
|
|
19.4
|
%
|
|
19.8
|
%
|
|
Expected dividend yield (over expected life)
|
|
4.2
|
%
|
|
3.1
|
%
|
|
3.1
|
%
|
The risk-free rate is determined based on U.S. Treasury yields in effect at the time of grant for maturities equivalent to the expected life of the option. The expected life of the option (estimated average period of time the option will be outstanding) is estimated based on the historical exercise behavior of employees, with executives displaying somewhat longer holding periods than other employees. Expected volatility is based on historical volatility through the grant date, measured daily for a time period equal to the option’s expected life. The expected dividend yield is estimated based on the dividend yield at the time of grant.
2 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. In addition to the automatic 50% match, we would make another matching contribution of up to 50% of the employee’s contributions for the year if certain profitability levels, as defined in the SBP and the ESUP, were obtained.
For 2019, the provisions of the ESUP are unchanged. We merged the SBP with the Leggett & Platt, Incorporated 401(k) Plan and Trust Agreement (401(k) Plan) on December 31, 2018 (see Note N). After the merger, our common stock was added to the 401(k) Plan as an investment option and participants may elect up to 20% of their contributions into our common stock beginning on January 1, 2019. Previously participants could contribute up to 100% of their contributions into our common stock.
Participants in the ESUP may contribute up to 10% (depending upon certain qualifications) of their compensation above the threshold. Participant contributions are credited to a diversified investment account established for the participant, and we make premium contributions to the diversified investment accounts equal to 17.65% of the participant’s contribution. A participant’s diversified investment account balance is adjusted to mirror the investment experience, whether positive or negative, of the diversified investments selected by the participant. Participants may change investment elections in the diversified investment accounts, but cannot purchase Company common stock or stock units. The diversified investment accounts consist of various mutual funds and retirement target funds and are unfunded, unsecured obligations of the Company that will be settled in cash. Both the assets and liabilities associated with this program are presented in the table above and are adjusted to fair value at each reporting period.
Company matching contributions to the ESUP, including dividend equivalents, are used to acquire stock units at 85% of the common stock market price on the acquisition date. Stock units are converted to common stock at a 1-to-1 ratio upon distribution from the program and may be settled in cash but only if there is not a sufficient amount of shares reserved for future issuance under the Flexible Stock Plan.
Company matches in the ESUP fully vest upon five years of cumulative service, subject to certain participation requirements. Distributions are triggered by an employee’s retirement, death, disability or separation from Leggett.
For the year ended December 31, employee contributions were $3.7 and employer premium contributions to diversified investment accounts were $.6. See the stock-based compensation table above for information regarding employer contributions.
Details regarding stock unit activity for the ESUP plan are reflected in the stock units summary table below.
3 PSU Awards
During 2018, we merged our PSU and PGI award programs. The 2018 and later PSU awards have a component based on relative Total Shareholder Return (TSR = (Change in Stock Price + Dividends) / Beginning Stock Price) and another component based on 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, subject to Compensation Committee approval, 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.
The PSU award program will change in 2020 as discussed below.
3A 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 award contains the following conditions:
|
|
|
|
•
|
A service requirement—Awards generally “cliff” vest three years following the grant date; and
|
|
|
|
|
•
|
A market condition—Awards are based on our TSR 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 300 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.
|
3B 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 vesting period. Expense is adjusted every quarter over the three-year vesting period based on the number of shares expected to vest.
The EBIT CAGR portion of this award contains the following conditions:
|
|
|
|
•
|
A service requirement—Awards generally “cliff” vest three years following the grant date; and
|
|
|
|
|
•
|
A performance condition—Awards are based on achieving specified EBIT CAGR performance targets for 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 February 2018, we also granted participants a one-time transition PSU award, based upon EBIT CAGR over a two-year performance period. This award will be paid in the first quarter 2020. Average payout percentage of base award will be 114%, and the number of shares paid will be .1. The cash portion pay out will be $4.1.
3C 2017 and Prior PSU Awards
The 2017 and prior PSU awards are based solely on relative TSR. Vesting conditions are the same as (3A) above other than a maximum payout of 175% of the base award.
Below is a summary of shares and grant date fair value related to PSU awards for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
TSR based
|
|
|
|
|
|
|
Total shares base award
|
.1
|
|
|
.1
|
|
|
.1
|
|
|
Grant date per share fair value
|
$
|
57.86
|
|
|
$
|
42.60
|
|
|
$
|
50.75
|
|
|
Risk-free interest rate
|
2.4
|
%
|
|
2.4
|
%
|
|
1.5
|
%
|
|
Expected life in years
|
3.0
|
|
|
3.0
|
|
|
3.0
|
|
|
Expected volatility (over expected life)
|
21.5
|
%
|
|
19.9
|
%
|
|
19.5
|
%
|
|
Expected dividend yield (over expected life)
|
3.4
|
%
|
|
3.3
|
%
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
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
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2017
|
|
December 31, 2019
|
|
63
|
|
49.0%
|
|
.1 million
|
|
$
|
1.6
|
|
|
First quarter 2020
|
4 PGI Awards
In 2017 and prior years certain key management employees participated in a PGI program, which was replaced in 2018 with the PSU-EBIT CAGR award discussed above. The PGI 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 the 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
|
|
Estimated Number of Shares
|
|
Cash Portion
|
|
Expected Distribution Date
|
|
2015
|
|
December 31, 2016
|
|
36.0%
|
|
< .1 million
|
|
$
|
.8
|
|
|
First quarter 2017
|
|
2016
|
|
December 31, 2017
|
|
44.0%
|
|
—
|
|
$
|
2.0
|
|
|
First quarter 2018
|
|
2017
|
|
December 31, 2018
|
|
155.0%
|
|
< .1 million
|
|
$
|
2.2
|
|
|
First quarter 2019
|
5 Restricted Stock Unit Awards
RSU awards are generally granted as follows:
|
|
|
|
•
|
Annual awards to selected managers;
|
|
|
|
|
•
|
On a discretionary basis to selected employees; and
|
|
|
|
|
•
|
As compensation for outside directors
|
The value of these awards is determined by the stock price on the day of the award, and expense is recognized over the vesting period.
The RSU award program will change in 2020 as discussed below.
Stock Units Summary
As of December 31, 2019, the unrecognized cost of non-vested stock units that is not adjusted to fair value was $11.3 with a weighted-average remaining contractual life of one year.
Stock unit information for the plans discussed above is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSU
|
|
ESUP
|
|
PSU*
|
|
RSU
|
|
Total Units
|
|
Weighted
Average
Grant Date
Fair Value
per Unit
|
|
Aggregate
Intrinsic
Value
|
|
Unvested at December 31, 2018
|
—
|
|
|
—
|
|
|
.7
|
|
|
.1
|
|
|
.8
|
|
|
$
|
38.43
|
|
|
|
|
Granted based on current service
|
.2
|
|
|
.2
|
|
|
—
|
|
|
.1
|
|
|
.5
|
|
|
41.48
|
|
|
|
|
Granted based on future conditions
|
—
|
|
|
—
|
|
|
.4
|
|
|
—
|
|
|
.4
|
|
|
24.26
|
|
|
|
|
Vested
|
(.2
|
)
|
|
(.2
|
)
|
|
—
|
|
|
(.1
|
)
|
|
(.5
|
)
|
|
43.97
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
(.1
|
)
|
|
—
|
|
|
(.1
|
)
|
|
—
|
|
|
|
|
Unvested at December 31, 2019
|
—
|
|
|
—
|
|
|
1.0
|
|
|
.1
|
|
|
1.1
|
|
|
$
|
33.30
|
|
|
$
|
56.4
|
|
|
Fully vested shares available for issuance at December 31, 2019
|
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
$
|
176.2
|
|
*PSU awards are presented at maximum payout (2017 award at 175% and 2018 and later awards at 200%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Total intrinsic value of vested stock units converted to common stock
|
$
|
8.0
|
|
|
$
|
12.1
|
|
|
$
|
22.7
|
|
6 Discount Stock Plan
Under the Discount Stock Plan (DSP), a tax-qualified §423 stock purchase plan, eligible employees may purchase shares of Leggett common stock at 85% of the closing market price on the last business day of each month. Shares are purchased and issued on the last business day of each month and generally cannot be sold or transferred for one year.
|
|
|
|
|
|
|
|
Average 2019 purchase price per share (net of discount)
|
$
|
35.62
|
|
|
2019 number of shares purchased by employees
|
.2
|
|
|
Shares purchased since inception in 1982
|
23.3
|
|
|
Maximum shares under the plan
|
27.0
|
|
2020 Changes to the PSU and RSU awards
In November 2019, the Compensation Committee approved changes to our PSU and RSU award programs. Changes to the plans for executive officers are as follows:
|
|
|
|
•
|
Two-thirds of the target award value will be granted as PSUs based on relative TSR and EBIT CAGR over a three-year performance period.
|
|
|
|
|
•
|
One-third of the target award value will be granted as RSUs vesting in one-third increments over three years.
|
In addition, the RSU award was amended so that those who retire (1) after age 65 or (2) after the date where the participant’s age plus years of service are greater than or equal to 70 years, will continue to receive shares that will vest after the retirement date. Expense associated with these retirement-eligible employees will be recognized immediately at the RSU grant date. For those employees who become retirement eligible after the grant date, any remaining expense associated with those RSUs will be recognized at the date the employee meets the retirement-eligible criteria.
N—Employee Benefit Plans
The Consolidated Balance Sheets reflect a net liability for the funded status of our domestic and foreign defined benefit pension plans. Our U.S. plans (comprised primarily of three significant plans) represent approximately 84% of our pension benefit obligation in each of the periods presented. Participants in one of the significant domestic plans have stopped earning benefits; this plan is referred to as our Frozen Plan in the following narrative.
A summary of our pension obligations and funded status as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation, beginning of period
|
$
|
219.8
|
|
|
$
|
241.5
|
|
|
$
|
293.0
|
|
|
Service cost
|
4.0
|
|
|
3.9
|
|
|
4.6
|
|
|
Interest cost
|
8.5
|
|
|
8.0
|
|
|
10.9
|
|
|
Plan participants’ contributions
|
.5
|
|
|
.5
|
|
|
.7
|
|
|
Actuarial loss (gain)
|
36.7
|
|
|
(20.3
|
)
|
|
4.0
|
|
|
Benefits paid
|
(13.8
|
)
|
|
(13.4
|
)
|
|
(15.2
|
)
|
|
Plan amendments
|
1.9
|
|
|
1.9
|
|
|
—
|
|
|
Settlements
|
—
|
|
|
—
|
|
|
(59.8
|
)
|
|
Foreign currency exchange rate changes
|
1.5
|
|
|
(2.3
|
)
|
|
3.3
|
|
|
Benefit obligation, end of period
|
259.1
|
|
|
219.8
|
|
|
241.5
|
|
|
Change in plan assets
|
|
|
|
|
|
|
Fair value of plan assets, beginning of period
|
181.8
|
|
|
185.7
|
|
|
214.1
|
|
|
Actual return (loss) on plan assets
|
30.0
|
|
|
(10.6
|
)
|
|
28.3
|
|
|
Employer contributions
|
1.5
|
|
|
21.8
|
|
|
14.9
|
|
|
Plan participants’ contributions
|
.5
|
|
|
.5
|
|
|
.7
|
|
|
Benefits paid
|
(13.8
|
)
|
|
(13.4
|
)
|
|
(15.2
|
)
|
|
Settlements
|
—
|
|
|
—
|
|
|
(59.8
|
)
|
|
Foreign currency exchange rate changes
|
1.5
|
|
|
(2.2
|
)
|
|
2.7
|
|
|
Fair value of plan assets, end of period
|
201.5
|
|
|
181.8
|
|
|
185.7
|
|
|
Net funded status
|
$
|
(57.6
|
)
|
|
$
|
(38.0
|
)
|
|
$
|
(55.8
|
)
|
|
Funded status recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
Other assets—sundry
|
$
|
1.4
|
|
|
$
|
1.6
|
|
|
$
|
2.2
|
|
|
Other current liabilities
|
(.4
|
)
|
|
(.4
|
)
|
|
(.4
|
)
|
|
Other long-term liabilities
|
(58.6
|
)
|
|
(39.2
|
)
|
|
(57.6
|
)
|
|
Net funded status
|
$
|
(57.6
|
)
|
|
$
|
(38.0
|
)
|
|
$
|
(55.8
|
)
|
Our accumulated benefit obligation was not materially different from our projected benefit obligation for the periods presented.
Included in the above plans is a subsidiary’s unfunded supplemental executive retirement plan. This is a non-qualified plan, and these benefits are secured by insurance policies that are not included in the plan’s assets. Cash surrender values associated with these policies were approximately $2.5 at December 31, 2019, 2018 and 2017.
Comprehensive Income
Amounts and activity included in accumulated other comprehensive income associated with pensions are reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
2019
Amortization
|
|
2019
Net
Actuarial
loss
|
|
2019
Foreign
currency
exchange
rates
change
|
|
2019
Income
tax
change
|
|
December 31, 2019
|
|
Net loss (gain) (before tax)
|
$
|
54.7
|
|
|
$
|
(2.9
|
)
|
|
$
|
18.3
|
|
|
$
|
.3
|
|
|
$
|
(.2
|
)
|
|
$
|
70.2
|
|
|
Deferred income taxes
|
(15.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.6
|
)
|
|
(19.0
|
)
|
|
Accumulated other comprehensive income (loss) (net of tax)
|
$
|
39.3
|
|
|
$
|
(2.9
|
)
|
|
$
|
18.3
|
|
|
$
|
.3
|
|
|
$
|
(3.8
|
)
|
|
$
|
51.2
|
|
Of the amounts in accumulated other comprehensive income as of December 31, 2019, the portions expected to be recognized as components of net periodic pension cost in 2020 are as follows:
|
|
|
|
|
|
|
|
Net loss
|
$
|
3.7
|
|
|
Net prior service cost
|
.2
|
|
|
Total expected to be recognized in 2020
|
$
|
3.9
|
|
Net Pension (Expense) Income
Components of net pension (expense) income for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
(4.0
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
(4.6
|
)
|
|
Interest cost
|
(8.5
|
)
|
|
(8.0
|
)
|
|
(10.9
|
)
|
|
Expected return on plan assets
|
11.3
|
|
|
11.9
|
|
|
13.4
|
|
|
Recognized net actuarial loss
|
(2.9
|
)
|
|
(2.6
|
)
|
|
(4.6
|
)
|
|
Prior service cost
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
|
Settlements
|
—
|
|
|
—
|
|
|
(15.3
|
)
|
|
Net pension expense
|
$
|
(5.8
|
)
|
|
$
|
(2.6
|
)
|
|
$
|
(22.0
|
)
|
|
Weighted average assumptions for pension costs:
|
|
|
|
|
|
|
Discount rate used in net pension costs
|
3.9
|
%
|
|
3.4
|
%
|
|
3.8
|
%
|
|
Rate of compensation increase used in pension costs
|
3.0
|
%
|
|
3.0
|
%
|
|
3.5
|
%
|
|
Expected return on plan assets
|
6.4
|
%
|
|
6.4
|
%
|
|
6.5
|
%
|
|
Weighted average assumptions for benefit obligation:
|
|
|
|
|
|
|
Discount rate used in benefit obligation
|
2.8
|
%
|
|
3.9
|
%
|
|
3.4
|
%
|
|
Rate of compensation increase used in benefit obligation
|
3.4
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
Assumptions used for U.S. and international plans were not significantly different.
We use the average of a Pension Liability Index rate and a 10+ year AAA-AA US Corporate Index rate to determine the discount rate used for our significant pension plans (rounded to the nearest 25 basis points). The Pension Liability Index rate is a calculated rate using yearly spot rates matched against expected future benefit payments. The 10+ year AAA-AA US Corporate Index rate is based on the weighted average yield of a portfolio of high grade Corporate Bonds
with an average duration approximating the plans’ projected benefit payments. The discount rates used for our other, primarily foreign, plans are based on rates appropriate for the respective country and the plan obligations.
The overall, expected long-term rate of return is based on each plan’s historical experience and our expectations of future returns based upon each plan’s investment holdings, as discussed below.
Pension Plan Assets
The fair value of our major categories of pension plan assets is disclosed below using a three-level valuation hierarchy that separates fair value valuation techniques into the following categories:
|
|
|
|
•
|
Level 1: Quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
•
|
Level 2: Other significant inputs observable either directly or indirectly (including quoted prices for similar securities, interest rates, yield curves, credit risk, etc.).
|
|
|
|
|
•
|
Level 3: Unobservable inputs that are not corroborated by market data.
|
Presented below are our major categories of investments for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets Measured at NAV1
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets Measured at NAV1
|
|
Total
|
|
Mutual and pooled funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income
|
$
|
40.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40.7
|
|
|
$
|
41.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41.8
|
|
|
Equities
|
121.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
121.7
|
|
|
96.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
96.8
|
|
|
Stable value funds
|
—
|
|
|
30.2
|
|
|
—
|
|
|
—
|
|
|
30.2
|
|
|
—
|
|
|
29.5
|
|
|
—
|
|
|
—
|
|
|
29.5
|
|
|
Money market funds, cash and other
|
—
|
|
|
—
|
|
|
—
|
|
|
8.9
|
|
|
8.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.7
|
|
|
13.7
|
|
|
Total investments at fair value
|
$
|
162.4
|
|
|
$
|
30.2
|
|
|
$
|
—
|
|
|
$
|
8.9
|
|
|
$
|
201.5
|
|
|
$
|
138.6
|
|
|
$
|
29.5
|
|
|
$
|
—
|
|
|
$
|
13.7
|
|
|
$
|
181.8
|
|
1Certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
Plan assets are invested in diversified portfolios of equity, debt and government securities, as well as a stable value fund. The aggregate allocation of these investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Asset Category
|
|
|
|
|
Equity securities
|
60
|
%
|
|
53
|
%
|
|
Debt securities
|
20
|
|
|
23
|
|
|
Stable value funds
|
15
|
|
|
16
|
|
|
Other, including cash
|
5
|
|
|
8
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
Our investment policy and strategies are established with a long-term view in mind. We strive for a sufficiently diversified asset mix to minimize the risk of a material loss to the portfolio value due to the devaluation of any single investment. In determining the appropriate asset mix, our financial strength and ability to fund potential shortfalls that might result from poor investment performance are considered. The assets in our Frozen Plan employ a liability-driven investment strategy and have a target allocation of 60% fixed income and 40% equities. The remaining two significant
plans have a target allocation of 75% equities and 25% fixed income, as historical equity returns have tended to exceed bond returns over the long term.
Assets of our domestic plans represent the majority of plan assets and are allocated to seven different investments.
Six are mutual funds, all of which are passively managed low-cost index funds, and include:
|
|
|
|
•
|
U.S. Total Stock Market Index: Large-, mid-, and small-cap equity diversified across growth and value styles.
|
|
|
|
|
•
|
U.S. Large-Cap Index: Large-cap equity diversified across growth and value styles.
|
|
|
|
|
•
|
U.S. Small-Cap Index: Small-cap equity diversified across growth and value styles.
|
|
|
|
|
•
|
World ex US Index: International equity; broad exposure across developed and emerging non-U.S. equity markets around the world.
|
|
|
|
|
•
|
Long-term Bond Index: Diversified exposure to the long-term, investment-grade U.S. bond market.
|
|
|
|
|
•
|
Extended Duration Treasury Index: Diversified exposure to U.S. treasuries with maturities of 20-30 years.
|
The Stable value fund consists of a fixed income portfolio offering consistent return and protection against interest rate volatility.
Settlements
In December 2017, to reduce the size of our pension benefit obligation, reduce volatility of contribution requirements in future years, and also reduce pension-related operational expenses over the long term, we completed an annuity purchase transaction for pensioners that were currently receiving a small monthly benefit. As part of this annuity purchase, we settled $59.8 of pension obligations for U.S. retirees. This was paid from plan assets and did not require an employer cash contribution. As a result of these settlements, we recorded settlement losses of $15.3 ($9.5 net of tax) reflecting the accelerated recognition of unamortized losses in the plan proportionate to the obligation that was settled. These settlement charges were recorded in “Other expense (income), net” with a corresponding balance sheet reduction in "Accumulated other comprehensive (loss)" for the year ended December 31, 2017.
Future Contributions and Benefit Payments
We expect to contribute approximately $2.0 to our defined benefit pension plans in 2020.
Estimated benefit payments expected over the next 10 years are as follows:
|
|
|
|
|
|
|
|
2020
|
$
|
12.4
|
|
|
2021
|
13.4
|
|
|
2022
|
13.8
|
|
|
2023
|
14.2
|
|
|
2024
|
14.5
|
|
|
2025-2029
|
71.2
|
|
Defined Contribution Plans
Total expense for defined contribution plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
401(k) Plan
|
$
|
6.9
|
|
|
$
|
2.2
|
|
|
$
|
2.3
|
|
|
Other defined contribution plans
|
5.3
|
|
|
4.1
|
|
|
4.0
|
|
|
|
$
|
12.2
|
|
|
$
|
6.3
|
|
|
$
|
6.3
|
|
Expense for our 401(k) Plan increased in 2019 primarily due to the December 31, 2018 merger of the SBP and 401(k) Plan as discussed in Note M and the implementation of automatic enrollment features (effective January 1, 2019).
Multi-employer Pension Plans
We have limited participation in two union-sponsored, defined benefit, multi-employer pension plans. These plans are not administered by us, and contributions are determined in accordance with provisions of negotiated labor contracts. Aggregate contributions to these plans were immaterial for each of the years presented. In addition to regular contributions, we could be obligated to pay additional contributions (known as complete or partial withdrawal liabilities) if a plan has unfunded vested benefits. Factors that could impact the funded status of these plans include investment performance, changes in the participant demographics, financial stability of contributing employers and changes in actuarial assumptions. Withdrawal liability triggers could include a plan's termination, a withdrawal of substantially all employers, or our voluntary withdrawal from the plan (such as decision to close a facility or the dissolution of a collective bargaining unit). We have a very small share of the liability among the participants of these plans. Based upon the information available from plan administrators, both of the multi-employer plans in which we participate are underfunded, and we estimate our aggregate share of potential withdrawal liability for both plans to be $19.3. We have not recorded any material withdrawal liabilities for the years presented.
O—Income Taxes
The components of earnings from continuing operations before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Domestic
|
$
|
195.5
|
|
|
$
|
149.1
|
|
|
$
|
188.6
|
|
|
Foreign
|
234.6
|
|
|
235.3
|
|
|
243.4
|
|
|
|
$
|
430.1
|
|
|
$
|
384.4
|
|
|
$
|
432.0
|
|
Income tax expense from continuing operations is comprised of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current
|
|
|
|
|
|
|
Federal
|
$
|
34.6
|
|
|
$
|
21.2
|
|
|
$
|
76.0
|
|
|
State and local
|
5.3
|
|
|
4.9
|
|
|
3.8
|
|
|
Foreign
|
48.7
|
|
|
55.6
|
|
|
43.2
|
|
|
|
88.6
|
|
|
81.7
|
|
|
123.0
|
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
7.5
|
|
|
8.8
|
|
|
5.8
|
|
|
State and local
|
.6
|
|
|
(12.0
|
)
|
|
(2.6
|
)
|
|
Foreign
|
(.5
|
)
|
|
(.2
|
)
|
|
12.2
|
|
|
|
7.6
|
|
|
(3.4
|
)
|
|
15.4
|
|
|
|
$
|
96.2
|
|
|
$
|
78.3
|
|
|
$
|
138.4
|
|
The U.S. statutory federal income tax rate was significantly impacted by the enactment of the Tax Cuts and Jobs Act (TCJA) in the fourth quarter of 2017, which reduced our U.S. federal corporate income tax rate from 35% in 2017, to 21% in 2018 and 2019. Income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from these statutory federal income tax rates as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Statutory federal income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
|
Increases (decreases) in rate resulting from:
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
1.4
|
|
|
.9
|
|
|
1.0
|
|
|
Tax effect of foreign operations
|
(1.6
|
)
|
|
(.7
|
)
|
|
(8.8
|
)
|
|
Global intangible low-taxed income
|
2.2
|
|
|
.7
|
|
|
—
|
|
|
Current and deferred foreign withholding taxes
|
1.2
|
|
|
3.8
|
|
|
3.5
|
|
|
Deemed repatriation of foreign earnings
|
—
|
|
|
(.3
|
)
|
|
15.6
|
|
|
Deferred tax revaluation
|
(.1
|
)
|
|
(.1
|
)
|
|
(6.0
|
)
|
|
Stock-based compensation
|
(1.1
|
)
|
|
(.8
|
)
|
|
(2.0
|
)
|
|
Tax benefit for outside basis in subsidiary
|
—
|
|
|
—
|
|
|
(1.8
|
)
|
|
Change in valuation allowance
|
.4
|
|
|
(2.0
|
)
|
|
(.4
|
)
|
|
Change in uncertain tax positions, net
|
(.3
|
)
|
|
(.3
|
)
|
|
(.6
|
)
|
|
Domestic production activities deduction
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
Other permanent differences, net
|
(.3
|
)
|
|
(1.4
|
)
|
|
(1.6
|
)
|
|
Other, net
|
(.4
|
)
|
|
(.4
|
)
|
|
(.7
|
)
|
|
Effective tax rate
|
22.4
|
%
|
|
20.4
|
%
|
|
32.0
|
%
|
In 2017, we recognized a provisional net tax expense totaling $50.4 from the impact of TCJA related to the one-time deemed repatriation tax ($67.3), additional foreign withholding taxes recorded for expected foreign cash repatriations ($9.0) and other items ($.2), offset by the revaluation of our U.S. deferred taxes ($26.1). We refined and finalized our accounting for these provisional amounts under SAB 118 in 2018 and recorded measurement period adjustment benefits related to the deemed repatriation tax and our deferred tax revaluation of $1.3 and $.5, respectively. In addition, in 2018, the United States Internal Revenue Service (IRS) applied our prepaid income taxes and taxes receivable of $28.4 against the December 31, 2017 deemed repatriation tax liability. In 2019, the application of prepaid income taxes and taxes receivable was reduced to $27.8, increasing the deemed repatriation tax outstanding as of December 31, 2019 to $32.8 which will be paid on a graduated scale beginning in 2022 over a four-year period.
For all periods presented, the tax rate benefited from income earned in various foreign jurisdictions at rates lower than the U.S. federal statutory rate, primarily related to China, Croatia, and Luxembourg.
In 2019, we recognized tax detriments of $12.9, primarily related to the U.S. taxation of Global Intangible Low-Taxed Income of $9.3 and other net tax detriments of $3.6.
In 2018, our rate benefited by $2.3, primarily related to the net reduction of valuation allowances of $7.8 and other net benefits totaling $9.1, including measurement period adjustments. These benefits were offset by tax detriments recorded in 2018 totaling $14.6 related to current and deferred foreign withholding taxes.
In 2017, we recognized net tax benefits totaling $25.2, including those associated with tax attributes from a divested business and the impact of stock-based compensation.
We file tax returns in each jurisdiction where we are required to do so. In these jurisdictions, a statute of limitations period exists. After a statute period expires, the tax authorities can no longer assess additional income tax for the expired period. In addition, once the statute expires we are no longer eligible to file claims for refund for any tax that we may have overpaid.
Unrecognized Tax Benefits
The total amount of our gross unrecognized tax benefits at December 31, 2019 was $8.6, of which $6.7 would impact our effective tax rate, if recognized. A reconciliation of the beginning and ending balance of our gross unrecognized tax benefits for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Gross unrecognized tax benefits, January 1
|
$
|
8.2
|
|
|
$
|
10.1
|
|
|
$
|
12.1
|
|
|
Gross increases—tax positions in prior periods
|
—
|
|
|
—
|
|
|
.1
|
|
|
Gross decreases—tax positions in prior periods
|
(.4
|
)
|
|
(.5
|
)
|
|
(.4
|
)
|
|
Gross increases—current period tax positions
|
.7
|
|
|
1.3
|
|
|
1.5
|
|
|
Change due to exchange rate fluctuations
|
—
|
|
|
(.2
|
)
|
|
.3
|
|
|
Settlements
|
—
|
|
|
—
|
|
|
(.9
|
)
|
|
Lapse of statute of limitations
|
(2.1
|
)
|
|
(2.5
|
)
|
|
(2.6
|
)
|
|
Gross unrecognized tax benefits, December 31
|
6.4
|
|
|
8.2
|
|
|
10.1
|
|
|
Interest
|
1.9
|
|
|
2.4
|
|
|
3.0
|
|
|
Penalties
|
.3
|
|
|
.4
|
|
|
.5
|
|
|
Total gross unrecognized tax benefits, December 31
|
$
|
8.6
|
|
|
$
|
11.0
|
|
|
$
|
13.6
|
|
We recognize interest and penalties related to unrecognized tax benefits as part of income tax expense in the Consolidated Statements of Operations, which is consistent with prior reporting periods.
We are currently in various stages of audit by certain governmental tax authorities. We have established liabilities for unrecognized tax benefits as appropriate, with such amounts representing a reasonable provision for taxes we ultimately might be required to pay. However, these liabilities could be adjusted over time as more information becomes known relative to these audits. We are no longer subject to significant U.S. federal tax examinations for years prior to 2016, or significant U.S. state or foreign income tax examinations for years prior to 2012.
It is reasonably possible that the resolution of certain tax audits could reduce our unrecognized tax benefits within the next 12 months, as certain tax positions may either be sustained on audit or we may agree to certain adjustments, or resulting from the expiration of statutes of limitations in various jurisdictions. It is not expected that any change would have a material impact on our Consolidated Financial Statements.
Deferred Income Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The major temporary differences and their associated deferred tax assets or liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2019
|
|
2018
|
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
Property, plant and equipment
|
$
|
19.1
|
|
|
$
|
(84.8
|
)
|
|
$
|
19.7
|
|
|
$
|
(67.8
|
)
|
|
Inventories
|
2.3
|
|
|
(13.2
|
)
|
|
2.1
|
|
|
(10.3
|
)
|
|
Accrued expenses
|
59.9
|
|
|
(4.2
|
)
|
|
60.3
|
|
|
(.1
|
)
|
|
Net operating losses and other tax carryforwards
|
31.9
|
|
|
—
|
|
|
27.2
|
|
|
—
|
|
|
Pension cost and other post-retirement benefits
|
18.2
|
|
|
(.7
|
)
|
|
13.4
|
|
|
(.6
|
)
|
|
Intangible assets
|
.3
|
|
|
(199.5
|
)
|
|
.4
|
|
|
(84.6
|
)
|
|
Derivative financial instruments
|
3.0
|
|
|
(1.7
|
)
|
|
5.0
|
|
|
(1.3
|
)
|
|
Tax on undistributed earnings (primarily from Canada and China)
|
—
|
|
|
(16.8
|
)
|
|
—
|
|
|
(18.8
|
)
|
|
Uncertain tax positions
|
1.4
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
Other
|
5.2
|
|
|
(6.3
|
)
|
|
6.9
|
|
|
(6.1
|
)
|
|
Gross deferred tax assets (liabilities)
|
141.3
|
|
|
(327.2
|
)
|
|
137.4
|
|
|
(189.6
|
)
|
|
Valuation allowance
|
(16.8
|
)
|
|
—
|
|
|
(13.2
|
)
|
|
—
|
|
|
Total deferred taxes
|
$
|
124.5
|
|
|
$
|
(327.2
|
)
|
|
$
|
124.2
|
|
|
$
|
(189.6
|
)
|
|
Net deferred tax liability
|
|
|
$
|
(202.7
|
)
|
|
|
|
$
|
(65.4
|
)
|
Deferred tax assets (liabilities) included in the consolidated balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
2019
|
|
2018
|
|
Sundry
|
$
|
11.5
|
|
|
$
|
20.2
|
|
|
Deferred income taxes
|
(214.2
|
)
|
|
(85.6
|
)
|
|
|
$
|
(202.7
|
)
|
|
$
|
(65.4
|
)
|
Significant fluctuations in our deferred taxes from 2018 to 2019 relate to the following:
|
|
|
|
•
|
The increase of $17.0 in our deferred tax liability associated with property, plant, and equipment relates primarily to accelerated bonus depreciation resulting from TCJA; and
|
|
|
|
|
•
|
The increase of $114.9 in our deferred tax liability associated with intangible assets relates primarily to the acquisition of ECS in 2019.
|
The valuation allowance recorded primarily relates to net operating loss, tax credit, and capital loss carryforwards for which utilization is uncertain. Cumulative tax losses in certain state and foreign jurisdictions during recent years, limited carryforward periods in certain jurisdictions, future reversals of existing taxable temporary differences, and reasonable tax planning strategies were among the factors considered in determining the valuation allowance. Individually, none of these tax carryforwards presents a material exposure.
Most of our tax carryforwards have expiration dates that vary generally over the next 20 years, with no amount greater than $10.0 expiring in any one year.
Deferred withholding taxes (tax on undistributed earnings) have been provided on the earnings of our foreign subsidiaries to the extent it is anticipated that the earnings will be remitted in the future as dividends. We are not asserting
permanent reinvestment on $754.5 of our earnings, and have accrued incremental tax on these undistributed earnings as presented in the table above.
Foreign withholding taxes have not been provided on certain foreign earnings which are indefinitely reinvested outside the U.S. The cumulative undistributed earnings which are indefinitely reinvested as of December 31, 2019, are $326.5. If such earnings were repatriated to the U.S. through dividends, the resulting incremental tax expense would approximate $16.0, based on present income tax laws and after consideration of the tax recorded in 2017 for the mandatory deemed repatriation of our foreign earnings in connection with TCJA.
P—Other Expense (Income)
The components of other expense (income) from continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
Restructuring charges (See Note F)
|
$
|
8.1
|
|
|
$
|
7.8
|
|
|
$
|
.8
|
|
|
Currency loss
|
3.0
|
|
|
.8
|
|
|
1.5
|
|
|
(Gain) loss from diversified investments associated with Executive Stock Unit Program
|
(7.2
|
)
|
|
1.9
|
|
|
(4.5
|
)
|
Non-service pension expense (income) (See Note N)
|
1.8
|
|
|
(1.3
|
)
|
|
17.4
|
|
|
Other income
|
(4.3
|
)
|
|
(6.5
|
)
|
|
(2.6
|
)
|
|
|
$
|
1.4
|
|
|
$
|
2.7
|
|
|
$
|
12.6
|
|
Q—Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes in each component of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Cash
Flow
Hedges
|
|
Defined
Benefit
Pension
Plans
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at January 1, 2017
|
$
|
(38.6
|
)
|
|
$
|
(17.8
|
)
|
|
$
|
(57.2
|
)
|
|
$
|
(113.6
|
)
|
|
Other comprehensive income
|
78.7
|
|
|
1.6
|
|
|
10.2
|
|
|
90.5
|
|
|
Reclassifications, pretax 1
|
—
|
|
|
7.2
|
|
|
19.9
|
|
|
27.1
|
|
|
Income tax effect
|
—
|
|
|
(2.5
|
)
|
|
(11.4
|
)
|
|
(13.9
|
)
|
|
Attributable to noncontrolling interest
|
.4
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
|
Balance at December 31, 2017
|
40.5
|
|
|
(11.5
|
)
|
|
(38.5
|
)
|
|
(9.5
|
)
|
|
Other comprehensive (loss)
|
(67.0
|
)
|
|
(3.1
|
)
|
|
(3.7
|
)
|
|
(73.8
|
)
|
|
Reclassifications, pretax 2
|
—
|
|
|
2.8
|
|
|
2.6
|
|
|
5.4
|
|
|
Income tax effect
|
—
|
|
|
—
|
|
|
.3
|
|
|
.3
|
|
|
Balance at December 31, 2018
|
(26.5
|
)
|
|
(11.8
|
)
|
|
(39.3
|
)
|
|
(77.6
|
)
|
|
Other comprehensive income (loss)
|
5.0
|
|
|
2.5
|
|
|
(18.6
|
)
|
|
(11.1
|
)
|
|
Reclassifications, pretax 3
|
—
|
|
|
7.4
|
|
|
2.9
|
|
|
10.3
|
|
|
Income tax effect
|
—
|
|
|
(2.2
|
)
|
|
3.8
|
|
|
1.6
|
|
|
Balance at December 31, 2019
|
$
|
(21.5
|
)
|
|
$
|
(4.1
|
)
|
|
$
|
(51.2
|
)
|
|
$
|
(76.8
|
)
|
|
|
|
|
|
|
|
|
|
|
1 2017 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
.7
|
|
|
—
|
|
|
.7
|
|
|
Interest expense
|
—
|
|
|
4.2
|
|
|
—
|
|
|
4.2
|
|
|
Other expense (income), net
|
—
|
|
|
—
|
|
|
19.9
|
|
|
19.9
|
|
|
Total 2017 reclassifications, pretax
|
$
|
—
|
|
|
$
|
7.2
|
|
|
$
|
19.9
|
|
|
$
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
2 2018 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
(2.6
|
)
|
|
$
|
—
|
|
|
$
|
(2.6
|
)
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
Interest expense
|
—
|
|
|
4.3
|
|
|
—
|
|
|
4.3
|
|
|
Other expense (income), net
|
—
|
|
|
—
|
|
|
2.6
|
|
|
2.6
|
|
|
Total 2018 reclassifications, pretax
|
$
|
—
|
|
|
$
|
2.8
|
|
|
$
|
2.6
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
3 2019 pretax reclassifications are comprised of:
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
—
|
|
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
Cost of goods sold; selling and administrative expenses
|
—
|
|
|
(.6
|
)
|
|
—
|
|
|
(.6
|
)
|
|
Interest expense
|
—
|
|
|
4.4
|
|
|
—
|
|
|
4.4
|
|
|
Other expense (income), net
|
—
|
|
|
—
|
|
|
2.9
|
|
|
2.9
|
|
|
Total 2019 reclassifications, pretax
|
$
|
—
|
|
|
$
|
7.4
|
|
|
$
|
2.9
|
|
|
$
|
10.3
|
|
R—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.
|
The areas in which we utilize fair value measures of financial assets and liabilities are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Bank time deposits with original maturities of three months or less
|
$
|
—
|
|
|
$
|
153.7
|
|
|
$
|
—
|
|
|
$
|
153.7
|
|
Derivative assets 1 (see Note T)
|
—
|
|
|
4.0
|
|
|
—
|
|
|
4.0
|
|
Diversified investments associated with the ESUP 1 (see Note M)
|
41.0
|
|
|
—
|
|
|
—
|
|
|
41.0
|
|
|
Total assets
|
$
|
41.0
|
|
|
$
|
157.7
|
|
|
$
|
—
|
|
|
$
|
198.7
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities 1 (see Note T)
|
$
|
—
|
|
|
$
|
.9
|
|
|
$
|
—
|
|
|
$
|
.9
|
|
Liabilities associated with the ESUP 1 (see Note M)
|
40.6
|
|
|
—
|
|
|
—
|
|
|
40.6
|
|
|
Total liabilities
|
$
|
40.6
|
|
|
$
|
.9
|
|
|
$
|
—
|
|
|
$
|
41.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Derivative assets 1 (see Note T)
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Diversified investments associated with the ESUP 1 (see Note M)
|
32.7
|
|
|
—
|
|
|
—
|
|
|
32.7
|
|
|
Total assets
|
$
|
32.7
|
|
|
$
|
160.3
|
|
|
$
|
—
|
|
|
$
|
193.0
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities 1 (see Note T)
|
$
|
—
|
|
|
$
|
4.7
|
|
|
$
|
—
|
|
|
$
|
4.7
|
|
Liabilities associated with the ESUP 1 (see Note M)
|
33.7
|
|
|
—
|
|
|
—
|
|
|
33.7
|
|
|
Total liabilities
|
$
|
33.7
|
|
|
$
|
4.7
|
|
|
$
|
—
|
|
|
$
|
38.4
|
|
1 Includes both current and long-term amounts combined.
The fair value for fixed rate debt (Level 2) was approximately $98.6 greater than carrying value of $1,585.6 at December 31, 2019 and was approximately $35.0 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 utilize fair value measures of non-financial assets and liabilities are allocating purchase price to the assets and liabilities of acquired companies as discussed in Note S and evaluating long-term assets (including goodwill) for potential impairment as discussed in Note D. Determining fair values for these items requires significant judgment and includes a variety of methods and models that utilize significant Level 3 inputs as discussed in Note A.
S—Acquisitions
The following table contains the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions during the periods presented (using inputs discussed in Note A), and any additional consideration paid for prior years’ acquisitions. Of the goodwill included in the table below, $139.0 is expected to be deductible for tax purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Accounts receivable
|
$
|
75.2
|
|
|
$
|
19.6
|
|
|
$
|
10.5
|
|
|
Inventory
|
63.2
|
|
|
26.2
|
|
|
6.2
|
|
|
Property, plant and equipment
|
82.3
|
|
|
28.2
|
|
|
15.7
|
|
|
|
566.3
|
|
|
28.1
|
|
|
11.5
|
|
Other intangible assets (see Note E)
|
|
|
|
|
|
|
|
|
|
Customer relationships (7 to 20-year life)
|
378.9
|
|
|
19.4
|
|
|
11.3
|
|
|
Technology (5 to 15-year life)
|
173.3
|
|
|
4.9
|
|
|
—
|
|
|
Trademarks and trade names (15-year)
|
67.1
|
|
|
2.7
|
|
|
8.6
|
|
|
Non-compete agreements and other (5 to 15-year life)
|
28.7
|
|
|
1.9
|
|
|
.4
|
|
|
Other current and long-term assets
|
29.4
|
|
|
.8
|
|
|
.8
|
|
|
Current liabilities
|
(48.2
|
)
|
|
(11.9
|
)
|
|
(4.6
|
)
|
|
Deferred income taxes
|
(127.4
|
)
|
|
(9.9
|
)
|
|
(6.3
|
)
|
|
Long-term liabilities
|
(23.7
|
)
|
|
(.8
|
)
|
|
—
|
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
(.5
|
)
|
|
Fair value of net identifiable assets
|
1,265.1
|
|
109.2
|
|
|
53.6
|
|
|
Less: Additional consideration payable
|
—
|
|
|
—
|
|
|
2.7
|
|
|
Less: Common stock issued for acquired companies
|
—
|
|
|
—
|
|
|
11.8
|
|
|
Net cash consideration
|
$
|
1,265.1
|
|
|
$
|
109.2
|
|
|
$
|
39.1
|
|
The following table summarizes acquisitions for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Number of
Acquisitions
|
|
Segment
|
|
Product/Service
|
|
December 31, 2019
|
|
2
|
|
Residential Products
|
|
A leader in proprietary specialized foam technology, primarily for the bedding and furniture industries;
Manufacturer and distributor of geosynthetic and mine ventilation products
|
|
December 31, 2018
|
|
3
|
|
Residential Products;
Specialized Products
|
|
Manufacturer and distributor of home and garden products; Manufacturer and distributor of silt fence;
Engineered hydraulic cylinders
|
|
December 31, 2017
|
|
3
|
|
Residential Products;
Furniture Products
|
|
Distributor and installer of geosynthetic products;
Flooring products;
Surface-critical bent tube components
|
We are finalizing all of the information required to complete the purchase price allocations related to the most recent acquisitions and do not anticipate any material modifications.
Certain of our prior years' acquisition agreements provide for additional consideration to be paid in cash at a later date and are recorded as a liability at the acquisition date. At December 31, 2019 and December 31, 2018 our liability for these future payments was $9.2 ($9.2 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, $9.3 and $2.2 for the years ended 2019, 2018 and 2017, respectively.
A brief description of our acquisition activity by year is included below.
2019
We acquired two businesses:
|
|
|
|
•
|
ECS, a leader in proprietary specialized foam technology, primarily for the bedding and furniture industries. Through this acquisition, we gained critical capabilities in proprietary foam technology, along with scale in the production of private-label finished mattresses. The acquisition date was January 16. The purchase price was $1,244.3 and added $559.3 of goodwill. The most significant other intangibles added were customer relationships and technology which were valued at $372.3 and $173.3, respectively. There was no contingent consideration associated with this acquisition.
|
|
|
|
|
•
|
A manufacturer and distributor of geosynthetic and mine ventilation products, expanding the geographic scope and capabilities of our Geo Components business unit. The acquisition date was December 9. The purchase price was $20.8 and added $7.0 of goodwill.
|
2018
We acquired three businesses:
|
|
|
|
•
|
A manufacturer and distributor of innovative home and garden products found at most major retailers for $19.1. This acquisition provides a solid foundation on which to continue growing our retail market presence in our Geo Components business unit.
|
|
|
|
|
•
|
A manufacturer and distributor of silt fence, a core product for our Geo Components business unit, for $2.6.
|
|
|
|
|
•
|
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 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.
|
2017
We acquired three businesses:
|
|
|
|
•
|
A distributor and installer of geosynthetic products, expanding the geographic scope and capabilities of our Geo Components business.
|
|
|
|
|
•
|
A carpet underlay manufacturer, providing additional production capacity in our Flooring Products business.
|
|
|
|
|
•
|
A manufacturer of surface-critical bent tube components in support of the private-label finished seating strategy in our Work Furniture business.
|
These businesses broaden our geographic scope, capabilities, and product offerings, and added $11.3 ($7.4 to Residential Products and $3.9 to Furniture Products) of goodwill. We also acquired the remaining 20% ownership in an Asian joint venture in our Work Furniture business for $2.6.
Pro forma Results
The following table summarizes, on an unaudited pro forma basis, our combined results of operations, including ECS, as though the acquisition had occurred as of January 1, 2018. We have not provided pro forma results of operations related to other acquisitions, as these results were not material.
The unaudited proforma financial information below is not necessarily indicative of the results of operations that would have been realized had the ECS acquisition occurred as of January 1, 2018, nor is it meant to be indicative of any future results of operations. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
Net sales
|
$
|
4,774.1
|
|
|
$
|
4,870.8
|
|
|
Net earnings
|
335.5
|
|
|
283.9
|
|
|
EPS basic
|
2.49
|
|
|
2.11
|
|
|
EPS diluted
|
2.49
|
|
|
2.10
|
|
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.
|
T—Derivative Financial Instruments
Cash Flow Hedges
Derivative financial instruments that we use to hedge forecasted transactions and anticipated cash flows are as follows:
Currency Cash Flow Hedges—The foreign currency hedges manage risk associated with exchange rate volatility of various currencies.
Interest Rate Cash Flow Hedges—We have also occasionally used interest rate cash flow hedges to manage interest rate risks.
The effective changes in fair value of unexpired contracts are recorded in accumulated other comprehensive income and reclassified to income or expense in the period in which earnings are impacted. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged. (Settlements associated with the sale or production of product are presented in operating cash flows, and settlements associated with debt issuance are presented in financing cash flows.)
Fair Value Hedges and Derivatives not Designated as Hedging Instruments
These derivatives typically manage foreign currency risk associated with subsidiaries’ assets and liabilities, and gains or losses are recognized currently in earnings. Cash flows from settled contracts are presented in the category consistent with the nature of the item being hedged.
Hedge Effectiveness
We have deemed ineffectiveness to be immaterial, and as a result, have not recorded any amounts for ineffectiveness. If a hedge was not highly effective, the portion of the change in fair value considered to be ineffective would be recognized immediately in the Consolidated 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 December 31, 2019
|
|
Derivatives Designated as Hedging Instruments
|
|
|
Assets
|
|
Liabilities
|
|
|
Other Current
Assets
|
|
Sundry
|
|
Other Current
Liabilities
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Currency hedges:
|
|
|
|
|
|
|
|
|
|
|
|
Future USD sales/purchases of Canadian, Chinese, European, South Korean, Swiss and UK subsidiaries
|
|
Sep 2021
|
|
$
|
138.5
|
|
|
$
|
1.3
|
|
|
$
|
.2
|
|
|
$
|
.7
|
|
|
Future MXN purchases of a USD subsidiary
|
|
Jun 2021
|
|
9.8
|
|
|
.5
|
|
|
.1
|
|
|
—
|
|
|
Future DKK sales of Polish subsidiary
|
|
Jun 2021
|
|
21.1
|
|
.3
|
|
|
—
|
|
|
—
|
|
|
Future EUR Sales of Chinese and UK subsidiaries
|
|
Jun 2021
|
|
29.9
|
|
|
.7
|
|
|
—
|
|
|
—
|
|
|
Total cash flow hedges
|
|
|
|
|
|
2.8
|
|
|
.3
|
|
|
.7
|
|
|
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, GBP, PLN and USD)
|
|
May 2020
|
|
112.0
|
|
.8
|
|
|
—
|
|
|
.1
|
|
|
Total fair value hedges
|
|
|
|
|
|
.8
|
|
|
—
|
|
|
.1
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Non-deliverable hedges (EUR and USD) exposed to the CNY
|
|
Dec 2020
|
|
10.1
|
|
.1
|
|
|
—
|
|
|
—
|
|
|
Hedge of USD Receivable on CAD Subsidiary
|
|
Jan 2020
|
|
5.0
|
|
—
|
|
|
—
|
|
|
.1
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
.1
|
|
|
—
|
|
|
.1
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
3.7
|
|
|
$
|
.3
|
|
|
$
|
.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring at various dates through:
|
|
Total USD
Equivalent
Notional
Amount
|
|
As of December 31, 2018
|
|
Derivatives Designated as Hedging Instruments
|
|
|
Assets
|
|
Liabilities
|
|
|
Other Current
Assets
|
|
Sundry
|
|
Other Current
Liabilities
|
|
Other Long-Term
Liabilities
|
|
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
|
|
|
—
|
|
|
Total fair value hedges
|
|
|
|
|
|
.1
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
Non-deliverable hedges (EUR and USD) exposed to the CNY
|
|
Dec 2019
|
|
23.6
|
|
.1
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
|
|
.1
|
|
|
—
|
|
|
.3
|
|
|
—
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
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 as well as derivative settlements recorded directly to income or expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Caption
|
|
Amount of (Gain) Loss
Recorded in Income
for the Year Ended
December 31
|
|
Derivatives Designated as Hedging Instruments
|
|
2019
|
|
2018
|
|
2017
|
|
Interest rate cash flow hedges
|
|
Interest expense
|
|
$
|
4.4
|
|
|
$
|
4.3
|
|
|
$
|
4.2
|
|
|
Currency cash flow hedges
|
|
Net sales
|
|
2.7
|
|
|
(2.0
|
)
|
|
(1.4
|
)
|
|
Currency cash flow hedges
|
|
Cost of goods sold
|
|
(1.6
|
)
|
|
.4
|
|
|
.4
|
|
|
Currency cash flow hedges
|
|
Other expense (income), net
|
|
.1
|
|
|
—
|
|
|
.6
|
|
|
Total cash flow hedges
|
|
|
|
5.6
|
|
|
2.7
|
|
|
3.8
|
|
|
Fair value hedges
|
|
Other expense (income), net
|
|
.8
|
|
|
1.2
|
|
|
(.2
|
)
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Other expense (income), net
|
|
.1
|
|
|
(1.6
|
)
|
|
(1.7
|
)
|
|
Total derivative instruments
|
|
|
|
$
|
6.5
|
|
|
$
|
2.3
|
|
|
$
|
1.9
|
|
U—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 $13.8 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 $10.5 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 $2.0, $.1 and $3.5, 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 $3.5 assessment ($4.1 with updated interest), in Sorocaba Federal Court. On October 18, 2018, we filed an action related to the $2.0 assessment ($3.0 with updated interest) in Sorocaba Federal Court. The $.1 assessment remains pending at the second administrative level. These actions seek to annul the entire assessment 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 $1.7 ($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 $.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. On August 8, 2019, the Finance Ministry issued an assessment against L&P Brazil in the amount of $.1 alleging that L&P Brazil improperly offset social contributions due between 2015 and 2016. These cases remain pending.
State of São 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 $1.5 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 $.7 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. 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. On November 5, 2019, SSP announced an amnesty program that provides discounts on penalties and interest on SSP assessments. We decided to move forward with the amnesty program as it relates to the $.7 assessment (updated to $1.2 with interest). We will pay $.6 in the first quarter of 2020 to resolve this matter using a portion of our $1.2 cash deposit. We expect the return of approximately $.6, consisting of cash deposit and accrued interest in the second half of 2020.
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, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
2019
|
|
2018
|
|
2017
|
|
Litigation contingency accrual - Beginning of period
|
$
|
1.9
|
|
|
$
|
.4
|
|
|
$
|
3.2
|
|
|
Adjustment to accruals - expense - Continuing operations
|
.6
|
|
|
1.8
|
|
|
.6
|
|
|
Adjustment to accruals - expense - Discontinued operations
|
—
|
|
|
—
|
|
|
1.6
|
|
|
Cash payments
|
(1.8
|
)
|
|
(.3
|
)
|
|
(5.0
|
)
|
|
Litigation contingency accrual - End of period
|
$
|
.7
|
|
|
$
|
1.9
|
|
|
$
|
.4
|
|
The above litigation contingency accruals do not include accrued expenses related to workers' compensation, vehicle-related personal injury, product and general liability claims, taxation issues and environmental matters, some of which may contain a portion of litigation expense. However, any litigation expense associated with these categories is not anticipated to have a material effect on our financial condition, results of operations or cash flows. For more information regarding accrued expenses, see Note J - Supplemental Balance Sheet Information under "Accrued expenses" on page 92.
Reasonably Possible Losses in Excess of Accruals
Although there are a number of uncertainties and potential outcomes associated with all of our pending or threatened litigation proceedings, we believe, based on current known facts, that additional losses, if any, are not expected to materially affect our consolidated financial position, results of operations or cash flows. However, based upon current known facts, as of December 31, 2019, aggregate reasonably possible (but not probable, and therefore not accrued) losses in excess of the accruals noted above are estimated to be $14.9, including $13.8 for Brazilian VAT matters disclosed above and $1.1 for other matters. If 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 $14.9 referenced above), which could have a material negative impact on our financial condition, results of operations and cash flows.
Leggett & Platt, Incorporated
Quarterly Summary of Earnings (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, (Amounts in millions, except per share data)
|
First 2
|
|
Second
|
|
Third 3, 5
|
|
Fourth 4, 6
|
|
Total
|
|
2019 1
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,155.1
|
|
|
$
|
1,213.2
|
|
|
$
|
1,239.3
|
|
|
$
|
1,144.9
|
|
|
$
|
4,752.5
|
|
|
Gross profit
|
233.0
|
|
|
269.7
|
|
|
275.5
|
|
|
272.4
|
|
|
1,050.6
|
|
|
Earnings from continuing operations before income taxes
|
78.2
|
|
|
114.1
|
|
|
123.0
|
|
|
114.8
|
|
|
430.1
|
|
|
Earnings from continuing operations
|
61.1
|
|
|
86.3
|
|
|
99.6
|
|
|
86.9
|
|
|
333.9
|
|
|
Earnings (loss) from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net earnings
|
61.1
|
|
|
86.3
|
|
|
99.6
|
|
|
86.9
|
|
|
333.9
|
|
|
Loss (Earnings) attributable to noncontrolling interest, net of tax
|
.1
|
|
|
(.1
|
)
|
|
—
|
|
|
(.1
|
)
|
|
(.1
|
)
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
$
|
61.2
|
|
|
$
|
86.2
|
|
|
$
|
99.6
|
|
|
$
|
86.8
|
|
|
$
|
333.8
|
|
|
Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
.46
|
|
|
$
|
.64
|
|
|
$
|
.74
|
|
|
$
|
.64
|
|
|
$
|
2.48
|
|
|
Diluted
|
$
|
.45
|
|
|
$
|
.64
|
|
|
$
|
.74
|
|
|
$
|
.64
|
|
|
$
|
2.47
|
|
|
Earnings (loss) per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Diluted
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net earnings per share attributable to Leggett & Platt, Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
.46
|
|
|
$
|
.64
|
|
|
$
|
.74
|
|
|
$
|
.64
|
|
|
$
|
2.48
|
|
|
Diluted
|
$
|
.45
|
|
|
$
|
.64
|
|
|
$
|
.74
|
|
|
$
|
.64
|
|
|
$
|
2.47
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,028.8
|
|
|
$
|
1,102.5
|
|
|
$
|
1,091.5
|
|
|
$
|
1,046.7
|
|
|
$
|
4,269.5
|
|
|
Gross profit
|
217.4
|
|
|
231.0
|
|
|
227.1
|
|
|
213.2
|
|
|
888.7
|
|
|
Earnings from continuing operations before income taxes
|
95.4
|
|
|
107.5
|
|
|
113.3
|
|
|
68.2
|
|
|
384.4
|
|
|
Earnings from continuing operations
|
77.9
|
|
|
85.1
|
|
|
90.0
|
|
|
53.1
|
|
|
306.1
|
|
|
Earnings (loss) from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net earnings
|
77.9
|
|
|
85.1
|
|
|
90.0
|
|
|
53.1
|
|
|
306.1
|
|
|
(Earnings) attributable to noncontrolling interest, net of tax
|
—
|
|
|
(.1
|
)
|
|
—
|
|
|
(.1
|
)
|
|
(.2
|
)
|
|
Net earnings attributable to Leggett & Platt, Inc. common shareholders
|
$
|
77.9
|
|
|
$
|
85.0
|
|
|
$
|
90.0
|
|
|
$
|
53.0
|
|
|
$
|
305.9
|
|
|
Earnings per share from continuing operations attributable to Leggett & Platt, Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
.58
|
|
|
$
|
.63
|
|
|
$
|
.67
|
|
|
$
|
.40
|
|
|
$
|
2.28
|
|
|
Diluted
|
$
|
.57
|
|
|
$
|
.63
|
|
|
$
|
.67
|
|
|
$
|
.39
|
|
|
$
|
2.26
|
|
|
Earnings (loss) per share from discontinued operations attributable to Leggett & Platt, Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Diluted
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Net earnings per share attributable to Leggett & Platt, Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
.58
|
|
|
$
|
.63
|
|
|
$
|
.67
|
|
|
$
|
.40
|
|
|
$
|
2.28
|
|
|
Diluted
|
$
|
.57
|
|
|
$
|
.63
|
|
|
$
|
.67
|
|
|
$
|
.39
|
|
|
$
|
2.26
|
|
All items below are shown pretax with the exception of the 2017 Tax Cuts and Jobs Act (TCJA) item.
|
|
|
|
1
|
All 2019 quarters are impacted by the January 2019 ECS acquisition (Note S)
|
|
|
|
|
2
|
First quarter 2019 Earnings from continuing operations include a charge of $6 for restructuring (Note F); $1 charge for transaction costs related to the ECS acquisition (Note S)
|
|
|
|
|
3
|
Third quarter 2019 Earnings from continuing operations include a charge of $4 for restructuring (Note F)
|
|
|
|
|
4
|
Fourth quarter 2019 Earnings from continuing operations include a charge of $5 for restructuring (Note F)
|
|
|
|
|
5
|
Third quarter 2018 Earnings from continuing operations include a $2 benefit associated with the TCJA (Note O)
|
|
|
|
|
6
|
Fourth quarter 2018 Earnings from continuing operations include a charge of $16 for restructuring (Note F); $16 charge for a customer receivable impairment (Note I); $7 charge for transaction costs related to the ECS acquisition (Note S)
|
LEGGETT & PLATT, INCORPORATED
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
Description
|
Balance
at
Beginning
of Period
|
|
Additions
(Credited)
to Cost
and
Expenses
|
|
Deductions
|
|
Balance
at End of
Period
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
$
|
20.2
|
|
|
$
|
2.8
|
|
|
$
|
(.5
|
)
|
1
|
$
|
23.5
|
|
|
Excess and obsolete inventory reserve, LIFO basis
|
$
|
27.1
|
|
|
$
|
9.0
|
|
|
$
|
11.3
|
|
|
$
|
24.8
|
|
|
Tax valuation allowance
|
$
|
13.2
|
|
|
$
|
1.5
|
|
|
$
|
(2.1
|
)
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
$
|
4.9
|
|
|
$
|
16.7
|
|
|
$
|
1.4
|
|
1
|
$
|
20.2
|
|
|
Excess and obsolete inventory reserve, LIFO basis
|
$
|
26.4
|
|
|
$
|
10.3
|
|
|
$
|
9.6
|
|
|
$
|
27.1
|
|
|
Tax valuation allowance
|
$
|
24.2
|
|
|
$
|
(7.8
|
)
|
|
$
|
3.2
|
|
|
$
|
13.2
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
|
|
Allowance for doubtful receivables
|
$
|
7.4
|
|
|
$
|
.8
|
|
|
$
|
3.3
|
|
1
|
$
|
4.9
|
|
|
Excess and obsolete inventory reserve, LIFO basis
|
$
|
27.1
|
|
|
$
|
4.9
|
|
|
$
|
5.6
|
|
|
$
|
26.4
|
|
|
Tax valuation allowance
|
$
|
22.9
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
24.2
|
|
|
|
|
|
1
|
Uncollectible accounts charged off, net of recoveries.
|
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
|
|
2.1****
|
|
Stock Purchase Agreement by and among Leggett & Platt, Incorporated, Elite Comfort Solutions, Inc. and Elite Comfort Solutions LP, dated November 6, 2018, filed November 7, 2018, as Exhibit 2.1 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) Schedules to the Stock Purchase Agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Stock Purchase Agreement contains a list briefly identifying the omitted schedules. Leggett agrees to furnish, supplementally, a copy of any omitted schedule to the SEC upon request.
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
4.2
|
|
|
|
|
|
|
|
4.2.1
|
|
Tri-Party Agreement under the May 6, 2005 Senior Indenture, between the Company, The Bank of New York Mellon Trust Company, NA (successor in interest to JPMorgan Chase Bank, N.A.) (as Prior Trustee) and U.S. Bank National Association (as Successor Trustee), dated February 20, 2009, filed February 25, 2009 as Exhibit 4.3.1 to the Company’s Form 10-K for the year ended December 31, 2008, is incorporated by reference. (SEC File No. 001-07845)
|
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
4.6
|
|
|
|
|
|
|
|
4.7**
|
|
|
|
|
|
|
|
10.1*
|
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
|
|
|
|
|
|
10.2*
|
|
|
|
|
|
|
|
10.3*
|
|
|
|
|
|
|
|
10.4*
|
|
|
|
|
|
|
|
10.5*
|
|
|
|
|
|
|
|
10.6*
|
|
|
|
|
|
|
|
10.7*
|
|
|
|
|
|
|
|
10.8*
|
|
|
|
|
|
|
|
10.9*
|
|
|
|
|
|
|
|
10.10*
|
|
|
|
|
|
|
|
10.10.1*
|
|
|
|
|
|
|
|
10.10.2*
|
|
|
|
|
|
|
|
10.10.3*
|
|
|
|
|
|
|
|
10.10.4*
|
|
|
|
|
|
|
|
10.10.5*
|
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
|
|
|
|
|
|
10.10.6*
|
|
|
|
|
|
|
|
10.10.7*
|
|
|
|
|
|
|
|
10.10.8*
|
|
|
|
|
|
|
|
10.10.9*
|
|
|
|
|
|
|
|
10.10.10*
|
|
|
|
|
|
|
|
10.10.11*
|
|
|
|
|
|
|
|
10.10.12*
|
|
|
|
|
|
|
|
10.10.13*
|
|
|
|
|
|
|
|
10.10.14*
|
|
|
|
|
|
|
|
10.10.15*
|
|
|
|
|
|
|
|
10.10.16*
|
|
|
|
|
|
|
|
10.11*
|
|
|
|
|
|
|
|
10.11.1*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Document Description
|
|
|
|
|
|
10.11.2*
|
|
|
|
|
|
|
|
10.11.3*
|
|
|
|
|
|
|
|
10.11.4*
|
|
|
|
|
|
|
|
10.12*
|
|
|
|
|
|
|
|
10.13*
|
|
|
|
|
|
|
|
10.14*
|
|
|
|
|
|
|
|
10.15*
|
|
|
|
|
|
|
|
10.16*
|
|
|
|
|
|
|
|
10.17
|
|
|
|
|
|
|
|
10.18
|
|
|
|
|
|
|
|
10.19
|
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21**
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23**
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24**
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Exhibit No.
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Document Description
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31.1**
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31.2**
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32.1**
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32.2**
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101.INS***
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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101.SCH***
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Inline XBRL Taxonomy Extension Schema.
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101.CAL***
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Inline XBRL Taxonomy Extension Calculation Linkbase.
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101.DEF***
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Inline XBRL Taxonomy Extension Definition Linkbase.
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101.LAB***
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Inline XBRL Taxonomy Extension Label Linkbase.
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101.PRE***
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Inline XBRL Taxonomy Extension Presentation Linkbase.
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104
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Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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______________________________
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*
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Denotes management contract or compensatory plan or arrangement.
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**
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Denotes filed or furnished herewith.
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***
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Filed as Exhibit 101 to this report are the following formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for each year in the three year period ended December 31, 2019; (ii) Consolidated Statements of Comprehensive Income (Loss) for each year in the three year period ended December 31, 2019; (iii) Consolidated Balance Sheets at December 31, 2019 and December 31, 2018; (iv) Consolidated Statements of Cash Flows for each year in the three year period ended December 31, 2019; (v) Consolidated Statements of Changes in Equity for each year in the three year period ended December 31, 2019; and (vi) Notes to Consolidated Financial Statements.
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****
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The assertions embodied in the representations and warranties made in the Stock Purchase Agreement are solely for the benefit of the parties to the Stock Purchase Agreement, and are qualified by information in confidential disclosure schedules that we have exchanged in connection with signing the Stock Purchase Agreement. While Leggett does not believe the schedules contain information required to be publicly disclosed, the schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties in the Stock Purchase Agreement. You are not a third party beneficiary to the Stock Purchase Agreement and should not rely on the representations and warranties as characterizations of the actual state of facts, since (i) they are modified in part by the disclosure schedules, (ii) they may have changed since the date of the Stock Purchase Agreement, (iii) they may represent only the parties’ risk allocation in this particular transaction, and (iv) they may be qualified by materiality standards that differ from what may be viewed as material for securities law purposes. The Stock Purchase Agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about Leggett or ECS. Such information about Leggett can be found in other public filings we make with the SEC.
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Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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LEGGETT & PLATT, INCORPORATED
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By:
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/s/ KARL G. GLASSMAN
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Karl G. Glassman
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Chairman and Chief Executive Officer
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Date: February 20, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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(a) Principal Executive Officer:
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/s/ KARL G. GLASSMAN
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Chairman and Chief Executive Officer
(Director)
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February 20, 2020
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Karl G. Glassman
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(b) Principal Financial Officer:
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/s/ JEFFREY L. TATE
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Executive Vice President and Chief Financial Officer
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February 20, 2020
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Jeffrey L. Tate
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(c) Principal Accounting Officer:
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/s/ TAMMY M. TRENT
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Senior Vice President and Chief Accounting Officer
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February 20, 2020
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Tammy M. Trent
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(d) Directors:
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MARK A. BLINN*
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Director
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Mark A. Blinn
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ROBERT E. BRUNNER*
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Director
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Robert E. Brunner
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MARY CAMPBELL*
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Director
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Mary Campbell
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J. MITCHELL DOLLOFF*
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Director
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J. Mitchell Dolloff
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Signature
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Title
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Date
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R. TED ENLOE, III*
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Director
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R. Ted Enloe, III
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MANUEL A. FERNANDEZ*
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Director
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Manuel A. Fernandez
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JOSEPH W. MCCLANATHAN*
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Director
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Joseph W. McClanathan
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JUDY C. ODOM*
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Director
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Judy C. Odom
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SRIKANTH PADMANABHAN*
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Director
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Srikanth Padmanabhan
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JAI SHAH*
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Director
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Jai Shah
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PHOEBE A. WOOD*
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Director
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Phoebe A. Wood
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*By:
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/s/ SCOTT S. DOUGLAS
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Scott S. Douglas
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February 20, 2020
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Attorney-in-Fact
Under Power-of-Attorney
dated
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February 19, 2020
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