LEGGETT & PLATT INC (LEG) Business, 2017

Leggett & Platt, Incorporated was founded as a partnership in Carthage, Missouri in 1883 and was incorporated in 1901. The Company, a pioneer of the steel coil bedspring, has become an international diversified manufacturer that conceives, designs and produces a wide range of engineered components and products found in many homes, offices, automobiles and aircraft. As discussed below, our operations are organized into 14 business units, which are divided into ten groups under our four segments: Residential Products; Industrial Products; Furniture Products; and Specialized Products.

BEDDING GROUP U.S. Spring International Spring FABRIC & CARPET CUSHION GROUP Fabric Converting Geo Components Carpet Cushion MACHINERY GROUP Machinery

Our Residential Products segment began in 1883 with the manufacture of steel coil bedsprings. Today, we supply a variety of components and machinery used by bedding manufacturers in the production and assembly of their finished products. Our range of products offers our customers a single source for many of their component needs. We also produce or distribute carpet cushion, fabric, and geo components.

Innovative proprietary products and low cost have made us the largest U.S. manufacturer in many of these businesses. We strive to understand what drives consumer purchases in our markets and focus our product development activities on meeting end-consumer needs. We attain a cost advantage from efficient manufacturing methods, internal production of key raw materials, purchasing leverage, and large-scale production. Sourcing components from us allows our customers to focus on designing, merchandising and marketing their products.

Bedding Group

• Innersprings (sets of steel coils, bound together, that form the core of a mattress) • Wire forms for mattress foundations • Machines that we use to shape wire into various types of springs

Fabric & Carpet Cushion Group

• Structural fabrics for mattresses, residential furniture and industrial uses • Carpet cushion (made from bonded scrap foam, fiber, rubber and prime foam) • Geo components (synthetic fabrics and various other products used in ground stabilization, drainage protection, erosion and weed control)

Machinery Group

• Quilting machines for mattress covers • Industrial sewing/finishing machines • Conveyor lines • Mattress packaging and glue-drying equipment

• Manufacturers of finished bedding (mattresses and foundations) • Retailers and distributors of carpet cushion • Contractors, landscapers, road construction companies, and government agencies using geo components • Manufacturers of upholstered furniture, packaging, filtration and draperies

WIRE GROUP Drawn Wire1 Steel Rod

1 Drawn Wire includes our former Wire Products business unit effective January 1, 2018.

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

Wire Group

• Drawn wire • Steel rod

We use about 70% of our wire output to manufacture our own products, including:

• Bedding and furniture components • Automotive seat suspension systems

The Industrial Products segment also has a diverse group of trade customers that include:

• Mechanical spring manufacturers • Wire distributors • Packaging and baling companies

HOME FURNITURE GROUP Home Furniture 1 WORK FURNITURE GROUP Work Furniture CONSUMER PRODUCTS GROUP Consumer Products 2

1 Home Furniture includes our former Furniture Hardware and Seating & Distribution business units effective January 1, 2018.

2 Consumer Products includes our former Adjustable Bed and Fashion Bed business units effective January 1, 2018.

In our Furniture Products segment, we design, manufacture, and distribute a wide range of components and finished products for the residential furniture, office and commercial furniture, and specialty bedding markets. We supply components used by home and work furniture manufacturers to provide comfort, motion and style in their finished products, as well as select lines of private-label finished furniture. We are also a major supplier of adjustable beds and fashion beds, with domestic manufacturing, distribution, e-commerce fulfillment and global sourcing capabilities.

Home Furniture Group

• Steel mechanisms and motion hardware (enabling furniture to recline, tilt, swivel, rock and elevate) for reclining chairs, sofas, sleeper sofas and lift chairs • Springs and seat suspensions for chairs, sofas and love seats

Work Furniture Group

• Select lines of private-label finished furniture • Bases, columns, back rests, casters and frames for office chairs, and control devices that allow chairs to tilt, swivel and elevate • Molded plywood components

Consumer Products Group

• Adjustable beds • Fashion beds and bed frames

• Manufacturers of upholstered furniture • Office furniture manufacturers • Mattress and furniture retailers • Department stores and big box retailers • E-commerce retailers

AUTOMOTIVE GROUP Automotive AEROSPACE PRODUCTS GROUP Aerospace Products HYDRAULIC CYLINDERS GROUP1 Hydraulic Cylinders

1 Formed January 31, 2018, with the acquisition of a manufacturer of hydraulic cylinders.

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

Automotive Group

• Mechanical and pneumatic lumbar support and massage systems for automotive seating • Seat suspension systems • Motors and actuators, used in a wide variety of vehicle power features • Cables

Aerospace Products Group

• Titanium, nickel and stainless-steel tubing, formed tube and tube assemblies, primarily used in fluid conveyance systems

Hydraulic Cylinders Group

• Engineered hydraulic cylinders

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

For information about sales to trade customers, sales by product line, EBIT, and total assets of each of our segments, refer to Note E on page 82 of the Notes to Consolidated Financial Statements.

Our reportable segments are the same as our operating segments, which also correspond with our management organizational structure. In conjunction with the change in executive officers, our management organizational structure and all related internal reporting changed effective January 1, 2017. As a result, the composition of our four segments also changed to reflect the new structure. The new segment structure is largely the same as prior years except the Home Furniture Group moved from Residential Products to Furniture Products (formerly Commercial Products) and the Machinery Group moved from Specialized Products to Residential Products.

In addition, the changes in LIFO reserve are now recognized within the segments to which they relate (primarily Industrial Products). Previously segment EBIT (Earnings Before Interest and Taxes) reflected the FIFO basis of accounting for certain inventories and an adjustment to the LIFO basis for these inventories was made at the consolidated financial statement level. These changes were retrospectively applied to all periods presented. The methods and assumptions that we use in estimating our LIFO reserve did not change.

Key Financial Metric

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

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

For information about our TSR targets and performance see the discussion under "Total Shareholder Return" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations on page 28.

Returning Cash to Shareholders

During the past three years, we generated $1.36 billion of operating cash, and we returned much of this cash to shareholders in the form of dividends and share repurchases. Our top priorities for use of cash are organic growth (capital expenditures), dividends, and strategic acquisitions. After funding those priorities, if there is still cash available, we generally intend to repurchase stock.

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

Portfolio Management

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

Disciplined Growth

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

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

On January 31, 2018, we acquired Precision Hydraulic Cylinders (PHC), a leading global manufacturer of

engineered hydraulic cylinders primarily for the materials handling market. The purchase price was $85 million. This business has current annual revenues of $81 million and represents a new growth platform for the Company. PHC serves a market of mainly large OEM customers utilizing highly engineered, co-designed components with long product life-cycles, yet representing a small percentage of the end product’s cost. PHC will form a new business group titled Hydraulic Cylinders and report in the Specialized Products segment.

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

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

We acquired a 70% interest in a European private-label manufacturer of high-end upholstered furniture. This business is complementary to our North American private-label operation and allows us to support our Work Furniture customers as they expand globally. The initial cash outlay for the 70% interest was $12 million and, per the terms of the agreement, we will acquire the remaining 30% in two equal parts, in the second quarters of 2018 and 2020. We have recorded a liability of approximately $14 million for these future payments. The recorded liability is based upon estimates and may fluctuate significantly until the payment dates.

For more information regarding our acquisitions, please refer to Note Q on page 110 of the Notes to Consolidated Financial Statements.

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

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

We sold four operations for total consideration of $36 million. We sold our final two Store Fixtures operations and a small operation within our CVP business. We also sold our Steel Tubing business unit. This business manufactured welded steel tubing and fabricated tube components.

For further information about divestitures and discontinued operations, see Note B on page 77 of the Notes to Consolidated Financial Statements.

The percentages of our trade sales related to products manufactured outside the United States for the previous three years are shown below. The percentages of foreign trade sales were 31% for 2015, 34% for 2016 and 37% for 2017.

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

Europe

• Innersprings for mattresses • Lumbar and seat suspension systems for automotive seating • Seamless and welded tubing and fabricated assemblies for aerospace applications • Select lines of private-label finished furniture • Machinery and equipment designed to manufacture innersprings for mattresses

China

• Lumbar and seat suspension systems for automotive seating • Cables, motors, and actuators for automotive applications • Recliner mechanisms and bases for upholstered furniture • Formed wire for upholstered furniture • Innersprings for mattresses • Work furniture components, including chair bases and casters

Canada

• Lumbar supports for automotive seats • Fabricated wire for the furniture and automotive industries • Work furniture chair controls, chair bases and table bases

Mexico

• Innersprings and fabricated wire for the bedding industry • Lumbar and seat suspension systems for automotive seating • Adjustable beds

Our international expansion strategy is to locate our operations where we believe we would possess a competitive advantage and where demand for our components is growing. We have also expanded internationally in instances where our customers move the production of their finished products overseas to supply them more efficiently.

Our international operations face the risks associated with any operation in a foreign country. These risks include:

• Foreign currency fluctuation • Foreign legal systems that make it difficult to protect intellectual property and enforce contract rights • Credit risks • Increased costs due to tariffs, customs and shipping rates • Potential problems obtaining raw materials, and disruptions related to the availability of electricity and transportation during times of crisis or war • Inconsistent interpretation and enforcement, at times, of foreign tax laws • Political instability in certain countries

Our Specialized Products segment, which derives roughly 85% of its trade sales from foreign operations, is particularly subject to the above risks. These and other foreign-related risks could result in cost increases, reduced profits, the inability to carry on our foreign operations and other adverse effects on our business.

As of December 31, 2017, we had 121 manufacturing facilities; 73 located in the U.S. and 48 located in 17 foreign countries, as shown below. We also had various sales, warehouse and administrative facilities. However, our manufacturing plants are our most important properties.

Residential Products Industrial Products Furniture Products Specialized Products North America Canada n n n Mexico n n n n United States n n n n Europe Austria n Belgium n Croatia n Denmark n France n Hungary n Italy n Poland n Switzerland n United Kingdom n n South America Brazil n Asia China n n n India n South Korea n Africa South Africa n

For further information concerning our trade sales related to products manufactured, and our tangible long-lived assets located outside the United States, refer to Note E on page 82 of the Notes to Consolidated Financial Statements.

The following table shows our approximate percentage of trade sales by product line for the last three years:

Product Line 2017 2016 2015 Bedding Group 21 % 22 % 23 % Automotive Group 20 19 16 Fabric & Carpet Cushion Group 18 18 17 Home Furniture Group 10 11 11 Consumer Products Group 10 8 8 Wire Group1 7 8 9 Work Furniture Group 7 7 6 Aerospace Products Group 4 3 3 Machinery Group 2 2 2 Commercial Vehicle Products Group2 1 2 3 Steel Tubing Group3 — — 2

1Certain operations in the Wire Group were sold in 2016.

2The two remaining Commercial Vehicle Products operations were sold in 2017 and 2016.

3The Steel Tubing Group was sold in 2015.

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

The products we manufacture require a variety of raw materials. We believe that worldwide supply sources are readily available for all the raw materials we use. Among the most important are:

• Various types of steel, including scrap, rod, wire, sheet, stainless and angle iron • Foam scrap • Woven and non-woven fabrics • Titanium and nickel-based alloys and other high strength metals

We supply our own raw materials for many of the products we make. For example, we produce steel rod that we make into steel wire, which we then use to manufacture:

• Innersprings and foundations for mattresses • Springs and seat suspensions for chairs and sofas • Automotive seating suspension systems

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

We serve thousands of customers worldwide, sustaining many long-term business relationships. In 2017, our largest customer accounted for approximately 5% of our consolidated revenues. Our top 10 customers accounted for approximately 33% of these consolidated revenues. The loss of one or more of these customers could have a material adverse effect on the Company as a whole, or on the respective segment in which the customer’s sales are reported, including our Residential Products, Specialized Products and Furniture Products segments.

The chart below shows the approximate number of patents issued, patents in process, trademarks registered and trademarks in process held by our continuing operations as of December 31, 2017. No single patent or group of patents, or trademark or group of trademarks, is material to our operations as a whole. Substantially all of our patents relate to products manufactured by the Residential Products, Furniture Products, and Specialized Products segments, while nearly half of our trademarks relate to products manufactured by the Residential Products segment. We had 1,382 patents issued and 584 in process, and 1,021 trademarks registered and 223 in process.

Some of our most significant trademarks include:

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

One of our strongest performing product categories across the company is ComfortCore®, our fabric-encased innerspring coils used in hybrid and other mattresses. Our ComfortCore® volume continues to grow, and represented 40% of our total innerspring units by the end of 2017. A growing number of our ComfortCore® innersprings contain a feature we call Quantum® Edge. These are narrow-diameter, fabric-encased coils that form a perimeter around a ComfortCore® innerspring set, replacing foam in a finished mattress. Over 30% of our ComfortCore® innersprings have the Quantum® Edge feature, and the volume of ComfortCore® with Quantum® Edge continues to grow. We are investing in capacity and adding machinery, supplied by our Spuhl® operation, to support the growth in ComfortCore® and Quantum® Edge.

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

We maintain research, development and testing centers in many locations around the world. We are unable to calculate precisely the cost of research and development because the personnel involved in product and machinery development also spend portions of their time in other areas. However, we estimate our annual cost of research and development to be $25 million each year over the last three years.

At December 31, 2017, we had approximately 22,200 employees, of which 16,300 were engaged in production. Of the 22,200, approximately 12,700 were international employees (6,400 in China). Approximately 15% of our employees are represented by labor unions that collectively bargain for work conditions, wages or other issues. We did not experience any work stoppage related to contract negotiations with labor unions during 2017. Management is not aware of any circumstances likely to result in a material work stoppage related to contract negotiations with labor unions during 2018. We had approximately 7,900 employees in Specialized Products; 6,400 in Residential Products; 5,700 in Furniture Products; and 1,400 in Industrial Products.

At December 31, 2016, we had approximately 21,300 employees.

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

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

• Bedding components • Automotive seat support and lumbar systems • Components for home furniture and work furniture • Carpet cushion • Adjustable beds • High-carbon drawn steel wire • Bedding industry machinery

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

For information about antidumping duty orders regarding innerspring and steel wire rod imports, please see "Competition" in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 29.

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

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

For information regarding working capital items, please see the discussion of "Cash from Operations" in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 40.

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

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

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

For information on discontinued operations, please see Note B on page 77 of the Notes to Consolidated Financial Statements.