INTRODUCTION

What We Do

Leggett & Platt is a FORTUNE 500 diversified manufacturer that conceives, designs, and produces a wide range of engineered components and products found in many homes, retail stores, offices, and automobiles. We make components that are often hidden within, but integral to, our customers' products.

We are North America's leading independent manufacturer of: components for residential furniture and bedding, carpet underlay, components for office furniture, drawn steel wire, automotive seat support and lumbar systems, and machinery used by the bedding industry for wire forming, sewing, and quilting.

Our Segments

Our continuing operations are composed of 21 business units in four segments, with approximately 24,000 employee-partners, and more than 250 facilities located in 20 countries around the world. Our segments are described below.

Residential Furnishings: This segment supplies a variety of components mainly used by bedding and upholstered furniture manufacturers in the assembly of their finished products. We also sell adjustable beds, bed frames, ornamental beds, carpet cushion, geo components, and other finished products. This segment has generated approximately 47%-50% of total sales during the past two years.

Commercial Fixturing & Components: Operations in this segment, which have contributed approximately 16%-19% of total sales in the past two years, manufacture and sell store fixtures and point-of-purchase displays used by retailers. We also produce chair controls, bases, and other components for office furniture manufacturers.

Industrial Materials: These operations primarily supply steel rod, drawn steel wire, steel billets, and welded steel tubing to other Leggett operations and to external customers. Our wire and tubing is used to make bedding, furniture, automotive seats, retail store fixtures and displays, mechanical springs, and many other end products. This segment has generated approximately 17%-22% of our total sales in the past two years.

Specialized Products: From this segment we supply lumbar systems and wire components used by automotive seating manufacturers. We manufacture and install the racks, shelving and cabinets used to outfit fleets of service vans. We also produce machinery, both for ourselves and for others, including bedding manufacturers. This segment has contributed about 15% of total sales during the past two years.

Discontinued Operations and Other Divestitures

During the third quarter 2008, we completed the divestiture of four businesses:
our Aluminum Products segment in July 2008, and three smaller business units
(Wood Products, Plastics and the dealer portion of Commercial Vehicle Products)
in late September 2008. We received after-tax cash proceeds of $388 million for the four businesses, not counting subordinated notes and preferred stock. We divested our Prime Foam operations in early 2007. Three additional business units (Fibers, Coated Fabrics, and Storage Products) are also targeted for divestiture. We are in discussions with potential buyers and expect to complete the dispositions in the near term, although certain market conditions may impact the timing of these dispositions. All of these divested businesses are disclosed in our financial statements as discontinued operations.

For the remaining divestitures, we expect to recover the carrying value of the net assets held for sale. As a result of the deterioration in the economy and credit markets during the third quarter, and its impact on available credit for potential buyers, the carrying value of certain assets held for sale exceeded the fair value. In connection with the preparation of the third quarter 2008 financial statements, management concluded that pre-tax goodwill impairment charges of $25.6 million were necessary and were recorded for the three remaining divestitures. Net assets classified as held for sale totaled $91 million at September 30, 2008 (includes $22 million not associated with the three remaining divestitures) and $481 million at December 31, 2007.

Strategic Changes

During 2007, we completed an extensive review of our business portfolio in an effort to enhance shareholder return. For each business unit, we considered factors such as competitive advantages, market position, financial performance, and potential growth opportunities. We have made significant changes to our financial targets, portfolio mix, and planning processes as a result of the review.

Total Shareholder Return (TSR) is now the key success measure that we use to monitor performance. TSR is driven by the change in our share price and the dividends we pay [TSR = (Change in Stock Price + Dividends) / Beginning Stock Price].

We have adopted role-based portfolio management and will concentrate future investments in businesses with competitive advantages and financial health. Certain of our businesses (categorized as Grow) are positioned to generate value through further growth, while others (categorized as Core) are positioned to drive value by improving EBITDA (earnings before interest, taxes, depreciation and amortization) and optimizing operating cash flows while employing minimal amounts of capital. We allocate capital to each business unit (BU) based upon its role in the portfolio. We plan to invest aggressively in Grow businesses that hold strong competitive positions and consistently achieve compelling returns on those investments. We plan to maintain or improve our competitive position in Core businesses that typically hold stable positions in solid markets, and focus on improving returns, but limit further investment in these operations. In total, we anticipate lower capital expenditures and fewer acquisitions in the near term. In addition, we have implemented a more rigorous strategic planning process to continually assess our business units and help guide future decisions regarding the role of each BU, capital allocation priorities, and new areas in which to grow.

We narrowed our focus and eliminated over 20% of our portfolio primarily through the divestiture of the Aluminum Products segment and six additional business units (progress related to these divestitures is discussed earlier in the MD&A).

In the third quarter of 2008, we concluded that the Store Fixtures business unit, in its current form, is not capable of meeting our return requirements. Accordingly, we intend to narrow the unit's scope to focus primarily on the metals part of the fixtures industry, in alignment with the Company's core competency of producing steel and steel-related products.

We currently have four wood store fixtures operations. We plan to consolidate these into fewer facilities and continue to produce a reduced amount of wood fixtures in order to meet the blended requirements (i.e. metal and wood) of certain of our customers. We will also effect changes to senior management, further reduce the unit's overhead and purge additional customer accounts with unacceptable margins. These changes, in conjunction with unprofitable sales pruned since late 2007, will trim annual trade sales for the Store Fixtures unit from a current level of approximately $325 million to $250-$275 million, and annual returns should at least match our cost of capital. The unit is now considered a "core" business within our portfolio; as such, its primary focus is to optimize operating cash flow and improve profit while minimizing its use of capital.

These changes have increased available cash, and we are returning much of this cash to shareholders. In November 2007, the Board of Directors authorized a 39% dividend increase, moving the annual rate to $1.00 per share (from the previous $.72). For the year, we have also repurchased nearly 14 million shares of our stock, fully exhausting our annual repurchase authorization (of 10 million shares), and partially utilizing the supplementary authorization to purchase up to 20 million additional shares with proceeds from the divestitures. Subject to general economic and market conditions, the price of Leggett stock, working capital needs and other factors, we expect to continue repurchasing our shares.

Customers

We serve a broad suite of customers, with no single one representing even 5% of our sales from continuing operations. Many are companies whose names are widely recognized; they include most manufacturers of furniture and bedding, a variety of other manufacturers, and many major retailers.

We primarily sell our products through our own sales employees, although we also use independent sales representatives and distributors in some of our businesses.

Major Factors That Impact Our Business

Many factors impact our business, but those that generally have the greatest impact are: market demand for our products, raw material cost trends, competition and recent market conditions.

Market Demand

Market demand (including product mix) is impacted by several economic factors, with consumer confidence being most significant. Other important factors include disposable income levels, employment levels, housing turnover, and interest rates. All these factors influence consumer spending on durable goods, and therefore affect demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one-quarter of our sales.

Throughout 2007 and 2008, demand weakness in the U.S. home-related, retail, and other markets has led to lower volume in certain of our businesses. Several factors, including a weak U.S. economy, higher energy costs, a slump in the housing market, and low consumer confidence contributed to conservative spending habits by U.S. consumers. Late in the third quarter of 2008, our markets weakened appreciably as consumers further reigned in spending during this unprecedented period of credit concerns and stock market volatility.

Raw Material Costs

In many of our businesses, we enjoy a cost advantage from buying large quantities of raw materials. This purchasing leverage is a benefit that many of our competitors generally do not have. Still, our costs can vary significantly as market prices for raw materials (many of which are commodities) fluctuate.

Purchasing arrangements vary across the Company. We typically have short-term commitments from our suppliers; accordingly our raw material costs generally move with the market. In certain of our businesses, we have longer-term purchase contracts with pricing terms that provide stability under reasonable market conditions. However, when commodities experience extreme inflation, vendors do not always honor those contracts.

Our ability to recover higher costs (through selling price increases) is crucial. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs.

Steel is our principal raw material and at various times in past years we have experienced extreme cost fluctuations in this commodity. In most cases, the major changes (both increases and decreases) were passed through to customers via selling price adjustments. In late 2007 we began seeing higher steel costs, and significant increases have occurred in 2008. We implemented price increases to recover these higher costs.

We also experienced significant changes in the cost of foam scrap and chemicals in recent years. Major changes in these costs are also passed through to our customers.

When we raise our prices to recover higher raw material costs, this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components. We experienced this de-contenting effect in our Residential Furnishings and Industrial Materials segments in recent years, as our customers changed the quantity and mix of components in their finished goods to address steel and chemical inflation. Our profit margins were negatively impacted as a result of this de-contenting. We are responding by developing new products (including new types of innersprings and boxsprings) that enable our customers to reduce their total costs, and provide higher margin and profit contribution for our operations. Some of these new products were introduced during 2007, with production of those products ramping up in 2008.

Competition

Many of our markets are highly competitive with the number of competitors varying by product line. In general, our competitors tend to be smaller, private companies.

We believe we gain competitive advantage in our global markets through low cost operations, significant internal production of key raw materials, superior manufacturing expertise and product innovation, higher quality products, extensive customer service capabilities, and greater financial strength. Many of our competitors, both domestic and foreign, compete primarily on the basis of price. Our success has stemmed from the ability to remain price competitive, while delivering product quality, innovation, and customer service.

We continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products from Asia. In instances where our customers move production of their finished products overseas, our operations must be located nearby to supply them efficiently. At September 30, 2008, Leggett operated 11 facilities in China.

In recent years we experienced increased competition in the U.S. from foreign bedding component manufacturers. We reacted to this competition by selectively adjusting prices, and by developing new proprietary products that help our customers reduce total costs. The increased price competition for bedding components is partially due to lower wire costs in China. Asian manufacturers currently benefit from cost advantages for commodities such as steel and chemicals. Foreign manufacturers also benefit from lenient regulatory climates related to safety and environmental matters.

During 2008, we have seen a distinct decline in the imports of low-priced innersprings since the Department of Commerce (in January) initiated anti-dumping investigations on innerspring imports from China, South Africa, and Vietnam. In February, the International Trade Commission issued an affirmative preliminary injury determination, and on July 31, the Department of Commerce (DOC) announced preliminary duty rates on innersprings imported from these three countries. On October 15, the DOC announced

Recent Market Conditions

Management continues to monitor our financial position, results of operations, cash flows and liquidity in light of the recent distress in the financial and credit markets, including general U.S. and global economic conditions. We continue to assess the impact, if any, of recent market developments including:
(i) our customers' and suppliers' ability to obtain financing or generate cash flows necessary for them to conduct business; (ii) the funded status, required contributions or expense associated with our defined benefit plans; (iii) the realization of deferred tax assets dependent upon the amount and source of future taxable income; (iv) changes in the fair value of cash equivalents, short-term investments and derivative financial instruments; (v) our ability to issue commercial paper or long-term debt and the interest rate at which we are able to borrow; and (vi) positive or negative movements in currency exchange rates against the U.S. dollar.

Asset Impairments and Restructuring-related Charges

In the fourth quarter 2007, we recognized $287.4 million (primarily all non-cash) of impairment and restructuring-related charges associated with the 2007 Strategic Plan. In 2008, we incurred an additional $5.1 million of restructuring-related costs, $25.6 million of goodwill impairment charges, $6.1 million of asset impairment charges, and $4.4 million of losses from sale of assets, all related to the 2007 Strategic Plan. To date, we have incurred total costs of $328.6 million ($151.2 million in continuing operations and $177.4 million in discontinued operations) and anticipate additional charges of approximately $10 million. For further information about restructuring and asset impairments, see Note 4 of the Notes to Consolidated Condensed Financial Statements.

The Company continues to implement various cost reduction initiatives in addition to the 2007 Strategic Plan, and anticipates $15-$20 million of net restructuring-related expenses in the fourth quarter of 2008.

RESULTS OF OPERATIONS

Discussion of Consolidated Results

Third quarter sales of $1.13 billion (from continuing operations) were 3.7% higher than in the third quarter of 2007. Same location sales (sales for locations owned and operated in both the current and prior year periods) improved 4.3%, as inflation-related price increases and market share gains more than offset soft market demand and the Company's decision to exit specific sales volume with unacceptable profit margins.

Earnings for the quarter were $.20 per diluted share. Earnings per share from continuing operations were $.29 per diluted share (which includes restructuring-related costs of $.02 per share, and certain tax items of $.03 per share.) In the third quarter of 2007, earnings per share from continuing operations were $.36. The year-over-year reduction in earnings from continuing operations is primarily due to lower unit volumes and higher LIFO expense.

Loss from discontinued operations in the third quarter of 2008 were $(.09) per share. In the third quarter of 2007, earnings per share from discontinued operations were $.01 per share.

LIFO/FIFO and the Effect of Changing Prices

All of our segments use the first-in, first-out (FIFO) method for valuing inventory. In our consolidated financials, an adjustment is made at the corporate level (i.e. outside the segments) to convert about 60% of our inventories to the last-in, first-out (LIFO) method. Steel price increases in 2008 have been significant; these increases have led to higher LIFO expense. For the full year, we are projecting LIFO expense from continuing operations of $47.0 million. LIFO expense for the nine months ended September 30, 2008 was $34.8 million. Within continuing operations, we recognized $3.6 million in the first quarter, $11.5 million in the second quarter and $19.7 million in the third quarter. Our LIFO estimate for the full year incorporates certain assumptions about year-end steel prices and inventory levels (both are very difficult to accurately predict). Therefore, LIFO expense for the full year could be significantly different from that currently estimated. Any further change in the annual estimate of LIFO expense will be reflected in the fourth quarter. See Note 6 of the Notes to Consolidated Condensed Financial Statements for further discussion of inventories.

Interest and Taxes

Third quarter 2008 interest expense from continuing operations decreased $3.3 million compared to the third quarter of 2007, due primarily to a lower level of term notes as a result of maturities paid in 2007 and 2008. Interest expense for the full year 2008 is expected to be slightly lower than in 2007. Interest income for the full year 2008 is expected to be approximately the same as 2007 amounts.

The reported third quarter consolidated worldwide effective tax rate on continuing operations was 43.5%, compared to 30.7% for the same quarter last year. Approximately two-thirds of the increase was attributable to the establishment of a valuation allowance against certain foreign tax losses for which realization is now uncertain and the write-off of other deferred tax assets. Most of the remaining increase is caused by a greater percentage of our taxable earnings being generated in higher-tax jurisdictions.

Third Quarter Discussion

A description of the products included in each segment, along with segment financial data, appear in Note 10 of the Notes to Consolidated Condensed Financial Statements.

A summary of the segment results from continuing operations for the quarters ended September 30, 2008 and September 30, 2007 are shown in the following tables. Reported amounts for 2007 have been retrospectively adjusted to reflect only continuing operations.

                                                                                         Change in Sales
                                 Three Months ended         Three Months ended                                     % Change in
                                 September 30, 2008         September 30, 2007                                    Same Location
                                       Sales                      Sales                   $             %             Sales
Residential Furnishings         $              580.0       $              567.2       $    12.8         2.3 %               3.1 %
Commercial Fixturing &
Components                                     199.5                      239.3           (39.8 )     (16.6 )             (16.1 )
Industrial Materials                           293.3                      199.3            94.0        47.2                47.1
Specialized Products                           172.0                      173.2            (1.2 )       (.7 )               (.7 )

Total                                        1,244.8                    1,179.0            65.8         5.6
Intersegment sales                            (112.6 )                    (86.8 )         (25.8 )

External sales                  $            1,132.2       $            1,092.2       $    40.0         3.7 %               4.3 %

                                                                                   Change in EBIT                     EBIT Margins*
                                       Three Months          Three Months
                                           ended                 ended                                      Three Months        Three Months
                                       September 30,         September 30,                                      ended               ended
                                           2008                  2007                                       September 30,       September 30,
                                           EBIT                  EBIT              $             %              2008                2007
Residential Furnishings               $          61.8       $          50.0     $   11.8        23.6 %               10.7 %               8.8 %
Commercial Fixturing & Components                 9.2                  19.5        (10.3 )     (52.8 )                4.6                 8.1
Industrial Materials                             34.0                  16.4         17.6       107.3                 11.6                 8.2
Specialized Products                             10.8                  16.9         (6.1 )     (36.1 )                6.3                 9.8
Intersegment eliminations                        (1.0 )                  .1         (1.1 )
Change in LIFO reserve                          (19.7 )                 2.2        (21.9 )

Total                                 $          95.1       $         105.1     $  (10.0 )      (9.5 )%               8.4 %               9.6 %

* Segment margins are calculated on total sales. Overall company margin is calculated on external sales.

Residential Furnishings

Total sales from continuing operations increased $12.8 million, or 2.3%. Same location sales were up 3.1%. Inflation-related price increases and improved market share in U.S. bedding components and furniture components more than offset the weak market demand experienced in many parts of the segment.

EBIT (earnings before interest and income taxes) from continuing operations increased $11.8 million, primarily due to higher sales and operating improvements resulting from past restructuring activities.

Commercial Fixturing & Components

Total sales from continuing operations decreased $39.8 million, or 16.6%. Same location sales declined 16.1%, primarily from reduced capital spending by retailers and our decision in the Store Fixtures business to walk away from sales with unacceptable profit margins.

EBIT from continuing operations decreased $10.3 million, largely due to the sales decrease and higher restructuring-related costs.

Industrial Materials

Total sales increased $94.0 million, or 47.2%, as a result of the pass-through of higher steel costs and increased sales of steel billets. These improvements were partially offset by continued softness in automotive and other end markets.

EBIT increased $17.6 million due to higher sales, including billet sales and operating improvements.

Total sales from continuing operations decreased $1.2 million. Sales growth in the European and Asian automotive markets, as well as machinery, was offset by lower volume in North American automotive and the fleet portion of Commercial Vehicle Products. EBIT from continuing operations decreased $6.1 million, primarily due to higher steel costs and weakness in both the commercial vehicle and North American automotive markets.

Discontinued Operations

Earnings from discontinued operations are presented net of tax on the Consolidated Condensed Statements of Operations.

Losses from discontinued operations in the third quarter of 2008 were $15.7 million. This amount included $21.6 million ($25.6 million pre-tax) related to goodwill and asset impairments, partially offset by a $7.4 million gain after taxes from the completion of four targeted divestitures (Aluminum Products, Wood Products, Plastics and the dealer portion of Commercial Vehicle Products). In the third quarter of 2007, earnings from discontinued operations were $1.6 million.

Nine-Month Discussion

A description of the products included in each segment, along with segment . . .