Introduction

Leggett & Platt is a Fortune 500, global, multi-industry, diversified manufacturer. We conceive, design and produce a broad variety of engineered components and products that can be found in virtually every home, office, retail store, and automobile. We sell very little product directly to consumers, but instead serve a broad array of manufacturers and retailers. Our products are often hidden within, and vital to, our customers’ products. Key attributes that contribute to our success include: low cost operations, high quality products, vertical integration, innovation, customer service, financial strength, and long-lived relationships with customers. We are North America’s leading independent manufacturer of a) components for residential furniture and bedding; b) retail store fixtures and point of purchase displays; c) components for office furniture; d) non-automotive aluminum die castings; e) drawn steel wire; f) automotive seat support and lumbar systems; and g) bedding industry machinery for wire forming, sewing and quilting.

Our operations are influenced by broad economic factors including interest rates, housing turnover, employment levels, and consumer sentiment, all of which impact consumer spending on durable goods (which drives demand for our components and products). We are also impacted by trends in business capital spending, as about one-third of our sales relates to this segment of the economy. Currently, in 2004, most of these indicators are favorable and improving.

Performance in the remainder of 2004 will continue to be heavily influenced by three factors: the amount of same location sales growth, our degree of success at recovering escalating steel and other raw material costs, and the extent of improvement in our Fixture & Display operations. Management is devoting significant attention to these areas. These factors and others are discussed in detail below.

Results of Operations

Discussion of Consolidated Results

Record quarterly sales of $1.28 billion were 21% higher than in the second quarter of 2003, with acquisitions contributing one-third of the growth. Same location sales increased 14.0%, with approximately half attributable to unit volume gains and half to inflation (primarily in response to higher steel costs). When combined with the 9% advances in both the fourth quarter of 2003 and the first quarter of 2004, same location growth for the last nine months is the strongest since 1994.

Second quarter earnings per diluted share were $.39, an increase of $.15, or 63%, from the $.24 per diluted share attained in the second quarter of 2003. Higher sales, previous consolidation and cost reduction efforts, and recent acquisitions contributed to the increase.

For the first six months of 2004, sales were $2.46 billion, an increase of 18% versus sales of $2.09 billion in the first six months of 2003. Same location sales were up 11.3% year-to-date. Earnings, at $.71 per diluted share, were up 45% from last year’s $.49 per diluted share.

Pretax earnings for the second quarter of 2004 reflect LIFO expense of $23.5 million vs. $1.4 million in the second quarter of 2003. For the first six months of 2004, LIFO expense was $41.0 million, compared to $1.4 million in the same period of 2003. As further discussed in Note 2 of the Notes to Consolidated Condensed Financial Statements, the Company’s quarterly LIFO expense is based on a current estimate of the annual expense expected for the year. This estimated annual expense is allocated proportionally to all interim periods. Steel price increases in the first half of 2004 have been significant and unprecedented, resulting in an estimated LIFO expense for the full year of approximately $82 million. In the first half of 2003, relatively stable prices were estimated for the year (total year LIFO expense for 2003 was $1.8 million). Accurately predicting steel prices for the remainder of 2004 is extremely difficult. Therefore, LIFO expense for the full year of 2004 could be significantly different from that currently estimated. In addition, a variation in expected ending inventory levels could also impact total LIFO expense for the year. Any change in the annual estimate of LIFO expense will be reflected in the estimates for future remaining interim periods of 2004.

During the second quarter the Company completed its annual assessment as required by SFAS No. 142. No goodwill impairments were identified as all Reporting Units’ estimated fair values continue to exceed their recorded net book values, including the Fixture & Display unit. Margins have recently improved for the Fixture & Display unit, as anticipated in the fair value calculations, although continued improvement is required to meet the assumptions underlying the current fair value estimate for this Reporting Unit. Based on its tactical plan for this business, management believes that the future expected improvements in profitability are achievable and no impairment of the $300 million of goodwill for the Fixture & Display Reporting Unit will occur.

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Major Trends and Uncertainties

Assuming the strengthening trend of the economy continues through the second half of the year, we are anticipating full year 2004 same location sales to increase by 8% to 11% compared to an increase of 1.2% in 2003. This expectation is heavily influenced by our strong year-to-date sales, and the increased demand that our markets are currently experiencing. All of the Company’s five segments posted strong sales growth in the second quarter of 2004, with four of the five segments reporting increases in same location sales.

The majority of the inflation the Company is experiencing relates to steel prices, which have escalated dramatically since late 2003. Despite a second quarter decline in scrap prices, market demand pushed average rod and rolled steel prices higher during the quarter to nearly double year-ago levels. Since late 2003, we have implemented selling price increases to pass-along rising steel costs. Those increases continued throughout the second quarter, contributing to year-over-year revenue growth. Management believes that during the first half of 2004, selling price increases offset most of the earnings impact of higher steel costs. Although steel prices for the rest of the year remain uncertain, recent (July) scrap price increases are expected to drive rolled steel and rod prices above current levels during the third quarter. The degree to which the Company is able to mitigate or recover these escalating costs will be a major factor in future results.

In recent years, worldwide steel production capacity declined considerably. Now, with the worldwide demand for steel increasing, supply has tightened dramatically. Although some uncertainty over steel availability exists, we believe we will continue to be able to access sufficient quantities on a timely basis and are better positioned than our competitors to secure supply. Steel scrap and rod represent about 70% of our steel tonnage purchases. This material is converted to wire, which is the raw material used by many of our operations. Approximately half of the steel rod we use comes from our own mill, helping ensure supply. In addition, our financial strength and purchasing leverage are advantages many of our competitors don’t enjoy.

In some markets, our customers are moving their production from the U.S. to other countries. In order to remain a reliable and cost competitive supplier, we have and will continue to establish operations in new regions of the world. Generally, we can produce components at a lower cost in the U.S. However, the transportation and other logistical benefits of being in-country with our customers usually more than offset the production cost differences. Currently, the largest international influence on our markets is China. At June 30, 2004, Leggett operated eight Chinese facilities. In addition to our own facilities in China, we have strong relationships with many Asian suppliers.

With our international expansion has come an increased exposure to foreign currencies. As a result, significant changes in foreign currency exchange rates can have a material impact on reported earnings and financial position. Leggett currently utilizes derivative instruments to hedge certain individually identified transactions and only a modest amount of net investment exposure.

EBIT (earnings before interest and income taxes) improved significantly in the Commercial Fixturing and Components segment during the second quarter of 2004, despite slightly lower same location sales. Margins grew to 6.8% versus 2.9% a year ago. These gains are due in part to steps taken under our October 2003 tactical plan to improve the financial performance of our Fixture & Display operations, a major component of this segment. Steps taken under the plan include standard costing reviews and price increases where necessary, reduction of overheads and headcount, cost reductions with vendors, management changes in certain operations, and close scrutinization of capacity utilization and scheduling optimization. We continue to believe in the long-term attractiveness of the Fixture and Display business, and are progressing toward the double-digit margin targets we expect to achieve when market demand strengthens.

Additional comments regarding these recent trends are included in the Discussion of Segment Results that follows.

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Discussion of Segment Results

A description of the products included in each segment, along with segment financial data, appear in Note 7 of the Notes to Consolidated Condensed Financial Statements. Individual segment EBIT is presented using the FIFO inventory method, and, therefore, does not reflect LIFO inventory charges of $23.5 million and $41.0 million, respectively, for the three months and six months ended June 30, 2004 (for 2003, three month and six month LIFO charges were $1.4 million). Following is a comparison of EBIT margins (Segment EBIT divided by Segment Total Sales):

Second Quarter Discussion

Residential Furnishings

Total sales increased 17.2%, or $90.6 million, including a same location sales increase of 13.3%. Worldwide innerspring unit sales were up slightly based on strength in international markets. Unit sales growth in mechanisms for upholstered furniture increased significantly during the quarter. Our strong performance in upholstered furniture over the past three years has resulted from growing share with domestic producers, growing international demand, and a trend to incorporate motion features into more lines of furniture. Our prime foam and carpet underlay operations posted double-digit growth this quarter versus a year ago. These improvements primarily reflect new specialty foam product introductions and market share gains. EBIT increased $24.4 million, or 52.2%, with gains arising from higher sales, prior cost reduction and plant consolidation efforts, and improved overhead recovery (due to higher manufacturing levels). These gains were partially offset by modest restructuring expenses.

The Company acquired one business during the second quarter that designs, produces, and sources comforters, pillows, and other “top-of-the-bed” accessories, and should add approximately $12 million in annual revenues to this segment.

Commercial Fixturing & Components

Total sales increased 21.2%, or $46.9 million, entirely from acquisitions. Same location sales declined .3%. Volume was down slightly in our Fixture & Display operations. Retailer spending has not shown much improvement, and our outlook for the balance of the year is for flat to slightly positive volume. Demand for office furniture components improved modestly during the quarter. The recovery in this market is expected to be gradual, and the past year has seen stable to improving results for most of these businesses. EBIT nearly tripled, from $6.4 million last year to $18.2 million this year, as improvements arising from the tactical plan, and non-recurrence of last year’s inventory adjustments were partially offset by a small restructuring charge.

Aluminum Products

Total sales increased $21.9 million, or 18.2%, solely from increased same location sales. Most of the sales growth was volume related, as inflation has been modest in this segment, and has been passed along to customers. Much of the segment’s growth over the past year has come through new programs for producers of motorcycles, small engines, and large appliances, among others. Barbecue grill volumes declined versus last year, but new opportunities in other markets have helped replace the volume. Higher sales led to an EBIT increase of $4.7 million, or 50.0%.

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Industrial Materials

Total sales increased $72.2 million, or 54.3%, solely from same location sales increases (largely resulting from inflation in steel prices). Higher production, improved overhead recovery, full utilization of the Sterling rod mill (versus last year’s ramp up), and an above average spread between the selling price of steel rod and the cost of scrap, (which benefited the rod mill) contributed to an EBIT improvement of $27.8 million.

We believe the spreads reflected in the first half results are not sustainable in the long-term. In fact, we have already seen these spreads narrow in July as scrap prices have increased back to first quarter levels or above.

Specialized Products

Total sales increased $21.0 million, or 16.8%. Same location sales increased 8.7%, primarily due to higher unit volumes in our machinery operations. Machinery demand is strong this year, as many bedding manufacturers who have delayed spending the past three years are placing orders for new equipment. The Company acquired one business during the second quarter, a small German manufacturer of specialty sewing machines that should add approximately $4 million to annual sales in this segment.

Our automotive sales are roughly flat when compared to last year. Production levels by the major auto-makers declined in the second quarter due to weaker market demand. Industry production levels for the remainder of the year are expected to be slightly below last year’s levels. Despite the market declines, we expect our volume to remain steady due to new programs and increased product placement over the past year.

EBIT increased 8.7%, or $1.3 million, with sales-related gains partially offset by higher raw material costs and a small restructuring charge.

Six-Month Discussion

Residential Furnishings

Total sales increased 15.5%, or $163.4 million. Same location sales increased 11.8%, and were augmented by acquisitions. Demand improved across most business units, with bedding components and mechanisms for upholstered furniture posting the greatest year-over year growth. Inflation and currency factors also contributed to the sales increase. EBIT increased $44.6 million, or 46.5%, with gains arising from higher sales, prior cost reduction and plant consolidation efforts, and improved overhead recovery (due to higher manufacturing levels). These gains were partially offset by modest restructuring expenses and the impact of a weaker U.S. dollar.

Commercial Fixturing & Components

Total sales increased 20.1%, or $85.3 million, entirely from recent acquisitions, as same location sales were flat. EBIT nearly doubled, from $12.3 million last year to $24.3 million this year, as improvements arising from the Fixture & Display tactical plan and non-recurrence of last year’s inventory adjustments were partially offset by impacts from currency rates, higher raw material prices, and restructuring costs.

Aluminum Products

Total sales increased $29.3 million or 11.8%, solely from increased same location sales. Higher sales, partially offset by a change in product mix, led to an EBIT increase of $5.6 million, or 24.5%.

Industrial Materials

Total sales increased $96.5 million, or 34.5%, solely from same location sales increases (again largely resulting from inflation in steel prices). Higher sales and production, improved overhead recovery, full utilization of the Sterling rod mill, and an above average second quarter rod-to-scrap price spread contributed to an EBIT improvement of $39.3 million.

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Specialized Products

Total sales increased $37.2 million, or 15.7%. Same location sales increased 9.8%, primarily due to higher unit volumes. EBIT increased 4.5%, or $1.2 million, with sales-related gains partially offset by higher raw material costs and the effect of currency rates. The Company acquired two businesses during the first quarter that produce automotive seating components. These companies are expected to add about $32 million to segment revenue on an annual basis.

Capital Resources and Liquidity

We have sufficient capital resources to meet both our current operating needs and to support current plans for organic growth and acquisitions. We attempt to achieve a balance between debt and equity, striving to minimize the total cost of capital, without excessive leverage. Leggett maintains a target for long-term debt of 30-40% of total capitalization. At June 30, 2004, net debt to total capitalization was 22.9%

Short-term Liquidity

We rely on cash flow from operations as our primary source of capital. In 2003 we took advantage of historically low interest rates by issuing fixed rate debt with maturities of 10 and 15 years. As a result, cash and equivalents have increased to a level that provides adequate liquidity to finance ongoing operations, pay down debt maturing in the near term, and fund current growth requirements.

Cash provided by operating activities was $171.8 million in the first six months of 2004, compared to $123.5 million in the first six months of 2003. The increase in cash provided by operating activities primarily reflects increased earnings and smaller increases in working capital.

Total working capital increased in the first six months of 2004, primarily due to higher accounts receivable, which increased due to strong sales during the first half of the year, and higher inventory levels. These increases were partially offset by increased payables and other current liabilities. Working capital levels relative to sales vary by segment, with Aluminum Products and Commercial Fixturing & Components requirements being higher than Company averages. Accounts receivable balances in these two segments are typically higher due to the longer credit and collection time required to service certain customers of the Aluminum Die Casting and Fixture & Display businesses. These same businesses also require higher inventory investments due to the custom nature of their products, longer manufacturing lead times (in certain cases), and the need of many customers to receive large volumes of product within short periods of time.

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This next table shows the calculation of long-term debt as a percent of total capitalization, net of cash and including current maturities, at June 30, 2004 and December 31, 2003. We believe that adjusting this measure for cash and current maturities more appropriately reflects financial leverage, as it is the Company’s practice and intent to utilize excess cash to repay debt and to refinance remaining current maturities, if any, on a long-term basis. These adjustments also enable meaningful comparisons to historical periods. Prior to 2003, current debt maturities and cash balances were much smaller.

Total debt decreased $30.2 million from year-end 2003, primarily due to the maturity of $24.0 million in medium-term notes during the second quarter of 2004. During the first quarter of 2004, $350 million in medium-term notes, due February 2005, were reclassified from long-term debt to current maturities. Unamortized gain and favorable market adjustment on interest rate swap agreements totaling $12.6 million and $23.1 million are included in June 30, 2004 current debt maturities and in December 31, 2003 long-term debt, respectively.

Obligations having scheduled maturities are the primary source of Leggett’s debt capital. At the end of the second quarter of 2004, these obligations consisted primarily of medium-term notes totaling $1,001.5 million due at various dates through 2018. Our public debt currently carries a Moody’s rating of A2 and a Standard & Poor’s rating of A+. We have maintained an ‘A’ rating on our debt for over a decade.

Leggett also has debt capital available through a $300 million commercial paper program supported by $340 million in revolving credit commitments. Leggett has had no commercial paper outstanding since February 2002. To further facilitate the issuance of debt capital, $150 million remains available under our $500 million shelf registration. We believe that we have sufficient unused committed credit to ensure that future capital resources are adequate for our ongoing operations and growth opportunities.

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Uses of Capital Resources

The Company’s investments to modernize and expand manufacturing capacity totaled $72.9 million in the first six months of 2004. For the year, management anticipates capital spending will approximate $135 million, excluding acquisitions, primarily for maintaining and expanding production capacity.

During the second quarter, we completed two acquisitions totaling $5.7 million that should contribute about $16 million to annual revenues. There were no divestitures during the quarter. During the first six months of 2004, we have completed five acquisitions totaling $32.6 million.

Cash dividends on the Company’s common stock were $54.1 million during the first six months of 2004. Our long-term dividend payout target is approximately one-third of the prior three-years’ average earnings. Calculated in the same manner as our target, the dividend payout was 51.3% in 2003, 43.7% in 2002, and 38.8% in 2001. As earnings recover, we expect to move back toward the 30-35% dividend payout target.

Company purchases of its common stock (net of issuances) totaled $31.7 million in the first six months of 2004. These purchases were made primarily to replace shares issued in employee stock plans.

In February, the Board of Directors authorized management to buy 2 million shares of the Company’s stock for use in employee benefit plans or for other uses. This authorization is replenished as shares are reissued. Management was also authorized to repurchase shares issued in acquisition transactions. In addition, at the end of the third quarter 2000, the Board authorized management to repurchase up to an additional 10 million shares. The Board had continued this authorization through September 27, 2004. As of June 30, 2004, we had acquired approximately 3.1 million shares under this authorization.

At the August 4, 2004 Board meeting, the above authorizations were replaced with a single repurchase authorization giving management the authority to repurchase 10 million shares each calendar year beginning January 1, 2005, and the authority to repurchase 10 million shares minus the shares previously repurchased by the Company from January 1 to August 3 of this year for the remainder of calendar 2004. A specific repurchase schedule has not been established under the authorization. The amount and timing of repurchases will depend upon the economic and market conditions, acquisition activity and other factors.

Derivative Instruments, Hedging Activities and Related Risks

Interest Rates

The Company’s debt obligations represent its only significant exposure to changes in interest rates. During 2000, $350 million of 7.65% fixed coupon rate debt maturing in February 2005 and, in 1999, $14 million of 6.90% fixed rate debt maturing in June 2004 were issued and converted to variable rate debt by use of interest rate swap agreements. These swap agreements, which contain the same payment dates as the original issues, were used primarily by the Company to manage the fixed/variable interest rate mix of its debt portfolio. In March 2003, the Company sold its rights under the $350 million interest rate swap agreement for $39.9 million, which is being amortized over the remaining period of the related debt. In June 2004, both the $14 million in fixed rate debt and the related swap agreement matured as scheduled.

Substantially all of the Company’s debt is denominated in United States dollars. The fair value for fixed rate debt was greater than its carrying value by $1.3 million as of June 30, 2004, and by $14.3 million at December 31, 2003. The fair value of fixed rate debt was calculated using the U.S. Treasury Bond rate as of June 30, 2004 and December 31, 2003 for similar remaining maturities, plus an estimated “spread” over such Treasury securities representing the Company’s interest costs under its medium-term note program. The fair value of variable rate debt is not significantly different from its recorded amount.

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Exchange Rates

The Company does not hedge all net foreign currency exposures related to transactions denominated in other than the associated functional currencies. The Company may occasionally hedge firm specific commitments or other anticipated cash flows in foreign currencies. The decision by management to hedge any such transactions is made on a case-by-case basis.

The amount of forward contracts outstanding at June 30, 2004 was approximately $14.1 million ($12.9 million Pay USD/Receive MXN; and $1.2 million Pay GBP/Receive USD) and primarily hedge forecasted inventory production and acquisition costs.

The Company views its investment in foreign subsidiaries as a long-term commitment. The investment in a foreign subsidiary may take the form of either permanent capital or notes. The Company’s net investment (i.e., total assets less total liabilities subject to translation exposure) in foreign subsidiaries was $718.4 million at June 30, 2004, compared to $712.7 million at March 31, 2004 and $636.5 million at December 31, 2003. The increase in net investment during the second quarter was due primarily to increased capital contributions to certain subsidiaries in Mexico, Western Europe and Asia, partially offset by a general weakening of Canadian, certain European, Mexican and other currencies against the U.S. dollar.

In December 2003, the Company entered into a 38.3 million Swiss Francs (CHF) five-year cross-currency swap agreement with Wachovia Bank, N.A. This agreement is designated as a net investment hedge. The purpose of this swap is to hedge CHF denominated assets, thereby reducing exposure to volatility in the exchange rate. In addition, the terms of this agreement include that the Company will receive interest on $30 million USD at a fixed rate of 6.35% and pay interest on 38.3 million CHF at a fixed rate of 4.71%.

During the second quarter of 2004, the Company paid interest of $0.4 million on the CHF portion and received interest of $0.5 million on the USD portion of the agreement. At June 30, 2004, the market value loss on the cross-currency swap was approximately $1.4 million.

Commodity Prices

The Company does not generally use derivative commodity instruments to hedge its exposures to changes in commodity prices. However, the Company has in the past, and may in the future, hedge its purchases of natural gas. While the Company hedged approximately 50% of its total monthly natural gas purchases for the six months ended June 30, 2004, no natural gas contracts remained outstanding as of June 30, 2004.

Forward-Looking Statements and Related Matters

This report and our other public reports or statements made from time to time may contain “forward-looking” statements concerning possible future events, objectives, strategies, trends or results. These statements are identified either by the context in which they appear or by use of words such as “anticipate,” “believe,” “estimate,” “expect,” or the like.

Any forward-looking statement reflects only the beliefs of the Company or its Management at the time the statement is made. Because all forward-looking statements deal with the future, they are subject to risks, uncertainties and developments which might cause actual events or results to differ materially from those envisioned or reflected in any forward-looking statement. Moreover, we do not have, and do not undertake, any duty to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement was made. For all of these reasons, forward-looking statements should not be relied upon as a prediction of actual future events, objectives, strategies, trends or results.

It is not possible to anticipate and list all risks, uncertainties and developments which may affect the future operations or performance of the Company, or which otherwise may cause actual events or results to differ from forward-looking statements. However, some of these risks and uncertainties include the following: