David M. DeSonier - VP of IR David S.

Haffner - CEO and President Karl G. Glassman - COO and EVP Matthew C.

Flanigan - Sr. VP and CFO

Shawn Harrison - Longbow Research Budd Bugatch - Raymond James Laura Champine - Morgan Keegan John Baugh - Stifel Nicolaus Keith Hughes - SunTrust Robinson Humphrey Beverly J. McKuin - Flippin, Bruce & Porter, Inc.

Allen Zwickler - First Manhattan Co.

Good morning and thank you for taking part in Leggett & Platt second quarter conference call. I am Dave DeSonier, the Vice President of Investor Relations.

With me today are the following: Dave Haffner, who is our CEO and President; Karl Glassman, who is our Chief Operating Officer; Felix Wright, who is Leggett's Chairman of the Board; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations. The agenda for our call this morning is as follows.

Dave Haffner will start with the summary of the major statements we made in yesterday's press release. And then we will add some further comments regarding major strategic initiatives.

Karl Glassman will discuss trends in our various markets. Dave will then address our outlook for the third quarter and the full year.

And finally, the group will answer any questions you have. This conference is being recorded for Leggett & Platt and is copyrighted material.

This call may not be transcribed, recorded or broadcast without our express permission. A replay is available from the IR portion of Leggett's website.

In addition, I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties.

And the company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled forward-looking statements.

I will now turn the call over to Dave Haffner.

Thank you, Dave. Good morning everyone and thank you for participating in our call.

Yesterday, we reported second quarter sales and earnings inline with revised guidance issued June 18th. Total sales for the quarter decreased 3% versus second quarter of 2006.

Organic sales were down 5%, primarily reflecting lower unit volume. Acquisitions contributed 2% to second quarter sales.

Volume was weak during the quarter in most of the U.S. home-related retail, office CD and aluminum markets that we serve.

However, we saw strength in certain international markets as well as machinery. We posted second quarter earnings per share of $0.33, which included as expected a net $0.02 benefit from non-recurring items.

Despite a weaker operating environment, we continue to generate strong cash flow. In May, the Board voted to increase the quarterly dividend to $0.18 per share.

We have also continued with share repurchases. So far this year, we fought back 5.1 million shares of our stock with over 2 million of those shares being purchased near the end of June, at an average price of about $22.

As mentioned last month, we are in the midst of a strategic review of our business portfolio. This current analytical effort grew from a series of internal strategy discussions that began in mid-2006.

In February, Leggett's senior executives and Board of Directors decided to solicit additional insight. As a result, we engaged a premier national strategy consulting firm to provide an independent thorough assessment of Leggett's business units.

We expect this ongoing in-depth review to be completed over the next few months. This current review is broader in scope, more strategic in nature and more long-term oriented than any of our previous activities.

We anticipate a transformation for Leggett & Platt during 2008, as we implement fundamental changes in our businesses. We believe these changes will significantly increase total returns to our shareholders.

We will share additional information about these initiatives in the coming months. Now I'll turn the call over to Karl who will discuss the segments in more detail.

Thank you, Dave. Good morning.

In the Residential Furnishing segment, organic sales decreased in the second quarter, at rates of decline generally consistent with those seen in the first quarter, primarily due to ongoing soft demand in the U.S. residential markets and very strong prior year comps in our Carpet Underlay business.

International demand for both bedding and upholstery furniture components remained strong. EBIT and EBIT margins reflected the soft volume in our U.S.

residential markets as well as operating inefficiencies within our Geo Components business. Demand in the Geo business is ramping up, but has been hindered in part by declines in residential housing development and weather-related factors.

As a result, current volume is not yet at anticipated levels, and therefore is not yet supporting the overhead we put in place. In Commercial Fixturing and Components, organic sales declined in the second quarter, primarily due to lower demand in office furniture components.

Fixture and display volume was roughly flat with second quarter of 2006. The volume decrease in Office Furniture Components reflects broad softness across our customer base during the quarter and generally across all our preceding price points.

EBIT and EBIT margins primarily reflect lower volume. We are extremely disappointed with performance in the Aluminum Product segment.

Organic sales decreased in the second quarter due to movement of customer's barbecue grill manufacturing offshore and lower demand in several markets including small engines, electric motors and appliances. These declines were partially offset by inflation in commodity prices.

Significant declines in EBIT and EBIT margins primarily reflect lower volume and plant utilization. Our Auburn, Alabama facility as well as a few other locations are underperforming our expectations...

in part... due in part to lower market demand.

Some of the additional restructuring costs reflected in our current full year forecast relate to an expected consolidation in this segment. In Industrial Materials, organic sales were down slightly in the second quarter primarily from continued softness in the U.S.

residential markets. These declines were partially offset by inflation in steel prices.

EBIT and EBIT margins improved versus second quarter 2006, in part due to a gain from a small divestiture and earnings from acquired companies. In Specialized Products, organic sales increased in the second quarter reflecting growth in our Asian and European automotive business and continued solid performance in our international machinery operations and a portion of our commercial vehicle products business.

EBIT and EBIT margins improved versus second quarter 2006, reflecting the higher sales and earnings from acquired companies and the absence of last year's restructuring-related cost. These gains were partially offset by currency factors and unacceptable performance at a couple of operations.

And with those comments, I'll turn the call back over to Dave.

Thank you, Karl. As we announced in yesterday's press release, we expect full year sales to decrease approximately 2% compared to last year.

Our full year forecast, which is comprised of 4% organic decline offset by 2% acquisition growth reflects continued market weakness. We have yet to see any significant catalyst that will appreciably increase demand.

This forecast does not include the impact of future acquisitions and divestitures. We estimate full year 2007 earnings of $1.29 to $1.44 per share.

This estimate includes $0.07 of restructuring in the fourth quarter which is a nickel more than was anticipated in our previous guidance, as we more quickly undertake some of the required changes that we have identified. For the third quarter, we expect an approximate 2% sales decrease versus in the third quarter of 2006.

Third quarter earnings should be $0.33 to $0.40 per share. No significant restructuring costs are anticipated in this third quarter estimate.

Profitable growth is our top priority for the use of cash. We also plan to continue increasing our dividend and use excess cash to repurchase shares.

Our use of cash in 2007 has been and will continue to be consistent with these priorities. During 2007, we expect to generate about $650 million of cash, largely from operations but supplemented with proceeds from the Prime Foam divestiture that was completed in March and continued gradual increase in net debt to target levels.

In response to our weaker markets, we've reduced our capital spending expectations by $20 million down to $160 million. Dividends will require about $125 million, remaining cash will be used for acquisitions and share repurchases combined with the amounts for each dependant on the timing of the opportunities.

We are often asked what's different, what changes are being made to drive the company forward? We've talked about these things recently, but they warrant repeating.

We are completely made significant model review; I discussed this earlier in my comments. Its material and its different.

We've increased our focus on product development and added business development directors that are working on organic growth initiatives. These projects have long lead times rather than overnight impact that we believe they will produce significant results.

We are taking a new look at our longstanding incentive programs, arrangements that have been in place for many years and will be making changes to those programs to more effectively reward managers for adding shareholder value. We have a greater willingness to make necessary changes to the portfolio.

Just 90 days ago, we completed the largest divestiture in our history with the sale of our Prime Foam operations. We've had a far more active share repurchase program in recent years.

During this past quarter, we achieved our second highest level of quarterly purchases, buying more than 3 million shares. As significant shareholders ourselves, we are acutely aware of and appreciate our investors' interest in seeing measurable progress.

These are some of the drivers that we believe will make that happen. And with those comments, I will turn the call back over today Dave DeSonier.

That concludes our prepared remarks. We thank you for your attention and we will be glad to answer any of your questions.

In order to allow every one an opportunity to participate, we request that you ask you single best question then voluntarily yield to the next participant. If you have additional questions, please reenter the queue and we will answer all the questions you have.

Mary, we are ready to begin the Q&A.

Hi. Just a quick question for you then a more detailed question; just the tax rate for the remainder of the year as well as the diluted share count you're starting the third quarter with?

Yes. Shaun, from a tax rate perspective, this is Matt; you should assume about 31.5% both in the third quarter and the fourth quarter.

And diluted share count, double D or you may have a guidance on that?

I would guess that it would go down $2 million in the third quarter and $2 million in the fourth. Those are rough, but for modeling its good enough.

Okay. But my question more has to deal with just international expansion as well as you looked, it sounds like restructure the operations pretty significantly in '08.

You are loosing... you are seeing good growth in the international markets.

You are loosing volumes on the aluminum side offshore. Can you do acquisitions while restructuring, especially, internationally expanding the businesses; this is an either or type of proposition.

Restructure only right sized business and leave acquisition until later or can you do both and achieve high levels of success and do it both?

Shawn, we can do both but we are being much more critical of those acquisitions. They will be primarily in areas that we have better insight into the long-term core competencies and fit with the portfolio.

We are not turning acquisition activity totally off, but we are been significantly more critical as we go through this phase.

I guess, the base in my question is, my concern is you continue to look... there is potential for continued losses of business overseas.

Although you miss the opportunity for the better growth in these overseas market because either you don't have the footprint that you'd like overseas or currently or you won't be able to get the footprint because you are focused in on the restructuring.

Well, without... there are a certain things that I cannot say you can appreciate, but I might give you some comfort, it may give you some comfort to know that two of the...

what we believe our very significant opportunities that we're investigating right now in acquisition activities are overseas. There are several others of course, but two of the ones that we see appreciable long-term value, are overseas.

Okay, thank you. I'll circle back later in the call.

Good morning

Hi, Budd.

I am most concerned about residential, which is obviously still the largest segment and an important part. Karl and Dave, can you give us a little more granularity of what's going on in residential and perhaps give us a flavor of that 2% drop in sales for the year, how much will be accounted for by residential at least in your crystal ball if it has any clarity to it?

Yes. Budd, let me break down and give you a better view of this segment.

In terms and what I am giving you is the sales variance second quarter '07 versus second quarter '06 that will give a clear picture. U.S.

spring was off about 5%, International spring was up 14%, wood which is relatively small, was up 3%, adjustables, the consumer side was down 8%, furniture was flat with strength in the international markets offsetting some weakness in domestic. Consumer products was down 12%.

The carpet underlay business was off 18%, indicative of falling selling prices and soft housing demand and our fibers business was off 18% and that's a combination of some changes in our customers down specking. So, people tend to look at our residential business and say that, where we are off is in furniture and bedding and that's not really the case.

With the strength in our international bedding business, we feel pretty good about that. It's those ancillary businesses that are closer to the consumer where we were feeling some softness.

And forward-looking call? What are your --?

We expect continued strength in the furniture side of things, Budd and I believe over the long-term, while the U.S. bedding demand has been very weak since the 4th of July holiday, as the year progresses we are up against softer comps from a pricing standpoint, we would have anniversaried the year ago price reductions to better compete against those lower Chinese prices at the time.

So I don't forecast a softness in the U.S. spring demand from a sales perspective into the future.

But I have got while Karl was speaking I was looking at our forecast, which roll up into these numbers that we give in. Residential collectively for the whole year is going to be about 5.5% down, organically.

That's we were down 4.7% in the first quarter, 7.1% in the second quarter, for the full year we think that's going to be about 5.5%.

So that's about where it was for the first half, right David?

That's correct.

So not much change, you are not seeing much change and in the consumer side of that do you see any improvement or as you went through the second quarter, was there any change month-by-month or period-by-period or is it just --?

Actually Budd, we felt like we were seeing some strength in June and then have seen some relative weakness in the first few weeks of July. So it's hit and miss and it is extremely difficult to predict.

Okay, yes I have heard that story before from you. Karl, I am sorry to say.

I am sorry. I am so consistent.

I am looking for a trend.

So are we.

I think its right, not on the inconsistency side. Thank you very much

Yes thanks.

Good Morning.

Hi Laura.

You mentioned that the aluminum business is underperforming expectations. I am guessing in a number of locations and with the number of customers.

Can you attribute that to one thing or can you talk about generally what the issues are with aluminum and what you might be able to do to increase your margins in that segment, which were really disappointing this quarter?

Laura, we cannot do... this is Karl again.

We can attribute the analysis of the second quarter year-on-year to the loss of that Carrboro [ph] business that went offshore, we certainly told all of you that it was leaning. And in the second quarter of last year, we had the end of that business.

So it made the comp very difficult. So that's the one thing that we can point to in that business is just gone.

So we have to deal with the absence of that business. We've replaced some portion of it, but have not replaced all of it.

The bigger issue right now is macroeconomic issues. It is across the demand cycle or the visibility of that whole business.

Its small engines, it's a little bit of appliance softness. Its new programs that are rolling in that haven't developed any significant traction yet.

And quite frankly, we have two large of a U.S. manufacturing footprint in the aluminum business and we are taking aggressive steps to better utilize our assets.

Yes, Laura we... that's what I was or Karl was referring to earlier in his commentary.

Part of that, additional nickel that we are forecasting is associated with the consolidation initially within that segment. And looking at the revised forecast for third and fourth quarter on margins, we are projecting increased margins in the third quarter and the fourth quarter.

You may recall that the third quarter is always a... or tends to always be a depressed quarter in aluminum because of significant July shutdowns for our customers.

But we should see improved margins in both the third and the fourth. That's not same a heck of a lot when you look at the margin that we posted in the second quarter.

But they are improved significantly.

And Dave, you talk about Q3 being up, you mean sequentially, is that correct, not year-over-year?

Yes.

Okay. Thank you.

I am sorry. Yes, I should have clarified that.

Got it.

Thanks. Good morning.

Hey John.

I want to stick to the residential area, did you say adjustables were down 8% and if so, is that the business that's least partially tied to selling frames to Tempur-Pedic? And then additionally you mentioned the furniture was flat.

I assume you were down domestically and up out of your Asian plants. Can you give us some kind of feel for what a flat revenue in that area mean for profitability given that shift from domestic to offshore?

Thank you.

Okay John. On that adjustable side, yes, there are number of large customers of that business.

Tempur-Pedic as you mentioned is certainly one; Select Comfort is another large customer in that adjustable bed business. We have not lost market share.

We see that indicative of a consumer that is probably a little vary of spending significant dollars on a bedding purchase and we've seen that in some of those select numbers contradicted a little bit by Tempur's release of last night. So it's just...

if we draw a correlate between that adjustable bed demand and our consumer products demand which is bed frame and headboard relate which I said was down 12%. So there is just some tough headwinds there.

I m sorry, what was the other part?

Well, as John was asking is we shift volume from our domestic operations to international operations, what's the effect on our margins?

Sorry about that. John what happened is, as we've said in previous quarters, that we have moved our domestic business...

the business that was produced domestically that we shift to Europe. We transfer that business to our Chinese operations because of a lower cost structure and that's labor-related, but also freight factors from China to Europe versus U.S.

to Europe. So that's been part of that switch.

It is not negative to us from a profitability standpoint. It is neutral.

Thank you

You are welcome

Yes, thank you. I have questions on the strategic initiative that you talked or strategic review you talked about in the release.

The... was this the type of analysis where you had a concern to go business-by-business and talk about or look at where the competitive position, what the future was or specifically what was involved here?

Yes, Keith, it's ongoing but this whole thing started without any input from independent consultants or service providers. And we were significantly through a portfolio review and decided that we would like to get a relevant biased relatively high powered group involved to help us.

The things that it includes some of the things that are included, we are more thoroughly investigating in each unit's long-term growth and profitability profile and then looking at their mid to long-term potential for developing shareholder value or analyzing things that just demographic impacts and international influences. We are being more critical on our pricing protocol and leverage; we are looking at SKU rationalization more than we ever had before.

We are also looking at more critical capital allocation methodologies which are going to be significantly more correlated to returns on investment. We are also as I mentioned, asking them to comment on assisting us and modifying our compensation incentive programs to align them more with return on assets that are deployed in some of initially shareholder value and we will be in the upcoming months identifying possible additional divestiture and consolidation targets and reprioritizing those things that we clearly identify as high growth, long-term parts of our portfolio.

It's a relatively broad and multi-faceted analysis and it's just so important that we felt strongly that we wanted to get objective and unbiased input.

Now you've... even before this, you had announced and looked at divestures a bit, divesting some businesses and closing plants, but this sound significantly larger in scope with the results of this, is that fair to say?

That's fair to say.

Okay. And would we see some sort of announcement over the results of this stage towards the end of the year or this come out sort of piece meal or how is that going to work?

Well, it's likely that you will hear something towards the end of the year, which will be broader in nature and give some of the basic elements of the analysis. The execution plan will be more piece meal.

Okay

But you can expect to hear something towards the end of the year.

Okay. Thank you.

You bet.

Hello Marc. Are you there, Marc?

Keep going Mary.

Just wanted to touch on the office and contract in the fixtures business. Fixtures business is a little bit stronger than I anticipated, if you could just talk through demand trends there then as well as, just demand trends in the second half of the year related to the office and contract.

And then also just additional restructuring, it looks like $0.05 of that $0.07 in the back half of the year is for the aluminum, what is the other two half targeted at... or $0.02 targeted for?

Not all the five, Shawn is aluminum, a piece of it.

Okay.

A piece of it is, but not all of the nickel is. Relative to what --

Shawn, back to the restructuring point; that remaining $0.07 will be split most probably between some continued activity in on a fixture side of the business. Aluminum certainly will be impacted as was specialized.

So it is in primarily in those three segments.

Okay. And the one year pay back in terms of...

what you are looking at?

It will vary by each one of those activities; in some cases, the pay back is instantaneous because it eliminates lack of profitability. I'm not prepared to give you that data yet.

Okay.

We are not far enough along.

There will be handsome paybacks.

Yes.

For those expenses.

With regard to Office and Contract?

Office and Contract was, we hope that the second quarter was an aberration and then that the first quarter was pretty strong year-on-year. Second quarter softened.

June we saw some strength. It's tough to protect that business, it has been moving...

really had solid performance all over the prior two years. So we expect flattish through the rest of the year, but like many of our businesses that there is not a lot of visibility there.

And you asked on the F&D side of things, that we expect good demand there. As you know as we have said in the past, we have picked up some significant business.

But that business is... those businesses are being extremely well run.

We have reduced negative surprises. We have reduced our manufacturing footprint and as long as demand is there, which we forecasted into the future, you should continue to see improved performance.

Okay. Thank you.

Hi, just want to go back on the residential. I know...

and thank you for giving us a kind of the business unit break out of that. But if look at that and try to parch it out, if based upon the way that the groups are about of that then, what you have told us and I just want to confirm that I am right, that bedding overall was down about 2%, furniture down about 4% and then really the bulk of the decline or the biggest percentage of decline was in fabric, foam and fiber group of that?

Is that right Karl?

Your bedding number is right, furniture was flattish.

With consumer with the beds too because the beds were down?

Okay, I don't group it that way. Yes, I just don't look it at that way, but yes with that calculation you are right Budd.

Okay, alright. So really, it is the consumer, it's anything that's close that's to the consumers really given you the biggest problem right now?

Yes, it's the consumer side and then the GO disappointment Budd, and you've done a good job of writing a lie as regards to the weather-related issues you take the slowness in housing development and weather and GO is underperforming our expectation. We got ahead of ourselves in that business in terms of investing in what we still believe to be a high growth area, but our timing probably wasn't real good and our execution hasn't been perfect either.

Got you, okay. Well, that's the way life is.

I mean just --

Seems to be.

If you can start to predict the weather more accurately, another jobs for you.

Thanks Budd.

Thank you. My questions is regarding the fiscal year '07 guidance, just looking at the June 18th guidance versus current guidance, it looks like you narrowed the range a bit and then kind of realized down by $0.02 on the lower end.

I just want to understand, what part of the business that deteriorated further since June 18 that makes you feel compelled that you need to revise down a little bit? Is that across the business or is in particular settlement?

Well, it's relatively broad-based Beverly. We continue to see softness in that demand and looking at the projections here with the exception of aluminum, we expect to see a modest improvement.

And in Specialized Products, we expect to see continued improvement and the other three segments mainly Residential, Commercial and Industrial Materials have softened somewhat.

Okay. Is it especially the first couple of weeks in July that it's worst than last two weeks in June?

Yes, but that's not abnormal. So we bake in a depression in the month of July in several of our business units because our customers have extended, historically have extended shutdowns and what have you?

More customers this year are expanding their shutdowns instead of being down one week, they will be down two or instead of being down two weeks they will be down three. And they don't make those decisions until relatively close to shutdown period.

So July is always a depressed month generally speaking.

Okay, thank you.

You're welcome, Beverly.

Allen, are you there?

Yes, I'm here. Hi how are you?

Good.

I'm not going to ask a weather-related question. Budd certainly love to have the weather, isn't?

Any way, internationally could you just talk about the bedding business, you made mention of some of the growth. But I just would like to get some sense of the size of it, and you talked about it occasionally, where in fact it is geographically, if you could shed a little light on that, just so that we could frame it in terms of how it looks?

Allen, the strength that we've experienced on a year-to-date basis is geographically broad-based. But their strength in Europe, the European economy certainly is stronger than it was a year ago.

It tends to be more Scandinavian than Southern Europe, there is softness in Europe, it's in Spain. We have taken a significant position by deverticalizing the maker-to-user in Brazil.

That business is performing extremely well. The Chinese operations are continuing to show some growth.

A lot of that growth is product that's produced in China, shipped into Australia. So we are seeing piece growth in Australia also, though it certainly is broad-based.

And just sizing... if you don't want to give out by regional, what's the size of the international bedding business these days?

We do not break out sales below the segment level, Allen.

Well, I understand that. But I am just trying to...

and well, when you talk about the robust business versus other businesses that aren't.

It's about.

I think it would be helpful to try to, you know, considering that the U.S. business really has changed quite a bit.

I mean you would have to admit that. I think it would be helpful for us to have a notion as to what's going on in the rest of the world, so I --?

Yes, Allen, that's a legitimate, absolutely legitimate question and we need to give him and the rest of the listeners a feel for the fact that we have a relatively small market share in relatively large markets in Asia which is a developing market and then just a feel for in units if you will, our international unit sales versus our domestic unit sales.

About 44% of our total produced pieces in the world are international.

Okay, so that's fairly substantial then?

Correct.

Okay. So wouldn't that be meaningful enough that you would have to put that into some filing?

I mean I just I don't get what the secret is? I am sorry.

Allen, we are obligated through the SEC rules to report up to segment level and no lower than that.

I see.

So no, we are not obligated in the filings to divulge our sales or profitability in any particular business unit.

But I would like to put a positive spin on that and because we have a relatively significant percentage of European markets. But we have a relatively insignificant percentage or market shares if you want to call it that, of Asian and South American and some other markets.

And so those represent significant opportunities for us and we continue to see improved operating performance, not just unit sales, but operating performance in those markets. And I know you asked specifically about bedding, but I want to seize the opportunity to complement our Automotive Group in that our international automotive business is continuing to gain significant momentum.

And thank goodness if you will, because here in North America, as the automobile demand has suffered, we've seen significant growth in other parts of the world. So we see wonderful opportunity outside the boundaries of the United States and North America.

We have relatively small investments made at this point and part of what you should expect to hear us talk about in the future are carefully placed additional beds around the world, as we gain market share and occasionally move ourself in the supply chain.

Just a final, on an overall basis, are the margins in selling those kinds of products outside the U.S similar or higher or lower than they are in the U.S?

Similar.

Okay. Thank you very much.

We'll just say thank you and we will be talking to you again in another quarter.