UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 2006

Commission File Number 1-9608

NEWELL RUBBERMAID INC.

(Exact name of registrant as specified in its charter)

DELAWARE		36-3514169
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

10 B Glenlake Parkway, Suite 300
Atlanta, Georgia 30328
(Address of principal executive offices)
(Zip Code)

(770) 407-3800
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ          No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ          Accelerated Filer o          Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No þ

Number of shares of common stock outstanding (net of treasury shares) as of June 30, 2006: 276.9 million.

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in millions, except per share data)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net sales		$	1,696.8			$	1,548.6			$	3,102.1			$	2,811.1
Cost of products sold			1,122.4				1,063.2				2,087.2				1,974.1
GROSS MARGIN			574.4				485.4				1,014.9				837.0
Selling, general and administrative expenses			353.6				292.9				678.0				560.7
Impairment charges			—				31.4				—				31.4
Restructuring costs			19.8				0.3				43.3				6.8
OPERATING INCOME			201.0				160.8				293.6				238.1
Nonoperating expenses:
Interest expense, net			35.6				31.1				69.3				61.9
Other expense, net			1.0				2.2				3.7				0.4
Net nonoperating expenses			36.6				33.3				73.0				62.3
INCOME BEFORE INCOME TAXES			164.4				127.5				220.6				175.8
Income taxes			28.7				40.1				(33.9	)			(7.9	)
INCOME FROM CONTINUING OPERATIONS			135.7				87.4				254.5				183.7
Loss from discontinued operations, net of tax			(16.2	)			(21.2	)			(80.2	)			(80.9	)
NET INCOME		$	119.5			$	66.2			$	174.3			$	102.8
Weighted average shares outstanding:
Basic			274.6				274.4				274.5				274.4
Diluted			283.6				274.7				283.5				274.7
Earnings (loss) per share:
Basic —
Income from continuing operations		$	0.49			$	0.32			$	0.93			$	0.67
Loss from discontinued operations			(0.06	)			(0.08	)			(0.29	)			(0.29	)
Earnings per common share		$	0.44			$	0.24			$	0.63			$	0.37
Diluted —
Income from continuing operations		$	0.49			$	0.32			$	0.92			$	0.67
Loss from discontinued operations			(0.06	)			(0.08	)			(0.28	)			(0.29	)
Earnings per common share		$	0.43			$	0.24			$	0.64			$	0.37
Dividends per share		$	0.21			$	0.21			$	0.42			$	0.42

See Footnotes to Consolidated Financial Statements (Unaudited).

NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in millions)

		June 30,				December 31,
		2006				2005
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	116.3			$	115.5
Accounts receivable, net			1,157.5				1,107.7
Inventories, net			967.8				825.1
Deferred income taxes			131.8				109.8
Prepaid expenses and other			96.6				105.7
Current assets of discontinued operations			209.4				209.0
TOTAL CURRENT ASSETS			2,679.4				2,472.8
PROPERTY, PLANT AND EQUIPMENT, NET			832.4				911.8
DEFERRED INCOME TAXES			—				38.0
GOODWILL			2,420.0				2,304.4
OTHER INTANGIBLE ASSETS, NET			415.7				401.7
OTHER ASSETS			188.2				185.3
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS			—				132.5
TOTAL ASSETS		$	6,535.7			$	6,446.5

See Footnotes to Consolidated Financial Statements (Unaudited).

NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts in millions, except par value)

		June 30,				December 31,
		2006				2005
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	634.8			$	617.9
Accrued compensation			130.2				144.0
Other accrued liabilities			667.1				685.9
Income taxes payable			11.3				82.6
Notes payable			20.9				4.0
Current portion of long-term debt			408.6				162.8
Current liabilities of discontinued operations			77.3				100.3
TOTAL CURRENT LIABILITIES			1,950.2				1,797.5
LONG-TERM DEBT			2,245.6				2,429.7
DEFERRED INCOME TAXES			32.1				—
OTHER NONCURRENT LIABILITIES			579.9				570.1
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS			—				6.0
STOCKHOLDERS’ EQUITY:
Common stock, authorized shares, 800.0 at $1.00 par value			290.4				290.2
Outstanding shares:
2006 — 290.4
2005 — 290.2
Treasury stock, at cost;			(411.6	)			(411.6	)
Shares held:
2006 — 15.7
2005 — 15.7
Additional paid-in capital			472.7				453.0
Retained earnings			1,596.2				1,538.3
Accumulated other comprehensive loss			(219.8	)			(226.7	)
TOTAL STOCKHOLDERS’ EQUITY			1,727.9				1,643.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	6,535.7			$	6,446.5

See Footnotes to Consolidated Financial Statements (Unaudited).

NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)

		Six Months Ended June 30,
		2006				2005
OPERATING ACTIVITIES:
Net income		$	174.3			$	102.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			105.1				105.8
Deferred income taxes			10.7				12.2
Impairment charges — Continuing operations			—				31.4
Impairment charges — Discontinued operations			50.9				—
Noncash restructuring costs			26.3				1.1
Loss (gain) on sale of assets/debt extinguishment			2.5				(4.3	)
Stock-based compensation expense			15.4				2.9
Loss on disposal of discontinued operations			2.9				63.2
Other			(6.7	)			(6.8	)
Changes in current accounts excluding the effects of acquisitions:
Accounts receivable			(28.5	)			(24.3	)
Inventories			(127.0	)			(104.4	)
Accounts payable			8.7				(52.5	)
Accrued liabilities and other			(151.7	)			(69.6	)
Discontinued operations			9.2				34.4
NET CASH PROVIDED BY OPERATING ACTIVITIES			92.1				91.9
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired			(46.3	)			(35.0	)
Capital expenditures			(57.2	)			(46.0	)
Disposals of noncurrent assets and sale of businesses			40.2				22.1
NET CASH USED IN INVESTING ACTIVITIES			(63.3	)			(58.9	)
FINANCING ACTIVITIES:
Proceeds from issuance of debt			167.2				131.7
Payments on notes payable and long-term debt			(82.0	)			(335.7	)
Cash dividends			(116.4	)			(115.8	)
Proceeds from exercised stock options and other			2.3				—
NET CASH USED IN FINANCING ACTIVITIES			(28.9	)			(319.8	)
Exchange rate effect on cash and cash equivalents			0.9				(6.6	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			0.8				(293.4	)
Cash and cash equivalents at beginning of year			115.5				505.6
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	116.3			$	212.2

See Footnotes to Consolidated Financial Statements (Unaudited).

NEWELL RUBBERMAID INC. AND SUBSIDIARIES
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Footnote 1 — Basis of Presentation and Significant Accounting Policies

The accompanying unaudited consolidated financial statements of Newell Rubbermaid Inc. (collectively with its subsidiaries, the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of only normal recurring accruals, considered necessary for a fair presentation of the financial position and the results of operations. It is suggested that these unaudited consolidated financial statements be read in conjunction with the financial statements and the footnotes thereto included in the Company’s latest Annual Report on Form 10-K.

Seasonal Variations: The Company’s sales and operating income in the first quarter are generally lower than any other quarter during the year, driven principally by reduced volume and the mix of products sold in the quarter.

Stock-Based Compensation: Effective January 1, 2006, the Company adopted the provisions of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), using the modified prospective method and therefore has not restated results for prior periods. Under this transition method, stock-based compensation expense for 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, “Accounting for Stock-Based Compensation.” Stock-based compensation expense for all awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provision of SFAS 123(R). The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award, which is generally five years for stock options and three years for restricted stock. Prior to the adoption of SFAS 123(R), the Company recognized stock-based compensation expense by applying the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). See Footnote 12 to the Consolidated Financial Statements (Unaudited) for further discussion on stock-based compensation.

Recent Accounting Pronouncement: In July 2006, the FASB issued Interpretation 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements. The interpretation would require a review of all tax positions accounted for in accordance with FASB Statement No. 109 and apply a more-likely-than-not recognition threshold. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Subsequent recognition, derecognition, and measurement is based on management’s best judgment given the facts, circumstances and information available at the reporting date. The guidance is effective for fiscal years beginning after December 15, 2006, which we intend to adopt on January 1, 2007. We do not expect the adoption of this statement to have a material effect on our financial position or results of operation.

Reclassifications: Certain amounts in prior years have been reclassified to conform to the current year presentation and to reflect the results of discontinued operations. See Footnote 3 for a discussion of discontinued operations.

Footnote 2 — Acquisition of Business

On November 23, 2005, the Company acquired DYMO, a global leader in designing, manufacturing and marketing on-demand labeling solutions, from Esselte AB (“Esselte”). The Company preliminarily allocated the purchase price of $706 million to the identifiable assets and liabilities. As of June 30, 2006, the Company had not yet settled

contractually the final purchase price adjustments with Esselte. The purchase price allocation was based on management’s estimate using the assistance of appraisals at the date of acquisition as follows (in millions):

Current assets		$	30.2
Property, plant & equipment			21.8
Goodwill			623.4
Other intangible assets			109.1
Other assets			2.3
Total assets		$	786.8
Current liabilities		$	35.9
Deferred income taxes			41.7
Other noncurrent liabilities			3.2
Total liabilities		$	80.8

The preliminary allocation of the purchase price resulted in the recognition of $623.4 million of goodwill primarily related to the anticipated future earnings and cash flows of the DYMO business including the estimated effects of the integration of this business into the Office Products segment. The transaction resulted in the recognition of $109.1 million in intangible assets consisting primarily of customer lists, patents, and trademarks. Approximately $76.1 million were indefinite-lived intangible assets related to trademarks and $33.0 million related to finite-lived intangible assets that will be amortized over periods of 3 to 10 years.

The transaction summarized above was accounted for as a purchase and the results of operations are included in the Company’s Consolidated Financial Statements since the acquisition date. The acquisition costs were allocated to the fair value of the assets acquired and liabilities assumed.

The unaudited consolidated results of operations on a pro forma basis, as though the 2005 acquisition of DYMO had been completed on January 1, 2005, are as follows: (in millions, except per share amounts):

		Three Months				Six Months
		Ended				Ended
		June 30, 2005				June 30, 2005
Net sales		$	1,603.9			$	2,925.3
Income from continuing operations		$	91.0			$	193.5
Net income		$	69.8			$	112.6
Basic earnings per share
Income from continuing operations		$	0.33			$	0.71
Net income		$	0.25			$	0.41
Diluted earnings per share
Income from continuing operations		$	0.33			$	0.70
Net income		$	0.25			$	0.41

These pro forma financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of synergies that are expected to result from integration.

Footnote 3 — Discontinued Operations

The following table summarizes the results of the discontinued operations for the three and six months ended June 30, (in millions):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net sales		$	78.9			$	140.8			$	158.4			$	308.9
Loss from operations of discontinued operations, net of income tax expense of $2.1 for each of the three months ended June 30, 2006 and 2005, and $2.7 and $3.6 for the six months ended June 30, 2006 and 2005, respectively		$	(14.9	)		$	(6.9	)		$	(77.3	)		$	(17.7	)
Loss on disposal of discontinued operations, net of income tax benefit of $0.4 for the three and six months ended June 30, 2006 and zero for the three and six months ended June 30, 2005			(1.3	)			(14.3	)			(2.9	)			(63.2	)
Loss from discontinued operations, net of tax		$	(16.2	)		$	(21.2	)		$	(80.2	)		$	(80.9	)

No amounts related to interest expense have been allocated to discontinued operations.

2006

In June 2006, the Company’s Board of Directors committed to a plan to sell the Home Décor Europe business. The business designs, manufactures and sells drapery hardware and window treatments in Europe under Gardinia^® and other local brands. The Company is currently in negotiations with prospective buyers. The Company has not entered into any definitive agreement, and any intended sale would be subject to receipt of all applicable regulatory approvals, including consultation proceedings with works councils, trade unions and employee representatives in the affected countries. In the first quarter of 2006, the Company began exploring various options for certain businesses in the Home Fashions segment and obtained a better indication of the businesses’ fair value and determined that these businesses had a net book value in excess of their estimated fair value. Due to the apparent decline in value, the Company conducted an impairment test in the first quarter and recorded a $50.9 million impairment charge to write-off the goodwill of the businesses. The impairment charge is recorded in the loss from operations of discontinued operations for the six months ended June 30, 2006. The intended sale of Home Décor Europe would not affect the Company’s North American window furnishings business.

In October 2005, the Company entered into an agreement for the intended sale of its European Cookware business. The Company completed this divestiture on January 1, 2006. This business included the brands Pyrex^® (used under exclusive license from Corning Incorporated and its subsidiaries in Europe, the Middle East and Africa only) and Vitri^® and was previously included in the Company’s Other segment.

2005

In January 2005, the Company entered into an agreement for the intended sale of the Company’s Curver business. In June 2005, the Company completed the sale of its Curver business. The Curver business included the Company’s European indoor organization and home storage division and was previously reported in the Cleaning & Organization segment.

In connection with this transaction, the Company recorded a total non-cash loss related to the sale of $62.0 million, including a $15.0 million loss recorded in the second quarter of 2005. The non-cash loss is reported in the table above as the loss on disposal of discontinued operations.

Footnote 4 — Impairment Charges

In the second quarter of 2005, the Company committed to the disposal of a business in the Cleaning & Organization segment and recognized an impairment charge of $31.4 million in order to state the assets of this business at their estimated fair values. In the third and fourth quarters of 2005, the Company revised its estimate related to the fair value of this business after winning several line reviews with a key retailer and reversed the full amount of the

impairment charge. In the fourth quarter of 2005, the Company changed its decision to dispose of this business as a result of the aforementioned line review wins and the identification of significant productivity opportunities.

Footnote 5 — Restructuring Costs

In the third quarter of 2005, the Company announced a global initiative referred to as Project Acceleration aimed at strengthening and transforming the Company’s portfolio. In connection with Project Acceleration, the Board of Directors of the Company approved a three-year restructuring plan (“the Plan”) that commenced in the fourth quarter of 2005. The Plan is designed to reduce manufacturing overhead to achieve best cost positions, and to allow the Company to increase investment in new product development, brand building and marketing. The Plan includes the closure of approximately one-third of the Company’s 80 manufacturing facilities (as of September 2005), optimizing the Company’s geographic manufacturing footprint. During the first six months of 2006, the Company announced the closure of 15 manufacturing facilities. Through June 30, 2006, the Company has approved approximately $125 million in restructuring actions related to Project Acceleration and recorded $94.6 million of costs. The Company expects the remaining costs, primarily severance, associated with plans approved as of June 30, 2006, to be recorded during the third quarter.

The Plan is expected to result in cumulative restructuring costs totaling between $350 million and $400 million ($295 million — $340 million after tax), with between $150 million and $180 million ($130 million — $155 million after tax) to be incurred in 2006. Approximately 60% of the costs are expected to be cash. Annualized savings are projected to exceed $120 million upon conclusion of the program in 2008 with expected savings of approximately $50 million in 2007.

The table below shows the restructuring costs recognized for restructuring activities for the following periods (in millions):

		Three				Six
		Months Ended				Months Ended
		June 30, 2006				June 30, 2006
Facility and other exit costs		$	11.9			$	25.7
Employee severance and termination benefits			6.7				15.4
Exited contractual commitments and other			1.2				2.2
Restructuring costs		$	19.8			$	43.3

The facility and other exit costs are primarily related to the impairment of assets associated with vacated facilities and future minimum lease payments.

A summary of the Company’s restructuring reserves related to the Plan for the six months ended June 30, 2006, is as follows (in millions):

Balance as of January 1,		$	—
Restructuring costs (provision)			43.3
Costs incurred			(34.7	)
Balance as of June 30,		$	8.6

A summary of the Company’s restructuring reserves for the pre-Acceleration restructuring activities (see the Company’s Form 10-K for the fiscal year ended December 31, 2005 for further information) for the six months ended June 30, 2005 is as follows (in millions):

Balance as of January 1,		$	24.7
Restructuring costs (provision)			6.8
Costs incurred			(16.8	)
Balance as of June 30,		$	14.7

Restructuring provisions were determined based on estimates prepared at the time the restructuring actions were approved by management and are periodically updated for changes, and also include amounts recognized as incurred. Cash paid for restructuring activities was $8.1 million and $5.8 million for the three months ended June 30, 2006 and 2005, respectively. Cash paid for restructuring activities was $11.9 million and $16.4 million for the six months ended June 30, 2006 and 2005, respectively.

The following table depicts the changes in accrued restructuring reserves for the Plan for the six months ended June 30, aggregated by reportable business segment (in millions):

		12/31/05								Costs				6/30/06
Segment		Balance				Provision				Incurred				Balance
Cleaning & Organization		$	—			$	16.1			$	(13.9	)		$	2.2
Office Products			—				3.8				(1.6	)			2.2
Tools & Hardware			—				4.0				(2.3	)			1.7
Home Fashions			—				3.0				(2.8	)			0.2
Other			—				15.9				(13.7	)			2.2
Corporate			—				0.5				(0.4	)			0.1
		$	—			$	43.3			$	(34.7	)		$	8.6

Footnote 6 — Inventories

Inventories are stated at the lower of cost or market value. The components of inventories, net of LIFO reserves, were as follows (in millions):

		June 30,				December 31,
		2006				2005
Materials and supplies		$	202.7			$	171.0
Work in-process			176.7				171.5
Finished products			588.4				482.6
		$	967.8			$	825.1

Footnote 7 — Long-Term Debt

The following is a summary of long-term debt (in millions):

		June 30,				December 31,
		2006				2005
Medium-term notes		$	1,475.0			$	1,475.0
Commercial paper			270.0				202.0
Preferred debt securities			450.0				450.0
Junior convertible subordinated debentures			436.7				436.7
Terminated interest rate swaps			18.1				24.8
Other long-term debt			4.4				4.0
Total Debt			2,654.2				2,592.5
Current portion of long-term debt			(408.6	)			(162.8	)
Long-Term Debt		$	2,245.6			$	2,429.7

Footnote 8 — Employee Benefit and Retirement Plans

The following table presents the components of the Company’s pension cost (benefit) for the three months ended June 30, (in millions):

		United States								International
		2006				2005				2006				2005
Service cost-benefits earned during the period		$	0.8			$	0.5			$	1.9			$	2.1
Interest cost on projected benefit obligation			12.8				12.9				6.1				6.0
Expected return on plan assets			(14.9	)			(16.2	)			(6.1	)			(5.5	)
Amortization of:
Prior service cost			0.3				0.3				—				—
Actuarial loss			1.9				1.2				1.2				1.0
Curtailment & special termination benefit gains			—				0.2				—				—
Net pension cost (benefit)		$	0.9			$	(1.1	)		$	3.1			$	3.6

The following table presents the components of the Company’s pension cost (benefit) for the six months ended June 30, (in millions):

		United States								International
		2006				2005				2006				2005
Service cost-benefits earned during the period		$	1.5			$	0.9			$	3.7			$	4.2
Interest cost on projected benefit obligation			25.6				25.8				12.0				12.2
Expected return on plan assets			(29.8	)			(32.3	)			(12.0	)			(11.1	)
Amortization of:
Prior service cost			0.6				0.5				—				—
Actuarial loss			3.9				2.5				2.4				2.0
Curtailment & special termination benefit gains			—				(16.2	)			—				—
Net pension cost (benefit)		$	1.8			$	(18.8	)		$	6.1			$	7.3

Effective December 31, 2004, the Company froze its defined benefit pension plan for its entire non-union U.S. workforce. As a result of this curtailment, the Company reduced its pension obligation by $50.3 million and recorded a curtailment gain related to negative prior service cost of $15.8 million in the first quarter of 2005. The Company replaced the defined benefit pension plan with an additional defined contribution plan, whereby the Company will make additional contributions to the Company sponsored employees’ profit sharing plan. The Company recorded $5.2 million and $4.4 million in expense for the defined contribution plan for the three months ended June 30, 2006 and 2005, respectively. The Company recorded $10.5 million and $9.9 million in expense for the defined contribution plan for the six months ended June 30, 2006 and 2005, respectively. During the first quarter of 2006, the Company paid $20.9 million to fund the prior year liability associated with the defined contribution plan.

The following table presents the components of the Company’s other postretirement benefits expense for the three and six months ended June 30, (in millions):

		Three Months Ended June 30,								Six Months Ended June 30,
		2006				2005				2006				2005
Service cost-benefits earned during the year		$	0.6			$	0.9			$	1.2			$	1.9
Interest cost on projected benefit obligation			2.5				3.7				5.0				7.5
Amortization of prior service cost			(0.6	)			(0.1	)			(1.2	)			(0.3	)
Actuarial loss			—				0.3				—				0.5
Net other postretirement benefits expense		$	2.5			$	4.8			$	5.0			$	9.6

Footnote 9 — Income Taxes

In the second quarter of 2006, the Company determined that it would be able to utilize certain capital loss carryforwards that it previously believed would expire unused. Accordingly, the Company reversed an income tax valuation reserve of $22.7 million.

During the first quarter of 2006, the Company completed the reorganization of certain legal entities in Europe which resulted in the recognition of an income tax benefit of $78.0 million.

In January 2005, the Company reached agreement with the Internal Revenue Service (IRS) relating to the appropriate treatment of a specific deduction included in the Company’s 2003 U.S. federal income tax return. The Company requested accelerated review of the transaction under the IRS’ Pre-Filing Agreement Program that resulted in an affirmative resolution in late January 2005. As a result, the Company recorded a $58.6 million benefit in income taxes in the first quarter of 2005.

Footnote 10 — Earnings per Share

The calculation of basic and diluted earnings per share for the three and six months ended June 30, is shown below (in millions, except per share data):

		Three Months Ended June 30,								Six Months Ended June 30,
		2006				2005				2006				2005
Numerator for basic earnings per share:
Income from continuing operations		$	135.7			$	87.4			$	254.5			$	183.7
Loss from discontinued operations			(16.2	)			(21.2	)			(80.2	)			(80.9	)
Net income for basic earnings per share		$	119.5			$	66.2			$	174.3			$	102.8
Numerator for diluted earnings per share:
Income from continuing operations		$	135.7			$	87.4			$	254.5			$	183.7
Effect of convertible preferred securities (2)			3.6				—				7.1				—
Income from continuing operations for diluted earnings per share			139.3				87.4				261.6				183.7
Loss from discontinued operations			(16.2	)			(21.2	)			(80.2	)			(80.9	)
Net income for diluted earnings per share		$	123.1			$	66.2			$	181.4			$	102.8
Denominator:
Denominator for basic earnings per share — weighted-average shares			274.6				274.4				274.5				274.4
Dilutive securities (1)			0.7				0.3				0.7				0.3
Convertible preferred securities (2)			8.3				—				8.3				—
Denominator for diluted earnings per share			283.6				274.7				283.5				274.7
Basic earnings (loss) per share:
Earnings from continuing operations		$	0.49			$	0.32			$	0.93			$	0.67
Loss from discontinued operations			(0.06	)			(0.08	)			(0.29	)			(0.29	)
Earnings per share		$	0.44			$	0.24			$	0.63			$	0.37
Diluted earnings (loss) per share:
Earnings from continuing operations		$	0.49			$	0.32			$	0.92			$	0.67
Loss from discontinued operations			(0.06	)			(0.08	)			(0.28	)			(0.29	)
Earnings per share		$	0.43			$	0.24			$	0.64			$	0.37

Footnote 11 — Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is recorded within stockholders’ equity and encompasses foreign currency translation adjustments, gains/(losses) on derivative instruments and minimum pension liability adjustments.

The following table displays the components of accumulated other comprehensive loss (in millions):

		Foreign				After-tax				After-tax				Accumulated
		Currency				Derivatives				Minimum				Other
		Translation				Hedging				Pension				Comprehensive
		Gain				Gain (Loss)				Liability				Loss
Balance at December 31, 2005		$	12.8			$	6.8			$	(246.3	)		$	(226.7	)
Current year change			16.8				(9.9	)			—				6.9
Balance at June 30, 2006		$	29.6			$	(3.1	)		$	(246.3	)		$	(219.8	)

Comprehensive income amounted to the following for the three and six months ended June 30, (in millions):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net income		$	119.5			$	66.2			$	174.3			$	102.8
Foreign currency translation gain (loss)			7.8				(46.3	)			16.8				(69.6	)
After-tax derivatives hedging (loss) gain			(10.9	)			8.0				(9.9	)			12.5
Comprehensive income		$	116.4			$	27.9			$	181.2			$	45.7

Footnote 12 — Stock-Based Compensation

The Company offers stock-based compensation to its employees that include stock options and restricted share awards as follows:

Stock Options

The Company’s stock plans include plans adopted in 1993 and 2003. The Company issues both non-qualified and incentive stock options at exercise prices equal to the Company’s common stock price on the date of grant with contractual terms of ten years that generally vest over five years.

Restricted Stock

Restricted stock awards are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to vesting. The awards generally cliff-vest three years from the date of grant. Prior to vesting, ownership of the shares cannot be transferred. The restricted stock has the same dividend and voting rights as the common stock. The Company expenses the cost of these awards ratably over the vesting period.

Prior to January 1, 2006, the Company accounted for stock-based compensation under the recognition and measurement provisions of APB 25. Under APB 25, the Company generally recognized compensation expense only for restricted stock. The Company recognized the compensation expense associated with the restricted stock ratably over the associated service period.

Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R), using the modified prospective method, and therefore has not restated the results of prior periods. Under this transition method, stock-based compensation expense for 2006 includes (i) compensation expense for all stock-based compensation awards granted

prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (ii) compensation expense for all share-based payment awards granted after January 1, 2006 based on estimated grant-date fair values. Compensation expense is adjusted for estimated forfeitures and is recognized on a straight-line basis over the requisite service period of the award, which is generally five years for stock options and three years for restricted stock. The Company estimated future forfeiture rates based on its historical experience during the preceding fiscal years.

The table below highlights the expense related to share-based payments for the following periods:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Stock options		$	4.4			$	—			$	8.4			$	—
Restricted shares			4.1				1.6				7.0				2.9
Stock-based compensation		$	8.5			$	1.6			$	15.4			$	2.9
Stock-based compensation, net of income tax benefit		$	5.8			$	1.1			$	10.6			$	2.0

In 2006, the Company modified its stock-based compensation by expanding the number of employees receiving restricted shares. The net impact was to reduce the amount of annual options granted and increase the annual restricted stock awards. For the year ending December 31, 2006, the Company expects to recognize approximately $20 million to $25 million, pre-tax, in additional stock-based compensation expense over 2005 as a result of the adoption of SFAS 123(R) and the modification of its stock-based compensation plan described above.

The following table is a reconciliation of the Company’s net income and earnings per share to pro forma net income and pro forma earnings per share as if the Company had adopted the provisions of SFAS No. 123 with respect to options granted under the Company’s stock option plans during the following periods (in millions, except per share data):

		Three Months				Six Months
		Ended				Ended
		June 30, 2005				June 30, 2005
Net income:
As reported		$	66.2			$	102.8
Fair value option expense, net of income taxes			(2.8	)			(5.6	)
Pro forma		$	63.4			$	97.2
Basic earnings per share:
As reported		$	0.24			$	0.37
Pro forma		$	0.23			$	0.35
Diluted earnings per share:
As reported		$	0.24			$	0.37
Pro forma		$	0.23			$	0.35

The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted-average fair values for the periods below:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Weighted-average fair value of grants		$	8			$	6			$	7			$	6
Risk-free interest rate			5.1	%			3.9	%			4.7	%			3.9	%
Dividend yield			3.0	%			3.0	%			3.0	%			3.0	%
Expected volatility			33	%			33	%			33	%			33	%
Expected life (in years)			6.5				6.5				6.5				6.5

The Company utilized its historic experience to estimate the expected life of the options and volatility.

The following summarizes the changes in the number of shares of common stock under option for the six months ended June 30, 2006 (shares in millions):

																		Weighted
																		Average
						Weighted								Weighted				Remaining				Aggregate
						Average								Average				Contractual				Intrinsic
						Exercise								Exercise				Term				Value
		Shares				Price				Exercisable				Price				(in years)				(in millions)
Outstanding at December 31, 2005			13.2			$	27				5.8			$	29				6.9
Granted			2.8				24
Exercised			(0.2	)			23
Canceled / expired			(0.9	)			27
Outstanding at June 30, 2006			14.9			$	26				7.1			$	28				7.0			$	19
Vested and expected to vest at June 30, 2006			13.6			$	26												7.0			$	17
Exercisable at June 30, 2006																			5.3			$	6

The following table summarizes the changes in the number of shares of restricted stock for the period ended June 30, 2006 (shares in millions):

						Weighted-
						average grant
		Shares				date fair value
Outstanding at December 31, 2005			1.0			$	23
Granted			1.4				24
Vested			—				—
Canceled			(0.1	)			(24	)
Outstanding at June 30, 2006			2.3			$	24
Vested and expected to vest at June 30, 2006			1.9			$	24

The following table summarizes the Company’s total unrecognized compensation cost related to stock-based compensation as of June 30, 2006 (in millions):

		Unrecognized				Weighted Average
		Compensation				Period Expense
		Cost				Recognition (in months)
Stock options		$	48.8				27
Restricted stock			38.4				17
Total		$	87.2

Footnote 13 — Industry Segments

The Company’s reporting segments reflect the Company’s focus on building large consumer brands, promoting organizational integration, achieving operating efficiencies in sourcing and distribution, and leveraging our understanding of similar consumer segments and distribution channels. The Company aggregates certain of its operating segments into five reportable segments. The reportable segments are as follows:

Segment		Description of Products
Cleaning & Organization		Material handling, cleaning, refuse, indoor/outdoor organization, home storage, food storage
Office Products		Ballpoint/roller ball pens, markers, highlighters, pencils, correction fluids, office products, art supplies, on-demand labeling products
Tools & Hardware		Hand tools, power tool accessories, manual paint applicators, cabinet, window and convenience hardware, propane torches, solder
Home Fashions		Drapery hardware, window treatments
Other		Operating segments that do not meet aggregation criteria with other operating segments, including premium cookware and related kitchenware, hair care accessory products, infant and juvenile products, including toys, high chairs, car seats, strollers and play yards

In the first quarter of 2006, the Company updated its segment reporting to reflect the realignment of certain European businesses, previously reported in the Cleaning & Organization segment, now reported in the Other segment for all periods presented. The decision to realign these businesses, which include the European Little Tikes and Graco businesses, is consistent with the Company’s move from a regional management structure to a global business unit structure. Management measures segment profit as operating income of the business. The Company’s segment results are as follows (in millions):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net Sales (1)
Cleaning & Organization		$	403.3			$	365.1			$	736.4			$	665.4
Office Products			579.1				495.5				969.9				828.3
Tools & Hardware			328.8				315.5				605.6				591.9
Home Fashions			106.6				115.0				223.2				212.7
Other			279.0				257.5				567.0				512.8
		$	1,696.8			$	1,548.6			$	3,102.1			$	2,811.1
Operating Income (2)
Cleaning & Organization		$	42.9			$	23.1			$	64.2			$	35.6
Office Products			99.9				98.9				132.2				132.4
Tools & Hardware			53.8				49.3				86.9				76.0
Home Fashions			14.4				8.0				31.5				10.3
Other			29.8				22.9				59.7				41.2
Corporate (3)			(20.0	)			(9.7	)			(37.6	)			(19.2	)
Impairment Charges (4)			—				(31.4	)			—				(31.4	)
Restructuring Costs (5)			(19.8	)			(0.3	)			(43.3	)			(6.8	)
		$	201.0			$	160.8			$	293.6			$	238.1

		June 30,				December 31,
Identifiable Assets		2006				2005
Cleaning & Organization		$	717.9			$	737.4
Office Products			1,325.0				1,020.0
Tools & Hardware			750.4				735.1
Home Fashions			145.1				179.6
Other			410.0				446.9
Corporate (6)			2,977.9				2,986.0
Discontinued Operations			209.4				341.5
		$	6,535.7			$	6,446.5

Geographic Area Information

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net Sales
United States		$	1,262.0			$	1,167.0			$	2,326.7			$	2,121.7
Canada			110.4				95.8				193.8				168.0
North America			1,372.4				1,262.8				2,520.5				2,289.7
Europe			219.7				188.9				389.0				346.1
Central and South America			59.8				59.7				107.1				101.2
All other			44.9				37.2				85.5				74.1
		$	1,696.8			$	1,548.6			$	3,102.1			$	2,811.1
Operating Income (7)
United States		$	134.4			$	115.0			$	204.7			$	179.0
Canada			25.7				18.6				38.3				29.3
North America			160.1				133.6				243.0				208.3
Europe			24.4				10.7				30.5				8.6
Central and South America			6.4				8.5				2.6				8.1
All other			10.1				8.0				17.5				13.1
		$	201.0			$	160.8			$	293.6			$	238.1

Footnote 14 — Contingencies

The Company is involved in legal proceedings in the ordinary course of its business. These proceedings include claims for damages arising out of use of the Company’s products, allegations of infringement of intellectual property, commercial disputes and employment related matters, as well as environmental matters. Some of the legal

proceedings include claims for punitive as well as compensatory damages, and a few proceedings purport to be class actions.

Although management of the Company cannot predict the ultimate outcome of these legal proceedings with certainty, it believes that the ultimate resolution of the Company’s legal proceedings, including any amounts it may be required to pay in excess of amounts reserved, will not have a material effect on the Company’s financial statements.

In the normal course of business and as part of its acquisition and divestiture strategy, the Company may provide certain representations and indemnifications related to legal, environmental, product liability, tax or other types of issues. Based on the nature of these representations and indemnifications, it is not possible to predict the maximum potential payments under all of these agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements did not have a material effect on the Company’s business, financial condition or results of operation.

Footnote 15 — Subsequent Event

In July 2006, the Company approved a restructuring plan as part of Project Acceleration to shut down a manufacturing facility in the Office Products segment subject to receipt of all applicable regulatory approvals, including consultation proceedings with works council. The production will be outsourced to third party suppliers. The plan is expected to result in a pre-tax charge of between $25 and $30 million, primarily related to severance. The Company plans to exit the facility by the end of the fourth quarter of 2006.

Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company remains committed to investing in strategic brands and new product development, strengthening its portfolio of businesses, reducing its supply chain costs and streamlining non-strategic selling, general and administrative expenses (SG&A). The Company will continue to make investments in advertising, promotion, new product development and brand building activities in its “Invest” businesses, which encompass the Company’s high-potential, high margin brands, while taking action to improve profitability in “Fix” businesses, which encompass many of the Company’s low margin product lines.

The Company defines Invest businesses as those having high margin opportunity and the ability to generate growth through innovative new products and investments in brand building and marketing. Invest businesses are generally meeting or exceeding the Company’s minimum financial targets and collectively generate above average operating income margins. Fix businesses are characterized by the Company as having various challenges and unacceptable profitability. Management’s primary focus for Fix businesses is to take actions to improve profitability significantly. Currently, the Company classifies Rubbermaid Home Products, Home Fashions and Little Tikes as Fix businesses.

In late February 2006, a revised strategy and key imperatives were communicated to the Company’s management team. The tenets of the strategy include building large brands that are important to consumers (“Brands That Matter^TM”), creating scale advantages through horizontal integration, commercializing innovation across the enterprise and creating a structure for business globalization.

Consumer-Meaningful Brands: The Company is moving from its historical focus on creating competitive advantage in manufacturing and distributing products, to excellence in innovating and marketing brands. Consumer meaningful brands create more value than products alone, and big brands provide the Company with the economies of scale that can be leveraged in today’s marketplace. In the current year, the Company has made incremental strategic investments in advertising, promotion and research and development, particularly on brands like Calphalon^®, Graco^®, Goody^®, LENOX^®, IRWIN^®, Sharpie^® and DYMO^®, increasing the investment in strategic SG&A from approximately 4.0% of sales in 2005 to 5.5% of sales in 2006. The integration of DYMO into the office products business remains on schedule and the Company is pleased with its performance. The Company also initiated a consulting and training partnership with one of the largest worldwide creative and media agencies. The objective is to create best–in-class branding capabilities across the Company. The first step is to understand the brand vitality of the Company’s 16 largest brands using a common set of metrics. The Company will then integrate this understanding into its ongoing processes for product innovation, competitive analysis, strategic planning and brand marketing.

Horizontal Integration: The Company is exploring ways to best leverage its common functional capabilities such as Human Resources, Information Technology, Supply Chain and Finance to improve efficiency and reduce costs. This broad reaching initiative already includes projects such as the corporate consolidation of the distribution and transportation function, and aggregating Company-wide purchasing efforts including both direct and indirect materials and services. During the current year, the Company also streamlined the structure of its Tools & Hardware segment to create a more effective organization and leverage scale efficiencies. The Company also accelerated the process of creating shared services for the European businesses and is evaluating expanding the scope of shared services in the United States. The most important benefit of horizontal integration is that the cost savings from these initiatives will free up money for investment in innovation and brand building.

Invest in Innovation: The Company has broadened its definition of innovation beyond product invention. The Company will define innovation as the successful commercialization of invention. Innovation must be more than product development. It is a rigorous process that permeates the entire development cycle. It begins with a deep understanding of how consumers interact with the Company’s brands and categories, and all the factors that drive their purchase decisions and in-use experience. That understanding must then be translated into products that deliver unique features and benefits, at a best-cost position, providing the consumer with great value. Lastly, understanding how and where to create awareness and trial, and measuring the effectiveness of advertising and

promotion spending, completes the process. The Company has pockets of excellence using this expanded definition of innovation, and it will continue to build on this competency.

Globalization: The Company is expanding from a U.S.-centric business model to one that includes international growth as an increasing focus. The Company is working hard to get the structure right for the future. For example, the Office Products businesses have been reorganized to operate across product lines that can target global consumer acceptance. In the current year, the Company also aligned the Graco and Little Tikes businesses under a global business unit structure, reporting under the Home & Family Products group (included in the “Other” segment), rather than by geographic location. This realignment positions the businesses to leverage research and development, branding, marketing and innovation on a global basis.

2006 will be a transformational year for the Company, on the multi-year journey to becoming an integrated, innovative branding and marketing company. The Company is making the necessary investments now for the long-term success of its business.

Results of Operations

The following table sets forth for the periods indicated items from the Consolidated Statements of Operations as a percentage of net sales (in millions, except percentages):

		Three Months Ended June 30,																Six Months Ended June 30,
		2006								2005								2006								2005
Net sales		$	1,696.8				100.0	%		$	1,548.6				100.0	%		$	3,102.1				100.0	%		$	2,811.1				100.0	%
Cost of products sold			1,122.4				66.1				1,063.2				68.7				2,087.2				67.3				1,974.1				70.2
Gross margin			574.4				33.9				485.4				31.3				1,014.9				32.7				837.0				29.8
Selling, general and administrative expenses			353.6				20.8				292.9				18.9				678.0				21.9				560.7				19.9
Impairment charges			—				—				31.4				2.0				—				—				31.4				1.1
Restructuring costs			19.8				1.2				0.3				—				43.3				1.4				6.8				0.2
Operating income			201.0				11.8				160.8				10.4				293.6				9.5				238.1				8.5
Nonoperating expenses:
Interest expense, net			35.6				2.1				31.1				2.0				69.3				2.2				61.9				2.2
Other expense, net			1.0				0.1				2.2				0.1				3.7				0.1				0.4				—
Net nonoperating expenses			36.6				2.2				33.3				2.2				73.0				2.4				62.3				2.2
Income from continuing operations before income taxes			164.4				9.7				127.5				8.2				220.6				7.1				175.8				6.3
Income taxes			28.7				1.7				40.1				2.6				(33.9	)			(1.1	)			(7.9	)			(0.3	)
Income from continuing operations			135.7				8.0				87.4				5.6				254.5				8.2				183.7				6.5
Loss from discontinued operations, net of tax			(16.2	)			(1.0	)			(21.2	)			(1.4	)			(80.2	)			(2.6	)			(80.9	)			(2.9	)
Net income		$	119.5				7.0	%		$	66.2				4.3	%		$	174.3				5.6	%		$	102.8				3.7	%

Three Months Ended June 30, 2006 vs. Three Months Ended June 30, 2005

Consolidated Operating Results:

Net sales for the three months ended June 30, 2006 were $1,696.8 million, representing an increase of $148.2 million, or 9.6%, from $1,548.6 million in the comparable quarter of 2005. Excluding sales related to the DYMO acquisition, sales were up $88 million, or 5.7%, driven by core sales increases and favorable pricing. Positive currency translation improved sales by 0.6% in the quarter.

Excluding the sales from the DYMO acquisition, the Company’s Invest businesses generated a 4.9% improvement in sales for the second quarter of 2006 versus the comparable quarter of 2005, led by double-digit growth in the Calphalon, Goody, and IRWIN and LENOX branded tools businesses, as well as mid single-digit growth in Office Products and Rubbermaid Commercial.

Net sales of the businesses the Company classifies as Fix realized an 8.7% increase as double-digit growth in the Rubbermaid Home Products and Little Tikes businesses was partially offset by lower sales in the North American Window Fashions business.

Gross margin, as a percentage of net sales, in the second quarter of 2006 was 33.9%, or $574.4 million, versus 31.3%, or $485.4 million, in the comparable quarter of 2005. The increase in gross margin was the result of strong productivity, favorable pricing, and favorable mix, more than offsetting the impact of raw material inflation.

SG&A expenses in the second quarter of 2006 were 20.8% of net sales, or $353.6 million, versus 18.9%, or $292.9 million, in the comparable quarter of 2005. Approximately one-half of the increase is related to the impact of acquisitions and expensing stock options. The primary drivers of the remaining increase were the additional strategic advertising and promotion investment in the Calphalon, Graco, Rubbermaid Food Service, and Office Products businesses and other variable expenses associated with the increased sales and operating performance of the Company.

The Company recorded $19.8 million in restructuring charges related to Project Acceleration in the quarter. The Company has announced the closure of 15 manufacturing facilities since the plan’s inception. The Company continues to expect cumulative pre-tax charges of $350 to $400 million, approximately 60% of which are expected to be cash charges, over the life of the initiative. Annualized savings are projected to exceed $120 million upon completion of the project with an approximate $50 million benefit expected in 2007 and the remainder in 2008. See Footnote 5 to the Consolidated Financial Statements (Unaudited) for further information on these restructuring costs.

Operating income in the second quarter of 2006 was $201.0 million, or 11.8% of net sales, versus $160.8 million, or 10.4%, in the comparable quarter of 2005. The change in operating income is the result of the factors described above.

Net nonoperating expenses in the second quarter of 2006 were 2.2% of net sales, or $36.6 million, versus 2.2% of net sales, or $33.3 million, in the comparable quarter of 2005. The increase in net nonoperating expenses is primarily attributable to an increase in net interest expense as a result of borrowings to fund the DYMO acquisition and rising interest rates.

The effective tax rate was 17.5% in the second quarter of 2006 versus 31.5% in the second quarter of 2005. In the second quarter of 2006, the Company determined that it would be able to utilize certain capital loss carryforwards that it previously believed would expire unused. Accordingly, the Company reversed a $22.7 million income tax valuation reserve.

Income from continuing operations for the second quarter of 2006 was $135.7 million, compared to $87.4 million in the second quarter of 2005. Diluted earnings per share from continuing operations were $0.49 in the second quarter of 2006 compared to $0.32 in the second quarter of 2005.

The loss from discontinued operations, net of tax, was $16.2 million and $21.2 million for the three months ended June 30, 2006 and 2005, respectively. The loss on disposal of discontinued operations for the second quarter of 2006 was $1.3 million, net of tax, compared to $14.3 million, net of tax, in the second quarter of 2005. The loss from operations of discontinued operations for the second quarter of 2006 was $14.9 million, net of tax, compared to $6.9 million, net of tax, in the second quarter of 2005. In the second quarter, the Company’s Board of Directors committed to a plan to sell its Home Décor Europe business. As a result, the business is reported in discontinued

operations for all periods presented. The business, which was previously reported in the Home Fashions segment, contributed approximately $375 million of revenue in 2005. Discontinued operations for the three months ended June 30, 2005 also include the results of the European Cookware business, which was divested January 1, 2006. Diluted loss per share from discontinued operations was $0.06 in the second quarter of 2006 compared to $0.08 in the second quarter of 2005. See Footnote 3 to the Consolidated Financial Statements (Unaudited) for further information.

Net income for the second quarter of 2006 was $119.5 million, compared to $66.2 million in the second quarter of 2005. Diluted earnings per share were $0.43 in the second quarter of 2006 compared to $0.24 in the second quarter of 2005.

Business Group Operating Results:

Net sales by reportable segment were as follows for the three months ended June 30, (in millions, except percentages):

		2006				2005				% Change
Cleaning & Organization		$	403.3			$	365.1				10.5	%
Office Products			579.1				495.5				16.9
Tools & Hardware			328.8				315.5				4.2
Home Fashions			106.6				115.0				(7.3	)
Other			279.0				257.5				8.3
Total Net Sales (1)		$	1,696.8			$	1,548.6				9.6	%

Operating income (loss) by segment was as follows for the three months ended June 30, (in millions, except percentages):

		2006				2005				% Change
Cleaning & Organization		$	42.9			$	23.1				85.7	%
Office Products			99.9				98.9				1.0
Tools & Hardware			53.8				49.3				9.1
Home Fashions			14.4				8.0				80.0
Other			29.8				22.9				30.1
Corporate Costs (2)			(20.0	)			(9.7	)			(106.2	)
Impairment Charges (3)			—				(31.4	)
Restructuring Costs (4)			(19.8	)			(0.3	)			(6,500.0	)
Total Operating Income (5)		$	201.0			$	160.8				25.0	%

Cleaning & Organization

Net sales for the second quarter of 2006 were $403.3 million, an increase of $38.2 million, or 10.5%, from $365.1 million in the second quarter of 2005, driven by double-digit growth in Rubbermaid Home Products and mid single-digit growth in Rubbermaid Commercial Products. The second quarter sales growth in the Rubbermaid Home Products business benefited from relatively easy comparisons as sales in the second quarter of 2005 were suppressed by product line exits and pricing actions required to offset raw material inflation. During the second half and fourth

quarter of 2005, Rubbermaid Home Products sales were favorably impacted by holiday promotions, which will affect second half and full year over year sales growth for this business.

Operating income for the second quarter of 2006 was $42.9 million, or 10.6% of sales, an increase of $19.8 million, or 85.7%, from $23.1 million in the second quarter of 2005. The increase in operating income is a result of the sales increase and productivity, partially offset by raw material inflation and higher SG&A.

Office Products

Net sales for the second quarter of 2006 were $579.1 million, an increase of $83.6 million, or 16.9%, from $495.5 million in the second quarter of 2005, benefiting primarily from the effect of the DYMO acquisition. From a product line perspective, double-digit growth in markers and growth in everyday writing were partially offset by declines in coloring and office organization.

Operating income for the second quarter of 2006 was $99.9 million or 17.3% of sales, an increase of $1.0 million, or 1.0%, from $98.9 million in the second quarter of 2005. The additional income from the DYMO acquisition was offset by increased SG&A investment, restructuring related inefficiencies and acquisition integration costs.

Tools & Hardware

Net sales for the second quarter of 2006 were $328.8 million, an increase of $13.3 million, or 4.2%, from $315.5 million in the second quarter of 2005, driven by double-digit growth in the IRWIN and LENOX branded tools businesses.

Operating income for the second quarter of 2006 was $53.8 million, or 16.4% of sales, an increase of $4.5 million, or 9.1%, from $49.3 million in the second quarter of 2005. Operating income increased as a result of the increased sales volume and productivity initiatives, partially offset by additional SG&A investment and raw material inflation.

Home Fashions

Net sales for the second quarter of 2006 were $106.6 million, a decrease of $8.4 million, or 7.3%, from $115.0 million in the second quarter of 2005. The decrease was due to the timing of first half shipments. This segment posted double-digit growth in the first quarter.

Operating income for the second quarter of 2006 was $14.4 million, or 13.5% of sales, an increase of $6.4 million, or 80.0%, from $8.0 million in the second quarter of 2005. The increase in operating income was the result of strong productivity partially offset by the sales decline.

Other

Net sales for the second quarter of 2006 were $279.0 million, an increase of $21.5 million, or 8.3%, from $257.5 million in the second quarter of 2005, driven by double-digit growth in the Calphalon and Goody businesses.

Operating income for the second quarter of 2006 was $29.8 million or 10.7% of sales, an increase of $6.9 million, or 30.1%, from $22.9 million in the second quarter of 2005. Driving the favorability was the increase in sales and productivity, partially offset by increased SG&A investment.

Six Months Ended June 30, 2006 vs. Six Months Ended June 30, 2005

Consolidated Operating Results:

Net sales for the six months ended June 30, 2006 were $3,102.1 million, representing an increase of $291.0 million, or 10.4%, from $2,811.1 million in the comparable period of 2005. Excluding sales related to the DYMO acquisition, sales were up $175 million, or 6.2%, with the Company’s Invest businesses generating a 4.9% improvement in sales, excluding sales resulting from the DYMO acquisition, for the first six months of 2006 versus

the comparable period of 2005, and the Company’s Fix businesses increasing net sales by 10.8% in the first six months of 2006 versus the comparable period of 2005.

Gross margin, as a percentage of net sales, in the six months ended June 30, 2006 was 32.7%, or $1,014.9 million, versus 29.8%, or $837.0 million, in the comparable period of 2005. The increase in gross margin is a result of productivity, favorable pricing, and favorable mix, partially offset by the impact of raw material inflation.

SG&A expenses in the first six months of 2006 were 21.9% of net sales, or $678.0 million, versus 19.9%, or $560.7 million, in the comparable period of 2005. The primary drivers of the increase were the additional strategic advertising and promotional investments in the Rubbermaid Commercial and Food Products, Tools & Hardware, Calphalon, Graco and Office Products businesses, the impact of the DYMO acquisition, the expense related to stock option accounting, and the non-recurring pension curtailment benefit recognized in 2005.

In the first six months of 2006, the Company recorded $43.3 million in restructuring costs related to Project Acceleration. The Company announced the closure of 15 manufacturing facilities since the inception of the Plan. The Company continues to expect cumulative charges of $350 to $400 million, approximately 60% of which are expected to be cash charges, over the life of the initiative. Annualized savings are projected to exceed $120 million upon completion of the project with an approximate $50 million benefit expected in 2007 and the remainder in 2008. In the first six months of 2005, the Company recorded restructuring costs of $6.8 million. See Footnote 5 to the Consolidated Financial Statements (Unaudited) for further information on these restructuring costs.

Operating income in the first six months of 2006 was $293.6 million, or 9.5% of net sales, versus $238.1 million, or 8.5%, in the comparable period of 2005. The change in operating income is the result of the factors described above.

Net nonoperating expenses in the first six months of 2006 were 2.4% of net sales, or $73.0 million, versus 2.2% of net sales, or $62.3 million, in the comparable period of 2005. The increase in net nonoperating expenses is primarily attributable to an increase in net interest expense as a result of borrowings to fund the DYMO acquisition and rising interest rates.

The effective tax rate was (15.4)% in the first six months of 2006 versus (4.5)% in the comparable period of 2005. The change in the effective tax rate is primarily related to the $78.0 million net income tax benefit recorded in the first quarter of 2006 as a result of the reorganization of certain of the Company’s non-U.S. subsidiaries and the $22.7 million income tax benefit recorded in the second quarter of 2006 as a result of the determination that the Company would be able to utilize certain capital loss carryforwards that it previously believed would expire unused. In the first six months of 2005, a net income tax benefit of $58.6 million was recorded as a result of the favorable resolution of a tax contingency.

Income from continuing operations for the first six months of 2006 was $254.5 million, compared to $183.7 million in the first six months of 2005. Diluted earnings per share from continuing operations were $0.92 in the first six months of 2006 compared to $0.67 in the first six months of 2005.

The loss from discontinued operations, net of tax, was $80.2 million and $80.9 million for the six months ended June 30, 2006 and 2005, respectively. The loss on disposal of discontinued operations for the six months ended June 30, 2006 was $2.9 million, net of tax, compared to $63.2 million, net of tax, in the first six months of 2005. The 2006 loss was primarily related to the disposal of the European Cookware business, while the 2005 loss related primarily to the disposal of the Curver business. The loss from operations of discontinued operations for the six months ended June 30, 2006 was $77.3 million, net of tax, compared to $17.7 million, net of tax, in the first six months of 2005. The 2006 net loss from operations included a $50.9 million impairment charge recorded in the first quarter to write off the goodwill of the Home Décor Europe business. Diluted loss per share from discontinued operations was $0.28 in the first six months of 2006 compared to $0.29 in the first six months of 2005. See Footnote 3 to the Consolidated Financial Statements (Unaudited) for further information.

Net income for the six months ended June 30, 2006 was $174.3 million, compared to $102.8 million in the comparable period of 2005. Diluted earnings per share were $0.64 for the six months ended June 30, 2006 compared to $0.37 in the comparable period of 2005.

Business Group Operating Results:

Net sales by reportable segment were as follows for the six months ended June 30, (in millions, except percentages):

		2006				2005				% Change
Cleaning & Organization		$	736.4			$	665.4				10.7	%
Office Products			969.9				828.3				17.1
Tools & Hardware			605.6				591.9				2.3
Home Fashions			223.2				212.7				4.9
Other			567.0				512.8				10.6
Total Net Sales (1)		$	3,102.1			$	2,811.1				10.4	%

Operating income (loss) by segment was as follows for the six months ended June 30, (in millions, except percentages):

		2006				2005				% Change
Cleaning & Organization		$	64.2			$	35.6				80.3	%
Office Products			132.2				132.4				(0.2	)
Tools & Hardware			86.9				76.0				14.3
Home Fashions			31.5				10.3				205.8
Other			59.7				41.2				44.9
Corporate Costs (2)			(37.6	)			(19.2	)			(95.8	)
Impairment Charges (3)			—				(31.4	)
Restructuring Costs (4)			(43.3	)			(6.8	)			(536.8	)
Total Operating Income (5)		$	293.6			$	238.1				23.3	%