e10vq
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 March 31, 2007
Commission File Number 1-9608
NEWELL RUBBERMAID INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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36-3514169 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
10B Glenlake Parkway, Suite 300
Atlanta, Georgia 30328
(Address of principal executive offices)
(Zip Code)
(770) 407-3800
(Registrants 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 March 31, 2007:
278.9 million.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Amounts in millions, except per share data)
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Three Months Ended |
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March 31, |
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2007 |
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2006 |
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Net sales |
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$ |
1,384.4 |
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$ |
1,342.6 |
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Cost of products sold |
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909.7 |
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910.5 |
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GROSS MARGIN |
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474.7 |
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432.1 |
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Selling, general and administrative expenses |
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338.4 |
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313.2 |
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Restructuring costs |
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15.5 |
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9.1 |
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OPERATING INCOME |
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120.8 |
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109.8 |
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Nonoperating expenses: |
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Interest expense, net |
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27.4 |
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33.7 |
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Other expense, net |
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0.8 |
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2.5 |
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Net nonoperating expenses |
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28.2 |
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36.2 |
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INCOME BEFORE INCOME TAXES |
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92.6 |
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73.6 |
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Income taxes |
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27.5 |
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(56.6 |
) |
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INCOME FROM CONTINUING OPERATIONS |
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65.1 |
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130.2 |
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Loss from discontinued operations, net of tax |
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(15.8 |
) |
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(75.4 |
) |
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NET INCOME |
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$ |
49.3 |
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$ |
54.8 |
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Weighted average shares outstanding: |
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Basic |
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275.9 |
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274.5 |
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Diluted |
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277.9 |
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283.3 |
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Earnings (loss) per share: |
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Basic |
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Income from continuing operations |
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$ |
0.24 |
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$ |
0.47 |
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Loss from discontinued operations |
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(0.06 |
) |
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|
(0.27 |
) |
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Earnings per common share |
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$ |
0.18 |
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$ |
0.20 |
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Diluted |
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|
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Income from continuing operations |
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$ |
0.23 |
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$ |
0.47 |
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Loss from discontinued operations |
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(0.05 |
) |
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(0.27 |
) |
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Earnings per common share |
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$ |
0.18 |
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$ |
0.21 |
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Dividends per share |
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$ |
0.21 |
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$ |
0.21 |
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See Footnotes to Condensed Consolidated Financial Statements (Unaudited).
2
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions)
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March 31, |
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December 31, |
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2007 |
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2006 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
217.8 |
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$ |
201.0 |
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Accounts receivable, net |
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979.3 |
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1,113.6 |
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Inventories, net |
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934.4 |
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850.6 |
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Deferred income taxes |
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96.3 |
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110.1 |
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Prepaid expenses and other |
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127.1 |
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133.5 |
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Current assets of discontinued operations |
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68.1 |
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TOTAL CURRENT ASSETS |
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2,354.9 |
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2,476.9 |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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735.6 |
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|
746.9 |
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GOODWILL |
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2,441.9 |
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2,435.7 |
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OTHER INTANGIBLE ASSETS, NET |
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471.9 |
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458.8 |
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OTHER ASSETS |
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232.5 |
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192.2 |
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TOTAL ASSETS |
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$ |
6,236.8 |
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$ |
6,310.5 |
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|
See Footnotes to Condensed Consolidated Financial Statements (Unaudited).
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts in millions, except par value)
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March 31, |
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December 31, |
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2007 |
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2006 |
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(Unaudited) |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
555.1 |
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$ |
549.9 |
|
Accrued compensation |
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98.1 |
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|
177.9 |
|
Other accrued liabilities |
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617.9 |
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710.9 |
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Income taxes payable |
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0.9 |
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144.3 |
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Notes payable |
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21.6 |
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23.9 |
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Current portion of long-term debt |
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2.2 |
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253.6 |
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Current liabilities of discontinued operations |
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36.1 |
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TOTAL CURRENT LIABILITIES |
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1,295.8 |
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1,896.6 |
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LONG-TERM DEBT |
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2,320.8 |
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1,972.3 |
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OTHER NONCURRENT LIABILITIES |
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726.9 |
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551.4 |
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STOCKHOLDERS EQUITY: |
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Common stock, authorized shares,
800.0 at $1.00 par value |
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292.1 |
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291.0 |
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Outstanding shares: |
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2007 - 292.1 |
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2006 - 291.0 |
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Treasury stock, at cost; |
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(414.8 |
) |
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(411.6 |
) |
Shares held: |
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2007 - 15.8 |
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2006 - 15.7 |
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Additional paid-in capital |
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531.7 |
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505.0 |
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Retained earnings |
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1,681.0 |
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1,690.4 |
|
Accumulated other comprehensive loss |
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(196.7 |
) |
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(184.6 |
) |
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TOTAL STOCKHOLDERS EQUITY |
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1,893.3 |
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1,890.2 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
6,236.8 |
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|
$ |
6,310.5 |
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|
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|
See Footnotes to Condensed Consolidated Financial Statements (Unaudited).
4
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
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Three Months Ended March 31, |
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2007 |
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2006 |
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OPERATING ACTIVITIES: |
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|
|
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Net income |
|
$ |
49.3 |
|
|
$ |
54.8 |
|
Adjustments to reconcile net income
to net cash provided by/(used in) operating activities: |
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Depreciation and amortization |
|
|
46.1 |
|
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|
48.8 |
|
Deferred income taxes |
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|
37.6 |
|
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32.5 |
|
Non-cash impairment charges |
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|
50.9 |
|
Non-cash restructuring costs |
|
|
1.2 |
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17.9 |
|
Loss on sale of assets |
|
|
0.3 |
|
|
|
1.4 |
|
Stock-based compensation expense |
|
|
8.5 |
|
|
|
6.9 |
|
Loss on disposal of discontinued operations |
|
|
15.6 |
|
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|
1.6 |
|
Other |
|
|
(1.9 |
) |
|
|
(3.3 |
) |
Changes in operating assets and liabilities, excluding the
effects of acquisitions: |
|
|
|
|
|
|
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|
Accounts receivable |
|
|
140.2 |
|
|
|
164.0 |
|
Inventories |
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|
(77.7 |
) |
|
|
(105.3 |
) |
Accounts payable |
|
|
3.1 |
|
|
|
(52.4 |
) |
Accrued liabilities and other |
|
|
(207.8 |
) |
|
|
(230.6 |
) |
Discontinued operations |
|
|
|
|
|
|
1.1 |
|
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|
|
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES |
|
|
14.5 |
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|
|
(11.7 |
) |
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INVESTING ACTIVITIES: |
|
|
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|
|
|
Acquisitions, net of cash acquired |
|
|
(8.3 |
) |
|
|
(23.2 |
) |
Capital expenditures |
|
|
(32.6 |
) |
|
|
(25.3 |
) |
Disposals of noncurrent assets and sale of businesses |
|
|
(7.3 |
) |
|
|
29.8 |
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(48.2 |
) |
|
|
(18.7 |
) |
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FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
|
349.7 |
|
|
|
148.3 |
|
Payments on notes payable and long-term debt |
|
|
(253.0 |
) |
|
|
(1.9 |
) |
Cash dividends |
|
|
(58.6 |
) |
|
|
(58.2 |
) |
Proceeds from exercised stock options and other |
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|
11.7 |
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|
2.0 |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
49.8 |
|
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|
90.2 |
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|
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|
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Currency rate effect on cash and cash equivalents |
|
|
0.7 |
|
|
|
0.8 |
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INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
16.8 |
|
|
|
60.6 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
201.0 |
|
|
|
115.5 |
|
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|
|
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|
|
|
|
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
217.8 |
|
|
$ |
176.1 |
|
|
|
|
See Footnotes to Condensed Consolidated Financial Statements (Unaudited).
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Footnote 1 Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed 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 in the United States of America for
complete financial statements. In the opinion of management, the unaudited condensed consolidated
financial statements include all adjustments considered necessary for a fair presentation of the
financial position and the results of operations. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the financial statements and the
footnotes thereto included in the Companys latest Annual Report on Form 10-K.
Seasonal Variations: The Companys 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.
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
2 for a discussion of discontinued operations.
Footnote 2 Discontinued Operations
The following table summarizes the results of the discontinued operations for the three months
ended March 31, (in millions):
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2007 |
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2006 |
|
|
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Net sales |
|
$ |
3.6 |
|
|
$ |
142.2 |
|
|
|
|
|
|
|
|
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|
Loss from operations of discontinued operations, net
of an income tax benefit of $- million and $5.4
million for the three months ended March 31, 2007 and
2006, respectively |
|
$ |
(0.2 |
) |
|
$ |
(73.8 |
) |
Loss on disposal of discontinued operations, net of
an income tax benefit of $4.0 million and $- million
for the three months ended March 31, 2007 and 2006,
respectively |
|
|
(15.6 |
) |
|
|
(1.6 |
) |
|
|
|
Loss from discontinued operations, net of tax |
|
$ |
(15.8 |
) |
|
$ |
(75.4 |
) |
|
|
|
No amounts related to interest expense have been allocated to discontinued operations.
Home Décor Europe
The Home Décor Europe business designed, manufactured and sold drapery hardware and window
treatments in Europe under Gardinia® and other local brands and was previously classified in the
Companys former Home Fashions segment.
In the first quarter of 2006, as a result of a revised corporate strategy and an initiative to
improve the Companys portfolio of businesses to focus on those that are best aligned with the
Companys strategies of differentiated products, best cost and consumer branding, the Company began
exploring various options for its Home Décor Europe business. Those options included marketing the
business for potential sale. As a result of this effort, the Company received a preliminary offer
from a potential buyer which gave the Company a better indication of the businesss fair value, and
revealed that the value of the business to a third party was lower than the fair value the Company
had previously estimated using expected future cash flows. Based on this offer, the Company
determined that the business had a net book value in excess of its fair value. Due to the apparent
decline in value, the Company
6
conducted an impairment test and recorded a $50.9 million impairment
charge in the first quarter of 2006. This
charge, as well as the operations of this business during the first quarter of 2006, is included in
the loss from operations of discontinued operations in the table above for the three months ended
March 31, 2006.
In September 2006, the Company entered into an agreement for the intended sale of portions of the
Home Décor Europe business to a global manufacturer and marketer of window treatments and
furnishings. The Central and Eastern European, Nordic and Portuguese operations of this business
were sold on December 1, 2006. The sale of the operations in Poland and the Ukraine closed on
February 1, 2007.
In October 2006, the Company received a binding offer for the intended sale of the Southern
European region of the Home Décor Europe business to another party. The sale of operations in
France and Spain closed on January 1, 2007 and in Italy on January 31, 2007. The divestiture of
Home Décor Europe is now complete.
In connection with these transactions, the Company recorded a loss of $7.0 million and $4.3
million, net of tax, in the third and fourth quarter of 2006, respectively. In the first quarter
of 2007, the Company recorded a loss of $13.0 million, net of tax, to complete the divestiture of
Home Décor Europe. The first quarter 2007 net loss is reported in the table above as part of the
loss on disposal of discontinued operations. The remainder of the loss on disposal of discontinued
operations, approximately $2.6 million, net of tax, in the first quarter of 2007 relates to
contingencies associated with other prior divestitures.
Little Tikes
In September 2006, the Company entered into an agreement for the intended sale of its Little Tikes
business unit to a global family and childrens entertainment company. Little Tikes is a global
marketer and manufacturer of childrens toys and furniture for consumers. The transaction closed
in the fourth quarter of 2006, resulting in a gain of $16.0 million, net of tax, in 2006. This
business was previously included in the Companys Home & Family segment. The operations of the
business for the three months ended March 31, 2006 are included in loss from operations of
discontinued operations in the table above.
European Cookware
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 Companys Home & Family segment. In the first quarter of 2006, the Company recorded an
additional net loss of $1.6 million upon completion of the sale. The additional net loss is
reported in the table above as loss on disposal of discontinued operations.
Footnote
3 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 Companys portfolio. In connection with
Project Acceleration, the Board of Directors of the Company approved a 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. Project Acceleration includes the closures of
approximately one-third of the Companys 64 manufacturing facilities (as of December 31, 2005,
adjusted for the divestiture of Little Tikes and Home Décor Europe), optimizing the Companys
geographic manufacturing footprint. Since the plans inception, the Company has announced the
closure of 14 manufacturing facilities. To date, the Company has recorded $133.2 million of costs
related to Project Acceleration. The Plan is expected to result in cumulative restructuring costs
of approximately $375 million to $400 million ($315 million $340 million after tax), with between
$100 million and $130 million ($85 million $110 million after tax) to be incurred in 2007.
Approximately 60% of the costs are expected to be cash costs over the life of the initiative.
Annualized savings are projected to exceed $150 million upon completion of the project with an
approximately $50 million benefit projected in 2007, $70 million benefit projected in 2008 and the
remainder in 2009.
7
The table below shows the restructuring costs recognized for restructuring activities for the three
months ended March 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Facility and other exit costs |
|
$ |
2.4 |
|
|
$ |
(0.2 |
) |
Employee severance and termination benefits |
|
|
12.3 |
|
|
|
8.2 |
|
Exited contractual commitments and other |
|
|
0.8 |
|
|
|
1.1 |
|
|
|
|
|
|
$ |
15.5 |
|
|
$ |
9.1 |
|
|
|
|
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. A summary of the Companys restructuring plan reserves as of March
31, 2007 and 2006, respectively, is as follows (in millions):
|
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|
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|
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|
|
|
|
|
|
|
|
|
12/31/06 |
|
|
|
|
|
Costs |
|
3/31/07 |
|
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
|
|
|
Facility and other exit costs |
|
$ |
|
|
|
$ |
2.4 |
|
|
$ |
(2.4 |
) |
|
$ |
|
|
Employee severance and termination benefits |
|
|
28.9 |
|
|
|
12.3 |
|
|
|
(11.0 |
) |
|
|
30.2 |
|
Exited contractual commitments and other |
|
|
2.0 |
|
|
|
0.8 |
|
|
|
(0.9 |
) |
|
|
1.9 |
|
|
|
|
|
|
$ |
30.9 |
|
|
$ |
15.5 |
|
|
$ |
(14.3 |
) |
|
$ |
32.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/05 |
|
|
|
|
|
Costs |
|
3/31/06 |
|
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
|
|
|
Facility and other exit costs |
|
$ |
|
|
|
$ |
(0.2 |
) |
|
$ |
0.2 |
|
|
$ |
|
|
Employee severance and termination benefits |
|
|
|
|
|
|
8.2 |
|
|
|
(1.0 |
) |
|
|
7.2 |
|
Exited contractual commitments and other |
|
|
|
|
|
|
1.1 |
|
|
|
(0.4 |
) |
|
|
0.7 |
|
|
|
|
|
|
$ |
|
|
|
$ |
9.1 |
|
|
$ |
(1.2 |
) |
|
$ |
7.9 |
|
|
|
|
Costs incurred include cash payments and the impairment of assets associated with vacated
facilities and future minimum lease payments included in facility and other exit costs.
The following table depicts the changes in accrued restructuring reserves for the Plan for the
three months ended March 31, 2007 and 2006, respectively, aggregated by reportable business segment
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/06 |
|
|
|
|
|
Costs |
|
3/31/07 |
Segment |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
|
Cleaning, Organization & Décor |
|
$ |
4.4 |
|
|
$ |
1.2 |
|
|
$ |
(2.1 |
) |
|
$ |
3.5 |
|
Office Products |
|
|
25.4 |
|
|
|
10.6 |
|
|
|
(9.0 |
) |
|
|
27.0 |
|
Tools & Hardware |
|
|
0.4 |
|
|
|
2.3 |
|
|
|
(2.2 |
) |
|
|
0.5 |
|
Home & Family |
|
|
0.3 |
|
|
|
0.4 |
|
|
|
(0.7 |
) |
|
|
|
|
Corporate |
|
|
0.4 |
|
|
|
1.0 |
|
|
|
(0.3 |
) |
|
|
1.1 |
|
|
|
|
|
|
$ |
30.9 |
|
|
$ |
15.5 |
|
|
$ |
(14.3 |
) |
|
$ |
32.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/05 |
|
|
|
|
|
Costs |
|
3/31/06 |
Segment |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
|
Cleaning, Organization & Décor |
|
$ |
|
|
|
$ |
3.7 |
|
|
$ |
(1.6 |
) |
|
$ |
2.1 |
|
Office Products |
|
|
|
|
|
|
3.1 |
|
|
|
(0.6 |
) |
|
|
2.5 |
|
Tools & Hardware |
|
|
|
|
|
|
2.2 |
|
|
|
(0.2 |
) |
|
|
2.0 |
|
Home & Family |
|
|
|
|
|
|
(0.2 |
) |
|
|
1.5 |
|
|
|
1.3 |
|
Corporate |
|
|
|
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
9.1 |
|
|
$ |
(1.2 |
) |
|
$ |
7.9 |
|
|
|
|
During the first quarter of 2006, the Company received a better indication of the fair value of
assets being disposed of in the Home & Family segment. These assets were previously written down
to estimated net realizable value
8
during the fourth quarter of 2005 as part of Project
Acceleration. As a result, the Company reversed $1.4 million of restructuring costs in the quarter
due to higher proceeds received.
Cash paid for restructuring activities was $13.3 million and $0.6 million for the three months
ended March 31, 2007 and 2006, respectively.
Footnote 4 Inventories, Net
Inventories are stated at the lower of cost or market value. The components of net inventories
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Materials and supplies |
|
$ |
175.1 |
|
|
$ |
172.8 |
|
Work in-process |
|
|
172.8 |
|
|
|
158.6 |
|
Finished products |
|
|
586.5 |
|
|
|
519.2 |
|
|
|
|
|
|
$ |
934.4 |
|
|
$ |
850.6 |
|
|
|
|
Footnote 5 Long-Term Debt
The following is a summary of long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Medium-term notes |
|
$ |
1,075.0 |
|
|
$ |
1,325.0 |
|
Commercial paper |
|
|
349.0 |
|
|
|
|
|
Floating rate note |
|
|
448.0 |
|
|
|
448.0 |
|
Junior convertible subordinated debentures |
|
|
436.7 |
|
|
|
436.7 |
|
Terminated interest rate swaps |
|
|
10.0 |
|
|
|
11.9 |
|
Other long-term debt |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
|
Total Debt |
|
|
2,323.0 |
|
|
|
2,225.9 |
|
Current portion of long-term debt |
|
|
(2.2 |
) |
|
|
(253.6 |
) |
|
|
|
Long-Term Debt |
|
$ |
2,320.8 |
|
|
$ |
1,972.3 |
|
|
|
|
On March 15, 2007, the Company paid-off a five-year, $250 million, 6% fixed rate note, at maturity,
with available cash and through the issuance of commercial paper.
Footnote 6 Employee Benefit and Retirement Plans
The following table presents the components of the Companys pension cost for the three months
ended March 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
International |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
Service cost-benefits earned
during the period |
|
$ |
0.9 |
|
|
$ |
0.7 |
|
|
$ |
1.8 |
|
|
$ |
1.8 |
|
Interest cost on projected
benefit obligation |
|
|
12.8 |
|
|
|
12.8 |
|
|
|
6.8 |
|
|
|
5.9 |
|
Expected return on plan assets |
|
|
(14.6 |
) |
|
|
(14.9 |
) |
|
|
(6.7 |
) |
|
|
(5.9 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
2.2 |
|
|
|
2.0 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Curtailment & special termination
benefit gains |
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
Net pension cost |
|
$ |
1.3 |
|
|
$ |
0.9 |
|
|
$ |
0.6 |
|
|
$ |
3.0 |
|
|
|
|
9
In the first quarter of 2007, the Company recorded a $2.4 million curtailment gain resulting from
the closure of a European manufacturing facility within the Companys Office Products segment. In
addition, the Company recorded a $1.4 million curtailment gain resulting from the sale of the
Companys Home Décor Europe business. This gain was included in the loss on disposal of
discontinued operations for the three months ended March 31, 2007.
The Company made a cash contribution to the Company sponsored profit sharing plan of $18.4 million
and $20.9 million in the three months ended March 31, 2007 and 2006, respectively. In addition,
the Company recorded $5.3 million in expense for the defined contribution benefit arrangement in
each of the three months ended March 31, 2007 and 2006.
The following table presents the components of the Companys other postretirement benefit costs for
the three months ended March 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Service cost-benefits earned during the period |
|
$ |
0.4 |
|
|
$ |
0.6 |
|
Interest cost on projected benefit obligation |
|
|
2.7 |
|
|
|
2.5 |
|
Amortization of prior service benefit |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
|
Net other postretirement benefit costs |
|
$ |
2.5 |
|
|
$ |
2.5 |
|
|
|
|
Footnote 7 Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48), on January 1, 2007. The adoption of FIN 48 did not result in an adjustment
to beginning retained earnings. However, the adoption of FIN 48 did result in the reclassification
of certain income tax assets and liabilities from current to long-term in the Companys condensed
consolidated balance sheet. As of January 1, 2007, the Company had unrecognized tax benefits of
$161.8 million, of which $160.7 million, if recognized,
would affect the effective tax rate. Due to statute expirations and
examinations by various worldwide taxing authorities, $54.8 million of the unrecognized tax benefits could
reasonably change in the coming
year. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits
as a component of income tax expense. As of January 1, 2007, the Company had recorded accrued
interest expense related to the unrecognized tax benefits of $12.6 million. No significant changes
to these amounts were recorded during the quarter ended March 31, 2007.
The Company files numerous consolidated and separate income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. The statute of limitations for the
Companys U.S. federal income tax returns has expired for years prior to 2003, and the Internal
Revenue Service has completed its examination of the Companys 2003 and 2004 federal income tax
returns. The Companys Canadian income tax returns are subject to examination for years after
2000. With few exceptions, the Company is no longer subject to other income tax examinations for
years before 2003.
The Companys income tax expense and resulting effective tax rate are based upon the respective
estimated annual effective tax rates applicable for the respective years adjusted for the effect of
items required to be treated as discrete interim period items. The effective tax rates for the
three months ended March 31, 2007 and 2006 were primarily impacted by the following tax matters
characterized as period adjustments:
|
|
|
During the first quarter of 2007, the Company recorded a benefit of $1.9 million due to
the receipt of an income tax refund, resulting in a reduction in the valuation allowance
for deferred tax assets. |
|
|
|
|
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. |
10
Footnote
8 Earnings per Share
The calculation of basic and diluted earnings per share is shown below for the three months ended
March 31, (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
65.1 |
|
|
$ |
130.2 |
|
Loss from discontinued operations |
|
|
(15.8 |
) |
|
|
(75.4 |
) |
|
|
|
Net income for basic earnings per share |
|
$ |
49.3 |
|
|
$ |
54.8 |
|
|
|
|
Numerator for diluted earnings per share: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
65.1 |
|
|
$ |
130.2 |
|
Effect of convertible preferred securities (1) |
|
|
|
|
|
|
3.6 |
|
|
|
|
Income from continuing operations for diluted
earnings per share |
|
$ |
65.1 |
|
|
$ |
133.8 |
|
Loss from discontinued operations |
|
|
(15.8 |
) |
|
|
(75.4 |
) |
|
|
|
Net income for diluted earnings per share |
|
$ |
49.3 |
|
|
$ |
58.4 |
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Denominator for basic earnings per share weighted-average shares |
|
|
275.9 |
|
|
|
274.5 |
|
Dilutive securities (2) |
|
|
2.0 |
|
|
|
0.5 |
|
Convertible preferred securities (1) |
|
|
|
|
|
|
8.3 |
|
|
|
|
Denominator for diluted earnings per share |
|
|
277.9 |
|
|
|
283.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.24 |
|
|
$ |
0.47 |
|
Loss from discontinued operations |
|
|
(0.06 |
) |
|
|
(0.27 |
) |
|
|
|
Earnings per common share |
|
$ |
0.18 |
|
|
$ |
0.20 |
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.23 |
|
|
$ |
0.47 |
|
Loss from discontinued operations |
|
|
(0.05 |
) |
|
|
(0.27 |
) |
|
|
|
Earnings per common share |
|
$ |
0.18 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
(1) |
|
The convertible preferred securities are anti-dilutive for the three months ended March 31,
2007, and therefore have been excluded from diluted earnings per share. Had the convertible
preferred securities been included in the diluted earnings per share calculation, net income
would be increased by $3.6 million for the three months ended March 31, 2007.
Weighted-average shares outstanding would have increased by 8.3 million shares for the three
months ended March 31, 2007. |
|
(2) |
|
Dilutive securities include in the money options and restricted stock awards. The
weighted-average shares outstanding for the three months ended March 31, 2007 and 2006 exclude
the dilutive effect of approximately 7.2 million and 13.4 million stock options, respectively,
because such options were anti-dilutive. |
Footnote 9 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 unrecognized
pension and other post retirement costs.
The following table displays the components of accumulated other comprehensive loss (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
After-tax |
|
Unrecognized |
|
Accumulated |
|
|
Currency |
|
Derivative |
|
Pension and Other |
|
Other |
|
|
Translation |
|
Hedging |
|
Post Retirement |
|
Comprehensive |
|
|
Gain/(Loss) |
|
Gain |
|
Costs |
|
Loss |
|
|
|
Balance at December 31, 2006 |
|
$ |
41.6 |
|
|
$ |
2.5 |
|
|
$ |
(228.7 |
) |
|
$ |
(184.6 |
) |
Current year change |
|
|
(12.9 |
) |
|
|
0.8 |
|
|
|
|
|
|
|
(12.1 |
) |
|
|
|
Balance at March 31, 2007 |
|
$ |
28.7 |
|
|
$ |
3.3 |
|
|
$ |
(228.7 |
) |
|
$ |
(196.7 |
) |
|
|
|
11
Comprehensive income amounted to the following for the three months ended March 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Net income |
|
$ |
49.3 |
|
|
$ |
54.8 |
|
Foreign currency translation (loss)/gain |
|
|
(12.9 |
) |
|
|
9.0 |
|
After-tax derivative hedging gain |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
|
Comprehensive income |
|
$ |
37.2 |
|
|
$ |
64.8 |
|
|
|
|
Footnote 10 Stock-Based Compensation
The Company recorded $8.5 million and $6.9 million of stock-based compensation expense in selling,
general and administrative expense for the three months ended March 31, 2007 and 2006,
respectively.
The following table presents the impact of stock-based compensation expense for the three months
ended March 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Reduction to income before income taxes |
|
$ |
8.5 |
|
|
$ |
6.9 |
|
|
|
|
Reduction to net income |
|
$ |
5.3 |
|
|
$ |
4.3 |
|
|
|
|
Reduction to earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
|
|
Diluted |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
|
|
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 three months ended
March 31,:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Weighted-average fair value of grants |
|
$ |
7 |
|
|
$ |
7 |
|
Risk-free interest rate |
|
|
4.8 |
% |
|
|
4.6 |
% |
Dividend yield |
|
|
2.8 |
% |
|
|
3.0 |
% |
Expected volatility |
|
|
25 |
% |
|
|
33 |
% |
Expected life (in years) |
|
|
5.5 |
|
|
|
6.5 |
|
The Company utilized its historic experience to estimate the expected life of the options and
volatility.
The
following table summarizes the changes in the number of shares of common stock under option for
the three months ended March 31, 2007 (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Exercise |
|
|
|
|
Shares |
|
Price |
|
Exercisable |
|
|
|
Outstanding at December 31, 2006 |
|
|
14.1 |
|
|
$ |
26 |
|
|
|
6.8 |
|
Granted |
|
|
3.0 |
|
|
|
30 |
|
|
|
|
|
Exercised |
|
|
(0.5 |
) |
|
|
25 |
|
|
|
|
|
Forfeited / expired |
|
|
(0.7 |
) |
|
|
26 |
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007 |
|
|
15.9 |
|
|
$ |
27 |
|
|
|
7.3 |
|
|
|
|
12
At March 31, 2007, the aggregate intrinsic value of exercisable options was $32.9 million.
The following table summarizes the changes in the number of shares of restricted stock for the
three months ended March 31, 2007 (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average Grant |
|
|
Shares |
|
Date Fair Value |
|
|
|
Outstanding at December 31, 2006 |
|
|
2.2 |
|
|
$ |
24 |
|
Granted |
|
|
1.0 |
|
|
|
30 |
|
Vested |
|
|
(0.4 |
) |
|
|
23 |
|
Forfeited |
|
|
(0.2 |
) |
|
|
26 |
|
|
|
|
Outstanding at March 31, 2007 |
|
|
2.6 |
|
|
$ |
26 |
|
|
|
|
Footnote
11 Industry Segment Information
The Companys reporting segments reflect the Companys 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 four reportable segments.
The reportable segments are as follows:
|
|
|
Segment |
|
Description of Products |
|
Cleaning, Organization & Décor
|
|
Material handling, cleaning, refuse,
indoor/outdoor organization, home
storage, food storage, drapery
hardware, window treatments |
Office Products
|
|
Ball point/roller ball pens, markers,
highlighters, pencils, correction
fluids, office products, art
supplies, on-demand labeling
products, card-scanning solutions |
Tools & Hardware
|
|
Hand tools, power tool accessories,
manual paint applicators, cabinet,
window and convenience hardware,
propane torches, solder |
Home & Family
|
|
Operating segments that do not meet
aggregation criteria, including
premium cookware and related
kitchenware, hair care accessory
products, infant and juvenile
products, including high chairs, car
seats, strollers and play yards |
In the fourth quarter of 2006, the Company combined its Cleaning & Organization and Home Fashions
segments (now referred to as Cleaning, Organization & Décor) as these businesses sell to similar
major customers, produce products that are used in and around the home, and leverage the same
management structure.
Also in 2006, the Company updated its segment reporting to reflect the realignment of certain
European businesses, previously reported in the former Cleaning & Organization segment, and now
reported in the Home & Family segment for all periods presented. The decision to realign these
businesses, which include the Graco European business, is consistent with the Companys move from a
regional management structure to a global business unit structure. Management measures segment
profit as operating income of the business. Segment data presented for the three months ended
March 31, 2006 has been reclassified to reflect the segment changes. The Companys segment results
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2007 |
|
2006 |
|
|
|
Net Sales
(1) |
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
$ |
457.4 |
|
|
$ |
449.7 |
|
Office Products |
|
|
406.3 |
|
|
|
390.8 |
|
Tools & Hardware |
|
|
293.9 |
|
|
|
276.8 |
|
Home & Family |
|
|
226.8 |
|
|
|
225.3 |
|
|
|
|
|
|
$ |
1,384.4 |
|
|
$ |
1,342.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (2) |
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
$ |
57.2 |
|
|
$ |
38.4 |
|
Office Products |
|
|
35.2 |
|
|
|
32.3 |
|
Tools & Hardware |
|
|
34.2 |
|
|
|
33.1 |
|
Home & Family |
|
|
30.4 |
|
|
|
32.7 |
|
Corporate |
|
|
(20.7 |
) |
|
|
(17.6 |
) |
Restructuring Costs |
|
|
(15.5 |
) |
|
|
(9.1 |
) |
|
|
|
|
|
$ |
120.8 |
|
|
$ |
109.8 |
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Identifiable
Assets |
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
$ |
798.2 |
|
|
$ |
840.3 |
|
Office Products |
|
|
1,217.6 |
|
|
|
1,264.6 |
|
Tools & Hardware |
|
|
655.6 |
|
|
|
660.8 |
|
Home & Family |
|
|
327.9 |
|
|
|
293.7 |
|
Corporate (3) |
|
|
3,237.5 |
|
|
|
3,183.0 |
|
Discontinued Operations |
|
|
|
|
|
|
68.1 |
|
|
|
|
|
|
$ |
6,236.8 |
|
|
$ |
6,310.5 |
|
|
|
|
Geographic Area Information
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2007 |
|
2006 |
|
|
|
Net
Sales |
|
|
|
|
|
|
|
|
United States |
|
$ |
1,019.9 |
|
|
$ |
1,015.1 |
|
Canada |
|
|
79.1 |
|
|
|
77.7 |
|
|
|
|
North America |
|
|
1,099.0 |
|
|
|
1,092.8 |
|
Europe |
|
|
192.5 |
|
|
|
162.4 |
|
Central and South America |
|
|
48.7 |
|
|
|
47.0 |
|
Other |
|
|
44.2 |
|
|
|
40.4 |
|
|
|
|
|
|
$ |
1,384.4 |
|
|
$ |
1,342.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (4) |
|
|
|
|
|
|
|
|
United States |
|
$ |
99.1 |
|
|
$ |
90.5 |
|
Canada |
|
|
16.4 |
|
|
|
11.4 |
|
|
|
|
North America |
|
|
115.5 |
|
|
|
101.9 |
|
Europe |
|
|
1.8 |
|
|
|
5.2 |
|
Central and South America |
|
|
(4.1 |
) |
|
|
(3.9 |
) |
Other |
|
|
7.6 |
|
|
|
6.6 |
|
|
|
|
|
|
$ |
120.8 |
|
|
$ |
109.8 |
|
|
|
|
|
|
|
1) |
|
All intercompany transactions have been eliminated. Sales to Wal*Mart Stores, Inc. and
subsidiaries amounted to approximately 13% of consolidated net sales in each of the three
month periods ended March 31, 2007 and 2006, substantially across all business units.
Sales to no other customer exceeded 10% of consolidated net sales for either period. |
|
2) |
|
Operating income is net sales less cost of products sold, selling, general and
administrative expenses and restructuring costs. Certain headquarters expenses of an
operational nature are allocated to business segments and geographic areas primarily on a
net sales basis. |
|
3) |
|
Corporate assets primarily include goodwill, trade names, equity investments and
deferred tax assets. |
|
4) |
|
The restructuring costs have been reflected in the appropriate geographic regions. |
Footnote 12 Litigation and 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 Companys products, allegations of
infringement of intellectual property, commercial disputes and employment matters, as well as
environmental matters. Some of the legal proceedings include claims for punitive as well as
compensatory damages, and certain 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 Companys legal proceedings,
including any amounts it may
14
be required to pay in excess of amounts reserved, will not have a
material effect on the Companys condensed consolidated 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 Companys 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 Companys business, financial
condition or results of operations.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Companys vision is to become a global company of Brands That MatterTM and great
people, known for best-in-class results. 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 key tenets of the Companys strategy include building large, consumer-meaningful brands
(Brands That MatterTM), leveraging one Newell Rubbermaid, achieving a best total cost
position and commercializing innovation across the enterprise. The Companys results depend on the
ability of its individual business units to succeed in their respective categories, each of which
has some unique consumers, customers and competitors. The Companys strategic initiatives are
designed to help enable these business units to generate differentiated products, operate within a
best-in-class cost structure and employ superior branding in order to yield premium margins on
their products. Premium margins fund incremental demand creation by the business units, driving
incremental sales and profits for the Company.
The following section details the Companys progress thus far in each of its transformational
initiatives:
Create Consumer-Meaningful Brands
The Company is moving from its historical focus on push marketing and excellence in manufacturing
and distributing products, to a new focus on consumer pull marketing, creating competitive
advantage through better understanding its consumers, innovating to deliver great performance,
investing in advertising and promotion to create demand and leveraging its brands in adjacent
categories around the world. This effort is creating and expanding core competencies and processes
centered on consumer understanding, innovation and demand creation. Last year, the Company engaged
a leading global advertising agency to help assess its top brands and field incremental consumer
and brand research. That research is beginning to be used to better segment markets and define
differentiated brand positionings that are meaningful to target consumers.
The Company has commenced formalized training programs to help develop best-in-class consumer
marketing capabilities. The first of these programs began rolling out in March, and will reach
over 700 marketing, sales and product managers in the next 12 months. Subsequent programs for more
senior marketers will be introduced in late 2007 and early 2008. Additionally, several brand teams
are working with a leading strategy consulting firm to help identify gaps and opportunities by
comparing their current structure and business processes with the highest value-creating activities
for building their brands. These learnings on lead brands will serve as a model for reapplication
on other brand teams.
The Company is also continuing to make incremental investments in strategic brand building to drive
incremental sales growth. In 2007, the Company expects to increase its spending on consumer
understanding, innovation and demand creation to over 6 percent of sales, up from 5.5 percent in
2006.
Leverage One Newell Rubbermaid
The Company is committed to leveraging the common business activities and best practices of its
business units, and to build one common culture of shared values, with a focus on collaboration and
teamwork. The Company is exploring ways to leverage common functional capabilities such as Human
Resources, Information Technology, Customer Service, Supply Chain and Finance to improve efficiency
and reduce costs. This initiative includes the centralization and consolidation of the Companys
distribution and transportation activities, the restructuring of its European organization and
expansion of the shared service concept in North America. The Company is two-thirds complete in
the transition to the Shared Services Center in Europe. The Company has already realized savings
from negotiating various supply contracts on behalf of all of the Company, achieving lower total
cost than what was achieved negotiating one business unit at a time. The Company also has broken
ground on a new, 400,000 square foot consolidated Newell Rubbermaid distribution center in
Victorville, CA, and has consolidated the warehousing and logistics for all product groups in the
UK at a single site near Birmingham, England. These are significant steps toward leveraging
distribution and transportation across the Company to achieve low cost logistical excellence.
Finally, the Company is in the early stages of migrating multiple legacy systems and users to a
common SAP global
16
information platform, which is expected to enable the Company to integrate and
manage its worldwide business and
reporting process more efficiently. Phase one implementation is currently planned for the North
American Office Products business in late 2007. The total company implementation will occur over
several years in phases that are primarily based on geographic region and segment.
Achieve Best Total Cost
The Companys objective is to reduce the cost of manufacturing, sourcing and supplying product on
an ongoing basis, and to leverage the Companys size and scale, in order to achieve a best total
cost position. Achieving best cost positions in its categories allows the Company to increase
investment in strategic brand building initiatives.
The Company is continuing to make progress on its sourcing transformation restructuring the
manufacturing and sourcing footprint to optimize total delivered cost. The Company remains on
track with this program, Project Acceleration, and is starting to see the savings flow through its
results. Annualized savings from Project Acceleration are now expected to exceed $150 million upon
conclusion of the program in 2009, with $50 million in savings projected in 2007. To date, the
Company has announced two-thirds of its anticipated closings and consolidations and, in the first
quarter, announced the expansion of the program to include certain scale leveraging initiatives
with respect to distribution, transportation and shared services.
Nurture 360º Innovation
The Company has broadened its definition of innovation beyond product invention. The Company
defines innovation as the successful commercialization of invention. Innovation must be more
than product development. It is a rigorous, consumer centric process that permeates the entire
development cycle. It begins with a deep understanding of how consumers interact with the
Companys brands and categories, and all the factors that drive their purchase decisions and
in-use experience. That understanding must then be translated into innovative products that
deliver unique features and benefits, at a best-cost position, providing the consumer with great
value. Lastly, innovating 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. As an example, the Company launched the Rubbermaid® Premier line of premium
food storage containers in the first quarter of 2007, featuring unique Flex and Seal lids for
better organized storage and high quality bases that are resistant to odors and stains. This
product line has generated promising early point-of-sale data.
The Companys emphasis throughout the remainder of 2007 will be to deliver sales growth and gross
margin expansion through increased investments in consumer understanding, innovation and demand
creation activities. The Company will focus on developing best-in-class practices for these
activities. The Companys objective is to build brands that really matter to its consumers. The
Company will put in the systems to understand its consumers in detail how they use its products,
what they value, and how to delight them and/or excite them. The Company will invest in more
innovation that differentiates its products. The Company will invest more in advertising and
other consumer marketing to increase awareness as well as trial and repeat purchases to enhance
the brands. Further, the Company will measure the effectiveness of those increased strategic
brand building investments.
The Company is making the necessary investments now for the long-term success of its business.
The Company expects SG&A to increase throughout 2007 due to continued investment in strategic
brand building initiatives and other long-term initiatives including the SAP implementation,
co-location strategies, expanded shared services in Europe and the U.S., and building
organizational capability through training and development.
Results of Operations
The following table sets forth for the periods indicated items from the Condensed Consolidated
Statements of Income as reported and as a percentage of net sales for the three months ended
March 31, (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Net sales |
|
$ |
1,384.4 |
|
|
|
100.0 |
% |
|
$ |
1,342.6 |
|
|
|
100.0 |
% |
Cost of products sold |
|
|
909.7 |
|
|
|
65.7 |
|
|
|
910.5 |
|
|
|
67.8 |
|
|
|
|
Gross margin |
|
|
474.7 |
|
|
|
34.3 |
|
|
|
432.1 |
|
|
|
32.2 |
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Selling, general and
administrative expenses |
|
|
338.4 |
|
|
|
24.4 |
|
|
|
313.2 |
|
|
|
23.3 |
|
Restructuring costs |
|
|
15.5 |
|
|
|
1.1 |
|
|
|
9.1 |
|
|
|
0.7 |
|
|
|
|
Operating income |
|
|
120.8 |
|
|
|
8.7 |
|
|
|
109.8 |
|
|
|
8.2 |
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
27.4 |
|
|
|
2.0 |
|
|
|
33.7 |
|
|
|
2.5 |
|
Other expense, net |
|
|
0.8 |
|
|
|
|
|
|
|
2.5 |
|
|
|
0.2 |
|
|
|
|
Net nonoperating expenses |
|
|
28.2 |
|
|
|
2.0 |
|
|
|
36.2 |
|
|
|
2.7 |
|
|
|
|
Income from continuing
operations before income taxes |
|
|
92.6 |
|
|
|
6.7 |
|
|
|
73.6 |
|
|
|
5.5 |
|
Income taxes |
|
|
27.5 |
|
|
|
2.0 |
|
|
|
(56.6 |
) |
|
|
(4.2 |
) |
|
|
|
Income from continuing operations |
|
|
65.1 |
|
|
|
4.7 |
|
|
|
130.2 |
|
|
|
9.7 |
|
|
|
|
Loss from discontinued
operations, net of tax |
|
|
(15.8 |
) |
|
|
(1.1 |
) |
|
|
(75.4 |
) |
|
|
(5.6 |
) |
|
|
|
Net income |
|
$ |
49.3 |
|
|
|
3.6 |
% |
|
$ |
54.8 |
|
|
|
4.1 |
% |
|
|
|
Three Months Ended March 31, 2007 vs. Three Months Ended March 31, 2006
Consolidated Operating Results:
Net sales for the three months ended March 31, 2007 were $1,384.4 million, representing an increase
of $41.8 million, or 3.1%, from $1,342.6 million for the three months ended March 31, 2006. Sales
growth excluding foreign currency was 1.7%. All four operating segments showed growth in the
quarter led by mid single digit growth in the Tools & Hardware and Office Products segments, with
the Cleaning, Organization & Décor and Home & Family segments posting low single digit growth.
Gross margin, as a percentage of net sales, for the three months ended March 31, 2007 was 34.3%, or
$474.7 million, versus 32.2%, or $432.1 million, for the three months ended March 31, 2006.
Ongoing productivity initiatives and savings from Project Acceleration drove the majority of the
year over year improvement.
SG&A expenses for the three months ended March 31, 2007 were 24.4% of net sales, or $338.4 million,
versus 23.3%, or $313.2 million, for the three months ended March 31, 2006. The primary drivers of
the $25.2 million increase were additional strategic brand building investments in the Rubbermaid
Commercial Products business and the Office Products and Home & Family segments. Approximately $8
million of planned first quarter 2007 SG&A spending is now expected to occur in the second quarter,
primarily related to promotional spending in the Home & Family and Office Products segments.
The Company recorded restructuring costs of $15.5 million and $9.1 million for the three months
ended March 31, 2007 and 2006, respectively. The Company has announced the closure of 14
manufacturing facilities since Project Accelerations inception. The Company continues to expect
cumulative pre-tax costs of $375 million to $400 million, approximately 60% of which are expected
to be cash costs, over the life of the initiative. Annualized savings are projected to exceed $150
million upon completion of the project with an approximately $50 million benefit projected in 2007,
$70 million benefit projected in 2008 and the remainder in 2009. The 2007 restructuring costs
included $2.4 million of facility and other exit costs, $12.3 million of employee severance and
termination benefits and $0.8 million of exited contractual commitments and other restructuring
costs. The 2006 restructuring costs included $(0.2) million of facility and other exit costs, $8.2
million of employee severance and termination benefits and $1.1 million of exited contractual
commitments and other restructuring costs. See Footnote 3 of the Notes to the Condensed
Consolidated Financial Statements (Unaudited) for further information on these restructuring costs.
Operating income for the three months ended March 31, 2007 was $120.8 million, or 8.7% of net
sales, versus $109.8 million, or 8.2% of net sales, for the three months ended March 31, 2006. The
change in operating income is the result of the factors described above.
18
Net nonoperating expenses for the three months ended March 31, 2007 were 2.0% of net sales, or
$28.2 million, versus 2.7% of net sales, or $36.2 million, for the three months ended March 31,
2006. The decrease in net nonoperating expenses is mainly attributable to a decrease in interest
expense, reflecting a reduction in debt year over year.
The effective tax rate was 29.7% for the three months ended March 31, 2007 versus (76.9) % for the
three months ended March 31, 2006. The change in the effective tax rate is primarily related to
the $1.9 million income tax benefit recorded for the three months ended March 31, 2007 relating to
the receipt of an income tax refund, resulting in a reduction in the valuation allowance for
deferred tax assets, compared to the $78.0 million income tax benefit recorded for the three months
ended March 31, 2006 resulting from the reorganization of certain legal entities in Europe. The
income tax benefits increased earnings per share by $0.01 and $0.28 for the three months ended
March 31, 2007 and 2006, respectively. See Footnote 7 of the Notes to the Condensed Consolidated
Financial Statements (Unaudited) for further information.
Income from continuing operations for the three months ended March 31, 2007 was $65.1 million,
compared to $130.2 million for the three months ended March 31, 2006. Diluted earnings per share
from continuing operations were $0.23 and $0.47 for the three months ended March 31, 2007 and 2006,
respectively.
The loss from discontinued operations, net of tax, was $15.8 million and $75.4 million for the
three months ended March 31, 2007 and 2006, respectively. The loss on disposal of discontinued
operations for the three months ended March 31, 2007 was $15.6 million, net of tax, compared to
$1.6 million, net of tax, for the three months ended March 31, 2006. The 2007 loss related
primarily to the disposal of the remaining operations of the Home Décor Europe business, while the
2006 loss related to the disposal of the Cookware Europe business. The loss from operations of
discontinued operations for the three months ended March 31, 2007 was $0.2 million, net of tax,
compared to $73.8 million, net of tax, for the three months ended March 31, 2006. The 2007 loss
related to the results of the remaining operations of the Home Décor Europe business, while the
2006 loss included the results of the Home Décor Europe and Little Tikes businesses. Diluted loss
per share from discontinued operations was $0.05 and $0.27 for the three months ended March 31,
2007 and 2006, respectively. See Footnote 2 of the Notes to the Condensed Consolidated Financial
Statements (Unaudited) for further information.
Net income for the three months ended March 31, 2007 was $49.3 million, compared to $54.8 million
for the three months ended March 31, 2006. Diluted earnings per share were $0.18 and $0.21 for the
three months ended March 31, 2007 and 2006, respectively.
Business Segment Operating Results:
Net sales by segment were as follows for the three months ended March 31, (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
% Change |
|
|
|
Cleaning, Organization & Décor |
|
$ |
457.4 |
|
|
$ |
449.7 |
|
|
|
1.7 |
% |
Office Products |
|
|
406.3 |
|
|
|
390.8 |
|
|
|
4.0 |
|
Tools & Hardware |
|
|
293.9 |
|
|
|
276.8 |
|
|
|
6.2 |
|
Home & Family |
|
|
226.8 |
|
|
|
225.3 |
|
|
|
0.7 |
|
|
|
|
Total Net Sales |
|
$ |
1,384.4 |
|
|
$ |
1,342.6 |
|
|
|
3.1 |
% |
|
|
|
Operating income by segment was as follows for the three months ended March 31, (in millions,
except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
% Change |
|
|
|
Cleaning, Organization & Décor |
|
$ |
57.2 |
|
|
$ |
38.4 |
|
|
|
49.0 |
% |
Office Products |
|
|
35.2 |
|
|
|
32.3 |
|
|
|
9.0 |
|
Tools & Hardware |
|
|
34.2 |
|
|
|
33.1 |
|
|
|
3.3 |
|
Home & Family |
|
|
30.4 |
|
|
|
32.7 |
|
|
|
(7.0 |
) |
Corporate |
|
|
(20.7 |
) |
|
|
(17.6 |
) |
|
|
(17.6 |
) |
Restructuring costs |
|
|
(15.5 |
) |
|
|
(9.1 |
) |
|
|
(70.3 |
) |
|
|
|
Total Operating Income |
|
$ |
120.8 |
|
|
$ |
109.8 |
|
|
|
10.0 |
% |
|
|
|
19
Cleaning, Organization & Décor
Net sales for the three months ended March 31, 2007 were $457.4 million, an increase of $7.7
million, or 1.7%, from $449.7 million for the three months ended March 31, 2006. Mid single digit
growth in the Rubbermaid Home Products and Foodservice businesses, driven by strength in home organization and insulated
products, as well as mid single digit growth in the Rubbermaid Commercial Products business, more
than offset sales declines in décor. The decline in décor sales is directly attributable to last
years unusually strong first quarter sales driven by low customer inventory levels going into the
year and by the addition of a new warehouse at a key retailer.
Operating income for the three months ended March 31, 2007 was $57.2 million, or 12.5% of sales, an
increase of $18.8 million, or 49.0%, from $38.4 million for the three months ended March 31, 2006,
driven by sales increases, strong gains from productivity initiatives and favorable raw material
costs.
Office Products
Net sales for the three months ended March 31, 2007 were $406.3 million, an increase of $15.5
million, or 4.0%, from $390.8 million for the three months ended March 31, 2006. The sales
improvement was driven by double digit growth in the DYMO business and favorable foreign currency.
Operating income for the three months ended March 31, 2007 was $35.2 million, or 8.7% of sales, an
increase of $2.9 million, or 9.0%, from $32.3 million for the three months ended March 31, 2006.
The increase in sales, coupled with favorable mix, more than offset restructuring related
inefficiencies and increased strategic brand building expenditures.
Tools & Hardware
Net sales for the three months ended March 31, 2007 were $293.9 million, an increase of $17.1
million, or 6.2%, from $276.8 million for the three months ended March 31, 2006. Approximately one
half of the growth was attributable to strong demand for BernzOmatic hand tools, driven by the cold
weather conditions in the U.S. In addition, the Irwin and Lenox branded tools businesses grew mid
single digits for the quarter. This growth more than offset continued softness at Amerock caused
by lower original equipment manufacturing demand related to residential construction. Sales growth
during the remainder of the year in this segment is expected to be impacted by the soft residential
housing market.
Operating income for the three months ended March 31, 2007 was $34.2 million, or 11.6% of sales, an
increase of $1.1 million, or 3.3%, from $33.1 million for the three months ended March 31, 2006, as
the sales growth described above was largely offset by raw material inflation in metals.
Home & Family
Net sales for the three months ended March 31, 2007 were $226.8 million, an increase of $1.5
million, or 0.7%, from $225.3 million for the three months ended March 31, 2006. Sales in the
first quarter of 2006 were favorably impacted by the timing of promotions and plan-o-gram changes
at key retailers. These conditions did not repeat in the first quarter of 2007.
Operating income for the three months ended March 31, 2007 was $30.4 million, or 13.4% of sales, a
decrease of $2.3 million, or 7.0%, from $32.7 million for the three months ended March 31, 2006,
driven by continued investment in strategic SG&A in these businesses. The Company expects sales
growth and operating income improvement during the remainder of the year.
20
Liquidity and Capital Resources
Cash and cash equivalents increased as follows for the three months ended March 31, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
Cash provided by/(used in) operating activities |
|
$ |
14.5 |
|
|
$ |
(11.7 |
) |
|
|
|
|
Cash used in investing activities |
|
|
(48.2 |
) |
|
|
(18.7 |
) |
|
|
|
|
Cash provided by financing activities |
|
|
49.8 |
|
|
|
90.2 |
|
|
|
|
|
Currency effect on cash and cash equivalents |
|
|
0.7 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
$ |
16.8 |
|
|
$ |
60.6 |
|
|
|
|
|
|
|
|
Sources:
Historically, the Companys primary sources of liquidity and capital resources have included cash
provided by operating activities, proceeds from divestitures and use of available borrowing
facilities.
Cash provided by operating activities for the three months ended March 31, 2007 was $14.5 million,
compared to a use of $11.7 million for the comparable period of 2006. The increase in cash
provided by operating activities is principally a result of lower working capital, primarily due to
the timing of receivables and payables and emphasis on controlling inventory levels.
The Company has $750.0 million available under its revolving credit facility (the Revolver)
through November 2010 and $725.0 million thereafter, through November 2011. At March 31, 2007,
there were no borrowings under the Revolver.
In lieu of borrowings under the Revolver, the Company may issue up to $750.0 million of commercial
paper through 2010 and $725.0 million thereafter, through 2011. The Revolver provides the
committed backup liquidity required to issue commercial paper. Accordingly, commercial paper may
only be issued up to the amount available for borrowing under the Revolver. The Revolver also
provides for the issuance of up to $100.0 million of standby letters of credit so long as there is
a sufficient amount available for borrowing under the Revolver. At March 31, 2007, there was
$349.0 million of commercial paper outstanding and no standby letters of credit issued under the
Revolver.
In the first three months of 2007, the Company received proceeds from the issuance of debt of
$349.7 million, compared to $148.3 million in the first three months of 2006. Proceeds in 2007
reflect the issuance of commercial paper used to fund the payment of a five-year, $250 million, 6%
fixed rate medium term note that came due on March 15, 2007.
The Company used cash of $7.3 million in the first three months of 2007 relating to the divestiture
of the Home Décor Europe businesses. The Company generated cash proceeds from the disposal of
noncurrent assets and sale of businesses of $29.8 million in the first three months of 2006
relating primarily to the sale of the Companys European Cookware business.
Uses:
Historically, the Companys primary uses of liquidity and capital resources have included
acquisitions, dividend payments, capital expenditures and payments on debt.
Cash used for acquisitions was $8.3 million and $23.2 million for the three months ended March 31,
2007 and 2006, respectively. The Company did not invest in significant acquisitions in either
period.
The Company made payments on notes payable and long-term debt of $253.0 million and $1.9 million in
the first three months of 2007 and 2006, respectively. On
March 15, 2007, the Company paid-off a
five-year, $250 million, 6% fixed rate note, at maturity, with available cash and through the
issuance of commercial paper.
Cash used for restructuring activities was $13.3 million and $0.6 million in the first three months
of 2007 and 2006, respectively. These payments relate primarily to employee termination benefits.
In 2007, the Company continues to expect to use approximately $100 million to $125 million of cash
on restructuring activities related to Project
21
Acceleration. See Footnote 3 of the Notes to the
Condensed Consolidated Financial Statements (Unaudited) for additional information.
Capital expenditures were $32.6 million and $25.3 million in the first three months of 2007 and
2006, respectively. The increase in capital expenditures was driven primarily by investment in the
Companys SAP initiative. Capital expenditures for 2007 are expected to be in the range of $140
million to $160 million.
The Company made cash contributions of $18.4 million and $20.9 million in the first three months of
2007 and 2006, respectively, to fund its defined contribution plan.
Dividends paid were $58.6 million and $58.2 million in the first three months of 2007 and 2006,
respectively. In the second quarter of 2007, the Company expects to make similar dividend
payments.
Retained earnings decreased in the first three months of 2007 by $9.4 million. The decrease in
retained earnings is primarily due to the dividends paid on common stock, partially offset by the
current year net income.
Working capital (defined as current assets less current liabilities) at March 31, 2007 was $1,059.1
million compared to $580.3 million at December 31, 2006. The current ratio was 1.82:1 at March 31,
2007 and 1.31:1 at December 31, 2006.
Total debt to total capitalization (total debt is net of cash and cash equivalents, and total
capitalization includes total debt and stockholders equity) was 0.53:1 at March 31, 2007 and
0.52:1 at December 31, 2006.
The Company believes that cash provided from operations and available borrowing facilities will
continue to provide adequate support for the cash needs of existing businesses on a short-term
basis; however, certain events, such as significant acquisitions, could require additional external
financing on a long-term basis.
Market Risk
The Companys market risk is impacted by changes in interest rates, foreign currency exchange rates
and certain commodity prices. Pursuant to the Companys policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact of adverse changes in market
prices. The Company does not hold or issue derivative instruments for trading purposes.
The Company manages interest rate exposure through its conservative debt ratio target and its mix
of fixed and floating rate debt. Interest rate swaps may be used to adjust interest rate exposures
when appropriate based on market conditions, and, for qualifying hedges, the interest differential
of swaps is included in interest expense.
The Companys foreign exchange risk management policy emphasizes hedging anticipated intercompany
and third party commercial transaction exposures of one-year duration or less. The Company focuses
on natural hedging techniques of the following form: 1) offsetting or netting of like foreign
currency flows, 2) structuring foreign subsidiary balance sheets with appropriate levels of debt to
reduce subsidiary net investments and subsidiary cash flows subject to conversion risk, 3)
converting excess foreign currency deposits into U.S. dollars or the relevant functional currency
and 4) avoidance of risk by denominating contracts in the appropriate functional currency. In
addition, the Company utilizes forward contracts and purchased options to hedge commercial and
intercompany transactions. Gains and losses related to qualifying hedges of commercial and
intercompany transactions are deferred and included in the basis of the underlying transactions.
Derivatives used to hedge intercompany loans are marked to market with the corresponding gains or
losses included in the Companys Condensed Consolidated Statements of Income.
The Company purchases certain raw materials, including resin, corrugate, steel, stainless steel,
aluminum and other metals, which are subject to price volatility caused by unpredictable factors.
While future movements of raw material costs are uncertain, a variety of programs, including
periodic raw material purchases, purchases of raw materials for future delivery and customer price
adjustments help the Company address this risk. Where practical, the Company uses derivatives as
part of its risk management process.
22
The amounts shown below represent the estimated potential economic loss that the Company could
incur from adverse changes in either interest rates or foreign exchange rates using the
value-at-risk estimation model. The value-at-risk model uses historical foreign exchange rates and
interest rates to estimate the volatility and correlation of these rates in future periods. It
estimates a loss in fair market value using statistical modeling techniques that are based on a
variance/covariance approach and includes substantially all market risk exposures (specifically
excluding equity-method investments). The fair value losses shown in the table below have no
impact on results of operations or financial condition, but are shown as an illustration of the
impact of potential adverse changes in interest and foreign currency exchange rates. The following
table indicates the calculated amounts for the three months ended March 31, (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
2006 |
|
|
|
|
|
|
Three |
|
|
|
|
|
Three |
|
|
|
|
|
|
Month |
|
March 31, |
|
Month |
|
March 31, |
|
Confidence |
|
|
Average |
|
2007 |
|
Average |
|
2006 |
|
Level |
|
|
|
Interest rates |
|
$ |
7.8 |
|
|
$ |
7.8 |
|
|
$ |
8.1 |
|
|
$ |
8.1 |
|
|
|
95 |
% |
Foreign exchange |
|
$ |
3.6 |
|
|
$ |
3.6 |
|
|
$ |
5.2 |
|
|
$ |
5.2 |
|
|
|
95 |
% |
The 95% confidence interval signifies the Companys degree of confidence that actual losses would
not exceed the estimated losses shown above. The amounts shown here disregard the possibility that
interest rates and foreign currency exchange rates could move in the Companys favor. The
value-at-risk model assumes that all movements in these rates will be adverse. Actual experience
has shown that gains and losses tend to offset each other over time, and it is highly unlikely that
the Company could experience losses such as these over an extended period of time. These amounts
should not be considered projections of future losses, because actual results may differ
significantly depending upon activity in the global financial markets.
Forward-Looking Statements
Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate
to, but are not limited to, information or assumptions about the effects of Project Acceleration,
sales, income/(loss), earnings per share, operating income or gross margin improvements, return on
equity, return on invested capital, capital expenditures, working capital, cash flow, dividends,
capital structure, debt to capitalization ratios, interest rates, internal growth rates,
restructuring, impairment and other charges, potential losses on divestitures, impact of changes in
accounting standards, pending legal proceedings and claims (including environmental matters),
future economic performance, costs and cost savings (including raw material inflation, productivity
and streamlining), synergies, managements plans, goals and objectives for future operations,
performance and growth or the assumptions relating to any of the forward-looking statements. These
statements generally are accompanied by words such as intend, anticipate, believe,
estimate, project, target, plan, expect, will, should or similar statements. The
Company cautions that forward-looking statements are not guarantees because there are inherent
difficulties in predicting future results. Actual results could differ materially from those
expressed or implied in the forward-looking statements. Factors that could cause actual results to
differ include, but are not limited to, those matters set forth in this Report generally and
Exhibit 99.1 to this Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information required by this item is incorporated herein by reference to the section entitled
Market Risk in the Companys Managements Discussion and Analysis of Financial Condition and
Results of Operations (Part I, Item 2).
Item 4. Controls and Procedures
As of March 31, 2007, an evaluation was performed by the Companys management, under the
supervision and with the participation of the Companys chief executive officer and chief financial
officer, of the effectiveness of the
23
Companys disclosure controls and procedures. Based on that
evaluation, the chief executive officer and the chief financial officer concluded that the
Companys disclosure controls and procedures were effective.
There were no changes in the Companys internal control over financial reporting that occurred
during the quarter ended March 31, 2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information required under this Item is contained above in Part I. Financial Information, Item 1
and is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information about the Companys purchases of equity securities
during the quarter ended March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number / |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Value of Shares that |
|
|
Total Number |
|
Average |
|
as Part of Publicly |
|
May Yet Be Purchased |
|
|
of Shares |
|
Price Paid |
|
Announced Plans |
|
Under the Plans or |
Period |
|
Purchased(1) |
|
per Share |
|
or Programs |
|
Programs |
1/1/07-1/31/07 |
|
|
66,160 |
|
|
$ |
29.26 |
|
|
|
|
|
|
|
|
|
2/1/07-2/28/07 |
|
|
21,225 |
|
|
$ |
30.16 |
|
|
|
|
|
|
|
|
|
3/1/07-3/31/07 |
|
|
18,860 |
|
|
$ |
31.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
106,245 |
|
|
$ |
29.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
None of these transactions were made pursuant to a public announced repurchase plan. All
shares purchased for the quarter were acquired by the Company to satisfy employees tax withholding
and payment obligations in connection with the vesting of awards of restricted stock, which are
repurchased by the Company based on their fair market value on the vesting date. |
Item 6. Exhibits
|
10.1 |
|
Newell Rubbermaid Supplemental Executive Retirement Plan,
effective January 1, 2004, as amended effective January 1, 2007
(incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2004 and Exhibit 10.5 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2006). |
|
|
10.2 |
|
Newell Rubbermaid Inc. 2007 Supplemental Transition Bonus Plan
(incorporated by reference to Exhibit 10.16 to the Companys
Annual Report on Form 10-K for the year ended December 31, 2006). |
|
|
31.1 |
|
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
99.1 |
|
Safe Harbor Statement. |
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
NEWELL RUBBERMAID INC.
Registrant
|
|
Date: May 10, 2007 |
/s/ J. Patrick Robinson
|
|
|
J. Patrick Robinson |
|
|
Chief Financial Officer |
|
|
26
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Mark D. Ketchum, certify that:
1. |
|
I have reviewed this report on Form 10-Q for the quarterly period ended March 31, 2007 of
Newell Rubbermaid Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: May 10, 2007
|
|
|
|
|
|
|
|
|
/s/ Mark D. Ketchum
|
|
|
Mark D. Ketchum |
|
|
Chief Executive Officer |
|
|
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, J. Patrick Robinson, certify that:
1. |
|
I have reviewed this report on Form 10-Q for the quarterly period ended March 31, 2007 of
Newell Rubbermaid Inc.; |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: May 10, 2007
|
|
|
|
|
|
|
|
|
/s/ J. Patrick Robinson
|
|
|
J. Patrick Robinson |
|
|
Chief Financial Officer |
|
|
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Newell Rubbermaid Inc. (the Company) on Form 10-Q for
the period ending March 31, 2007 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Mark D. Ketchum, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Mark D. Ketchum
Mark D. Ketchum
Chief Executive Officer
May 10, 2007
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Newell Rubbermaid Inc. (the Company) on Form 10-Q
for the period ending March 31, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, J. Patrick Robinson, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ J. Patrick Robinson
J. Patrick Robinson
Chief Financial Officer
May 10, 2007
exv99w1
EXHIBIT 99.1
NEWELL RUBBERMAID INC. SAFE HARBOR STATEMENT
The Company has made statements in its Annual Report on Form 10-K for the year ended December 31,
2006, as well as in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and the
documents incorporated by reference therein that constitute forward-looking statements, as defined
by the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties. The statements relate to, and other forward-looking statements that may be made by
the Company may relate to, but are not limited to, information or assumptions about the effects of
Project Acceleration, sales (including pricing), income/(loss), earnings per share, return on
equity, return on invested capital, capital expenditures, working capital, cash flow, dividends,
capital structure, debt to capitalization ratios, interest rates, internal growth rates,
restructuring, impairment and other charges, potential losses on divestitures, impact of changes in
accounting standards, pending legal proceedings and claims (including environmental matters),
future economic performance, operating income improvements, costs and cost savings (including raw
material inflation, productivity and streamlining), synergies, and managements plans, goals and
objectives for future operations and growth. These statements generally are accompanied by words
such as intend, anticipate, believe, estimate, project, target, plan, expect,
will, should or similar statements. You should understand that forward-looking statements are
not guarantees because there are inherent difficulties in predicting future results. Actual
results could differ materially from those expressed or implied in the forward-looking statements.
The factors that are discussed below, as well as the matters that are set forth generally in the
2006 Form 10-K, the 1st Quarter 2007 Form 10-Q and the documents incorporated by
reference therein could cause actual results to differ. Some of these factors are described as
criteria for success. Our failure to achieve, or limited success in achieving, these objectives
could result in actual results differing materially from those expressed or implied in the
forward-looking statements. In addition, there can be no assurance that we have correctly
identified and assessed all of the factors affecting the Company or that the publicly available and
other information we receive with respect to these factors is complete or correct.
The Company is subject to risks related to its dependence on the strength of retail economies in
various parts of the world.
The Companys business depends on the strength of the retail economies in various parts of the
world, primarily in North America and to a lesser extent Europe, Central and South America and
Asia. These retail economies are affected primarily by factors such as consumer demand and the
condition of the retail industry, which, in turn, are affected by general economic conditions and
specific events such as natural disasters and terrorist attacks. In recent years, the retail
industry in the U.S. and, increasingly, elsewhere has been characterized by intense competition and
consolidation among retailers. Because such competition, particularly in weak retail economies,
can cause retailers to struggle or fail, the Company must continuously monitor, and adapt to
changes in, the profitability, creditworthiness and pricing policies of its customers.
The Company is subject to intense competition in a marketplace dominated by large retailers.
The Company competes with numerous other manufacturers and distributors of consumer and commercial
products, many of which are large and well established. The Companys principal customers are
large mass merchandisers, such as discount stores, home centers, warehouse clubs and office
superstores, and commercial distributors. The rapid growth of these large mass merchandisers,
together with changes in consumer shopping patterns, have contributed to the formation of dominant
multi-category retailers that have strong negotiating power with suppliers. Current trends among
retailers include fostering high levels of competition among suppliers, demanding innovative new
products and requiring suppliers to maintain or reduce product prices and deliver products with
shorter lead times. Other trends are for retailers to import products directly from foreign
sources and to source and sell products, under their own private label brands, that compete with
products of the Company.
The combination of these market influences has created an intensely competitive environment in
which the Companys principal customers continuously evaluate which product suppliers to use,
resulting in downward pricing pressures and the need for big, consumer-meaningful brands, the
ongoing introduction and commercialization of
innovative new products, continuing improvements in
customer service, and the maintenance of strong relationships with large, high-volume purchasers.
The Company also faces the risk of changes in the strategy or structure of its
major retailer customers, such as overall store and inventory reductions and retailer
consolidation. The resulting risks to the Company include possible loss of sales, reduced
profitability and limited ability to recover cost increases through price increases.
To compete successfully, the Company must develop and commercialize a continuing stream of
innovative new products that create consumer demand.
The Companys long-term success in this competitive retail environment depends on its ability to
develop and commercialize a continuing stream of innovative new products that create consumer
demand. The Company also faces the risk that its competitors will introduce innovative new
products that compete with the Companys products. The Companys strategy includes increased
investment in new product development and increased focus on innovation. There are, nevertheless,
numerous uncertainties inherent in successfully developing and commercializing innovative new
products on a continuing basis, and new product launches may not deliver expected growth results.
To compete successfully, the Company must develop and maintain big, consumer-meaningful brands.
The Companys competitive success also depends increasingly on its ability to develop and maintain
consumer-meaningful brands so that the Companys retailer customers will need the Companys
products to meet consumer demand, and big brands to provide the Company with economies of scale.
The development and maintenance of such brands requires significant investment in brand building
and marketing initiatives. While the Company is substantially increasing its expenditures for
advertising and other brand building and marketing initiatives, the increased investment may not
deliver the anticipated results.
Price increases in raw materials could harm the Companys financial results.
The Company purchases some raw materials, including resin, glass, corrugate, steel, gold, zinc,
brass and aluminum, which are subject to price volatility and inflationary pressure. The Company
attempts to reduce its exposure to increases in those costs through a variety of programs,
including periodic purchases, future delivery purchases, long-term contracts and sales price
adjustments. Where practical, the Company uses derivatives as part of its risk management process.
Raw material price increases may offset productivity gains and could materially impact the
Companys financial results.
The Companys success depends on its ability to continuously improve productivity and streamline
operations.
The Companys success depends on its ability to continuously improve its manufacturing
efficiencies, reduce supply chain costs and streamline non-strategic SG&A expenses in order to
produce products at a best-cost position and free up money for investment in innovation and brand
building. Project Acceleration includes the closure of approximately one-third of the Companys 64
manufacturing facilities (adjusted for the divestiture of Little Tikes and Home Décor Europe)
between the periods January 1, 2006 and December 31, 2009. In addition, the Company is exploring
ways to best leverage its functional capabilities such as Human Resources, Information Technology,
Customer Service, Supply Chain and Finance in order to improve efficiency and reduce costs. The
Company runs the risk that Project Acceleration and other corporate initiatives aimed at
streamlining and cost reduction may not be completed substantially as planned, may be more costly
to implement than expected, or may not have the positive effects anticipated, or that other major
productivity and streamlining programs may be required after such projects are completed. In
addition, disruptions in the Companys ability to supply products on a timely basis, which may be
incidental to any problems in the execution of Project Acceleration, could adversely affect the
Companys future results.
The Companys ability to make strategic acquisitions and to integrate its acquired businesses is an
important factor in the Companys future growth.
Although the Company has in recent years increasingly emphasized internal growth rather than growth
by acquisition, the Companys ability to continue to make strategic acquisitions and to integrate
the acquired businesses successfully, obtaining anticipated cost savings and operating income
improvements within a reasonable period of
time, remain important factors in the Companys future growth. Furthermore, the cost of any future
major acquisitions could constrain the Companys access to capital and increase the Companys
borrowing costs.
The Company is subject to risks related to its international operations.
Foreign operations, especially in Europe, but also in Asia, Central and South America and Canada,
are important to the Companys business. The Company is expanding from a U.S.-centric business
model to one that includes international growth as an increasing focus. In addition, as the
Company increasingly sources products in low-cost countries, particularly in the Far East, it is
exposed to additional risks and uncertainties. Foreign operations can be affected by factors such
as currency devaluation, other currency fluctuations, tariffs, nationalization, exchange controls,
interest rates, limitations on foreign investment in local business and other political, economic
and regulatory risks and difficulties. The Company also faces risks due to the transportation and
logistical complexities inherent in increased reliance on foreign sourcing.
The Company faces challenges and uncertainties as it transforms into a company that grows through
consumer-meaningful brands and new product innovation.
The Company is undergoing a transformation from a portfolio-holding company that grew through
acquisitions to a focused group of leadership platforms that generate internal growth driven by
consumer-meaningful brands and new product innovation. Such a transformation will require
significant investment in brand-building, marketing and product development and the development of
the right methods for understanding how consumers interact with the Companys brands and categories
and measuring the effectiveness of advertising and promotion spending. Although the process is
well underway, there remain significant challenges and uncertainties.
Complications in connection with the Companys current information system initiative may impact its
results of operations, financial condition and cash flows.
The Company is in the early stages of replacing various business information systems worldwide with
an enterprise resource planning system from SAP. The pilot implementation is currently planned for
the North American Office Products business in late 2007. The implementation will occur over
several years in phases, primarily based on geographic region and segment. This activity involves
the migration of multiple legacy systems and users to a common SAP information platform.
Throughout this process, the Company is changing the way it conducts business and employees roles
in processing and utilizing information. In addition, this conversion will impact certain
interfaces with the Companys customers and suppliers, resulting in changes to the tools we use to
take orders, procure material, schedule production, remit billings, make payments and perform other
business functions. Based upon the complexity of this initiative, there is risk that the Company
will be unable to complete the implementation in accordance with its timeline and will incur
additional costs, the implementation could result in operating inefficiencies, and the
implementation could impact the Companys ability to perform necessary business transactions. All
of these risks could adversely impact the Companys results of operations, financial condition and
cash flows.
Impairment charges could have a material adverse effect on the Companys financial results.
Future events may occur that would adversely affect the reported value of the Companys assets and
require impairment charges. Such events may include, but are not limited to, strategic decisions
made in response to changes in economic and competitive conditions, the impact of the economic
environment on the Companys customer base, or a material adverse change in its relationship with
significant customers.
Product liability claims or regulatory actions could adversely affect the Companys financial
results or harm its reputation or the value of its end-user brands.
Claims for losses or injuries purportedly caused by some of the Companys products arise in the
ordinary course of the Companys business. In addition to the risk of substantial monetary
judgments, product liability claims or regulatory actions could result in negative publicity that
could harm the Companys reputation in the marketplace or the value of its end-user brands. The
Company could also be required to recall possibly defective products, which could result in adverse
publicity and significant expenses. Although the Company maintains product liability
insurance coverage, potential product liability claims are subject to a self-insured retention or
could be excluded under the terms of the policy.