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 September 30, 2008
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.) |
Three Glenlake Parkway
Atlanta, Georgia 30328
(Address of principal executive offices)
(Zip Code)
(770) 418-7000
(Registrants telephone number, including area code)
Newell Rubbermaid Inc.
10B Glenlake Parkway, Suite 300
Atlanta, Georgia 30328
(Former address)
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, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 September 30, 2008:
277.2 million.
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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Nine Months Ended |
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September 30, |
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September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
1,760.3 |
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$ |
1,687.3 |
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$ |
5,019.1 |
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$ |
4,764.8 |
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Cost of products sold |
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1,185.6 |
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1,086.3 |
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3,330.7 |
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3,083.5 |
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GROSS MARGIN |
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574.7 |
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601.0 |
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1,688.4 |
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1,681.3 |
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Selling, general and administrative expenses |
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394.3 |
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364.5 |
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1,148.2 |
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1,060.2 |
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Restructuring costs |
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13.5 |
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22.7 |
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101.3 |
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53.7 |
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OPERATING INCOME |
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166.9 |
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213.8 |
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438.9 |
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567.4 |
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Nonoperating expenses: |
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Interest expense, net |
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38.8 |
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28.0 |
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103.3 |
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82.9 |
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Other expense, net |
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55.4 |
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2.1 |
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56.4 |
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4.4 |
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Net nonoperating expenses |
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94.2 |
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30.1 |
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159.7 |
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87.3 |
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INCOME BEFORE INCOME TAXES |
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72.7 |
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183.7 |
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279.2 |
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480.1 |
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Income taxes |
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17.7 |
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13.8 |
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74.3 |
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101.9 |
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INCOME FROM CONTINUING OPERATIONS |
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55.0 |
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169.9 |
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204.9 |
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378.2 |
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Gain (loss) from discontinued operations, net of tax |
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0.3 |
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(0.5 |
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(16.5 |
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NET INCOME |
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$ |
55.0 |
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$ |
170.2 |
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$ |
204.4 |
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$ |
361.7 |
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Weighted average shares outstanding: |
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Basic |
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277.1 |
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276.0 |
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277.0 |
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276.0 |
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Diluted |
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278.4 |
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286.1 |
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278.2 |
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286.1 |
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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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$ |
0.20 |
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$ |
0.62 |
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$ |
0.74 |
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$ |
1.37 |
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Loss from discontinued operations |
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(0.06 |
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Earnings per common share |
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$ |
0.20 |
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$ |
0.62 |
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$ |
0.74 |
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$ |
1.31 |
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Diluted |
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Income from continuing operations |
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$ |
0.20 |
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$ |
0.61 |
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$ |
0.74 |
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$ |
1.36 |
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Loss from discontinued operations |
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(0.06 |
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Earnings per common share |
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$ |
0.20 |
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$ |
0.61 |
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$ |
0.73 |
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$ |
1.30 |
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Dividends per share |
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$ |
0.21 |
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$ |
0.21 |
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$ |
0.63 |
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$ |
0.63 |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in millions)
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September 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
220.6 |
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$ |
329.2 |
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Accounts receivable, net |
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1,144.8 |
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1,166.4 |
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Inventories, net |
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1,060.7 |
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940.4 |
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Deferred income taxes |
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129.6 |
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102.0 |
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Prepaid expenses and other |
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122.3 |
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113.7 |
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TOTAL CURRENT ASSETS |
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2,678.0 |
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2,651.7 |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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656.0 |
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688.6 |
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DEFERRED INCOME TAXES |
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29.4 |
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GOODWILL |
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3,034.8 |
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2,608.7 |
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OTHER INTANGIBLE ASSETS, NET |
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656.8 |
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501.8 |
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OTHER ASSETS |
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232.7 |
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202.7 |
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TOTAL ASSETS |
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$ |
7,258.3 |
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$ |
6,682.9 |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (CONTINUED)
(Amounts in millions, except par value)
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September 30, |
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December 31, |
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2008 |
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2007 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
608.1 |
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$ |
616.9 |
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Accrued compensation |
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112.3 |
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170.7 |
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Other accrued liabilities |
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797.7 |
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744.7 |
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Income taxes payable |
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36.1 |
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44.0 |
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Notes payable |
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27.3 |
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15.3 |
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Current portion of long-term debt |
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542.4 |
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972.2 |
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TOTAL CURRENT LIABILITIES |
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2,123.9 |
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2,563.8 |
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DEFERRED INCOME TAXES |
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38.7 |
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LONG-TERM DEBT |
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2,296.7 |
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1,197.4 |
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OTHER NONCURRENT LIABILITIES |
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566.9 |
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674.4 |
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STOCKHOLDERS EQUITY: |
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Preferred stock, authorized shares, 10.0 at $1.00 par value |
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None issued and outstanding |
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Common stock, authorized shares, 800.0 at $1.00 par value |
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293.1 |
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292.6 |
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Outstanding shares, before treasury: |
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2008 - 293.1 |
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2007 - 292.6 |
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Treasury stock, at cost: |
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(418.0 |
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(415.1 |
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Shares held: |
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2008 - 15.9 |
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2007 - 15.9
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Additional paid-in capital |
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599.7 |
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570.3 |
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Retained earnings |
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1,949.9 |
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1,922.7 |
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Accumulated other comprehensive loss |
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(192.6 |
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(123.2 |
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TOTAL STOCKHOLDERS EQUITY |
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2,232.1 |
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2,247.3 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
7,258.3 |
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$ |
6,682.9 |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in millions)
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Nine Months Ended September 30, |
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2008 |
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2007 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
204.4 |
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$ |
361.7 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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137.5 |
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134.4 |
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Deferred income taxes |
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23.8 |
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64.4 |
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Non-cash restructuring costs |
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45.3 |
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10.1 |
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Gain on sale of assets |
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(0.8 |
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Stock-based compensation expense |
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27.5 |
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27.9 |
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Loss on disposal of discontinued operations |
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0.5 |
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16.3 |
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Income tax benefits |
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(3.5 |
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(41.3 |
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Other |
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53.9 |
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(2.9 |
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Changes in operating assets and liabilities, excluding the effects of acquisitions: |
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Accounts receivable |
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36.9 |
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23.9 |
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Inventories |
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(85.4 |
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(119.1 |
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Accounts payable |
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(44.5 |
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59.0 |
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Accrued liabilities and other |
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(151.2 |
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(77.4 |
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Discontinued operations |
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(2.2 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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243.0 |
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456.2 |
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INVESTING ACTIVITIES: |
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Acquisitions, net of cash acquired |
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(660.4 |
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(101.5 |
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Capital expenditures |
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(122.1 |
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(110.0 |
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Disposals of noncurrent assets and sales of businesses |
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6.4 |
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(3.1 |
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NET CASH USED IN INVESTING ACTIVITIES |
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(776.1 |
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(214.6 |
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FINANCING ACTIVITIES: |
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Proceeds from issuance of debt, net of debt issuance costs |
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1,317.6 |
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354.9 |
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Payments on notes payable and long-term debt |
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(711.0 |
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(474.3 |
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Cash dividends |
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(176.1 |
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(176.0 |
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Proceeds from exercised stock options and other |
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(2.5 |
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18.0 |
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
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428.0 |
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(277.4 |
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Currency rate effect on cash and cash equivalents |
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(3.5 |
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4.3 |
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DECREASE IN CASH AND CASH EQUIVALENTS |
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(108.6 |
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(31.5 |
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Cash and cash equivalents at beginning of period |
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329.2 |
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201.0 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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$ |
220.6 |
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$ |
169.5 |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
NOTES 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 U.S. generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited condensed consolidated financial statements
include all adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position and the results of operations. It is recommended 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.
New Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles, and requires expanded disclosures about fair value
measurements. The Company prospectively adopted the effective provisions of SFAS 157 on January 1,
2008, as required for financial assets and liabilities. The adoption did not have a material impact
on the consolidated financial statements. In accordance with SFAS 157, the Company expanded its
disclosures regarding the fair values of financial assets and liabilities. See Note 12. The FASB
deferred the effective date of SFAS 157 for one year as it relates to fair value measurement
requirements for nonfinancial assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis. The implementation of SFAS 157 for the Companys
nonfinancial assets and nonfinancial liabilities is not expected to have a material impact on the
Companys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
141(R)). SFAS 141(R) significantly changes the accounting for business combination transactions by
requiring an acquiring entity to recognize all the assets acquired and liabilities assumed in a
transaction at the acquisition-date fair value. Additionally, SFAS 141(R) modifies the accounting
treatment for certain specified items related to business combinations and requires a substantial
number of new disclosures. SFAS 141(R) is effective for business combinations with an acquisition
date in fiscal years beginning on or after December 15, 2008, and earlier adoption is prohibited.
The Company will prospectively adopt SFAS 141(R) on January 1, 2009. The implementation of SFAS
141(R) could have a material effect on the way the Company accounts for future acquisitions.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parents ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting
requirements that require sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for
fiscal years beginning on or after December 15, 2008, and earlier adoption is prohibited. SFAS 160
is effective for the Company on January 1, 2009. The Company is still in the process of evaluating
the impact SFAS 160 will have on the Companys consolidated financial statements. The Company will
prospectively adopt SFAS 160 on January 1, 2009.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment to FASB Statement No. 133 (SFAS 161). SFAS 161 is intended to improve
financial reporting by requiring enhanced disclosures for derivative instruments and hedging
activities to enable investors to better understand how derivative instruments are accounted for
under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) and
their effects on an entitys financial position, financial performance and cash flows. SFAS 161 is
effective for the Company beginning January 1, 2009. The adoption of SFAS 161 is not expected to
have a significant impact on the Companys consolidated financial statements.
7
In April 2008, the FASB issued Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP SFAS 142-3). FSP SFAS 142-3 amends the factors an entity should consider
when developing renewal or extension assumptions for determining the useful lives of recognized
intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FSP SFAS
142-3 is intended to improve the consistency between the useful lives of recognized intangible
assets under SFAS 142 and the period of expected cash flows used to measure the fair value of
acquired assets. The guidance also requires expanded disclosure related to an entitys intangible
assets. The guidance for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after the effective date and the disclosure
requirements shall be applied prospectively to all intangible assets recognized as of, and
subsequent to, the effective date. FSP SFAS 142-3 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. FSP SFAS 142-3 is effective for
the Company on January 1, 2009. The adoption of FSP SFAS 142-3 is not expected to have a
significant impact on the Companys consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with U.S. generally accepted accounting
principles. SFAS 162 is effective 60 days following the Securities and Exchange Commissions
approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of
generally accepted accounting principles from the auditing standards. The adoption of SFAS 162 is
not expected to have a material effect on the Companys financial statements.
In June 2008, the FASB issued Staff Position EITF 03-06-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-06-1). This Staff
Position provides that unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to the two-class method in SFAS No.
128, Earnings per Share. FSP EITF 03-06-1 is effective for fiscal years beginning after December
15, 2008 and interim periods within those years and requires all prior-period earnings per share
data to be adjusted retrospectively. FSP EITF 03-06-1 is effective for the Company on January 1,
2009. The adoption of FSP EITF 03-06-1 is not expected to have a material impact on the Companys
consolidated financial statements.
Footnote 2 Acquisitions
Technical Concepts
On April 1, 2008, the Company acquired 100% of the outstanding limited liability company interests
of Technical Concepts Holdings, LLC (Technical Concepts) for $452.5 million, which includes
transaction costs and the repayment of Technical Concepts outstanding debt obligations at closing.
Technical Concepts provides innovative touch-free and automated restroom hygiene systems in the
away-from-home washroom category. The Technical Concepts acquisition gives the Companys Commercial
Products business an entry into the away-from-home washroom market and fits within the Companys
strategy of leveraging its existing sales and marketing capabilities across additional product
categories. In addition, with approximately 40% of its sales outside the U.S., Technical Concepts
increases the global footprint of the Companys Commercial Products business. For the year ended
December 31, 2007, Technical Concepts reported net sales of approximately $137 million.
This acquisition was accounted for using the purchase method of accounting and accordingly, the
Company allocated the total purchase price to the identifiable tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values on the date of acquisition.
Based on the preliminary purchase price allocation, the Company allocated $51.6 million of the
purchase price to identified tangible net assets and $93.5 million of the purchase price to
identified intangible assets. The Company recorded the excess of the purchase price over the
aggregate fair values of $307.4 million as goodwill, which is included in the Condensed
Consolidated Balance Sheet at September 30, 2008. Technical Concepts results of operations are
included in the Companys Condensed Consolidated Financial Statements since the acquisition date.
Pro forma results of operations would not be materially different as a result of the acquisition
and therefore are not presented.
Aprica
On April 1, 2008, the Company acquired substantially all of the assets of Aprica Childcare
Institute Aprica Kassai, Inc. (Aprica), a maker of strollers, car seats and other childrens
products, headquartered in Osaka, Japan. The Company acquired Apricas assets for $154.2 million,
which includes transaction costs and the repayment of Apricas outstanding debt obligations at
closing. Aprica is a Japanese brand of premium strollers, car seats and other related juvenile
products. The acquisition provides the opportunity for the
8
Companys Baby & Parenting Essentials business to broaden its presence worldwide, including
expanding the scope of Apricas sales outside of Asia. For the fiscal year ended July 31, 2007,
Aprica reported net sales of approximately $122 million.
This acquisition was accounted for using the purchase method of accounting and accordingly, the
Company allocated the total purchase price to the identifiable tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values on the date of acquisition.
Based on the preliminary purchase price allocation, the Company allocated $(28.0) million of the
purchase price to identified tangible net liabilities and $57.0 million of the purchase price to
identified intangible assets. The Company recorded the excess of purchase price over the aggregate
fair values of $125.2 million as goodwill, which is included in the Condensed Consolidated Balance
Sheet at September 30, 2008. Apricas results of operations are included in the Companys Condensed
Consolidated Financial Statements since the acquisition date. Pro forma results of operations would
not be materially different as a result of the acquisition and therefore are not presented. The
closing of the purchase of Apricas operations in China occurred in October 2008 and impacts the
amount of net liabilities acquired and goodwill recorded in the Aprica acquisition; however, the
impact of the acquisition of Apricas China operations is not expected to materially impact the
overall Aprica purchase price allocation.
Footnote 3 Discontinued Operations
The following table summarizes the results of businesses reported as discontinued operations for
the three and nine months ended September 30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.6 |
|
|
|
|
Loss from operations of discontinued operations,
net of income tax expense of $ million for all
periods presented |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.2 |
) |
Gain (loss) on disposal of discontinued operations,
net of income tax benefit of $ million and $0.5
million for the three and nine months ended
September 30, 2008, respectively, and income tax
expense of $0.1 million and income tax benefit of
$3.8 million for the three and nine months ended
September 30, 2007, respectively |
|
|
|
|
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
(16.3 |
) |
|
|
|
Gain (loss) from discontinued operations, net of tax |
|
$ |
|
|
|
$ |
0.3 |
|
|
$ |
(0.5 |
) |
|
$ |
(16.5 |
) |
|
|
|
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. In September 2006, the Company entered
into an agreement for the 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 sale of the Southern European region of the Home Décor Europe
business to another party. The sale of the operations in France and Spain closed on January 1, 2007
and in Italy on January 31, 2007.
In connection with these transactions, the Company recorded a loss of $14.6 million, net of tax, in
the nine months ended September 30, 2007 to complete the divestiture of Home Décor Europe. The 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 for the nine months ended September
30, 2007, approximately $1.7 million, net of tax, related to contingencies associated with other
prior divestitures.
Footnote 4 Restructuring Costs
Project Acceleration Restructuring Activities
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. Project Acceleration
was designed to reduce manufacturing overhead, better align the Companys distribution and
transportation processes to achieve logistical excellence, and reorganize the Companys overall
business structure to align with the Companys core organizing concept, the global business unit,
to achieve best total cost (the Plan).
9
On July 15, 2008, the Company announced an expansion of Project Acceleration so that, in addition
to the Plans original objectives, it provides for divesting, downsizing or exiting certain product
categories (the Plan Expansion). As a
result of the Plan Expansion, the Company expects to create a more
focused and more profitable platform for growth by eliminating
selected low margin, commodity like, mostly resin intensive product
categories, which represent approximately $500 million in annual
sales. In addition the Plan Expansion will reduce the Companys
exposure to volatile commodity markets, particularly resin. The Plan Expansion is expected to be substantially complete by the
middle of 2009, and is expected to result in cumulative pre-tax restructuring charges (including
asset impairments) totaling between $80 and $100 million.
Project Acceleration includes the anticipated closures of certain of the Companys manufacturing
and distribution facilities to optimize the Companys geographic footprint and is expected to
result in cumulative restructuring costs over the life of the initiative totaling between $475 and
$500 million ($405 and $425 million after-tax), which includes the expected $80 to $100 million of
charges associated with the Plan Expansion. Specifically, in connection with Project Acceleration,
the Company expects to incur approximately $250 to $270 million in employee-related costs,
including severance, pension costs and other termination benefits and employee relocation;
approximately $155 to $175 million in non-cash asset related costs; and approximately $50 to $70
million in other associated costs, including contract termination fees. Approximately 67% of the
Project Acceleration restructuring costs are expected to be cash charges. The Company expects to
incur between $150 and $200 million ($110 and $150 million after-tax) of Project Acceleration
restructuring costs in 2008.
The savings generated from the Plan will allow the Company to increase investment in new product
development, brand building and marketing. Annual savings from the Plan are projected to be between
$175 and $200 million once fully implemented in 2010.
In total through September 30, 2008, the Company has recorded $303.6 million of costs related to
the Plan, including the Plan Expansion, of which $139.2 million related to facility and other exit
costs, $122.6 million related to employee severance, termination benefits and employee relocation
costs, and $41.8 million related to exited contractual commitments and other restructuring costs.
The
table below shows the restructuring (benefits) costs recognized for Project Acceleration restructuring
activities for the three and nine months ended September 30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Facility and other exit costs |
|
$ |
(1.1 |
) |
|
$ |
5.7 |
|
|
$ |
45.3 |
|
|
$ |
14.1 |
|
Employee severance, termination benefits and relocation costs |
|
|
11.2 |
|
|
|
4.0 |
|
|
|
41.5 |
|
|
|
23.8 |
|
Exited contractual commitments and other |
|
|
3.4 |
|
|
|
13.0 |
|
|
|
13.1 |
|
|
|
15.8 |
|
|
|
|
|
|
$ |
13.5 |
|
|
$ |
22.7 |
|
|
$ |
99.9 |
|
|
$ |
53.7 |
|
|
|
|
Restructuring provisions were determined based on estimates prepared at the time the restructuring
actions were approved by management, are periodically updated for changes and also include amounts
recognized as incurred. Costs incurred include cash payments and the impairment of assets
associated with vacated facilities. A summary of the Companys accrued restructuring reserves for
continuing operations as of and for the nine months ended September 30, 2008 is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/07 |
|
|
|
|
|
Costs |
|
9/30/08 |
|
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
|
|
|
Facility and other exit costs |
|
$ |
|
|
|
$ |
45.3 |
|
|
$ |
(45.3 |
) |
|
$ |
|
|
Employee severance, termination benefits and relocation costs |
|
|
22.5 |
|
|
|
41.5 |
|
|
|
(39.4 |
) |
|
|
24.6 |
|
Exited contractual commitments and other |
|
|
16.2 |
|
|
|
13.1 |
|
|
|
(7.3 |
) |
|
|
22.0 |
|
|
|
|
|
|
$ |
38.7 |
|
|
$ |
99.9 |
|
|
$ |
(92.0 |
) |
|
$ |
46.6 |
|
|
|
|
The table below shows restructuring costs (benefits) recognized for Project Acceleration
restructuring activities for the three and nine months ended September 30, aggregated by reportable
business segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
Segment |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
Cleaning, Organization & Décor |
|
$ |
(4.6 |
) |
|
$ |
1.0 |
|
|
$ |
36.0 |
|
|
$ |
3.6 |
|
Office Products |
|
|
7.9 |
|
|
|
6.4 |
|
|
|
30.0 |
|
|
|
22.7 |
|
Tools & Hardware |
|
|
6.3 |
|
|
|
14.1 |
|
|
|
19.6 |
|
|
|
23.3 |
|
Other (Home & Family) |
|
|
2.2 |
|
|
|
0.1 |
|
|
|
3.0 |
|
|
|
1.1 |
|
Corporate |
|
|
1.7 |
|
|
|
1.1 |
|
|
|
11.3 |
|
|
|
3.0 |
|
|
|
|
|
|
$ |
13.5 |
|
|
$ |
22.7 |
|
|
$ |
99.9 |
|
|
$ |
53.7 |
|
|
|
|
10
The following table depicts the changes in accrued restructuring reserves for the Plan for the nine
months ended September 30, 2008 aggregated by reportable business segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/07 |
|
|
|
|
|
Costs |
|
9/30/08 |
Segment |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
|
Cleaning, Organization & Décor |
|
$ |
0.8 |
|
|
$ |
36.0 |
|
|
$ |
(35.2 |
) |
|
$ |
1.6 |
|
Office Products |
|
|
23.1 |
|
|
|
30.0 |
|
|
|
(35.9 |
) |
|
|
17.2 |
|
Tools & Hardware |
|
|
13.9 |
|
|
|
19.6 |
|
|
|
(14.1 |
) |
|
|
19.4 |
|
Other (Home & Family) |
|
|
|
|
|
|
3.0 |
|
|
|
(1.7 |
) |
|
|
1.3 |
|
Corporate |
|
|
0.9 |
|
|
|
11.3 |
|
|
|
(5.1 |
) |
|
|
7.1 |
|
|
|
|
|
|
$ |
38.7 |
|
|
$ |
99.9 |
|
|
$ |
(92.0 |
) |
|
$ |
46.6 |
|
|
|
|
The table below shows total restructuring costs for the Plan since inception through September 30,
2008, aggregated by reportable business segment (in millions):
|
|
|
|
|
Segment |
|
Provision |
|
|
Cleaning, Organization & Décor |
|
$ |
91.8 |
|
Office Products |
|
|
122.3 |
|
Tools & Hardware |
|
|
59.7 |
|
Other (Home & Family) |
|
|
12.6 |
|
Corporate |
|
|
17.2 |
|
|
|
|
|
|
|
$ |
303.6 |
|
|
|
|
|
Pre-Project Acceleration Restructuring Activities
The Company announced a restructuring plan in 2001 (the 2001 Plan). The specific objectives of
the 2001 Plan were to streamline the Companys supply chain to become the best-cost global provider
throughout the Companys portfolio by reducing worldwide headcount and consolidating duplicative
manufacturing facilities. During the first quarter of 2008, the Company recorded an additional
provision relating to the 2001 Plan of $1.4 million, which is included in total restructuring costs
for the nine months ended September 30, 2008. Approximately $1.9 million of pre-Acceleration
restructuring reserves remain as of September 30, 2008.
Cash paid for all restructuring activities was $11.6 million and $46.7 million for the three and
nine months ended September 30, 2008, respectively, and $9.5 million and $37.8 million for the
three and nine months ended September 30, 2007, respectively.
Footnote 5 Inventories, Net
Inventories are stated at the lower of cost or market value. The components of net inventories were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2008 |
|
2007 |
|
|
|
Materials and supplies |
|
$ |
174.1 |
|
|
$ |
178.8 |
|
Work in process |
|
|
210.5 |
|
|
|
179.8 |
|
Finished products |
|
|
676.1 |
|
|
|
581.8 |
|
|
|
|
|
|
$ |
1,060.7 |
|
|
$ |
940.4 |
|
|
|
|
11
Footnote 6 Long-Term Debt
The following is a summary of long-term debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2008 |
|
2007 |
|
|
|
Medium-term notes |
|
$ |
1,900.4 |
|
|
$ |
1,075.0 |
|
Commercial paper |
|
|
39.1 |
|
|
|
197.0 |
|
Floating rate note |
|
|
448.0 |
|
|
|
448.0 |
|
Junior convertible subordinated debentures |
|
|
436.7 |
|
|
|
436.7 |
|
Other long-term debt |
|
|
14.9 |
|
|
|
12.9 |
|
|
|
|
Total Debt |
|
|
2,839.1 |
|
|
|
2,169.6 |
|
Current portion of long-term debt |
|
|
(542.4 |
) |
|
|
(972.2 |
) |
|
|
|
Long-Term Debt |
|
$ |
2,296.7 |
|
|
$ |
1,197.4 |
|
|
|
|
In September 2008, the Company entered into a $400.0 million credit agreement (the Agreement),
under which the Company received an unsecured three-year term loan in the amount of $400.0 million
(the Loan). The Company is required to repay the outstanding principal amount of the Loan
according to the following schedule: $50.0 million in September 2009; $100.0 million in September
2010; and $250.0 million in September 2011, the maturity date. Borrowings under the Agreement bear
interest at a rate of LIBOR plus a spread that is determined based on the credit rating of the Company,
and interest is payable quarterly. The $400 million of outstanding borrowings under the Agreement
at September 30, 2008 bear interest at a weighted average interest rate of 4.7%. The Agreement has
covenants similar to those in the Companys $750.0 million five-year syndicated revolving credit
facility, including, among other things, the maintenance of interest coverage and total
indebtedness to total capital ratios and a limitation on the amount of indebtedness subsidiaries
may incur. Net proceeds from the Loan were used to repay outstanding commercial paper and for
general corporate purposes.
In September 2006, in accordance with the terms of the Companys 2001 receivables facility with a
financial institution, the Companys financing entity caused its $450.0 million outstanding
preferred debt securities to be exchanged for a two year floating rate note in an aggregate
principal amount of $448.0 million (the Note) and other consideration. The Note must be repaid
before the Company can have access to the financing entitys receivables. In September 2008, the
Companys wholly owned and consolidated financing entity obtained an extension of the maturity of
the Note from September 2008 to September 2009. The receivables and the Note are recorded in the
Condensed Consolidated Balance Sheets of the Company at December 31, 2007 and September 30, 2008,
and the Note is classified as current portion of long-term debt in the Companys Condensed
Consolidated Balance Sheets at September 30, 2008 based on its September 2009 maturity date.
In July 2008, the Company redeemed its $250.0 million of Reset notes due July 2028, and recorded a
loss on the extinguishment of the Reset notes of $52.2 million associated with the purchase of the
remarketing option embedded in the Reset notes. The Company utilized its commercial paper program
to fund the redemption of the Reset notes and the purchase of the remarketing option in order to
pursue more favorable financing terms. The loss on extinguishment of $52.2 million is included in
other expense, net in the Condensed Consolidated Statements of Income for the three and nine months
ended September 30, 2008. The $302.2 million aggregate amount paid to redeem the Reset notes is
included as payments on notes payable and long-term debt in the Condensed Consolidated Statement of
Cash Flows for the nine months ended September 30, 2008.
In July 2008, note holders owning $65.0 million of the Companys $75.0 million of outstanding
medium-term notes due July 2028 exercised their put option, which entitled the holders of the notes
to require the Company to repay the notes at par. As a result, the Company repaid $65.0 million of
the outstanding notes in July 2008. The remaining $10.0 million were not put to the Company and
will continue to bear interest at 6.11% through maturity in July 2028. The Company utilized its
commercial paper program to fund the redemption of the medium-term notes.
In March 2008, the Company completed the offering and sale of senior unsecured notes, consisting of
$500 million in 5.50% senior unsecured notes with a maturity of April 15, 2013 and $250 million in
6.25% senior unsecured notes with a maturity of April 15, 2018 (collectively, the Senior Unsecured
Notes). Interest on the Senior Unsecured Notes is payable semi-annually on April 15 and October 15
beginning October 15, 2008. Net proceeds from this offering were used to fund acquisitions, repay
debt, and for general corporate purposes. The Senior Unsecured Notes are unsecured and
unsubordinated obligations of the Company and equally ranked with all of its existing and future
senior unsecured debt. The Senior Unsecured Notes may be redeemed by the Company at any time, in
whole or in part, at a redemption price plus accrued interest to the date of redemption. The
redemption price is equal to the greater of (1) 100% of the principal amount of the Senior
Unsecured Notes being redeemed or (2) the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of any payments of interest
accrued through
12
the date of the redemption), discounted to the date of redemption on a semi-annual basis at a
specified rate. The Senior Unsecured Notes also contain a provision that allows holders of the
Senior Unsecured Notes to require the Company to repurchase all or any part of the Senior Unsecured
Notes if a change of control triggering event occurs. Under this provision, the repurchase of the
Senior Unsecured Notes will occur at a purchase price of 101% of the outstanding principal amount,
plus accrued and unpaid interest, if any, on such Senior Unsecured Notes to the date of purchase.
In 1997, a 100% owned finance subsidiary (the Subsidiary) of the Company issued 10.0 million
shares of 5.25% convertible preferred securities (the Preferred Securities). Each of these
Preferred Securities is convertible into 0.9865 of a share of the Companys common stock. As of
September 30, 2008, the Company fully and unconditionally guarantees the 8.4 million shares of the
Preferred Securities issued by the Subsidiary that were outstanding at September 30, 2008, which
are callable at 100% of the liquidation preference. The proceeds received by the Subsidiary from
the issuance of the Preferred Securities were invested in the Companys 5.25% Junior Convertible
Subordinated Debentures (the Debentures), which mature on December 1, 2027. The Preferred
Securities are mandatorily redeemable upon the repayment of the Debentures at maturity or upon
acceleration of the Debentures. As of September 30, 2008, the Company has not elected to defer
interest payments on the $436.7 million of outstanding Debentures.
Footnote 7 Employee Benefit and Retirement Plans
Effective January 1, 2008, the Company prospectively adopted the measurement date provisions of
SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). Beginning with the year
ended December 31, 2008, SFAS 158 requires the measurement date for defined benefit plan assets and
obligations to coincide with the date of the employers fiscal year end statement of financial
position, which for the Company is December 31. The Company has historically measured defined
benefit plan assets and liabilities for the majority of its plans on September 30 for its year-end
statement of financial position. The impact on the Condensed Consolidated Financial Statements of
the adoption of the change in measurement date for the Companys defined benefit and postretirement
plans with September 30 plan year-ends resulted in an adjustment to decrease retained earnings at
January 1, 2008 by $1.1 million.
The following table presents the components of the Companys pension cost, including supplemental
retirement plans, for the three months ended September 30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Service cost-benefits earned during the period |
|
$ |
1.1 |
|
|
$ |
0.9 |
|
|
$ |
1.6 |
|
|
$ |
1.9 |
|
Interest cost on projected benefit obligation |
|
|
13.0 |
|
|
|
12.8 |
|
|
|
7.8 |
|
|
|
7.1 |
|
Expected return on plan assets |
|
|
(14.4 |
) |
|
|
(14.6 |
) |
|
|
(7.6 |
) |
|
|
(7.0 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
1.7 |
|
|
|
1.9 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
|
Net periodic pension cost |
|
$ |
1.8 |
|
|
$ |
1.3 |
|
|
$ |
2.7 |
|
|
$ |
3.1 |
|
|
|
|
The following table presents the components of the Companys pension cost, including supplemental
retirement plans, for the nine months ended September 30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
International |
|
|
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Service cost-benefits earned during the period |
|
$ |
3.4 |
|
|
$ |
2.8 |
|
|
$ |
4.8 |
|
|
$ |
5.6 |
|
Interest cost on projected benefit obligation |
|
|
39.1 |
|
|
|
38.4 |
|
|
|
23.5 |
|
|
|
20.8 |
|
Expected return on plan assets |
|
|
(43.3 |
) |
|
|
(43.9 |
) |
|
|
(22.8 |
) |
|
|
(20.6 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
1.0 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
5.3 |
|
|
|
5.7 |
|
|
|
2.8 |
|
|
|
3.3 |
|
Curtailment & special termination benefit gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
Net periodic pension cost |
|
$ |
5.5 |
|
|
$ |
3.9 |
|
|
$ |
8.3 |
|
|
$ |
6.7 |
|
|
|
|
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.
13
The following table presents the components of the Companys other postretirement benefit costs for
the three and nine months ended September 30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Service cost-benefits earned during the period |
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
$ |
1.2 |
|
|
$ |
1.3 |
|
Interest cost on projected benefit obligation |
|
|
2.4 |
|
|
|
2.6 |
|
|
|
7.2 |
|
|
|
8.0 |
|
Amortization of prior service benefit |
|
|
(0.6 |
) |
|
|
(0.5 |
) |
|
|
(1.8 |
) |
|
|
(1.7 |
) |
|
|
|
Net other postretirement benefit costs |
|
$ |
2.2 |
|
|
$ |
2.5 |
|
|
$ |
6.6 |
|
|
$ |
7.6 |
|
|
|
|
The Company made a cash contribution to the Company-sponsored profit sharing plan of $19.4 million
and $18.4 million during the first quarter of 2008 and 2007, respectively.
Footnote 8 Income Taxes
As of September 30, 2008, there were no significant changes to the Companys unrecognized tax
benefits as reported in its Form 10-K for the year ended December 31, 2007, except as noted below.
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. This rate differs from the U.S.
federal corporate income tax rate primarily due to foreign tax rate differentials and other items.
The effective tax rates for the three and nine months ended September 30, 2008 and 2007 were
primarily impacted by the following tax matters characterized as discrete period adjustments:
|
|
|
During the third quarter of 2008, the Company recorded a $3.5 million net benefit due to
certain accrual reversals for which the statute of limitations has expired partially offset
by provisions for items related to prior periods. |
|
|
|
|
During the third quarter of 2007, the Company recorded a benefit of $35.0 million due to
the Company entering into an agreement with the IRS relating to the appropriate treatment of
a specific deduction included in the Companys 2006 U.S. federal income tax return. The
Company requested accelerated review of the transaction under the IRSs Pre-Filing Agreement
Program that resulted in affirmative resolution in late August 2007. The Company also
recorded a $4.4 million net benefit due to certain accrual reversals for which the statute
of limitations has expired partially offset by provisions required for tax deductions
recorded in prior periods. |
|
|
|
|
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. |
Footnote 9 Earnings per Share
The calculation of basic and diluted earnings per share is shown below for the three and nine
months ended September 30, (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
55.0 |
|
|
$ |
169.9 |
|
|
$ |
204.9 |
|
|
$ |
378.2 |
|
Gain (loss) from discontinued operations |
|
|
|
|
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
(16.5 |
) |
|
|
|
Net income for basic earnings per share |
|
$ |
55.0 |
|
|
$ |
170.2 |
|
|
$ |
204.4 |
|
|
$ |
361.7 |
|
|
|
|
Numerator for diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
55.0 |
|
|
$ |
169.9 |
|
|
$ |
204.9 |
|
|
$ |
378.2 |
|
Effect of convertible preferred securities (1) |
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
10.7 |
|
|
|
|
Income from continuing operations for diluted
earnings per share |
|
|
55.0 |
|
|
|
173.5 |
|
|
|
204.9 |
|
|
|
388.9 |
|
Gain (loss) from discontinued operations |
|
|
|
|
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
(16.5 |
) |
|
|
|
Net income for diluted earnings per share |
|
$ |
55.0 |
|
|
$ |
173.8 |
|
|
$ |
204.4 |
|
|
$ |
372.4 |
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
weighted-average shares outstanding |
|
|
277.1 |
|
|
|
276.0 |
|
|
|
277.0 |
|
|
|
276.0 |
|
Dilutive securities (2) |
|
|
1.3 |
|
|
|
1.8 |
|
|
|
1.2 |
|
|
|
1.8 |
|
Convertible preferred securities (1) |
|
|
|
|
|
|
8.3 |
|
|
|
|
|
|
|
8.3 |
|
|
|
|
Denominator for diluted earnings per share |
|
|
278.4 |
|
|
|
286.1 |
|
|
|
278.2 |
|
|
|
286.1 |
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.20 |
|
|
$ |
0.62 |
|
|
$ |
0.74 |
|
|
$ |
1.37 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
Earnings per share |
|
$ |
0.20 |
|
|
$ |
0.62 |
|
|
$ |
0.74 |
|
|
$ |
1.31 |
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
$ |
0.20 |
|
|
$ |
0.61 |
|
|
$ |
0.74 |
|
|
$ |
1.36 |
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
Earnings per share |
|
$ |
0.20 |
|
|
$ |
0.61 |
|
|
$ |
0.73 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
(1) |
|
The convertible preferred securities are anti-dilutive for the three and nine months ended
September 30, 2008, 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 and $10.7 million for the three and nine months
ended September 30, 2008, respectively. Weighted-average shares outstanding would have
increased by 8.3 million shares for both the three and nine months ended September 30, 2008. |
|
(2) |
|
Dilutive securities include in the money options and restricted stock units and awards. The
weighted-average shares outstanding exclude the effect of approximately 17.8 million and 11.4
million stock options for the three months ended September 30, 2008 and 2007, respectively,
and 17.5 million and 8.3 million stock options for the nine months ended September 30, 2008
and 2007, respectively, because such options were anti-dilutive. |
Footnote 10 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized |
|
|
|
|
|
|
Foreign Currency |
|
Pension & Other |
|
After-tax |
|
|
|
|
Translation |
|
Postretirement |
|
Derivative Hedging |
|
Accumulated Other |
|
|
Gain/(Loss) |
|
Costs, net of tax |
|
Gain |
|
Comprehensive Loss |
|
|
|
Balance at December 31, 2007 |
|
$ |
69.8 |
|
|
$ |
(202.4 |
) |
|
$ |
9.4 |
|
|
$ |
(123.2 |
) |
Current period change |
|
|
(94.8 |
) |
|
|
11.2 |
|
|
|
14.2 |
|
|
|
(69.4 |
) |
|
|
|
Balance at September 30, 2008 |
|
$ |
(25.0 |
) |
|
$ |
(191.2 |
) |
|
$ |
23.6 |
|
|
$ |
(192.6 |
) |
|
|
|
Comprehensive income (loss) amounted to the following for the three and nine months ended September
30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Net income |
|
$ |
55.0 |
|
|
$ |
170.2 |
|
|
$ |
204.4 |
|
|
$ |
361.7 |
|
Foreign currency translation (loss) gain |
|
|
(92.8 |
) |
|
|
10.5 |
|
|
|
(94.8 |
) |
|
|
30.9 |
|
Unrecognized pension & other
postretirement costs, net of tax,
including translation effects |
|
|
8.0 |
|
|
|
|
|
|
|
10.5 |
|
|
|
|
|
After-tax derivatives hedging gain |
|
|
7.2 |
|
|
|
6.0 |
|
|
|
14.2 |
|
|
|
7.6 |
|
|
|
|
Comprehensive (loss) income |
|
$ |
(22.6 |
) |
|
$ |
186.7 |
|
|
$ |
134.3 |
|
|
$ |
400.2 |
|
|
|
|
The Company recorded an adjustment at January 1, 2008 to accumulated other comprehensive loss of
$0.7 million related to the adoption of the change in measurement date for the Companys defined
benefit and postretirement plans. The adjustment is therefore included in the accumulated other
comprehensive loss balance at September 30, 2008, but is excluded from comprehensive income for the
nine months ended September 30, 2008.
15
Footnote 11 Stock-Based Compensation
The Company accounts for stock-based compensation pursuant to SFAS No. 123(R), Share-Based
Payment, which requires measurement of compensation cost for all stock awards at fair value on the
date of grant and recognition of compensation, net of estimated forfeitures, over the requisite
service period for awards expected to vest.
The following table presents the impact of stock-based compensation expense, which is recorded in
selling, general and administrative expenses, for the three and nine months ended September 30, (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Reduction to income before income taxes |
|
$ |
10.6 |
|
|
$ |
9.4 |
|
|
$ |
27.5 |
|
|
$ |
27.9 |
|
|
|
|
Reduction to net income |
|
$ |
7.0 |
|
|
$ |
6.6 |
|
|
$ |
18.8 |
|
|
$ |
19.6 |
|
|
|
|
The fair value of stock option awards granted during the three and nine months ended September 30,
was estimated using the Black-Scholes option pricing model with the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Weighted-average fair value of grants |
|
$ |
2 |
|
|
$ |
6 |
|
|
$ |
4 |
|
|
$ |
7 |
|
Risk-free interest rate |
|
|
3.5 |
% |
|
|
4.6 |
% |
|
|
2.8 |
% |
|
|
4.7 |
% |
Dividend yield |
|
|
5.1 |
% |
|
|
2.8 |
% |
|
|
3.7 |
% |
|
|
2.8 |
% |
Expected volatility |
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
Expected life (in years) |
|
|
5.5 |
|
|
|
5.5 |
|
|
|
5.5 |
|
|
|
5.5 |
|
The Company utilized its historical 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 nine months ended September 30, 2008 (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Exercise |
|
|
|
|
Shares |
|
Price |
|
Exercisable |
|
|
|
Outstanding at December 31, 2007 |
|
|
16.0 |
|
|
$ |
27 |
|
|
|
7.3 |
|
Granted |
|
|
4.5 |
|
|
|
23 |
|
|
|
|
|
Exercised |
|
|
(0.1 |
) |
|
|
23 |
|
|
|
|
|
Forfeited / expired |
|
|
(2.6 |
) |
|
|
28 |
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008 |
|
|
17.8 |
|
|
$ |
26 |
|
|
|
8.0 |
|
|
|
|
At September 30, 2008, the aggregate intrinsic value of exercisable options was zero.
The following table summarizes the changes in the number of shares of restricted stock and
restricted stock units for the nine months ended September 30, 2008 (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average Grant |
|
|
Shares |
|
Date Fair Value |
|
|
|
Outstanding at December 31, 2007 |
|
|
2.6 |
|
|
$ |
26 |
|
Granted |
|
|
1.0 |
|
|
|
23 |
|
Vested |
|
|
(0.4 |
) |
|
|
22 |
|
Forfeited |
|
|
(0.4 |
) |
|
|
26 |
|
|
|
|
Outstanding at September 30, 2008 |
|
|
2.8 |
|
|
$ |
26 |
|
|
|
|
16
Footnote 12 Fair Value
In the first quarter of 2008, the Company adopted SFAS 157, which defines fair value, establishes a
framework for measuring fair value under generally accepted accounting principles, and requires
expanded disclosures about fair value measurements. SFAS 157 does not require any new fair value
measurements, but rather generally applies to other accounting pronouncements that require or
permit fair value measurements.
SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and defines fair value as the price that would be received to sell an asset or
transfer a liability in an orderly transaction between market participants at the measurement date.
SFAS 157 discusses valuation techniques, such as the market approach (comparable market prices),
the income approach (present value of future income or cash flow), and the cost approach (cost to
replace the service capacity of an asset or replacement cost). These valuation techniques are based
upon observable and unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Companys market assumptions. SFAS 157
utilizes a fair value hierarchy that prioritizes these two inputs to valuation techniques used to
measure fair value into three broad levels. The following is a brief description of those three
levels:
|
|
|
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in
active markets. |
|
|
|
|
Level 2: Observable inputs other than quoted prices that are directly or indirectly
observable for the asset or liability, including quoted prices for similar assets or
liabilities in active markets; quoted prices for similar or identical assets or liabilities
in markets that are not active; and model-derived valuations whose inputs are observable or
whose significant value drivers are observable. |
|
|
|
|
Level 3: Unobservable inputs that reflect the reporting entitys own assumptions. |
The FASB issued FSP 157-2 which delayed the effective date of SFAS 157 for all non-financial assets
and liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis, until January 1, 2009. The Companys assets and liabilities
adjusted to fair value at least annually are its mutual fund investments and derivative
instruments, and these assets and liabilities are therefore subject to the measurement and
disclosure requirements of SFAS 157. As the Company adjusts the value of its mutual fund
investments and derivative instruments to fair value each reporting period, no adjustment to
retained earnings resulted from the adoption of SFAS 157.
The value of the Companys mutual fund investments included in its December 31, 2007 balance sheet
was $12.8 million. The Company determines the fair value of its mutual fund investments based on
quoted market prices (Level 1).
The Company generally uses derivatives for hedging purposes pursuant to SFAS 133, and the Companys
derivatives are primarily foreign currency forward contracts and interest rate swaps. The aggregate
values of derivative assets and liabilities included in the Companys December 31, 2007 balance
sheet were $3.0 million and $67.0 million, respectively. The Company determines the fair value of
its derivative instruments based on Level 2 inputs in the SFAS 157 fair value hierarchy. Level 2
fair value determinations are derived from directly or indirectly observable (market based)
information. Such inputs are the basis for the fair values of the Companys derivative instruments.
The following table presents the Companys financial assets and liabilities which are measured at
fair value on a recurring basis and that are subject to the disclosure requirements of SFAS 157 as
of September 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
Significant Other |
|
Significant |
|
|
Fair Value at |
|
for Identical |
|
Observable |
|
Unobservable |
Description |
|
9/30/2008 |
|
Assets (Level 1) |
|
Inputs (Level 2) |
|
Inputs (Level 3) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund investments |
|
$ |
12.4 |
|
|
$ |
12.4 |
|
|
$ |
|
|
|
$ |
|
|
Interest rate swaps |
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
Foreign currency derivatives |
|
|
7.8 |
|
|
|
|
|
|
|
7.8 |
|
|
|
|
|
|
|
|
Total |
|
$ |
22.7 |
|
|
$ |
12.4 |
|
|
$ |
10.3 |
|
|
$ |
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
12.1 |
|
|
$ |
|
|
|
$ |
12.1 |
|
|
$ |
|
|
Foreign currency derivatives |
|
|
63.9 |
|
|
|
|
|
|
|
63.9 |
|
|
|
|
|
|
|
|
Total |
|
$ |
76.0 |
|
|
$ |
|
|
|
$ |
76.0 |
|
|
$ |
|
|
|
|
|
Consistent with the Companys risk management strategies and business initiatives, the Company
generally does not enter into financial contracts or invest in financial assets whose values are
not readily determinable using either Level 1 or Level 2 inputs.
17
Footnote 13 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 its understanding of similar consumer segments and distribution channels. 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, restroom hygiene systems |
|
|
|
Office Products
|
|
Ball point/roller ball pens, markers,
highlighters, pencils, correction fluids,
office products, art supplies, on-demand
labeling products, card-scanning solutions,
on-line postage |
|
|
|
Tools & Hardware
|
|
Hand tools, power tool accessories, manual
paint applicators, cabinet, window and
convenience hardware, propane torches,
soldering tools and accessories |
|
|
|
Other (Home & Family)
|
|
Premium cookware and related kitchenware,
beauty and style accessory products, infant
and juvenile products, including high
chairs, car seats, strollers and play
yards, and other products within operating
segments that are individually immaterial
and do not meet aggregation criteria |
The Companys segment results are as follows as of and for the three and nine months ended
September 30, (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Net Sales (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
$ |
570.0 |
|
|
$ |
547.2 |
|
|
$ |
1,644.6 |
|
|
$ |
1,549.0 |
|
Office Products |
|
|
540.2 |
|
|
|
544.9 |
|
|
|
1,574.8 |
|
|
|
1,538.7 |
|
Tools & Hardware |
|
|
331.0 |
|
|
|
335.9 |
|
|
|
943.6 |
|
|
|
954.4 |
|
Other (Home & Family) |
|
|
319.1 |
|
|
|
259.3 |
|
|
|
856.1 |
|
|
|
722.7 |
|
|
|
|
|
|
$ |
1,760.3 |
|
|
$ |
1,687.3 |
|
|
$ |
5,019.1 |
|
|
$ |
4,764.8 |
|
|
|
|
Operating Income (Loss) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
$ |
56.5 |
|
|
$ |
83.7 |
|
|
$ |
179.1 |
|
|
$ |
222.1 |
|
Office Products |
|
|
61.3 |
|
|
|
84.2 |
|
|
|
198.4 |
|
|
|
228.4 |
|
Tools & Hardware |
|
|
47.0 |
|
|
|
51.3 |
|
|
|
128.8 |
|
|
|
133.2 |
|
Other (Home & Family) |
|
|
37.2 |
|
|
|
37.2 |
|
|
|
95.5 |
|
|
|
98.9 |
|
Corporate |
|
|
(21.6 |
) |
|
|
(19.9 |
) |
|
|
(61.6 |
) |
|
|
(61.5 |
) |
Restructuring Costs |
|
|
(13.5 |
) |
|
|
(22.7 |
) |
|
|
(101.3 |
) |
|
|
(53.7 |
) |
|
|
|
|
|
$ |
166.9 |
|
|
$ |
213.8 |
|
|
$ |
438.9 |
|
|
$ |
567.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2008 |
|
2007 |
|
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
$ |
924.0 |
|
|
$ |
785.3 |
|
Office Products |
|
|
1,285.9 |
|
|
|
1,352.7 |
|
Tools & Hardware |
|
|
715.8 |
|
|
|
712.2 |
|
Other (Home & Family) |
|
|
484.0 |
|
|
|
344.6 |
|
Corporate (3) |
|
|
3,848.6 |
|
|
|
3,488.1 |
|
|
|
|
|
|
$ |
7,258.3 |
|
|
$ |
6,682.9 |
|
|
|
|
18
Geographic Area Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
1,224.3 |
|
|
$ |
1,224.3 |
|
|
$ |
3,470.3 |
|
|
$ |
3,480.5 |
|
Canada |
|
|
113.5 |
|
|
|
116.4 |
|
|
|
319.2 |
|
|
|
308.2 |
|
|
|
|
North America |
|
|
1,337.8 |
|
|
|
1,340.7 |
|
|
|
3,789.5 |
|
|
|
3,788.7 |
|
Europe |
|
|
254.1 |
|
|
|
221.2 |
|
|
|
770.5 |
|
|
|
635.1 |
|
Central and South America |
|
|
77.7 |
|
|
|
66.7 |
|
|
|
210.3 |
|
|
|
183.4 |
|
All other |
|
|
90.7 |
|
|
|
58.7 |
|
|
|
248.8 |
|
|
|
157.6 |
|
|
|
|
|
|
$ |
1,760.3 |
|
|
$ |
1,687.3 |
|
|
$ |
5,019.1 |
|
|
$ |
4,764.8 |
|
|
|
|
Operating Income (2), (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
116.0 |
|
|
$ |
155.8 |
|
|
$ |
318.2 |
|
|
$ |
448.2 |
|
Canada |
|
|
33.2 |
|
|
|
31.6 |
|
|
|
73.6 |
|
|
|
78.7 |
|
|
|
|
North America |
|
|
149.2 |
|
|
|
187.4 |
|
|
|
391.8 |
|
|
|
526.9 |
|
Europe |
|
|
1.6 |
|
|
|
8.1 |
|
|
|
7.7 |
|
|
|
3.9 |
|
Central and South America |
|
|
3.5 |
|
|
|
5.7 |
|
|
|
2.5 |
|
|
|
7.4 |
|
All other |
|
|
12.6 |
|
|
|
12.6 |
|
|
|
36.9 |
|
|
|
29.2 |
|
|
|
|
|
|
$ |
166.9 |
|
|
$ |
213.8 |
|
|
$ |
438.9 |
|
|
$ |
567.4 |
|
|
|
|
|
|
|
1) |
|
All intercompany transactions have been eliminated. Sales to Wal-Mart Stores, Inc. and
subsidiaries amounted to approximately 13% and 14% of consolidated net sales in the three
months ended September 30, 2008 and 2007, respectively. Sales to Wal-Mart Stores, Inc. and
subsidiaries amounted to approximately 13% and 14% of consolidated net sales in the nine
months ended September 30, 2008 and 2007, respectively. 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 tradenames and goodwill, capitalized software, investments
and deferred tax assets. |
|
4) |
|
The restructuring costs have been reflected in the appropriate geographic regions. |
Footnote 14 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 may 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 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.
On July 1, 2007, the Company acquired all of the outstanding equity interests of PSI System, Inc.
(Endicia), provider of Endicia Internet Postage, for $51.2 million plus related acquisition costs
and contingent payments of up to $25.0 million based on future revenues. Endicia is party to a
lawsuit filed against it alleging patent infringement which was filed on November 22, 2006 in the
U.S. District Court for the Central District of California. In this case, Stamps.com seeks
injunctive relief in order to prevent Endicia from continuing to engage in activities that are
alleged to infringe on Stamps.coms patents. An unfavorable outcome in this litigation, which
management does not believe is probable, could materially adversely affect the Endicia business.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
Newell Rubbermaid is a global marketer of consumer and commercial products that touch the lives of
people where they work, live and play. With annual sales of over $6 billion, the Companys products
are marketed under a strong portfolio of brands, including Rubbermaid®, Sharpie®, Graco®,
Calphalon®, Irwin®, Lenox®, Levolor®, Paper Mate®, Dymo®, Waterman®, Parker®, Goody®, BernzOmatic®
and Amerock®. The Companys multi-product offering consists of well-known name-brand consumer and
commercial products in four business segments: Cleaning, Organization & Décor; Office Products;
Tools & Hardware; and Home & Family.
The Companys vision is to become a global company of Brands That Matter 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 and products, reducing its supply
chain costs and streamlining non-strategic selling, general and administrative expenses (SG&A).
Market Overview
The Company operates in the consumer and commercial products markets, which are generally impacted
by overall economic conditions in the regions in which the Company operates. While the Companys
strategy is to expand globally, the Company currently derives almost 70% of its sales from the U.S.
market. The U.S. economy continues to be challenging, driven largely by the steep decline in the
residential housing market, reduced access to credit, volatile commodity prices, and resulting
decline in consumer confidence and spending. The weakness in the U.S. economy adversely affects the
Companys domestic businesses, most notably the Tools & Hardware and Office Products segments;
however, the Company continues to realize growth in these segments internationally, although growth
in these segments has slowed as global economic conditions have deteriorated. The Company
continues to realize growth in the Home and Family segment and certain other business units, both
domestically and internationally.
The operating results of sourcers and manufacturers of consumer and commercial products are
generally impacted by changes in the prices of raw materials (including commodity prices), labor
costs, and foreign exchange rates. During the nine months ended September 30, 2008, the Company
experienced a significantly higher than expected rate of inflation for raw materials, primarily
resin and metals, and sourced finished goods. The primary driver for the increase was record-high
energy prices, including the price of oil and natural gas, which are inputs to the cost of resin,
which represents a little over 10% of the Companys cost of products sold. Although raw materials
costs moderated in the third quarter of 2008, the Company still expects the impact of inflation to
adversely impact gross margins by $225 million to $250 million in 2008 compared to 2007. In
addition, lower volumes in the Companys manufacturing plants has recently adversely impacted gross
margins as the Company reduces production to match revised sales forecasts and reduce inventory.
Although Project Acceleration and ongoing productivity initiatives have offset some of the impacts
of inflation and reduced production, the Company implemented a pricing initiative effective October
1 across a number of product lines, particularly those where resin is the primary component of the
cost of products sold.
Business Strategy
The key tenets of the Companys strategy are as follows: Create Consumer-Meaningful Brands,
Leverage One Newell Rubbermaid, Achieve Best Total Cost and Nurture 360º Innovation. 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 following section details the Companys performance in each of its strategic initiatives:
Create Consumer-Meaningful Brands
The Company is continuing to move from its historical focus on retail push marketing to a new focus
on consumer pull marketing and 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. The Companys
progress in implementing this brand building and marketing initiative is exhibited by the
following:
|
|
|
In the Companys Home & Family segment, the Baby & Parenting Essentials business launched
the Nautilus 3-in-1 car seat under the Graco® brand and expanded its premium platform by
introducing the Teutonia® brand into the North American market. The Company recently
launched Teutonia branded products into national distribution using a selected specialty
dealer network. |
|
|
|
|
Also in the Home & Family segment, the Company launched a new premium
line of Calphalon heating electrics, which leverages the well-known Calphalon® brand and
expands the business into a natural near-neighbor category. |
20
|
|
|
In the Cleaning, Organization and Décor segment, the Companys Rubbermaid Food business
experienced continued success with the innovative Rubbermaid Produce Saver, Premier and Easy
Find Lids product lines. |
|
|
|
|
The Office Products segment has expanded the market leading Sharpie franchise with the
introduction of the Sharpie Pen, which many consumers are adopting as their every day
writing instrument. |
|
|
|
|
The Company remains committed to increasing selective television, print, direct mail and
online advertising, and using sampling and product demonstrations where appropriate, to
increase brand awareness and trials among end-users of its brands. |
Leverage One Newell Rubbermaid
The Company strives to leverage 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 continuously explores ways to leverage common functional capabilities, such
as Human Resources, Information Technology, Customer Service, Supply Chain Management and Finance,
to improve efficiency and reduce costs. This broad reaching initiative already includes projects
such as the corporate consolidation of the distribution and transportation function and
consolidating company-wide purchasing efforts.
To leverage information and best practices across the Companys business units, the Company is
implementing SAP globally to enable the Company to integrate and manage its worldwide business and
reporting processes more efficiently. To date, the Companys North American operations of its Home
& Family and Office Products segments have successfully gone live with their SAP implementation
efforts.
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 as well as offset some of the cost inflation
resulting from the current economic environment.
Through Project Acceleration and other initiatives, the Company has made significant progress in
reducing its supply chain costs and delivering productivity savings. In July 2008, the Company
committed to an expansion of Project Acceleration to provide for divesting, downsizing or exiting
certain product categories where resin is a high percentage of the cost of products sold. The
product categories the Company expects to divest or otherwise exit in connection with the expansion
of Project Acceleration generate annual sales of approximately $500 million in selected consumer
product categories. Project Acceleration, as expanded, includes the anticipated closures of certain
of the Companys manufacturing and distribution facilities to optimize the Companys geographic
footprint and the exiting of certain product categories to limit the Companys exposure to volatile
commodity markets, particularly resin.
Project Acceleration is expected to result in cumulative restructuring costs over the life of the
initiative totaling between $475 and $500 million, and the Company has recognized $303.6 million of
restructuring charges associated with Project Acceleration to date. Approximately 67% of the
restructuring costs in connection with Project Acceleration are expected to be cash charges. Annual
savings from Project Acceleration are projected to be between $175 and $200 million once fully
implemented in 2010.
Additionally, in its efforts to achieve logistical excellence and optimize its geographic
footprint, the Company continues to evaluate its supply chain efforts to identify opportunities to
realize efficiencies in purchasing, distribution and transportation. For example, the Company plans
to consolidate four smaller warehouses into a new Southeast distribution center as part of its
efforts to achieve a best cost structure.
Lastly, the Company continues to optimize its organizational structure, with a focus on the
Companys Global Business Unit structure and structural SG&A costs. In that regard, the Company is
reorganizing its Global Business Units to gain efficiency and effectiveness, combining several
smaller ones into larger ones. The Company plans to reduce structural SG&A costs to maintain
margins and to protect investments in brand building SG&A efforts.
Nurture 360º Innovation
Successful innovation requires both consumer driven product invention and the successful
commercialization of that invention. It is a rigorous, consumer-centric process that permeates the
entire development cycle. It begins with a deep understanding of how
21
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, formulating how and where to create awareness and trial use
and measuring the effectiveness of advertising and promotion spending complete the process.
In the Companys Office Products segment, consumer response from the recent launch of the Sharpie
pen has remained positive. The Sharpie pen is an extension of the Sharpie product line and
addresses consumer needs by delivering the bold, smooth, high-quality writing experience associated
with Sharpie markers but with the performance of a pen that does not bleed through paper.
The Companys continued success of its Rubbermaid Produce Saver, Easy Find Lids and Premier
product lines continue to drive growth within the Rubbermaid Food business. The useful features of
these lines, such as longer food storage life, easy organization and storage, and stain and odor
resistance, demonstrate the Companys ability to bring consumer-meaningful innovation to the
plastic food storage category.
In July, the Companys Beauty & Style global business unit launched the Goody Luxe product line
which unites style and technology to solve common consumer frustrations. This premier line of hair
accessories addresses global hair trends while offering functional benefits. The Goody Luxe product
line uses StayPut Hold technology which allows the accessories to provide a secure hold yet are
gentle enough to remove without snagging.
Acquisitions
In April 2008, the Company closed on two acquisitions, Aprica and Technical Concepts, which expand
its product categories and geographic footprint as well as provide the Company an opportunity to
leverage innovation and branding capabilities. Aprica is a Japanese brand of premium strollers, car
seats and other related juvenile products. This acquisition provides the Companys Baby & Parenting
Essentials business the opportunity to broaden its presence worldwide, including expanding the
scope of Apricas sales outside of Asia. The Aprica acquisition also provides the critical mass
needed for more shared resources in Japan, which will help accelerate investment in the
Asia-Pacific region by other business units. The Technical Concepts acquisition gives the Companys
Rubbermaid Commercial Products business an entry into the $2.5 billion away-from-home washroom
market. Technical Concepts is a global provider of innovative touch-free and automated restroom
hygiene systems. This acquisition fits within the Companys strategy of leveraging its existing
sales and marketing capabilities across additional product categories where performance matters and
customers will pay a premium for innovation. In addition, with approximately 40% of its sales
outside the U.S., Technical Concepts significantly increases the global footprint of the Rubbermaid
Commercial Products business.
Summary
In the midst of the global economic slowdown, the Company remains committed to driving its key
strategic initiatives and plans to continue to reshape its portfolio to become increasingly global,
faster growing, and more profitable. The Company expects to adapt to the impact of the economic
slowdown with a particular focus on cash and liquidity. The Company is focused on managing
inventories in the face of rapid consumer demand fluctuations and customer inventory reductions.
In addition, the Company continues to execute its portfolio optimization strategy with the
resin-dependent product category exits announced in the third quarter of 2008. The Company expects
to continue to adapt to the changing circumstances, economic or otherwise, in the future to become
a more focused and more profitable company.
22
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 and nine months
ended September 30, (in millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
Net sales |
|
$ |
1,760.3 |
|
|
|
100.0 |
% |
|
$ |
1,687.3 |
|
|
|
100.0 |
% |
|
$ |
5,019.1 |
|
|
|
100.0 |
% |
|
$ |
4,764.8 |
|
|
|
100.0 |
% |
Cost of products sold |
|
|
1,185.6 |
|
|
|
67.4 |
|
|
|
1,086.3 |
|
|
|
64.4 |
|
|
|
3,330.7 |
|
|
|
66.4 |
|
|
|
3,083.5 |
|
|
|
64.7 |
|
|
|
|
Gross margin |
|
|
574.7 |
|
|
|
32.6 |
|
|
|
601.0 |
|
|
|
35.6 |
|
|
|
1,688.4 |
|
|
|
33.6 |
|
|
|
1,681.3 |
|
|
|
35.3 |
|
Selling, general and
administrative expenses |
|
|
394.3 |
|
|
|
22.4 |
|
|
|
364.5 |
|
|
|
21.6 |
|
|
|
1,148.2 |
|
|
|
22.9 |
|
|
|
1,060.2 |
|
|
|
22.3 |
|
Restructuring costs |
|
|
13.5 |
|
|
|
0.8 |
|
|
|
22.7 |
|
|
|
1.3 |
|
|
|
101.3 |
|
|
|
2.0 |
|
|
|
53.7 |
|
|
|
1.1 |
|
|
|
|
Operating income |
|
|
166.9 |
|
|
|
9.5 |
|
|
|
213.8 |
|
|
|
12.7 |
|
|
|
438.9 |
|
|
|
8.7 |
|
|
|
567.4 |
|
|
|
11.9 |
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
38.8 |
|
|
|
2.2 |
|
|
|
28.0 |
|
|
|
1.7 |
|
|
|
103.3 |
|
|
|
2.1 |
|
|
|
82.9 |
|
|
|
1.7 |
|
Other expense, net |
|
|
55.4 |
|
|
|
3.1 |
|
|
|
2.1 |
|
|
|
0.1 |
|
|
|
56.4 |
|
|
|
1.1 |
|
|
|
4.4 |
|
|
|
0.1 |
|
|
|
|
Net nonoperating expenses |
|
|
94.2 |
|
|
|
5.4 |
|
|
|
30.1 |
|
|
|
1.8 |
|
|
|
159.7 |
|
|
|
3.2 |
|
|
|
87.3 |
|
|
|
1.8 |
|
|
|
|
Income from continuing
operations before income taxes |
|
|
72.7 |
|
|
|
4.1 |
|
|
|
183.7 |
|
|
|
10.9 |
|
|
|
279.2 |
|
|
|
5.6 |
|
|
|
480.1 |
|
|
|
10.1 |
|
Income taxes |
|
|
17.7 |
|
|
|
1.0 |
|
|
|
13.8 |
|
|
|
0.8 |
|
|
|
74.3 |
|
|
|
1.5 |
|
|
|
101.9 |
|
|
|
2.1 |
|
|
|
|
Income from continuing operations |
|
|
55.0 |
|
|
|
3.1 |
|
|
|
169.9 |
|
|
|
10.1 |
|
|
|
204.9 |
|
|
|
4.1 |
|
|
|
378.2 |
|
|
|
7.9 |
|
Gain (loss) from discontinued
operations, net of tax |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
(16.5 |
) |
|
|
(0.3 |
) |
|
|
|
Net income |
|
$ |
55.0 |
|
|
|
3.1 |
% |
|
$ |
170.2 |
|
|
|
10.1 |
% |
|
$ |
204.4 |
|
|
|
4.1 |
% |
|
$ |
361.7 |
|
|
|
7.6 |
% |
|
|
|
Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007
Consolidated Operating Results:
Net sales for the three months ended September 30, 2008 were $1,760.3 million, representing an
increase of $73.0 million, or 4.3%, from $1,687.3 million for the three months ended September 30,
2007. The Technical Concepts and Aprica acquisitions increased sales by $65.7 million, or 3.9%,
over the prior year period. The remaining increase of $7.3 million, or 0.4%, was attributed to
favorable foreign currency benefits, favorable pricing and growth in the Companys international
businesses, partially offset by softness in the Companys domestic Office Products, Tools &
Hardware and Décor businesses. Double digit growth in the Baby & Parenting Essentials and Culinary
Lifestyles businesses and high single-digit growth in the Rubbermaid Food business led the sales
improvement for the 2008 quarter.
Gross margin, as a percentage of net sales, for the three months ended September 30, 2008 was
32.6%, or $574.7 million, versus 35.6%, or $601.0 million, for the three months ended September 30,
2007. The 3.0% decline in the gross margin percentage was due to significant inflation in input
costs, most notably in the Companys resin intensive businesses, as well as sourced finished goods
and unfavorable mix, which were partially offset by benefits realized from savings from Project
Acceleration and favorable pricing.
SG&A expenses for the three months ended September 30, 2008 were 22.4% of net sales, or $394.3
million, versus 21.6% of net sales, or $364.5 million, for the three months ended September 30,
2007. The $29.8 million increase in SG&A expenses was driven by incremental SG&A associated with
the Technical Concepts and Aprica acquisitions as well as currency translation.
The Company recorded restructuring costs of $13.5 million and $22.7 million for the three months
ended September 30, 2008 and 2007, respectively. The third quarter 2008 restructuring costs
included $11.2 million of employee severance, termination benefits and employee relocation costs,
and $3.4 million of exited contractual commitments and other restructuring costs, partially offset
by $1.1 million of benefits in facility and other exit costs. The third quarter 2007 restructuring
costs included $5.7 million of facility and other exit costs, $4.0 million of employee severance
and termination benefits and $13.0 million of exited contractual commitments and other
restructuring costs. See Footnote 4 of the Notes to Condensed Consolidated Financial Statements for
further information on these restructuring costs.
23
Operating income for the three months ended September 30, 2008 was $166.9 million, or 9.5% of net
sales, versus $213.8 million, or 12.7% of net sales, for the three months ended September 30, 2007.
Improvements from favorable pricing and savings from Project Acceleration during the third quarter
of 2008 were more than offset by inflation in input costs and sourced finished goods and
unfavorable mix.
Interest expense, net, for the three months ended September 30, 2008 was $38.8 million versus $28.0
million for the three months ended September 30, 2007. The increase in interest expense in the
2008 quarter was driven by additional borrowings used to fund the acquisitions of Technical
Concepts and Aprica.
Other expense, net, for the three months ended September 30, 2008 was $55.4 million versus $2.1
million for the three months ended September 30, 2007. Other expense, net, in the 2008 quarter is
primarily attributable to the $52.2 million loss on debt extinguishment relating to the Companys
redemption of its $250.0 million of Reset notes in July 2008.
The effective tax rate was 24.3% for the three months ended September 30, 2008 versus 7.5% for the
three months ended September 30, 2007. The change in the effective tax rate was primarily related
to a net $3.5 million income tax benefit recorded during the three months ended September 30, 2008,
compared to a net $39.4 million income tax benefit recorded for the three months ended September
30, 2007. These income tax benefits primarily relate to favorable outcomes from the IRSs review
of specific deductions and accrual reversals for items for which the statute of limitations
expired, partially offset by provisions required for tax deductions recorded in prior periods. See
Footnote 8 of the Notes to Condensed Consolidated Financial Statements for further information.
Business Segment Operating Results:
Net sales by segment were as follows for the three months ended September 30, (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
% Change |
|
|
|
Cleaning, Organization & Décor |
|
$ |
570.0 |
|
|
$ |
547.2 |
|
|
|
4.2 |
% |
Office Products |
|
|
540.2 |
|
|
|
544.9 |
|
|
|
(0.9 |
) |
Tools & Hardware |
|
|
331.0 |
|
|
|
335.9 |
|
|
|
(1.5 |
) |
Home & Family |
|
|
319.1 |
|
|
|
259.3 |
|
|
|
23.1 |
|
|
|
|
Total Net Sales |
|
$ |
1,760.3 |
|
|
$ |
1,687.3 |
|
|
|
4.3 |
% |
|
|
|
Operating income (loss) by segment was as follows for the three months ended September 30, (in
millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
% Change |
|
|
|
Cleaning, Organization & Décor |
|
$ |
56.5 |
|
|
$ |
83.7 |
|
|
|
(32.5 |
)% |
Office Products |
|
|
61.3 |
|
|
|
84.2 |
|
|
|
(27.2 |
) |
Tools & Hardware |
|
|
47.0 |
|
|
|
51.3 |
|
|
|
(8.4 |
) |
Home & Family |
|
|
37.2 |
|
|
|
37.2 |
|
|
|
|
|
Corporate |
|
|
(21.6 |
) |
|
|
(19.9 |
) |
|
|
(8.5 |
) |
Restructuring costs |
|
|
(13.5 |
) |
|
|
(22.7 |
) |
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
166.9 |
|
|
$ |
213.8 |
|
|
|
(21.9 |
)% |
|
|
|
Cleaning, Organization & Décor
Net sales for the three months ended September 30, 2008 were $570.0 million, an increase of $22.8
million, or 4.2%, from $547.2 million for the three months ended September 30, 2007. The Technical
Concepts acquisition increased sales $36.8 million, or 6.7%. Excluding the impact of acquisitions,
sales decreased $14.0 million, or 2.5%, as high single digit growth in the Rubbermaid Food business
and low single digit growth in the Rubbermaid Commercial business were more than offset by softness
in the Rubbermaid Home and Décor businesses.
Operating income for the three months ended September 30, 2008 was $56.5 million, or 9.9% of sales,
a decrease of $27.2 million, or 32.5%, from $83.7 million for the three months ended September 30,
2007. Inflation in raw material costs, particularly resin, lower manufacturing volume and
unfavorable mix more than offset the contributions from acquisitions during the 2008 quarter.
24
Office Products
Net sales for the three months ended September 30, 2008 were $540.2 million, a decrease of $4.7
million, or 0.9%, from $544.9 million for the three months ended September 30, 2007. Softer
domestic sales driven by weaker foot traffic at U.S. retailers more than offset benefits recognized
from favorable foreign currency. The segments international sales remained essentially flat in
local currency.
Operating income for the three months ended September 30, 2008 was $61.3 million, or 11.3% of
sales, a decrease of $22.9 million, or 27.2%, from $84.2 million for the three months ended
September 30, 2007. The year-over-year decline in operating income is attributable to core sales
decline, raw material inflation, unfavorable mix and increased investment in strategic SG&A
spending.
Tools & Hardware
Net sales for the three months ended September 30, 2008 were $331.0 million, a decrease of $4.9
million, or 1.5%, from $335.9 million for the three months ended September 30, 2007. The
year-over-year decrease was primarily due to a decline in the sales of the segments domestic
businesses, which have been affected by the decline in the U.S. residential construction market,
partially offset by favorable foreign currency and a mid-single digit increase in the segments
international business in local currency.
Operating income for the three months ended September 30, 2008 was $47.0 million, or 14.2% of
sales, a decrease of $4.3 million, or 8.4%, from $51.3 million for the three months ended September
30, 2007, as productivity improvements and favorable pricing were more than offset by raw material
inflation and core sales declines in North America.
Home & Family
Net sales for the three months ended September 30, 2008 were $319.1 million, an increase of $59.8
million, or 23.1%, from $259.3 million for the three months ended September 30, 2007. The Aprica
acquisition increased sales $28.9 million, or 11.1%. The remaining increase of $30.9 million, or
11.9%, was attributable to double digit growth in the Baby & Parenting Essentials and Culinary
Lifestyles businesses.
Operating income for the three months ended September 30, 2008 was $37.2 million, or 11.7% of
sales, flat to $37.2 million for the three months ended September 30, 2007, as sales improvements
were offset by brand building investments, sourced product inflation and unfavorable mix within the
segments Baby & Parenting Essentials business.
Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007
Consolidated Operating Results:
Net sales for the nine months ended September 30, 2008 were $5,019.1 million, representing an
increase of $254.3 million, or 5.3%, from $4,764.8 million for the nine months ended September 30,
2007. The acquisitions of Technical Concepts and Aprica increased sales $142.8 million, or 3.0%.
The remaining increase of $111.5 million, or 2.3%, was primarily attributable to foreign currency
benefits. Double digit growth in the Companys Rubbermaid Commercial and Rubbermaid Food
businesses, high single digit growth in the Home & Family segment and low single digit growth in
the Office Products segment were partially offset by declines in the Tools & Hardware segment and
Décor business, which have been impacted by weakness in the U.S. economy.
Gross margin, as a percentage of net sales, for the nine months ended September 30, 2008 was 33.6%,
or $1,688.4 million, versus 35.3%, or $1,681.3 million, for the nine months ended September 30,
2007. The 1.7% decline in the gross margin percentage was due to significant raw material and
sourced finished goods inflation more than offsetting positive pricing and savings from Project
Acceleration.
SG&A expenses for the nine months ended September 30, 2008 were 22.9% of net sales, or $1,148.2
million, versus 22.3% of net sales, or $1,060.2 million, for the nine months ended September 30,
2007. The $88.0 million increase in SG&A expenses was driven by SG&A expenses associated with the
Technical Concepts and Aprica acquisitions, the impact of foreign currency and continued investment
in brand building and strategic corporate initiatives.
The Company recorded restructuring costs of $101.3 million and $53.7 million for the nine months
ended September 30, 2008 and 2007, respectively. The increase in restructuring costs for the nine
months ended September 30, 2008 compared to the prior year
25
period is primarily attributable to $36.0 million of asset impairment charges recorded for the nine
months ended September 30, 2008 associated with the Companys plan to divest, downsize or exit
certain product categories where resin is the primary component of cost of products sold. The 2008
restructuring costs included $45.3 million of facility and other exit costs, including the $36.0
million of asset impairment charges noted above, $41.5 million of employee severance, termination
benefits and employee relocation costs, and $14.5 million of exited contractual commitments and
other restructuring costs, of which $1.4 million relates to the Companys 2001 Plan. The 2007
restructuring costs included $14.1 million of facility and other exit costs, $23.8 million of
employee severance and termination benefits and $15.8 million of exited contractual commitments and
other restructuring costs. See Footnote 4 of the Notes to Condensed Consolidated Financial
Statements for further information on these restructuring costs.
Operating income for the nine months ended September 30, 2008 was $438.9 million, or 8.7% of net
sales, versus $567.4 million, or 11.9% of net sales, for the nine months ended September 30, 2007.
The $128.5 million decline in operating income is primarily attributable to the impact of raw
material and sourced goods inflation on gross margin in 2008 and the $36.0 million of Project
Acceleration asset impairment charges in 2008 discussed above, partially offset by gross margin
improvements from productivity initiatives and favorable pricing during 2008.
Interest expense, net, for the nine months ended September 30, 2008 was $103.3 million versus $82.9
million for the nine months ended September 30, 2007. The increase in interest expense in 2008 was
driven by additional borrowings used to fund the acquisitions of Aprica and Technical Concepts.
Other expense, net, for the nine months ended September 30, 2008 was $56.4 million versus $4.4
million for the nine months ended September 30, 2007. Other expense, net, in 2008 is primarily
attributable to the $52.2 million loss on debt extinguishment relating to the Companys redemption
of its $250.0 million of Reset notes in July 2008.
The effective tax rate was 26.6% for the nine months ended September 30, 2008 versus 21.2% for the
nine months ended September 30, 2007. The increase in the effective tax rate was primarily related
to a net $3.5 million income tax benefit recorded during the nine months ended September 30, 2008
compared to net $41.3 million income tax benefits recorded for the nine months ended September 30,
2007. These income tax benefits primarily relate to favorable outcomes from the IRSs review of
specific deductions and accrual reversals for items for which the statute of limitations expired,
partially offset by provisions required for tax deductions recorded in prior periods. The effect
of the tax benefits was partially offset by tax rates applicable to various discrete expenses
recorded during the nine month periods, including restructuring costs. The discrete items in each
of the nine month periods caused the effective tax rate to decline marginally from the nine months
ended September 30, 2007 to the nine months ended September 30, 2008. See Footnote 8 of the Notes
to Condensed Consolidated Financial Statements for further information.
For the nine months ended September 30, 2007, the Company recognized a loss from operations of
discontinued operations of $0.2 million, net of tax, related to the results of the remaining
operations of the Home Décor Europe business and a loss on disposal of discontinued operations of
$16.3 million, net of tax, related primarily to the disposal of the remaining operations of the
Home Décor Europe business. The total loss from discontinued operations, net of tax, was $0.5
million and $16.5 million for the nine months ended September 30, 2008 and 2007, respectively.
Diluted loss per share from discontinued operations was $- and $0.06 for the nine months ended
September 30, 2008 and 2007, respectively. See Footnote 3 of the Notes to Condensed Consolidated
Financial Statements for further information.
26
Business Segment Operating Results:
Net sales by segment were as follows for the nine months ended September 30, (in millions, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
% Change |
|
|
|
Cleaning, Organization & Décor |
|
$ |
1,644.6 |
|
|
$ |
1,549.0 |
|
|
|
6.2 |
% |
Office Products |
|
|
1,574.8 |
|
|
|
1,538.7 |
|
|
|
2.3 |
|
Tools & Hardware |
|
|
943.6 |
|
|
|
954.4 |
|
|
|
(1.1 |
) |
Home & Family |
|
|
856.1 |
|
|
|
722.7 |
|
|
|
18.5 |
|
|
|
|
Total Net Sales |
|
$ |
5,019.1 |
|
|
$ |
4,764.8 |
|
|
|
5.3 |
% |
|
|
|
Operating income (loss) by segment was as follows for the nine months ended September 30, (in
millions, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
% Change |
|
|
|
Cleaning, Organization & Décor |
|
$ |
179.1 |
|
|
$ |
222.1 |
|
|
|
(19.4 |
)% |
Office Products |
|
|
198.4 |
|
|
|
228.4 |
|
|
|
(13.1 |
) |
Tools & Hardware |
|
|
128.8 |
|
|
|
133.2 |
|
|
|
(3.3 |
) |
Home & Family |
|
|
95.5 |
|
|
|
98.9 |
|
|
|
(3.4 |
) |
Corporate |
|
|
(61.6 |
) |
|
|
(61.5 |
) |
|
|
(0.2 |
) |
Restructuring Costs |
|
|
(101.3 |
) |
|
|
(53.7 |
) |
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
438.9 |
|
|
$ |
567.4 |
|
|
|
(22.6 |
)% |
|
|
|
Cleaning, Organization & Décor
Net sales for the nine months ended September 30, 2008 were $1,644.6 million, an increase of $95.6
million, or 6.2%, from $1,549.0 million for the nine months ended September 30, 2007. The Technical
Concepts acquisition increased sales $76.8 million, or 5.0%. The remaining increase of $18.8
million, or 1.2%, was driven by double digit growth in the Rubbermaid Commercial and Rubbermaid
Food businesses, partially offset by softness in the Rubbermaid Home and Décor businesses.
Operating income for the nine months ended September 30, 2008 was $179.1 million, or 10.9% of
sales, a decrease of $43.0 million, or 19.4%, from $222.1 million for the nine months ended
September 30, 2007. Raw material inflation, particularly in resin, and lower manufacturing volume
more than offset the contribution from increased sales, favorable pricing, and the Technical
Concepts acquisition during the 2008 year.
Office Products
Net sales for the nine months ended September 30, 2008 were $1,574.8 million, an increase of $36.1
million, or 2.3%, from $1,538.7 million for the nine months ended September 30, 2007. The sales
improvement was driven by favorable foreign currency and growth in the segments European and Asia
Pacific businesses in local currency, partially offset by a decline in domestic sales driven by
weaker foot traffic at U.S. retailers. The European business benefited in comparison to prior year
from softer sales in 2007 driven mainly by service level interruptions that did not repeat in 2008.
Operating income for the nine months ended September 30, 2008 was $198.4 million, or 12.6% of
sales, a decrease of $30.0 million, or 13.1%, from $228.4 million for the nine months ended
September 30, 2007. Operating income declined as improvements in sales were offset by raw material
inflation, increased investment in strategic SG&A spending, and unfavorable mix.
Tools & Hardware
Net sales for the nine months ended September 30, 2008 were $943.6 million, a decrease of $10.8
million, or 1.1%, from $954.4 million for the nine months ended September 30, 2007. The
year-over-year decrease was due to softness in the segments domestic businesses, which have been
affected by the decline in the U.S. residential construction market, partially offset by favorable
foreign currency and improved sales in the segments international business in local currency.
Operating income for the nine months ended September 30, 2008 was $128.8 million, or 13.6 % of
sales, a decrease of $4.4 million, or 3.3%, from $133.2 million for the nine months ended September
30, 2007, as favorable pricing and productivity improvements were more than offset by raw material
inflation and core sales declines in North America.
27
Home & Family
Net sales for the nine months ended September 30, 2008 were $856.1 million, an increase of $133.4
million, or 18.5%, from $722.7 million for the nine months ended September 30, 2007. The Aprica
acquisition increased sales $66.0 million, or 9.1%. The remaining increase of $67.4 million, or
9.4%, was attributable to double digit growth in the Baby & Parenting Essentials business and mid
single digit growth in the Culinary Lifestyles business.
Operating income for the nine months ended September 30, 2008 was $95.5 million, or 11.2% of sales,
a decrease of $3.4 million, or 3.4%, from $98.9 million for the nine months ended September 30,
2007, as volume gains were more than offset by unfavorable mix and increased strategic SG&A
spending for new product launches, brand building investments, and sourced product inflation.
Liquidity and Capital Resources
Cash and cash equivalents decreased as follows for the nine months ended September 30, (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
Cash provided by operating activities |
|
$ |
243.0 |
|
|
$ |
456.2 |
|
Cash used in investing activities |
|
|
(776.1 |
) |
|
|
(214.6 |
) |
Cash provided by (used in) financing activities |
|
|
428.0 |
|
|
|
(277.4 |
) |
Currency effect on cash and cash equivalents |
|
|
(3.5 |
) |
|
|
4.3 |
|
|
|
|
Decrease in cash and cash equivalents |
|
$ |
(108.6 |
) |
|
$ |
(31.5 |
) |
|
|
|
Sources:
Historically, the Companys primary sources of liquidity and capital resources have included cash
provided by operations, proceeds from divestitures and use of available borrowing facilities.
Cash provided by operating activities for the nine months ended September 30, 2008 was $243.0
million, compared to $456.2 million for the comparable period of 2007. The decrease is attributable
primarily to lower income from continuing operations, a reduction in accounts payable, and the
timing of payments of accrued liabilities, including income taxes. Cash used for restructuring
activities was $46.7 million and $37.8 million for the nine months ended September 30, 2008 and
2007, respectively, and is included in the cash flows from operating activities. These payments
relate primarily to employee termination benefits. The Company expects to use approximately $80
million of cash for restructuring activities in 2008 related to Project Acceleration.
During the nine months ended September 30, 2008, the Company received net proceeds from the
issuance of debt of $1,317.6 million, compared to $354.9 million for the comparable period of 2007.
In September 2008, the Company entered into a $400.0 million credit agreement, under which the
Company received an unsecured three-year term loan in the amount of $400.0 million (the Loan).
Net proceeds from the Loan were used to repay outstanding commercial paper and for general
corporate purposes. In March 2008, the Company completed the offering and sale of senior unsecured
notes, consisting of $500 million in 5.50% senior unsecured notes due April 2013 and $250 million
in 6.25% senior unsecured notes due April 2018 (collectively, the Senior Unsecured Notes). Net
proceeds from this offering were used to fund acquisitions, repay debt, and for general corporate
purposes. The Senior Unsecured Notes are unsecured and unsubordinated obligations of the Company
and equally ranked with all existing and future senior unsecured debt. Proceeds from the issuance
of debt in 2007 include the issuance of commercial paper used to fund the repayment of a five-year,
$250 million, 6% fixed rate medium term note that came due on March 15, 2007. See Footnote 6 of the
Notes to Condensed Consolidated Financial Statements for additional information.
On November 14, 2005, the Company entered into a $750.0 million five-year syndicated revolving
credit facility (the Revolver). As a result of subsequent extensions, the Revolver will now
expire in November 2012. The Company currently has $690.0 million available for
borrowing under the Revolver. At September 30, 2008 and 2007, there were no borrowings under the
Revolver.
In lieu of borrowings under the Revolver, the Company may issue up to $690.0 million
of commercial paper. 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 September 30, 2008, there was $39.1 million of commercial paper outstanding,
classified as current portion of long-term debt, and no standby letters of credit issued under the
Revolver.
28
Uses:
Historically, the Companys primary uses of liquidity and capital resources have included
acquisitions, dividend payments, capital expenditures and payments on debt.
The Company made payments on notes payable, commercial paper and long-term debt of $711.0 million
and $474.3 million in the nine months ended September 30, 2008 and 2007, respectively. In July
2008, the Company redeemed its $250.0 million of Reset notes due July 2028 for $302.2 million,
which includes the Companys purchase of the remarketing option embedded in the Reset notes from a
third party for $52.2 million. In July 2008, the Company also repaid $65.0 million of its $75.0
million outstanding 6.11% medium term notes due July 2028 in accordance with the terms of the
notes. The Company utilized its commercial paper program to fund the redemption of the Reset notes,
the purchase of the remarketing option, and the repayment of the $65.0 million of 6.11% medium term
notes due July 2028. The remaining payments made on debt during the nine months ended September
30, 2008 mainly represent the pay down of commercial paper. During the nine months ended September
30, 2007, the Company paid-off a five-year, $250 million, 6% fixed rate note, at maturity, and made
payments of $215 million on commercial paper.
Cash used for acquisitions was $660.4 million and $101.5 million for the nine months ended
September 30, 2008 and 2007, respectively. The cash used in 2008 relates primarily to the
acquisitions of Technical Concepts and Aprica, while cash used in 2007 included the third quarter
acquisition of Endicia. See Footnote 2 of the Notes to Condensed Consolidated Financial Statements
for further information.
Dividends paid were $176.1 million and $176.0 million during the nine months ended September 30,
2008 and 2007, respectively.
Capital expenditures were $122.1 million and $110.0 million during the nine months ended September
30, 2008 and 2007, respectively. The most significant components of the 2008 capital expenditures
relate to the implementation of SAP.
Liquidity Metrics
Working capital (defined as current assets less current liabilities) at September 30, 2008 was
$554.1 million compared to $87.9 million at December 31, 2007. The current ratio was 1.26:1 at
September 30, 2008 and 1.03:1 at December 31, 2007. The increase in working capital is primarily
related to the repayment of current maturities of long-term debt and commercial paper with proceeds
from the $400 million three-year term loan.
Total debt to total capitalization (total debt is net of cash and cash equivalents, and total
capitalization includes total debt and stockholders equity) was 0.54:1 at September 30, 2008 and
0.45:1 at December 31, 2007.
The Company has adopted and sponsors pension plans in the U.S. and in various other countries. The
Companys ongoing funding requirements for its pension plans are largely dependent on the value of
each of the plans assets and the investment returns realized on plan assets. To the extent each
plans assets decline in value or do not generate the returns expected by the Company, the Company
may be required to make contributions to the pension plans to ensure the pension obligations are
adequately funded as required by law or mandate. Based on the recent performance of the global
equity markets and instability in the credit markets, certain of the Companys pension plans
assets have declined in value. As a result, to the extent the plans assets do not increase in
value or decline further in value, the Company may be required to make contributions to certain of
its pension plans within the next twelve months, and such contributions may be significant.
The Company believes that available cash, cash flows generated from future operations, access to
capital markets, and availability under its revolving credit facility, including issuing commercial
paper, will be adequate to support the cash needs of existing businesses, although the Company will
be required to refinance its maturing short-term debt. As of September 30, 2008, the Company had
$569.7 million of short-term debt, including a floating rate note of $448.0 million related to its
2001 receivables facility that matures in September 2009. The Company plans to address these
obligations through the capital markets or other arrangements; however, access to the capital
markets cannot be assured, particularly in light of the recent turmoil and uncertainty in the
global credit markets, and alternative financing arrangements may result in higher borrowing costs
for the Company.
29
Fair Value Measurements
In the first quarter of 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes
a framework for measuring fair value under generally accepted accounting principles, and requires
expanded disclosures about fair value measurements. SFAS 157 does not require any new fair value
measurements, but rather generally applies to other accounting pronouncements that require or
permit fair value measurements.
SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and defines fair value as the price that would be received to sell an asset or
transfer a liability in an orderly transaction between market participants at the measurement date.
SFAS 157 discusses valuation techniques, such as the market approach (comparable market prices),
the income approach (present value of future income or cash flow), and the cost approach (cost to
replace the service capacity of an asset or replacement cost). These valuation techniques are based
upon observable and unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Companys market assumptions. SFAS 157
utilizes a fair value hierarchy that prioritizes these two inputs to valuation techniques used to
measure fair value into three broad levels. The following is a brief description of those three
levels:
|
|
|
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in
active markets. |
|
|
|
|
Level 2: Observable inputs other than quoted prices that are directly or indirectly
observable for the asset or liability, including quoted prices for similar assets or
liabilities in active markets; quoted prices for similar or identical assets or liabilities
in markets that are not active; and model-derived valuations whose inputs are observable or
whose significant value drivers are observable. |
|
|
|
|
Level 3: Unobservable inputs that reflect the reporting entitys own assumptions. |
The Financial Accounting Standards Board (FASB) issued FSP 157-2 which delayed the effective date
of SFAS 157 for all non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009.
The Companys assets and liabilities adjusted to fair value at least annually are its mutual fund
investments, included in other assets, and derivative instruments, primarily included in other
assets, other accrued liabilities and other noncurrent liabilities, and these assets and
liabilities are therefore subject to the measurement and disclosure requirements of SFAS 157. As
the Company adjusts the value of its mutual fund investments and derivative instruments to fair
value each reporting period, no adjustment to retained earnings resulted from the adoption of SFAS
157.
The Company determines the fair value of its mutual fund investments based on quoted market prices
(Level 1).
The Company generally uses derivatives for hedging purposes pursuant to SFAS 133, and the Companys
derivatives are primarily foreign currency forward contracts and interest rate swaps. The Company
determines the fair value of its derivative instruments based on Level 2 inputs in the SFAS 157
fair value hierarchy. Level 2 fair value determinations are derived from directly or indirectly
observable (market based) information. Such inputs are the basis for the fair values of the
Companys derivative instruments.
Critical Accounting Policies
There have been no significant changes to the Companys critical accounting policies since the
filing of its Form 10-K for the year ended December 31, 2007.
Goodwill and Other Indefinite-Lived Intangible Assets
In the third quarter of 2008, the Company conducted its annual test of impairment of goodwill and
indefinite-lived intangible assets. The Company evaluates goodwill and indefinite-lived intangible
assets (primarily trademarks and trade names) for impairment at the reporting unit level, which is
one level below the operating segment level (herein referred to as the reporting unit). The Company
conducts its annual test of impairment of goodwill and indefinite-lived intangible assets in the
third quarter because it coincides with its annual strategic planning process. The Company also
tests for impairment if events and circumstances indicate that it is more likely than not that the
fair value of a reporting unit or an indefinite-lived intangible asset is below its carrying
amount.
30
If the carrying amount of the reporting unit is greater than the fair value, impairment may be
present. The Company assesses the fair value of its reporting units for its goodwill and other
indefinite-lived assets generally based on discounted cash flow models, market multiples of
earnings, or an actual sales offer received from a prospective buyer, if available. The use of a
discounted cash flow model involves several assumptions, and changes in assumptions could
materially impact fair value estimates. Assumptions critical to the Companys fair value estimates
under the discounted cash flow model include the discount rate, royalty rates used in the Companys
evaluation of trade names, projected average revenue growth, and projected long-term growth rates
in the determination of terminal values. A one percentage point increase in the discount rate used
to determine the fair values of the Companys reporting units, which were not deemed to be impaired
based on the testing of goodwill in the third quarter as described above, would not cause the
carrying value of each respective reporting unit to exceed its fair value.
The Company cannot predict the occurrence of events that might adversely affect the reported value
of goodwill and other intangible assets. Such events may include, but are not limited to, strategic
decisions made in response to economic and competitive conditions, the impact of the economic
environment on the Companys customer base, or a material negative change in its relationships with
significant customers.
The Company measures the amount of any goodwill impairment based upon the estimated fair value of
the underlying assets and liabilities of the reporting unit, including any unrecognized intangible
assets, and estimates the implied fair value of goodwill. An impairment charge is recognized to the
extent the recorded goodwill exceeds the implied fair value of goodwill. An impairment charge is
also recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated
fair value on the measurement date.
No impairment charges were recorded by the Company as a result of the annual impairment testing
performed in the third quarter of 2008 and 2007.
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 rates
and prices. The Company does not hold or issue derivative instruments for trading purposes.
Interest Rates
Interest rate risk is present with both fixed and floating rate debt. The Company manages its
interest rate exposure through its mix of fixed and floating rate debt and its conservative debt
ratio target. Interest rate swap agreements designated as fair value hedges are used to mitigate
the Companys exposure to changes in the fair value of fixed rate debt resulting from fluctuations
in interest rates. Accordingly, interest rate fluctuations impact the fair value of the Companys
fixed rate debt, which are offset by corresponding changes in the fair value of the swap
agreements. Interest rate swaps may also 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.
Foreign Currency Exchange Rates
The Company is exposed to foreign currency risk in the ordinary course of business since a portion
of the Companys sales, expenses, and operating transactions are conducted on a global basis in
various foreign currencies. To the extent that business transactions are not denominated in U.S.
dollars, the Company is exposed to transactional foreign currency exchange rate risk. 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 uses foreign exchange
forward contracts and purchased options as economic hedges for commercial transactions and to
offset the future impact of gains and losses resulting from changes in the expected amount of
functional currency cash flows to be received or paid upon settlement of the anticipated
intercompany and third party commercial transactions. The Company also incurs gains and losses
recorded within shareholders equity due to the translation of the financial statements from the
functional currency of its entities to U.S. dollars.
The Company uses natural hedging techniques such as offsetting or netting like foreign currency
flows and denominating contracts in the appropriate functional currency. The Company also utilizes
capital structures of foreign subsidiaries combined with forward contracts to minimize its exposure
to foreign currency risk. The Company hedges portions of its net investments in foreign
subsidiaries with forward contracts and cross-currency hedges of intercompany loans denominated in
foreign currencies.
Gains and losses related to the settlement of qualifying hedges of commercial and intercompany
transactions are deferred and included in the basis of the underlying transactions. Gains and
losses related to qualifying forward exchange contracts, which are used to hedge
31
intercompany loans, are recognized in other comprehensive income. The Companys hedging programs
reduce, but do not always eliminate, the impact of currency exchange rate movements.
Commodity Price Risk
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.
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 represent the
Companys estimate of the maximum loss that could arise in one day. The amounts presented in the
table are shown as an illustration of the impact of potential adverse changes in interest and
foreign currency exchange rates. The following table sets forth the one day value-at-risk as of and
for the nine months ended September 30, (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
2007 |
|
|
|
|
|
|
Nine |
|
|
|
|
|
Nine |
|
|
|
|
|
|
Month |
|
September 30, |
|
Month |
|
September 30, |
|
Confidence |
|
|
Average |
|
2008 |
|
Average |
|
2007 |
|
Level |
|
|
|
Market Risk (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates |
|
$ |
13.1 |
|
|
$ |
10.9 |
|
|
$ |
8.3 |
|
|
$ |
8.8 |
|
|
|
95 |
% |
Foreign exchange |
|
$ |
6.7 |
|
|
$ |
6.6 |
|
|
$ |
4.2 |
|
|
$ |
5.2 |
|
|
|
95 |
% |
|
|
|
(1) |
|
The Company generally does not enter into material derivative contracts for commodities;
therefore, commodity price risk is not shown because the amounts are not material. |
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. Additionally,
since the Company operates globally, and therefore, among a broad basket of currencies, its foreign
currency exposure is diversified. 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 (including pricing), income/(loss), earnings per share, operating income or gross margin
improvements or declines, return on equity, return on invested capital, capital and other
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 and sourced product 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, would 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. Important factors that could cause actual results to differ
materially from those suggested by the forward-looking statements include, but are not limited to,
the Companys dependence on the strength of retail economies in light of the global economic
slowdown; competition with other manufacturers and distributors of consumer products; major
retailers strong bargaining power; changes in the prices of raw materials and sourced products and
the Companys ability to obtain raw materials and sourced products in a timely manner from
suppliers; the Companys ability to develop innovative new products and to develop, maintain and
strengthen its end-user brands; the Companys ability to expeditiously close facilities and move
operations while managing foreign regulations and other impediments; the
32
Companys ability to manage successfully risks associated with divesting or discontinuing
businesses and product lines; the Companys ability to implement successfully information
technology solutions throughout its organization; the Companys ability to improve productivity and
streamline operations; the Companys ability to refinance short term debt on terms acceptable to it
particularly given the recent turmoil and uncertainty in the global credit markets; increases in
the funding obligations related to the Companys pension plans due to declining asset values or
otherwise; the risks inherent in the Companys foreign operations and 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 September 30, 2008, 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 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 September 30, 2008 that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting. The Company is in
the process of replacing various business information systems worldwide with an enterprise resource
planning system from SAP. Implementation will continue to 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. In addition, this conversion will
impact certain interfaces with the Companys customers and suppliers, resulting in changes to the
tools the Company uses to take orders, procure materials, schedule production, remit billings, make
payments and perform other business functions.
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 1A. Risk Factors
The information presented below updates and supplements the risk factors set forth in the Companys
2007 Form 10-K and in Exhibit 99.1 to the Companys Form 10-Q for the period ended June 30, 2008.
The level of returns on pension and postretirement plan assets and the actuarial assumptions used
for valuation purposes could affect the Companys earnings and cash flows in future periods.
Changes in government regulations could also affect the Companys pension and postretirement plan
expense and funding requirements.
The funding obligations for the Companys pension plans are impacted by the performance of the
financial markets, particularly the equity markets, and interest rates. Funding obligations are
determined under government regulations and are measured each year based on the value of assets and
liabilities on a specific date. If the financial markets do not provide the long-term returns that
are expected under the governmental funding calculations, the Company could be required to make
larger contributions. The equity markets can be, and recently have been, very volatile, and
therefore the Companys estimate of future contribution requirements can change dramatically in
relatively short periods of time. Similarly, changes in interest rates and legislation enacted by
governmental authorities can impact the timing and amounts of contribution requirements. An
adverse change in the funded status of the plans could significantly increase the Companys
required contributions in the future and adversely impact its liquidity.
Assumptions used in determining projected benefit obligations and the fair value of plan assets for
the Companys pension and other postretirement benefit plans are evaluated by the Company in
consultation with outside actuaries. In the event that the Company determines that changes are
warranted in the assumptions used, such as the discount rate, expected long term rate of return, or
health
33
care costs, the Companys future pension and projected postretirement benefit expenses could
increase or decrease. Due to changing market conditions or changes in the participant population,
the actuarial assumptions that the Company uses may differ from actual results, which could have a
significant impact on the Companys pension and postretirement liability and related costs.
The inability to obtain raw materials and finished goods in a timely manner from suppliers would
adversely affect the Companys ability to manufacture and market its products.
The Company purchases raw materials to be used in manufacturing its products. In addition, the
Company is placing increasing reliance on third party manufacturers as a source for finished goods.
The Company typically does not enter into long-term contracts with its suppliers or sourcing
partners. Instead, most raw materials and sourced goods are obtained on a purchase order basis.
In addition, in some instances the Company maintains single-source or limited-source sourcing
relationships, either because multiple sources are not available or the relationship is
advantageous due to performance, quality, support, delivery, capacity, or price considerations.
Financial, operating or other difficulties suffered by the Companys suppliers and/or sourcing
partners or changes in the Companys relationships with them could result in manufacturing or
sourcing interruptions, delays, and inefficiencies and prevent the Company from manufacturing or
obtaining the finished goods necessary to meet customer demand.
Circumstances associated with the Companys potential divestitures and product line
rationalizations could adversely affect the Companys results of operations and financial
condition.
The Company continues to evaluate the performance and strategic fit of its businesses and may
decide to sell or discontinue a business or product line based on such an evaluation. A decision to
divest or discontinue a business or product line may result in asset impairments, including those
related to goodwill and other intangible assets, and losses upon disposition, both of which could
have an adverse effect on the Companys results of operations and financial condition. In
addition, the Company may encounter difficulty in finding buyers (or prospective buyers may have
difficulty obtaining financing) or alternative exit strategies at acceptable prices and terms and
in a timely manner. Divestitures and business discontinuations could involve additional risks,
including the following:
|
|
|
difficulties in the separation of operations, services, products and personnel; |
|
|
|
|
the diversion of managements attention from other business concerns; |
|
|
|
|
the assumption of certain current or future liabilities in order to induce a buyer to
complete a divestiture; |
|
|
|
|
the disruption of the Companys business; |
|
|
|
|
and the potential loss of key employees. |
The Company may not be successful in managing these or any other significant risks that it may
encounter in divesting or discontinuing a business or product line.
The Company may have additional tax liabilities.
The Company is subject to income tax in the U.S. and numerous jurisdictions outside the U.S.
Significant estimation and judgment is required in determining the Companys worldwide provision
for income taxes. In the ordinary course of the Companys business, there are many transactions
and calculations where the ultimate tax determination is uncertain. The Company is regularly under
audit by tax authorities. Although the Company believes its tax estimates are reasonable, the
final outcome of tax audits and related litigation could be materially different than that
reflected in its historical income tax provisions and accruals. There can be no assurance that the
resolution of any audits or litigation will not have an adverse effect on future operating results.
34
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 September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Approximate dollar |
|
|
Total Number of |
|
|
|
|
|
as Part of |
|
Value of Shares that |
|
|
Shares |
|
Average Price |
|
Publicly Announced |
|
May Yet Be Purchased |
Period |
|
Purchased(1) |
|
Paid per Share |
|
Plans or Programs |
|
Under the Plans or Programs |
7/1/08-7/31/08 |
|
|
1,623 |
|
|
$ |
16.82 |
|
|
|
|
|
|
|
|
|
8/1/08-8/31/08 |
|
|
4,405 |
|
|
$ |
18.00 |
|
|
|
|
|
|
|
|
|
9/1/08-9/30/08 |
|
|
22,642 |
|
|
$ |
19.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,670 |
|
|
$ |
19.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
None of these transactions were made pursuant to a publicly 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
|
|
$400,000,000 Term Loan Credit Agreement, dated as of September 19,
2008, by and among, the Company, Bank of America, N.A., as
administrative agent, and each lender a signatory thereto. |
|
|
|
10.2
|
|
Employment Security Agreement with Mark D. Ketchum dated September
30, 2008 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated September 30, 2008). |
|
|
|
10.3
|
|
Form of Employment Security Agreement with certain executive officers
and a limited number of other senior management employees
(incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K dated September 30, 2008). |
|
|
|
10.4
|
|
Form of Restricted Stock Unit Agreement for Non-Employee Directors. |
|
|
|
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
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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. |
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99.1 |
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Safe Harbor Statement. |
35
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.
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NEWELL RUBBERMAID INC. Registrant |
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Date: November 10, 2008
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/s/ J. Patrick Robinson |
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J. Patrick Robinson
Chief Financial Officer |
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36
exv10w1
Exhibit 10.1
NEWELL RUBBERMAID INC.
CREDIT AGREEMENT
Dated as of September 19, 2008
$400,000,000
BANK OF AMERICA, N.A.
as Administrative Agent
and
JP MORGAN CHASE BANK, N.A.,
as Syndication Agent
BANC OF AMERICA SECURITIES LLC
and
J.P. MORGAN SECURITIES INC.,
as Joint Lead Arrangers and Joint Bookrunners
TABLE OF CONTENTS
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Page |
SECTION 1 DEFINITIONS AND ACCOUNTING MATTERS |
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1 |
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1.01 Certain Defined Terms |
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1 |
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1.02 Accounting Terms and Determinations |
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14 |
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1.03 Types of Loans |
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14 |
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1.04 Terms Generally |
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14 |
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SECTION 2 TERM LOAN |
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15 |
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2.01 Term Loan |
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15 |
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2.02 Borrowing of the Term Loan |
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15 |
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2.03 Fees |
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16 |
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2.04 Several Obligations; Remedies Independent |
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16 |
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2.05 Evidence of Debt |
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16 |
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2.06 Prepayments; Conversions and Continuations |
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16 |
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SECTION 3 PAYMENTS OF PRINCIPAL AND INTEREST |
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18 |
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3.01 Repayment of Loans |
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18 |
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3.02 Interest |
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18 |
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SECTION 4 PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. |
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19 |
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4.01 Payments |
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19 |
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4.02 Pro Rata Treatment |
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20 |
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4.03 Computations |
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20 |
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4.04 Non-Receipt of Funds by the Administrative Agent |
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21 |
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4.05 Set-off; Sharing of Payments |
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21 |
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SECTION 5 YIELD PROTECTION AND ILLEGALITY |
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22 |
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5.01 Additional Costs |
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22 |
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5.02 Limitation on Types of Loans |
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23 |
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5.03 Illegality |
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24 |
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5.04 Base Rate Loans Pursuant to Sections 5.01 and 5.03 |
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24 |
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5.05 Compensation |
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24 |
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5.06 Taxes |
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25 |
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5.07 Replacement of Lenders |
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26 |
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SECTION 6 CONDITIONS PRECEDENT |
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27 |
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6.01 Effective Date |
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27 |
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6.02 Credit Extension |
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28 |
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SECTION 7 REPRESENTATIONS AND WARRANTIES |
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28 |
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7.01 Corporate Existence |
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28 |
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7.02 Financial Condition |
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29 |
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7.03 Litigation |
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29 |
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7.04 No Breach |
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30 |
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7.05 Corporate Action |
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30 |
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7.06 Approvals |
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30 |
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7.07 Use of Credit |
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30 |
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7.08 ERISA |
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30 |
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7.09 Investment Company Act |
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30 |
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7.10 Credit Agreements |
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31 |
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7.11 Hazardous Materials |
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31 |
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Page |
7.12 Taxes |
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31 |
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7.13 True and Complete Disclosure |
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31 |
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7.14 Subsidiaries |
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32 |
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7.15 Compliance with Law. |
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32 |
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SECTION 8 COVENANTS OF THE BORROWER |
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32 |
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8.01 Financial Statements |
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32 |
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8.02 Litigation |
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35 |
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8.03 Corporate Existence, Etc. |
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35 |
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8.04 Insurance |
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35 |
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8.05 Use of Proceeds |
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35 |
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8.06 Indebtedness |
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36 |
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8.07 Fundamental Changes |
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36 |
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8.08 Liens |
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37 |
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8.09 Lines of Businesses |
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38 |
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8.10 Total Indebtedness to Total Capital |
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38 |
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8.11 Interest Coverage Ratio |
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38 |
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8.12 Transactions with Affiliates |
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39 |
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SECTION 9 EVENTS OF DEFAULT |
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39 |
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SECTION 10 THE ADMINISTRATIVE AGENT |
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42 |
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10.01 Appointment, Powers and Immunities |
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42 |
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10.02 Reliance by Administrative Agent |
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42 |
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10.03 Defaults |
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43 |
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10.04 Rights as a Lender |
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43 |
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10.05 Indemnification |
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43 |
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10.06 Non-Reliance on Administrative Agent and Other Lenders |
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43 |
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10.07 Failure to Act |
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44 |
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10.08 Resignation or Removal of Administrative Agent |
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44 |
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10.09 Lead Arrangers and Other Agents |
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44 |
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10.10 Exculpatory Provisions |
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44 |
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10.11 Administrative Agent May File Proofs of Claim |
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45 |
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SECTION 11 MISCELLANEOUS |
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46 |
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11.01 Waiver |
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11.02 Notices |
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11.03 Expenses, Etc |
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47 |
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11.04 Amendments, Etc |
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48 |
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11.05 Assignments and Participations |
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48 |
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11.06 Survival |
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51 |
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11.07 Captions |
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51 |
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11.08 Counterparts; Effectiveness |
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51 |
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11.09 Governing Law; Jurisdiction; Service of Process; Waiver of Jury Trial; Etc |
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51 |
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11.10 Successors and Assigns |
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52 |
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11.11 USA PATRIOT Act |
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52 |
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11.12 No Advisory or Fiduciary Relationship |
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52 |
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ii
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Annex I
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Commitments |
Schedule I
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-
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List of Indebtedness |
Schedule II
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List of Certain Liens |
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EXHIBIT A
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Form of Loan Notice |
EXHIBIT B
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Form of Assignment and Assumption |
iii
CREDIT AGREEMENT dated as of September 19, 2008, between NEWELL RUBBERMAID INC., a corporation
duly organized and validly existing under the laws of the State of Delaware (together with its
successors, the Borrower); each of the lenders which is a signatory hereto (together with
its successors and permitted assigns, individually, a Lender and, collectively, the
Lenders); and BANK OF AMERICA, N.A., as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the Administrative Agent).
The Borrower has requested that the Lenders make a term loan to the Borrower in an aggregate
principal amount not exceeding $400,000,000 on the Effective Date. The Lenders are prepared to
make such term loan upon the terms and conditions hereof, and, accordingly, the parties agree as
follows:
SECTION 1
DEFINITIONS AND ACCOUNTING MATTERS
1.01 Certain Defined Terms. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in
the singular to have the same meanings when used in the plural and vice versa):
Additional Costs has the meaning provided in Section 5.01.
Adjusted LIBO Rate shall mean, for any LIBO Rate Loan for any Interest Period, a
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined by the
Administrative Agent to be equal to the LIBO Rate for the Interest Period for such Loan divided by
1 minus the Reserve Requirement for such Loan for such Interest Period.
Administrative Agent means Bank of America in its capacity as administrative agent
under any of the Credit Documents.
Administrative Agent Fee Letter means the letter agreement dated August 26, 2008
among the Borrower, Bank of America and BAS.
Administrative Agents Account shall mean, such account as the Administrative Agent
shall designate in a notice to the Borrower and the Lenders.
Advance Period has the meaning provided in Section 4.04.
Administrative Questionnaire shall mean an Administrative Questionnaire in the form
supplied by the Administrative Agent.
Affected Loans has the meaning provided in Section 5.04.
Affected Type has the meaning provided in Section 5.04.
Affiliate shall mean, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is
under common Control with the Person specified.
Agent Parties has the meaning provided in Section 11.02.
Applicable Lending Office shall mean for each Lender and for each Type of Loan the
lending office of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan
in the Administrative Questionnaire submitted by such Lender or such other office of such Lender
(or of an Affiliate of such Lender) as such Lender may from time to time specify to the
Administrative Agent and the Borrower.
Applicable Margin shall mean, during any period when the Rating is at one of the
Rating Groups specified below, the percentage set forth below opposite the reference to the
relevant Type of Loan:
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Rating |
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Rating |
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Rating |
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Rating |
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Rating |
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Rating |
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Group I |
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Group II |
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Group III |
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Group IV |
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Group V |
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Group VI |
Applicable Margin
for LIBO Rate Loans |
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0.75 |
% |
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1.00 |
% |
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1.375 |
% |
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1.75 |
% |
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2.00 |
% |
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2.50 |
% |
Applicable Margin for
Base Rate Loans |
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0 |
% |
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0 |
% |
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0.375 |
% |
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0.75 |
% |
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1.00 |
% |
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1.50 |
% |
Any change in the Applicable Margin by reason of a change in the Moodys Rating, the Standard &
Poors Rating or the Fitch Rating shall become effective on the date of announcement or publication
by the respective Rating Agency of a change in such Rating or, in the absence of such announcement
or publication, on the effective date of such changed rating.
Applicable Percentage shall mean, with respect to any Lender at any time, with
respect to such Lenders portion of the outstanding Term Loan at any time, the percentage of the
outstanding principal amount of the Term Loan held by such Lender at such time. The initial
Applicable Percentage of each Lender is set forth opposite the name of such Lender on Annex
I or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as
applicable.
Approved Fund shall mean any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions of credit in the
ordinary course of its business and that is administered or managed by (a) a Lender, (b) an
Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a
Lender.
Assignment and Assumption shall mean an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required by
Section 11.05), and accepted by the Administrative Agent, in the form of Exhibit B
or any other form approved by the Administrative Agent.
2
Bank of America shall mean Bank of America, N.A. and its successors.
BAS means Banc of America Securities LLC, in its capacity as joint lead arranger and
joint bookrunner.
Bankruptcy Code means the United States Bankruptcy Code of 1978, as amended from
time to time.
Base Rate shall mean, with respect to any Base Rate Loan, for any day, the higher of
(a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day.
Base Rate Loans shall mean Loans which bear interest based upon the Base Rate.
Borrower has the meaning specified in the introductory paragraph hereto.
Borrower Materials has the meaning provided in Section 8.01.
Business Day shall mean any day (a) that is not a Saturday, Sunday or other day on
which commercial banks are authorized or required to close in New York City and (b) if such day
relates to the giving of notices in connection with a borrowing of, a payment or prepayment of
principal of or interest on, Conversion of or into, or an Interest Period for, a LIBO Rate Loan or
a notice by the Borrower with respect to any such borrowing, payment, prepayment, Conversion or
Interest Period, also on which dealings in deposits are carried out in the London interbank market.
Capital Lease Obligations shall mean, as to any Person, the obligations of such
Person to pay rent or other amounts under a lease of (or other agreement conveying the right to
use) real and/or personal property which obligations are required to be classified and accounted
for as a capital lease on a balance sheet of such Person under GAAP (including Statement of
Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) and, for
purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with GAAP (including such Statement No. 13).
Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
Commitment shall mean, as to each Lender, the obligation of such Lender to make its
portion of the Term Loan to the Borrower pursuant to Section 2.01, in the principal amount
set opposite such Lenders name on Annex I hereto under the caption Commitment. The
aggregate principal amount of the Commitments of all of the Lenders as in effect on the Closing
Date is FOUR HUNDRED MILLION DOLLARS ($400,000,000).
Commitment Letter means the letter agreement dated August 26, 2008 from Bank of
America, BAS, JPMCB and JPMorgan and accepted and agreed to by the Borrower.
Consolidated EBITDA shall mean, for any period, Consolidated Net Income for such
period plus, without duplication and to the extent deducted in determining such
Consolidated Net
3
Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization
or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and
charges associated with Indebtedness (including the Loans), (c) depreciation and amortization
expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization
costs and (e) any extraordinary, unusual or non-recurring charges or losses, and minus, to
the extent included in determining such Consolidated Net Income for such period, the sum of (a)
interest income, (b) any extraordinary, unusual or non-recurring income or gains (including,
whether or not otherwise includable as a separate item in the statement of such Consolidated Net
Income for such period, gains on the sales of assets outside of the ordinary course of business)
and (c) any other non-cash income, all as determined on a consolidated basis.
Consolidated Interest Expense shall mean, for any period and without duplication,
total interest expense (including that attributable to Capital Lease Obligations) of the Borrower
and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower
and its Subsidiaries accrued or capitalized during such period (whether or not actually paid during
such period) (including all commissions, discounts and other fees and charges owed with respect to
standby letters of credit and bankers acceptance financing and net costs under Swap Agreements in
respect of interest rates to the extent such net costs are allocable to such period in accordance
with GAAP), but excluding any interest expense for such period relating to quarterly or monthly
income preferred securities, quarterly income capital securities or other similar securities.
Consolidated Net Income shall mean, for any period, the consolidated net income (or
loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person
accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated
with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than
a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership
interest, except to the extent that any such income is actually received by the Borrower or such
Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of
any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by the terms of any security
issued by the Borrower or any of its Subsidiaries or of any agreement, instrument or other
undertaking to which the Borrower or any of its Subsidiaries is a party or by which any of them or
their respective property is bound (other than under any Credit Document) or Requirement of Law
applicable to such Subsidiary.
Continue, Continuation and Continued shall refer to a
continuation pursuant to Section 2.06(c) of a LIBO Rate Loan from one Interest Period to
the next Interest Period.
Control shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise. Controlling and Controlled
have meanings correlative thereto.
Controlling Stock Disposition has the meaning provided in Section 8.07.
4
Convert, Conversion and Converted shall refer to a conversion
pursuant to Section 2.06(c) of one Type of Loans into the other Type of Loans, which may be
accompanied by a transfer by a Lender (at its sole discretion) of a Loan from one Applicable
Lending Office to another).
Credit Documents shall mean this Agreement and the Notes, if any.
Credit Extension shall mean the making of the Term Loan hereunder.
Default shall mean an Event of Default or an event which with notice or lapse of
time or both would become an Event of Default.
Disposition shall have the meaning assigned to that term in
Section 8.07(vi).
Disposition Period shall mean, for any Disposition, a period of twelve months ending
on the date of such Disposition.
Dollars and $ shall mean lawful money of the United States of America.
Effective Date shall mean the date hereof.
Environmental Affiliate shall mean, as to any Person, any other Person whose
liability (contingent or otherwise) for any Environmental Claim such Person may have retained,
assumed or otherwise become liable (contingently or otherwise), whether by contract, operation of
law or otherwise; provided that each Subsidiary of such Person, and each former Subsidiary
or division of such Person transferred to another Person, shall in any event be an Environmental
Affiliate of such Person.
Environmental Claim shall mean, with respect to any Person, any notice, claim,
demand or other communication (whether written or oral) by any other Person alleging or asserting
liability of such Person for investigatory costs, cleanup costs, governmental response costs,
damages to natural resources or other Property, personal injuries, fines or penalties arising out
of, based on or resulting from (a) the presence, or release into the environment, of any hazardous
material at any location, whether or not owned by such Person, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
Environmental Laws shall mean any and all Federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental restrictions relating to the
environment or to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the
environment, including, without limitation, ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes.
5
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended
from time to time.
ERISA Affiliate shall mean any trade or business (whether or not incorporated) that,
together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the
Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a
single employer under Section 414 of the Code.
Event of Default shall have the meaning assigned to that term in Section 9.
Federal Funds Rate shall mean, for any day, the weighted average (rounded upwards,
if necessary, to the nearest 1/100th of 1%) of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by federal funds brokers on such day as
published by the Federal Reserve Bank of New York on the Business Day next succeeding such day,
provided that (i) if the day for which such rate is to be determined is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average (rounded upwards,
if necessary, to the next 1/100th of 1%) of the quotations for such day for transactions
received by the Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
Fee Letter means the letter agreement dated August 26, 2008 among the Borrower, Bank
of America, BAS, JPMCB and JPMorgan.
Fitch shall mean Fitch Investors Services, Inc. or any successor thereto.
Fitch Rating shall mean, as of any date, the rating most recently published by Fitch
relating to the unsecured, long-term, senior debt securities of the Borrower.
GAAP shall mean generally accepted accounting principles applied on a basis
consistent with those which, in accordance with the last sentence of Section 1.02(a), are
to be used in making the calculations for purposes of determining compliance with the provisions of
this Agreement.
Governmental Authority shall mean any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange and any
self-regulatory organization.
Guarantee of any Person shall mean any guarantee, endorsement, contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or any other contingent
liability on or with respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any other Person (including, without limitation, the liability of such Person in
respect of the Indebtedness of any partnership of which such Person is a general partner), or the
6
guarantee by such Person of the payment of dividends or other distributions upon the stock of
any other Person, or the agreement by such Person to purchase, sell or lease (as lessee or lessor)
property, products, materials, supplies or services primarily for the purpose of enabling any other
Person to make payment of its obligations or to assure a creditor against loss, and the verb
Guarantee shall have a correlative meaning, provided that the term Guarantee
shall not include endorsements for collection or deposits in the ordinary course of business.
Indebtedness shall mean, as to any Person at any date (without duplication):
(i) indebtedness created, issued, incurred or assumed by such Person for borrowed money or
evidenced by bonds, debentures, notes or similar instruments; (ii) all obligations of such Person
to pay the deferred purchase price of property or services, excluding, however, trade accounts
payable (other than for borrowed money) arising in, and accrued expenses incurred in, the ordinary
course of business of such Person so long as such trade accounts payable are paid within 120 days
of the date the respective goods are delivered or the services are rendered; (iii) all Indebtedness
of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; (iv) all Indebtedness of others Guaranteed by such Person; (v) all Capital
Lease Obligations; (vi) reimbursement obligations of such Person (whether contingent or otherwise)
in respect of bankers acceptances, surety or other bonds and similar instruments (other than
commercial, standby or performance letters of credit); (vii) unpaid reimbursement obligations of
such Person (other than contingent obligations) in respect of commercial, standby or performance
letters of credit; and (viii) debt securities or obligations (including preferred debt securities)
issued in connection with Permitted Securitizations included as indebtedness in accordance with
GAAP on a consolidated balance sheet of such Person.
Interest Coverage Ratio shall mean, as at any date of determination thereof, the
ratio of (a) Consolidated EBITDA for the period of four consecutive fiscal quarters ending on or
most recently ended prior to such date to (b) Consolidated Interest Expense for such period.
Interest Period shall mean, with respect to any LIBO Rate Loan, each period
commencing on the date such LIBO Rate Loan is made or Converted from a Loan of another Type or the
last day of the next preceding Interest Period for such Loan and ending on the numerically
corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower
may select as provided in Section 2.02, except that each Interest Period that commences on
the last Business Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day
of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest
Period would otherwise commence before and end after the Maturity Date, such Interest Period shall
not be available hereunder; (ii) each Interest Period which would otherwise end on a day which is
not a Business Day shall end on the next succeeding Business Day (or, in the case of an Interest
Period for any LIBO Rate Loans, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) notwithstanding clause (i) above, no
Interest Period for any LIBO Rate Loans shall have a duration of less than one month and, if the
Interest Period for any such Loans would otherwise be a shorter period, such Loans shall not be
available hereunder.
JPMCB shall mean JPMorgan Chase Bank, N.A.
7
JPMorgan shall mean J.P. Morgan Securities Inc., in its capacity as a joint lead
arranger and joint bookrunner.
Jurisdiction shall mean, with respect to the Borrower, the country or countries
(including any political subdivision or taxing authority thereof or therein) under whose laws the
Borrower is organized or where the Borrower is domiciled, resident or licensed or otherwise
qualified to do business or where any significant part of the Property of the Borrower is located.
LIBO Rate shall mean, for any Interest Period for any LIBO Rate Loan, the rate for
deposits with a maturity comparable to such Interest Period commencing on the first day of such
Interest Period equal to the British Bankers Association LIBOR Rate (BBA LIBOR), as
published by Reuters (or other commercially available source providing quotations of BBA LIBOR as
designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time,
on the Quotation Date. If such rate is not available at such time for any reason, then the LIBO
Rate for such Interest Period shall be the rate per annum determined by the Administrative Agent
to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period
in same day funds in the approximate amount of the LIBO Rate Loan being made, continued or
converted by Bank of America and with a term equivalent to such Interest Period would be offered by
Bank of Americas London Branch to major banks in the London interbank eurodollar market at their
request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of
such Interest Period.
LIBO Rate Loans shall mean Loans the interest rates on which are determined on the
basis of Adjusted LIBO Rates.
Lien shall mean, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the purposes of this
Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which
it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such asset.
Loans means an extension of credit by a Lender to the Borrower under Article
II in the form of a portion of the Term Loan.
Loan Notice means a notice of (a) a borrowing of the Term Loan pursuant to
Section 2.02(a), (b) a conversion of Loans from one type to the other pursuant to
Section 2.06(c) a continuation of LIBO Rate Loans pursuant to Section 2.06(c),
which, if in writing, shall be substantially in the form of Exhibit A.
Majority Lenders shall mean, at any time, Lenders holding in the aggregate more than
50% of the outstanding Term Loan at such time.
Mandatory Cost shall mean, with respect to any Lender, the cost, if any, imputed to
such Lender of compliance with the cash ratio and special deposit requirements of the Bank of
England and/or the banking supervision or other costs imposed by the Financial Services
8
Authority during the relevant period, as determined by the Bank of England and/or Financial
Services Authority during such relevant period.
Material Adverse Effect shall mean a material adverse effect on (i) the consolidated
financial condition, operations, business or prospects of the Borrower and its Subsidiaries (taken
as a whole), (ii) the ability of the Borrower to perform its obligations under any of the Credit
Documents or (iii) the validity or enforceability of any of the Credit Documents.
Maturity Date shall mean September 19, 2011.
Moodys shall mean Moodys Investors Service, Inc. or any successor thereto.
Moodys Rating shall mean, as of any date, the rating most recently published by
Moodys relating to the unsecured, long-term, senior debt securities of the Borrower.
Multiemployer Plan shall mean a multiemployer plan as defined in Section 4001(a)(3)
of ERISA.
Net Worth shall mean, at any time, the consolidated stockholders equity of the
Borrower and its Subsidiaries determined on a consolidated basis without duplication in accordance
with GAAP.
Non-Strategic Property shall mean (a) Property related to the Borrowers (i)
Rubbermaid Home Products insulated products (e.g. coolers and totes, etc.), outdoor shed and
storage solutions businesses and (ii) Ashland Hardware Systems business and (b) Property acquired
as part of the acquisition of a business that is designated by resolution of the Board of Directors
of the Borrower adopted no later than six months after such acquisition as non-strategic Property.
Notes shall mean the promissory notes provided for by Section 2.05(d).
Participant has the meaning provided in Section 11.05(c)(i).
Payor has the meaning provided in Section 4.04.
PBGC shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to
any or all its functions under ERISA.
Permitted Activities has the meaning provided in Section 8.09.
Permitted Securitization shall mean any transaction or series of transactions that
may be entered into by the Borrower or any of its Subsidiaries pursuant to which the Borrower or
such Subsidiary, as the case may be, may sell, convey or otherwise transfer, or grant a security
interest in, any receivables (whether now existing or arising in the future) of the Borrower or any
of its Subsidiaries and any assets related thereto, including all collateral securing such
receivables, all contracts and all guarantees or other obligations in respect of such receivables
9
and the proceeds of such receivables; provided that (a) there shall be no recourse
under such securitization to the Borrower or any of its other Subsidiaries other than pursuant to
Standard Securitization Undertakings and (b) the Administrative Agent shall be reasonably satisfied
that the terms of such securitization are in compliance with the terms of this Agreement.
Person shall mean an individual, a corporation, a company, a limited liability
company, a voluntary association, a partnership, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
Plan shall mean any employee pension benefit plan (other than a Multiemployer Plan)
which is or was established, sponsored, maintained or contributed to, by the Borrower or any ERISA
Affiliate and is or was subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA.
Platform has the meaning provided in Section 8.01.
Post-Default Rate shall mean, in respect of any principal of any Loan or any other
amount payable by the Borrower under this Agreement or any Note which is not paid when due (whether
at stated maturity, by acceleration or otherwise), a rate per annum during the period commencing on
the due date until such amount is paid in full equal to the sum of 2% plus the Base Rate as in
effect from time to time plus the Applicable Margin for Base Rate Loans (provided that, if
such amount in default is principal of a LIBO Rate Loan and the due date is a day other than the
last day of the Interest Period therefor, the Post-Default Rate for such principal shall be, for
the period commencing on the due date and ending on the last day of the Interest Period therefor,
2% above the interest rate for such Loan as provided in Section 3.02 and, thereafter, the
rate provided for above in this definition).
Prime Rate shall mean a rate set by Bank of America based upon various factors
including Bank of Americas costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be priced at, above, or
below such announced rate. Any change in the Prime Rate announced by Bank of America shall take
effect at the opening of business specified in the public announcement of such change.
Property shall mean any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible (including, without limitation,
shares of capital stock).
Proposed Lender has the meaning provided in Section 5.07.
Quarterly Dates shall mean the last Business Day of each March, June, September and
December, the first of which shall be the first such day after the Effective Date.
Quotation Date shall mean, for any Interest Period, the date two Business Days prior
to the commencement of such Interest Period.
10
Rating shall mean the Moodys Rating, the Standard & Poors Rating or the Fitch
Rating.
Rating Agency shall mean Moodys, Standard & Poors or Fitch.
Rating Group I shall mean any two of the following: the Moodys Rating is at or
above A2, the Standard & Poors Rating is at or above A or the Fitch Rating is at or above A;
Rating Group II shall mean (a) any two of the following: the Moodys Rating is at or
above A3, the Standard & Poors Rating is at or above A- or the Fitch Rating is at or above A- and
(b) Rating Group I is not in effect; Rating Group III shall mean (a) any two of the
following: the Moodys Rating is at or above Baa1, the Standard & Poors Rating is at or above BBB+
or the Fitch Rating is at or above BBB+ and (b) neither Rating Group I nor Rating Group II is in
effect;
Rating Group IV shall mean (a) any two of the following: the Moodys Rating is at or
above Baa2, the Standard & Poors Rating is at or above BBB or the Fitch Rating is at or above BBB
and (b) neither Rating Group I, Rating Group II nor Rating Group III is in effect; Rating
Group V shall mean (a) any two of the following: the Moodys Rating is at or above Baa3, the
Standard & Poors Rating is at or above BBB- or the Fitch Rating is at or above BBB- and
(b) neither Rating Group I, Rating Group II, Rating Group III nor Rating Group IV is in effect;
Rating Group VI shall mean none of Rating Group I, Rating Group II, Rating Group
III, Rating Group IV and Rating Group V is in effect; provided that (i) if at any time the
Company has two or three Ratings falling within two different Rating Groups that are one Rating
Group apart, the relevant Rating Group for purposes of determining the Applicable Margin shall be
the Rating Group for the higher of the Moodys Rating (if any) or the Standard & Poors Rating (if
any), (ii) if at any time the Company has two or three Ratings falling within different Rating
Groups that are two or more Rating Groups apart, the relevant Rating Group for purposes of
determining the Applicable Margin shall be the Rating Group that is one level above the Rating
Group for the lower (or the lowest, as the case may be) of such Ratings and (iii) for this purpose
of this proviso, Rating Group I is higher than Rating Group II, Rating Group II is higher than
Rating Group III, Rating Group III is higher than Rating Group IV, Rating Group IV is higher than
Rating Group V and Rating Group V is higher than Rating Group VI).
Register shall have the meaning assigned to that term in Section 11.05.
Regulation D shall mean Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as the same may be amended or supplemented from time to time.
Regulatory Change shall mean, with respect to any Lender, any change after the date
hereof, in United States Federal, state or foreign law or regulations (including Regulation D) or
the adoption or making after such date of any interpretations, directives or requests applying to a
class of banks including such Lender of or under any United States Federal, state or foreign law or
regulations (whether or not having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
11
Related Parties means, with respect to any Person, such Persons Affiliates and the
partners, directors, officers, employees, agents and advisors of such Person and of such Persons
Affiliates.
Requesting Lender has the meaning set forth in Section 5.07.
Required Payment has the meaning provided in Section 4.04.
Requirement of Law shall mean, as to any Person, the Certificate of Incorporation
and By-Laws or other organizational or governing documents of such Person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.
Reserve Requirement shall mean, for any Interest Period for any LIBO Rate Loan, the
effective maximum rate at which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under Regulation D by member
banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars
against Eurocurrency liabilities (as such term is used in Regulation D). Without limiting the
effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (i) any category of
liabilities which includes deposits by reference to which the LIBO Rate is to be determined or (ii)
any category of extensions of credit or other assets which includes LIBO Rate Loans.
Revolving Credit Agreement means that certain credit agreement dated as of November
14, 2005, by and between the Borrower, each of the lenders from time to time party thereto and
JPMCB, as administrative agent, as amended or modified from time to time.
Significant Subsidiary shall mean, at any time, any Subsidiary of the Borrower if
the revenues of such Subsidiary and its Subsidiaries for the four consecutive fiscal quarters of
such Subsidiary most recently ended (determined on a consolidated basis without duplication in
accordance with GAAP and whether or not such Person was a Subsidiary of the Borrower during all or
any part of the fiscal period of the Borrower referred to below) exceed an amount equal to 7-1/2% of
the revenues of the Borrower and its Subsidiaries for the four consecutive fiscal quarters of the
Borrower most recently ended (determined on a consolidated basis without duplication in accordance
with GAAP and including such Subsidiary and its Subsidiaries on a pro forma basis if such
Subsidiary was not a Subsidiary of the Borrower).
Standard & Poors shall mean Standard & Poors Ratings Services, or any successor
thereto.
Standard and Poors Rating shall mean, as of any date, the rating most recently
published by Standard & Poors relating to the unsecured, long-term, senior debt securities of the
Borrower.
12
Standard Securitization Undertakings shall mean representations, warranties,
covenants and indemnities entered into by the Borrower or any Subsidiary that are reasonably
customary in the non-recourse securitization of receivables transactions.
Subsidiary of any Person shall mean any corporation, partnership, limited liability
company or other entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions of such corporation, partnership,
limited liability company or other entity (irrespective of whether or not at the time stock or
other ownership interests of any other class or classes of such corporation, partnership, limited
liability company or other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled by such Person and/or
one or more of the Subsidiaries of such Person. Wholly-Owned Subsidiary shall mean any
such corporation, partnership, limited liability company or other entity of which all such shares
or other ownership interests, other than directors qualifying shares or shares held by nominees to
satisfy any requirement as to minimum number of shareholders, are so owned or controlled.
Swap Agreement shall mean any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk or value or any
similar transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries
shall be a Swap Agreement.
Taxes shall have the meaning assigned to that term in Section 5.06(a).
Term Loan shall have the meaning assigned to that term in Section 2.01.
Total Capital shall mean the sum of (i) Net Worth plus (ii) Total
Indebtedness.
Total Consolidated Assets shall mean, as at any time, the total of all the assets
appearing on a consolidated balance sheet of the Borrower and its Subsidiaries determined in
accordance with generally accepted accounting principles applicable to the type of business in
which the Borrower and such Subsidiaries are engaged, and may be determined as of a date, selected
by the Borrower, not more than sixty days prior to the happening of the event for which such
determination is being made.
Total Indebtedness shall mean, as at any time, the total Indebtedness of the
Borrower and its Subsidiaries determined on a consolidated basis without duplication.
Type shall have the meaning assigned to that term in Section 1.03.
Wholly-Owned Subsidiary shall have the meaning assigned to that term in the
definition of the term Subsidiary.
13
1.02 Accounting Terms and Determinations. (a) All accounting terms used herein shall
be interpreted, and, unless otherwise disclosed to the Lenders in writing at the time of delivery
thereof in the manner described in subsection (b) below, all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders hereunder shall be
prepared, in accordance with generally accepted accounting principles applied on a basis consistent
with those used in the preparation of the latest financial statements furnished to the Lenders
hereunder after the date hereof (or, until such financial statements are furnished, consistent with
those used in the preparation of the financial statements referred to in Section 7.02(a)).
All calculations made for the purposes of determining compliance with the terms of
Sections 8.07(a)(vi), 8.10 and 8.11 shall, except as otherwise expressly
provided herein, be made by application of generally accepted accounting principles applied on a
basis consistent with those used in the preparation of the annual or quarterly financial statements
furnished to the Lenders pursuant to Section 8.01 (or, until such financial statements are
furnished, consistent with those used in the preparation of the financial statements referred to in
Section 7.02(a)) unless (i) the Borrower shall have objected to determining such compliance
on such basis at the time of delivery of such financial statements or (ii) the Majority Lenders
shall so object in writing within 30 days after delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection shall not have been made
(which, if objection is made in respect of the first financial statements delivered under
Section 8.01, shall mean the financial statements referred to in Section 7.02(a)).
(b) The Borrower shall deliver to the Lenders at the same time as the delivery of any annual
or quarterly financial statement under Section 8.01 (i) a description in reasonable detail
of any material variation between the application of accounting principles employed in the
preparation of such statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to which no objection
has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable
estimates of the difference between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with the covenants set
forth in Section 8, the Borrower shall not change the last day of its fiscal year from
December 31, or the last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30, respectively.
1.03 Types of Loans. Loans hereunder are distinguished by Type. The Type of a
Loan refers to whether such Loan is a Base Rate Loan or a LIBO Rate Loan, each of which constitutes
a Type.
1.04 Terms Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words include,
includes and including shall be deemed to be followed by the phrase without limitation. The
word will shall be construed to have the same meaning and effect as the word shall. Unless the
context requires otherwise (a) any definition of or reference to any agreement,
14
instrument or other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such Persons successors and
assigns, (c) the words herein, hereof and hereunder, and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular provision hereof,
(d) all references herein to Sections, Annexes, Exhibits and Schedules shall be construed to refer
to Sections of, and Annexes, Exhibits and Schedules to, this Agreement and (e) the words asset
and property shall be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities, accounts and contract
rights.
SECTION 2
TERM LOAN.
2.01 Term Loan. Subject to the terms and conditions set forth herein, each Lender
severally agrees to make its portion of a term loan (the Term Loan) to the Borrower in Dollars on
the Effective Date in an amount not to exceed such Lenders Term Loan Commitment. Amounts repaid
on the Term Loan may not be reborrowed. The Term Loan may consist of Base Rate Loans or LIBO Rate
Loans or a combination thereof, as further provided herein.
2.02 Borrowing of the Term Loan.
(a) The borrowing of the Term Loan shall be made upon the Borrowers irrevocable notice to the
Administrative Agent, which may be given by telephone. Such notice must be received by the
Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date
of such borrowing if the borrowing will consist of LIBO Rate Loans, and (ii) one Business Day prior
to such borrowing if the borrowing will consist of Base Rate Loans. Such telephonic notice by the
Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the
Administrative Agent of a written Loan Notice, appropriately completed and signed by an authorized
officer of the Borrower. Such Loan Notice (whether telephonic or written) shall specify (i) the
requested date of the borrowing (which shall be a Business Day), (ii) the principal amount of the
Term Loan to be borrowed, (iii) the Type to be borrowed, and (iv) if applicable, the duration of
the Interest Period with respect thereto. If the Borrower fails to specify the Type of the Term
Loan in such Loan Notice, then the Term Loan shall be made as a Base Rate Loan. If the Borrower
requests a borrowing of a LIBO Rate Loan in such Loan Notice, but fails to specify an Interest
Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of such Loan Notice, the Administrative Agent shall promptly notify each
Lender of the amount of its Applicable Percentage of the Term Loan. Each Lender shall make the
amount of its Term Loan available to the Administrative Agent in immediately available funds at the
Administrative Agents Office not later than 1:00 p.m. New York time on the Business Day specified
in such Loan Notice. Upon satisfaction of the applicable conditions set forth in Section
6.01 and Section 6.02, the Administrative Agent shall make all funds so
15
received available to the Borrower in immediately available funds either by (i) crediting the
account of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire
transfer of such funds to an account or accounts of the Borrower, in each case in accordance with
instructions provided to the Administrative Agent by the Borrower.
2.03 Fees. The Borrower agrees to pay to the Administrative Agent and BAS, for their
own respective accounts fees in the amounts and at the times specified in the Fee Letter and the
Administrative Agent Fee Letter. Such fees shall be fully earned when paid and shall be
non-refundable for any reason whatsoever.
2.04 Several Obligations; Remedies Independent. The failure of any Lender to make its
portion of the Term Loan to be made by it on the date specified therefor shall not relieve any
other Lender of its obligation to make its portion of the Term Loan on such date, and no Lender
shall be responsible for the failure of any other Lender to make its portion of the Term Loan to
be made by such other Lender. The amounts payable by the Borrower at any time hereunder and under
its Notes to each Lender shall be a separate and independent debt and each Lender shall be entitled
to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be
necessary for any other Lender or the Administrative Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.05 Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from its portion of the Term Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(b) The Administrative Agent shall maintain accounts in which it shall record (i) the date,
amount, maturity date and interest rate of each Loan hereunder, the Type thereof and the Interest
Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or
to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any
sum received by the Administrative Agent hereunder for the account of the Lenders and each Lenders
share thereof.
(c) The entries made in the accounts maintained pursuant to clause (a) or (b) of this
Section 2.05 shall be prima facie evidence of the existence and amounts of the obligations
recorded therein; provided that the failure of any Lender or the Administrative Agent to
maintain such accounts or any error therein shall not in any manner affect the obligation of the
Borrower to repay the Loans in accordance with the terms of this Agreement.
(d) Any Lender may request that the portion of the Term Loan made by it to the Borrower be
evidenced by a promissory note of the Borrower. In such event, the Borrower shall prepare, execute
and deliver to such Lender one or more promissory notes payable to the order of such Lender and in
a form approved by the Administrative Agent (the Notes).
2.06 Prepayments; Conversions and Continuations. (a) The Term Loan may be prepaid in
whole or in part without premium or penalty upon not less than (i) (in the case of Base Rate Loans)
one Business Days, and (ii) (in the case of LIBO Rate Loans) three Business Days,
16
prior notice to the Administrative Agent (which shall promptly notify the Lenders). Each
notice shall specify the prepayment date (which shall be a Business Day) and the Type(s) of Loans
to be prepaid and the amount of the prepayment and shall be irrevocable and effective only upon
receipt by the Administrative Agent not later than 11:00 a.m. New York time on the number of
Business Days specified above prior to the relevant date of prepayment. The Administrative Agent
will promptly notify each Lender of its receipt of each such notice, and the amount of such
Lenders Applicable Percentage of such prepayment.
(b) If such notice is given by the Borrower, the Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the date specified therein.
Any prepayment of a LIBO Rate Loan shall be accompanied by all accrued interest on the amount
prepaid, together with any additional amounts required pursuant to Section 5.05. Each such
prepayment shall be applied to the Loans of the Lenders in accordance with their respective
Applicable Percentages. Each such prepayment of the Term Loan shall be applied to the remaining
principal amortization payments thereof on a pro rata basis.
(c) The Borrower shall have the right to Convert Loans of one Type into Loans of another Type
or Continue LIBO Rate Loans as such at any time or from time to time, upon not less than (i) (in
the case of any Conversion into Base Rate Loans) one Business Days, and (ii) (in the case of any
Conversion into, or Continuation as, LIBO Rate Loans), three Business Days, prior notice to the
Administrative Agent (which shall promptly notify the Lenders), which notice may be given by
telephone and shall specify the amount (which shall be in integral multiples of $1,000,000) and
Type of each Loan to be Converted or Continued (and, in the case of Conversion, the Type of Loan to
result from such Conversion), the duration of the Interest Period for any LIBO Rate Loans to be
Continued or to result from such Conversion, and the date of Conversion or Continuation (which
shall be a Business Day) and shall be irrevocable and effective only upon receipt by the
Administrative Agent not later than 11:00 a.m. New York time on the number of Business Days
specified above prior to the relevant date of Conversion or Continuation. Each telephonic notice
by the Borrower pursuant to this Section 2.06(c) must be confirmed promptly by delivery to
the Administrative Agent of a written Loan Notice. In the event that the Borrower fails to select
the Type of Loan or the duration of any Interest Period for any LIBO Rate Loan, within the time
period specified above, such Loan (if outstanding as a LIBO Rate Loan) will be automatically
Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan
or (if outstanding as a Base Rate Loan) will remain as, a Base Rate Loan.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the
interest rate applicable to any Interest Period for LIBO Rate Loans upon determination of such
interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall
notify the Borrower and the Lenders of any change in Bank of Americas prime rate used in
determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to the borrowing of the Term Loan, all Conversions of Loans from one
Type to the other, and all Continuations of Loans as the same Type, there shall not be more than 5
Interest Periods in effect with respect to all Loans.
17
SECTION 3
PAYMENTS OF PRINCIPAL AND INTEREST
3.01 Repayment of Loans. The Borrower shall repay the outstanding principal amount of
the Term Loan in installments on the dates and in the amounts set forth in the table set forth
below (as such installments may hereafter be adjusted as a result of prepayments made pursuant to
Section 2.06(a):
|
|
|
|
|
Principal Amortization |
Payment Dates |
|
Payment |
September 19, 2009
|
|
$50,000,000 |
September 19, 2010
|
|
$100,000,000 |
Maturity Date
|
|
Outstanding Principal Balance of Term Loan |
3.02 Interest. (a) The Borrower hereby promises to pay to the Administrative Agent
for account of each Lender interest on the unpaid principal amount of the Term Loan, for the period
commencing on the date of the Term Loan to but excluding the date the Term Loan shall be paid in
full, at the following rates per annum:
(i) during such period as any portion of the Term Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus, the Applicable Margin; and
(ii) during such period as any portion of the Term Loan is a LIBO Rate Loan, for each
Interest Period relating thereto, the LIBO Rate for such portion of the Term Loan for such
Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Borrower hereby promises to pay to the Administrative Agent
for account of each Lender interest at the applicable Post-Default Rate on any principal of the
Term Loan made by such Lender to the Borrower, and (to the fullest extent permitted by law) on any
other amount payable by the Borrower hereunder or under the Note held by such Lender to or for
account of such Lender, which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period commencing on the due date thereof until the same is
paid in full.
(b) Accrued interest on the Term Loan shall be payable (i) (in the case of a Base Rate Loan)
quarterly on the Quarterly Dates, (ii) in the case of a LIBO Rate Loan, on the last day of each
Interest Period therefor and, if such Interest Period is longer than three months, at three-month
intervals following the first day of such Interest Period and (iii) (in the case of any LIBO Rate
Loan Converted into a Base Rate Loan pursuant to Section 2.06(c)) on the date of Conversion
(but only on the principal amount so Converted), except that interest payable at the Post-Default
Rate shall be payable from time to time on demand.
18
(c) Promptly after the determination of any Adjusted LIBO Rate provided for herein, the
Administrative Agent shall (i) notify the Lenders to which interest at such Adjusted LIBO Rate is
payable and the Borrower thereof and (ii) at the request of the Borrower, furnish to the Borrower a
copy of publication by Reuters (or other commercially available source providing quotations of BBA
LIBOR as designated by the Administrative Agent) on the basis of which the relevant LIBO Rate was
determined. At any time that the Administrative Agent determines the Adjusted LIBO Rate on a basis
other than using the BBA LIBOR as published by Reuters, the Administrative Agent shall promptly
notify the Borrower and provide information in reasonable detail as to such determination.
SECTION 4
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 Payments. (a) Except to the extent otherwise provided herein, all payments of
principal of and interest on Loans payable by the Borrower under this Agreement and the Notes,
shall be made in Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agents Account, for account of the Lenders, not later than
2:00 p.m. New York time, on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next succeeding Business
Day).
(b) If the Borrower shall default in the payment when due of any principal, interest or other
amounts to be made by the Borrower under this Agreement or the Notes, any Lender for whose account
any such payment is to be made may (but shall not be obligated to) debit the amount of any such
payment due such Lender which is not made by such time to any ordinary deposit account of the
Borrower with such Lender (with notice to the Borrower and the Administrative Agent).
(c) The Borrower shall, at the time of making each payment under this Agreement or any Note
for account of any Lender, specify to the Administrative Agent the Loans or other amounts payable
by the Borrower hereunder to which such payment is to be applied (and in the event that the payor
fails to so specify, or if an Event of Default has occurred and is continuing, such Lender may
apply such payment received by it from the Administrative Agent to such amounts then due and owing
to such Lender as such Lender may determine).
(d) Each payment received by the Administrative Agent under this Agreement or any Note for
account of any Lender shall be paid promptly to such Lender, in immediately available funds.
(e) If the due date of any payment under this Agreement or any Note would otherwise fall on a
day which is not a Business Day such date shall be extended to the next succeeding Business Day and
interest shall be payable for any principal so extended for the period of such extension.
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4.02 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) the
borrowing from the Lenders of the Term Loan under Section 2.01 shall be made from the
Lenders, pro rata according to the amounts of their respective Commitments, and the Conversion or
Continuation of Loans of a particular Type (other than Conversions provided for by
Section 5.04) shall be made pro rata among the relevant Lenders according to their
respective Commitments; (b) each payment of principal of the Term Loan by the Borrower shall be
made for account of the Lenders pro rata in accordance with the respective unpaid principal amount
of the Term Loan held by the Lenders; and (c) each payment of interest on the Term Loan by the
Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of
interest due and payable to the respective Lenders; provided that, if an Event of Default
shall have occurred and be continuing, each payment of principal of and interest on the Term Loan
and other amounts owing hereunder by the Borrower shall be made for account of the Lenders pro rata
in accordance with the aggregate amounts of all principal of and interest on the Term Loan and all
other amounts owing hereunder by the Borrower then due and payable to the respective Lenders.
4.03 Computations. Interest on Term Loan shall be computed on the basis of a year of
360 days and actual days elapsed (including the first day but excluding the last day) occurring in
the period for which payable; provided that interest on Base Rate Loans shall be computed
on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which payable.
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4.04 Non-Receipt of Funds by the Administrative Agent. Unless the Administrative
Agent shall have been notified by a Lender or the Borrower (each, a Payor) prior to the
time by, and on the date on, which such Payor is scheduled to make payment to the Administrative
Agent of (in the case of a Lender) a payment to be made by it hereunder or (in the case of the
Borrower) a payment to the Administrative Agent for account of one or more of the Lenders hereunder
(such payment being herein called the Required Payment), which notice shall be effective
upon receipt, that it does not intend to make the Required Payment to the Administrative Agent, the
Administrative Agent may assume that the Required Payment has been made and may, in reliance upon
such assumption (but shall not be required to), make the amount thereof available to the intended
recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the
Administrative Agent the amount so made available together with interest thereon in respect of each
day during the period commencing on the date such amount was so made available by the
Administrative Agent to but not including the date the Administrative Agent recovers such amount
(the Advance Period) at a rate per annum equal to (a) if the recipient is the Borrower,
the Base Rate in effect on such day and (b) if the recipient is a Lender, the Federal Funds Rate in
effect on such day; and, if such recipient(s) shall fail promptly to make such payment, the
Administrative Agent shall be entitled to recover such amount, on demand, from the Payor, together
with interest thereon for each day during the Advance Period at a rate per annum equal to (i) if
the Payor is the Borrower, the rate of interest payable on the Required Payment as provided in the
second sentence of Section 3.02(a) and (ii) if the Payor is a Lender, during the period
commencing on the date such amount was so made available to but excluding the date three Business
Days following such date, the Federal Funds Rate in effect on such day and, thereafter, the Base
Rate in effect on such day.
4.05 Set-off; Sharing of Payments. (a) The Borrower agrees that, in addition to (and
without limitation of) any right of set-off, bankers lien or counterclaim a Lender may otherwise
have, each Lender and each of its Affiliates shall be entitled, at its option, to offset balances
held by it for account of the Borrower at any of its offices, against any principal of or interest
on any of such Lenders Loans which is not paid when due (regardless of whether such balances are
then due to the Borrower) in which case it shall promptly notify the Borrower and the
Administrative Agent thereof, provided that such Lenders failure to give such notice shall
not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or interest on that portion of the
Term Loan made by it under this Agreement through the exercise of any right of set-off, bankers
lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Lender
shall have received a greater percentage of the amounts then due hereunder to such Lender in
respect of the Term Loan than the percentage received by any other Lenders, it shall promptly
purchase from such other Lenders participations in (or, if and to the extent specified by such
Lender, direct interests in) the portion of the Term Loan made by such other Lenders (or in the
interest thereon, as the case may be) in such amounts, and make such other adjustments from time to
time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess
payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such
excess payment) pro rata in accordance with the unpaid principal and interest on the portion of the
Term Loan held by each of the Lenders. To such end all the Lenders shall
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make appropriate adjustments among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that
any Lender so purchasing a participation (or direct interest) in the portion of the Term Loan made
by other Lenders (or in the interest thereon, as the case may be) may exercise all rights of
set-off, bankers lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender were a direct holder of a portion of the Term Loan (or in the interest thereon,
as the case may be) in the amount of such participation. Nothing contained herein shall require
any Lender to exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Borrower. If under any applicable bankruptcy, insolvency or other similar law,
any Lender receives a secured claim in lieu of a set-off to which this Section 4.05
applies, such Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled under this
Section 4.05 to share in the benefits of any recovery on such secured claim.
SECTION 5
YIELD PROTECTION AND ILLEGALITY
5.01 Additional Costs. (a) The Borrower shall pay directly to each Lender from time
to time such amounts as such Lender may determine to be necessary to compensate such Lender for any
costs that such Lender determines are attributable to its making or maintaining of any LIBO Rate
Loans or its obligation to make any LIBO Rate Loans hereunder, or any reduction in any amount
receivable by such Lender hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called Additional
Costs), resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to such Lender under this
Agreement or its Note in respect of any of such Loans (other than taxes imposed on or
measured by the overall net income of such Lender or of its Applicable Lending Office for
any of such Loans by the jurisdiction in which such Lender has its principal office or such
Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar requirements (other
than the Reserve Requirement utilized in the determination of the Adjusted LIBO Rate for
such Loan and Mandatory Costs utilized in the determination of the LIBO Rate for such Loan)
relating to any extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender (including, without limitation, any of such Loans or any
deposits referred to in the definition of LIBO Rate in Section 1.01), or any
commitment of such Lender (including, without limitation, the Commitment of such Lender
hereunder); or
(iii) imposes any other condition affecting this Agreement or its Note (or any of such
extensions of credit or liabilities) or its Commitment.
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If any Lender requests compensation from the Borrower under this
Section 5.01(a), the Borrower may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender thereafter to make or Continue
LIBO Rate Loans or to Convert Base Rate Loans into LIBO Rate Loans, until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the provisions of
Section 5.04 shall be applicable), provided that such suspension shall not
affect the right of such Lender to receive the compensation so requested.
(b) Without limiting the effect of the foregoing provisions of this Section 5.01 (but
without duplication), if any Lender determines that any Regulatory Change regarding capital
requirements has or would have the effect of reducing the rate of return on such Lenders capital
or on the capital of such Lenders holding company, if any, as a consequence of this Agreement or
the Loans made by such Lender to a level below that which such Lender or such Lenders holding
company could have achieved but for such Regulatory Change (taking into consideration such Lenders
policies and the policies of such Lenders holding company with respect to capital adequacy), then
from time to time the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender or such Lenders holding company for any such reduction suffered.
(c) Each Lender shall notify the Borrower of any event occurring after the date hereof
entitling such Lender to compensation under paragraph (a) or (b) of this Section 5.01 as
promptly as practicable, but in any event within 45 days, after such Lender obtains actual
knowledge thereof. If any Lender fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to
this Section 5.01 in respect of any costs resulting from such event, only be entitled to
payment under this Section 5.01 for costs incurred from and after the date 45 days prior to
the date that such Lender does give such notice. Each Lender will furnish to the Borrower a
certificate setting forth the basis and amount of each request by such Lender for compensation
under paragraph (a) or (b) of this Section 5.01. Determinations and allocations by any
Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to
paragraph (a) of this Section 5.01, or of the effect of capital maintained pursuant to
paragraph (b) of this Section 5.01, on its costs or rate of return of maintaining Loans or
its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the
amounts required to compensate such Lender under this Section 5.01, shall be conclusive
absent manifest error, provided that such determinations and allocations are made on a
reasonable basis.
(d) Each Lender will designate a different Applicable Lending Office for the Loans of such
Lender affected by any event specified in paragraphs (a) or (b) of this Section 5.01 or in
Section 5.03 if such designation will avoid the need for, or reduce the amount of, such
compensation or suspension, as the case may be, and will not, in the sole opinion of such Lender,
be disadvantageous to such Lender.
5.02 Limitation on Types of Loans. If the Required Lenders determine that for any
reason in connection with any request for a LIBO Rate Loan or a Conversion to or Continuation
thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar
market for the applicable amount and Interest Period of such LIBO Rate Loan, (b) adequate and
23
reasonable means do not exist for determining the LIBO Rate for any requested Interest Period
with respect to a proposed LIBO Rate Loan, or (c) the LIBO Rate for any requested Interest Period
with respect to a proposed LIBO Rate Loan does not adequately and fairly reflect the cost to the
Lenders of funding such Loan, the Administrative Agent will promptly notify the Borrower and all
Lenders. Thereafter, the obligation of the Lenders to make or maintain LIBO Rate Loans shall be
suspended until the Administrative Agent revokes such notice. The Administrative Agent agrees to
promptly revoke such notice upon the relevant circumstances ceasing to exist. Upon receipt of such
notice, the Borrower may revoke any pending request for a borrowing, Conversion or Continuation of
LIBO Rate Loans or, failing that, will be deemed to have converted such request into a request for
a borrowing of Base Rate Loans in the amount specified therein.
5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event
that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to
make or maintain LIBO Rate Loans hereunder, then such Lender shall promptly notify the Borrower
thereof (with a copy to the Administrative Agent) and such Lenders obligation to make or Continue,
or Convert Base Rate Loans into, LIBO Rate Loans shall be suspended until such time as such Lender
may again make and maintain LIBO Rate Loans (in which case the provisions of Section 5.04
shall be applicable).
5.04 Base Rate Loans Pursuant to Sections 5.01 and 5.03. If the obligation of any
Lender to make, Continue, or to Convert Base Rate Loans into, any LIBO Rate Loans shall be
suspended pursuant to Section 5.01 or 5.03 (Loans of such type being herein called
Affected Loans and such type being herein called the Affected Type), all Loans
which would otherwise be made by such Lender as Loans of the Affected Type shall be made instead as
Base Rate Loans (and, if an event referred to in Section 5.03 has occurred and such Lender
so requests by notice to the Borrower with a copy to the Administrative Agent, all Affected Loans
of such Lender then outstanding shall be automatically Converted into Base Rate Loans on the date
specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or
Converted into) Base Rate Loans, all payments of principal which would otherwise be applied to such
Lenders Affected Loans shall be applied instead to its Base Rate Loans. If such Lender gives
notice to the Borrower with a copy to the Administrative Agent that the circumstances specified in
Section 5.01 or 5.03 that gave rise to the Conversion of such Lenders Affected
Loans pursuant to this Section 5.04 no longer exist (which such Lender agrees to do
promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made
by other Lenders are outstanding, such Lenders Base Rate Loans shall be automatically Converted,
on the first day(s) of the next succeeding Interest Period(s) for such outstanding loans of the
Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the
Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal
amounts, Types and Interest Periods) in accordance with their respective Commitments.
5.05 Compensation. The Borrower shall pay to the Administrative Agent for account of
each Lender, upon the request of such Lender through the Administrative Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any
loss, cost or expense which such Lender determines are attributable to:
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(a) any payment or prepayment or Conversion of a LIBO Rate Loan made by such Lender for
any reason (including, without limitation, the acceleration of the Loans pursuant to
Section 9) on a date other than the last day of the Interest Period for such Loan;
or
(b) any failure by the Borrower for any reason (excluding only failure due solely to a
default by any Lender or the Administrative Agent in its obligation to provide funds to the
Borrower hereunder but including, without limitation, the failure of any of the conditions
precedent specified in Section 6 to be satisfied) to borrow a LIBO Rate Loan from
such Lender on the date for such borrowing specified in the relevant notice of borrowing
given pursuant to Section 2.02.
Without limiting the effect of the preceding sentence, such compensation shall include, in the case
of a Loan, an amount equal to the excess, if any, of (i) the amount of interest which otherwise
would have accrued on the principal amount so paid, prepaid or Converted or not borrowed for the
period from the date of such payment, prepayment, Conversion or failure to borrow to the last day
of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period
for such Loan which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the interest component of
the amount such Lender would have bid in the London interbank market for deposits of leading banks
(if such Loan is a LIBO Rate Loan) in amounts comparable to such principal amount and with
maturities comparable to such period (as reasonably determined by such Lender).
5.06 Taxes. (a) The Borrower agrees to pay to each Lender such additional amounts as
are necessary in order that the net payment of any amount due to such Lender hereunder after
deduction for or withholding in respect of any Taxes imposed with respect to such payment will not
be less than the amount stated herein to be then due and payable, provided that the
foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such Lender is, on the date hereof,
or (if later) on the date such Lender becomes a Lender hereunder as provided in
Section 11.05(b) and on the date of any change in the Applicable Lending Office of
such Lender, entitled to a complete exemption from withholding or deduction by the Borrower
of Taxes on all interest to be received by such Lender hereunder in respect of the Loans
made by such Lender to the Borrower, or
(ii) to any such Taxes required to be deducted or withheld solely by reason of the
failure of such Lender to comply with applicable certification, information, documentation
or other reporting requirements concerning the nationality, residence, identity or
connections with the Borrowers Jurisdiction if such compliance is required by treaty,
statute or regulation as a precondition to relief or exemption from such Taxes.
For the purposes of this Section 5.06(a), the term Taxes shall mean with respect
to the Borrower all present and future income, stamp, registration and other taxes and levies,
imposts,
25
deductions, charges, compulsory loans and withholdings whatsoever, and all interest, penalties or
similar amounts with respect thereto, now or hereafter imposed, assessed, levied or collected by
the Borrowers Jurisdiction on or in respect of the Credit Documents, the principal of and interest
on the Loans and any other amounts payable under any of the Credit Documents, the recording,
registration, notarization or other formalization of any thereof, the enforcement thereof or the
introduction thereof in any judicial proceedings, or on or in respect of any payments of principal,
interest, premium, charges, fees or other amounts made on, under or in respect of any thereof
(excluding, however, income or franchise taxes imposed on or measured by the overall net income or
capital of a Lender (or its Applicable Lending Office) by the Borrowers Jurisdiction as a result
of such Lender being organized under the laws of or resident in the Borrowers Jurisdiction or of
its Applicable Lending Office being located or carrying on business in the Borrowers
Jurisdiction).
(b) Within 30 days after paying any amount to the Administrative Agent or any Lender from
which it is required by law to make any deduction or withholding, and within 30 days after it is
required by law to remit such deduction or withholding to any relevant taxing or other authority,
the Borrower shall deliver to the Administrative Agent for delivery to such Lender evidence
satisfactory to such Lender of such deduction, withholding or payment (as the case may be).
5.07 Replacement of Lenders. If (a) any Lender requests compensation pursuant to
Section 5.01 or 5.06, (b) any Lenders obligation to make Loans of any Type shall
be suspended pursuant to Section 5.01 (any such Lender requesting such compensation, or
whose obligations are so suspended, being herein called a Requesting Lender) or (c) if a
Lender (a Non-Consenting Lender) does not consent to a proposed change, waiver, discharge
or termination with respect to any Credit Document that has been approved by the Majority Lenders
as provided by Section 11.04 but requires unanimous consent of all Lenders or all Lenders
directly affected thereby (as applicable), the Borrower, upon three Business Days notice to the
Administrative Agent may require that such Requesting Lender or Non-Consenting Lender, as
applicable, transfer all of its right, title and interest under this Agreement to any bank or other
financial institution or entity identified by the Borrower that is satisfactory to the
Administrative Agent (a) if such bank or other financial institution or entity (a Proposed
Lender) agrees to assume all of the obligations of such Requesting Lender or Non-Consenting
Lender hereunder, and to purchase all of such Requesting Lenders or Non-Consenting Lenders Loans
hereunder for consideration equal to the aggregate outstanding principal amount of such Requesting
Lenders Loans or Non-Consenting Lenders Loans, as applicable, together with interest thereon to
the date of such purchase, and satisfactory arrangements are made for payment to such Requesting
Lender or Non-Consenting Lender of all other amounts payable hereunder to such Requesting Lender or
Non-Consenting Lender on or prior to the date of such transfer (including any fees accrued
hereunder and any amounts that would be payable under Section 5.05 as if all of such
Requesting Lenders Loans or Non-Consenting Lenders Loans, as applicable, were being prepaid in
full on such date) and (b) if such Requesting Lender has requested compensation pursuant to
Section 5.01 or 5.06, such Proposed Lenders aggregate requested compensation, if
any, pursuant to said Section 5.01 or 5.06 with respect to such Requesting Lenders
Loans is lower than that of the Requesting Lender; provided, however, in the case of any such
assignment resulting from a Non-Consenting Lenders failure to consent to a proposed
26
change, waiver, discharge or termination with respect to any Credit Document, such transfer
shall be conditioned upon the Proposed Lender consenting to the proposed change, waiver, discharge
or termination; provided further that the failure by such Non-Consenting Lender to execute
and deliver an Assignment and Assumption shall not impair the validity of the removal of such
Non-Consenting Lender and the mandatory assignment of such Non-Consenting Lenders Commitments and
outstanding Loans pursuant to this Section 5.07 shall nevertheless be effective without the
execution by such Non-Consenting Lender of an Assignment and Assumption. Subject to the provisions
of Section 11.05(b), such Proposed Lender shall be a Lender for all purposes hereunder.
Without prejudice to the survival of any other agreement of the Borrower hereunder the agreements
of the Borrower contained in Sections 5.01, 5.06 and 11.03 (without
duplication of any payments made to such Requesting Lender or Non-Consenting Lender by the Borrower
or the Proposed Lender) shall survive for the benefit of such Requesting Lender or Non-Consenting
Lender under this Section 5.07 with respect to the time prior to such replacement.
SECTION 6
CONDITIONS PRECEDENT
6.01 Effective Date. The obligations of the Lenders to make the Term Loan shall not
become effective until the date on which each of the following conditions is satisfied (or waived
pursuant to Section 11.04):
(a) The Administrative Agent shall have received each of the following documents (with
sufficient copies for each Lender), each of which shall be satisfactory to the
Administrative Agent (and to the extent specified below, to each Lender) in form and
substance:
(i) A counterpart of this Agreement signed on behalf of each party hereto or
written evidence satisfactory to the Administrative Agent that such party has signed
a counterpart of this Agreement.
(ii) Certified copies of the charter and by-laws of, and all corporate action
taken by, the Borrower approving this Agreement and the Notes (if any) to be made by
the Borrower and the borrowing by the Borrower (including, without limitation, a
certificate setting forth the resolutions of the Board of Directors of the Borrower
adopted in respect of the transactions contemplated hereby).
(iii) A certificate of the Borrower in respect of each of the officers (1) who
is authorized to sign this Agreement and the Notes, together with specimen
signatures, and (2) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection herewith and
with the Notes and the transactions contemplated hereby and thereby. The
27
Administrative Agent and each Lender may conclusively rely on such certificate
until they receive notice in writing from the Borrower to the contrary.
(iv) An opinion or opinions dated the Effective Date of counsel to the Borrower
(and the Borrower hereby instructs such counsel to deliver such opinion to the
Lenders and the Administrative Agent) in a form satisfactory to the Administrative
Agent and the Lenders.
(b) The Lenders and the Administrative Agent shall have received all fees and other amounts as
the Borrower shall have agreed to pay in connection herewith.
For purposes of determining compliance with the conditions specified in this Section
6.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved
or accepted or to be satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative
Agent shall have received notice from such Lender prior to the proposed Effective Date specifying
its objection thereto.
6.02 Credit Extension. The obligation of any Lender to make the Credit Extension
hereunder is subject to the further conditions precedent that, as of the date of the Effective Date
and after giving effect thereto and the intended use of the Credit Extension:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Borrower in Section 7 shall
be true on and as of the Effective Date, except to the extent that such representations or
warranties specifically refer to an earlier date, in which case they shall be true and
correct as of such earlier date.
The Loan Notice provided by the Borrower on the Effective Date shall constitute a certification by
the Borrower to the effect set forth in the preceding sentence (both as of the date of such Loan
Notice and, unless the Borrower otherwise notifies the Administrative Agent prior to the date of
the Credit Extension, as of the Effective Date).
SECTION 7
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrant to the Lenders that:
7.01 Corporate Existence. Each of the Borrower and its Significant Subsidiaries: (a)
is a corporation duly organized and validly existing under the laws of the jurisdiction of its
incorporation; (b) has all requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals, necessary to own its assets and carry on its business as
now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions
28
in which the nature of the business conducted by it makes such qualification necessary except
where failure so to qualify would not have a Material Adverse Effect.
7.02 Financial Condition. (a) The consolidated balance sheets of the Borrower and its
Subsidiaries as of December 31, 2006 and December 31, 2007 and the related consolidated statements
of income, cash flows and stockholders equity of the Borrower and its Subsidiaries for the fiscal
years ended on said dates, with the opinion thereon of Ernst & Young LLP, heretofore furnished to
each of the Lenders, are complete and correct and fairly present the consolidated financial
condition of the Borrower and its Subsidiaries as at said dates and the consolidated results of
their operations for the fiscal year ended on said dates, all in accordance with generally accepted
accounting principles. Neither the Borrower nor any of its Subsidiaries had on said dates any
material contingent liabilities, material liabilities for taxes, material unusual forward or
long-term commitments or material unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance sheet as at said
dates.
(b) The consolidated balance sheets of the Borrower and its Subsidiaries as of June 30, 2008
and the related consolidated statements of income, cash flows and stockholders equity of the
Borrower and its Subsidiaries for the six-month period ended on said date, heretofore furnished to
each of the Lenders, are complete and correct and fairly present the consolidated financial
condition of the Borrower and its Subsidiaries as at said date and the consolidated results of
their operations for the six-month period ended on said date, all in accordance with generally
accepted accounting principles. Neither the Borrower nor any of its Subsidiaries had on said date
any material contingent liabilities, material liabilities for taxes, material unusual forward or
long-term commitments or material unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance sheet as at said
date.
(c) Since December 31, 2007, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects of the Borrower and its Subsidiaries (taken
as a whole).
7.03 Litigation. There are no legal or arbitral proceedings or any proceedings or
investigations by or before any governmental or regulatory authority or agency, now pending or (to
the knowledge of the Borrower) threatened against the Borrower or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect.
29
7.04 No Breach. The making or performance of this Agreement or the Notes, and the
consummation of the transactions herein contemplated, will not conflict with or result in a breach
of, or require any consent under, the charter or by-laws of the Borrower or any applicable law or
regulation, or any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which the Borrower or any of its Subsidiaries is a party
or by which any of them is bound or to which any of them is subject, or constitute a default under
any such agreement or instrument, or constitute a tortious interference with any agreement, or
result in the creation or imposition of any Lien upon any of the revenues or assets of the Borrower
or any of its Subsidiaries pursuant to the terms of any such agreement or instrument.
7.05 Corporate Action. The Borrower has all necessary corporate power and authority to
make and perform its obligations under this Agreement and the Notes; the making and performance of
this Agreement and the Notes by the Borrower have been duly authorized by all necessary corporate
action on the part of the Borrower; and this Agreement has been duly and validly executed and
delivered by the Borrower and constitutes, and each of the Notes of the Borrower when executed and
delivered by the Borrower for value will constitute, the legal, valid and binding obligation of the
Borrower, enforceable in accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors rights generally.
7.06 Approvals. No authorizations, approvals or consents of, and no filings or
registrations with, any governmental or regulatory authority or agency are necessary for the
execution, delivery or performance by the Borrower of this Agreement or the Notes or for the
validity or enforceability of any thereof.
7.07 Use of Credit. Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the
meaning of Regulation U or X of the Board of Governors of the Federal Reserve System), and no part
of the proceeds of any Credit Extension hereunder will be used in a manner that will cause any
Borrower to violate said Regulation X or any Lender to violate said Regulation U.
7.08 ERISA. Each of the Borrower and each ERISA Affiliate has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with respect to each of its
Plans and is (and to the best of its knowledge in the case of any Multiemployer Plan is) in
compliance with the currently applicable provisions of ERISA and the Code, and has not incurred any
liability on account of the termination of any of its Plans to the PBGC or any of its Plans and has
not incurred any withdrawal liability to any Multiemployer Plan, in each case except to the extent
failure to do so would not reasonably be expected to have a Material Adverse Effect.
7.09 Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an
investment company as defined in, or subject to regulation under, the Investment Company Act of
1940.
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7.10 Credit Agreements. Schedule I hereto is a complete and correct list, as
of June 30, 2008, of each credit agreement, loan agreement, indenture, purchase agreement,
Guarantee or other arrangement (other than a letter of credit or bank lines established for
daylight overdrafts) providing for or otherwise relating to any extension of credit (or commitment
for any extension of credit) to, or Guarantee by, the Borrower or any of its Subsidiaries the
aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $5,000,000
and the aggregate principal or face amount outstanding or which may become outstanding under each
such arrangement is correctly described (as of June 30, 2008) in said Schedule I.
7.11 Hazardous Materials. The Borrower and each of its Subsidiaries have obtained all
permits, licenses and other authorizations that are required under all Environmental Laws, except
to the extent failure to have any such permit, license or authorization would not have a Material
Adverse Effect. The Borrower and each of its Subsidiaries are in compliance with the terms and
conditions of all such permits, licenses and authorizations, and are also in compliance with all
other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any regulation, code,
plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder, except to the extent failure to comply would not have a Material Adverse
Effect. Except as heretofore disclosed to the Lenders, there have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the
possession of the Borrower or any of its Subsidiaries with respect to any property or facility now
or previously owned or leased by the Borrower or any of its Environmental Affiliates which reveal
facts or circumstances that could reasonably be expected to have a Material Adverse Effect.
7.12 Taxes. The Borrower and its Subsidiaries are members of an affiliated group of
corporations filing consolidated returns for Federal income tax purposes, of which the Borrower is
the common parent (within the meaning of Section 1504 of the Code) of such group. The Borrower
and its Subsidiaries have filed all Federal income tax returns and all other material tax returns
and information statements that are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower or any of its
Subsidiaries. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries
in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate.
The United States Federal income tax returns of the Borrower and its Subsidiaries have been
examined and/or closed through the fiscal years of the Borrower and its Subsidiaries ended on or
before December 31, 2004. The Borrower has not given or been requested to give a waiver of the
statute of limitations relating to the payment of Federal, state, local and foreign taxes or other
impositions.
7.13 True and Complete Disclosure. The information, reports, financial statements,
exhibits and schedules furnished in writing by or on behalf of the Borrower to the Lenders in
connection with the negotiation, preparation or delivery of this Agreement or included herein or
delivered pursuant hereto, when taken as a whole do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they are made, not misleading. All written information
furnished after the date hereof by the Borrower and its Subsidiaries to the Lenders in connection
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with this Agreement and the transactions contemplated hereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on reasonable estimates,
on the date as of which such information is stated or certified. There is no fact known to the
Borrower that could reasonably be expected to have a Material Adverse Effect that has not been
disclosed herein or in a report, financial statement, exhibit, schedule, disclosure letter or other
writing furnished to the Lenders for use in connection with the transactions contemplated hereby.
7.14 Subsidiaries. As of the date hereof, each of the Borrower and its Subsidiaries
(as disclosed in the periodic reports which the Borrower has filed with the Securities and Exchange
Commission) owns, free and clear of Liens, and has the unencumbered right to vote all of its
outstanding ownership interests in, each Subsidiary held by it and all of the issued and
outstanding capital stock of each such Person is validly issued, fully paid and nonassessable.
7.15 Compliance with Law. As of the date hereof, the Borrower and its Subsidiaries
are in compliance with all applicable laws and regulations, except to the extent that failure to
comply therewith would not have a Material Adverse Effect.
SECTION 8
COVENANTS OF THE BORROWER
The Borrower agrees that, until payment in full of all Loans hereunder, all interest thereon
and all other amounts payable by the Borrower hereunder:
8.01 Financial Statements. The Borrower shall furnish to each of the Lenders:
(a) as soon as available and in any event within 60 days after the end of each of the fiscal
quarterly periods of each fiscal year of the Borrower, consolidated statements of income, cash
flows and stockholders equity of the Borrower and its Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such period, and the related
consolidated balance sheet as at the end of such period, setting forth in each case in comparative
form the corresponding figures for the corresponding period in the preceding fiscal year, and
accompanied by a certificate of a senior financial officer of the Borrower, which certificate shall
state that said financial statements fairly present the consolidated financial condition and
results of operations of the Borrower and its Subsidiaries, in accordance with generally accepted
accounting principles, as at the end of (and for) such period (subject to normal year-end audit
adjustments).
(b) as soon as available and in any event within 90 days after the end of each fiscal year of
the Borrower, consolidated statements of income, cash flows and stockholders equity of the
Borrower and its Subsidiaries for such year and the related consolidated balance sheet as at the
end of such year, setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that said financial
statements fairly present the consolidated financial condition and results of operations of the
Borrower and its Subsidiaries, in accordance with generally accepted accounting principles, as at
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the end of (and for) such fiscal year, and a certificate of such accountants stating that, in
making the examination necessary for their opinion, they obtained no knowledge, except as
specifically stated, of any Event of Default under Sections 8.10 and 8.11.
(c) promptly upon their becoming available, copies of all registration statements and regular
periodic reports, if any, which the Borrower shall have filed with the Securities and Exchange
Commission (or any governmental agency substituted therefor) or any national securities exchange.
(d) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of
all financial statements, reports and proxy statements so mailed.
(e) as soon as possible, and in any event within 30 days after the Borrower knows or has
reason to know that any of the events or conditions specified below with respect to any Plan or
Multiemployer Plan of the Borrower have occurred or exist, a statement signed by a senior financial
officer of the Borrower setting forth details respecting such event or condition and the action, if
any, which the Borrower or any ERISA Affiliate proposes to take with respect thereto (and a copy of
any report or notice required to be filed with or given to PBGC by the Borrower or such ERISA
Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations
issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence
of such event (provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA by more than $5,000,000 shall be a
reportable event regardless of the issuance of any waivers in accordance with Section 412(d)
of the Code);
(ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan
or the termination of any Plan if at the date of such filing or termination the fair market
value of the assets of such Plan, as determined by the Plans independent actuaries, is
exceeded by the present value as determined by such actuaries as of such date, of benefit
commitments under such Plan by more than $5,000,000 (including any prior terminations
subject to this provision);
(iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan of the Borrower, or
the receipt by the Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan
that such action has been taken by PBGC with respect to such Multiemployer Plan and such
action would reasonably be expected to result in liability to the Borrower in excess of
$5,000,000;
(iv) the complete or partial withdrawal by the Borrower or any ERISA Affiliate under
Section 4201 or 4204 of ERISA from a Multiemployer Plan causing any withdrawal liability in
excess of $5,000,000 (including any prior withdrawals subject to this provision), or the
receipt by the Borrower or any ERISA Affiliate of notice from a
33
Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241
or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of
ERISA; and
(v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against
the Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not
dismissed within 30 days.
(f) promptly after the Borrower knows or has reason to know that any Default has occurred, a
notice of such Default, describing the same in reasonable detail.
(g) from time to time such other information regarding the business, affairs or financial
condition of the Borrower or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be filed under ERISA) as any
Lender or the Administrative Agent may reasonably request.
The Borrower will furnish to each Lender, at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Borrower
(i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred
and is continuing, describing the same in reasonable detail) and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Borrower is in compliance with
Sections 8.06, 8.07(a)(vi), 8.08(xiii), 8.10 and 8.11 as of
the end of the respective fiscal quarter or fiscal year.
Notwithstanding the foregoing, the Borrowers obligations to deliver documents or information
required under any of clauses (a), (b), (c) and (d) above shall be deemed to be satisfied upon (i)
the relevant documents or information being publicly available on the Borrowers website or other
publicly available electronic medium (such as EDGAR) within the time period required by such clause
and thereafter being continuously so available and (ii) the delivery by the Borrower of notice to
the Administrative Agent and each of the Lenders (which notice may be given electronically (such as
e-mail)) within the time period required by such clause that such documents or information are so
available; provided that the Borrower shall deliver paper copies of any such documents or
information to any Lender upon request of such Lender through the Administrative Agent.
The Borrower hereby acknowledges that (a) the Administrative Agent will make available to the
Lenders materials and/or information provided by or on behalf of the Borrower hereunder
(collectively, Borrower Materials) by posting the Borrower Materials on IntraLinks or another
similar electronic system (the Platform) and (b) certain of the Lenders may be public-side
Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to
the Borrower or its securities) (each, a Public Lender). The Borrower hereby agrees that (w) all
Borrower Materials that are to be made available to Public Lenders shall be clearly and
conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear
prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, the Borrower
shall be deemed to have authorized the Administrative Agent and the Lenders to treat such Borrower
Materials as not containing any material
34
non-public information with respect to the Borrower or its securities for purposes of
United States Federal and state securities laws (provided, however, that to the extent such
Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07);
(y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of
the Platform designated Public Investor; and (z) the Administrative Agent shall be entitled to
treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a
portion of the Platform not designated Public Investor. Notwithstanding the foregoing, the
Borrower shall be under no obligation to mark any Borrower Materials PUBLIC.
8.02 Litigation. The Borrower shall promptly furnish to each Lender notice of all
legal or arbitral proceedings, and of all proceedings before any governmental or regulatory
authority or agency, instituted, or (to the knowledge of the Borrower) threatened, against the
Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse
Effect.
8.03 Corporate Existence, Etc. The Borrower shall, and shall cause each of its
Significant Subsidiaries to: preserve and maintain its corporate existence and all its material
rights, privileges and franchises (except as otherwise expressly permitted under
Section 8.07); comply with all Requirements of Law except to the extent that failure to
comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it
or on its income or profits or on any of its property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which adequate reserves are being
maintained; maintain all its properties used or useful in its business in good working order and
condition, ordinary wear and tear excepted; keep proper books of record and account in which full,
true and correct entries are made of all material dealings and transactions in relations to its
business and activities; and permit representatives of any Lender or the Administrative Agent,
during normal business hours, to examine, copy and make extracts from its books and records, to
inspect its properties, and to discuss its business and affairs with its officers, all to the
extent reasonably requested by such Lender or the Administrative Agent (as the case may be).
8.04 Insurance. The Borrower shall, and shall cause each of its Subsidiaries to, keep
insured by financially sound and reputable insurers all property of a character usually insured by
corporations engaged in the same or similar business similarly situated against loss or damage of
the kinds and in the amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations.
8.05 Use of Proceeds. The proceeds of the Credit Extensions hereunder will be used
solely for general corporate purposes, including (without limitation) commercial paper back-up and
acquisitions (each of which uses shall be in compliance with all applicable legal and regulatory
requirements, including, without limitation, Regulations U and X of the Board of Governors of the
Federal Reserve System and the Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder). The
35
Borrower will not permit more than 25% of the value (as determined by any reasonable method)
of its assets, nor more than 25% of the value (as determined by any reasonable method) of the
assets of the Borrower and its Subsidiaries, to be represented by margin stock (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System).
8.06 Indebtedness. The Borrower will not, nor will it permit any of its Subsidiaries
to, incur, assume or suffer to exist obligations in respect of standby and performance letters of
credit (other than Letters of Credit issued under the Revolving Credit Agreement) in an aggregate
amount exceeding 5% of Total Consolidated Assets at any one time outstanding. The Borrower will
not permit any of its Subsidiaries to create, issue, incur or assume, or suffer to exist, any
Indebtedness, except:
(i) Indebtedness existing on the date hereof (including any Indebtedness incurred after
the date hereof under any instrument or agreement in effect on the date hereof), but not any
renewals, extensions or refinancings of the same;
(ii) Indebtedness owing to the Borrower and Indebtedness owing by any Subsidiary to
another Subsidiary;
(iii) Indebtedness of any Person that becomes a Subsidiary of the Borrower after the
date hereof so long as such Indebtedness exists at the time such Person becomes such a
Subsidiary and was not incurred in anticipation thereof;
(iv) Capital Lease Obligations in an aggregate amount not to exceed an amount equal to
5% of Total Consolidated Assets at any one time outstanding;
(v) Indebtedness under this Agreement;
(vi) Indebtedness under the Revolving Credit Agreement in an aggregate amount not to
exceed $750,000,000 at any one time outstanding; and
(vii) additional Indebtedness in an aggregate amount not to exceed an amount equal to
15% of Total Consolidated Assets at any one time outstanding.
8.07 Fundamental Changes. (a) The Borrower will not, and will not permit any of its
Subsidiaries to, be a party to any merger or consolidation, and the Borrower will not, and will not
permit any of its Subsidiaries or operating divisions (whether now owned or existing or hereafter
acquired or designated) to, (x) sell, assign, lease or otherwise dispose of all or substantially
all of its Property whether now owned or hereafter acquired or (y) sell, assign or otherwise
dispose of any capital stock of any such Subsidiary, or permit any such Subsidiary to issue any
capital stock, to any Person other than the Borrower or any of its Wholly-Owned Subsidiaries if,
after giving effect thereto, the Borrower does not own, directly or indirectly, a majority of the
capital stock of such Subsidiary (Controlling Stock Disposition); provided that, so long
as both before and after giving effect thereto, no Default shall have occurred and be continuing:
36
(i) the Borrower or any Subsidiary of the Borrower may be a party to any merger or
consolidation if it shall be the surviving corporation;
(ii) any such Subsidiary may be a party to any merger or consolidation with another
such Subsidiary (or with any Person that becomes another such Subsidiary as a result of such
merger or consolidation);
(iii) any such Subsidiary may merge into, and any such Subsidiary or operating division
may transfer any Property to, the Borrower;
(iv) any such Subsidiary or operating division may transfer any Property to another
such Subsidiary or operating division (or to any Person that becomes as part of such
transfer another such Subsidiary or operating division);
(v) the Borrower, any such Subsidiary or operating division may sell, assign, lease or
otherwise dispose of any Non-Strategic Property; and
(vi) the Borrower or any such Subsidiary or operating division may make sales,
assignments and other dispositions of Property (including Controlling Stock Dispositions)
and any such Subsidiary may become a party to a merger or consolidation (each such sale,
assignment, disposition, Controlling Stock Disposition, merger or consolidation, other than
those described in clauses (i) through (v), a Disposition) if the aggregate book
value of the Property that was the subject of such Disposition, together with the aggregate
book value of the Property that was the subject of all other Dispositions during the
Disposition Period for such Disposition, would not exceed an amount equal to 15% of the
Total Consolidated Assets determined as of the last day of the most recently completed
fiscal year for which a consolidated balance sheet of the Borrower has been furnished to the
Lenders pursuant to Section 8.01.
(b) Notwithstanding anything in clauses (i) through (vi) of Section 8.07(a) to the
contrary, the Borrower will not, and will not permit any of its Subsidiaries or operating divisions
(whether now owned or existing or hereafter acquired or designated) to, sell, lease, assign,
transfer or otherwise dispose of (whether in one transaction or in a series of transactions) any of
its Property (whether now owned or hereafter acquired) if such sale, assignment, lease or other
disposition (whether in one transaction or in a series of transactions) shall have a Material
Adverse Effect.
8.08 Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to,
create, assume or suffer to exist any Lien upon any of its property or assets, now owned or
hereafter acquired, securing any Indebtedness or other obligation except: (i) Liens outstanding on
the date hereof and listed in Schedule II hereto; (ii) Liens for taxes or other
governmental charges not yet delinquent; (iii) Liens in respect of Property acquired or constructed
or improved by the Borrower or any such Subsidiary after the date hereof which Liens exist or are
created at the time of acquisition or completion of construction or improvement of such Property or
within six months thereafter to secure Indebtedness assumed or incurred to finance all or any part
of the purchase price or cost of construction or improvement of such Property, but any such Lien
shall
37
cover only the Property so acquired or constructed and any improvements thereto (and any real
property on which such Property is located); (iv) Liens on Property of any corporation that becomes
a Subsidiary of the Borrower after the date hereof, provided that such Liens are in
existence at the time such corporation becomes a Subsidiary of the Borrower and were not created in
anticipation thereof; (v) Liens on Property acquired after the date hereof, provided that
such Liens were in existence at the time such Property was acquired and were not created in
anticipation thereof; (vi) Liens imposed by law, such as mechanics, materialmens, landlords,
warehousemens and carriers Liens, and other similar Liens, securing obligations incurred in the
ordinary course of business which are not past due for more than thirty days or which are being
contested in good faith by appropriate proceedings and for which appropriate reserves have been
established; (vii) Liens under workmens compensation, unemployment insurance, social security or
similar legislation; (viii) Liens, deposits, or pledges to secure the performance of bids, tenders,
contracts (other than contracts for the payment of money), leases, public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations
arising in the ordinary course of business; (ix) judgment and other similar Liens arising in
connection with court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively contested in good
faith and by appropriate proceedings; (x) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the occupation, use and
enjoyment by the Borrower or any such Subsidiary of the Property encumbered thereby in the normal
course of its business or materially impair the value of the Property subject thereto; (xi) Liens
securing obligations of any such Subsidiary to the Borrower or another Subsidiary of the Borrower;
(xii) Liens arising in connection with Permitted Securitizations; and (xiii) other Liens securing
Indebtedness or other obligations in an aggregate amount not exceeding 5% of Total Consolidated
Assets.
8.09 Lines of Businesses. Neither the Borrower nor any of its Subsidiaries shall
engage to any significant extent in any line or lines of business other than the lines of business
in which they are engaged on the date hereof and any other line or lines of business directly
related to the manufacture, distribution and/or sale of consumer or industrial products
(collectively, Permitted Activities). Notwithstanding the foregoing, the Borrower and
its Subsidiaries may engage in other lines of business as a result of the acquisition of any Person
primarily engaged in Permitted Activities so long as the Borrower uses its best efforts to come
into compliance with the first sentence of this Section 8.09 within a reasonable period of
time after such acquisition.
8.10 Total Indebtedness to Total Capital. The Borrower shall not permit the ratio of
Total Indebtedness to Total Capital at any time to be greater than 0.60 to 1; provided that
(i) in calculating Total Capital, goodwill impairment charges taken pursuant to the Financial
Accounting Standards Board shall be disregarded to the extent such charges do not exceed
$550,000,000 in the aggregate and (ii) in calculating such ratio, quarterly income preferred
securities, quarterly income capital securities, monthly income preferred securities or other
similar securities will be treated as part of Total Capital and not Total Indebtedness.
8.11 Interest Coverage Ratio. The Borrower shall not permit the Interest Coverage
Ratio as at the last day of any fiscal quarter to be less than 4.00 to 1.00.
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8.12 Transactions with Affiliates. The Borrower shall not, and shall not permit any
of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase,
lease or otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less
favorable to the Borrower or such Subsidiary than could be obtained on an arms-length basis from
unrelated third parties and (b) transactions between or among the Borrower and its Subsidiaries not
involving any other Affiliate.
SECTION 9
EVENTS OF DEFAULT
If one or more of the following events (herein called Events of Default) shall occur
and be continuing:
(a) The Borrower shall default in the payment of any principal of any Loan when and as
the same shall become due and payable; or
(b) The Borrower shall default in the payment of any interest on any Loan or any fee or
any other amount (other than an amount referred to in clause (a) of this Article) payable
hereunder or under any other Credit Document, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of five days; or
(c) The Borrower or any of its Subsidiaries shall default in the payment when due of
any principal of or interest on any of its other Indebtedness aggregating $50,000,000 or
more; or any event specified in any note, agreement, indenture or other document evidencing
or relating to any Indebtedness aggregating $50,000,000 or more shall occur if the effect of
such event is to cause, or (with the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, such Indebtedness to become due prior to its stated maturity or
to permit termination of the commitment to lend pursuant to any such instrument or
agreement; or
(d) Any representation, warranty or certification made or deemed made by the Borrower
herein or by the Borrower in any certificate furnished to any Lender or the Administrative
Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of
the time made or furnished in any material respect; or
(e) The Borrower shall default in the performance of any of its obligations under
Section 8.01(f) or 8.05 through 8.12; or the Borrower shall default
in the performance of any of its other obligations in this Agreement and such default shall
continue unremedied for a period of 30 days after notice thereof to the Borrower by the
Administrative Agent or any Lender (through the Administrative Agent); or
39
(f) The Borrower or any of its Significant Subsidiaries shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due; or
(g) The Borrower or any of its Significant Subsidiaries shall (i) apply for or consent
to the appointment of, or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an involuntary case
under the Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting
any of the foregoing; or
(h) A proceeding or case shall be commenced against the Borrower or any of its
Significant Subsidiaries without its application or consent, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial part of its assets, or
(iii) similar relief in respect of it under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such proceeding or
case shall continue undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect, for a period of 60
days; or an order for relief against it shall be entered in an involuntary case under the
Bankruptcy Code; or
(i) A final judgment or judgments for the payment of money in excess of $50,000,000 in
the aggregate shall be rendered by a court or courts against the Borrower and/or any of its
Subsidiaries and the same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within 30 days from the
date of entry thereof and the Borrower or the relevant Subsidiary shall not, within said
period of 30 days, or such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or
(j) An event or condition specified in Section 8.01(e) shall occur or exist
with respect to any Plan or Multiemployer Plan of the Borrower and, as a result of such
event or condition, together with all other such events or conditions, the Borrower or any
ERISA Affiliate shall incur or in the opinion of the Majority Lenders shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) which, in the determination of the Majority Lenders, would reasonably be
expected to have a Material Adverse Effect; or
(k) During any period of 25 consecutive calendar months (i) individuals who were
directors of the Borrower on the first day of such period and (ii) other individuals whose
election or nomination to the Board of Directors of the Borrower was approved by
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at least a majority of the individuals referred to in clause (i) above and (iii) other
individuals whose election or nomination to the Board of Directors of the Borrower was
approved by at least a majority of the individuals referred to in clauses (i) and (ii) above
shall no longer constitute a majority of the Board of Directors of the Borrower.
THEREUPON: (i) in the case of an Event of Default (other than one referred to in
clause (g) or (h) of this Section 9 in respect of the Borrower) the
Administrative Agent may and, upon request of the Majority Lenders, shall, by notice to the
Borrower, declare the principal amount of and the accrued interest on the Loans, and all other
amounts payable by the Borrower hereunder and under the Notes, to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the Borrower; and (ii)
in the case of the occurrence of an Event of Default referred to in clause (g) or
(h) of this Section 9 in respect of the Borrower, the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts payable by the
Borrower hereunder and under the Notes shall become automatically immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
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SECTION 10
THE ADMINISTRATIVE AGENT
10.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably (but subject
to Section 10.08) appoints and authorizes the Administrative Agent to act as its agent
hereunder with such powers as are specifically delegated to the Administrative Agent by the terms
of this Agreement together with such other powers as are reasonably incidental thereto. The
Administrative Agent (which term as used in this sentence and in Section 10.05 and the
first sentence of Section 10.06 shall include reference to its Affiliates and its own and
its affiliates officers, directors, employees and agents): (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement and shall not by reason of this
Agreement be a trustee for any Lender; (b) shall not be responsible to the Lenders for any
recitals, statements, representations or warranties contained in this Agreement or in any
certificate or other document referred to or provided for in, or received by any of them under,
this Agreement or for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement, any Note or any other document referred to or provided for herein or
for any failure by the Borrower or any other Person to perform any of its obligations hereunder or
thereunder; (c) shall not be required to initiate or conduct any litigation or collection
proceedings hereunder; and (d) shall not be responsible for any action taken or omitted to be taken
by it hereunder or under any other document or instrument referred to or provided for herein or in
connection herewith, except for its own gross negligence or willful misconduct. The Administrative
Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The
exculpatory provisions of this Section shall apply to any agent or attorney-in-fact of the
Administrative Agent and any such agent or attorney-in-fact, and shall apply to their respective
activities in connection with the syndication of the facility provided for herein as well as the
activities as Administrative Agent. The provisions of this Section are solely for the benefit of
the Administrative Agent and the Lenders, and the Borrower shall not have any rights as a third
party beneficiary of any of such provisions.
10.02 Reliance by Administrative Agent. The Administrative Agent shall be entitled to
rely upon any certification, notice or other communication (including any thereof by telephone,
telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Administrative Agent. Furthermore, the
Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (a)
the validity, enforceability, effectiveness or genuineness of this Agreement, any other Credit
Document or any other agreement, instrument or document or (b) the satisfaction of any condition
set forth in Article V or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.
As to any matters not expressly provided for by this Agreement, the Administrative Agent shall
in all cases be fully protected (a) in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Majority Lenders (or such other number of Lenders as is
expressly required hereby), and such instructions of the Majority Lenders (or such other
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number of Lenders) and any action taken or failure to act pursuant thereto shall be binding on
all the Lenders and (b) from liability for any action taken or not taken by it in the absence of
its own gross negligence or willful misconduct.
10.03 Defaults. The Administrative Agent shall not be deemed to have knowledge of the
occurrence of a Default unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a Notice of Default. In the
event that the Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent
shall (subject to Section 10.07) take such action with respect to such Default as shall be
directed by the Majority Lenders, provided that, unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Lenders.
10.04 Rights as a Lender. With respect to its Commitment and the Loans made by it,
Bank of America (and any successor acting as Administrative Agent), in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not acting as the Administrative Agent, and the term Lender or Lenders
shall, unless the context otherwise indicates, include the Administrative Agent in its individual
capacity. Bank of America (and any successor acting as Administrative Agent) and its Affiliates
may (without having to account therefor to any Lender) accept deposits from, lend money to and
generally engage in any kind of banking, trust or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Administrative Agent, and Bank of America and its
Affiliates may accept fees and other consideration from the Borrower for services in connection
with this Agreement or otherwise without having to account for the same to the Lenders.
10.05 Indemnification. The Lenders agree to indemnify the Administrative Agent (to
the extent not reimbursed under Section 11.03, but without limiting the obligations of the
Borrower under said Section 11.03), ratably in accordance with their respective
Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Administrative Agent in any way relating to or
arising out of this Agreement or any other documents contemplated by or referred to herein or the
transactions contemplated hereby (including, without limitation, the costs and expenses which the
Borrower is obligated to pay under Section 11.03 but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to the performance of
its agency duties hereunder) or the enforcement of any of the terms hereof, or of any such other
documents, provided that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the party to be indemnified.
10.06 Non-Reliance on Administrative Agent and Other Lenders. Each Lender agrees that
it has, independently and without reliance on the Administrative Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its own credit analysis
of the Borrower and its Subsidiaries and decision to enter into this
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Agreement and that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall deem appropriate at
the time, continue to make its own analysis and decisions in taking or not taking action under this
Agreement. The Administrative Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement or any other document referred to or
provided for herein or to inspect the properties or books of the Borrower or any Subsidiary of the
Borrower. Except for notices, reports and other documents and information expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not
have any duty or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower or any Subsidiary of the
Borrower (or any of their affiliates) which may come into the possession of the Administrative
Agent or any of its Affiliates.
10.07 Failure to Act. Except for action expressly required of the Administrative
Agent hereunder the Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of taking or continuing to
take any such action.
10.08 Resignation or Removal of Administrative Agent. The Administrative Agent may at
any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such
notice of resignation, the Majority Lenders shall have the right, in consultation with the
Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an
Affiliate of any such bank with an office in the United States. If no such successor shall have
been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting
the qualifications set forth above. Upon the acceptance of a successors appointment as
Administrative Agent hereunder, such successor shall succeed to and become vested with all of the
rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from all of its duties and obligations hereunder or under
the other Credit Documents. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the retiring Administrative Agents resignation hereunder and under the
other Credit Documents, the provisions of this Article and Section 11.03 shall continue in
effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective
affiliates in respect of any actions taken or omitted to be taken by any of them while the retiring
Administrative Agent was acting as Administrative Agent.
10.09 Lead Arrangers and Other Agents. Anything herein to the contrary
notwithstanding, the Joint Lead Arrangers and Joint Bookrunners and the Syndication Agent listed on
the cover page shall not have any duties or responsibilities under this Agreement, except in their
capacity, if any, as Lenders.
10.10 Exculpatory Provisions. The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein and in the other Credit Documents. Without
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limiting the generality of the foregoing, the Administrative Agent (a) shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has occurred and is
continuing; (b) shall not have any duty to take any discretionary action or exercise any discretionary powers,
except discretionary rights and powers expressly contemplated hereby or by the other Credit
Documents that the Administrative Agent is required to exercise as directed in writing by the
Majority Lenders (or such other number or percentage of the Lenders as shall be expressly provided
for herein or in the other Credit Documents), provided that the Administrative Agent shall
not be required to take any action that, in its opinion or the opinion of its counsel, may expose
the Administrative Agent to liability or that is contrary to any Credit Document or applicable law;
and (c) shall not, except as expressly set forth herein and in the other Credit Documents, have any
duty to disclose, and shall not be liable for the failure to disclose, any information relating to
Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the
Administrative Agent or any of its Affiliates in any capacity.
10.11 Administrative Agent May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Borrower, the Administrative Agent
(irrespective of whether the principal of the Term Loan shall then be due and payable as herein
expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall
have made any demand on the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing
and unpaid in respect of the Term Loan and all other obligations of the Borrower that are
owing and unpaid and to file such other documents as may be necessary or advisable in order
to have the claims of the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders and the
Administrative Agent and their respective agents and counsel and all other amounts due the
Lenders and the Administrative Agent under Section 11.03) allowed in such judicial
proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender to make such payments to the
Administrative Agent and, in the event that the Administrative Agent shall consent to the making of
such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its
agents and counsel, and any other amounts due the Administrative Agent under Section
11.03.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition affecting the Term Loan or the obligations of the
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Borrower hereunder or the rights of any Lender or to authorize the Administrative Agent to
vote in respect of the claim of any Lender in any such proceeding.
SECTION 11
MISCELLANEOUS
11.01 Waiver. No failure on the part of the Administrative Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to, any right, power or
privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege under this Agreement or any Note preclude any
other or further exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein and therein are cumulative and not exclusive of any remedies provided by
law.
Notwithstanding anything to the contrary contained herein or in any other Credit Document, the
authority to enforce rights and remedies hereunder and under the other Credit Documents against the
Borrower shall be vested exclusively in, and all actions and proceedings at law in connection with
such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in
accordance with Section 9 for the benefit of all the Lenders; provided,
however, that the foregoing shall not prohibit (a) the Administrative Agent from exercising
on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as
Administrative Agent) hereunder and under the other Credit Documents, (b) any Lender from
exercising setoff rights in accordance with Section 4.05 or (c) any Lender from filing
proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a
proceeding relative to the Borrower under the Bankruptcy Code or similar debtor relief laws of the
United States or other applicable jurisdictions from time to time in effect; and provided,
further, that if at any time there is no Person acting as Administrative Agent hereunder
and under the other Credit Documents, then (i) the Majority Lenders shall have the rights otherwise
ascribed to the Administrative Agent pursuant to Section 9 and (ii) in addition to the
matters set forth in clauses (b) and (c) of the preceding proviso and subject to Section
4.05, any Lender may, with the consent of the Majority Lenders, enforce any rights and remedies
available to it and as authorized by the Majority Lenders.
11.02 Notices. All notices and other communications provided for herein (including,
without limitation, any modifications of, or requests, demands, waivers or consents under, this
Agreement) shall be given or made in writing and telecopied, mailed or delivered to the intended
recipient at (i) in the case of the Borrower or the Administrative Agent, the Address for Notices
specified below its name on the signature pages hereof and (ii) in the case of each Lender, the
address (or telecopy) set forth in its Administrative Questionnaire; or, as to any party, at such
other address as shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed to have been duly
given when transmitted by telecopier or personally delivered or, in the case of a mailed notice,
upon receipt, in each case given or addressed as aforesaid. Notices and other communications to
the Lenders hereunder may be delivered or furnished by electronic communications pursuant to
procedures approved by the Administrative Agent; provided that the
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foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by
the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may,
in its discretion, agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.
THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT PARTIES (AS DEFINED BELOW) DO
NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM,
AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO
WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR
OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE
PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively,
the Agent Parties) have any liability to the Borrower, any Lender or any other Person for losses,
claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise)
arising out of the Borrowers or the Administrative Agents transmission of Borrower Materials
through the Internet, except to the extent that such losses, claims, damages, liabilities or
expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment
to have resulted from the gross negligence or willful misconduct of such Agent Party; provided,
however, that in no event shall any Agent Party have any liability to the Borrower, any Lender or
any other Person for indirect, special, incidental, consequential or punitive damages (as opposed
to direct or actual damages).
11.03 Expenses, Etc. The Borrower agrees to pay or reimburse each of the Lenders and
the Administrative Agent for paying: (a) the reasonable fees and expenses of Moore & Van Allen
PLLC, counsel to the Administrative Agent, in connection with (i) the preparation, execution and
delivery of this Agreement and the Notes and the making of the Loans hereunder and (ii) any
amendment, modification or waiver (whether or not such amendment, modification or waiver shall
become effective) of any of the terms of this Agreement or any of the Notes; (b) all reasonable
costs and expenses of the Lenders and the Administrative Agent (including reasonable counsels
fees) in connection with the enforcement of this Agreement or any of the Notes; and (c) all
transfer, stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement, any of the Notes or any other
document referred to herein.
The Borrower hereby agrees to indemnify the Administrative Agent and each Lender and each of
their respective Affiliates, and each of the respective directors, officers, employees, agents and
advisors of any of the foregoing Persons (each such Person being called an Indemnitee)
against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including the reasonable fees, charges and disbursements of any counsel for
any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with,
or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of
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their respective obligations hereunder or the consummation of the transactions contemplated
hereby, (ii) any Loan or the use of the proceeds therefrom or (iii) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnitee.
To the fullest extent permitted by applicable law, the Borrower shall not assert, and the
Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out
of, in connection with, or as a result of, this Agreement, any other Credit Document or any
agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any
Loan or the use of the proceeds thereof.
11.04 Amendments, Etc. Except as otherwise expressly provided in this Agreement, any
provision of this Agreement may be amended or modified only by an instrument in writing signed by
the Borrower, the Administrative Agent and the Majority Lenders, or by the Borrower, and the
Administrative Agent acting with the consent of the Majority Lenders, and any provision of this
Agreement may be waived by the Majority Lenders or by the Administrative Agent acting with the
consent of the Majority Lenders; provided that no amendment, modification or waiver shall,
unless by an instrument signed by each of the Lenders affected thereby or by the Administrative
Agent acting with the consent of each of the Lenders affected thereby: (i) extend the date fixed
for the payment of any principal of or interest on any Loan, (ii) reduce the amount of any
principal of any Loan or the rate at which interest or any fee is payable hereunder, (iii) alter
the terms of Section 11 or release the Borrower from any of its material obligations
thereunder, (iv) alter the terms of this Section 11.04 or Section 4.05(b) or (v)
amend the definition of the term Majority Lenders or modify in any other manner the number or
percentage of the Lenders required to make any determinations or waive any rights hereunder or to
modify any provision hereof; and provided, further, that any amendment of
Section 10, or which increases the obligations or alters the rights of the Administrative
Agent hereunder, shall require the consent of the Administrative Agent.
11.05 Assignments and Participations.
(a) The Borrower may not assign any of its rights or obligations hereunder or under the
Notes without the prior consent of all of the Lenders and the Administrative Agent.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any
Lender may assign to one or more assignees all or a portion of its rights and obligations
under this Agreement (including all or a portion of the Loans at the time owing to it) with
the prior written consent (such consent not to be unreasonably withheld) of (A) the
Borrower, provided that no consent of the Borrower shall be required for an
assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of
Default has
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occurred and is continuing, any other assignee; and (B) the Administrative Agent
provided that no consent of the Administrative Agent shall be required for an assignment
to a Lender, an Affiliate of a Lender or an Approved Fund.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of
a Lender or an assignment of the entire remaining principal amount of the
Loans at the time owing to such assigning Lender, the principal amount of
the Loans owing to such assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to
such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, provided that no such consent of the Borrower
shall be required if an Event of Default has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lenders rights and obligations
under this Agreement;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.
(iii) Subject to acceptance and recording thereof pursuant to
paragraph (b)(iv) of this Section 11.05, from and after the
effective date specified in each Assignment and Assumption the assignee thereunder
shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Assumption, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations under
this Agreement (and, in the case of an Assignment and Assumption covering all of the
assigning Lenders rights and obligations under this Agreement, such Lender shall
cease to be a party hereto but shall continue to be entitled to the benefits of
Sections 5.01, 5.05, 5.06 and 11.03). Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this Section 11.05(b) shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with Section 11.05(c).
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(iv) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitment of, and principal amount of the Loans
owing to, each Lender pursuant to the terms hereof from time to time (the
Register). The entries in the Register shall be conclusive, and the
Borrower, the Administrative Agent, and the Lenders may treat each Person whose name
is recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignees completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in Section 11.05(b) and any
written consent to such assignment required thereby, the Administrative Agent shall
accept such Assignment and Assumption and record the information contained therein
in the Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this paragraph.
(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell
participations to one or more banks or other entities (a Participant) in all or a portion
of such Lenders rights and obligations under this Agreement (including all or a portion of the
Loans owing to it); provided that (A) such Lenders obligations under this Agreement shall
remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations and (C) the Borrower, the Administrative Agent, and the other
Lenders shall continue to deal solely and directly with such Lender in connection with such
Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to
which a Lender sells such a participation shall provide that such Lender shall retain the sole
right to enforce this Agreement and to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any amendment, modification
or waiver described in the first proviso to Section 11.04 that affects such Participant.
Subject to paragraph (c)(ii) of this Section 11.05, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 5.01, 5.05 and
5.06 to the same extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section 11.05. To the extent permitted by law,
each Participant also shall be entitled to the benefits of Section 4.05(a) as though it
were a Lender, provided such Participant agrees to be subject to Section 4.05(b) as though
it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01 or 5.06 than the applicable Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrowers prior written consent.
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(d) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of such Lender, including any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.
(e) A Lender may furnish any information concerning the Borrower or any of its Subsidiaries in
the possession of such Lender from time to time to assignees and participants (including
prospective assignees and participants).
11.06 Survival. The obligations of the Borrower under Sections 5.01,
5.05 and 5.06, the obligations of the Lenders under Section 10.05 and the
obligations of the Borrower under Section 11.03 shall survive the repayment of the Loans
and the termination of the Commitments. In addition, each representation and warranty made, or
deemed to be made, by a notice of borrowing of Loans hereunder shall survive the making of such
Loans, and no Lender shall be deemed to have waived, by reason of making any Loan, any Default or
Event of Default which may arise by reason of such representation or warranty proving to have been
false or misleading, notwithstanding that such Lender or the Administrative Agent may have had
notice or knowledge or reason to believe that such representation or warranty was false or
misleading at the time such Loan was made.
11.07 Captions. Captions and section headings appearing herein are included solely
for convenience of reference and are not intended to affect the interpretation of any provision of
this Agreement.
11.08 Counterparts; Effectiveness. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, when taken together, shall
constitute one and the same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart. Except as provided in Section 6.01, this Agreement shall
become effective when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns. Delivery of an
executed counterpart of a signature page to this Agreement by telecopy shall be effective as
delivery of a manually executed counterpart of this Agreement.
11.09 Governing Law; Jurisdiction; Service of Process; Waiver of Jury Trial; Etc. (a)
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK. ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY
JUDGMENT OBTAINED IN CONNECTION THEREWITH, MAY BE INSTITUTED IN THE SUPREME COURT OF THE STATE OF
NEW YORK, COUNTY OF NEW YORK
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OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND THE BORROWER
IRREVOCABLY AND UNCONDITIONALLY SUBMITS GENERALLY (BUT NON-EXCLUSIVELY) TO THE JURISDICTION OF EACH
SUCH COURT. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SET
FORTH UNDERNEATH ITS SIGNATURE HERETO. THE BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT
IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER FURTHER AGREES THAT ANY
SUCH ACTION OR PROCEEDING AGAINST THE ADMINISTRATIVE AGENT AND/OR ANY OF THE LENDERS SHALL BE
BROUGHT ONLY IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK OR IN THE U.S.
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE ADMINISTRATIVE AGENT AND THE LENDERS
HEREBY CONSENT TO THE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
(b) EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.10 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted assigns.
11.11 USA PATRIOT Act. Each Lender hereby notifies the Borrower that pursuant to the
requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law
October 26, 2001)), such Lender may be required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the Borrower and other
information that will allow such Lender to identify the Borrower in accordance with said Act.
11.12 No Advisory or Fiduciary Relationship. In connection with all aspects of each
transaction contemplated hereby (including in connection with any amendment, waiver or other
modification hereof or of any other Credit Document), the Borrower acknowledges and agrees, and
acknowledges its Affiliates understanding, that: (a)(i) the arranging and other services regarding
this Agreement provided by the Administrative Agent, BAS or any Lender, are arms-length commercial
transactions between the Borrower and its Affiliates, on the one hand, and the Administrative
Agent, BAS or any such Lender, on the other hand, (ii) the Borrower has
52
consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed
appropriate, and (iii) the Borrower is capable of evaluating, and understands and accepts, the
terms, risks and conditions of the transactions contemplated hereby and by the other Credit
Documents; (b)(i) the Administrative Agent, BAS and each Lender each is and has been acting solely
as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is
not and will not be acting as an advisor, agent or fiduciary, for the Borrower or any of Affiliates
or any other Person and (ii) neither the Administrative Agent, BAS nor any Lender has any
obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated
hereby except those obligations expressly set forth herein, in the other Credit Documents and in
the Commitment Letter; and (c) the Administrative Agent, BAS and the Lenders and their respective
Affiliates may be engaged in a broad range of transactions that involve interests that differ from
those of the Borrower and its Affiliates, and neither the Administrative Agent, BAS nor any Lender
has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the
fullest extent permitted by law, the Borrower hereby waives and releases, any claims that it may
have against the Administrative Agent, BAS or any Lender with respect to any breach or alleged
breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated
hereby.
53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
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NEWELL RUBBERMAID INC. |
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By |
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/s/ Dale L. Metz |
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Name: Dale L. Metz
Title: Vice President Treasurer |
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Address for Notices:
Newell Rubbermaid Inc.
3 Glenlake Parkway, 13th Floor
Atlanta, GA 30328 |
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Attn: Dale Metz
Vice President-Treasurer |
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Telecopier No.: (770) 418-7705
Telephone No.: (770) 677-8705 |
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U.S. Federal Tax Identification No.: 36-3514169 |
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THE ADMINISTRATIVE AGENT |
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BANK OF AMERICA, N.A.
as Administrative Agent |
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By |
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/s/ Joan Mok |
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Name: Joan Mok
Title: Vice President |
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Address for Notices: |
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Administrative Agents Office
(for payments and Requests for Credit Extensions): |
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Bank of America, N.A.
Building B, 2001 Clayton Road
CA4-702-02-25
Concord, CA 94520
Attention: Jessica Torres, Credit Services
Telephone: (925) 675-8139
Telecopier: (888) 969-9232
Electronic Mail: jessica.l.torres@bankofamerica.com |
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Other Notices as Administrative Agent: |
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Bank of America, N.A.
Agency Management
1455 Market Street, 5th Floor
CA5-701-15-19
San Francisco, CA 94103
Attention: Joan Mok
Telephone: (415) 436-3496
Telecopier: (415) 503-5085
Electronic Mail: joan.mok@bankofamerica.com |
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LENDERS
BANK OF AMERICA, N.A.
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By |
/s/ David L. Catherall
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Name: |
David L. Catherall |
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Title: |
Senior Vice President |
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JPMORGAN CHASE BANK, N.A.
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By |
/s/ Anthony W. White
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Name: |
Anthony W. White |
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Title: |
Vice President |
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THE ROYAL BANK OF SCOTLAND PLC
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By |
/s/ William McGinty
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Name: |
William McGinty |
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Title: |
Senior Vice President |
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BARCLAYS BANK PLC
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By |
/s/ Nicholas A. Bell
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Name: |
Nicholas A. Bell |
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Title: |
Director |
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CREDIT SUISSE, CAYMAN ISLANDS BRANCH
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By |
/s/ Doreen Barr
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Name: |
Doreen Barr |
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Title: |
Vice President |
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By |
/s/ Morenikeji Ajayi
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Name: |
Morenikeji Ajayi |
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Title: |
Associate |
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CITIBANK, N.A.
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By |
/s/ John Coons
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Name: |
John Coons |
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Title: |
Vice President |
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WILLIAM STREET LLC
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By |
/s/ Mark Walton
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Name: |
Mark Walton |
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Title: |
Authorized Signatory |
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ING BANK N.V., DUBLIN BRANCH
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By |
/s/ Maurice Kenny
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Name: |
Maurice Kenny |
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Title: |
Director |
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By |
/s/ Sean Hassett
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Name: |
Sean Hassett |
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Title: |
Director |
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THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
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By |
/s/ Maria Iarriccio
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Name: |
Maria Iarriccio |
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Title: |
Authorized Signatory |
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PNC BANK NATIONAL ASSOCIATION
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By |
/s/ David B. Gookin
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Name: |
David B. Gookin |
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Title: |
Senior Vice President |
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THE NORTHERN TRUST COMPANY
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By |
/s/ Kathryn Schad Reuther
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Name: |
Kathryn Schad Reuther |
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Title: |
Vice President |
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SUMITOMO MITSUI BANKING CORPORATION
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By |
/s/ Yoshihiro Hyakutome
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Name: |
Yoshihiro Hyakutome |
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Title: |
General Manager |
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FIRST HAWAIIAN BANK
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By |
/s/ Paula C.H. Chang
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Name: |
Paula C.H. Chang |
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Title: |
Vice President |
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REGIONS BANK
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By |
/s/ Stephen H. Lee
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Name: |
Stephen H. Lee |
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Title: |
Senior Vice President |
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RBC BANK (USA)
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By |
/s/ James R. Pryor
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Name: |
James R. Pryor |
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Title: |
Managing Director |
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BNP PARIBAS
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By |
/s/ Paul Harris
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Name: |
Paul Harris |
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Title: |
Managing Director |
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By |
/s/ Fikret Durmus
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Name: |
Fikret Durmus |
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Title: |
Vice President |
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U.S. BANK NATIONAL ASSOCIATION
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By |
/s/ James N. DeVries
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Name: |
James N. DeVries |
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Title: |
Senior Vice President |
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BANK OF COMMUNICATIONS CO., LTD., NEW YORK BRANCH
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By |
/s/ Hong Tu
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Name: |
Hong Tu |
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Title: |
General Manager |
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THE CHIBA BANK, LTD., NEW YORK BRANCH
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By |
/s/ Yukihito Inamura
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Name: |
Yukihito Inamura |
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Title: |
General Manager |
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exv10w4
EXHIBIT 10.4
NEWELL RUBBERMAID INC. 2003 STOCK PLAN
(As Amended and Restated Effective February 8, 2006)
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Non-Employee Directors)
A Restricted Stock Unit (RSU) Award (the Award) granted by Newell Rubbermaid Inc., a
Delaware corporation (the Company), to the non-employee director named in the attached Award
letter (the Grantee) relating to the common stock, par value $1.00 per share (the Common
Stock), of the Company, shall be subject to the following terms and conditions and the provisions
of the Newell Rubbermaid Inc. 2003 Stock Plan, as amended and restated effective February 8, 2006
and further amended August 9, 2006 (the Plan), a copy of which is attached hereto and the terms
of which are hereby incorporated by reference.
1. Acceptance by Grantee. The receipt of the Award is conditioned upon its acceptance
by the Grantee in the space provided therefor at the end of the attached Award letter and the
return of an executed copy of such Award letter to the Secretary of the Company no later than 60
days after the Award Date set forth therein or, if later, 30 days after the Grantee receives this
Agreement.
2. Grant of RSUs. The Company hereby grants to the Grantee the Award of RSUs, as set
forth in the Award letter. An RSU is the right, subject to the terms and conditions of the Plan
and this Agreement, to receive a distribution of a share of Common Stock for each RSU as described
in Section 6 of this Agreement.
3. RSU Account. The Company shall maintain an account (RSU Account) on its books in
the name of the Grantee which shall reflect the number of RSUs awarded to the Grantee.
4. Dividend Equivalents. Upon the payment of any dividend on Common Stock (the
Dividend Payment Date) occurring during the period preceding the earlier of the date of vesting
of the Grantees Award or the date the Grantees Award is forfeited as described with Section 5,
the Company shall promptly pay to each Grantee an amount in cash equal in value to the dividends
that the Grantee would have received had the Grantee been the actual owner of the number of shares
of Common Stock represented by the RSUs in the Grantees RSU Account on that date. If, however,
the Grantee has elected to defer the RSUs in accordance with Section 13, then the Grantee shall be
entitled to a number of RSUs determined by dividing (i) the product of (A) the dollar amount of the
cash dividend paid per share of Common Stock on the Dividend Payment Date and (B) the total number
of RSUs previously credited to the Grantee as of such Dividend Payment Date (including as a result
of previous dividend equivalents paid thereon), by (ii) the Fair Market Value per Share on that
date. Such dividend equivalents (if any) shall be subject to the same terms and conditions and
shall vest, be settled or forfeited in the same manner and at the same time as the RSUs to which
the dividend equivalents were credited.
5. Vesting.
(a) Except as described in (b) below, the Grantee shall become vested in his Award upon the
first anniversary of the date of the grant of the Award (the Award Date) if he remains in
continuous service on the Board until such date.
(b) If the Grantees service on the Board terminates prior to the first anniversary of the
Award Date due to his death, disability or retirement, the Grantee shall become vested in his
Award. For this purpose (i) disability means (as determined by the Committee in its sole
discretion) the inability of the Grantee to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which is expected to result in death or
disability or which has lasted or can be expected to last for a continuous period of not less than
12 months; and (ii) retirement means the Grantees retirement in accordance with the Companys
retirement policy for Directors.
(c) If the Grantees service on the Board terminates prior to the first anniversary of the
Award Date for any reason other than death, disability or retirement, the entire Award shall be
forfeited to the Company, and no portion of the Award shall vest.
6. Settlement of Award. If a Grantee becomes vested in his Award in accordance with
Section 5, the Company shall distribute to him, or his personal representative, beneficiary or
estate, as applicable, a number of shares of Common Stock equal to the number of vested RSUs
subject to the Award. Such shares shall be delivered within 30 days following the date of vesting.
If, however, the Grantee has elected to defer the RSUs in accordance with Section 13, then the
shares shall be delivered within 30 days following the Grantees separation from service with the
Company as defined under Section 409A of the Internal Revenue Code of 1986, as amended. If, for
any reason, the Grantee is a specified employee, as determined under the Companys policy for
identifying specified employees on the date of separation from service (other than as a result of
death), then the shares of Common Stock equal to the number of vested RSUs subject to the Award
instead shall be delivered within 30 days after the first business day that is more than six months
after the date of the Grantees separation from service (or, if the Grantee dies during such
six-month period, within 30 days after death). Fractional RSUs shall be paid in cash.
7. Withholding Taxes. If applicable, the Company shall withhold from any distribution
made to the Grantee in cash an amount sufficient to satisfy all minimum Federal, state and local
withholding tax requirements. Payment of such taxes may be made by a method specified in the Plan
and approved by the Committee.
8. Rights as Stockholder. The Grantee shall not be entitled to any of the rights of a
stockholder of the Company with respect to the Award, including the right to vote and to receive
dividends and other distributions, until and to the extent the Award is settled in shares of Common
Stock.
9. Share Delivery. Delivery of any shares in connection with settlement of the Award
will be by book-entry credit to an account in the Grantees name established by the Company with
the Companys transfer agent, or upon written request from the Grantee (or his personal
representative, beneficiary or estate, as the case may be), in certificates in the name of the
Grantee (or his personal representative, beneficiary or estate).
10. Award Not Transferable. The Award may not be transferred other than by will or
the applicable laws of descent or distribution or pursuant to a qualified domestic relations order.
The Award shall not otherwise be assigned, transferred, or pledged for any purpose whatsoever and
is not subject, in whole or in part, to attachment, execution or levy of any kind. Any attempted
assignment, transfer, pledge, or encumbrance of the Award, other than in accordance with its terms,
shall be void and of no effect.
11. Administration. The Award shall be administered in accordance with such
regulations as the Organizational Development and Compensation Committee of the Board of Directors
of the Company (the Committee) shall from time to time adopt.
12. Governing Law. This Agreement, and the Award, shall be construed, administered
and governed in all respects under and by the laws of the State of Delaware.
13. Deferral of RSUs. The Grantee may elect, on a form provided by the Company (the
Deferral Election), to defer settlement of the RSUs in accordance with the following rules: (a)
in general, the Deferral Election must be filed with the Committee or its designee by, and shall
become irrevocable as of, December 31 (or such earlier date as specified on the Deferral Election)
of the calendar year next preceding the calendar year in which the Award is granted; and (b) in the
first calendar year in which the Grantee becomes a non-employee director of the Company, he or she
must file the Deferral Election with the Committee or its designee prior to the date that the
individual first becomes a director, and the Deferral Election will become irrevocable on the date
received by the Committee or its designee. The Deferral Election will continue in effect for each
subsequent year and will become effective with respect to an Award for a year on the date such
election otherwise becomes irrevocable for that year under this Section 13(a), unless terminated
prior to such date.
IN WITNESS WHEREOF, this Agreement is executed by the Company this ___th day of ,
, effective as of the ___day of , .
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NEWELL RUBBERMAID INC.
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exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Mark D. Ketchum, certify that:
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I have reviewed this report on Form 10-Q for the quarterly period ended September 30, 2008 of
Newell Rubbermaid Inc.; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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. |
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Date: November 10, 2008 |
/s/ Mark D. Ketchum
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Mark D. Ketchum |
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Chief Executive Officer |
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exv31w2
EXHIBIT 31.2
CERTIFICATION
I, J. Patrick Robinson, certify that:
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I have reviewed this report on Form 10-Q for the quarterly period ended September 30, 2008 of
Newell Rubbermaid Inc.; |
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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; |
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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. |
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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: |
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(a) |
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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; |
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(b) |
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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; |
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(c) |
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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 |
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(d) |
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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. |
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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): |
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(a) |
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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 |
|
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(b) |
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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. |
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Date: November 10, 2008 |
/s/ J. Patrick Robinson
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J. Patrick Robinson |
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Chief Financial Officer |
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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 September 30, 2008 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
November 10, 2008
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 September 30, 2008 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
November 10, 2008
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,
2007, as well as in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, 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 and sourced product 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. 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 2007
Form 10-K and the third Quarter 2008 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.
The Companys 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 the Company has correctly identified and
assessed all of the factors affecting the Company or that the publicly available and other
information the Company receives 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.
With the recent and significant deterioration of economic conditions in the U.S. and elsewhere,
there has been considerable pressure on consumer demand, and the resulting impact on consumer
spending could have a material adverse effect on the demand for the Companys products as well as
its financial condition and results of operations. Consumer demand and the condition of the retail
industry may also be impacted by other external factors such as war, terrorism, geopolitical
uncertainties, public health issues, natural disasters and other business interruptions. The
impact of these external factors is difficult to predict, and one or more of the factors could
adversely impact the Companys business. Moreover, in recent years, the retail industry in the U.S.
and, increasingly, elsewhere has been characterized by intense competition 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 delivering 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 the Companys
products.
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 the 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 in sales or operating
income.
To compete successfully, the Company must develop and maintain big, consumer-meaningful brands.
The Companys ability to compete successfully 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. Consumer-meaningful brands allow the Company to realize
economies of scale in its operations. The development and maintenance of such brands requires
significant investment in brand building and marketing initiatives. While the Company plans to
increase 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 and sourced products 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 pressures. 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.
Also, as part of its strategy to achieve best total cost, the Company increasingly relies on third
party manufacturers as a source for its products. These manufacturers are also subject to price
volatility and inflationary pressures, which may, in turn, result in an increase in the amount the
Company pays for sourced products. Raw material and sourced product price increases may more than
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 selling, general and
administrative expenses in order to produce products at a best-cost position and allow the Company
to invest in innovation and brand building. Project Acceleration includes the anticipated closures
of certain manufacturing and distribution facilities. In addition, the Company continuously
explores ways to best leverage its functional capabilities such as Human Resources, Information
Technology, Customer Service, Supply Chain Management 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 operations and processes, cost reduction, and improving overall
financial results 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, including obtaining anticipated cost savings and operating
income improvements within a reasonable period of time, remain important factors in the Companys
future growth. Furthermore, the Companys ability to finance major acquisitions may be adversely
affected by the recent turmoil and uncertainty in global credit markets. In addition, significant
additional borrowings would increase the Companys borrowing costs and could adversely affect its
credit rating, and constrain the Companys future access to capital.
The Company is subject to risks related to its international operations and sourcing model.
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 requires 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, significant challenges and uncertainties remain.
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 process of replacing various business information systems worldwide with an
enterprise resource planning system from SAP. To date, the Company has successfully gone live with
the SAP implementation at its North American Office Products business unit and its North American
Home & Family business units. These go-lives are the first two major milestones in a multi-year
implementation that will occur in several 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 the Company uses to take orders, procure materials, 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, the unfavorable resolution of litigation, including
patent infringement litigation involving PSI Systems, Inc., or a material adverse change in the
Companys relationship with significant customers or business partners.
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 adversely impact 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.
If the Company is unable to access the capital markets to refinance its maturing short-term debt,
its borrowing costs could increase significantly.
As of September 30, 2008, the Company had approximately $569.7 million of short-term debt that it
will be required to refinance or repay within the next twelve months. The Company plans to address
these obligations as they mature through the capital markets or other arrangements. However,
access to the capital markets cannot be assured, particularly given the recent turmoil and
uncertainty in the global credit markets, and although the Company believes that alternative
arrangements will be available to refinance these obligations, such arrangements could result in a
significant increase in the Companys borrowing costs.
A significant reduction in the Companys credit ratings could materially and adversely affect its
business, financial condition and results of operations.
The Companys current senior debt credit ratings from Moodys Investors Service, Standard & Poors
and Fitch Ratings are Baa2, BBB+ and BBB, respectively. Its current short-term debt credit ratings
from Moodys Investors Service, Standard & Poors and Fitch Ratings are P-2, A-2 and F-2,
respectively. In July 2008, both Moodys and Standard & Poors changed their outlook on their
ratings from Stable to Negative and Fitch revised its outlook from Positive to Stable. The Company
cannot be sure that any of its current ratings will remain in effect for any given period of time
or that a rating will not be lowered by a rating agency if, in its judgment, circumstances in the
future so warrant. Any downgrade could increase the Companys borrowing costs, which would
adversely affect the Companys financial results. The Company would likely be required to pay a
higher interest rate in future financings, and its potential pool of investors and funding sources
could decrease. If the Companys short-term ratings were to be lowered, it could limit the
Companys access to the commercial paper market, which would likely increase the cost of short term
borrowings. The ratings from credit agencies are not recommendations to buy, sell or hold the
Companys securities, and each rating should be evaluated independently of any other rating.
The level of returns on pension and postretirement plan assets and the actuarial assumptions used
for valuation purposes could affect the Companys earnings and cash flows in future periods.
Changes in government regulations could also affect the Companys pension and postretirement plan
expense and funding requirements.
The funding obligations for the Companys pension plans are impacted by the performance of the
financial markets, particularly the equity markets, and interest rates. Funding obligations are
determined under government regulations and are measured each year based on the value of assets and
liabilities on a specific date. If the financial markets do not provide the long-term returns that
are expected under the governmental funding calculations, the Company could be required to make
larger contributions. The equity markets can be, and recently have been, very volatile, and
therefore the Companys estimate of future contribution requirements can change dramatically in
relatively short periods of time. Similarly, changes in interest rates and legislation enacted by
governmental authorities can impact the timing and amounts of contribution requirements. An
adverse change in the funded status of the plans could significantly increase the Companys
required contributions in the future and adversely impact its liquidity.
Assumptions used in determining projected benefit obligations and the fair value of plan assets for
the Companys pension and other postretirement benefit plans are evaluated by the Company in
consultation with outside actuaries. In the event that the Company determines that changes are
warranted in the assumptions used, such as the discount rate, expected long term rate of return, or
health care costs, the Companys future pension and projected postretirement benefit expenses could
increase or decrease. Due to changing market conditions or changes in the participant population,
the actuarial assumptions that the Company uses may differ from actual results, which could have a
significant impact on the Companys pension and postretirement liability and related costs.
The inability to obtain raw materials and finished goods in a timely manner from suppliers would
adversely affect the Companys ability to manufacture and market its products.
The Company purchases raw materials to be used in manufacturing its products. In addition, the
Company is placing increasing reliance on third party manufacturers as a source for finished goods.
The Company typically does not enter into long-term contracts with its suppliers or sourcing
partners. Instead, most raw materials and sourced goods are obtained on a purchase order basis.
In addition, in some instances the Company maintains single-source or limited-source sourcing
relationships, either because multiple sources are not available or the relationship is
advantageous due to performance, quality, support, delivery, capacity, or price considerations.
Financial, operating or other difficulties suffered by the Companys suppliers and/or sourcing
partners or changes in the Companys relationships with its them could result in manufacturing or
sourcing interruptions, delays, and inefficiencies and prevent the Company from manufacturing or
obtaining the finished goods necessary to meet customer demand.
Circumstances associated with the Companys potential divestitures and product line
rationalizations could adversely affect the Companys results of operations and financial
condition.
The Company continues to evaluate the performance and strategic fit of its businesses and may
decide to sell or discontinue a business or product line based on such an evaluation. A decision to
divest or discontinue a business or product line may result in asset impairments, including those
related to goodwill and other intangible assets, and losses upon disposition, both of which could
have an adverse effect on the Companys results of operations and financial condition. In
addition, the Company may encounter difficulty in finding buyers (or prospective buyers may have
difficulty obtaining financing) or alternative exit strategies at acceptable prices and terms and
in a timely manner. Divestitures and business discontinuations could involve additional risks,
including the following:
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difficulties in the separation of operations, services, products and personnel; |
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the diversion of managements attention from other business concerns; |
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the assumption of certain current or future liabilities in order to induce a buyer to
complete a divestiture; |
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the disruption of the Companys business; |
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and the potential loss of key employees. |
The Company may not be successful in managing these or any other significant risks that it may
encounter in divesting or discontinuing a business or product line.
The Company may have additional tax liabilities.
The Company is subject to income tax in the U.S. and numerous jurisdictions outside the U.S.
Significant estimation and judgment is required in determining the Companys worldwide provision
for income taxes. In the ordinary course of the Companys business, there are many transactions
and calculations where the ultimate tax determination is uncertain. The Company is regularly under
audit by tax authorities. Although the Company believes its tax estimates are reasonable, the
final outcome of tax audits and related litigation could be materially different than that
reflected in its historical income tax provisions and accruals. There can be no assurance that the
resolution of any audits or litigation will not have an adverse effect on future operating results.