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CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
Page NR- 1
June 29, 2007
United States Securities and Exchange Commission
Division of Corporation Finance
Washington, D.C. 20549-7010
Attention: John Cash, Accounting Branch Chief
Re: Form 10-K for Fiscal Year Ended December 31, 2006
File No. 1-9608
Dear Mr. Cash:
We are in receipt of your comment letter dated May 17, 2007 to Newell
Rubbermaid Inc. (the "Company"). On behalf of the Company, we have
addressed your comment letter by reproducing each comment below and
providing the Company's response immediately following. We have also
provided supplemental information as requested or where we believe
appropriate to the response.
Critical Accounting Policies, page 30
-------------------------------------
1. We note that your goodwill balance has increased from 35.7% of
your total assets as of December 31, 2005 to 38.6% of total
assets as of December 31, 2006. Given this increase, we have
reconsidered your proposal provided in your response letter dated
September 26, 2006 to only provide sensitivity disclosures
related to asset impairments for operating units with estimated
fair values that nominally exceed carrying value (e.g. 10% or
less). In light of your significant goodwill balance, we believe
that your current disclosures are too general to provide
investors with sufficient information about management's insights
and assumptions with regard to how you determine whether goodwill
is impaired. Please expand your goodwill critical accounting
policy in future filings to disclose and analyze the significant
assumptions used in estimating the fair value of your operating
units. See Section 5 of our Release 33-8350, available on our
website at www.sec.gov/rules/interp/33-8350.htm.
Company Response:
-----------------
The Company has reviewed its disclosures related to goodwill
impairment included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 ("2006 Form 10-K") and noted
the following:
* As disclosed in Footnote 7 of the Notes to Consolidated
Financial Statements, foreign currency translation accounts
for approximately one-half of the change in recorded
goodwill between fiscal 2006 and fiscal 2005, with the
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
Page NR- 2
remaining increase in goodwill primarily related to
relatively immaterial acquisition activity in fiscal 2006.
* Beyond the growth in the recorded consolidated goodwill, the
remaining increase in goodwill as a percentage of total
assets was attributable to an overall reduction in the total
asset base between years. Total assets decreased $135.6
million, or 2%, from December 31, 2005 to December 31, 2006
due primarily to divestiture activity and the execution of
Project Acceleration, as disclosed in Footnote 3 -
DISCONTINUED OPERATIONS and Footnote 4 - RESTRUCTURING COSTS
of the Notes to Consolidated Financial Statements.
* Goodwill as a percentage of stockholders' equity has
actually declined between years, dropping from 140% of
equity to 129% of equity, reflecting improved operating
results and the strength of our portfolio of businesses.
Impairments recorded in the past related primarily to
commoditized categories where we have either divested the
business or rationalized product lines to improve operating
results.
While the Company continues to believe that its current 2006 Form
10-K disclosures and its commitment to provide sensitivity
disclosures related to asset impairments for operating units with
estimated fair values that nominally exceed carrying value (E.G.
10% or less) are appropriate, we do recognize the opportunity for
expanding the disclosure under our critical accounting policies
in future filings to include significant assumptions used in
estimating the fair value of operating units. Accordingly, the
Company will make the following disclosure, in future filings, on
critical accounting policies for "Goodwill and Other Indefinite-
Lived Intangible Assets":
"The Company evaluates goodwill and indefinite-lived
intangible assets (primarily trademarks and trade names) for
impairment at the operating segment level (herein referred
to as the reporting unit). The Company conducts an 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.
If the carrying amount of the reported 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 or an actual sales offer
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
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received from a prospective buyer, if available. The use of
a discounted cash flow model involves several assumptions
and changes in our assumptions could materially impact our
fair value estimates. Assumptions critical to our fair
value estimates under the discounted cash flow model
include: the discount rate; royalty rates used in our
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 any of
our 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 the
respective reporting unit to exceed its fair value.
The Company cannot predict the occurrence of certain 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 Company's 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."
Description of Business and Significant Accounting Policies, page 42
--------------------------------------------------------------------
2. We read in the business section and risk factors that you are
implementing a new SAP global information platform. Given the
significance of the related costs, tell us what consideration you
gave to disclosing your accounting policy for these software
development costs.
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
Page NR- 4
Company Response:
-----------------
The Company's current disclosures related to capitalized software
can be found in Footnote 7 - GOODWILL AND OTHER INTANGIBLES, NET
of the 2006 Form 10-K. As of December 31, 2006, the Company had
capitalized approximately $*** million (less than ***% of total
assets) of costs associated with its SAP implementation. While
not material for the year ended December 31, 2006, considering
the growing materiality of the capitalized costs and associated
amortization, the Company will provide additional disclosures
regarding the accounting policy for capitalized software in our
2007 Form 10-K and future annual filings. These additional
disclosures will be added to our discussion of Significant
Accounting Policies under Footnote 1 - DESCRIPTION OF BUSINESS
AND SIGNIFICANT ACCOUNTING POLICIES as follows:
"Capitalized Software Costs: The Company capitalizes costs
associated with internal-use software during the application
development stage after both the preliminary project stage
has been completed and the Company's management has
authorized and committed to funding for further project
development. Capitalized internal-use software costs
include: (i) external direct costs of materials and services
consumed in developing or obtaining the software;
(ii) payroll and payroll-related costs for employees who are
directly associated with and who devote time directly to the
project; and (iii) interest costs incurred while developing
the software. Capitalization of these costs ceases no later
than the point at which the project is substantially
complete and ready for its intended purpose. The Company
expenses as incurred research and development, general and
administrative and indirect costs associated with internal-
use software. In addition, the Company expenses as incurred
training, maintenance and other internal-use software costs
incurred during the post-implementation stage. Upgrades and
enhancements of internal-use software are only capitalized
if such modifications result in additional functionality of
the software. Capitalized interest costs included in
capitalized software were not material as of December 31,
2007 or 2006.
The Company amortizes internal-use software costs using the
straight-line method over the estimated useful life of the
software. Capitalized software costs are evaluated annually
for indicators of impairment including but not limited to a
significant change in available technology or the manner in
which the software is being used. Impaired items are written
*** Confidential treatment requested; certain information has been
omitted and filed separately with the Commission Staff.
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
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down to their estimated fair values at the date of
evaluation."
Footnote 19 - Industry Segment Information, page 71
---------------------------------------------------
3. We note that in the fourth quarter of 2006 you combined your
Cleaning & Organization and Home Fashion segments as these
businesses "produce products that are used in and around the
home". This seems to be an overly broad view of product
similarity. Please help us to better understand how drapery
hardware and window treatment (products previously in your Home
Fashion reportable segment) are similar to cleaning, refuse, home
storage, indoor/outdoor organization and food storage (products
related to your Cleaning & Organization reportable segment).
Please identify for us each operating segment in your previous
Cleaning & Organization and Home Fashion reportable segments.
Address for us how each of these operating segments meet the
aggregation criteria set forth in paragraph 17 of SFAS 131.
Provide for us the sales and gross profit trends for each of
these operating segments for the last five years. Address for us
any inconsistencies in the trends they depict such that we may
fully understand the appropriateness of combining these two
previously separate reportable segments. In this regard, we note
that the operating income as a percentage of sales was decreasing
in the Home Fashion reportable segment during fiscal year 2003
through 2005 and increasing for the Cleaning and Organization
reportable segment.
Company Response:
-----------------
Prior to the filing of our 2006 Form 10-K, the Cleaning &
Organization reportable segment consisted of the following
operating segments: (i) Rubbermaid Commercial Products,
(ii) Rubbermaid Food Products and (iii) Rubbermaid Home Products,
and the Home Fashions reportable segment consisted of the
following operating segments: (i) Levolor Kirsch and (ii) Home
Decor and Swish UK. The Home Decor and Swish UK businesses were
sold in fiscal 2006 and thus classified as discontinued
operations during fiscal 2006, as disclosed in Footnote 3 -
DISCONTINUED OPERATIONS in the 2006 Form 10-K.
As a result of the Company's divestiture of the Home Decor and
Swish UK businesses in fiscal 2006, the remaining Levolor Kirsch
business no longer met the 10% quantitative threshold required
for a reportable segment. As a result of the changes in the Home
Fashions reportable segment in 2006, the Company updated its
consideration and application of the aggregation criteria in
paragraph 17 of FASB Statement 131 to its operating segments.
This evaluation resulted in the conclusion that the Levolor
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
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Kirsch operating segment met the criteria for aggregation with
the other operating segments included in Cleaning & Organization.
Historically these operating segments were not aggregated for
reporting purposes due in large part to the relative size of our
Home Fashions presence.
Paragraph 17 of SFAS 131 provides guidance on the criteria that
should be met when evaluating operating segments for aggregation
into a reportable segment. The criteria are as follows:
a. Similar economic characteristics;
b. The nature of the products and services;
c. The nature of the production processes;
d. The type or class of customer for products and services;
e. The methods used to distribute products or provide
services, and;
f. If applicable, the nature of the regulatory environment.
ECONOMIC CHARACTERISTICS:
The guidance requires that aggregated operating segments must
have similar long-term economic characteristics. To compare the
economic characteristics of the businesses, the Company evaluated
certain financial trends for the operating segments within the
Cleaning & Organization Segment and the Levolor Kirsch business.
The following tables provide the economic characteristics of
these operating segments for the past 5 years ($ amounts in
millions):
RUBBERMAID COMMERCIAL
PRODUCTS: 2002* 2003 2004 2005 2006
Sales $*** $*** $*** $*** $***
Gross Profit $*** $*** $*** $*** $***
Gross Margin ***% ***% ***% ***% ***%
RUBBERMAID
FOOD PRODUCTS: 2002* 2003 2004 2005 2006
Sales *** $*** $*** $*** $***
Gross Profit *** $*** $*** $*** $***
Gross Margin *** ***% ***% ***% ***%
*** Confidential treatment requested; certain information has been
omitted and filed separately with the Commission Staff.
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
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RUBBERMAID
HOME PRODUCTS: 2002* 2003 2004 2005 2006
Sales $*** $*** $*** $*** $***
Gross Profit $*** $*** $*** $*** $***
Gross Margin ***% ***% ***% ***% ***%
LEVOLOR KIRSCH: 2002* 2003 2004 2005 2006
Sales $*** $*** $*** $*** $***
Gross Profit $*** $*** $*** $*** $***
Gross Margin ***% ***% ***% ***% ***%
* ***.
The following table provides the expected future gross margin
rates by operating segment pursuant to our 2006 strategic
planning process:
GROSS MARGIN RATES: 2007 2008 2009
Rubbermaid Commercial ***% ***% ***%
Products
Rubbermaid Food Products ***% ***% ***%
Rubbermaid Home Products ***% ***% ***%
Levolor Kirsch ***% ***% ***%
As exhibited above, the current gross margin trends for Levolor
Kirsch for the time period presented are comparable to the other
operating segments included in our reported segment. The Company
has also reviewed expected future gross margin rates included in
the existing strategic plan, noting that the margin rates for
Levolor Kirsch are consistent with the expected gross margin
rates for the other operating segments included in the reported
segment as well. The Company believes that the long-term gross
margins identified in its analytical reviews support its position
for including Levolor Kirsch within the Cleaning, Organization &
Decor reportable segment.
*** Confidential treatment requested; certain information has been
omitted and filed separately with the Commission Staff.
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
Page NR- 8
The operating income trend noted by the SEC as "decreasing in the
Home Fashion reportable segment during fiscal years 2003 through
2005 and increasing for the Cleaning and Organization reportable
segment," is not reflective of our previously reported
restatements for discontinued operations and the ultimate sale of
Home Decor and the Swish UK business. The table below reflects
these restatements and an increasing gross margin for both
previously reported segments.
OPERATING MARGIN RATES: 2003 2004 2005
CLEANING & ORGANIZATION ***% ***% ***%
HOME FASHIONS* ***% ***% ***%
_______________
* Restated to reflect the discontinued operations and ultimate
sale of the Home Decor and Swish UK business.
NATURE OF PRODUCTS AND SERVICES:
In determining if the nature of the products sold by Rubbermaid
Home, Rubbermaid Commercial, Rubbermaid Food and Levolor Kirsch
are similar, the Company evaluated the nature of the products to
determine their purpose or end use. As disclosed in our 2006
Form 10-K, we believe that these businesses are similar because
they produce products used in and around the home. While this is
a very broad summary of the product family, we note that we are a
very large consumer products company with a business model
focused on delivering meaningful brands to our target consumers.
The majority of the products in this segment target the female
head of household for virtually all households. This is a
distinctly wider target than our other businesses, which focus on
a much narrower group of consumers such as aspiring gourmets or
expecting mothers, and is consistent with the broad nature of our
product line. These products all serve a specific utility or
purpose in and around the home including, but not limited to
Decor and an overall attractive and orderly appearance. While
products such as closet organizers, refuse containers, window
coverings and kitchen items all have a different utility
function, they also expand to provide and serve the decorative or
aesthetic needs of the home and or office. The similarities in
products and underlying business risks are also consistent with
our management structure. The operating segments of the
Cleaning, Organization and Decor segment all report to the same
Group President, Group Chief Financial Officer and Group Human
Resources Officer, both before and after the segment reporting
*** Confidential treatment requested; certain information has been
omitted and filed separately with the Commission Staff.
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
Page NR- 9
changes. The businesses are organized in this manner to maximize
the synergies of the segments, streamline the organization while
leveraging management expertise, and our relationships with a
common customer base.
NATURE OF PRODUCTION PROCESS:
The Company has evaluated the businesses and concluded that the
nature of the production process is similar. The Company
believes that the production process primarily consists of the
fabrication of metal, wood and resin based products. All of the
businesses included in the Cleaning and Organization and the
Levolor Kirsch business are experts in metal, wood and resin
fabrication as well as assembly and packaging and all have a
similar, material labor and overhead content. The majority of
the operations are capital intensive and as noted previously, all
of the businesses report to the same group management structure
which allows the Company to leverage its human capital.
TYPE OR CLASS OF CUSTOMER:
The type and class of customers are similar for each of the
operating segments. Each business markets its products directly
or indirectly through distributors to mass merchants, commercial
channels, home centers, hardware distributors, grocery/drug
stores and warehouse clubs as well as regional direct sales
representatives and market specific sales managers. The largest
customers include ***, ***, *** and ***. Collectively these
customers account for over ***% of the segment's revenues.
Generally marketing is conducted through retail and commercial
channels. All of these businesses have used advertising,
including TV and print to market their products.
METHOD USED TO DISTRIBUTE:
The distribution channels of the businesses are comparable given
the similar channels and customer base as noted under the Type or
Class of Customer. Products are generally packaged and shipped
directly to retailers, distributors or resellers.
REGULATORY ENVIRONMENT:
We do not believe that the regulatory environment has a
significant impact on the results of any of these operating
segments, other than common laws regarding commerce, product
liability and environmental issues.
*** Confidential treatment requested; certain information has been
omitted and filed separately with the Commission Staff.
CONFIDENTIAL TREATMENT REQUESTED BY NEWELL RUBBERMAID INC.
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Conclusion:
Based on a careful consideration of the requirements for
aggregation of operating segments, the Company concluded that
aggregation of the previously reported Cleaning and Organization
and Home Fashions segments into the new Cleaning Organization &
Decor segment is appropriate and in accordance with SFAS 131.
____________________________
As requested by the Commission staff's letter, the Company hereby
acknowledges that:
* The Company is responsible for the adequacy and accuracy of
the disclosures in the filing;
* Staff comments or changes to the Company's disclosure in
response to staff comments do not foreclose the Commission
from taking any action with respect to the filing; and
* The Company may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
If you have any questions regarding our responses or any related
matters, please call Rick Dillon, Vice President Corporate
Controller, at (770) 407-3930, or me at (770) 407-3806.
Sincerely,
Newell Rubbermaid Inc.
By: /s/ J. Patrick Robinson
----------------------------------------
Title: Executive Vice President and Chief Financial Officer
cc: Bret Johnson
Jeanne Baker