e10vk
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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| FOR THE FISCAL YEAR ENDED
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COMMISSION FILE NUMBER |
| DECEMBER 31, 2006
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1-9608 |
NEWELL RUBBERMAID INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE
(State or other jurisdiction of
Incorporation or organization)
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36-3514169
(I.R.S. Employer
Identification No.) |
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| 10 B Glenlake Parkway, Suite 300 |
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| Atlanta, Georgia
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30328 |
| (Address of principal executive offices)
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(Zip Code) |
Registrant’s telephone number, including area code: (770) 407-3800
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE |
TITLE OF EACH CLASS
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ON WHICH REGISTERED |
Common Stock, $1 par value per share
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New York Stock Exchange |
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Chicago Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes o No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ
There were 277.6 million shares of the Registrant’s Common Stock outstanding (net of treasury
shares) as of January 31, 2007. The aggregate market value of the shares of Common Stock (based
upon the closing price on the New York Stock Exchange on June 30, 2006) beneficially owned by non-affiliates of the Registrant was approximately
$7,066.3 million. For purposes of the foregoing calculation only, which is required by Form 10-K,
the Registrant has included in the shares owned by affiliates those shares owned by directors and
officers of the Registrant, and such inclusion shall not be construed as an admission that any such
person is an affiliate for any purpose.
* * *
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for its Annual Meeting of Stockholders to
be held May 8, 2007.
PART I
ITEM 1. BUSINESS
“Newell Rubbermaid” or the “Company” refers to Newell Rubbermaid Inc. alone or with its wholly
owned subsidiaries, as the context requires. When this report uses the words “we” or “our,” they
refer to the Company and its subsidiaries unless the context otherwise requires.
WEBSITE ACCESS TO SECURITIES AND EXCHANGE COMMISSION REPORTS
The Company’s Internet website can be found at www.newellrubbermaid.com. The Company makes
available free of charge on or through its website its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
practicable after the Company files them with, or furnishes them to, the Securities and Exchange
Commission.
GENERAL
Newell Rubbermaid is a global marketer of consumer and commercial products that touch the lives of
people where they work, live and play. The Company’s strong portfolio of brands includes Sharpie®,
Paper Mate®, DYMO®, EXPO®, Waterman®, Parker®, Rolodex®, IRWIN®
, LENOX®, BernzOmatic®, Rubbermaid®,
Levolor®, Graco®, Calphalon® and Goody®. The Company’s 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 Company’s vision is to become a global company of large, consumer-meaningful brands (“Brands
That Matter™”) and great people, known for best-in-class results. The Company’s four
transformational strategic initiatives are as follows: Create Consumer-Meaningful Brands, Leverage
One Newell Rubbermaid, Achieve Best Total Cost and Nurture 360º Innovation.
Create Consumer-Meaningful Brands is the initiative to move from the historical focus on customer
push marketing and excelling in manufacturing and distributing products, to a
new focus on consumer pull marketing and creating competitive
advantage through understanding our consumers, innovating to deliver great
performance and value, investing in advertising and promotion to create demand and
leveraging our brands in adjacent categories around the world. Leverage One Newell Rubbermaid is
the initiative to lower cost and drive speed to market by leveraging common business activities and best practices of
our business units. This will be supported by building a common culture of shared values, with a focus on collaboration
and teamwork. Achieve Best Total Cost is the initiative to achieve an optimal balance between
manufacturing and sourcing and between high-cost and low-cost country manufacturing and to leverage
the Company’s size and scale to drive productivity and achieve a best cost position. Nurture 360º
Innovation represents the broadened definition of innovation to include consumer driven product
invention and the successful commercialization of invention.
The Company’s 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 Company’s strategic initiatives are designed to help enable these
business units to generate differentiated products, operate within a best-in-class cost structure
and employ superior branding in order to yield premium margins on their products. Premium margins
fund incremental demand creation by the business units, driving incremental sales and profits for
the Company.
Refer to the forward-looking statements section of Management’s Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of the Company’s forward-looking
statements included in this report.
BUSINESS SEGMENTS
The Company’s reporting segments reflect the Company’s focus on building large consumer and
commercial brands, promoting organizational integration, achieving operating efficiencies in
sourcing and distribution, and leveraging our understanding of similar consumer segments and
distribution channels.
2
The Company aggregates certain of its operating segments into four reportable segments. The
reportable segments are as follows:
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| Segment |
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Description of Products |
Cleaning, Organization & Décor |
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Material handling, cleaning, refuse, indoor/outdoor organization, home storage, |
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food storage, drapery hardware, window treatments |
Office Products |
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Ball point/roller ball pens, markers, highlighters, pencils, correction fluids, |
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office products, art supplies, on-demand labeling products, card-scanning solutions |
Tools & Hardware |
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Hand tools, power tool accessories, manual paint applicators, cabinet, window and |
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convenience hardware, propane torches, solder |
Home & Family (Other) |
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Operating segments that do not meet aggregation criteria with other operating |
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segments, including premium cookware and related kitchenware, hair care accessory |
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products, infant and juvenile products, including high chairs, car seats, strollers, and play yards |
In the fourth quarter of 2006, the Company combined its Cleaning & Organization and Home Fashions
segments (now referred to as Cleaning, Organization & Décor) as these businesses sell to similar
major customers, produce products that are used in and around the home, and leverage the same
management structure.
Also in 2006, the Company updated its segment reporting to reflect the realignment of certain
European businesses, previously reported in the former Cleaning & Organization segment, and now
reported in the Home & Family segment for all periods presented. The decision to realign these
businesses, which include the Graco European business, is consistent with the Company’s move from a
regional management structure to a global business unit structure.
During 2006 and early 2007, the Company divested its European Cookware, Little Tikes and Home Décor
Europe businesses. The European Cookware and Little Tikes businesses were previously reported in
the Home & Family operating segment. Home Décor Europe was previously reported in the Home
Fashions operating segment. The results of these businesses are currently included in discontinued
operations. Refer to Footnote 3 of the Notes to the Consolidated Financial Statements for
additional information.
CLEANING, ORGANIZATION & DÉCOR
The Company’s Cleaning, Organization & Décor segment is conducted by the Rubbermaid Home Products,
Rubbermaid Foodservice Products, Rubbermaid Commercial Products and Levolor/Kirsch business units.
These businesses design, manufacture or source, package and distribute semi-durable products
primarily for use in the home and commercial settings. The products include indoor and outdoor
organization, home storage, food storage, cleaning, refuse, material handling, drapery hardware,
custom and stock horizontal and vertical blinds, as well as pleated, cellular and roller shades.
Rubbermaid Home Products, Rubbermaid Foodservice Products and Rubbermaid Commercial Products
primarily sell their products under the Rubbermaid®, Brute®, Roughneck® and TakeAlongs® trademarks.
Levolor/Kirsch primarily sells its products under the trademarks Levolor® and Kirsch®.
Rubbermaid Home Products and Rubbermaid Foodservice Products market their products directly and
through distributors to mass merchants, home centers, warehouse clubs, grocery/drug stores and
hardware distributors. Rubbermaid Commercial Products markets its products directly and through
distributors to commercial channels and home centers. Levolor/Kirsch markets its products directly
and through distributors to mass merchants, home centers, department/specialty stores, hardware
distributors, industrial/construction outlets, custom shops, select contract customers and other
professional customers.
- 3 -
OFFICE PRODUCTS
The Company’s Office Products segment is conducted by four business units divided geographically.
The Sanford North America, Sanford Europe, Sanford Latin America and Sanford Asia Pacific
businesses primarily design, manufacture or source, package and distribute fine/luxury, technical
and everyday writing instruments, technology based products and organization products, including
permanent/waterbase markers, dry erase markers, overhead projector pens, highlighters, wood-cased
pencils, ballpoint pens and inks, correction fluids, office products, art supplies, on-demand
labeling products and card scanning solutions. It also distributes other writing instruments
including roller ball pens and mechanical pencils for the retail marketplace.
Office Products primarily sells its products under the trademarks Sharpie®, Paper Mate®, Parker®,
Waterman®, Eberhard Faber®, Berol®, Reynolds®, rotring®, uni-Ball® (used under exclusive license
from Mitsubishi Pencil Co. Ltd. and its subsidiaries in North
America),
Expo®,
Sharpie®
Accent®,
Vis-à-Vis®,
Expresso®,
Liquid Paper®,
Mongol®,
Foohy®,
Prismacolor®,
Eldon®, DYMO®,
Mimio® and
CardScan®.
Sanford North America markets its products directly and through distributors to mass merchants,
warehouse clubs, grocery/drug stores, office superstores, office supply stores, contract
stationers, and hardware distributors. Sanford Europe, Latin America and Asia Pacific market their
products directly to retailers, distributors and contract stationers.
TOOLS & HARDWARE
The Company’s Tools & Hardware segment is conducted by the following business units: IRWIN North
America Power Tool Accessories, IRWIN North America Hand Tools, IRWIN Tools Europe, IRWIN Tools
Latin America, LENOX and Amerock. IRWIN North America Power Tool Accessories, IRWIN North America
Hand Tools, IRWIN Tools Europe, IRWIN Tools Latin America and LENOX design, manufacture or source,
package and distribute hand tools and power tool accessories, propane torches, solder and
accessories, and manual paint applicator products. Amerock designs, manufactures or sources,
packages and distributes cabinet hardware for the retail and O.E.M. marketplace, window and door
hardware for window and door manufactures and hardware for the retail marketplace.
IRWIN North America Power Tool Accessories, IRWIN North America Hand Tools, IRWIN Tools Europe and
IRWIN Tools Latin America primarily sell their products under the trademarks IRWIN®, Vise-Grip®,
Marathon®, Twill®, Speedbor®, Jack®, Quick-Grip®, Unibit®,
Strait-Line®, BernzOmatic®, Shur-Line®
and Rubbermaid®. LENOX primarily sells its products under the LENOX® and Sterling® trademarks.
Amerock primarily sells its products under the trademarks Amerock®, Allison®, Ashland® and
Bulldog®.
IRWIN North America Power Tool Accessories, IRWIN North America Hand Tools, IRWIN Tools Europe,
IRWIN Tools Latin America, LENOX, and Amerock market their products directly and through
distributors to mass merchants, home centers, department/specialty stores, hardware distributors,
industrial/construction outlets, custom shops, select contract customers and other professional
customers.
HOME & FAMILY
The Company’s Home & Family segment is conducted by the following business units: Calphalon,
Graco, and Goody. Calphalon primarily designs, manufactures or sources, packages and distributes
aluminum and stainless steel cookware, bakeware, cutlery and kitchen gadgets and utensils. Graco
designs, manufactures or sources, packages and distributes infant and juvenile products such as
swings, high chairs, car seats, strollers, and play yards. Goody designs, manufactures or sources,
packages and distributes hair care accessories and grooming products.
Calphalon primarily sells its products under the trademarks Calphalon®, Kitchen Essentials®,
Cooking with Calphalon™, Calphalon®One™ and Katana™. Graco primarily sells its products under the
Graco®
trademark. Goody markets its products primarily under the
Goody®,
Ace®,
i|m™, STAYPUT™,
Ouchless™, STYLINGSOLUTIONS™, THERAPYSOLUTIONS™ and COLOURCOLLECTION™ trademarks.
Calphalon markets and sells its products directly to department, specialty stores and through its
branded retail outlets. Graco markets its products directly and through distributors to mass
merchants, warehouse clubs, and
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grocery/drug stores. Goody markets its products directly and through distributors to mass
merchants, warehouse clubs, and grocery/drug stores.
NET SALES BY BUSINESS SEGMENT
The following table sets forth the amounts and percentages of the Company’s net sales for the three
years ended December 31, (in millions, except percentages) (including sales of acquired businesses
from the time of acquisition), for the Company’s four business segments. Sales to Wal*Mart Stores,
Inc. and subsidiaries amounted to approximately 12%, 13%, and 16% of consolidated net sales for the
years ended December 31, 2006, 2005 and 2004, respectively, substantially across all segments.
Sales to no other customer exceeded 10% of consolidated net sales. For more detailed segment
information, including operating income and identifiable assets by segment, refer to Footnote 19 of
the Notes to the Consolidated Financial Statements.
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% of |
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% of |
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% of |
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2006 |
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Total |
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2005 |
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Total |
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2004 |
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Total |
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Cleaning,
Organization &
Décor |
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$ |
1,995.7 |
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32.2 |
% |
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$ |
1,921.0 |
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33.6 |
% |
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$ |
1,993.4 |
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34.9 |
% |
Office Products |
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2,031.6 |
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32.8 |
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1,713.3 |
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30.0 |
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1,686.2 |
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29.5 |
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Tools & Hardware |
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1,262.2 |
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20.3 |
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1,260.3 |
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22.0 |
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1,218.7 |
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21.4 |
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Home & Family |
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911.5 |
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14.7 |
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822.6 |
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14.4 |
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808.8 |
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14.2 |
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Total Company |
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$6,201.0 |
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100.0 |
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$5,717.2 |
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100.0 |
% |
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$ |
5,707.1 |
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100.0 |
% |
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STRATEGIC INITIATIVES
Create Consumer-Meaningful Brands
The
Company is moving from its historical focus on customer push
marketing and excelling in manufacturing and distributing products, to a new focus on consumer pull marketing
and creating competitive advantage through understanding our consumers, innovating to deliver great performance and value,
investing in advertising and promotion to create demand and leveraging our brands in adjacent
categories around the world. Consumer-meaningful brands create more value than products alone, and
big brands provide the Company with the economies of scale that can be leveraged in today’s
marketplace. In 2006, the Company made incremental investments in strategic brand building,
particularly on the Calphalon®,
Graco®,
Goody®,
LENOX®,
IRWIN®,
Sharpie®
and
DYMO®
brands. The Company also
initiated a consulting and training partnership with one of the largest worldwide creative and
media agencies to create best-in-class branding capabilities across the Company.
The
Company is committed to increasing selective television or print
advertising, and using sampling and product demonstrations where appropriate,
to increase brand awareness and trial among end-users of our brands. In 2006, the Company
sponsored the #26 IRWIN® car in the NASCAR NEXTEL Cup Series, the Sharpie® 500 NASCAR race in
Bristol, Tennessee and the LENOX® 300 NASCAR race in Loudon, New Hampshire. In 2007, IRWIN® will
sponsor the #26 car, LENOX® will sponsor the #31 car, and Sharpie® will have an associate
sponsorship for the #8 car. Also, in 2007, LENOX® will sponsor the LENOX® 300 race at the New
Hampshire International Speedway and Sharpie® will sponsor both the Sharpie® Mini 300 (Busch
Series) race and the Sharpie® 500 race at Bristol Motor Speedway.
Leverage One Newell Rubbermaid
The Company strives to benefit from the sharing of best practices and the reduction of costs
achieved through horizontal integration and economies of scale. For example, the Company is
exploring ways to leverage its common functional capabilities such as Human Resources,
Information Technology, Customer Service, Supply Chain and Finance to improve efficiency and reduce
costs. Certain functions, such as purchasing and distribution and transportation, have been
centralized to increase buying power across the Company.
Additionally, certain administrative functions are centralized at the corporate level including
cash management, accounting systems, capital expenditure approvals, order processing, billing,
credit, accounts receivable, data
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processing operations and legal functions. Centralization concentrates technical expertise in one
location, making it easier to observe overall business trends and manage the Company’s businesses.
The Company accelerated the process of creating shared services for the European businesses in 2006
and is evaluating expanding the scope of shared services in the United States. The transition of
services to the Shared Service Center in Europe is approximately two-thirds complete. In addition,
the Company has recently created leadership positions — Vice President of Program Management and
President of Newell Rubbermaid Europe, Middle East and Africa —
to identify and drive synergies across
business units.
Finally, the Company is in the early stages of migrating multiple legacy systems and users to a
common SAP global information platform, which we expect will enable the Company to integrate and
manage its worldwide business and reporting process more efficiently.
Phase one implementation is
currently planned for the North American Office Products business in
late 2007. The total company implementation
will occur over several years in phases that are primarily based on geographic region and segment.
Achieve Best Total Cost
The Company’s objective is to reduce the cost of manufacturing, sourcing and supplying product on
an ongoing basis, and to leverage the Company’s size and scale, in order to achieve a best total
cost position in relevant product categories. Achieving best cost
positions in its categories allows the Company to
increase investment in strategic brand building initiatives. To improve productivity, the Company
focuses on reducing procurement costs, material handling costs, manufacturing inefficiencies and
removing excess overhead costs to reduce the overall cost of manufacturing products, as well as
reducing the cost of distribution and transportation. The Company has
also shifted a portion of its research and development focus to
designing lower cost into future product initiatives.
A key
component of this strategy is the restructuring of the Company’s manufacturing and sourcing
network to increase capacity utilization, increase the percentage of manufacturing located in
low-cost countries, and achieve a balance of company-owned manufacturing and third party sourcing
partners. In the third quarter of 2005, the Company announced a global initiative referred to as
Project Acceleration aimed at strengthening and transforming the Company’s portfolio. In
connection with Project Acceleration, the Board of Directors of the Company approved a
restructuring plan that commenced in the fourth quarter of 2005. Project Acceleration includes the
closure of approximately one-third of the Company’s 64 manufacturing facilities (as of December 31,
2005, adjusted for the divestiture of Little Tikes and Home Décor Europe), optimizing the Company’s
geographic manufacturing footprint. Since the inception of Project Acceleration, the Company has
announced the closure of 14 manufacturing facilities. Project Acceleration is projected to result
in cumulative restructuring costs of approximately $375 to $400 million ($315 million — $340
million after tax). Approximately 60% of the costs are expected to be cash. Annualized savings
are projected to exceed $150 million upon conclusion of the program in 2009.
The deployment of Newell Operational Excellence (Newell OPEX) throughout the Company’s
manufacturing network is also aimed at delivering the Company’s productivity targets. Newell OPEX
is a methodical process focused on lean manufacturing that includes installing the right
manufacturing and distribution metrics and driving improvements quarter after quarter. In addition
to the cost reductions, other key components of Newell OPEX are improved quality and service levels
and the reduction of inventory lead times.
The Company is also committed to reducing non-strategic SG&A costs throughout the organization.
The Company is vigilant in creating a leaner organization that is more flexible in its response
time, both internally and externally. The Company’s efforts to Leverage One Newell Rubbermaid
through horizontal integration will help the Company to achieve this goal.
Nurture 360º Innovation
The Company has broadened its definition of innovation beyond product invention. The Company now
defines innovation as the successful commercialization of invention. Innovation must be more than
product development. It is a rigorous, consumer centric process that permeates the entire development cycle. It
begins with a deep understanding of how consumers interact with the Company’s brands and
categories, and all the factors that drive their purchase decisions and in-use experience. That
understanding must then be translated into innovative products that deliver unique features and benefits, at a
best-cost position, providing the consumer with great value. Lastly,
innovating how and where
to
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create awareness and trial, and measuring the effectiveness of advertising and promotion spending,
completes the process. The Company has pockets of excellence using this expanded definition of
innovation, and it will continue to build on this competency.
Over the last two years, the Company launched a number of innovative new products, including the
Sharpie® MINI permanent marker; Irwin® Speedbor® MAX drill bits; the Irwin® Quick-Grip® XP one
handed bar clamp; Lenox® Pro Hose Air Acetylene kits; Rubbermaid® Collapsibles™ food storage
containers; Rubbermaid® Commercial Microfiber cleaning tools and accessories and Wavebreak™ mop
bucket; Calphalon® One™ Infused Anodized, Calphalon®One™ Nonstick and Contemporary Stainless lines
of gourmet cookware and Katana Series™ cutlery line; Goody, Stay Put™ elastic bands and Ouchless®
brush collection and Graco® Mosaic™ stroller and travel system and Safe Seat™ car seats.
GROWTH STRATEGY
The Company’s growth strategy emphasizes internal growth and acquisitions. The Company is also
increasingly focused on globalization.
Internal Growth
The Company focuses on internal growth principally by understanding consumers, demand creation
through marketing, commercializing innovative new products, entering new domestic and international
markets, adding new customers, cross-selling existing product lines to current customers and
supporting its US-based customers’ international expansion. Internal growth is defined by the
Company as growth from continuing businesses owned more than one year and immaterial acquisitions.
Acquisition Strategy
The Company supplements internal growth by selectively acquiring businesses with prominent end-user
focused brands and improving the profitability of such businesses through the implementation of the
Company’s strategic initiatives. Strategic criteria for an acquisition include: the existence of
consumer-meaningful brands that respond to differentiation and innovation, global categories,
favorable customer and channel dynamics, strong margin and growth potential, focus on non-cyclical,
semi-durable products, and synergies with our core categories and competencies.
During 2005, the Company acquired DYMO, a global leader in designing, manufacturing and marketing
on-demand labeling solutions, from Esselte AB. This acquisition strengthens the Company’s global
leadership position in the Office Products segment by expanding and enhancing the Company’s product
lines and customer base. See Footnote 2 of the Notes to the Consolidated Financial Statements for
further information on acquisitions.
Globalization
The Company is expanding from a U.S.-centric business model to one that includes international
growth as an increasing focus. The growth of consumer goods economies and retail structures in
several regions outside the U.S., particularly Eastern Europe, Asia, Mexico and South America, makes them
attractive to the Company by providing selective opportunities to acquire businesses, develop
partnerships with new foreign customers and extend relationships with the Company’s domestic
customers whose businesses are growing internationally. As a result, the Company pursues selective
international opportunities to further its internal growth and acquisition objectives. The Company
had sales outside the U.S. of approximately 26%, 24%, and 24% of total sales in 2006, 2005, and
2004, respectively.
The Company is striving to get the right structure in place for successful globalization. For
example, the Office Products businesses have been reorganized to operate across product lines that
can target global consumer acceptance. In 2006, the Company also aligned the Graco business under
a global business unit structure, reporting under the Home & Family segment, rather than by
geographic location. This realignment positions the businesses to leverage research and
development, branding, marketing and innovation on a global basis. The Company has also implemented
the process of creating shared services for the European businesses, which is approximately
two-thirds complete, and has created the leadership position of President – Newell Rubbermaid
Europe, Middle East and Africa
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to
identify and drive synergies across business units in the region. Finally, the Company is in the early
stages of migrating multiple legacy systems and users to a common SAP global information platform,
which we expect will enable the Company to integrate and manage its worldwide business and
reporting process more efficiently.
DIVESTITURE AND PRODUCT LINE RATIONALIZATION
The Company consistently reviews its businesses and product offerings, assesses their strategic fit
and seeks opportunities to divest non-strategic businesses. The criteria used by the Company in
assessing the strategic fit include: the existence of consumer-meaningful brands that respond to
differentiation and innovation, global categories, favorable customer and channel dynamics, strong
margin and growth potential, focus on non-cyclical, semi-durable products, synergies with our core
categories and competencies, and the business’s actual and potential impact on the operating
performance of the Company. While we believe that the business units remaining in our portfolio
constitute core businesses, the Company will continue to review its businesses and product
offerings and assess their strategic fit to identify any potential divestiture candidates.
During 2006 and early 2007, the Company divested its European Cookware, Little Tikes and Home Décor
Europe businesses. During 2005, the Company divested its Curver business. In 2004, the Company
sold its U.S. picture frame business (Burnes), its Anchor Hocking glassware business, its Mirro
cookware business, its Panex Brazilian low-end cookware business, its European picture frames
business and its Little Tikes Commercial Play Systems business. See Footnote 3 of the Notes
to the Consolidated Financial Statements for a description of discontinued operations.
In 2006, 2005 and 2004, the Company rationalized $60 million, $195 million and $165 million,
respectively, in low-margin product sales, primarily in the former Cleaning & Organization segment.
The Company’s decision to exit these low margin product lines is consistent with its strategy to
focus on high margin, high potential opportunities that support the Company’s financial objectives.
OTHER INFORMATION
Multi-Product Offering
The Company’s broad product coverage in multiple product lines permits it to more effectively meet
the needs of its customers. With families of leading brand names and profitable and innovative new
products, the Company also can help volume purchasers sell a more profitable product mix. As a
potential single source for an entire product line, the Company can use program merchandising to
improve product presentation, optimize display space for both sales and income and encourage
impulse buying by retail customers.
Customer Marketing and Service
The Company strives to develop long-term, mutually beneficial partnerships with its customers and
become their supplier and brand of choice. To achieve this goal, the Company has a value-added
marketing program that offers a family of leading brand name staple products, tailored sales
programs, innovative merchandising support, in-store services and responsive top management.
The Company strives to enhance its relationships with customers through exceptional customer
service. The Company’s ability to provide superior customer service is a result of its information
technology, marketing and merchandising programs designed to enhance the sales and profitability of
its customers and provide consistent on-time delivery of its products.
A critical element of the Company’s customer service is consistent on-time delivery of products to
its customers. Retailers are pursuing a number of strategies to deliver the highest-quality,
best-cost products to their customers. Retailers now frequently purchase on a “just-in-time” basis
in order to reduce inventory carrying costs and increase returns on investment. As retailers
shorten their lead times for orders, manufacturers need to more closely anticipate consumer-buying
patterns. The Company supports its retail customers’ “just-in-time” inventory strategies through
more responsive sourcing, manufacturing and distribution capabilities and electronic
communications.
- 8 -
Foreign Operations
Information regarding the Company’s 2006, 2005 and 2004 foreign operations and financial
information by geographic area is included in Footnote 19 of the Notes to the Consolidated
Financial Statements and is incorporated by reference herein. Information regarding risks relating
to the Company’s foreign operations is set forth in Part I, Item 1A of this report and is
incorporated by reference herein.
Raw Materials
The Company has multiple foreign and domestic sources of supply for substantially all of its
material requirements. The raw materials and various purchased components required for its
products have generally been available in sufficient quantities. The Company’s product offerings
require the purchase of resin, glass, corrugate and metals, including steel, stainless steel, zinc,
aluminum and gold. The Company has experienced inflation in these raw materials and expects such
inflation pressures to continue in 2007. The Company has reduced the volume of its resin purchases
through product line rationalization and strategic divestitures. See Management’s Discussion and
Analysis of Financial Condition and Results of Operations for further discussion.
Backlog
The dollar value of unshipped factory orders is not material.
Seasonal Variations
The Company’s sales and operating income in the first quarter are generally lower than any other
quarter during the year, driven principally by reduced volume and the mix of products sold in the
quarter.
Patents and Trademarks
The Company has many patents, trademarks, brand names and trade names that are, in the aggregate,
important to its business. The Company’s most significant registered trademarks are “Rubbermaid®,”
“Sharpie®,” “Paper Mate®,” “LENOX®,” “IRWIN®,” “Graco®,” “Levolor®” and “DYMO®.”
Customers / Competition
The Company’s 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 a significant consolidation of the consumer products retail industry and the
formation of dominant multi-category retailers that have strong negotiating power with suppliers.
This environment limits the Company’s ability to recover cost increases through selling prices.
Current trends among retailers include fostering high levels of competition among suppliers,
demanding innovative new products and requiring suppliers to maintain or reduce product prices and
deliver products with shorter lead times. Other trends, in the absence of a strong new product
development effort or strong end-user brands, are for the retailer to import generic products
directly from foreign sources and to source and sell products, under their own private label
brands, that compete with products of the Company. The combination of these market influences has
created an intensely competitive environment in which the Company’s principal customers
continuously evaluate which product suppliers to use, resulting in pricing pressures and the need
for strong end-user brands, the ongoing introduction of innovative new products and continuing
improvements in category management and customer service. The Company competes with numerous manufacturers and
distributors of consumer products, many of which are large and well established.
The Company’s principal methods of meeting its competitive challenges are creating and maintaining
consumer-meaningful brands, differentiated products, superior customer service (including
innovative “good-better-best” marketing and merchandising programs), consistent on-time delivery,
outsourcing certain production to low cost suppliers and lower cost countries where appropriate and
experienced management.
- 9 -
The Company has also positioned itself to respond to the challenges of this retail environment by
developing strong relationships with large, high-volume purchasers. The Company markets its strong
multi-product offering through virtually every category of high-volume retailer, including
discount, drug, grocery and variety chains, warehouse clubs, department, hardware and specialty
stores, home centers, office superstores, contract stationers and military exchanges. The
Company’s largest customer, Wal*Mart (which includes Sam’s Club), accounted for approximately 12%
of net sales in 2006, across substantially all business units. The Company’s top ten customers
included (in alphabetical order): Ace Hardware, Boise Office, Lowe’s, Office Depot, Staples,
Target, The Home Depot, Toys ‘R’ Us, United Stationers and Wal*Mart.
Environmental Matters
Information regarding the Company’s environmental matters is included in Management’s Discussion
and Analysis section of this report and in Footnote 20 of the Notes to the Consolidated Financial
Statements and is incorporated by reference herein.
Research and Development
Information regarding the Company’s research and development costs for each of the past three
fiscal years is included in Footnote 1 of the Notes to the Consolidated Financial Statements and is
incorporated by reference herein.
Employees
As of December 31, 2006, the Company had approximately 23,500 employees worldwide, of whom
approximately 3,500 are covered by collective bargaining agreements or, in certain countries, which
have collective arrangements decreed by statute.
ITEM 1A. RISK FACTORS
The factors that are discussed below, as well as the matters that are generally set forth in this
report on Form 10-K and the documents incorporated by reference herein, could materially and
adversely affect the Company’s business, results of operations and financial condition.
The Company is subject to risks related to its dependence on the strength of retail economies in
various parts of the world.
The Company’s business depends on the strength of the retail economies in various parts of the
world, primarily in North America and to a lesser extent Europe, Central and South America and
Asia. These retail economies are affected primarily by factors such as consumer demand and the
condition of the retail industry, which, in turn, are affected by general economic conditions and
specific events such as natural disasters and terrorist attacks. In recent years, the retail
industry in the U.S. and, increasingly, elsewhere has been characterized by intense competition and
consolidation among retailers. Because such competition, particularly in weak retail economies,
can cause retailers to struggle or fail, the Company must continuously monitor, and adapt to
changes in, the profitability, creditworthiness and pricing policies of its customers.
The Company is subject to intense competition in a marketplace dominated by large retailers.
The Company competes with numerous other manufacturers and distributors of consumer and commercial
products, many of which are large and well established. The Company’s principal customers are
large mass merchandisers, such as discount stores, home centers, warehouse clubs and office
superstores, and commercial distributors. The rapid growth of these large mass merchandisers,
together with changes in consumer shopping patterns, have contributed to the formation of dominant
multi-category retailers that have strong negotiating power with suppliers. Current trends among
retailers include fostering high levels of competition among suppliers, demanding innovative new
products and requiring suppliers to maintain or reduce product prices and deliver products with
shorter lead times. Other trends are for retailers to import products directly from foreign
sources and to source and sell products, under their own private label brands, that compete with
products of the Company.
- 10 -
The combination of these market influences has created an intensely competitive environment in
which the Company’s 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 Company’s long-term success in this competitive retail environment depends on its ability to
develop and commercialize a continuing stream of innovative new products that create consumer
demand. The Company also faces the risk that its competitors will introduce innovative new
products that compete with the Company’s products. The Company’s strategy includes increased
investment in new product development and increased focus on innovation. There are, nevertheless,
numerous uncertainties inherent in successfully developing and commercializing innovative new
products on a continuing basis, and new product launches may not deliver expected growth results.
To compete successfully, the Company must develop and maintain big, consumer-meaningful brands.
The Company’s competitive success also depends increasingly on its ability to develop and maintain
consumer-meaningful brands so that the Company’s retailer customers will need the Company’s
products to meet consumer demand, and big brands to provide the Company with economies of scale.
The development and maintenance of such brands requires significant investment in brand building
and marketing initiatives. While the Company is substantially increasing its expenditures for
advertising and other brand building and marketing initiatives, the increased investment may not
deliver the anticipated results.
Price increases in raw materials could harm the Company’s financial results.
The Company purchases some raw materials, including resin, glass, corrugate, steel, gold, zinc,
brass and aluminum, which are subject to price volatility and inflationary pressure. The Company
attempts to reduce its exposure to increases in those costs through a variety of programs,
including periodic purchases, future delivery purchases, long-term contracts and sales price
adjustments. Where practical, the Company uses derivatives as part of its risk management process.
Raw material price increases may offset productivity gains and could materially impact the
Company’s financial results.
The Company’s success depends on its ability to continuously improve productivity and streamline
operations.
The Company’s success depends on its ability to continuously improve its manufacturing
efficiencies, reduce supply chain costs and streamline non-strategic SG&A expenses in order to
produce products at a best-cost position and free up money for investment in innovation and brand
building. Project Acceleration includes the closure of approximately one-third of the Company’s 64
manufacturing facilities (adjusted for the divestiture of Little Tikes and Home Décor Europe)
between the periods January 1, 2006 and December 31, 2009. In addition, the Company is exploring
ways to best leverage its functional capabilities such as Human Resources, Information Technology,
Customer Service, Supply Chain and Finance in order to improve efficiency and reduce costs. The
Company runs the risk that Project Acceleration and other corporate initiatives aimed at
streamlining and cost reduction may not be completed substantially as planned, may be more costly
to implement than expected, or may not have the positive effects anticipated, or that other major
productivity and streamlining programs may be required after such projects are completed. In
addition, disruptions in the Company’s 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
Company’s future results.
The Company’s ability to make strategic acquisitions and to integrate its acquired businesses is an
important factor in the Company’s future growth.
- 11 -
Although the Company has in recent years increasingly emphasized internal growth rather than growth
by acquisition, the Company’s ability to continue to make strategic acquisitions and to integrate
the acquired businesses successfully, obtaining anticipated cost savings and operating income
improvements within a reasonable period of time, remain important factors in the Company’s future
growth. Furthermore, the cost of any future major acquisitions could constrain the Company’s
access to capital and increase the Company’s borrowing costs.
The Company is subject to risks related to its international operations.
Foreign operations, especially in Europe, but also in Asia, Central and South America and Canada,
are important to the Company’s business. The Company is expanding from a U.S.-centric business
model to one that includes international growth as an increasing focus. In addition, as the
Company increasingly sources products in low-cost countries, particularly in the Far East, it is
exposed to additional risks and uncertainties. Foreign operations can be affected by factors such
as currency devaluation, other currency fluctuations, tariffs, nationalization, exchange controls,
interest rates, limitations on foreign investment in local business and other political, economic
and regulatory risks and difficulties. The Company also faces risks due to the transportation and
logistical complexities inherent in increased reliance on foreign sourcing.
The Company faces challenges and uncertainties as it transforms into a company that grows through
consumer-meaningful brands and new product innovation.
The Company is undergoing a transformation from a portfolio-holding company that grew through
acquisitions to a focused group of leadership platforms that generate internal growth driven by
consumer-meaningful brands and new product innovation. Such a transformation will require
significant investment in brand-building, marketing and product development and the development of
the right methods for understanding how consumers interact with the Company’s brands and categories
and measuring the effectiveness of advertising and promotion spending. Although the process is
well underway, there remain significant challenges and uncertainties.
Complications in connection with the Company’s current information system initiative may impact its
results of operations, financial condition and cash flows.
The Company is in the early stages of replacing various business information systems worldwide with
an enterprise resource planning system from SAP. The pilot implementation is currently planned for
the North American Office Products business in late 2007. The implementation will occur over
several years in phases, primarily based on geographic region and segment. This activity involves
the migration of multiple legacy systems and users to a common SAP information platform.
Throughout this process, the Company is changing the way it conducts business and employees’ roles
in processing and utilizing information. In addition, this conversion will impact certain
interfaces with the Company’s customers and suppliers, resulting in changes to the tools we use to
take orders, procure material, schedule production, remit billings, make payments and perform other
business functions. Based upon the complexity of this initiative, there is risk that the Company
will be unable to complete the implementation in accordance with its timeline and will incur
additional costs, the implementation could result in operating inefficiencies, and the
implementation could impact the Company’s ability to perform necessary business transactions. All
of these risks could adversely impact the Company’s results of operations, financial condition and
cash flows.
Impairment charges could have a material adverse effect on the Company’s financial results.
Future events may occur that would adversely affect the reported value of the Company’s 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 Company’s customer base, or a material adverse change in its relationship with
significant customers.
Product liability claims or regulatory actions could adversely affect the Company’s 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 Company’s products arise in the
ordinary course of the Company’s 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 Company’s reputation in the marketplace or
- 12 -
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The following table shows the location and general character of the principal operating facilities
owned or leased by the Company. The properties are listed within their designated business
segment: Cleaning, Organization & Décor; Office Products; Tools & Hardware; and Home & Family.
These are the primary manufacturing locations and in many instances also contain administrative
offices and warehouses used for distribution of the Company’s products. The Company also maintains
sales offices throughout the United States and the world. The corporate offices are located in
leased space in Atlanta, Georgia. Most of the Company’s idle facilities, which are excluded from
the following list, are subleased while being held pending sale or lease expiration. The Company’s
properties are generally in good condition, well maintained, and are suitable and adequate to carry
on the Company’s business.
| |
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| |
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OWNED |
|
|
| |
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|
|
|
|
OR |
|
|
| BUSINESS SEGMENT |
|
LOCATION |
|
CITY |
|
LEASED |
|
GENERAL CHARACTER |
| |
CLEANING,
ORGANIZATION & DÉCOR |
|
|
|
|
|
|
|
|
|
|
TN
VA
WV
Brazil
OH
KS
Canada
Canada
TX
MO
Mexico
Mexico
IL
Italy
UT
UT
China
|
|
Cleveland
Winchester
Martinsburg
Porto Alegre
Mogadore
Winfield
Mississauga
Calgary
Greenville
Jackson
Agua Prieta
Esqueda
Freeport
Figino
Ogden
Salt Lake City
Shenzhen
|
|
O
O
L
O
O
O
O
L
O
O
L
L
L
L
L
L
L
|
|
Commercial Products
Commercial Products
Commercial Products
Commercial Products
Home Products
Home Products
Home Products
Home Products
Home Products
Home Storage Systems
Window Treatments
Window Treatments
Window Treatments
Window Treatments
Window Treatments
Window Treatments
Window Treatments |
OFFICE PRODUCTS
|
|
IL
TN
TN
WI
Thailand
India
Colombia
France
France
Germany
|
|
Oakbrook
Lewisburg
Shelbyville
Janesville
Bangkok
Tamil Nadu
Bogota
Nantes
Valence
Hamburg
|
|
L
O
O
L
O
L
O
O
O
O
|
|
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments |
- 13 -
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OWNED |
|
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| |
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|
OR |
|
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| BUSINESS SEGMENT |
|
LOCATION |
|
CITY |
|
LEASED |
|
GENERAL CHARACTER |
| |
|
|
Mexico
Mexico
UK
China
China
Venezuela
TN
CT
Belgium
|
|
Tlalnepantla
Mexicali
Newhaven
Dongguan
Shanghai
Maracay
Maryville
Stamford
Sint Niklaas
|
|
O
L
O
L
L
O
O
L
O
|
|
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Writing Instruments
Office & Storage Organizers
On-Demand Labeling Products
On-Demand Labeling Products |
TOOLS & HARDWARE |
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|
WI
China
NY
IN
NE
MA
ME
NC
New Zealand
Poland
Brazil
Brazil
UK
Denmark
Denmark
Netherlands
India
China
Mexico
Canada
|
|
Saint Francis
Shanghai
Medina
Lowell
DeWitt
East Longmeadow
Gorham
Huntersville
Wellsford
Brodnica
Sao Paulo
Carlos Barbosas
Sheffield
Asnaes
Thisted
Helmond
Grajarat
Shenzhen
Monterrey
Woodbridge
|
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O
O
O
O
O
O
O
L
O
O
O
O
O
O
O
O
O
L
L
L
|
|
Paint Applicators
Paint Applicators
Propane/Oxygen Hand Torches
Window Hardware
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Tools
Hardware
Hardware |
HOME & FAMILY |
|
|
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OH
OH
OH
PA
Mexico
|
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Perrysburg
Toledo
Macedonia
Exton
Piedras Negras
|
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O
L
O
L
L
|
|
Cookware
Cookware
Infant Products
Infant Products
Infant Products |
SHARED
FACILITIES |
|
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CA
UK |
|
Hesperia
Lichfield |
|
L
L |
In the fourth quarter of 2006, the Company announced plans to construct a 350,000 square foot,
14-story headquarters building in Atlanta, Georgia. Construction on the new headquarters building
began in January 2007 with completion slated for the Fall of 2008.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is included in Footnote 20 of the Notes to the Consolidated
Financial Statements and is incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company’s shareholders during the fourth quarter
of fiscal year 2006.
- 14 -
SUPPLEMENTARY ITEM — EXECUTIVE OFFICERS OF THE REGISTRANT
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| Name |
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Age |
|
Present Position With The Company |
| |
Mark D. Ketchum
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|
|
57 |
|
|
President and Chief Executive Officer |
James J. Roberts
|
|
|
48 |
|
|
President and Chief Operating Officer, |
|
|
|
|
|
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Rubbermaid/IRWIN Group |
Timothy J. Jahnke
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47 |
|
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President, Home & Family Group |
Steven G. Marton
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50 |
|
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President, Office Products Group |
J. Patrick Robinson
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51 |
|
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Executive Vice President – Chief Financial Officer |
Dale L. Matschullat
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61 |
|
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Vice President – General Counsel and |
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Corporate Secretary |
Hartley D. Blaha
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41 |
|
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President – Corporate Development |
James M. Sweet
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54 |
|
|
Executive Vice President –
Human Resources and Corporate Communications (Chief Human Resources
Officer) |
Raymond J. Johnson
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51 |
|
|
President – Global Manufacturing and |
|
|
|
|
|
|
Supply Chain |
Gordon Steele
|
|
|
55 |
|
|
Vice President — Chief Information Officer |
Magnus R. Nicolin
|
|
|
50 |
|
|
President – Newell Rubbermaid Europe, |
|
|
|
|
|
|
Middle East and Africa |
Mark D. Ketchum has been President and Chief Executive Officer of the Company since October 2005.
Mr. Ketchum joined Newell Rubbermaid’s Board of Directors in November 2004 and served as a member
of the Audit Committee prior to assuming his current role. Prior thereto, he was President of the
Global Baby & Family Care business of Procter & Gamble (a manufacturer and marketer of consumer
products) from 1999 through November 2004. From 1971 to 1984, he held a variety of operations
positions with Procter & Gamble’s paper division. From 1984 to 1999, he transitioned into brand
management and general management roles, culminating as President of Global Baby & Family Care.
James J. Roberts has been President and Chief Operating Officer of the Rubbermaid/IRWIN Group since
September 2003. Prior thereto, he was Group President of the Company’s Levolor/Hardware Group from
April 2001 until August 2003. From September 2000 until March 2001, he served as President -
Worldwide Hand Tools and Hardware at Stanley Works (a supplier of tools, door systems and related
hardware). From July 1981 until September 2000, he held a variety of positions with The Black and
Decker Corporation (a manufacturer and marketer of power tools and accessories), culminating as
President of Worldwide Accessories.
Timothy J. Jahnke has been President of the Home & Family Group since April 2004. Prior thereto,
he was Vice President — Human Resources of the Company from February 2001 to April 2004 and
President of the Anchor Hocking Specialty Glass division from June 1999 until February 2001. From
1995 until June 1999, he led the human resources department of the Company’s Sanford division’s
worldwide operations.
Steven G. Marton has been President of the Office Products Group since December 2004. From
September 2000 to December 2004, he was President and Chief Operating Officer of Hill’s Pet
Nutrition, a division of Colgate Palmolive (a manufacturer and marketer of consumer products).
From 1992 until 2000, he held various other executive positions, with significant international
experience, in several divisions of Colgate Palmolive, including Colgate Oral Pharmaceuticals.
J. Patrick Robinson has been Chief Financial Officer since November 2004. Prior
thereto, he was Vice President – Corporate Controller and Chief Financial Officer from June 2003
until October 2004 and Vice President — Controller and Chief Accounting Officer from May 2001 until
May 2003. From March 2000 until May 2001, he was Chief Financial Officer of AirClic Inc. (a
web-based software and services platform company for the mobile information market). From 1983
until March 2000, he held a variety of financial positions with The Black and Decker Corporation (a
manufacturer and marketer of power tools and accessories), culminating as Vice President of
Finance, Worldwide Power Tools.
Dale L. Matschullat has been Vice President — General Counsel since January 2001 and Corporate
Secretary since August 2003. Prior thereto, he was Vice President-Finance, Chief Financial Officer
and General Counsel from January 2000 until January 2001. From 1989 until January 2000, he was
Vice President — General Counsel.
- 15 -
Hartley D. Blaha has been President – Corporate Development since February 2005. Prior thereto, he
was Vice President — Corporate Development from November 2003 to February 2005. Prior thereto,
from 1987 to 2003 he held a variety of positions within the Investment Banking Division of Lehman
Brothers Inc. (a global investment bank), culminating as Managing Director, Mergers and
Acquisitions.
James
M. Sweet has been the Company’s Chief Human Resources Officer since May 2004. Prior thereto, he was
Group Vice President – Human Resources for the Sharpie/Calphalon Group from January 2004 to April
2004. From 2001 to 2004, he was President of Capital H, Inc., a human resource services company
that Mr. Sweet co-founded. From 1999-2001, he was Vice President of Human Resources for the
Industrial Automation Systems and Rexnord divisions of Invensys PLC (an industrial manufacturing
company). Prior thereto, he held executive human resource positions at Kohler Co., Keystone
International and Brady Corp.
Raymond J. Johnson has been President – Global Manufacturing and Supply Chain since February 2005.
Prior thereto, he was Group Vice President – Manufacturing from November 2003 to February 2005, and
was Vice President – Manufacturing for the IRWIN Power Tool Accessories Division from November 2002
to November 2003. From May 2001 to May 2002, he was General Manager of the Golf Grip Business Unit
of Eaton Corporation. From 1999 to May 2001, he was Vice President – Operations of True Temper
Sports, Inc. (a manufacturer and marketer of golf shafts). Prior thereto, he was Vice President
and General Manager of the Diversified Products Division of Technimark, Inc. (a manufacturer of
plastics products for commercial customers) from 1998 to 1999, and held a variety of positions with
The Black and Decker Corporation (a manufacturer and marketer of power tools and accessories) from
1983 to 1998, culminating as Vice President of Operations for North American Power Tools.
Gordon Steele has been Vice President – Chief Information Officer since August 2005. From 2001
until 2005, he served as Vice President and Chief Information Officer for Global Information
Technology at Nike, Inc. (a global designer, manufacturer and distributor of athletic and casual
footwear, apparel and accessories and athletic equipment). Prior to becoming the CIO at Nike, he
spent four years as the Senior Director responsible for the Nike Supply Chain project, which
involved the complete replacement of all business application systems and included the global
rollout of SAP ERP, i2 planning and the Siebel CRM system to all of Nike’s operating entities.
From 1989 to 1997 he served as CIO, and other leadership capacities, with Mentor Graphics
Corporation (a provider of electronic software and hardware products and consulting services).
Prior thereto he served in various senior leadership positions with Warwick Financial Systems (a
provider of banking technology services) and US Bancorp (a provider of banking, brokerage,
insurance, investment, mortgage, trust and payment services products to consumers, businesses and
institutions).
Magnus R. Nicolin has been President – Newell Rubbermaid Europe, Middle East and Africa, since
January 2007. Prior thereto, he was a consultant for the Sanford Brands Fine Writing business from
May 2006 through August 2006 and served as President – Sanford Brands Europe from September 2006 to
December 2006. In 2002, he led in conjunction with J. W. Childs (a private equity firm) the
leveraged buyout of Esselte Corporation from the London and Stockholm stock exchanges, taking the
company private, then serving as President and Chief Executive Officer of this global leader in
design, manufacturing and distribution of office products. Prior to 2002, he served in leadership
positions with Pitney Bowes (a provider of mailstream software, hardware, services and solutions),
Bayer Diagnostics (a leading provider of medical diagnostic equipment) and McKinsey & Co (a leading
global strategic management consulting firm).
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
The Company’s common stock is listed on the New York and Chicago Stock Exchanges (symbol: NWL). As
of January 31, 2007 there were 17,371 stockholders of record. The following table sets forth the
high and low sales prices of the common stock on the New York Stock Exchange Composite Tape (as
published in The Wall Street Journal) for the calendar periods indicated:
- 16 -
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2006 |
|
2005 |
| Quarters |
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High |
|
Low |
|
High |
|
Low |
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First |
|
$ |
26.35 |
|
|
$ |
23.25 |
|
|
$ |
24.55 |
|
|
$ |
20.60 |
|
Second |
|
|
28.63 |
|
|
|
24.35 |
|
|
|
24.06 |
|
|
|
20.50 |
|
Third |
|
|
29.25 |
|
|
|
24.04 |
|
|
|
25.69 |
|
|
|
21.66 |
|
Fourth |
|
|
29.98 |
|
|
|
27.75 |
|
|
|
24.49 |
|
|
|
21.54 |
|
The Company has paid regular cash dividends on its common stock since 1947. The quarterly cash
dividend has been $0.21 per share since February 1, 2000. The Company currently expects that
comparable cash dividends will continue to be paid to holders of the Company’s common stock in the
future. However, the payment of dividends to holders of the Company’s common stock remains
entirely at the discretion of the Board of Directors and will depend upon many factors, including
the Company’s financial condition, earnings, legal requirements and other factors the Board of
Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial information relating to the Company at
December 31, (in millions, except per share data). The summary has been derived in part from, and
should be read in conjunction with, the Consolidated Financial Statements of the Company included
elsewhere in this report and the schedules thereto.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006(1) |
|
2005(1) |
|
2004(1) |
|
2003 |
|
2002 |
| |
|
|
| STATEMENTS OF OPERATIONS DATA |
Net sales |
|
$ |
6,201.0 |
|
|
$ |
5,717.2 |
|
|
$ |
5,707.1 |
|
|
$ |
5,879.8 |
|
|
$ |
5,483.6 |
|
Cost of products sold |
|
|
4,131.0 |
|
|
|
3,959.1 |
|
|
|
4,050.6 |
|
|
|
4,174.4 |
|
|
|
3,863.5 |
|
| |
|
|
Gross margin |
|
|
2,070.0 |
|
|
|
1,758.1 |
|
|
|
1,656.5 |
|
|
|
1,705.4 |
|
|
|
1,620.1 |
|
Selling, general and administrative expenses |
|
|
1,347.0 |
|
|
|
1,117.7 |
|
|
|
1,050.1 |
|
|
|
1,005.5 |
|
|
|
967.8 |
|
Impairment charges |
|
|
— |
|
|
|
0.4 |
|
|
|
264.0 |
|
|
|
29.5 |
|
|
|
— |
|
Restructuring costs (2) |
|
|
66.4 |
|
|
|
72.6 |
|
|
|
28.2 |
|
|
|
158.4 |
|
|
|
68.7 |
|
| |
|
|
Operating income |
|
|
656.6 |
|
|
|
567.4 |
|
|
|
314.2 |
|
|
|
512.0 |
|
|
|
583.6 |
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
132.0 |
|
|
|
127.1 |
|
|
|
119.3 |
|
|
|
134.3 |
|
|
|
132.6 |
|
Other expense (income), net |
|
|
9.7 |
|
|
|
(23.1 |
) |
|
|
(3.0 |
) |
|
|
17.4 |
|
|
|
25.9 |
|
| |
|
|
Net nonoperating expenses |
|
|
141.7 |
|
|
|
104.0 |
|
|
|
116.3 |
|
|
|
151.7 |
|
|
|
158.5 |
|
| |
|
|
Income from continuing operations before income taxes
and cumulative effect of accounting change |
|
|
514.9 |
|
|
|
463.4 |
|
|
|
197.9 |
|
|
|
360.3 |
|
|
|
425.1 |
|
Income taxes |
|
|
44.2 |
|
|
|
57.1 |
|
|
|
92.9 |
|
|
|
110.1 |
|
|
|
124.5 |
|
| |
|
|
Income from continuing operations |
|
|
470.7 |
|
|
|
406.3 |
|
|
|
105.0 |
|
|
|
250.2 |
|
|
|
300.6 |
|
(Loss) gain from discontinued operations, net of tax |
|
|
(85.7 |
) |
|
|
(155.0 |
) |
|
|
(221.1 |
) |
|
|
(296.8 |
) |
|
|
10.9 |
|
Cumulative effect of accounting change, net of tax (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(514.9 |
) |
| |
|
|
Net income (loss) |
|
|
$385.0 |
|
|
|
$251.3 |
|
|
|
($116.1 |
) |
|
|
($46.6 |
) |
|
|
($203.4 |
) |
| |
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
274.6 |
|
|
|
274.4 |
|
|
|
274.4 |
|
|
|
274.1 |
|
|
|
267.1 |
|
Diluted |
|
|
275.5 |
|
|
|
274.9 |
|
|
|
274.7 |
|
|
|
274.3 |
|
|
|
268.0 |
|
Per common share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$1.71 |
|
|
|
$1.48 |
|
|
|
$0.38 |
|
|
|
$0.91 |
|
|
|
$1.13 |
|
(Loss) income from discontinued operations |
|
|
($0.31 |
) |
|
|
($0.56 |
) |
|
|
($0.81 |
) |
|
|
($1.08 |
) |
|
|
$0.04 |
|
Cumulative effect of accounting change (3) |
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
($1.93 |
) |
Net income (loss) |
|
|
$1.40 |
|
|
|
$0.92 |
|
|
|
($0.42 |
) |
|
|
($0.17 |
) |
|
|
($0.76 |
) |
Diluted - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$1.71 |
|
|
|
$1.48 |
|
|
|
$0.38 |
|
|
|
$0.91 |
|
|
|
$1.12 |
|
(Loss) income from discontinued operations |
|
|
($0.31 |
) |
|
|
($0.56 |
) |
|
|
($0.80 |
) |
|
|
($1.08 |
) |
|
|
$0.04 |
|
Cumulative effect of accounting change (3) |
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
($1.92 |
) |
Net income (loss) |
|
|
$1.40 |
|
|
|
$0.91 |
|
|
|
($0.42 |
) |
|
|
($0.17 |
) |
|
|
($0.76 |
) |
Dividends |
|
|
$0.84 |
|
|
|
$0.84 |
|
|
|
$0.84 |
|
|
|
$0.84 |
|
|
|
$0.84 |
|
- 17 -
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006(1) |
|
2005(1) |
|
2004(1) |
|
2003 |
|
2002 |
| |
|
|
BALANCE SHEET DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
$850.6 |
|
|
|
$793.8 |
|
|
|
$813.2 |
|
|
|
$717.0 |
|
|
|
$812.7 |
|
Working capital (4) |
|
|
580.3 |
|
|
|
675.3 |
|
|
|
1,141.1 |
|
|
|
978.2 |
|
|
|
465.6 |
|
Total assets |
|
$ |
6,310.5 |
|
|
$ |
6,446.1 |
|
|
$ |
6,669.5 |
|
|
$ |
7,483.7 |
|
|
$ |
7,404.4 |
|
Short-term debt, including current portion of
long-term debt |
|
|
277.5 |
|
|
|
166.8 |
|
|
|
206.9 |
|
|
|
35.4 |
|
|
|
449.2 |
|
Long-term debt, net of current portion |
|
|
1,972.3 |
|
|
|
2,429.7 |
|
|
|
2,424.3 |
|
|
|
2,868.6 |
|
|
|
2,372.1 |
|
Stockholders’ equity |
|
$ |
1,890.2 |
|
|
$ |
1,643.2 |
|
|
$ |
1,764.2 |
|
|
$ |
2,016.3 |
|
|
$ |
2,063.5 |
|
|
|
|
|
| |
(1) |
|
Supplemental data regarding 2006, 2005 and 2004 is provided in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations. |
| |
| |
(2) |
|
The restructuring costs include facility and other exit costs, employee severance and
termination benefits and other costs. |
| |
| |
(3) |
|
Represents the after-tax goodwill impairment charge recorded in 2002 pursuant to the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets. |
| |
| |
(4) |
|
Working capital is defined as Current Assets less Current Liabilities. |
ACQUISITIONS OF BUSINESSES
2006, 2005 and 2004
Information regarding significant businesses acquired in the last three years is included in
Footnote 2 of the Notes to the Consolidated Financial Statements.
2003
Effective January 1, 2003, the Company completed its acquisition of American Saw & Mfg. Co.
(“LENOX”), a leading manufacturer of power tool accessories and hand tools marketed under the LENOX
brand. The purchase price was approximately $450 million paid for through the issuance of
commercial paper, plus transaction costs. The transaction structure permits the deduction of
goodwill for tax purposes, which was approximately $85 million at the time of acquisition. This
acquisition and the acquisition of American Tool Companies, Inc. (“IRWIN”) in 2002 marked a
significant expansion and enhancement of the Company’s product lines and customer base, launching
it squarely into the estimated $10 billion-plus global markets for hand tools and power tool
accessories. Both of these acquisitions are reported in the Company’s Tools & Hardware business
segment. The purchase price of the LENOX acquisition was allocated to the acquired assets and
liabilities based on their fair values, with the excess recorded as goodwill.
2002
In 2002, the Company completed the purchase of IRWIN (then known as American Tool Companies, Inc.),
a leading manufacturer of hand tools and power tool accessories. The Company had previously held a
49.5% stake in IRWIN, which had been accounted for under the equity method prior to acquisition.
The purchase price was $467 million, which included $197 million for the majority 50.5% ownership
stake, the repayment of $243 million in IRWIN debt and $27 million of transaction costs. At the
time of acquisition, the Company paid off IRWIN’s senior debt, senior subordinated debt and debt
under their revolving credit agreement. The Company allocated the purchase price to the
identifiable assets. In 2002, the Company recorded nonoperating expenses of $8.7 million for
transaction costs associated with the acquisition.
QUARTERLY SUMMARIES
Summarized quarterly data for the last two years is as follows (in millions, except per share data)
(unaudited):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Calendar Year |
|
1st |
|
2nd |
|
3rd |
|
4th |
|
Year |
| |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,342.6 |
|
|
$ |
1,634.1 |
|
|
$ |
1,586.1 |
|
|
$ |
1,638.2 |
|
|
$ |
6,201.0 |
|
Gross margin |
|
|
432.1 |
|
|
|
563.0 |
|
|
|
535.2 |
|
|
|
539.7 |
|
|
|
2,070.0 |
|
Income from continuing operations |
|
|
130.2 |
|
|
|
135.5 |
|
|
|
112.7 |
|
|
|
92.3 |
|
|
|
470.7 |
|
- 18 -
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Calendar Year |
|
1st |
|
2nd |
|
3rd |
|
4th |
|
Year |
| |
(Loss) income from discontinued operations |
|
|
(75.4 |
) |
|
|
(16.0 |
) |
|
|
(4.2 |
) |
|
|
9.9 |
|
|
|
(85.7 |
) |
| |
|
|
Net income |
|
|
$54.8 |
|
|
|
$119.5 |
|
|
|
$108.5 |
|
|
|
$102.2 |
|
|
|
$385.0 |
|
| |
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$0.47 |
|
|
|
$0.49 |
|
|
|
$0.41 |
|
|
|
$0.34 |
|
|
|
$1.71 |
|
(Loss) income from discontinued operations |
|
|
($0.27 |
) |
|
|
($0.06 |
) |
|
|
($0.02 |
) |
|
|
$0.04 |
|
|
|
($0.31 |
) |
Net income |
|
|
$0.20 |
|
|
|
$0.44 |
|
|
|
$0.39 |
|
|
|
$0.37 |
|
|
|
$1.40 |
|
Diluted - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$0.47 |
|
|
|
$0.49 |
|
|
|
$0.41 |
|
|
|
$0.33 |
|
|
|
$1.71 |
|
(Loss) income from discontinued operations |
|
|
($0.27 |
) |
|
|
($0.06 |
) |
|
|
($0.02 |
) |
|
|
$0.04 |
|
|
|
($0.31 |
) |
Net income |
|
|
$0.21 |
|
|
|
$0.43 |
|
|
|
$0.39 |
|
|
|
$0.37 |
|
|
|
$1.40 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
$1,203.7 |
|
|
|
$1,493.9 |
|
|
|
$1,436.6 |
|
|
|
$1,583.0 |
|
|
|
$5,717.2 |
|
Gross margin |
|
|
338.4 |
|
|
|
477.1 |
|
|
|
462.4 |
|
|
|
480.2 |
|
|
|
1,758.1 |
|
Income from continuing operations |
|
|
95.7 |
|
|
|
88.7 |
|
|
|
136.6 |
|
|
|
85.3 |
|
|
|
406.3 |
|
Loss from discontinued operations |
|
|
(59.1 |
) |
|
|
(22.5 |
) |
|
|
(65.1 |
) |
|
|
(8.3 |
) |
|
|
(155.0 |
) |
| |
|
|
Net income |
|
|
$36.6 |
|
|
|
$66.2 |
|
|
|
$71.5 |
|
|
|
$77.0 |
|
|
|
$251.3 |
|
| |
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$0.35 |
|
|
|
$0.32 |
|
|
|
$0.50 |
|
|
|
$0.31 |
|
|
|
$1.48 |
|
Loss from discontinued operations |
|
|
($0.22 |
) |
|
|
($0.08 |
) |
|
|
($0.24 |
) |
|
|
($0.03 |
) |
|
|
($0.56 |
) |
Net income |
|
|
$0.13 |
|
|
|
$0.24 |
|
|
|
$0.26 |
|
|
|
$0.28 |
|
|
|
$0.92 |
|
Diluted - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$0.35 |
|
|
|
$0.32 |
|
|
|
$0.49 |
|
|
|
$0.31 |
|
|
|
$1.48 |
|
Loss from discontinued operations |
|
|
($0.21 |
) |
|
|
($0.08 |
) |
|
|
($0.23 |
) |
|
|
($0.03 |
) |
|
|
($0.56 |
) |
Net income |
|
|
$0.13 |
|
|
|
$0.24 |
|
|
|
$0.27 |
|
|
|
$0.28 |
|
|
|
$0.91 |
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management believes is relevant to
an assessment and understanding of the Company’s consolidated results of operations and financial
condition. The discussion should be read in conjunction with the accompanying Consolidated
Financial Statements.
Executive Overview
Newell Rubbermaid is a global marketer of consumer and commercial products that touch the lives of
people where they work, live and play. The Company’s multi-product offering consists of well known
name-brand consumer and commercial products in four business segments as follows:
| |
|
|
| Segment |
|
Description of Products |
| |
Cleaning, Organization & Décor
|
|
Material handling, cleaning, refuse, indoor/outdoor organization, home storage, food storage, drapery hardware, window treatments |
Office Products
|
|
Ball point/roller ball pens, markers, highlighters, pencils, correction fluids, office products, art supplies, on-demand labeling products, card-scanning solutions |
Tools & Hardware
|
|
Hand tools, power tool accessories, manual paint applicators, cabinet, window and convenience hardware, propane torches, solder |
Home & Family (Other)
|
|
Operating segments that do not meet aggregation criteria with other operating segments, including premium cookware and related kitchenware, hair care accessory products, infant and juvenile products, including high chairs, car seats, strollers and play yards |
The Company’s vision is to become a global company of Brands That MatterTM and great
people, known for best-in-class results. The Company remains committed to investing in strategic
brands and new product development,
- 19 -
strengthening its portfolio of businesses, reducing its supply chain costs and streamlining
non-strategic selling, general and administrative expenses (SG&A).
In 2006, the Company began transforming into a consumer driven branding company embracing consumer
pull marketing, with meaningful new product innovation fueled by consumer insight, concept
development and validation. The Company assessed its top 16 brands using a uniform methodology,
and fielded incremental consumer and brand research to fill in knowledge gaps and verify our
hypotheses regarding segmentation, consumer targeting and brand equity. In 2007, we expect to
continue this transformation; developing formalized training and development programs to help
foster the skills and talents necessary to achieve best-in-class
consumer branding capability and building the increasing
consumer understanding into our innovation and business planning
processes. In
2006, we increased our investment in consumer understanding, innovation and demand creation
(“Strategic Brand Building”) to 5.5% of sales, a 40% increase from 2005. The Company plans to
continue making investments in these strategic brand building activities.
During 2006, the Company continued to make progress on strengthening its portfolio. The Company
completed the integration of its acquisition of DYMO and substantially completed the sales of its
European Cookware, Little Tikes and Home Décor Europe businesses.
Another key initiative of the Company is to restructure its manufacturing and sourcing network to
increase capacity utilization, increase the percentage of manufacturing located in low-cost
countries, and achieve the desired balance of company-owned manufacturing and third party sourcing
partners. Project Acceleration remains on schedule. To date, the Company has announced
approximately two-thirds of the anticipated closings or consolidations, and projects annualized
savings exceeding $150 million upon the completion of the program in 2009.
The key tenets of the Company’s strategy include building large, consumer-meaningful brands
(“Brands That MatterTM”), leveraging one Newell Rubbermaid, achieving a best total cost
position and commercializing innovation across the enterprise. The Company’s 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 Company’s
strategic initiatives are designed to help enable these business units to generate differentiated
products, operate within a best-in-class cost structure and employ superior branding in order to
yield premium margins on their products. Premium margins fund incremental demand creation by the
business units, driving incremental sales and profits for the Company.
The Company’s emphasis in 2007 will be to deliver sales growth and gross margin expansion through
increased investments in consumer understanding, innovation and demand creation activities. The
Company will focus on developing best-in-class practices for these activities. The Company’s
objective is to build brands that really matter to its consumers. The Company will put in the
systems to understand its consumers in detail — how they use its products, what they value, and
how to delight them and/or excite them. The Company will invest in more innovation that
differentiates its products. The Company will invest more in advertising and other
consumer marketing to increase awareness as well as trial and repeat purchases to enhance the
brands. Further, the Company will measure the effectiveness of those increased
strategic brand building investments.
The Company is making the necessary investments now for the long-term success of its business. In
2007, the Company expects SG&A to increase due to continued investment in strategic brand building
initiatives and other long-term initiatives including the SAP implementation, co-location
strategies, expanded shared services in Europe and the U.S., and building organizational
capability through training and development.
The following section details the Company’s performance in
each of its transformational
initiatives:
Create Consumer-Meaningful Brands
The
Company is moving from its historical focus on push marketing and
excellence in manufacturing and distributing products, to a new focus
on consumer pull marketing,
creating competitive advantage through better understanding our consumers, innovating to deliver great performance,
investing in advertising and promotion to create demand and leveraging our brands in adjacent
categories around the world. Consumer meaningful brands create more value than products alone, and
big brands provide the Company with the economies of scale that can be leveraged in today’s
marketplace. In 2006, the Company made incremental investments in strategic brand building,
particularly on Calphalon®, Graco®,
Goody®, LENOX
®, IRWIN®, Sharpie® and DYMO®, increasing the
- 20 -
investment in strategic SG&A from approximately 4.0% of sales in 2005 to 5.5% of sales in 2006.
The Company also initiated a consulting and training partnership with one of the largest worldwide
creative and media agencies. The objective is to create best-in-class branding capabilities across
the Company. The first step was to understand the brand vitality of the Company’s 16 largest
brands using a common set of metrics. The Company will then integrate this understanding into its
ongoing processes for product innovation, competitive analysis, strategic planning and brand
marketing.
Leverage One Newell Rubbermaid
The Company is committed to leveraging the common business activities and best practices of our
business units, and to build one common culture of shared values, with a focus on collaboration and
teamwork. The Company is exploring ways to leverage common functional capabilities such as
Human Resources, Information Technology, Customer Service, Supply Chain and Finance to improve
efficiency and reduce costs. This broad reaching initiative already includes projects such as the
corporate consolidation of the distribution and transportation function, and aggregating
Company-wide purchasing efforts including both direct and indirect materials and services. During
the past year, the Company also streamlined the structure of its Tools & Hardware segment to create
a more effective organization and leverage scale efficiencies. The Company also accelerated the
process of creating shared services for the European businesses and is evaluating expanding the
scope of shared services in the United States. The transition of services to the Shared Service
Center in Europe is approximately two-thirds complete. In addition, the Company has recently
created leadership positions — Vice President of Program Management and President of Newell
Rubbermaid Europe, Middle East and Africa — to identify and
drive synergies across business units. Finally,
the Company is in the early stages of migrating multiple legacy systems and users to a common SAP
global information platform, which we expect will enable the Company to integrate and manage its
worldwide business and reporting process more efficiently. Phase one implementation is currently
planned for the North American Office Products business in late 2007.
The total company implementation will
occur over several years in phases that are primarily based on geographic region and segment.
Achieve Best Total Cost
The Company’s objective is to reduce the cost of manufacturing, sourcing and supplying product on
an ongoing basis, and to leverage the Company’s 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.
Through Newell Operational Excellence and previous restructuring, the Company has made significant
progress in reducing its supply chain costs and delivering productivity savings. Project
Acceleration includes the closure of approximately one-third of the Company’s 64 manufacturing
facilities (as of December 31, 2005, adjusted for the divestiture of Little Tikes and Home Décor
Europe), optimizing the Company’s geographic manufacturing footprint. Since the inception of
Project Acceleration, the Company has announced the closure of 14 manufacturing facilities.
Project Acceleration is projected to result in cumulative restructuring costs of approximately $375
to $400 million ($315 million — $340 million after tax). Approximately 60% of the costs are
expected to be cash. Annualized savings are now projected to exceed $150 million upon conclusion
of the program in 2009. In 2006, the Company also broadened its supply chain efforts to include
the realization of efficiencies in purchasing and distribution &
transportation. Finally, the Company has shifted a portion of its
research and development focus to designing lower cost into future
product initiatives.
Nurture 360º Innovation
The Company has broadened its definition of innovation beyond product invention. The Company will
define innovation as the successful commercialization of invention. Innovation must be more than
product development. It is a rigorous, consumer centric process that permeates the entire development cycle. It
begins with a deep understanding of how consumers interact with the Company’s brands and
categories, and all the factors that drive their purchase decisions and in-use experience. That
understanding must then be translated into innovative products that deliver unique features and benefits, at a
best-cost position, providing the consumer with great value. Lastly,
innovating how and where
to create awareness and trial, and measuring the effectiveness of advertising and promotion
spending, completes the process. The Company has pockets of excellence using this expanded
definition of innovation, and it will continue to build on this competency.
- 21 -
Consolidated Results of Operations
The following table sets forth for the periods indicated items from the Consolidated Statements of
Operations as reported and as a percentage of net sales for the years ended December 31, (in
millions, except percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Net sales |
|
$ |
6,201.0 |
|
|
|
100.0 |
% |
|
$ |
5,717.2 |
|
|
|
100.0 |
% |
|
$ |
5,707.1 |
|
|
|
100.0 |
% |
Cost of products sold |
|
|
4,131.0 |
|
|
|
66.6 |
|
|
|
3,959.1 |
|
|
|
69.2 |
|
|
|
4,050.6 |
|
|
|
71.0 |
|
| |
|
|
Gross margin |
|
|
2,070.0 |
|
|
|
33.4 |
|
|
|
1,758.1 |
|
|
|
30.8 |
|
|
|
1,656.5 |
|
|
|
29.0 |
|
Selling, general and
administrative expenses (SG&A) |
|
|
1,347.0 |
|
|
|
21.7 |
|
|
|
1,117.7 |
|
|
|
19.5 |
|
|
|
1,050.1 |
|
|
|
18.4 |
|
Impairment charges |
|
|
— |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
264.0 |
|
|
|
4.6 |
|
Restructuring costs |
|
|
66.4 |
|
|
|
1.1 |
|
|
|
72.6 |
|
|
|
1.3 |
|
|
|
28.2 |
|
|
|
0.5 |
|
| |
|
|
Operating income |
|
|
656.6 |
|
|
|
10.6 |
|
|
|
567.4 |
|
|
|
9.9 |
|
|
|
314.2 |
|
|
|
5.5 |
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
132.0 |
|
|
|
2.1 |
|
|
|
127.1 |
|
|
|
2.2 |
|
|
|
119.3 |
|
|
|
2.1 |
|
Other expense (income), net |
|
|
9.7 |
|
|
|
0.2 |
|
|
|
(23.1 |
) |
|
|
(0.4 |
) |
|
|
(3.0 |
) |
|
|
(0.1 |
) |
| |
|
|
Net nonoperating expenses |
|
|
141.7 |
|
|
|
2.3 |
|
|
|
104.0 |
|
|
|
1.8 |
|
|
|
116.3 |
|
|
|
2.0 |
|
| |
|
|
Income from continuing
operations before income taxes |
|
|
514.9 |
|
|
|
8.3 |
|
|
|
463.4 |
|
|
|
8.1 |
|
|
|
197.9 |
|
|
|
3.5 |
|
Income taxes |
|
|
44.2 |
|
|
|
0.7 |
|
|
|
57.1 |
|
|
|
1.0 |
|
|
|
92.9 |
|
|
|
1.6 |
|
| |
|
|
Income from continuing operations |
|
|
470.7 |
|
|
|
7.6 |
|
|
|
406.3 |
|
|
|
7.1 |
|
|
|
105.0 |
|
|
|
1.8 |
|
Loss from discontinued
operations, net of tax |
|
|
(85.7 |
) |
|
|
(1.4 |
) |
|
|
(155.0 |
) |
|
|
(2.7 |
) |
|
|
(221.1 |
) |
|
|
(3.9 |
) |
| |
|
|
Net income (loss) |
|
|
$385.0 |
|
|
|
6.2 |
% |
|
|
$251.3 |
|
|
|
4.4 |
% |
|
|
($116.1 |
) |
|
|
(2.0 |
)% |
| |
|
|
Results of Operations - 2006 vs. 2005
Net sales for 2006 were $6,201.0 million, representing an increase of $483.8 million, or 8.5% from
$5,717.2 million for 2005. Excluding sales related to the DYMO acquisition, sales were up
approximately $268 million, or 4.7%, driven by core sales growth of approximately 2.6%. The impact
of positive currency translation and continued favorable pricing contributed approximately two
points of additional improvement.
Gross margin, as a percentage of net sales, for 2006 was 33.4%, or $2,070.0 million, versus 30.8%,
or $1,758.1 million, for 2005. The 260 basis point improvement in gross margin was driven by
productivity, favorable pricing, and favorable mix, which more than offset the impact of raw
material inflation.
SG&A expenses for 2006 were 21.7% of net sales, or $1,347.0 million, versus 19.5%, or $1,117.7
million, for 2005. Approximately 40% of the increase is related to the impact of acquisitions, 40%
represented increased investment in strategic brand building, and the remainder resulted from the
impact of foreign currency and stock option accounting and the pension curtailment benefit
recognized in 2005 that did not repeat in 2006.
The Company recorded non-cash pre-tax impairment charges of $0.4 million for 2005 to write-down
certain trademarks and tradenames to fair value. See Footnote 17 of the Notes to the Consolidated
Financial Statements for additional information.
The Company recorded restructuring costs of $66.4 million and $72.6 million for 2006 and 2005,
respectively. The Company has announced the closure of 14 manufacturing facilities since Project
Acceleration’s inception. The Company expects cumulative pre-tax
costs of $375 to $400 million,
approximately 60% of which are expected to be cash costs, over the life of the initiative.
Annualized savings are projected to exceed $150 million upon completion of the project with
an approximately $50 million benefit projected in 2007, $70 million benefit projected in 2008 and the
remainder in 2009. The 2006 restructuring costs included $14.9 million of facility and other exit
costs, $44.7 million of employee severance and termination benefits and $6.8 million of exited
contractual commitments and other restructuring costs. The 2005 restructuring costs included $51.3
million in non-cash facility restructuring costs relating to Project Acceleration and $21.3
million relating to restructuring actions approved prior to the commencement of Project
Acceleration. The $21.3 million of pre-Project Acceleration costs included $7.9 million
of
facility and other exit costs, $11.1 million of employee severance and termination benefits and
$2.3 million of
- 22 -
exited contractual commitments and other restructuring costs. See Footnote 4 of
the Notes to the Consolidated Financial Statements for further information on the restructuring
costs.
Operating income for 2006 was $656.6 million, or 10.6% of net sales, versus $567.4 million, or 9.9%
of net sales, in 2005. The improvement in operating margins is the result of the factors described
above.
Net nonoperating expenses for 2006 were 2.3% of net sales, or $141.7 million, versus 1.8% of net
sales, or $104.0 million, for 2005. The increase in net nonoperating expenses is mainly
attributable to gains recognized in 2005 on the sale of property, plant and equipment and the
liquidation of a foreign subsidiary that did not repeat in 2006, along with an increase in net
interest expense, $132.0 million for 2006 compared to $127.1 million for 2005. The increase in net
interest expense was primarily due to higher borrowing rates and higher average debt balances. See
Footnote 18 of the Notes to the Consolidated Financial Statements for further information.
The effective tax rate was 8.6% for 2006 versus 12.3% for 2005. The change in the effective tax
rate is primarily related to the $102.8 million income tax benefit recorded in 2006 compared to the
net income tax benefit of $73.9 million recorded in 2005, as a result of favorable resolution of
certain tax positions and the expiration of the statute of limitations on other deductions. See
Footnote 16 of the Notes to the Consolidated Financial Statements for further information.
Income from continuing operations for 2006 was $470.7 million, compared to $406.3 million for 2005.
Diluted earnings per share from continuing operations were $1.71 for 2006 compared to $1.48 for
2005.
The loss from discontinued operations for 2006 was $85.7 million, compared to $155.0 million for
2005. The gain (loss) on the disposal of discontinued operations for 2006 was $0.7 million,
compared to $(96.8) million for 2005. The 2006 gain was primarily related to the disposal of the
Little Tikes business, which was partially offset by the loss recognized on disposal of the Home
Décor Europe business. The 2005 loss related primarily to the disposal of the Curver and the
European Cookware businesses. The loss from operations of discontinued operations for 2006 was
$86.4 million, net of tax, compared to $58.2 million, net of tax, for 2005. Diluted loss per share
from discontinued operations was $0.31 for 2006 compared to $0.56 for 2005. See Footnote 3 of the
Notes to the Consolidated Financial Statements for further information.
Net income for 2006 was $385.0 million, compared to $251.3 million for 2005. Diluted earnings per
share was $1.40 for 2006 compared to $0.91 for 2005.
Results
of Operations - 2005 vs. 2004
Net sales for 2005 were $5,717.2 million, representing a increase of $10.1 million, or 0.2% from
$5,707.1 million for 2004. Excluding sales related to the DYMO acquisition, sales decreased by
$14.8 million primarily due to the rationalization of unfavorable product lines and core sales
decline partially offset by favorable pricing. Positive currency translation improved sales by
0.7% for the full year.
Gross margin, as a percentage of net sales, for 2005 was 30.8%, or $1,758.1 million, versus 29.0%,
or $1,656.5 million, for 2004. The improvement in gross margin is primarily related to favorable
pricing, productivity, and favorable mix driven by the rationalization of unprofitable product
lines primarily in the Rubbermaid Home Products business, partially offset by raw material
inflation (primarily resin and steel).
SG&A expenses for 2005 were 19.5% of net sales, or $1,117.7 million, versus 18.4%, or $1,050.1
million, for 2004. The increase in SG&A was driven by the impact from foreign currency, the impact
from the acquisition of DYMO and increased investments in strategic brand building, partially
offset by streamlining.
The Company recorded non-cash pre-tax impairment charges of $0.4 million and $264.0 million for
2005 and 2004, respectively. The 2005 charges were required to write-down certain trademarks and
tradename assets to fair value. The 2004 charges were required to write-down certain assets to
fair value, primarily in the Company’s European and Latin American Office Products businesses. See
Footnote 17 of the Notes to the Consolidated Financial Statements for additional information.
The Company recorded restructuring costs of $72.6 million and $28.2 million for 2005 and 2004,
respectively. The 2005 restructuring costs included $51.3 million in non-cash facility
restructuring costs relating to Project
- 23 -
Acceleration and $21.3 million relating to restructuring
actions approved prior to the commencement of Project Acceleration. The $21.3 million of
pre-Project Acceleration costs included $7.9 million of facility and other exit costs, $11.1
million of employee severance and termination benefits and $2.3 million of exited contractual
commitments and other restructuring costs. The 2004 costs included $24.8 million of facility and
other exit costs, $5.2 million of employee severance and termination benefits and the reversal of
$1.8 million of exited contractual commitments and other restructuring costs. See Footnote 4 of
the Notes to the Consolidated Financial Statements for further information on the restructuring
costs.
Operating income for 2005 was $567.4 million, or 9.9% of net sales, versus $314.2 million, or 5.5%
of net sales, in 2004. The improvement in operating margins is the result of the factors described
above.
Net nonoperating expenses for 2005 were 1.8% of net sales, or $104.0 million, versus 2.0% of net
sales, or $116.3 million, for 2004. The decrease in net nonoperating expenses is mainly
attributable to gains recognized in 2005 on the sale of property, plant and equipment and the
liquidation of a foreign subsidiary. This was partially offset by an increase in net interest
expense, $127.1 million for 2005 compared to $119.3 million for 2004. The increase in net interest
expense was primarily due to higher borrowing rates, partially offset by lower average debt
balances. See Footnote 18 of the Notes to the Consolidated Financial Statements for further
information.
The effective tax rate was 12.3% for 2005 versus 46.9% for 2004. The change in the effective tax
rate is primarily related to the $73.9 million income tax benefit recorded in 2005 compared to the
net income tax benefit of $15.5 million recorded in 2004, as a result of favorable resolution of
certain tax positions and the expiration of the statute of limitations on other deductions.
Additionally, the effective tax rate was impacted by the non-deductibility associated with a
portion of the Company’s impairment charges recorded in 2005 and 2004 ($0.4 million and $264.0
million, respectively). See Footnotes 16 and 17 of the Notes to the Consolidated Financial
Statements for further information.
Income from continuing operations for 2005 was $406.3 million, compared to $105.0 million for 2004.
Diluted earnings per share from continuing operations were $1.48 for 2005 compared to $0.38 for
2004.
The loss from discontinued operations for 2005 was $155.0 million, compared to $221.1 million for
2004. For 2005, the loss on disposal of discontinued operations was $96.8 million, comprised
primarily of a $62.0 million loss on the disposal of the Curver business and a $33.9 million loss
related to the sale of the European Cookware business. For 2004, the Company recorded a $21.5
million loss on the disposal of the U.S. picture frames business (Burnes), the Anchor Hocking
glassware business, and the Mirro cookware business, a $72.2 million loss on the disposal of the
Panex Brazilian low-end cookware division, and a $6.4 million loss, net of tax, on the disposal of
the European picture frames business, partially offset by a gain on the disposal of the Little
Tikes Commercial Playground Systems business of $9.6 million. The loss from operations of
discontinued operations for 2005 was $58.2 million, net of tax, compared to $130.6 million, net of
tax, for 2004. Diluted loss per share from discontinued operations was $0.56 for 2005 compared to
$0.80 for 2004. See Footnote 3 of the Notes to the Consolidated Financial Statements for further
information.
Net income (loss) for 2005 was $251.3 million, compared to $(116.1) million for 2004. Diluted
earnings (loss) per share was $0.91 for 2005 compared to $(0.42) for 2004.
Business Segment Operating Results
2006 vs. 2005 Business Segment Operating Results
Net sales by segment were as follows for the year ended December 31, (in millions, except
percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
% Change |
| |
|
|
Cleaning, Organization & Décor |
|
$ |
1,995.7 |
|
|
$ |
1,921.0 |
|
|
|
3.9 |
% |
Office Products |
|
|
2,031.6 |
|
|
|
1,713.3 |
|
|
|
18.6 |
|
Tools & Hardware |
|
|
1,262.2 |
|
|
|
1,260.3 |
|
|
|
0.2 |
|
Home & Family |
|
|
911.5 |
|
|
|
822.6 |
|
|
|
10.8 |
|
| |
|
|
Total Net Sales |
|
$ |
6,201.0 |
|
|
$ |
5,717.2 |
|
|
|
8.5 |
% |
| |
|
|
- 24 -
Operating income by segment was as follows for the year ended December 31, (in millions, except
percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
% Change |
| |
|
|
Cleaning, Organization & Décor |
|
$ |
209.1 |
|
|
$ |
145.8 |
|
|
|
43.4 |
% |
Office Products |
|
|
287.0 |
|
|
|
266.0 |
|
|
|
7.9 |
|
Tools & Hardware |
|
|
185.0 |
|
|
|
171.1 |
|
|
|
8.1 |
|
Home & Family |
|
|
117.9 |
|
|
|
103.5 |
|
|
|
13.9 |
|
Corporate |
|
|
(76.0 |
) |
|
|
(46.0 |
) |
|
|
65.2 |
|
Impairment charge |
|
|
— |
|
|
|
(0.4 |
) |
|
|
|
|
Restructuring costs |
|
|
(66.4 |
) |
|
|
(72.6 |
) |
|
|
|
|
| |
|
|
Total Operating Income |
|
$ |
656.6 |
|
|
$ |
567.4 |
|
|
|
15.7 |
% |
| |
|
|
Cleaning, Organization & Décor
Net sales for 2006 were $1,995.7 million, an increase of $74.7 million, or 3.9%, from $1,921.0
million in 2005, driven by mid single-digit growth in Rubbermaid Commercial Products and Rubbermaid
Home Products. New product innovation, a strong back to campus season, a successful year in
insulated products and strong sales in the size in store and custom blind products drove the sales
improvement. Partially offsetting this increase were low margin product line exits, specifically
related to basic drapery hardware.
Operating income for 2006 was $209.1 million, an increase of $63.3 million, or 43.4%, from $145.8
million in 2005. The increase in operating income was driven by the sales volume increases
described above coupled with productivity initiatives and pricing actions put in place to offset
raw material inflation.
Office Products
Net sales for 2006 were $2,031.6 million, an increase of $318.3 million, or 18.6% from $1,713.3
million in 2005. Excluding sales related to the DYMO acquisition, sales increased approximately
6%, led by strong performance in the Everyday Writing and Marker businesses.
Operating income for 2006 was $287.0 million, an increase of $21.0 million, or 7.9%, from $266.0
million in 2005. Additional income from the DYMO acquisition and the sales volume increase
described above were partially offset by strategic brand building spending, restructuring related
inefficiencies and acquisition related start-up costs.
Tools & Hardware
Net sales for 2006 were $1,262.2 million, an increase of $1.9 million, or 0.2%, from $1,260.3
million in 2005, as mid single-digit growth in our IRWIN and LENOX branded tools businesses was
offset by the decline in our consumer electronic tools business. The consumer electronic tools
product line has neared the end of its life cycle. Sales of other product lines increased
approximately 3% in the segment, despite the challenging housing and retail environment.
Operating income for 2006 was $185.0 million, an increase of $13.9 million, or 8.1%, from $171.1
million in 2005. Productivity initiatives were partially offset by strategic brand building
investment and raw material inflation, particularly in aluminum, zinc and brass.
Home & Family
Net sales for 2006 were $911.5 million, an increase of $88.9 million, or 10.8%, from $822.6 million
in 2005. Broad based success in all three business units was fueled by sales of new products and
consumer demand driven by targeted strategic SG&A investment.
Operating income for 2006 was $117.9 million, an increase of $14.4 million, or 13.9%, from $103.5
million in the comparable period of 2005, driven by an increase in sales and productivity,
partially offset by increased SG&A investment.
- 25 -
2005 vs. 2004 Business Segment Operating Results
Net sales by segment were as follows for the year ended December 31, (in millions, except
percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
% Change |
| |
|
|
Cleaning, Organization & Décor |
|
$ |
1,921.0 |
|
|
$ |
1,993.4 |
|
|
|
(3.6 |
)% |
Office Products |
|
|
1,713.3 |
|
|
|
1,686.2 |
|
|
|
1.6 |
|
Tools & Hardware |
|
|
1,260.3 |
|
|
|
1,218.7 |
|
|
|
3.4 |
|
Home & Family |
|
|
822.6 |
|
|
|
808.8 |
|
|
|
1.7 |
|
| |
|
|
Total Net Sales |
|
$ |
5,717.2 |
|
|
$ |
5,707.1 |
|
|
|
0.2 |
% |
| |
|
|
Operating income by segment was as follows for the year ended December 31, (in millions, except
percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
|
% Change |
| |
|
|
Cleaning, Organization & Décor |
|
$ |
145.8 |
|
|
|
$113.6 |
|
|
|
28.3 |
% |
Office Products |
|
|
266.0 |
|
|
|
262.0 |
|
|
|
1.5 |
|
Tools & Hardware |
|
|
171.1 |
|
|
|
181.7 |
|
|
|
(5.8 |
) |
Home & Family |
|
|
103.5 |
|
|
|
88.4 |
|
|
|
17.1 |
|
Corporate |
|
|
(46.0 |
) |
|
|
(39.3 |
) |
|
|
17.0 |
|
Impairment charge |
|
|
(0.4 |
) |
|
|
(264.0 |
) |
|
|
|
|
Restructuring costs |
|
|
(72.6 |
) |
|
|
(28.2 |
) |
|
|
|
|
| |
|
|
Total Operating Income |
|
$ |
567.4 |
|
|
|
$314.2 |
|
|
|
80.6 |
% |
| |
|
|
Cleaning, Organization & Décor
Net sales for 2005 were $1,921.0 million, a decrease of $72.4 million, or 3.6%, from $1,993.4
million in 2004, driven primarily by planned product line exits and core sales declines in the
Rubbermaid Home Products business. These factors were partially offset by increases in core
product sales in the Rubbermaid Commercial Products and Levolor/Kirsch businesses, and favorable
pricing.
Operating income for 2005 was $145.8 million, an increase of $32.2 million, or 28.3%, from $113.6
million in 2004. The improvement in operating income is the result of core sales growth in
Rubbermaid Commercial Products and Levolor/Kirsch, reduced restructuring activity, favorable sales
mix and favorable pricing which more than offset raw material inflation and lost absorption in
manufacturing facilities.
Office Products
Net sales for 2005 were $1,713.3 million, an increase of $27.1 million, or 1.6% from $1,686.2
million in 2004. The increase was primarily due to the acquisition of DYMO, the introduction of
innovative new products in the markers business and favorable foreign currency translation,
partially offset by sales declines in the fine writing and the Eldon office products businesses.
Operating income for 2005 was $266.0 million, an increase of $4.0 million, or 1.5%, from $262.0
million in 2004, as a result of the impact of the DYMO acquisition and improved margins associated
with the new product introductions and productivity, partially offset by raw material inflation and
increased investment in SG&A, primarily related to advertising and promotion.
Tools & Hardware
Net sales for 2005 were $1,260.3 million, an increase of $41.6 million, or 3.4%, from $1,218.7
million in 2004, driven by increases in the LENOX, and IRWIN-branded businesses, partially offset
by sales declines in the Amerock business and consumer electronic tools.
- 26 -
Operating income for 2005 was $171.1 million, a decrease of $10.6 million, or 5.8%, from $181.7
million in 2004, driven by raw material inflation, restructuring related costs at the Amerock
business and investments in SG&A in the tools business, partially offset by productivity and the
sales increase noted above.
Home & Family
Net sales for 2005 were $822.6 million, an increase of $13.8 million, or 1.7%, from $808.8 million
in 2004, driven by favorable pricing and strong new product introductions in the Graco business.
Operating income for 2005 was $103.5 million, an increase of $15.1 million, or 17.1%, from $88.4
million in 2004. The increase was primarily due to favorable pricing, new product introductions
and productivity initiatives, partially offset by raw material inflation.
Liquidity and Capital Resources
Cash and cash equivalents increased (decreased) as follows for the year ended December 31, (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Cash provided by operating activities |
|
|
$643.4 |
|
|
|
$641.6 |
|
|
|
$660.0 |
|
Cash (used in)/provided by investing activities |
|
|
(11.9 |
) |
|
|
(766.7 |
) |
|
|
189.6 |
|
Cash used in financing activities |
|
|
(550.1 |
) |
|
|
(257.2 |
) |
|
|
(494.1 |
) |
Exchange effect on cash and cash equivalents |
|
|
4.1 |
|
|
|
(7.8 |
) |
|
|
5.7 |
|
| |
|
|
Increase (Decrease) in cash and cash equivalents |
|
|
$85.5 |
|
|
|
($390.1 |
) |
|
|
$361.2 |
|
| |
|
|
Sources
The Company’s primary sources of liquidity and capital resources include cash provided by
operations, proceeds from divestitures and use of available borrowing facilities.
Cash provided by operating activities for the year ended December 31, 2006 was $643.4 million
compared to $641.6 million for the comparable period of 2005. The increase in cash provided by
operating activities is a result of increased net income offset by higher working capital,
primarily due to increased inventory to provide additional safety stock due to restructuring plans.
In 2006, the Company received cash proceeds of $187.0 million related to the sale of businesses and
other non-current assets, compared to $65.5 million in 2005. In 2006, the Company received cash
proceeds of $15.6 million related to the sale of other non-current assets, compared to $64.3
million in 2005. In 2006, the Company sold the European Cookware and Little Tikes businesses, as
well as the largest portion of its Home Décor Europe business. In 2005, the Company sold the
Curver business.
In 2006, the Company received proceeds from the issuance of debt of $177.0 million compared to
$337.0 million in 2005. Proceeds in 2005 reflect the issuance of commercial paper related to the
funding of the November 2005 DYMO acquisition.
The Company has short-term foreign and domestic uncommitted lines of credit with various banks that
are available for short-term financing. Borrowings under the Company’s uncommitted lines of credit
are subject to the discretion of the lender. The Company’s lines of credit do not have a material
impact on the Company’s liquidity. Borrowings under the Company’s lines of credit at December 31,
2006 and 2005 totaled $23.9 million and $4.0 million, respectively.
In November 2005, the Company entered into a $750.0 million syndicated revolving credit facility
(the “Revolver”) pursuant to a five-year credit agreement. On an annual basis, the Company may
request an extension of the
Revolver (subject to lender approval) for additional one-year periods. The Company elected to
extend the Revolver for an additional one-year period and all but one lender approved the one-year
extension, which will now expire in November 2011. Accordingly, the Company has $750.0 million
available under its revolving credit facility through
- 27 -
November 2010 and $725.0 million thereafter,
through November 2011. At December 31, 2006 and 2005, there were no borrowings under the Revolver.
In lieu of borrowings under the Revolver, the Company may issue up to $750.0 million of commercial
paper through 2010 and $725.0 million thereafter, through 2011. The Revolver provides the
committed backup liquidity required to issue commercial paper. Accordingly, commercial paper may
only be issued up to the amount available for borrowing under the Revolver. The Revolver also
provides for the issuance of up to $100.0 million of standby letters of credit so long as there is
a sufficient amount available for borrowing under the Revolver. At December 31, 2006, there was no
commercial paper outstanding and there were no standby letters of credit issued under the Revolver.
At December 31, 2005, $202.0 million of commercial paper was outstanding and there were no standby
letters of credit issued under the Revolver.
The Revolver permits the Company to borrow funds on a variety of interest rate terms and requires,
among other things, that the Company maintain certain Interest Coverage and Total Indebtedness to
Total Capital Ratio, as defined in the agreement. The Revolver also limits Subsidiary
Indebtedness. As of December 31, 2006 and 2005, the Company was in compliance with the terms of
the agreement governing the Revolver.
Under a 2001 receivables facility with a financial institution, the Company created a financing
entity that is consolidated in the Company’s financial statements. Under this facility, the
Company regularly enters into transactions with the financing entity to sell an undivided interest
in substantially all of the Company’s United States trade receivables to the financing entity. In
2001, the financing entity issued $450.0 million in preferred debt securities to the financial
institution. Certain levels of accounts receivable write-offs and other events would permit the
financial institution to terminate the receivables facility. On September 18, 2006, in accordance
with the terms of the receivables facility, the financing entity caused the preferred debt
securities to be exchanged for cash of $2.2 million, a two year floating rate note in an aggregate
principal amount of $448.0 million and a cash premium of $5.2 million. Because this debt matures
in 2008, the entire amount is considered to be long-term. At any time prior to maturity of the
note, the holder may elect to convert it into new preferred debt securities of the financing entity
with a par value equal to the outstanding principal amount of the note. The note must be repaid
and any preferred debt securities into which the note is converted must be retired or redeemed
before the Company can have access to the financing entity’s receivables. As of December 31, 2006
and December 31, 2005, the aggregate amount of outstanding receivables sold under this facility was
$696.7 million and $746.9 million, respectively. The receivables and the preferred debt securities
or note, as applicable, are recorded in the consolidated accounts of the Company.
Uses
The Company’s primary uses of liquidity and capital resources include acquisitions, dividend
payments, capital expenditures and payments on debt.
Cash used for acquisitions was $60.6 million in 2006, compared to $740.0 million in 2005. In 2006,
the Company did not invest in significant acquisitions. The cash used in 2005 related primarily to
the acquisition of DYMO for $699.2 million, which was funded by
$480.2 million of cash on
hand and $219.0 million from existing credit facilities. See Footnote 2 of the Notes to the
Consolidated Financial Statements for additional information.
Capital expenditures were $138.3 million and $92.2 million in 2006 and 2005, respectively. The
increase in capital expenditures was driven by spending on the Company’s SAP initiative. Capital
expenditures for 2007 are expected to be in the range of $140 to $160 million.
In 2006, the Company made payments on notes payable and long-term debt of $511.0 million compared
to $360.1 million in 2005. In 2006, the Company used available cash to pay off commercial paper
and retire a $150 million, 6.6% fixed rate medium-term note that matured. In 2005, the Company
purchased 750,000 shares of its 5.25% convertible preferred securities from holders at an average
price of $47.075 per share ($35.3 million). See Footnote 10 of the Notes to the Consolidated
Financial Statements for additional information on these transactions.
Aggregate dividends paid were $232.8 million and $231.5 million in 2006 and 2005, respectively. In
2007, the Company expects to make similar dividend payments.
- 28 -
Cash used for restructuring activities was $26.1 million and $34.3 million in 2006 and 2005,
respectively. These payments relate primarily to employee termination benefits. In 2007, the
Company expects to use approximately $100 to $125 million of cash on restructuring activities
related to Project Acceleration. See Footnote 4 of the Notes to the Consolidated Financial
Statements for additional information.
In 2006, the Company made a voluntary $20.9 million cash contribution to fund its defined
contribution plan. In 2005, the Company made a voluntary $25.0 million cash contribution to fund
its foreign pension plans.
In 2005, the Company terminated a cross currency interest rate swap and paid $26.9 million. This
payment has been recognized in operating cash flow.
Retained earnings increased in 2006 by $152.1 million. The increase in retained earnings is due to
the current year net income, partially offset by cash dividends paid on common stock. See the
Statements of Stockholders’ Equity and Comprehensive (Loss) Income for additional details.
Working capital at December 31, 2006 was $580.3 million compared to $675.3 million at December 31,
2005. The current ratio at December 31, 2006 was 1.31:1 compared to 1.38:1 at December 31, 2005.
The decrease in working capital is due to the sale of substantially all of the businesses
classified as discontinued operations, the proceeds of which were used to pay down debt.
Total debt to total capitalization (total debt is net of cash and cash equivalents, and total
capitalization includes total debt and stockholders’ equity) was .52:1 at December 31, 2006 and
..60:1 at December 31, 2005.
The Company believes that cash provided from operations and available borrowing facilities will
continue to provide adequate support for the cash needs of existing businesses on a short-term
basis; however, certain events, such as significant acquisitions, could require additional external
financing on a long-term basis.
Resolution of Income Tax Contingencies
In 2006 and 2005, the Company recorded $102.8 million and $73.9 million, respectively, in income
tax benefit as a result of favorable resolution of certain tax matters, the expiration of the
statute of limitations on certain tax matters and the reorganization of certain legal entities in
Europe. These benefits are reflected in the Company’s 2006 and 2005 Consolidated Statements of
Operations.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
The Company has various contractual obligations that are recorded as liabilities in its
consolidated financial statements. Certain other items, such as purchase commitments and other
executory contracts, are not recognized as liabilities in the Company’s consolidated financial
statements but are required to be disclosed. Examples of items not recognized as liabilities in
the Company’s consolidated financial statements are commitments to purchase raw materials or
inventory that has not yet been received as of December 31, 2006 and future minimum lease payments
for the use of property and equipment under operating lease agreements.
The following table summarizes the effect that lease and other material contractual obligations
listed below are expected to have on the Company’s cash flow in the indicated period. In addition,
the table reflects the timing of principal and interest payments on borrowings outstanding as of
December 31, 2006. Additional details regarding these obligations are provided in the Notes to the
Consolidated Financial Statements, as referenced in the table (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
| |
|
|
|
|
|
Less |
|
|
|
|
|
|
| |
|
|
|
|
|
than |
|
1-3 |
|
3-5 |
|
More than |
| |
|
Total |
|
1 Year |
|
Years |
|
Years |
|
5 Years |
| |
|
|
Long-term debt — maturities (1) |
|
$ |
2,225.9 |
|
|
$ |
253.6 |
|
|
|
$703.0 |
|
|
$ |
254.7 |
|
|
$ |
1,014.6 |
|
Interest on long-term debt (2) |
|
|
1,152.0 |
|
|
|
117.3 |
|
|
|
185.0 |
|
|
|
126.0 |
|
|
|
723.7 |
|
Operating lease obligations (3) |
|
|
292.5 |
|
|
|
63.4 |
|
|
|
95.9 |
|
|
|
51.6 |
|
|
|
81.6 |
|
Purchase obligations (4) |
|
|
389.1 |
|
|
|
362.4 |
|
|
|
26.7 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Total contractual obligations (5) |
|
$ |
4,059.5 |
|
|
$ |
796.7 |
|
|
$ |
1,010.6 |
|
|
$ |
432.3 |
|
|
$ |
1,819.9 |
|
| |
|
|
- 29 -
| |
(1) |
|
Amounts represent contractual obligations due, excluding interest, based on
borrowings outstanding as of December 31, 2006. For further information relating to
these obligations, see Footnotes 9 and 10 of the Notes to the Consolidated Financial
Statements. |
| |
| |
(2) |
|
Amounts represent estimated interest expense on borrowings outstanding as of December
31, 2006. Interest on floating debt was estimated using the index rate in effect as of
December 31, 2006. For further information relating to this obligation, see Footnotes
9 and 10 of the Notes to the Consolidated Financial Statements. |
| |
| |
(3) |
|
Amounts represent contractual minimum lease obligations on operating leases as of
December 31, 2006. For further information relating to this obligation, see Footnote
12 of the Notes to the Consolidated Financial Statements. |
| |
| |
(4) |
|
Primarily consists of purchase commitments entered into as of December 31, 2006 for
finished goods, raw materials, components and services and joint venture interests
pursuant to legally enforceable and binding obligations, which include all significant
terms. |
| |
| |
(5) |
|
Total does not include contractual obligations reported on the December 31, 2006
balance sheet as current liabilities, except for current portion of long-term debt. |
The Company also has obligations with respect to its pension and post retirement medical
benefit plans. See Footnote 13 of the Notes to the Consolidated Financial Statements.
As of December 31, 2006, the Company had $95.4 million in standby letters of credit primarily
related to the Company’s self-insurance programs, including workers’ compensation, product
liability, and medical. See Footnote 20 of the Notes to the Consolidated Financial Statements for
further information.
As of December 31, 2006, the Company did not have any significant off-balance sheet arrangements,
as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Critical Accounting Policies
The Company’s accounting policies are more fully described in Footnote 1 of the Notes to the
Consolidated Financial Statements. As disclosed in Footnote 1 of the Notes to the Consolidated
Financial Statements, the preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions about future events
that affect the amounts reported in the financial statements and accompanying footnotes. Future
events and their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results inevitably will
differ from those estimates, and such differences may be material to the Consolidated Financial
Statements. The following sections describe the Company’s critical accounting policies.
Sales Recognition
Sales of merchandise and freight billed to customers are recognized when title passes and all
substantial risks of ownership change, which generally occurs either upon shipment or upon delivery
based upon contractual terms. Sales are net of provisions for cash discounts, returns, customer
discounts (such as volume or trade discounts), cooperative advertising and other sales related
discounts.
Recovery of Accounts Receivable
The Company evaluates the collectibility of accounts receivable based on a combination of factors.
When aware of a specific customer’s inability to meet its financial obligations, such as in the
case of bankruptcy filings or deterioration in the customer’s operating results or financial
position, the Company records a specific reserve for bad
debt to reduce the related receivable to the amount the Company reasonably believes is collectible.
The Company also records reserves for bad debt for all other customers based on a variety of
factors, including the length of time the receivables are past due and historical collection
experience. Accounts are reviewed for potential write-off on a case by case basis. Accounts
deemed uncollectible are written off, net of expected recoveries. If circumstances related to
specific customers change, the Company’s estimates of the recoverability of receivables could be
further adjusted. As of December 31, 2006, the Company had allowances for doubtful accounts of
$26.3 million on $1,139.9 million of accounts receivable.
- 30 -
Inventory Reserves
The Company reduces its inventory value for estimated obsolete and slow moving inventory in an
amount equal to the difference between the cost of inventory and the net realizable value based
upon assumptions about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs may be required.
Goodwill and Other Indefinite-Lived Intangible Assets
The Company conducts its annual test of impairment for goodwill and indefinite lived intangible
assets in the third quarter because it coincides with its annual strategic planning process for all
of its businesses. The Company also tests for impairment if events or circumstances indicate that
it is more likely than not that the fair value of a reporting unit or the indefinite life
intangible asset is below its carrying amount. The Company tests for impairment at the operating
segment level.
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. Additionally, increases in the risk adjusted rate could
result in impairment charges.
The Company assesses the fair value of its reporting units for its goodwill and other indefinite
lived intangible assets (primarily trademarks and tradenames) in its impairment tests, generally
based upon a discounted cash flow methodology, or an actual sales offer received from a prospective
buyer, if available. The discounted cash flows are estimated utilizing various assumptions
regarding future revenue and expenses, working capital, terminal value, and market discount rates.
The underlying assumptions used are consistent with those used in the strategic plan.
If the carrying amount of the reporting unit is greater than the fair value, goodwill impairment
may be present. The Company measures the goodwill impairment based upon the 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.
If the carrying amount of the intangible asset exceeds its fair value, an impairment charge is
recorded to the extent the recorded intangible asset exceeds the fair value.
Other Long-Lived Assets
The Company continuously evaluates if impairment indicators related to its property, plant and
equipment and other long-lived assets are present. These impairment indicators may include a
significant decrease in the market price of a long-lived asset or asset group, a significant
adverse change in the extent or manner in which a long-lived asset or asset group is being used or
in its physical condition, or a current-period operating or cash flow loss combined with a history
of operating or cash flow losses or a forecast that demonstrates continuing losses associated with
the use of a long-lived asset or asset group. If impairment indicators are present, the Company
estimates the future cash flows for the asset or group of assets. The sum of the undiscounted
future cash flows attributable to the asset or group of assets is compared to their carrying
amount. The cash flows are estimated utilizing various assumptions regarding future revenue and
expenses, working capital, and proceeds from asset disposals on a basis consistent with the
strategic plan. If the carrying amount exceeds the sum of the undiscounted future cash flows, the
Company discounts the future cash flows using a discount rate required for a similar investment of
like risk and records an
impairment charge as the difference between the fair value and the carrying value of the asset
group. Generally, the Company performs its testing of the asset group at the product-line level,
as this is the lowest level for which identifiable cash flows are available.
Product Liability Reserves
The Company has a self-insurance program for product liability that includes reserves for
self-retained losses and certain excess and aggregate risk transfer insurance. The Company uses
historical loss experience combined with
- 31 -
actuarial evaluation methods, review of significant
individual files and the application of risk transfer programs in determining required product
liability reserves. The Company’s actuarial evaluation methods take into account claims incurred
but not reported when determining the Company’s product liability reserve. The Company has product
liability reserves of $30.6 million as of December 31, 2006. While the Company believes that it
has adequately reserved for these claims, the ultimate outcome of these matters may exceed the
amounts recorded by the Company and such additional losses may be material to the Company’s
Consolidated Financial Statements.
Legal and Environmental Reserves
The Company is subject to losses resulting from extensive and evolving federal, state, local and
foreign laws and regulations, as well as contract and other disputes. The Company evaluates the
potential legal and environmental losses relating to each specific case and determines the probable
loss based on historical experience and estimates of cash flows for certain environmental matters.
The estimated losses take into account anticipated costs associated with investigative and
remediation efforts where an assessment has indicated that a probable liability has been incurred
and the cost can be reasonably estimated. No insurance recovery is taken into account in
determining the Company’s cost estimates or reserve, nor do the Company’s cost estimates or reserve
reflect any discounting for present value purposes, except with respect to long-term operations and
maintenance CERCLA matters which are estimated at present value. The Company’s estimate of
environmental response costs associated with these matters as of December 31, 2006 ranged between
$15.9 million and $35.6 million. As of December 31, 2006, the Company had a reserve of $19.8
million for such environmental response costs in the aggregate, which is included in other accrued
liabilities and other noncurrent liabilities in the Consolidated Balance Sheets.
Income Tax Contingencies
The Company establishes a tax contingency reserve for certain tax exposures when it is not probable
that the Company’s tax position will be ultimately sustained. The Company eliminates a tax
contingency reserve balance when it becomes probable that the Company’s tax position will
ultimately be sustained, which generally occurs when the statute of limitations for a specific
exposure item has expired or when the Company has reached agreement with the taxing authorities on
the treatment of an item. The Company generally assesses its tax contingency reserves on a
quarterly basis. Management cannot determine with certainty the ultimate resolution of these tax
matters. Actual results may differ from the recorded amounts.
Stock Options
Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R), using the modified
prospective method and therefore has not restated results for prior periods. Under this transition
method, stock-based compensation expense for 2006 includes compensation expense for all stock-based
compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant
date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting
for Stock-Based Compensation.” Stock-based compensation expense for all awards granted after
December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123(R). The Company recognizes stock-based compensation expense on a straight-line basis
over the requisite service period of the award, which is generally five years for stock options and
three years for restricted stock. Prior to the adoption of SFAS 123(R), the Company recognized
stock-based compensation expense by applying the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”
Determining the appropriate fair value model and calculating the fair value of share-based payment
awards require the input of highly subjective assumptions, including the expected life of the
share-based payment awards and stock
price volatility. The assumptions used in calculating the fair value of share-based payment awards
represent management’s best estimates, but these estimates involve inherent uncertainties and the
application of management judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation expense could be materially different in the future. In
addition, we are required to estimate the expected pre-vesting forfeiture rate and only recognize
expense for those shares expected to vest. If our actual pre-vesting forfeiture rate is materially
different from our estimate, the stock-based compensation expense could be significantly different
from our estimates. See Footnote 15 of the Notes to the Consolidated Financial Statements for a
further discussion of stock-based compensation.
- 32 -
New Accounting Pronouncements
In June 2006, the FASB issued Interpretation 48 (“FIN 48”), “Accounting for Uncertainty in Income
Taxes”, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, by defining a criterion that an individual tax position
must meet for any part of the benefit of that position to be recognized in an enterprise’s
financial statements. The interpretation would require a review of all tax positions accounted for
in accordance with FASB Statement No. 109 and apply a more-likely-than-not recognition threshold.
A tax position that meets the more-likely-than-not recognition threshold is initially and
subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely
to be realized upon ultimate settlement with a taxing authority that has full knowledge of all
relevant information. Subsequent recognition, derecognition, and measurement is based on
management’s best judgment given the facts, circumstances and information available at the
reporting date. The guidance is effective for fiscal years beginning after December 15, 2006,
which the Company intends to adopt on January 1, 2007. The Company does not believe the new
Interpretation will have a material effect on its financial position or results of operations,
however, adoption may result in the reclassification of certain income tax liabilities in our
consolidated balance sheet and an immaterial adjustment to the balance of retained earnings.
In September 2006, the FASB issued 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 expands disclosures about fair value measurements. SFAS 157 emphasizes
that fair value is a market-based measurement, not an entity-specific measurement, and states that
a fair value measurement should be determined based on the assumptions that market participants
would use in pricing the asset or liability. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements. SFAS 157 is effective
for fiscal years beginning after November 15, 2007, and the Company intends to adopt the standard
on January 1, 2008. The Company is currently evaluating the impact, if any, that SFAS 157 will
have on its financial position, results of operations and cash flows, but does not believe the
effect will be material.
In September 2006, the FASB issued 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”). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in
its statement of financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income. SFAS 158 also requires the measurement of
defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end
statement of financial position beginning with years ending after December 15, 2008 (with limited
exceptions). Effective December 31, 2006, the Company recognized the funded status of its defined
benefit postretirement plan and provided the required disclosures as a result of the adoption of
SFAS 158. The effect of adoption of SFAS 158 on the Company’s financial condition at December 31,
2006 has been included in the accompanying consolidated financial statements. See Footnote 13 of
the Notes to the Consolidated Financial Statements for additional information. The Company
currently measures defined benefit plan assets and liabilities for the majority of its plans on
September 30th and expects to adopt the measurement date provisions of SFAS 158 in 2008.
International Operations
For the years ended December 31, 2006, 2005 and 2004, the Company’s non-U.S. businesses accounted
for approximately 26%, 24% and 24% of net sales, respectively (see Footnote 19 of the Notes to the
Consolidated Financial Statements). Changes in both U.S. and non-U.S. net sales are shown below
for the years ended December 31, (in millions, except percentages):
- 33 -
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. |
|
2005 vs. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 % |
|
2004 % |
| |
|
2006 |
|
2005 |
|
2004 |
|
Change |
|
Change |
| |
|
|
U.S. |
|
$ |
4,603.4 |
|
|
$ |
4,338.5 |
|
|
$ |
4,365.6 |
|
|
|
6.1 |
% |
|
|
(0.6 |
)% |
Non-U.S |
|
|
1,597.6 |
|
|
|
1,378.7 |
|
|
|
1,341.5 |
|
|
|
15.9 |
|
|
|
2.8 |
|
| |
|
|
|
|
$ |
6,201.0 |
|
|
$ |
5,717.2 |
|
|
$ |
5,707.1 |
|
|
|
8.5 |
% |
|
|
0.2 |
% |
| |
|
|
Forward-Looking Statements
Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate
to, but are not limited to, information or assumptions about the effects of Project Acceleration,
sales, income/(loss), earnings per share, operating income or gross margin improvements, return on
equity, return on invested capital, capital expenditures, working capital, cash flow, dividends,
capital structure, debt to capitalization ratios, interest rates, internal growth rates,
restructuring, impairment and other charges, potential losses on divestitures, impact of changes in
accounting standards, pending legal proceedings and claims (including environmental matters),
future economic performance, costs and cost savings (including raw material inflation, productivity
and streamlining), synergies, management’s plans, goals and objectives for future operations,
performance and growth or the assumptions relating to any of the forward-looking statements. These
statements generally are accompanied by words such as “intend,” “anticipate,” “believe,”
“estimate,” “project,” “target,” “plan,” “expect,” “will,” “should” or similar statements. The
Company cautions that forward-looking statements are not guarantees because there are inherent
difficulties in predicting future results. Actual results could differ materially from those
expressed or implied in the forward-looking statements. Factors that could cause actual results to
differ include, but are not limited to, those matters set forth in this Report generally and Item
1A this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company’s market risk is impacted by changes in interest rates, foreign currency exchange rates
and certain commodity prices. Pursuant to the Company’s policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact of adverse changes in market
prices. The Company does not hold or issue derivative instruments for trading purposes.
The Company manages interest rate exposure through its conservative debt ratio target and its mix
of fixed and floating rate debt. Interest rate swaps may be used to adjust interest rate exposures
when appropriate based on market conditions, and, for qualifying hedges, the interest differential
of swaps is included in interest expense.
The Company’s foreign exchange risk management policy emphasizes hedging anticipated intercompany
and third party commercial transaction exposures of one-year duration or less. The Company focuses
on natural hedging techniques of the following form: 1) offsetting or netting of like foreign
currency flows, 2) structuring foreign subsidiary balance sheets with appropriate levels of debt to
reduce subsidiary net investments and subsidiary cash flows subject to conversion risk, 3)
converting excess foreign currency deposits into U.S. dollars or the relevant functional currency
and 4) avoidance of risk by denominating contracts in the appropriate functional currency. In
addition, the Company utilizes forward contracts and purchased options to hedge commercial and
intercompany transactions. Gains and losses related to qualifying hedges of commercial and
intercompany transactions are deferred and included in the basis of the underlying transactions.
Derivatives used to hedge intercompany loans are marked to market with the corresponding gains or
losses included in the Company’s Consolidated Statements of Operations.
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. During 2006, the Company experienced raw material inflation, which was more than offset
by pricing increases, favorable mix and productivity.
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
- 34 -
of these rates in future periods. It
estimates a loss in fair market value using statistical modeling techniques that are based on a
variance/covariance approach and includes substantially all market risk exposures (specifically
excluding equity-method investments). The fair value losses shown in the table below have no
impact on results of operations or financial condition, but are shown as an illustration of the
impact of potential adverse changes in interest and foreign currency exchange rates. The following
table indicates the calculated amounts for each of the years ended December 31, 2006 and 2005 (in
millions, except percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
December 31, |
|
2005 |
|
December 31, |
|
Confidence |
| Market Risk |
|
Average |
|
2006 |
|
Average |
|
2005 |
|
Level |
| |
Interest rates |
|
$ |
8.0 |
|
|
$ |
7.5 |
|
|
$ |
9.5 |
|
|
$ |
8.1 |
|
|
|
95 |
% |
Foreign exchange |
|
$ |
5.0 |
|
|
$ |
3.5 |
|
|
$ |
3.1 |
|
|
$ |
5.6 |
|
|
|
95 |
% |
The 95% confidence interval signifies the Company’s 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 Company’s favor. The
value-at-risk model assumes that all movements in these rates will be adverse. Actual experience
has shown that gains and losses tend to offset each other over time, and it is highly unlikely that
the Company could experience losses such as these over an extended period of time. These amounts
should not be considered projections of future losses, because actual results may differ
significantly depending upon activity in the global financial markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND ANNUAL
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Newell Rubbermaid Inc. is responsible for the accuracy and internal consistency
of the preparation of the consolidated financial statements and footnotes contained in this annual
report.
The Company’s management is also responsible for establishing and maintaining adequate internal
control over financial reporting. Newell Rubbermaid Inc. operates under a system of internal
accounting controls designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of published financial statements in accordance with generally
accepted accounting principles. The internal accounting control system is evaluated for
effectiveness by management and is tested, monitored and revised as necessary. All internal
control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
The Company’s management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2006. In making its assessment, the Company’s management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control—Integrated Framework. Based on the results of its evaluation, the
Company’s management concluded that, as of December 31, 2006, the Company’s internal control over
financial reporting is effective based on those criteria.
The Company’s independent auditors, Ernst & Young LLP, have audited the financial statements
prepared by the management of Newell Rubbermaid Inc. and management’s assessment of internal
control over financial reporting. Their reports on these financial statements, and on management’s
assessment of internal control over financial reporting, are presented below.
NEWELL RUBBERMAID INC.
Atlanta, Georgia
February 27, 2007
- 35 -
Report
of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Newell Rubbermaid Inc.
We have audited the accompanying consolidated balance sheets of Newell Rubbermaid Inc. as of
December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’
equity, and cash flows for each of the three years in the period ended December 31, 2006. Our
audits also included the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Newell Rubbermaid Inc. at December 31, 2006 and
2005, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Footnotes 1 and 15, on January 1, 2006 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123(R), Share Based Payment, and changed its method
of accounting for share-based payments using the modified prospective transition method. Also, as
discussed in Footnote 13, on December 31, 2006 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, and changed its method of recognizing the funded status of its defined
benefit postretirement plans.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Newell Rubbermaid Inc.’s internal control over
financial reporting as of December 31, 2006, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 27, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 27, 2007
- 36 -
Report of Independent Registered Public Accounting Firm
on Management’s Report on Internal Control over Financial
Reporting
The Board of Directors and Stockholders
Newell Rubbermaid Inc.
We have audited management’s assessment, included in the accompanying Management’s Responsibility
for Financial Statements and Annual Report on Internal Control Over Financial Reporting, that
Newell Rubbermaid Inc. maintained effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Newell
Rubbermaid Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on
the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed 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. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Newell Rubbermaid Inc. maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion, Newell Rubbermaid Inc. maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2006,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Newell Rubbermaid Inc. as of December 31,
2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2006 of Newell Rubbermaid
Inc. and our report dated February 27, 2007 expressed an unqualified opinion thereon.
Chicago, Illinois
February 27, 2007
- 37 -
Consolidated Statements of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Year
Ended December 31, |
|
2006 |
|
2005(1) |
|
2004(1) |
| (Amounts in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
6,201.0 |
|
|
$ |
5,717.2 |
|
|
$ |
5,707.1 |
|
Cost of products sold |
|
|
4,131.0 |
|
|
|
3,959.1 |
|
|
|
4,050.6 |
|
| |
|
|
Gross margin |
|
|
2,070.0 |
|
|
|
1,758.1 |
|
|
|
1,656.5 |
|
Selling, general and administrative expenses |
|
|
1,347.0 |
|
|
|
1,117.7 |
|
|
|
1,050.1 |
|
Impairment charges |
|
|
— |
|
|
|
0.4 |
|
|
|
264.0 |
|
Restructuring costs |
|
|
66.4 |
|
|
|
72.6 |
|
|
|
28.2 |
|
| |
|
|
Operating income |
|
|
656.6 |
|
|
|
567.4 |
|
|
|
314.2 |
|
Nonoperating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
of $23.0, $15.0, and $10.4 in 2006, 2005,
and 2004, respectively |
|
|
132.0 |
|
|
|
127.1 |
|
|
|
119.3 |
|
Other expense (income), net |
|
|
9.7 |
|
|
|
(23.1 |
) |
|
|
(3.0 |
) |
| |
|
|
Net nonoperating expenses |
|
|
141.7 |
|
|
|
104.0 |
|
|
|
116.3 |
|
| |
|
|
Income from continuing operations before
income taxes |
|
|
514.9 |
|
|
|
463.4 |
|
|
|
197.9 |
|
Income taxes |
|
|
44.2 |
|
|
|
57.1 |
|
|
|
92.9 |
|
| |
|
|
Income from continuing operations |
|
|
470.7 |
|
|
|
406.3 |
|
|
|
105.0 |
|
Loss from discontinued operations, net of tax |
|
|
(85.7 |
) |
|
|
(155.0 |
) |
|
|
(221.1 |
) |
| |
|
|
Net income (loss) |
|
|
$385.0 |
|
|
|
$251.3 |
|
|
|
($116.1 |
) |
| |
|
|
| |
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
274.6 |
|
|
|
274.4 |
|
|
|
274.4 |
|
Diluted |
|
|
275.5 |
|
|
|
274.9 |
|
|
|
274.7 |
|
Per common share - |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$1.71 |
|
|
|
$1.48 |
|
|
|
$0.38 |
|
Loss from discontinued operations |
|
|
(0.31 |
) |
|
|
(0.56 |
) |
|
|
(0.81 |
) |
| |
|
|
Net income (loss) |
|
|
$1.40 |
|
|
|
$0.92 |
|
|
|
($0.42 |
) |
| |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$1.71 |
|
|
|
$1.48 |
|
|
|
$0.38 |
|
Loss from discontinued operations |
|
|
(0.31 |
) |
|
|
(0.56 |
) |
|
|
(0.80 |
) |
| |
|
|
Net income (loss) |
|
|
$1.40 |
|
|
|
$0.91 |
|
|
|
($0.42 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
|
$0.84 |
|
|
|
$0.84 |
|
|
|
$0.84 |
|
(1) Results have been
restated to report the Company’s Home Décor Europe and Little Tikes
businesses as discontinued operations.
See Footnote 3.
See Notes to Consolidated Financial Statements.
- 38 -
Consolidated Balance Sheets
| |
|
|
|
|
|
|
|
|
| December
31, |
|
2006 |
|
2005(1) |
| (Amounts in millions, except par value) |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
$201.0 |
|
|
|
$115.5 |
|
Accounts receivable, net of allowances of $26.3
for 2006 and $28.5 for 2005 |
|
|
1,113.6 |
|
|
|
1,107.7 |
|
Inventories, net |
|
|
850.6 |
|
|
|
793.8 |
|
Deferred income taxes |
|
|
110.1 |
|
|
|
109.8 |
|
Prepaid expenses and other |
|
|
133.5 |
|
|
|
103.2 |
|
Current assets of discontinued operations |
|
|
68.1 |
|
|
|
242.7 |
|
| |
|
|
Total Current Assets |
|
|
2,476.9 |
|
|
|
2,472.7 |
|
| |
Property, plant and equipment, net |
|
|
746.9 |
|
|
|
854.0 |
|
Deferred income taxes |
|
|
1.3 |
|
|
|
37.7 |
|
Goodwill |
|
|
2,435.7 |
|
|
|
2,304.4 |
|
Other intangible assets, net |
|
|
458.8 |
|
|
|
401.7 |
|
Other assets |
|
|
190.9 |
|
|
|
185.2 |
|
Non-current assets of discontinued operations |
|
|
– |
|
|
|
190.4 |
|
| |
|
|
Total Assets |
|
$ |
6,310.5 |
|
|
$ |
6,446.1 |
|
| |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
$549.9 |
|
|
|
$590.5 |
|
Accrued compensation |
|
|
177.9 |
|
|
|
142.6 |
|
Other accrued liabilities |
|
|
710.9 |
|
|
|
677.7 |
|
Income taxes payable |
|
|
144.3 |
|
|
|
82.6 |
|
Notes payable |
|
|
23.9 |
|
|
|
4.0 |
|
Current portion of long-term debt |
|
|
253.6 |
|
|
|
162.8 |
|
Current liabilities of discontinued operations |
|
|
36.1 |
|
|
|
137.2 |
|
| |
|
|
Total Current Liabilities |
|
|
1,896.6 |
|
|
|
1,797.4 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
1,972.3 |
|
|
|
2,429.7 |
|
Other noncurrent liabilities |
|
|
551.4 |
|
|
|
566.6 |
|
Long-term liabilities of discontinued operations |
|
|
– |
|
|
|
9.2 |
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock, authorized shares,
800.0 at $1.00 par value; |
|
|
291.0 |
|
|
|
290.2 |
|
Outstanding shares: |
|
|
|
|
|
|
|
|
2006 –
291.0
2005 – 290.2 |
Treasury stock, at cost; |
|
|
(411.6 |
) |
|
|
(411.6 |
) |
Shares held: |
|
|
|
|
|
|
|
|
2006 –
15.7
2005 – 15.7 |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
505.0 |
|
|
|
453.0 |
|
Retained earnings |
|
|
1,690.4 |
|
|
|
1,538.3 |
|
Accumulated other comprehensive loss |
|
|
(184.6 |
) |
|
|
(226.7 |
) |
| |
|
|
Total Stockholders’ Equity |
|
|
1,890.2 |
|
|
|
1,643.2 |
|
| |
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
6,310.5 |
|
|
$ |
6,446.1 |
|
| |
|
|
(1) Results have been restated to report the Company’s Home Décor Europe and Little Tikes
businesses as discontinued operations.
See Footnote 3.
See Notes to Consolidated Financial Statements.
- 39 -
Consolidated Statements of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
|
2006 |
|
2005(1) |
|
2004(1) |
| |
|
|
(Amounts in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
$385.0 |
|
|
|
$251.3 |
|
|
|
($116.1 |
) |
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
193.3 |
|
|
|
191.6 |
|
|
|
209.4 |
|
Non-cash restructuring costs |
|
|
27.2 |
|
|
|
56.2 |
|
|
|
30.9 |
|
Deferred income taxes |
|
|
(5.0 |
) |
|
|
(63.9 |
) |
|
|
108.1 |
|
Gain on sale of assets/debt extinguishment |
|
|
(4.5 |
) |
|
|
(20.0 |
) |
|
|
(9.0 |
) |
Non-cash impairment charges |
|
|
50.9 |
|
|
|
34.4 |
|
|
|
374.0 |
|
(Gain) loss on disposal of discontinued operations |
|
|
(0.7 |
) |
|
|
96.8 |
|
|
|
90.5 |
|
Stock-based compensation expense |
|
|
44.0 |
|
|
|
6.1 |
|
|
|
2.8 |
|
Other |
|
|
(12.9 |
) |
|
|
(23.9 |
) |
|
|
(8.4 |
) |
Changes in current accounts excluding the effects of
acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
25.1 |
|
|
|
(51.5 |
) |
|
|
143.7 |
|
Inventories |
|
|
(32.2 |
) |
|
|
32.3 |
|
|
|
(74.2 |
) |
Accounts payable |
|
|
(51.0 |
) |
|
|
27.3 |
|
|
|
(20.3 |
) |
Discontinued operations |
|
|
30.1 |
|
|
|
60.3 |
|
|
|
(2.3 |
) |
Accrued liabilities and other |
|
|
(5.9 |
) |
|
|
44.6 |
|
|
|
(69.1 |
) |
| |
|
|
Net Cash Provided by Operating Activities |
|
|
$643.4 |
|
|
|
$641.6 |
|
|
|
$660.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
($60.6 |
) |
|
|
($740.0 |
) |
|
|
($6.6 |
) |
Expenditures for property, plant and equipment |
|
|
(138.3 |
) |
|
|
(92.2 |
) |
|
|
(121.9 |
) |
Disposals of noncurrent assets and sale of businesses |
|
|
187.0 |
|
|
|
65.5 |
|
|
|
318.1 |
|
| |
|
|
Net Cash (Used in)/Provided by Investing Activities |
|
|
($11.9 |
) |
|
|
($766.7 |
) |
|
|
$189.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
|
$177.0 |
|
|
|
$337.0 |
|
|
|
$33.9 |
|
Payments on notes payable and long-term debt |
|
|
(511.0 |
) |
|
|
(360.1 |
) |
|
|
(298.4 |
) |
Cash dividends |
|
|
(232.8 |
) |
|
|
(231.5 |
) |
|
|
(231.0 |
) |
Proceeds from exercised stock options and other |
|
|
16.7 |
|
|
|
(2.6 |
) |
|
|
1.4 |
|
| |
|
|
Net Cash Used in Financing Activities |
|
|
($550.1 |
) |
|
|
($257.2 |
) |
|
|
($494.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate effect on cash |
|
|
4.1 |
|
|
|
(7.8 |
) |
|
|
5.7 |
|
| |
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
85.5 |
|
|
|
(390.1 |
) |
|
|
361.2 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
115.5 |
|
|
|
505.6 |
|
|
|
144.4 |
|
| |
|
|
Cash and Cash Equivalents at End of Year |
|
|
$201.0 |
|
|
|
$115.5 |
|
|
|
$505.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures — cash paid
during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds |
|
|
$19.5 |
|
|
|
$84.9 |
|
|
|
$16.9 |
|
Interest |
|
|
160.9 |
|
|
|
136.8 |
|
|
|
127.0 |
|
|
|
|
| (1) |
|
Results have been restated to report the Company’s Home Décor Europe and Little Tikes
businesses as discontinued operations. See Footnote 3. |
See Notes to Consolidated Financial Statements.
- 40 -
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Add’l |
|
|
|
|
|
Accumulated |
|
Total |
| (Amounts in millions, |
|
Common |
|
Treasury |
|
Paid-In |
|
Retained |
|
Other |
|
Stockholders’ |
| except per share data) |
|
Stock |
|
Stock |
|
Capital |
|
Earnings |
|
Comprehensive Loss |
|
Equity |
| |
|
|
Balance at December 31, 2003 |
|
$ |
290.1 |
|
|
|
($411.6 |
) |
|
$ |
439.9 |
|
|
$ |
1,865.7 |
|
|
|
($167.8 |
) |
|
$ |
2,016.3 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(116.1 |
) |
|
|
— |
|
|
|
(116.1 |
) |
Foreign currency
translation, net of $64.2
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
104.8 |
|
|
|
104.8 |
|
Minimum pension liability
adjustment, net of $2.1 tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.5 |
|
|
|
3.5 |
|
Loss on derivative
instruments, net of $(6.7)
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10.9 |
) |
|
|
(10.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends on common
stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(231.0 |
) |
|
|
— |
|
|
|
(231.0 |
) |
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
| |
|
|
Balance at December 31, 2004 |
|
$ |
290.1 |
|
|
|
($411.6 |
) |
|
$ |
437.5 |
|
|
$ |
1,518.6 |
|
|
|
($70.4 |
) |
|
$ |
1,764.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
$251.3 |
|
|
|
$— |
|
|
|
$251.3 |
|
Foreign currency
translation, net of $(65.9)
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(107.6 |
) |
|
|
(107.6 |
) |
Minimum pension liability
adjustment, net of $(29.3)
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(59.8 |
) |
|
|
(59.8 |
) |
Gain on derivative
instruments, net of $6.8
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.1 |
|
|
|
11.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends on common
stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(231.5 |
) |
|
|
— |
|
|
|
(231.5 |
) |
Exercise of stock options |
|
|
0.1 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
15.1 |
|
|
|
— |
|
|
|
— |
|
|
|
15.1 |
|
| |
|
|
Balance at December 31, 2005 |
|
$ |
290.2 |
|
|
|
($411.6 |
) |
|
$ |
453.0 |
|
|
$ |
1,538.3 |
|
|
|
($226.7 |
) |
|
$ |
1,643.2 |
|
| |
|
|
Net income |
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
$385.0 |
|
|
|
$— |
|
|
|
$385.0 |
|
Foreign currency
translation, net of $17.7
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
28.8 |
|
|
|
28.8 |
|
Minimum pension liability
adjustment, net of $27.1
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.0 |
|
|
|
50.0 |
|
Loss on derivative
instruments, net of $(2.6)
tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4.3 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends on common
stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(232.8 |
) |
|
|
— |
|
|
|
(232.8 |
) |
Exercise of stock options |
|
|
0.8 |
|
|
|
— |
|
|
|
19.1 |
|
|
|
— |
|
|
|
— |
|
|
|
19.9 |
|
Adjustment to initially
apply SFAS 158, net of
$(15.4) tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(32.4 |
) |
|
|
(32.4 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
32.9 |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
32.8 |
|
| |
|
|
Balance at December 31, 2006 |
|
$ |
291.0 |
|
|
|
($411.6 |
) |
|
$ |
505.0 |
|
|
$ |
1,690.4 |
|
|
|
($184.6 |
) |
|
$ |
1,890.2 |
|
| |
|
|
See Notes to Consolidated Financial Statements.
- 41 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOOTNOTE 1
Description of Business and Significant Accounting Policies
Description of Business: Newell Rubbermaid is a global marketer of consumer and commercial
products that touch the lives of people where they work, live and play. The Company’s strong
portfolio of brands includes Sharpie®, Paper Mate®, DYMO®, EXPO®, Waterman®,
Parker®,
Rolodex®,
IRWIN®,
LENOX®, BernzOmatic®, Rubbermaid®,
Levolor®, Graco®, Calphalon® and Goody®. The Company’s
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.
Principles of Consolidation: The Consolidated Financial Statements include the accounts of the
Company, its majority owned subsidiaries and variable interest entities where the Company is the
primary beneficiary, after elimination of intercompany transactions.
Use of Estimates: The preparation of these financial statements requires the use of certain
estimates by management in determining the Company’s assets, liabilities, revenue and expenses and
related disclosures. Actual results could differ from those estimates.
Reclassifications: Certain 2005 and 2004 amounts have been reclassified to conform to the 2006
presentation. See Footnote 3 for a discussion of discontinued operations.
Concentration of Credit Risk: The Company sells products to customers in diversified industries
and geographic regions and, therefore, has no significant concentrations of credit risk. The
Company continuously evaluates the creditworthiness of its customers and generally does not require
collateral.
The Company evaluates the collectibility of accounts receivable based on a combination of factors.
When aware of a specific customer’s inability to meet its financial obligations, such as in the
case of bankruptcy filings or deterioration in the customer’s operating results or financial
position, the Company records a specific reserve for bad debt to reduce the related receivable to
the amount the Company reasonably believes is collectible. The Company also records reserves for
bad debt for all other customers based on a variety of factors, including the length of time the
receivables are past due and historical collection experience. Accounts are reviewed for potential
write-off on a on a case by case basis. Accounts deemed uncollectible are written off, net of
expected recoveries. If circumstances related to specific customers change, the Company’s
estimates of the recoverability of receivables could be further adjusted.
The Company’s forward exchange contracts, long-term cross currency interest rate swaps, and option
contracts do not subject the Company to risk due to foreign exchange rate movement, because gains
and losses on these instruments generally offset gains and losses on the assets, liabilities, and
other transactions being hedged. The Company is exposed to credit-related losses in the event of
non-performance by counterparties to certain derivative financial instruments. The Company does
not obtain collateral or other security to support derivative financial instruments subject to
credit risk, but monitors the credit standing of the counterparties.
The credit exposure that results from commodity, interest rate, and foreign exchange is the
fair value of contracts with a positive fair value as of the reporting date. There is no credit
exposure on the Company’s interest rate derivatives at December 31, 2006. The credit exposure on
foreign currency derivatives at December 31, 2006 was $7.8 million.
Sales Recognition: Sales of merchandise and freight billed to customers are recognized when title
passes and all substantial risks of ownership change, which generally occurs either upon shipment or upon
delivery based upon contractual terms. Sales are net of provisions for cash discounts, returns,
customer discounts (such as volume or trade discounts), cooperative advertising and other sales
related discounts.
- 42 -
Cash and Cash Equivalents: Cash and cash equivalents include cash on-hand and investments that
have a maturity of three months or less when purchased.
Inventories: Inventories are stated at the lower of cost or market value using the last-in,
first-out (LIFO) or first-in, first-out (FIFO) methods (see Footnote 5 for additional information).
The Company reduces its inventory value for estimated obsolete and slow moving inventory in an
amount equal to the difference between the cost of inventory and the net realizable value based
upon assumptions about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs may be required.
Property, Plant and Equipment: Property, plant, and equipment are stated at cost. Expenditures
for maintenance and repairs are expensed as incurred. Depreciation expense is calculated
principally on the straight-line basis. Useful lives determined by the Company are as follows:
buildings and improvements (20-40 years), and machinery and equipment (3-12 years).
Goodwill and Other Indefinite-Lived Intangible Assets: The Company conducts its annual test of
impairment for goodwill and indefinite lived intangible assets in the third quarter because it
coincides with its annual strategic planning process for all of its businesses. The Company also
tests for impairment if events or circumstances indicate that it is more likely than not that the
fair value of a reporting unit or the indefinite lived intangible asset is below its carrying
amount.
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 adverse change in its
relationships with significant customers.
The Company assesses the fair value of its reporting units for its goodwill and other indefinite
lived intangible assets (primarily trademarks and tradenames) in its impairment tests generally
based upon a discounted cash flow methodology. The discounted cash flows are estimated utilizing
various assumptions regarding future revenue and expenses, working capital, terminal value, and
market discount rates. The underlying assumptions used are consistent with those used in the
strategic plan.
Goodwill Impairment
The Company evaluates goodwill impairment one level below the reporting segment at the operating
segment level (herein referred to as the reporting unit). If the carrying amount of the reporting
unit is greater than the fair value, goodwill impairment may be present. The Company measures the
goodwill impairment based upon the 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.
Other Indefinite-Lived Intangible Asset Impairment (primarily Trademarks and Tradenames)
If the carrying amount of the intangible asset exceeds its fair value, an impairment charge is
recorded to the extent the recorded intangible asset exceeds the fair value.
See Footnotes 7 and 17 for additional detail on goodwill and other intangible assets.
Other Long-Lived Assets: The Company tests its other long-lived assets for impairment in
accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting
for the Impairment or Disposal of Long-Lived Assets.” The Company evaluates if impairment
indicators related to its property, plant and equipment and other long-lived assets are present.
These impairment indicators may include a significant decrease in the market price of a long-lived
asset or asset group, a significant adverse change in the extent or manner in which a long-lived
asset or asset group is being used or in its physical condition, or a current-period operating or
cash flow loss combined with a history of operating or cash flow losses or a forecast that
demonstrates continuing losses associated with the use of a long-lived asset or asset group. If
impairment indicators are present, the Company
- 43 -
estimates the future cash flows for the asset or group of assets. The sum of the undiscounted
future cash flows attributable to the asset or group of assets is compared to their carrying
amount. The cash flows are estimated utilizing various assumptions regarding future revenue and
expenses, working capital, and proceeds from asset disposals on a basis consistent with the
strategic plan. If the carrying amount exceeds the sum of the undiscounted future cash flows, the
Company determines the assets’ fair value by discounting the future cash flows using a discount
rate required for a similar investment of like risk and records an impairment charge as the
difference between the fair value and the carrying value of the asset group. Generally, the
Company performs its testing of the asset group at the product-line level, as this is the lowest
level for which identifiable cash flows are available. See Footnote 17 for additional information.
Shipping and Handling Costs: The Company records shipping and handling costs as a component of
costs of products sold.
Product Liability Reserves: The Company has a self-insurance program for product liability that
includes reserves for self-retained losses and certain excess and aggregate risk transfer
insurance. The Company uses historical loss experience combined with actuarial evaluation methods,
review of significant individual files and the application of risk transfer programs in determining
required product liability reserves. The Company’s actuarial evaluation methods take into account
claims incurred but not reported when determining the Company’s product liability reserve. While
the Company believes that it has adequately reserved for these claims, the ultimate outcome of
these matters may exceed the amounts recorded by the Company and such additional losses may be
material to the Company’s Consolidated Financial Statements.
Product Warranties: In the normal course of business, the Company offers warranties for a variety
of its products. The specific terms and conditions of the warranties vary depending upon the
specific product and markets in which the products were sold. The Company accrues for the
estimated cost of product warranty at the time of sale based on historical experience.
Advertising Costs: The Company expenses advertising costs as incurred. Cooperative advertising
with customers is recorded in the Consolidated Financial Statements as a component of net sales and
totaled $153.3 million, $147.4 million, and $132.3 million for 2006, 2005 and 2004, respectively.
All other advertising costs are recorded in selling, general and administrative expenses and
totaled $199.9 million, $135.6 million and $113.4 million in 2006, 2005 and 2004, respectively.
Research and Development Costs: Research and development costs relating to both future and current
products are charged to selling, general and administrative expenses as incurred. These costs
aggregated $102.0 million, $92.5 million, and $95.9 million in 2006, 2005 and 2004, respectively.
Derivative Financial Instruments: The Company follows SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended. Derivative financial instruments are used only to
manage certain commodity, interest rate and foreign currency risks. These instruments include
commodity swaps, interest rate swaps, long-term cross currency interest rate swaps, forward
exchange contracts and options. The Company’s forward exchange contracts, options and long-term
cross currency interest rate swaps do not subject the Company to risk due to foreign exchange rate
movement because gains and losses on these instruments generally offset gains and losses on the
assets, liabilities, and other transactions being hedged.
On the date in which the Company enters into a derivative, the derivative is designated as a hedge
of the identified exposure. The Company measures effectiveness of its hedging relationships both
at hedge inception and on an ongoing basis.
Interest Rate Risk Management: Gains and losses on interest rate swaps designated as cash flow
hedges, to the extent that the hedge relationship has been effective, are deferred in other
comprehensive income and recognized in interest expense over the period in which the Company
recognizes interest expense on the related debt instrument. Any ineffectiveness on these
instruments is immediately recognized in interest expense in the period that the ineffectiveness
occurs.
- 44 -
The Company also has designated certain interest rate swaps as fair value hedges. The Company has
structured existing interest rate swap agreements to be 100% effective. These instruments include
interest rate swaps, long-term cross currency interest rate swaps and forward exchange contracts.
Gains or losses resulting from the early termination of interest rate swaps are deferred as an
increase or decrease to the carrying value of the related debt and amortized as an adjustment to
the yield of the related debt instrument over the remaining period originally covered by the swap.
The cash received or paid relating to the termination of interest rate swaps is included in Other
as an operating activity in the Consolidated Statements of Cash Flows.
Foreign Currency Management: The Company utilizes forward exchange contracts and options to manage
foreign exchange risk related to both known and anticipated intercompany transactions and
third-party commercial transaction exposures of approximately one year in duration or less. The
effective portion of the changes in fair value of these instruments is reported in other
comprehensive income and reclassified into earnings in the same period or periods in which the
hedged transactions affect earnings. Any ineffective portion is immediately recognized in
earnings.
The Company also utilizes long-term cross currency interest rate swaps to hedge long-term
intercompany financing transactions. Derivative instruments used to hedge intercompany financing
transactions are marked to market with the corresponding gains or losses included in accumulated
other comprehensive income.
The fair value of foreign currency hedging instruments is recorded in the captions Prepaid expenses
and other, Other assets, Other accrued liabilities or Other noncurrent liabilities on the
Consolidated Balance Sheets depending on the maturity of the Company’s cross currency interest rate
swaps and forward contracts at December 31, 2006 and 2005. The earnings impact of cash flow hedges
relating to forecasted purchases of inventory is generally reported in cost of products sold to
match the underlying transaction being hedged. For hedged forecasted transactions, hedge
accounting is discontinued if the forecasted transaction is no longer probable of occurring, in
which case previously deferred hedging gains or losses would be recorded to earnings immediately.
Disclosures about Fair Value of Financial Instruments: The Company’s financial instruments include
cash and cash equivalents, accounts receivable, notes payable and short and long-term debt. The
fair value of these instruments approximates carrying values due to their short-term duration,
except as follows:
Qualifying Derivative Instruments: The fair value of the Company’s qualifying derivative
instruments is recorded in the Consolidated Balance Sheets and is described in more detail in
Footnote 11.
Long-term Debt: The fair values of the Company’s long-term debt issued under the medium-term note
program and the junior convertible subordinated debentures are based on quoted market prices and
are as follows as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Medium-term note program |
|
|
$1,321.7 |
|
|
|
$1,473.6 |
|
Junior convertible subordinated debentures |
|
|
$398.1 |
|
|
|
$345.4 |
|
All other significant long-term debt is pursuant to floating rate instruments whose carrying
amounts approximate fair value.
Foreign Currency Translation: Assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at the rates of exchange in effect at year-end. The related translation adjustments
are made directly to accumulated other comprehensive income. Income and expenses are translated at
the average monthly rates of exchange in effect during the year. Gains and losses from foreign
currency transactions of these subsidiaries are included in net income. International subsidiaries
operating in highly inflationary economies translate nonmonetary assets at historical rates, while
net monetary assets are translated at current rates, with the resulting translation adjustment
included in net income as other expense (income), net.
Income Tax Contingencies: The Company establishes a tax contingency reserve for certain tax
exposures when it is not probable that the Company’s tax position will be ultimately sustained.
The Company eliminates a tax contingency reserve balance when it becomes probable that the
Company’s tax position will ultimately be sustained,
- 45 -
which generally occurs when the statute of limitations for a specific exposure item has expired or
when the Company has reached agreement with the taxing authorities on the treatment of an item.
The Company generally assesses its tax contingency reserves on a quarterly basis. Management
cannot determine with certainty the ultimate resolution of these tax matters. Actual results may
differ from the recorded amounts.
Stock-Based Compensation: Prior to January 1, 2006, the Company recognized stock-based
compensation expense by applying the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under APB
25, the Company generally recognized compensation expense only for restricted stock grants. The
Company recognized the compensation expense associated with the restricted stock ratably over the
associated service period.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123(R)”), using the modified prospective transition method, and
therefore has not restated the results of prior periods. Under this transition method, stock-based
compensation expense for 2006 includes (i) compensation expense for all stock-based compensation
awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for
Stock-Based Compensation,” and (ii) compensation expense for all share-based payment awards granted
after January 1, 2006 based on estimated grant-date fair values estimated in accordance with the
provision of SFAS 123(R). Compensation expense is adjusted for estimated forfeitures and is
recognized on a straight-line basis over the requisite service period of the award, which is
generally five years for stock options and three years for restricted stock. The Company estimated
future forfeiture rates based on its historical experience. See Footnote 15 for additional
information.
Accumulated Other Comprehensive Loss: The following table displays the components of accumulated
other comprehensive loss (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Foreign |
|
Unrecognized |
|
After-tax |
|
Accumulated |
| |
|
Currency |
|
Pension & Other |
|
Derivative |
|
Other |
| |
|
Translation |
|
Postretirement |
|
Hedging |
|
Comprehensive |
| |
|
Gain |
|
Costs |
|
Gain |
|
Loss |
| |
|
|
Balance at 12/31/05 |
|
|
$12.8 |
|
|
|
($246.3 |
) |
|
|
$6.8 |
|
|
|
($226.7 |
) |
Disposal/liquidation of businesses |
|
|
(1.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1.3 |
) |
Other current year changes |
|
|
30.1 |
|
|
|
17.6 |
|
|
|
(4.3 |
) |
|
|
43.4 |
|
| |
|
|
Balance at 12/31/06 |
|
|
$41.6 |
|
|
|
($228.7 |
) |
|
|
$2.5 |
|
|
|
($184.6 |
) |
| |
|
|
Recent Accounting Pronouncements: In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, an
interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in
accordance with FASB Statement No. 109, by defining a criterion that an individual tax position
must meet for any part of the benefit of that position to be recognized in an enterprise’s
financial statements. The interpretation would require a review of all tax positions accounted for
in accordance with FASB Statement No. 109 and apply a more-likely-than-not recognition threshold.
A tax position that meets the more-likely-than-not recognition threshold is initially and
subsequently measured as the largest amount of tax benefit that is greater than 50 percent likely
to be realized upon ultimate settlement with a taxing authority that has full knowledge of all
relevant information. Subsequent recognition, derecognition, and measurement is based on
management’s best judgment given the facts, circumstances and information available at the
reporting date. The guidance is effective for fiscal years beginning after December 15, 2006, and
the Company intends to adopt the interpretation on January 1, 2007. The Company does not believe
FIN 48 will have a material effect on its financial position or results of operations, however,
adoption may result in the reclassification of certain income tax liabilities in our consolidated
balance sheet and an immaterial adjustment to the balance of retained earnings.
In September 2006, the 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 expands disclosures about
fair value measurements. SFAS 157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and states that a fair
- 46 -
value measurement should be determined based on the assumptions that market participants would use
in pricing the asset or liability. This Statement applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this
Statement does not require any new fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, and the Company intends to adopt the standard on January 1,
2008. The Company is currently evaluating the impact, if any, that SFAS 157 will have on its
financial position, results of operations and cash flows, but does not believe the effect will be
material.
FOOTNOTE 2
Acquisition of DYMO
On November 23, 2005, the Company acquired DYMO, a global leader in designing, manufacturing and
marketing on-demand labeling solutions, from Esselte AB. The purchase price of $699.2 million was
finalized in 2006, after consideration of certain working capital and other adjustments. The
Company funded the purchase payment through a combination of available cash of $480.2 million and
debt of $219.0 million from pre-existing credit facilities. In 2006, the Company finalized the
purchase price allocation of $699.2 million to the identifiable assets and liabilities. The
purchase price allocation was based on management’s estimate of fair value using the assistance of
third party appraisals at the date of acquisition as follows (in millions):
| |
|
|
|
|
Current assets |
|
|
$33.8 |
|
Property, plant & equipment, net |
|
|
21.5 |
|
Goodwill |
|
|
609.3 |
|
Other intangible assets, net |
|
|
118.9 |
|
Other assets |
|
|
0.2 |
|
|
|
|
|
Total assets |
|
|
$783.7 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
$38.1 |
|
Deferred income taxes |
|
|
42.9 |
|
Other noncurrent liabilities |
|
|
3.5 |
|
|
|
|
|
Total liabilities |
|
|
$84.5 |
|
|
|
|
|
- 47 -
The allocation of the purchase price resulted in the recognition of $609.3 million of goodwill
primarily related to the anticipated future earnings and cash flows of the DYMO business including
the estimated effects of the integration of this business into the Office Products segment. The
transaction resulted in the recognition of $118.9 million in intangible assets consisting primarily
of customer lists, patents, and trademarks. Approximately $77.4 million were indefinite-lived
intangible assets related to trademarks and $41.5 million related to finite-lived intangible assets
that will be amortized over periods of 3 to 10 years with a weighted average amortization period of
5.3 years.
The transaction summarized above was accounted for using the purchase method of accounting and the
results of operations are included in the Company’s Consolidated Financial Statements since the
acquisition date. The acquisition costs included in the purchase price were allocated to goodwill.
The unaudited consolidated results of operations on a pro forma basis, as though the 2005
acquisition of DYMO had been completed on January 1, 2004, are as follows for the year ended
December 31, (in millions, except per share amounts):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
| |
|
|
Net sales |
|
|
$5,923.2 |
|
|
|
$5,935.4 |
|
Income from continuing operations |
|
|
$417.0 |
|
|
|
$119.6 |
|
Net income (loss) |
|
|
$262.0 |
|
|
|
($101.5 |
) |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$1.52 |
|
|
|
$0.44 |
|
Net income (loss) |
|
|
$0.95 |
|
|
|
($0.37 |
) |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$1.52 |
|
|
|
$0.44 |
|
Net income (loss) |
|
|
$0.95 |
|
|
|
($0.37 |
) |
- 48 -
These pro forma financial results have been prepared for comparative purposes only and include
certain adjustments, such as increased interest expense on acquisition debt. They do not reflect
the effect of synergies that are expected to result from integration.
FOOTNOTE 3
Discontinued Operations
The following table summarizes the results of businesses reported as discontinued operations for
the years ended December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Net sales |
|
|
$508.5 |
|
|
|
$798.2 |
|
|
|
$1,212.4 |
|
| |
|
|
Loss from operations of discontinued
operations, net of income tax expense of
$8.6 million, $5.7 million and $9.2 million
for 2006, 2005 and 2004, respectively |
|
|
($86.4 |
) |
|
|
($58.2 |
) |
|
|
($130.6 |
) |
Gain (loss) on disposal of discontinued
operations, net of income tax expense of
$6.5 million, $- million and $4.7 million
for 2006, 2005 and 2004, respectively |
|
|
0.7 |
|
|
|
(96.8 |
) |
|
|
(90.5 |
) |
| |
|
|
Loss from discontinued operations, net of tax |
|
|
($85.7 |
) |
|
|
($155.0 |
) |
|
|
($221.1 |
) |
| |
|
|
No amounts related to interest expense have been allocated to discontinued operations.
The following table presents summarized balance sheet information of the discontinued operations as
of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Accounts receivable, net |
|
|
$35.8 |
|
|
|
$127.1 |
|
Inventories, net |
|
|
18.8 |
|
|
|
104.8 |
|
Prepaid expenses and other |
|
|
1.0 |
|
|
|
10.8 |
|
Property, plant and equipment, net |
|
|
12.5 |
|
|
|
122.9 |
|
Goodwill |
|
|
— |
|
|
|
50.3 |
|
Other intangible assets, net |
|
|
— |
|
|
|
16.7 |
|
Other assets |
|
|
— |
|
|
|
0.5 |
|
| |
|
|
Total Assets |
|
|
$68.1 |
|
|
|
$433.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
$11.6 |
|
|
|
$71.9 |
|
Accrued compensation |
|
|
4.1 |
|
|
|
18.5 |
|
Other accrued liabilities |
|
|
15.3 |
|
|
|
46.8 |
|
Other noncurrent liabilities |
|
|
5.1 |
|
|
|
9.2 |
|
| |
|
|
Total Liabilities |
|
|
$36.1 |
|
|
|
$146.4 |
|
| |
|
|
As of December 31, 2006, the assets and liabilities of the discontinued operations consist of the
remaining portions of the Home Décor Europe business. As of December 31, 2005, the assets and
liabilities of the discontinued operations consist of the European Cookware, Home Décor Europe and
Little Tikes businesses.
Little Tikes
In September 2006, the Company entered into an agreement for the intended sale of its Little Tikes
business unit to a global family and children’s entertainment company. Little Tikes is a global
marketer and manufacturer of children’s toys and furniture for consumers. The transaction closed
in the fourth quarter of 2006. This business was previously included in the Company’s Home &
Family segment. In 2005, Little Tikes had net sales of approximately $250 million.
- 49 -
In connection with this transaction, the Company recorded a gain of $16.0 million, net of tax, in
2006. The total net gain is reported in the table above as part of the gain (loss) on disposal of
discontinued operations.
Home Décor Europe
In June 2006, the Company’s Board of Directors committed to a plan to sell the Home Décor Europe
business. As a result, the business’s operating results, including the impairment charge
recognized in the first quarter of 2006 (see further discussion below), is included in the loss
from operations of discontinued operations. The Home Décor Europe business designed, manufactured
and sold drapery hardware and window treatments in Europe under Gardinia® and other local brands
and was previously classified in the Company’s former Home Fashions segment. In 2005, Home Décor
Europe had net sales of approximately $377 million.
In September 2006, the Company entered into an agreement for the intended sale of portions of the
Home Décor Europe business to a global manufacturer and marketer of window treatments and
furnishings. The sale included the businesses in Portugal and the Nordic, Central and Eastern
European regions. The sale included the largest portion of the total Home Décor Europe business
and closed effective December 1, 2006, except for operations in Poland and the Ukraine, which
closed effective February 1, 2007.
In October 2006, the Company received a binding offer for the intended sale of the Southern
European region of the Home Décor Europe business to another party. The transaction closed in
France and Spain effective January 1, 2007 and in Italy effective February 1, 2007, completing the
divestiture of Home Décor Europe.
Impairment testing performed by the Company in 2005, utilizing a discounted cash flow analysis,
indicated that the enterprise value of the Home Décor Europe business significantly exceeded the
book value of this business unit, and no impairment was recorded in respect of this business in
2005. However, during the first quarter of 2006, as a result of a revised corporate strategy and
an initiative to improve the Company’s portfolio of businesses to focus on those that are best
aligned with the Company’s strategies of differentiated products, best cost and consumer branding,
the Company began exploring various options for its Home Décor Europe business. Those options
included marketing the business for potential sale. As a result of this effort, the Company
received a preliminary offer from a potential buyer which gave the Company a better indication of
the business’s fair value, and revealed that the value of the business to a third party was lower
than the fair value the Company had previously estimated using expected future cash flows. Based
on this offer, the Company determined that the business had a net book value in excess of its fair
value. Due to the apparent decline in value, the Company recorded a $50.9 million impairment
charge in the first quarter of 2006. During the third quarter of 2006, as a result of the
agreements discussed above to dispose of the business, the Company recorded an additional
impairment charge of $6.8 million. During the fourth quarter of 2006, as a result of changes in
the structure of the agreements discussed above to dispose of the business, the Company recorded an
additional impairment charge on the remaining portions of the Home Décor Europe business of $2.5
million, net of an income tax benefit of $1.7 million.
In connection with these transactions, the Company recorded a loss of $11.3 million, net of tax, in
2006. The total net loss is reported in the table above as part of the gain (loss) on disposal of
discontinued operations.
European Cookware
In October 2005, the Company entered into an agreement for the intended sale of its European
Cookware business. The Company completed this divestiture on January 1, 2006. This business
included the brands Pyrex® (used under exclusive license from Corning Incorporated and its
subsidiaries in Europe, the Middle East and Africa only) and Vitri® and was previously included in
the Company’s Home & Family segment.
In connection with this transaction, the Company recorded a total non-cash loss related to the sale
of $33.9 million in 2005. The non-cash loss is reported in the table above as part of the gain
(loss) on disposal of discontinued operations. In 2005, the European Cookware business had net
sales of approximately $115 million.
- 50 -
Curver
In January 2005, the Company entered into an agreement for the intended sale of the Company’s
Curver business. In June 2005, the Company completed the sale of its Curver business. The Curver
business included the Company’s European indoor organization and home storage division and was
previously reported in the former Cleaning & Organization segment. The sales price, which was
subject to reduction for working capital adjustments, was $5 million, paid at closing, plus a note
receivable for $5 million, payable within 12 years from closing. The Company may also receive
contingent payments, up to an aggregate maximum of $25 million, based on the adjusted earnings
before interest and taxes of the Curver business for the five years ending December 31, 2009. Due
to anticipated shortfalls in working capital, the Company does not expect to collect any of the $5
million note receivable. In addition, the Company has not included the contingent payments in the
calculation of the loss on disposal of discontinued operations.
In connection with this transaction, the Company recorded a non-cash loss related to the sale of
$62.0 million, net of tax, in 2005, included in the gain (loss) on disposal of discontinued
operations in the table above. In 2004, the Company recorded a non-cash impairment charge of $78.9
million, net of tax, ($34.0 million for goodwill and $44.9 million for other long-lived assets)
related to Curver. The charge is included in the loss from operations of discontinued operations
for 2004 in the table above.
Panex
In January 2004, the Company completed the sale of its Panex Brazilian low-end cookware division
(previously reported in the Home & Family operating segment) and European picture frames businesses
(previously reported in the former Home Fashions operating segment).
Burnes, Anchor Hocking and Mirro
In April 2004, the Company sold substantially all of its U.S. picture frame business (Burnes), its
Anchor Hocking glassware business and its Mirro cookware business. Under the terms of the
agreement and final adjustments relating to the transaction, the Company retained the accounts
receivable of the businesses of $76.6 million, and total proceeds, including the retained
receivables, as a result of the transaction were $304 million. The Burnes picture frame business
was previously reported in the former Home Fashions operating segment, while the Anchor Hocking and
Mirro businesses were previously reported in the Home & Family operating segment.
Little Tikes Commercial Play Systems Inc.
In July 2004, the Company completed the sale of Little Tikes Commercial Play Systems Inc.
(“LTCPS”) to PlayPower, Inc. for approximately $41 million. LTCPS was previously reported in the
Home & Family operating segment, as a unit of the Company’s Little Tikes division. LTCPS is a
manufacturer of commercial playground systems and contained playground environments. The Company
retained the consumer portion of its Little Tikes division.
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 Company’s portfolio. In connection with
Project Acceleration, the Board of Directors of the Company approved a restructuring plan (“the
Plan”) that commenced in the fourth quarter of 2005. The Plan is designed to reduce manufacturing
overhead to achieve best cost positions and to allow the Company to increase investment in new
product development, brand building and marketing. Project Acceleration includes the closures of
approximately one-third of the Company’s 64 manufacturing facilities (as of December 31, 2005,
adjusted for the divestiture of Little Tikes and Home Décor Europe), optimizing the Company’s
geographic manufacturing footprint. Since the plan’s inception, the Company has announced the
closure of 14 manufacturing facilities. In 2006, the Company recorded restructuring costs of $66.4
million related to Project Acceleration. In 2005, the Company recorded restructuring costs of
$72.6 million, of which $51.3 million relates to Project
- 51 -
Acceleration and $21.3 million relates to restructuring actions approved prior to the commencement
of Project Acceleration (see below for details). Through December 31, 2006, the Company has
approved approximately $166.2 million in restructuring actions related to Project Acceleration and
recorded $117.7 million of costs. The Company expects the remaining $48.5 million of costs,
primarily severance, associated with plans approved as of December 31, 2006, to be recorded during
the first quarter of 2007. The Plan is expected to result in cumulative restructuring costs of approximately $375 million to
$400 million ($315 million — $340 million after tax), with between $100 million and $130 million
($85 million — $110 million after tax) to be incurred in 2007 (Unaudited).
The table below shows the restructuring costs recognized for restructuring activities for the
following periods (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Facility and other exit costs |
|
|
$14.9 |
|
|
|
$51.3 |
|
Employee severance and termination benefits |
|
|
44.7 |
|
|
|
— |
|
Exited contractual commitments and other |
|
|
6.8 |
|
|
|
— |
|
| |
|
|
Restructuring costs |
|
|
$66.4 |
|
|
|
$51.3 |
|
| |
|
|
Restructuring provisions were determined based on estimates prepared at the time the restructuring
actions were approved by management and are periodically updated for changes, and also include
amounts recognized as incurred. A summary of the Company’s restructuring plan reserves is as
follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
12/31/05 |
|
|
|
|
|
Costs |
|
12/31/06 |
| |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
| |
|
|
Facility and other exit costs |
|
$ |
— |
|
|
$ |
14.9 |
|
|
|
($14.9 |
) |
|
|
$— |
|
Employee severance and termination benefits |
|
|
— |
|
|
|
44.7 |
|
|
|
(15.8 |
) |
|
|
28.9 |
|
Exited contractual commitments and other |
|
|
— |
|
|
|
6.8 |
|
|
|
(4.8 |
) |
|
|
2.0 |
|
| |
|
|
|
|
$ |
— |
|
|
$ |
66.4 |
|
|
|
($35.5 |
) |
|
$ |
30.9 |
|
| |
|
|
Costs incurred include cash payments and the impairment of assets associated with vacated
facilities and future minimum lease payments included in facility and other exit costs.
The following table depicts the changes in accrued restructuring reserves for the Plan for the
period ended December 31, 2006 aggregated by reportable business segment (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
12/31/05 |
|
|
|
|
|
Costs |
|
12/31/06 |
| Segment |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
| |
Cleaning, Organization & Décor |
|
$ |
— |
|
|
$ |
22.0 |
|
|
|
($17.6 |
) |
|
|
$4.4 |
|
Office Products |
|
|
— |
|
|
|
38.7 |
|
|
|
(13.3 |
) |
|
|
25.4 |
|
Tools & Hardware |
|
|
— |
|
|
|
3.6 |
|
|
|
(3.2 |
) |
|
|
0.4 |
|
Home & Family |
|
|
— |
|
|
|
1.3 |
|
|
|
(1.0 |
) |
|
|
0.3 |
|
Corporate |
|
|
— |
|
|
|
0.8 |
|
|
|
(0.4 |
) |
|
|
0.4 |
|
| |
|
|
|
|
$ |
— |
|
|
$ |
66.4 |
|
|
|
($35.5 |
) |
|
$ |
30.9 |
|
| |
|
|
During 2006, the Company received a better indication of the value of assets being disposed of in
the Home & Family segment and also made changes to a disposal group of assets in the former
Cleaning & Organization segment. These assets were previously written down to estimated net
realizable value during the fourth quarter of 2005 as part of Project Acceleration. As a result,
the Company reversed $4.8 million of restructuring costs in 2006 due to a combination of higher
proceeds and changes made to a disposal group of assets.
Project Acceleration commenced in December 2005 and resulted in non-cash facility restructuring
costs in 2005, aggregated by reportable business segment, as follows (in millions):
- 52 -
| |
|
|
|
|
| Segment |
|
Provision |
| |
Cleaning, Organization & Décor |
|
|
$29.3 |
|
Office Products |
|
|
8.6 |
|
Tools & Hardware |
|
|
6.8 |
|
Home & Family |
|
|
6.6 |
|
|
|
|
|
|
|
|
$51.3 |
|
|
|
|
|
The restructuring actions approved in 2005 related to Project Acceleration resulted in the closure
of 9 facilities, with estimated cash costs, primarily employee severance, related to these actions
of approximately $25 million to $30 million. As of December 31, 2005, no expenses were recorded
related to these cash costs, as notification to the affected employees had not been made.
Pre-Project Acceleration Restructuring Activities
The Company announced a significant restructuring plan (the “2001 Plan”) on May 3, 2001. The
specific objectives of the 2001 Plan were to streamline the Company’s supply chain to become the
best-cost global provider throughout the Company’s portfolio by reducing worldwide headcount and
consolidating duplicative manufacturing facilities. The Company recorded $461.7 million in
restructuring costs under the 2001 Plan, including $179.2 million for discontinued operations.
While the accounting charges associated with the 2001 Plan were completed in the second quarter of
2004, the Company continued to selectively approve individual restructuring plans. The following
table shows the restructuring costs, net of reversals, recognized under the terms of the 2001 Plan
and for the selective restructuring actions prior to Project Acceleration for the years ended
December 31, excluding restructuring costs related to discontinued operations (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
| |
|
|
Facility and other exit costs |
|
|
$7.9 |
|
|
$ |
24.8 |
|
Employee severance and termination benefits |
|
|
11.1 |
|
|
|
5.2 |
|
Exited contractual commitments and other |
|
|
2.3 |
|
|
|
(1.8 |
) |
| |
|
|
Restructuring costs |
|
$ |
21.3 |
|
|
$ |
28.2 |
|
| |
|
|
Restructuring provisions were determined based on estimates prepared at the time the specific
restructuring actions were approved by management, and also include amounts recognized as incurred.
In 2005, the Company reduced its restructuring reserve by approximately $5.7 million, primarily as
a result of higher proceeds received from the sale of property, plant and equipment and favorable
negotiations on exited contracts.
Approximately
$0.9 million of pre-Acceleration restructuring reserves remain as of December 31,
2006, representing facility and other exit costs. Changes in accrued restructuring reserves for
the year ended December 31, 2005, is as follows (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
12/31/04 |
|
|
|
|
|
Costs |
|
12/31/05 |
| |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
| |
|
|
Facility and other exit costs |
|
$ |
11.3 |
|
|
|
$7.9 |
|
|
|
($17.0 |
) |
|
$ |
2.2 |
|
Employee severance and termination benefits |
|
|
7.5 |
|
|
|
11.1 |
|
|
|
(17.2 |
) |
|
|
1.4 |
|
Exited contractual commitments and other |
|
|
5.8 |
|
|
|
2.3 |
|
|
|
(7.2 |
) |
|
|
0.9 |
|
| |
|
|
|
|
$ |
24.6 |
|
|
$ |
21.3 |
|
|
|
($41.4 |
) |
|
$ |
4.5 |
|
| |
|
|
Costs incurred include cash payments and the impairment of assets associated with vacated
facilities and future minimum lease payments included in facility and other exit costs.
Under the 2001 Plan, the Company exited 84 facilities, of which 31 pertain to discontinued
operations, and reduced headcount by approximately 12,000. The following table depicts the changes
in accrued restructuring reserves for the year ended December 31, 2005, aggregated by reportable
business segment (in millions):
- 53 -
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
12/31/04 |
|
|
|
|
|
Costs |
|
12/31/05 |
| Segment |
|
Balance |
|
Provision |
|
Incurred |
|
Balance |
| |
Cleaning, Organization
& Décor |
|
|
$3.0 |
|
|
$ |
14.6 |
|
|
|
($14.9 |
) |
|
$ |
2.7 |
|
Office Products |
|
|
12.6 |
|
|
|
(1.8 |
) |
|
|
(9.1 |
) |
|
|
1.7 |
|
Tools & Hardware |
|
|
3.1 |
|
|
|
4.8 |
|
|
|
(7.8 |
) |
|
|
0.1 |
|
Home & Family |
|
|
0.3 |
|
|
|
1.5 |
|
|
|
(1.8 |
) |
|
|
— |
|
Corporate |
|
|
5.6 |
|
|
|
2.2 |
|
|
|
(7.8 |
) |
|
|
— |
|
| |
|
|
|
|
$ |
24.6 |
|
|
$ |
21.3 |
|
|
|
($41.4 |
) |
|
$ |
4.5 |
|
| |
|
|
The restructuring reserve at December 31, 2005 is primarily related to exit costs on certain
manufacturing facilities and severance. As noted above, the Company’s 2005 restructuring costs
included the reversal of $5.7 million, the most significant of which included $4.0 million in the
Office Products segment and $1.0 million in Corporate.
Cash paid for restructuring activities, including Pre-Project Acceleration and Project Acceleration
restructuring activities, was $26.1 million, $34.3 million and $54.4 million for 2006, 2005 and
2004, respectively.
FOOTNOTE 5
Inventories, Net
The components of net inventories were as follows as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Materials and supplies |
|
$ |
172.8 |
|
|
$ |
159.7 |
|
Work in process |
|
|
158.6 |
|
|
|
169.0 |
|
Finished products |
|
|
519.2 |
|
|
|
465.1 |
|
| |
|
|
|
|
$ |
850.6 |
|
|
$ |
793.8 |
|
| |
|
|
As of December 31, 2006 and 2005, LIFO reserves were $38.1 million and $28.8 million, respectively.
Cost of certain domestic inventories (approximately 59.6% and 60.7% of total inventories at
December 31, 2006 and 2005, respectively) was determined by the LIFO method; for the balance, cost
was determined using the FIFO method. The Company recognized a (loss) gain of $(2.7) million, $0.1
million, and $0.4 million in 2006, 2005 and 2004, respectively, related to the liquidation of LIFO
based inventories.
FOOTNOTE 6
Property, Plant & Equipment, Net
Property,
plant and equipment, net consisted of the following as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Land |
|
|
$34.1 |
|
|
|
$32.1 |
|
Buildings and improvements |
|
|
393.7 |
|
|
|
362.4 |
|
Machinery and equipment |
|
|
1,617.5 |
|
|
|
1,558.1 |
|
| |
|
|
|
|
|
2,045.3 |
|
|
|
1,952.6 |
|
Accumulated depreciation |
|
|
(1,298.4 |
) |
|
|
(1,098.6 |
) |
| |
|
|
|
|
|
$746.9 |
|
|
|
$854.0 |
|
| |
|
|
Depreciation expense was $159.5 million, $180.4 million and $199.6 million in 2006, 2005 and 2004,
respectively.
- 54 -
FOOTNOTE 7
Goodwill and Other Intangible Assets, Net
A summary of changes in the Company’s goodwill is as follows (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Balance at January 1, |
|
$ |
2,304.4 |
|
|
$ |
1,743.9 |
|
Acquisitions (1) |
|
|
68.9 |
|
|
|
590.0 |
|
Other, primarily foreign currency translation |
|
|
62.4 |
|
|
|
(29.5 |
) |
| |
|
|
Balance at December 31, |
|
$ |
2,435.7 |
|
|
$ |
2,304.4 |
|
| |
|
|
Other intangible assets, net consisted of the following as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
| |
|
2006 |
|
2005 |
|
Amortization Period |
|
Amortization Periods |
| |
|
|
Tradenames – indefinite life |
|
$ |
274.8 |
|
|
$ |
281.0 |
|
|
|
N/A |
|
|
|
N/A |
|
Tradenames – other |
|
|
49.2 |
|
|
|
39.8 |
|
|
5 years |
|
3 - 20 years |
Other (2) |
|
|
219.9 |
|
|
|
137.9 |
|
|
7 years |
|
3 - 14 years |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
543.9 |
|
|
|
458.7 |
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
(85.1 |
) |
|
|
(57.0 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
458.8 |
|
|
$ |
401.7 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Represent DYMO ($28.5 million), CardScan ($16.0 million) and other individually immaterial
acquisitions ($24.4 million) in 2006 and primarily the acquisition of DYMO in 2005. |
| |
| (2) |
|
Other consists primarily of capitalized software, non-compete agreements, patents and
customer lists. |
Other intangible amortization expense, including capitalized software amortization, was $33.8
million, $14.6 million and $15.9 million in 2006, 2005, and 2004, respectively.
FOOTNOTE 8
Other Accrued Liabilities
Accrued liabilities included the following as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Customer accruals |
|
$ |
277.1 |
|
|
$ |
270.6 |
|
Accrued self-insurance liability |
|
|
86.9 |
|
|
|
89.7 |
|
Accrued restructuring (See Footnote 4) |
|
|
31.8 |
|
|
|
4.5 |
|
Accrued pension, defined contribution and other
postemployment benefits |
|
|
49.2 |
|
|
|
58.1 |
|
Accruals for manufacturing expenses, including
inventory received |
|
|
118.2 |
|
|
|
103.3 |
|
Accrued medical and life insurance |
|
|
14.7 |
|
|
|
15.4 |
|
Accrued interest and interest rate swaps |
|
|
43.1 |
|
|
|
50.9 |
|
Accrued contingencies, primarily legal, environmental
and warranty |
|
|
35.5 |
|
|
|
21.1 |
|
Other |
|
|
54.4 |
|
|
|
64.1 |
|
| |
|
|
Other accrued liabilities |
|
$ |
710.9 |
|
|
$ |
677.7 |
|
| |
|
|
Customer accruals are promotional allowances and rebates, including cooperative advertising, given
to customers in exchange for their selling efforts. The self-insurance accrual is primarily
casualty liabilities such as workers’ compensation, general and product liability and auto
liability and is estimated based upon historical loss experience combined with actuarial evaluation
methods, review of significant individual files and the application of risk transfer programs.
- 55 -
FOOTNOTE 9
Credit Arrangements
The Company has short-term foreign and domestic uncommitted lines of credit with various banks that
are available for short-term financing. Borrowings under the Company’s uncommitted lines of credit
are subject to the discretion of the lender. As of December 31, 2006 and 2005, the Company had
notes payable to banks in the amount of $23.9 million and $4.0 million, respectively, with weighted
average interest rates of 6.3% and 12.2%, respectively.
On November 14, 2005, the Company entered into a $750.0 million syndicated revolving credit
facility (the “Revolver”) pursuant to a five-year credit agreement. On an annual basis, the
Company may request an extension of the Revolver (subject to lender approval) for additional
one-year periods. In October 2006, the Company elected to extend the Revolver for an additional
one-year period and all but one lender approved the one-year extension. Accordingly, the Company
has $750.0 million available under its revolving credit facility through November 2010 and $725.0
million thereafter, through November 2011. At December 31, 2006, there were no borrowings under
the Revolver.
In lieu of borrowings under the Revolver, the Company may issue up to $750.0 million of commercial
paper through 2010 and $725.0 million thereafter, through 2011. The Revolver provides the
committed backup liquidity required to issue commercial paper. Accordingly, commercial paper may
only be issued up to the amount available for borrowing under the Revolver. The Revolver also
provides for the issuance of up to $100.0 million of standby letters of credit so long as there is
a sufficient amount available for borrowing under the Revolver. At December 31, 2006, there was no
commercial paper outstanding and there were no standby letters of credit issued under the Revolver.
At December 31, 2005, there was $202.0 million of commercial paper outstanding and there were no
standby letters of credit issued under the Revolver.
The Revolver permits the Company to borrow funds on a variety of interest rate terms. The Revolver
requires, among other things, that the Company maintain certain Interest Coverage and Total
Indebtedness to Total Capital Ratios, as defined in the agreement. The Revolver also limits
Subsidiary Indebtedness. As of December 31, 2006, the Company was in compliance with the agreement
governing the Revolver.
FOOTNOTE 10
Long-Term Debt
The following is a summary of long-term debt as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Medium-term notes (original maturities ranging
from 5 to 30 years, average interest rate of
5.58%) |
|
$ |
1,325.0 |
|
|
$ |
1,475.0 |
|
Commercial paper |
|
|
— |
|
|
|
202.0 |
|
Floating rate note/preferred debt securities |
|
|
448.0 |
|
|
|
450.0 |
|
Junior convertible subordinated debentures |
|
|
436.7 |
|
|
|
436.7 |
|
Terminated interest rate swaps |
|
|
11.9 |
|
|
|
24.8 |
|
Other long-term debt |
|
|
4.3 |
|
|
|
4.0 |
|
| |
|
|
Total debt |
|
|
2,225.9 |
|
|
|
2,592.5 |
|
Current portion of long-term debt |
|
|
(253.6 |
) |
|
|
(162.8 |
) |
| |
|
|
Long-term debt |
|
$ |
1,972.3 |
|
|
$ |
2,429.7 |
|
| |
|
|
The following table summarizes the Company’s average commercial paper obligations and interest rate
for the year ended December 31, (in millions, except percentages):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
|
|
|
|
|
|
|
|
|
- Borrowing |
|
$ |
178.4 |
|
|
$ |
30.7 |
|
- Average interest rate |
|
|
5.0 |
% |
|
|
3.5 |
% |
- 56 -
The aggregate maturities of long-term debt outstanding are as follows as of December 31, 2006 (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Total |
| |
$253.6 |
|
$450.2 |
|
$252.8 |
|
$252.4 |
|
$2.3 |
|
$1,014.6 |
|
$2,225.9 |
The medium-term notes, revolving credit agreement (and related commercial paper), preferred debt
securities, and junior convertible subordinated debentures are all unsecured.
Preferred Debt Securities: Under a 2001 receivables facility with a financial
institution, the Company created a financing entity that is consolidated in the Company’s financial
statements. Under this facility, the Company regularly enters into transactions with the financing
entity to sell an undivided interest in substantially all of the Company’s United States trade
receivables to the financing entity. In 2001, the financing entity issued $450.0 million in
preferred debt securities to the financial institution. Certain levels of accounts receivable
write-offs and other events would permit the financial institution to terminate the receivables
facility. On September 18, 2006, in accordance with the terms of the receivables facility, the
financing entity caused the preferred debt securities to be exchanged for cash of $2.2 million, a
two year floating rate note in an aggregate principal amount of $448.0 million and a cash premium
of $5.2 million. Because this debt matures in 2008, the entire amount is considered to be
long-term. At any time prior to maturity of the note, the holder may elect to convert it into new
preferred debt securities of the financing entity with a par value equal to the outstanding
principal amount of the note. The note must be repaid and any preferred debt securities into which
the note is converted must be retired or redeemed before the Company can have access to the
financing entity’s receivables. As of December 31, 2006 and 2005, the aggregate amount of
outstanding receivables sold under this facility was $696.7 million and $746.9 million,
respectively. The receivables and the preferred debt securities or note, as applicable, are
recorded in the consolidated accounts of the Company.
Junior Convertible Subordinated Debentures: As of December 31, 2006, the Company fully and
unconditionally guarantees 8.4 million shares of 5.25% convertible preferred securities issued by a
100% owned finance subsidiary of the Company, which are callable at 100.525% of the liquidation
preference, decreasing over time to 100% by December 2007. Each of these “Preferred Securities” is
convertible into 0.9865 of a share of the Company’s common stock, and is entitled to a quarterly
cash distribution at the annual rate of $2.625 per share.
The proceeds of the Preferred Securities were invested in $515.5 million of the Company’s 5.25%
Junior Convertible Subordinated Debentures (“Debentures”). The Debentures are the sole assets of
the subsidiary trust, mature on December 1, 2027, bear interest at an annual rate of 5.25%, are
payable quarterly and became redeemable by the Company beginning in December 2001. The Company may
defer interest payments on the Debentures for a period of up to 20 consecutive quarters, during
which period distribution payments on the Preferred Securities are also deferred. Under this
circumstance, the Company may not declare or pay any cash distributions with respect to its common
or preferred stock or debt securities that do not rank senior to the Debentures. As of December
31, 2006, the Company has not elected to defer interest payments.
In 2005 and 2004, the Company purchased 750,000 and 825,000 shares, respectively, of its Preferred
Securities from holders at an average price of $47.075 per share ($35.3 million) and $43.6875 per
share ($36.0 million), respectively. In connection with the purchases of these securities, the
Company negotiated the early retirement of the corresponding Debentures with the subsidiary trust.
The Company accounted for these transactions as an extinguishment of debt resulting in net gains of
$1.7 million and $4.4 million in 2005 and 2004,
respectively, which were included in Other expense (income), net.
Terminated Interest Rate Swaps: At December 31, 2006 and 2005, the carrying amount of long-term
debt and current maturities thereof includes $11.9 million and $24.8 million (of which $3.4 million
and $12.8 million is classified as current), respectively, relating to terminated interest rate
swap agreements.
Effective March 9, 2004, the Company terminated an interest rate swap agreement prior to the
scheduled maturity date and received cash of $9.2 million. Of this amount, $5.5 million
represented the fair value of the swap that was terminated and the remainder represents net
interest receivable on the swap. The cash received relating to the fair value of the swap has been
included in Other as an operating activity in the Consolidated Statement of Cash Flows.
- 57 -
On March 9, 2004, the Company entered into a fixed to floating rate swap that effectively replaced
the terminated swap.
FOOTNOTE 11
Derivative Financial Instruments
Interest Rate Risk Management: At December 31, 2006, the Company had interest rate swaps
designated as fair value hedges with an outstanding notional principal amount of $500.0 million,
with a net accrued interest payable of $3.6 million. There is no credit exposure on the Company’s
interest rate derivatives at December 31, 2006.
At December 31, 2006, the Company had long-term cross currency interest rate swaps with an
outstanding notional principal amount of $312.4 million, with a net accrued interest receivable of
$1.7 million. The maturities on these long-term cross currency interest rate swaps are three
years.
Foreign Currency Management: The following table summarizes the Company’s forward exchange
contracts, long-term cross currency interest rate swaps and option contracts in U.S. dollars by
major currency and contractual amount. The “buy” amounts represent the U.S. equivalent of
commitments to purchase foreign currencies, and the “sell” amounts represent the U.S. equivalent of
commitments to sell foreign currencies according to the local needs of the subsidiaries. The
contractual amounts of significant forward exchange contracts, long-term cross currency interest
rate swaps and option contracts and their fair values as of December 31, were as follows (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
Buy |
|
Sell |
|
Buy |
|
Sell |
| |
|
|
British Pounds |
|
|
$429.8 |
|
|
|
$207.2 |
|
|
|
$272.1 |
|
|
|
$59.2 |
|
Canadian Dollars |
|
|
0.9 |
|
|
|
263.6 |
|
|
|
0.9 |
|
|
|
348.0 |
|
Euro |
|
|
2.5 |
|
|
|
735.0 |
|
|
|
60.9 |
|
|
|
805.2 |
|
Other |
|
|
21.0 |
|
|
|
21.6 |
|
|
|
31.7 |
|
|
|
18.2 |
|
| |
|
|
|
|
|
$454.2 |
|
|
|
$1,227.4 |
|
|
|
$365.6 |
|
|
|
$1,230.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
($3.4 |
) |
|
|
$0.7 |
|
|
|
$30.5 |
|
|
|
$18.0 |
|
| |
|
|
The net loss recognized in 2006, 2005 and 2004 for matured natural gas and cash flow forward
exchange contracts was $4.2 million, $4.5 million and $8.9 million, net of tax, respectively, which
was recognized in the Consolidated Statements of Operations. The Company estimates that $1.7
million of income, net of tax, deferred in accumulated other comprehensive income, will be
recognized in earnings in 2007.
See Footnote 18 for information regarding the termination of a cross currency interest rate swap.
FOOTNOTE 12
Leases
The
Company leases manufacturing warehouse and other facilities, real
estate, transportation, and data
processing and other equipment under leases that expire at various dates through the year 2020.
Rent expense was $84.4 million, $103.6 million and $101.3 million in 2006, 2005 and 2004,
respectively.
Future minimum rental payments for operating leases with initial or remaining terms in excess of
one year are as follows as of December 31, 2006 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Total |
| |
$63.4 |
|
$52.1 |
|
$43.8 |
|
$29.9 |
|
$21.7 |
|
$81.6 |
|
$292.5 |
- 58 -
FOOTNOTE 13
Employee Benefit and Retirement Plans
Effective December 31, 2006, the Company adopted the recognition and disclosure provisions of
Statement of Financial Accounting Standards 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”). SFAS 158 required the Company to recognize the funded status (i.e., the
difference between the fair value of plan assets and the projected benefit obligations) of its
pension plans in the December 31, 2006 consolidated balance sheet, with a corresponding adjustment
to accumulated other comprehensive loss, net of tax. The adjustment to accumulated other
comprehensive loss at adoption represents the net unrecognized actuarial losses, unrecognized prior
service costs, and unrecognized transition obligation remaining from the initial adoption of SFAS
No. 87, “Employers’ Accounting for Pensions” (SFAS 87), all of which were previously netted against
the plan’s funded status in the Company’s historical accounting policy for amortizing such amounts.
Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net
periodic pension cost in the same periods will be recognized as a component of other comprehensive
income. Those amounts will be subsequently recognized as a component of net periodic pension cost
on the same basis as the amounts recognized in accumulated other comprehensive loss upon adoption
of SFAS 158. SFAS 158 also requires the measurement of defined benefit plan assets and obligations
as of the date of the employer’s fiscal year end statement of financial position beginning after
December 15, 2008. The Company currently measures defined benefit plan assets and liabilities for
the majority of its plans on September 30th, and expects to adopt the measurement date
provisions of SFAS 158 in 2008.
The incremental effects of adopting the provisions of SFAS 158 on the Company’s consolidated
balance sheet at December 31, 2006 are presented in the following table. The adoption of SFAS 158
had no effect on the Company’s consolidated statement of operations for the year ended December 31,
2006 or for any prior period presented, and it will not affect the Company’s operating results in
future periods. Had the Company not been required to adopt SFAS 158 at December 31, 2006, it would
have recognized an additional minimum liability pursuant to the provisions of SFAS 87. The effect
of recognizing the additional minimum liability is included in the table below in the column
labeled “Prior to Adopting SFAS 158.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, 2006 |
| |
|
Prior to Adopting |
|
Effect of Adopting |
|
As Reported at |
| |
|
SFAS 158 |
|
SFAS 158 |
|
December 31, 2006 |
| |
|
|
Intangible asset |
|
|
$ 7.2 |
|
|
|
($7.2 |
) |
|
|
$ — |
|
Prepaid benefit cost |
|
|
34.2 |
|
|
|
(28.5 |
) |
|
|
5.7 |
|
Accrued benefit cost |
|
|
(443.9 |
) |
|
|
(12.1 |
) |
|
|
(456.0 |
) |
Deferred income taxes |
|
|
113.6 |
|
|
|
15.4 |
|
|
|
129.0 |
|
Accumulated other
comprehensive loss |
|
|
$ 196.3 |
|
|
$ |
32.4 |
|
|
|
$ 228.7 |
|
Included in accumulated other comprehensive loss at December 31, 2006 is $358.0 million ($228.7
million net of tax) related to net unrecognized actuarial losses and unrecognized prior service
credit that have not yet been recognized in net periodic pension or benefit cost. The Company
expects to recognize $10.9 million ($7.1 net of tax) in net actuarial losses and prior service
credit in net periodic pension and benefit cost during 2007.
As of December 31, 2006, the Company maintained various non-qualified deferred compensation plans
with varying terms. The total liability associated with these plans was $75.1 million and $68.1
million as of December 31, 2006 and 2005, respectively. These liabilities are included in Other
Noncurrent Liabilities in the Consolidated Balance Sheets. These plans are partially funded with
asset balances of $38.9 million and $32.8 million as of December 31, 2006 and 2005, respectively.
These assets are included in Other Assets in the Consolidated Balance Sheets.
The Company has a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined
benefit plan pursuant to which the Company will pay supplemental pension benefits to certain key
employees upon retirement based upon the employees’ years of service and compensation. The SERP is
partially funded through a trust agreement with the Northern Trust Company, as trustee, that owns
life insurance policies on key employees. At December 31, 2006 and 2005, the life insurance
contracts had a cash surrender value of $77.7 million and $76.0 million, respectively. These
assets are included in Other Assets in the Consolidated Balance Sheets. The projected benefit
obligation was $78.2 million and $79.6 million at December 31, 2006 and 2005, respectively. The
SERP
- 59 -
liabilities are included in the pension table below; however, the Company’s investment in the life
insurance contracts is excluded from the table as they do not qualify as plan assets under SFAS No.
87, “Employers’ Accounting for Pensions.”
The Company and its subsidiaries have noncontributory pension, profit sharing and contributory
401(k) plans covering substantially all of their foreign and domestic employees. Plan benefits are
generally based on years of service and/or compensation. The Company’s funding policy is to
contribute not less than the minimum amounts required by the Employee Retirement Income Security
Act of 1974, as amended, the Internal Revenue Code of 1986, as amended or foreign statutes to
assure that plan assets will be adequate to provide retirement benefits.
The Company’s matching contributions to the contributory 401(k) plans were $15.9 million, $15.4
million, and $18.7 million for the years ended December 31, 2006, 2005 and 2004, respectively.
The Company uses a September 30th measurement date for the majority of its plans. The following
provides a reconciliation of benefit obligations, plan assets and funded status of the Company’s
noncontributory defined benefit pension plans, including the SERP, as of December 31, (in millions,
except percentages):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
International |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
| |
|
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
|
$ 896.4 |
|
|
|
$ 878.8 |
|
|
|
$ 482.5 |
|
|
|
$ 447.6 |
|
Service cost |
|
|
2.8 |
|
|
|
2.2 |
|
|
|
7.3 |
|
|
|
7.8 |
|
Interest cost |
|
|
51.4 |
|
|
|
51.7 |
|
|
|
24.5 |
|
|
|
23.5 |
|
Amendments |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
Actuarial (gain) loss |
|
|
(38.8 |
) |
|
|
72.1 |
|
|
|
(6.0 |
) |
|
|
70.4 |
|
Acquisitions and other |
|
|
— |
|
|
|
(0.6 |
) |
|
|
(4.4 |
) |
|
|
8.4 |
|
Currency translation |
|
|
— |
|
|
|
— |
|
|
|
64.7 |
|
|
|
(55.1 |
) |
Benefits paid from plan assets |
|
|
(56.5 |
) |
|
|
(57.7 |
) |
|
|
(24.9 |
) |
|
|
(19.5 |
) |
Curtailments, settlement costs |
|
|
0.1 |
|
|
|
(50.3 |
) |
|
|
— |
|
|
|
(0.6 |
) |
| |
|
|
Benefit obligation at December 31 |
|
|
$ 855.8 |
|
|
|
$ 896.4 |
|
|
|
$ 543.7 |
|
|
|
$ 482.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
|
$ 693.7 |
|
|
|
$ 646.6 |
|
|
|
$ 340.5 |
|
|
|
$ 303.8 |
|
Actual return on plan assets |
|
|
68.0 |
|
|
|
98.5 |
|
|
|
26.9 |
|
|
|
45.6 |
|
Acquisitions and other |
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
3.0 |
|
Contributions |
|
|
6.2 |
|
|
|
6.3 |
|
|
|
21.1 |
|
|
|
43.6 |
|
Currency translation |
|
|
— |
|
|
|
— |
|
|
|
48.3 |
|
|
|
(36.6 |
) |
Benefits paid from plan assets |
|
|
(56.5 |
) |
|
|
(57.7 |
) |
|
|
(24.9 |
) |
|
|
(19.5 |
) |
Settlement charges and other |
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
0.6 |
|
| |
|
|
Fair value of plan assets at December 31 |
|
|
$ 711.4 |
|
|
|
$ 693.7 |
|
|
|
$ 410.7 |
|
|
|
$ 340.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31 |
|
|
($144.4 |
) |
|
|
($202.7 |
) |
|
|
($133.0 |
) |
|
|
($142.0 |
) |
Unrecognized net loss and other (in 2005) |
|
|
— |
|
|
|
304.0 |
|
|
|
— |
|
|
|
100.7 |
|
Unrecognized prior service cost (in 2005) |
|
|
— |
|
|
|
14.4 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Net amount recognized (in 2005) |
|
|
$ — |
|
|
|
$ 115.7 |
|
|
|
$ — |
|
|
|
($41.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized the Consolidated Balance Sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset (1) |
|
|
$ — |
|
|
|
$ 9.7 |
|
|
|
$ — |
|
|
|
$ — |
|
Prepaid benefit cost (1) |
|
|
— |
|
|
|
— |
|
|
|
5.7 |
|
|
|
— |
|
Accrued current benefit cost (2) |
|
|
(6.5 |
) |
|
|
— |
|
|
|
(3.8 |
) |
|
|
(15.0 |
) |
Accrued noncurrent benefit cost (3) |
|
|
(137.9 |
) |
|
|
(189.3 |
) |
|
|
(134.9 |
) |
|
|
(118.2 |
) |
Accumulated other comprehensive loss |
|
|
262.6 |
|
|
|
295.3 |
|
|
|
100.1 |
|
|
|
91.9 |
|
| |
|
|
Total |
|
|
$ 118.2 |
|
|
|
$ 115.7 |
|
|
|
($32.9 |
) |
|
|
($41.3 |
) |
| |
|
|
- 60 -
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
International |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
| |
|
|
Accumulated benefit obligation |
|
$ |
845.7 |
|
|
$ |
882.5 |
|
|
$ |
530.9 |
|
|
$ |
471.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00 |
% |
|
|
5.75 |
% |
|
|
5.11 |
% |
|
|
4.90 |
% |
Long-term rate of return on plan assets |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
6.69 |
% |
|
|
6.91 |
% |
Long-term rate of compensation increase |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
3.90 |
% |
|
|
3.71 |
% |
|
|
|
| (1) |
|
Recorded in Other Assets |
| |
| (2) |
|
Recorded in Other Accrued Liabilities |
| |
| (3) |
|
Record in Other Noncurrent Liabilities |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
International |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
| |
|
|
Weighted-average assumptions used to
determine net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
6.25 |
% |
|
|
4.90 |
% |
|
|
5.71 |
% |
Long-term rate of return on plan assets |
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
6.91 |
% |
|
|
7.33 |
% |
Long-term rate of compensation increase |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
3.71 |
% |
|
|
4.12 |
% |
Net pension cost (benefit) includes the following components as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
International |
| |
|
2006 |
|
2005 |
|
2004 |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Service cost-benefits earned during the year |
|
|
$ 2.8 |
|
|
|
$ 2.2 |
|
|
|
$ 40.9 |
|
|
|
$ 7.3 |
|
|
|
$ 7.8 |
|
|
|
$ 9.4 |
|
Interest cost on projected benefit obligation |
|
|
51.4 |
|
|
|
51.7 |
|
|
|
54.5 |
|
|
|
24.5 |
|
|
|
23.5 |
|
|
|
24.0 |
|
Expected return on plan assets |
|
|
(59.5 |
) |
|
|
(64.6 |
) |
|
|
(65.8 |
) |
|
|
(24.7 |
) |
|
|
(21.0 |
) |
|
|
(21.5 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transition obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Actuarial loss |
|
|
7.8 |
|
|
|
4.9 |
|
|
|
5.1 |
|
|
|
4.9 |
|
|
|
3.9 |
|
|
|
1.8 |
|
Curtailment, settlement and special
termination benefit costs |
|
|
0.2 |
|
|
|
(16.5 |
) |
|
|
0.8 |
|
|
|
— |
|
|
|
(0.8 |
) |
|
|
(1.9 |
) |
| |
|
|
Net pension cost (benefit) |
|
|
$ 3.7 |
|
|
|
($21.2 |
) |
|
|
$ 35.1 |
|
|
|
$ 12.0 |
|
|
|
$ 13.4 |
|
|
|
$ 11.8 |
|
| |
|
|
Several of the Company’s subsidiaries currently provide retiree health care and life insurance
benefits for certain employee groups. The following provides a reconciliation of benefit
obligations and funded status of the Company’s other postretirement benefit plans as of December
31, (in millions, except percentages):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
| |
|
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at January 1 |
|
|
$ 173.4 |
|
|
|
$ 238.6 |
|
Service cost |
|
|
2.6 |
|
|
|
3.8 |
|
Interest cost |
|
|
10.0 |
|
|
|
13.6 |
|
Actuarial loss (gain) |
|
|
16.5 |
|
|
|
(32.4 |
) |
Benefits paid from plan assets |
|
|
(23.8 |
) |
|
|
(25.2 |
) |
Amendments |
|
|
— |
|
|
|
(20.3 |
) |
Curtailments |
|
|
— |
|
|
|
(4.7 |
) |
| |
|
|
Benefit obligation at December 31 |
|
|
$ 178.7 |
|
|
|
$ 173.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Funded Status: |
|
|
|
|
|
|
|
|
Funded status at December 31 |
|
|
($178.7 |
) |
|
|
($173.4 |
) |
Contributions made between measurement date and
December 31 |
|
|
5.8 |
|
|
|
6.5 |
|
- 61 -
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
Unrecognized net loss and other (in 2005) |
|
|
— |
|
|
|
2.3 |
|
Unrecognized prior service benefit (in 2005) |
|
|
— |
|
|
|
(26.0 |
) |
| |
|
|
Net liability recognized |
|
|
($172.9 |
) |
|
|
($190.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the Consolidated Balance Sheets: |
|
|
|
|
|
|
|
|
Accrued current benefit cost (1) |
|
|
($18.4 |
) |
|
|
($20.9 |
) |
Accrued noncurrent benefit cost (2) |
|
|
(154.5 |
) |
|
|
(169.7 |
) |
Accumulated other comprehensive loss |
|
|
(4.7 |
) |
|
|
— |
|
| |
|
|
Total |
|
|
($177.6 |
) |
|
|
($190.6 |
) |
| |
|
|
There are no plan assets associated with the Company’s other postretirement benefit plans.
The weighted average discount rate at the measurement dates for the Company’s defined benefit and
other post-retirement benefit plans is developed using a spot interest yield curve based upon a
broad population of corporate bonds rated AA or higher, adjusted to match the duration of each
plan’s benefits. The following are the weighted-average assumptions used to determine net periodic
benefit cost for the other postretirement benefit plans:
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Discount rate |
|
|
5.75 |
% |
|
|
6.25 |
% |
Health care cost trend rate |
|
|
6.00 |
% |
|
|
6.00 |
% |
Other postretirement benefit costs include the following components as of December 31, (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Service cost-benefits earned during the year |
|
|
$ 2.6 |
|
|
|
$ 3.8 |
|
|
$ |
4.5 |
|
Interest cost on projected benefit obligation |
|
|
10.0 |
|
|
|
13.6 |
|
|
|
14.2 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service benefit |
|
|
(2.4 |
) |
|
|
(2.4 |
) |
|
|
(0.6 |
) |
Actuarial loss |
|
|
— |
|
|
|
1.3 |
|
|
|
0.6 |
|
Curtailments |
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
Net postretirement benefit costs |
|
$ |
10.1 |
|
|
$ |
16.3 |
|
|
$ |
18.7 |
|
| |
|
|
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for
the defined benefit pension plans with accumulated benefit obligations in excess of plan assets are
as follows as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
International |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
| |
|
|
Projected benefit obligation |
|
|
($855.8 |
) |
|
|
($896.4 |
) |
|
|
($373.6 |
) |
|
|
($482.5 |
) |
Accumulated benefit obligation |
|
|
($845.7 |
) |
|
|
($882.5 |
) |
|
|
($362.9 |
) |
|
|
($471.0 |
) |
Fair value of plan assets |
|
|
$ 711.4 |
|
|
|
$ 693.7 |
|
|
|
$ 233.5 |
|
|
|
$ 340.5 |
|
In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, “Employers’
Accounting for Pensions,” the Company recorded an additional minimum pension liability adjustment
at December 31, 2005. In 2005, the Company recorded a charge to equity of $59.8 million, net of
tax. The reduction to stockholders’ equity did not affect net income, but is included in other
comprehensive income. The Company believes that its pension plan has the appropriate long-term
investment strategy and the Company’s liquidity position is expected to remain strong.
Assumed health care cost trends have been used in the valuation of postretirement benefits. The
trend rate is 8% (for retirees under age 65) and 10% (for retirees over age 65) in 2006, declining
to 6% for all retirees in 2012 and thereafter.
The health care cost trend rate significantly affects the reported postretirement benefit costs and
obligations. A one-percentage point change in the assumed rate would have the following effects
(in millions):
- 62 -
| |
|
|
|
|
|
|
|
|
| |
|
1% Increase |
|
1% Decrease |
| |
|
|
Effect on total of service and interest cost
components |
|
|
$1.1 |
|
|
|
($1.0 |
) |
Effect on postretirement benefit obligations |
|
|
$13.2 |
|
|
|
($12.3 |
) |
The Company’s defined benefit pension plan weighted-average asset allocation at December 31, 2006
and 2005, by asset category, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States |
|
International |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
| |
|
|
Equity securities |
|
|
65.6 |
% |
|
|
66.3 |
% |
|
|
51.5 |
% |
|
|
49.9 |
% |
Debt securities |
|
|
22.9 |
% |
|
|
23.3 |
% |
|
|
40.4 |
% |
|
|
34.8 |
% |
Real estate |
|
|
4.5 |
% |
|
|
4.4 |
% |
|
|
2.0 |
% |
|
|
1.7 |
% |
Other |
|
|
7.0 |
% |
|
|
6.0 |
% |
|
|
6.1 |
% |
|
|
13.6 |
% |
| |
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
| |
|
|
The Company employs a total return investment approach whereby a mix of equities and fixed income
investments is used to maximize the long-term return of plan assets for a prudent level of risk.
Risk tolerance is established through careful consideration of plan liabilities, plan funded
status, and corporate financial condition. The investment portfolio is comprised of a diversified
blend of equity, real estate and fixed income investments. Equity investments include large and
small market capitalization stocks as well as growth, value and international stock positions.
The Company employs a building block approach in determining the long-term rate of return for plan
assets. Historical markets are studied and long-term historical relationships between equities and
fixed-income are preserved consistent with the widely accepted capital market principle that assets
with higher volatility generate a greater return over the long run. Current market factors, such
as inflation and interest rates, are evaluated before long-term capital market assumptions are
determined. The long-term portfolio return is established via a building block approach with
proper consideration of diversification and rebalancing. Peer data and historical returns are
reviewed to check for reasonableness and appropriateness.
The Company expects to make cash contributions of approximately $22.2 million to its defined
pension plans in 2007.
In 2005, the Company made a voluntary $25.0 million cash contribution to its foreign pension plans,
primarily in the United Kingdom.
Estimated future benefit payments under the Company’s defined benefit pension plans and other
post-retirement benefit plans are as follows as of December 31, 2006 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012-2016 |
| |
|
|
Pension Benefits |
|
$ |
71.3 |
|
|
$ |
71.0 |
|
|
$ |
71.4 |
|
|
$ |
72.4 |
|
|
$ |
74.5 |
|
|
$ |
416.6 |
|
Other Postretirement Benefits |
|
|
19.0 |
|
|
|
18.2 |
|
|
|
17.4 |
|
|
|
16.6 |
|
|
|
15.9 |
|
|
|
68.0 |
|
The other postretirement benefit payments are net of annual Medicare Part D subsidies of
approximately $2.0 million per year.
Effective December 31, 2004, the Company froze its defined benefit pension plan for its entire
non-union U.S. workforce. As a result of this curtailment, the Company reduced its pension
obligation by $50.3 million and recorded a curtailment gain related to negative prior service cost
in 2005 of $15.8 million. In conjunction with this action, the Company offered special termination
benefits to certain employees who accepted early retirement. The Company replaced the defined
benefit pension plan with an additional defined contribution benefit, whereby the Company will make
additional contributions to the Company sponsored profit sharing plan. The new defined
contribution plan has a five-year cliff-vesting schedule, but allows credit for service rendered
prior to the inception
- 63 -
of the defined contribution benefit arrangement. The Company recorded $19.6 million and $21.4
million in expense for the defined contribution benefit arrangement for the years ended December
31, 2006 and 2005, respectively. The liability associated with this plan as of December 31, 2006
and 2005 is $19.6 million and $21.4 million, respectively, and is included in other accrued
liabilities on the Consolidated Balance Sheet.
FOOTNOTE 14
Earnings per Share
The calculation of basic and diluted earnings per share for the years ended December 31, is shown
below (in millions, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$470.7 |
|
|
|
$406.3 |
|
|
|
$105.0 |
|
Loss from discontinued operations |
|
|
(85.7 |
) |
|
|
(155.0 |
) |
|
|
(221.1 |
) |
| |
|
|
Net income (loss) for basic earnings per share |
|
|
$385.0 |
|
|
|
$251.3 |
|
|
|
($116.1 |
) |
| |
|
|
Numerator for diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
$470.7 |
|
|
|
$406.3 |
|
|
|
$105.0 |
|
Effect of convertible preferred securities (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Income from continuing operations for diluted
earnings per share |
|
|
470.7 |
|
|
|
406.3 |
|
|
|
105.0 |
|
Loss from discontinued operations |
|
|
(85.7 |
) |
|
|
(155.0 |
) |
|
|
(221.1 |
) |
| |
|
|
Net income (loss) for diluted earnings per
share |
|
|
$385.0 |
|
|
|
$251.3 |
|
|
|
($116.1 |
) |
| |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share –
weighted-average shares |
|
|
274.6 |
|
|
|
274.4 |
|
|
|
274.4 |
|
Dilutive securities (2) |
|
|
0.9 |
|
|
|
0.5 |
|
|
|
0.3 |
|
Convertible preferred securities (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Denominator for diluted earnings per share |
|
|
275.5 |
|
|
|
274.9 |
|
|
|
274.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
$1.71 |
|
|
|
$1.48 |
|
|
|
$0.38 |
|
Loss from discontinued operations |
|
|
(0.31 |
) |
|
|
(0.56 |
) |
|
|
(0.81 |
) |
| |
|
|
Earnings (loss) per share |
|
|
$1.40 |
|
|
|
$0.92 |
|
|
|
($0.42 |
) |
| |
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
$1.71 |
|
|
|
$1.48 |
|
|
|
$0.38 |
|
Loss from discontinued operations |
|
|
(0.31 |
) |
|
|
(0.56 |
) |
|
|
(0.80 |
) |
| |
|
|
Earnings (loss) per share |
|
|
$1.40 |
|
|
|
$0.91 |
|
|
|
($0.42 |
) |
| |
|
|
|
|
|
| (1) |
|
The convertible preferred securities are anti-dilutive for 2006, 2005 and 2004, 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 $14.2 million, $14.4 million and $16.2 million for 2006, 2005 and 2004,
respectively. Weighted average shares outstanding would have increased by 8.3 million shares,
8.4 million shares and 9.7 million shares for 2006, 2005 and 2004, respectively. |
| |
| (2) |
|
Dilutive securities include “in the money options” and restricted stock awards. The
weighted-average shares outstanding for 2006, 2005 and 2004 exclude the effect of
approximately 11.1 million, 9.6 million and 10.6 million stock options, respectively, because
such options were anti-dilutive. |
FOOTNOTE 15
Stock-Based Compensation
The Company offers stock-based compensation to its employees that include stock options, restricted
stock awards and performance share awards as follows:
- 64 -
Stock Options
The Company’s stock plans include plans adopted in 1993 and 2003. The Company has issued both
non-qualified and incentive stock options at exercise prices equal to the Company’s common stock
price on the date of grant with contractual terms of ten years that generally vest and are expensed
ratably over five years.
Restricted Stock
Restricted stock awards are independent of stock option grants and are subject to forfeiture if
employment terminates prior to vesting. The awards generally cliff-vest three years from the date
of grant. Prior to vesting, ownership of
the shares cannot be transferred. The restricted stock has the same dividend and voting rights as
the common stock. The Company expenses the cost of these awards ratably over the vesting period.
Performance Shares
Performance share awards issued under the 2003 Stock Plan represent the right to receive
unrestricted shares of stock based on the achievement of Company performance objectives and/or
individual performance goals established by the Organizational Development & Compensation Committee
and the Board of Directors. There were no performance shares granted in 2005 and 2004. The
majority of the performance shares awarded in 2006 are related to a transition grant as the Company
moved to a new cash bonus structure. Shares of unrestricted common stock were issued pursuant to
these awards in February 2007 based on 2006 performance.
Prior to January 1, 2006, the Company recognized stock-based compensation expense by applying the
intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees” (“APB 25”). Under APB 25, the Company generally recognized
compensation expense only for restricted stock. The Company recognized the compensation expense
associated with the restricted stock ratably over the associated service period.
Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123(R)”), using the modified prospective method, and therefore has not
restated the results of prior periods. Under this transition method, stock-based compensation
expense for 2006 includes (i) compensation expense for all stock-based compensation awards granted
prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”
(“SFAS 123”), and (ii) compensation expense for all share-based payment awards granted after
January 1, 2006 based on estimated grant-date fair values estimated in accordance with the
provision of SFAS 123(R). Compensation expense is adjusted for estimated forfeitures and is
recognized on a straight-line basis over the requisite service period of the award, which is
generally five years for stock options and three years for restricted stock. The Company estimated
future forfeiture rates based on its historical experience during the preceding fiscal years. The
adoption of SFAS 123(R) resulted in additional compensation expense of $17.4 million ($10.8 million
after tax) in 2006 and reduced basic and diluted earnings per share by $0.04 per share in 2006.
The table below highlights the expense related to share-based payments for the following periods
(in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Stock options |
|
$ |
17.8 |
|
|
$ |
0.4 |
|
|
|
$— |
|
Restricted stock |
|
|
14.3 |
|
|
|
5.7 |
|
|
|
2.8 |
|
Performance shares |
|
|
11.9 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Stock-based compensation |
|
$ |
44.0 |
|
|
$ |
6.1 |
|
|
|
$2.8 |
|
| |
|
|
Stock-based compensation, net of income tax
benefit of $16.7 million, $2.3 million and
$1.1 million in 2006, 2005 and 2004,
respectively |
|
$ |
27.3 |
|
|
$ |
3.8 |
|
|
|
$1.7 |
|
| |
|
|
In 2006, the Company modified its stock-based compensation plans by expanding the number of
employees receiving restricted stock.
The following table is a reconciliation of the Company’s net income and earnings per share to pro
forma net income and pro forma earnings per share as if the Company had adopted the provisions of
SFAS No. 123 with respect to options granted under the Company’s stock option plans during the
following periods (in millions, except per share data):
- 65 -
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
2004 |
| |
|
|
Net income (loss): |
|
|
|
|
|
|
|
|
As reported |
|
$ |
251.3 |
|
|
|
($116.1 |
) |
Fair value option expense, net of income taxes of
$6.7 million and $8.7 million in 2005 and 2004,
respectively |
|
|
(11.0 |
) |
|
|
(14.2 |
) |
| |
|
|
Pro forma |
|
$ |
240.3 |
|
|
|
($130.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
As reported |
|
|
$0.92 |
|
|
|
($0.42 |
) |
Pro forma |
|
|
$0.88 |
|
|
|
($0.47 |
) |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
As reported |
|
|
$0.91 |
|
|
|
($0.42 |
) |
Pro forma |
|
|
$0.87 |
|
|
|
($0.47 |
) |
The fair value of share-based payment awards was estimated using the Black-Scholes option pricing
model with the following assumptions and weighted-average fair values for the periods below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Risk-free interest rate |
|
|
4.6 |
% |
|
|
3.9 |
% |
|
|
4.2 |
% |
Dividend yield |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
Expected volatility |
|
|
33 |
% |
|
|
33 |
% |
|
|
30 |
% |
Expected life (in years) |
|
|
6.5 |
|
|
|
6.5 |
|
|
|
8.0 |
|
The Company utilized its historical experience to estimate the expected life of the options and
volatility.
The following summarizes the changes in the number of shares of common stock under option for
following periods (shares in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
average |
|
|
| |
|
|
|
|
|
Average |
|
Exercisable |
|
Average |
|
fair value of |
|
Aggregate |
| |
|
|
|
|
|
Exercise |
|
at end |
|
Exercise |
|
options granted |
|
Intrinsic |
| |
|
Shares |
|
Price |
|
of year |
|
Price |
|
during the year |
|
Value |
| |
|
|
Outstanding at
December 31, 2003 |
|
|
12.3 |
|
|
$ |
30 |
|
|
|
4.4 |
|
|
$ |
31 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
3.0 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
$ |
7 |
|
|
|
|
|
Exercised |
|
|
(0.1 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / expired |
|
|
(3.7 |
) |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2004 |
|
|
11.5 |
|
|
$ |
28 |
|
|
|
5.0 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
3.2 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
$ |
6 |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / expired |
|
|
(1.5 |
) |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2005 |
|
|
13.2 |
|
|
$ |
27 |
|
|
|
5.8 |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
3.2 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
$ |
7 |
|
|
|
|
|
Exercised |
|
|
(0.8 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.5 |
|
Forfeited / expired |
|
|
(1.5 |
) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2006 |
|
|
14.1 |
|
|
$ |
26 |
|
|
|
6.8 |
|
|
$ |
28 |
|
|
|
|
|
|
|
$52.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Vested and expected
to vest at December
31, 2006 |
|
|
13.1 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 66 -
At December 31, 2006, the aggregate intrinsic value of exercisable options was $18.5 million.
Options outstanding and exercisable as of December 31, 2006 are as follows (shares in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
Options Exercisable |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Weighted |
|
Average |
| Range of |
|
|
|
|
|
Weighted |
|
Remaining |
|
|
|
|
|
Average |
|
Remaining |
| Exercise |
|
Number |
|
Average |
|
Contractual |
|
Number |
|
Exercise |
|
Contractual |
| Prices |
|
Outstanding |
|
Exercise Price |
|
Life |
|
Exercisable |
|
Price |
|
Life |
| |
|
|
$19.00 - $22.49
|
|
|
2.3 |
|
|
$ |
22 |
|
|
|
7.9 |
|
|
|
0.6 |
|
|
$ |
22 |
|
|
|
7.5 |
|
$22.50 - $27.49
|
|
|
7.5 |
|
|
|
24 |
|
|
|
7.1 |
|
|
|
3.1 |
|
|
|
24 |
|
|
|
5.1 |
|
$27.50 - $34.99
|
|
|
3.1 |
|
|
|
30 |
|
|
|
5.6 |
|
|
|
2.1 |
|
|
|
31 |
|
|
|
4.7 |
|
$35.00 - $50.00
|
|
|
1.2 |
|
|
|
38 |
|
|
|
3.4 |
|
|
|
1.0 |
|
|
|
38 |
|
|
|
3.2 |
|
| |
|
|
|
|
$19.00 - $50.00
|
|
|
14.1 |
|
|
$ |
26 |
|
|
|
6.6 |
|
|
|
6.8 |
|
|
$ |
28 |
|
|
|
4.9 |
|
| |
|
|
|
|
The following table summarizes the changes in the number of shares of restricted stock for the
following periods (shares in millions):
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted- |
| |
|
|
|
|
|
average grant |
| |
|
Shares |
|
date fair value |
| |
|
|
Outstanding at December 31, 2004 |
|
|
0.4 |
|
|
$ |
23 |
|
Granted |
|
|
0.7 |
|
|
|
22 |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
(0.1 |
) |
|
|
24 |
|
| |
|
|
Outstanding at December 31, 2005 |
|
|
1.0 |
|
|
$ |
23 |
|
Granted |
|
|
1.5 |
|
|
|
24 |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
(0.3 |
) |
|
|
24 |
|
| |
|
|
Outstanding at December 31, 2006 |
|
|
2.2 |
|
|
$ |
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31,
2006 |
|
|
2.0 |
|
|
$ |
24 |
|
| |
|
|
The following table summarizes the Company’s total unrecognized compensation cost related to
stock-based compensation as of December 31, 2006 (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
Unrecognized |
|
Weighted Average |
| |
|
Compensation |
|
Period of Expense |
| |
|
Cost |
|
Recognition (in years) |
| |
|
|
Stock options |
|
$ |
40.3 |
|
|
|
2 |
|
Restricted stock |
|
|
26.9 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
67.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 67 -
FOOTNOTE 16
Income Taxes
The provision for income taxes consists of the following as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
($8.8 |
) |
|
|
$29.7 |
|
|
|
($17.4 |
) |
State |
|
|
1.0 |
|
|
|
5.4 |
|
|
|
5.3 |
|
Foreign |
|
|
67.2 |
|
|
|
50.1 |
|
|
|
27.7 |
|
| |
|
|
|
|
|
59.4 |
|
|
|
85.2 |
|
|
|
15.6 |
|
Deferred |
|
|
(15.2 |
) |
|
|
(28.1 |
) |
|
|
77.3 |
|
| |
|
|
|
|
|
$44.2 |
|
|
|
$57.1 |
|
|
|
$92.9 |
|
| |
|
|
The non-U.S. component of income (loss) from continuing operations before income taxes was $231.2
million in 2006, $201.4 million in 2005 and $(134.3) million in 2004.
The components of the net deferred tax asset are as follows as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
| |
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accruals not currently deductible for tax purposes |
|
|
$144.6 |
|
|
|
$125.7 |
|
Postretirement liabilities |
|
|
65.0 |
|
|
|
70.0 |
|
Inventory reserves |
|
|
11.9 |
|
|
|
30.9 |
|
Prepaid pension asset |
|
|
86.4 |
|
|
|
97.6 |
|
Self-insurance liability |
|
|
8.7 |
|
|
|
10.3 |
|
Foreign net operating losses |
|
|
214.4 |
|
|
|
206.5 |
|
Other |
|
|
32.2 |
|
|
|
4.3 |
|
| |
|
|
Total gross deferred tax assets |
|
|
563.2 |
|
|
|
545.3 |
|
Less valuation allowance |
|
|
(246.4 |
) |
|
|
(232.6 |
) |
| |
|
|
Net deferred tax asset after valuation allowance |
|
|
$316.8 |
|
|
|
$312.7 |
|
| |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated depreciation |
|
|
($73.5 |
) |
|
|
($100.0 |
) |
Amortizable intangibles |
|
|
(127.0 |
) |
|
|
(59.8 |
) |
Other |
|
|
(4.9 |
) |
|
|
(5.4 |
) |
| |
|
|
Total gross deferred liabilities |
|
|
(205.4 |
) |
|
|
(165.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
$111.4 |
|
|
|
$147.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Current net deferred income tax asset |
|
|
$110.1 |
|
|
|
$109.8 |
|
Noncurrent deferred income tax asset |
|
|
1.3 |
|
|
|
37.7 |
|
| |
|
|
|
|
|
$111.4 |
|
|
|
$147.5 |
|
| |
|
|
At December 31, 2006, the Company had foreign net operating loss (“NOL”) carryforwards of
approximately $669.4 million, most of which carryforward without expiration. The potential tax
benefits associated with those foreign net operating losses are approximately $214.4 million. The
valuation allowance on NOLs increased $10.2 million during 2006 to $209.9 million at December 31,
2006. This increase is primarily due to foreign net operating losses generated during the year
which management is uncertain as to the ability to utilize in the future, reduced by foreign net
operating losses no longer available for use due to business changes and divestitures.
A reconciliation of the U.S. statutory rate to the effective income tax rate is as follows as of
December 31,
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Add (deduct) effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax effect |
|
|
0.1 |
|
|
|
0.8 |
|
|
|
0.8 |
|
Foreign tax credit |
|
|
(1.5 |
) |
|
|
(0.3 |
) |
|
|
(6.0 |
) |
Foreign rate differential and other |
|
|
(5.1 |
) |
|
|
(9.0 |
) |
|
|
(10.1 |
) |
Resolution of tax contingencies |
|
|
(4.8 |
) |
|
|
(15.9 |
) |
|
|
(9.4 |
) |
Tax basis differential on goodwill impairment |
|
|
— |
|
|
|
1.7 |
|
|
|
36.6 |
|
Impact of
legal entity restructuring |
|
|
(15.1 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
Effective rate |
|
|
8.6 |
% |
|
|
12.3 |
% |
|
|
46.9 |
% |
| |
|
|
- 68 -
No U.S. deferred taxes have been provided on the undistributed non-U.S. subsidiary earnings that
are considered to be permanently invested. At December 31, 2006, the estimated amount of total
unremitted non-U.S. subsidiary earnings is $417.9 million.
Significant Income Tax Matters and Resolution of Tax Contingencies
2006
The Company completed the reorganization of certain legal entities in Europe which resulted in the
recognition of an income tax benefit of $78.0 million.
The Company determined that it would more likely than not be able to utilize certain capital loss
carryforwards that it previously believed would expire unused as a result of expected capital gains. Accordingly, the Company reversed an income tax valuation reserve of
$3.6 million.
The statute of limitations on certain transactions for which the Company had provided tax reserves,
in whole or in part, expired resulting in the reversal of the provisions and interest accrued
thereon in the amount of $21.2 million.
2005
In January 2005, the Company reached agreement with the Internal Revenue Service (IRS) relating to
the appropriate treatment of a specific deduction included in the Company’s 2003 U.S. federal
income tax return. The Company requested accelerated review of the transaction under the IRS’
Pre-Filing Agreement Program that resulted in affirmative resolution in late January 2005. A $58.6
million benefit was recorded in income taxes for 2005 related to this issue. The amount was fully
reserved as of December 31, 2004.
In 2005, the statute of limitations on certain tax positions for which the Company had provided tax
reserves, in whole or in part, expired resulting in the reversal of the provisions and interest
accrued thereon in the amounts of $15.3 million.
2004
In 2004, the Company received a refund of $2.9 million from the IRS relating to amounts previously
paid and recorded this amount as a reduction to income taxes. Also during 2004, the statute of
limitations on certain transactions for which the Company had provided tax reserves, in whole or in
part, expired resulting in the reversal of the provisions and interest accrued thereon in the
amount of $43.6 million. Accordingly, the impact was recorded as a reduction to income taxes.
In 2004, due to significant restructuring activity and certain changes in the Company’s business
model affecting the utilization of net operating loss carryovers, particularly in certain European
countries, the valuation allowance on certain net operating losses
previously tax-benefited was increased by $31.0 million. This amount was recorded in income taxes for 2004.
FOOTNOTE 17
Impairment Charges
2006
There
were no non-cash impairment charges recorded in 2006.
2005
In 2005, the Company recorded non-cash impairment charges of $0.4 million for trademarks and
tradenames related to businesses in the Company’s Tools & Hardware segment.
- 69 -
2004
As a result of the impairment testing performed in 2004, the Company recorded non-cash impairment
charges of $264.0 million ($243.1 million, net of tax), as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other |
|
|
|
|
| |
|
|
|
|
|
Indefinite- |
|
|
|
|
| |
|
|
|
|
|
Lived |
|
|
|
|
| |
|
|
|
|
|
Intangible |
|
Other Long- |
|
|
| Segment |
|
Goodwill |
|
Assets |
|
Lived Assets |
|
Total |
| |
|
|
Cleaning, Organization & Décor |
|
|
$ — |
|
|
|
$ — |
|
|
$ |
11.3 |
|
|
|
$11.3 |
|
Office Products |
|
|
138.8 |
|
|
|
93.8 |
|
|
|
11.4 |
|
|
|
244.0 |
|
Tools & Hardware |
|
|
1.5 |
|
|
|
3.3 |
|
|
|
2.0 |
|
|
|
6.8 |
|
Home & Family |
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
|
|
1.9 |
|
| |
|
|
Total |
|
$ |
140.3 |
|
|
$ |
97.1 |
|
|
$ |
26.6 |
|
|
$ |
264.0 |
|
| |
|
|
Cleaning, Organization & Décor
In 2004, the Company made the decision to exit certain product lines, which resulted in the
impairment of fixed assets. The Company determined the fair value of the fixed assets by
estimating the future cash flows attributable to these fixed assets, including an estimate of the
ultimate sale proceeds. Accordingly, the Company recorded a charge to write-down the assets to
their estimated fair value.
Office Products
The impairment charge recorded in the Office Products segment in 2004 was primarily a result of
three factors:
| • |
|
Prior year restructuring activity related to a European business
had not resulted in the expected returns, and management began
exploring alternatives for this product line. Accordingly, an
impairment charge was recorded to write-down the long-lived assets
to fair value (disposal value). The impairment charge recognized
on this product line was $80.8 million, of which $8.5 million
related to the write-down of property, plant & equipment. |
| • |
|
In the European business, the Company historically promoted and
supported several different businesses in the everyday writing
category. In 2004, management developed a plan to consolidate
certain businesses in Europe in this category. This new plan
resulted from several factors: |
| |
• |
|
The Company believes that rationalizing its brands will enable the Company to more
effectively allocate capital and other resources. In this regard, the Company is focused
on promoting its brands globally and reducing the reliance on local
or regional brands. |
| |
| |
• |
|
The brand targeted for rationalization had experienced sales declines, especially in
2004, and management believed it has more effective investment opportunities outside of
this brand. |
As a result of this plan, the Company recognized an impairment charge of $123.1 million related
to this product line.
| • |
|
Management decided to rationalize several trademarks and tradenames (brands), primarily in
the Latin America businesses. As a result of this decision, the Company determined that
certain brands that were previously considered to have indefinite lives were impaired.
Accordingly, the Company wrote-down these trademarks and tradenames to their fair value and
began amortizing these brands over their remaining useful lives (generally three years). The
total impairment charge recognized as a result of the decision to rationalize brands was $37.2
million. |
The remaining impairment charge recognized in 2004 represents a write-down to fair value of certain
other long-lived assets.
- 70 -
Tools & Hardware / Home & Family
The impairment charge recorded in the Tools & Hardware and Home & Family segments in 2004 primarily
relates to patents that the Company chose to allow to expire and fixed assets that were held for
sale, and accordingly, were written-down to fair value.
In 2004, the Company began exploring various options for certain businesses and product lines in
the Tools & Hardware segment, including evaluating those businesses for potential sale. As this
process progressed, the Company determined that the businesses had a net book value in excess of
their fair value. Due to the apparent decline in value, the Company conducted an impairment test
and recorded an impairment loss to write-down the net assets of these businesses and product lines
to fair value.
FOOTNOTE 18
Other Expense (Income), Net
Other expense (income), net consists of the following as of December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Equity earnings |
|
|
($0.9 |
) |
|
|
($0.9 |
) |
|
|
($0.9 |
) |
Minority interest |
|
|
3.6 |
|
|
|
2.8 |
|
|
|
2.3 |
|
Currency transaction loss (gain) |
|
|
3.0 |
|
|
|
0.3 |
|
|
|
(0.7 |
) |
Loss (gain) on disposal of fixed assets |
|
|
2.9 |
|
|
|
(14.8 |
) |
|
|
(1.4 |
) |
Liquidation of foreign entity (1) |
|
|
— |
|
|
|
(10.3 |
) |
|
|
— |
|
Gain on debt extinguishment (2) |
|
|
— |
|
|
|
(1.7 |
) |
|
|
(4.4 |
) |
Other |
|
|
1.1 |
|
|
|
1.5 |
|
|
|
2.1 |
|
| |
|
|
|
|
|
$9.7 |
|
|
|
($23.1 |
) |
|
|
($3.0 |
) |
| |
|
|
|
|
|
| (1) |
|
In December 2005, the Company liquidated a foreign subsidiary and terminated a
cross currency interest rate swap that was designated as a hedge of the Company’s net
investment in the subsidiary. In connection with these actions, the Company recognized a
net gain of $10.3 million in other income. The cash paid to terminate the swap was
reflected in other in the Company’s cash flow from operations. |
| |
| (2) |
|
See Footnote 10 for further information regarding debt extinguishment. |
FOOTNOTE 19
Industry Segment Information
The Company’s reporting segments reflect the Company’s focus on building large consumer brands,
promoting organizational integration, achieving operating efficiencies in sourcing and distribution
and leveraging our understanding of similar consumer segments and distribution channels. The
Company aggregates certain of its operating segments into four reportable segments. The reportable
segments are as follows:
| |
|
|
| Segment |
|
Description of Products |
| |
Cleaning, Organization & Décor
|
|
Material handling, cleaning, refuse, indoor/outdoor organization, home storage,
food storage, drapery hardware, window treatments |
Office Products
|
|
Ball point/roller ball pens, markers, highlighters, pencils, correction fluids,
office products, art supplies, on-demand labeling products, card-scanning solutions |
Tools & Hardware
|
|
Hand tools, power tool accessories, manual paint applicators, cabinet, window and
convenience hardware, propane torches, solder |
Home & Family (Other)
|
|
Operating segments that do not meet aggregation criteria, including premium
cookware and related kitchenware, hair care accessory products, infant and juvenile
products, including high chairs, car seats, strollers, and play yards |
- 71 -
In the fourth quarter of 2006, the Company combined its Cleaning & Organization and Home Fashions
segments (now referred to as Cleaning, Organization & Décor) as these businesses sell to similar
major customers, produce products that are used in and around the home, and leverage the same
management structure.
Also in 2006, the Company updated its segment reporting to reflect the realignment of certain
European businesses, previously reported in the former Cleaning & Organization segment, and now
reported in the Home & Family segment for all periods presented. The decision to realign these
businesses, which include the Graco European business, is consistent with the Company’s move from a
regional management structure to a global business unit structure. Management measures segment
profit as operating income of the business. The Company’s segment results are as follows as of
December 31, (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Net Sales (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
|
$1,995.7 |
|
|
|
$1,921.0 |
|
|
$ |
1,993.4 |
|
Office Products |
|
|
2,031.6 |
|
|
|
1,713.3 |
|
|
|
1,686.2 |
|
Tools & Hardware |
|
|
1,262.2 |
|
|
|
1,260.3 |
|
|
|
1,218.7 |
|
Home & Family |
|
|
911.5 |
|
|
|
822.6 |
|
|
|
808.8 |
|
| |
|
|
|
|
|
$6,201.0 |
|
|
|
$5,717.2 |
|
|
$ |
5,707.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
|
$ 209.1 |
|
|
|
$ 145.8 |
|
|
|
$ 113.6 |
|
Office Products |
|
|
287.0 |
|
|
|
266.0 |
|
|
|
262.0 |
|
Tools & Hardware |
|
|
185.0 |
|
|
|
171.1 |
|
|
|
181.7 |
|
Home & Family |
|
|
117.9 |
|
|
|
103.5 |
|
|
|
88.4 |
|
Corporate |
|
|
(76.0 |
) |
|
|
(46.0 |
) |
|
|
(39.3 |
) |
Impairment Charges |
|
|
— |
|
|
|
(0.4 |
) |
|
|
(264.0 |
) |
Restructuring Costs |
|
|
(66.4 |
) |
|
|
(72.6 |
) |
|
|
(28.2 |
) |
| |
|
|
|
|
|
$ 656.6 |
|
|
|
$ 567.4 |
|
|
|
$ 314.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
|
$ 67.9 |
|
|
|
$ 85.2 |
|
|
|
$ 87.3 |
|
Office Products |
|
|
55.9 |
|
|
|
46.7 |
|
|
|
46.5 |
|
Tools & Hardware |
|
|
34.2 |
|
|
|
31.7 |
|
|
|
30.8 |
|
Home & Family |
|
|
11.7 |
|
|
|
14.1 |
|
|
|
17.7 |
|
Corporate |
|
|
23.6 |
|
|
|
13.9 |
|
|
|
27.1 |
|
| |
|
|
|
|
|
$ 193.3 |
|
|
|
$ 191.6 |
|
|
|
$ 209.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (3) |
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
|
$ 22.1 |
|
|
|
$ 22.0 |
|
|
|
$ 27.8 |
|
Office Products |
|
|
29.7 |
|
|
|
24.0 |
|
|
|
35.6 |
|
Tools & Hardware |
|
|
15.6 |
|
|
|
18.5 |
|
|
|
26.7 |
|
Home & Family |
|
|
7.7 |
|
|
|
7.3 |
|
|
|
5.8 |
|
Corporate |
|
|
62.1 |
|
|
|
1.8 |
|
|
|
1.4 |
|
| |
|
|
|
|
|
$ 137.2 |
|
|
|
$ 73.6 |
|
|
|
$ 97.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cleaning, Organization & Décor |
|
|
$ 840.3 |
|
|
|
$ 917.0 |
|
|
|
|
|
Office Products |
|
|
1,264.6 |
|
|
|
1,020.0 |
|
|
|
|
|
Tools & Hardware |
|
|
660.8 |
|
|
|
735.1 |
|
|
|
|
|
Home & Family |
|
|
293.7 |
|
|
|
283.6 |
|
|
|
|
|
Corporate (4) |
|
|
3,183.0 |
|
|
|
3,057.3 |
|
|
|
|
|
Discontinued Operations |
|
|
68.1 |
|
|
|
433.1 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
$ 6,310.5 |
|
|
|
$ 6,446.1 |
|
|
|
|
|
| |
|
|
|
|
|
|
- 72 -
Geographic Area Information
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
2005 |
|
2004 |
| |
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
4,603.4 |
|
|
$ |
4,338.5 |
|
|
$ |
4,365.6 |
|
Canada |
|
|
387.9 |
|
|
|
352.2 |
|
|
|
330.6 |
|
| |
|
|
North America |
|
|
4,991.3 |
|
|
|
4,690.7 |
|
|
|
4,696.2 |
|
Europe |
|
|
781.0 |
|
|
|
639.8 |
|
|
|
660.6 |
|
Central and South America |
|
|
239.3 |
|
|
|
224.8 |
|
|
|
196.1 |
|
Other |
|
|
189.4 |
|
|
|
161.9 |
|
|
|
154.2 |
|
| |
|
|
|
|
$ |
6,201.0 |
|
|
$ |
5,717.2 |
|
|
$ |
5,707.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (2), (5) |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
517.4 |
|
|
$ |
434.9 |
|
|
$ |
427.4 |
|
Canada |
|
|
78.8 |
|
|
|
65.8 |
|
|
|
68.6 |
|
| |
|
|
North America |
|
|
596.2 |
|
|
|
500.7 |
|
|
|
496.0 |
|
Europe |
|
|
15.4 |
|
|
|
24.0 |
|
|
|
(176.8 |
) |
Central and South America |
|
|
5.3 |
|
|
|
12.9 |
|
|
|
(36.8 |
) |
Other |
|
|
39.7 |
|
|
|
29.8 |
|
|
|
31.8 |
|
| |
|
|
|
|
$ |
656.6 |
|
|
$ |
567.4 |
|
|
$ |
314.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
533.5 |
|
|
$ |
660.4 |
|
|
|
|
|
Canada |
|
|
14.8 |
|
|
|
19.1 |
|
|
|
|
|
| |
|
|
|
|
|
|
North America |
|
|
548.3 |
|
|
|
679.5 |
|
|
|
|
|
Europe |
|
|
123.7 |
|
|
|
93.0 |
|
|
|
|
|
Central and South America |
|
|
31.1 |
|
|
|
35.5 |
|
|
|
|
|
Other |
|
|
43.8 |
|
|
|
46.0 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
$ |
746.9 |
|
|
$ |
854.0 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| (1) |
|
All intercompany transactions have been eliminated. Sales to Wal*Mart Stores, Inc.
and subsidiaries amounted to approximately 12%, 13% and 16% of consolidated net sales
for the years ended December 31, 2006, 2005 and 2004, respectively, substantially
across all divisions. Sales to no other customer exceeded 10% of consolidated net
sales for any year. |
| |
| (2) |
|
Operating income is net sales less cost of products sold and selling, general and
administrative expenses. Certain headquarters expenses of an operational nature are
allocated to business segments and geographic areas primarily on a net sales basis. |
| |
| (3) |
|
Capital expenditures associated with discontinued businesses have been excluded. |
| |
| (4) |
|
Corporate assets primarily include tradenames and goodwill, equity investments and
deferred tax assets. Accordingly, the write-down of goodwill and other intangible
assets associated with the impairment charge (see Footnote 17 for additional details)
have been reflected as reductions in Corporate assets. |
| |
| (5) |
|
The restructuring and impairment charges have been reflected in the appropriate
geographic regions. |
FOOTNOTE 20
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 Company’s products, allegations of
infringement of intellectual property, commercial disputes and employment matters as well as
environmental matters described below. Some of the legal proceedings include claims for punitive
as well as compensatory damages, and certain proceedings purport to be class actions.
The Company, using current product sales data and historical trends, actuarially calculates the
estimate of its exposure for product liability. As a result of the most recent analysis, the
Company has product liability reserves of $30.6 million as of December 31, 2006. The Corporation
is insured for product liability claims for amounts in excess of established deductibles and
accrues for the estimated liability as described up to the limits of the deductibles. All other
claims and lawsuits are handled on a case-by-case basis.
- 73 -
As of December 31, 2006, the Company was involved in various matters concerning federal and state
environmental laws and regulations, including matters in which the Company has been identified by
the U.S. Environmental Protection Agency and certain state environmental agencies as a potentially
responsible party (“PRP”) at contaminated sites under the Federal Comprehensive Environmental
Response, Compensation and Liability Act (“CERCLA”) and equivalent state laws.
In assessing its environmental response costs, the Company has considered several factors,
including the extent of the Company’s volumetric contribution at each site relative to that of
other PRPs; the kind of waste; the terms of existing cost sharing and other applicable agreements;
the financial ability of other PRPs to share in the payment of requisite costs; the Company’s prior
experience with similar sites; environmental studies and cost estimates available to the Company;
the effects of inflation on cost estimates; and the extent to which the Company’s, and other
parties’, status as PRPs is disputed.
The Company’s estimate of environmental response costs associated with these matters as of December
31, 2006 ranged between $15.9 million and $35.6 million. As of December 31, 2006, the Company had
a reserve equal to $19.8 million for such environmental response costs in the aggregate, which is
included in other accrued liabilities and other noncurrent liabilities in the Consolidated Balance
Sheets. No insurance recovery was taken into account in determining the Company’s cost estimates
or reserve, nor do the Company’s cost estimates or reserve reflect any discounting for present
value purposes, except with respect to four long-term (30 year) operations and maintenance CERCLA
matters which are estimated at their present value of $9.5 million.
Because of the uncertainties associated with environmental investigations and response activities,
the possibility that the Company could be identified as a PRP at sites identified in the future
that require the incurrence of environmental response costs and the possibility of additional sites
as a result of businesses acquired, actual costs to be incurred by the Company may vary from the
Company’s estimates.
Although management of the Company cannot predict the ultimate outcome of these legal proceedings
with certainty, it believes that the ultimate resolution of the Company’s legal proceedings,
including any amounts it may be required to pay in excess of amounts reserved, will not have a
material effect on the Company’s 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 Company’s obligations and the unique facts and
circumstances involved in each particular agreement. Historically, payments made by the Company
under these agreements did not have a material effect on the Company’s business, financial
condition or results of operation.
As of December 31, 2006, the Company had $95.4 million in standby letters of credit primarily
related to the Company’s self-insurance programs, including workers’ compensation, product
liability, and medical.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
| |
(a) |
|
Evaluation of Disclosure Controls and Procedures. As of December 31, 2006, an
evaluation was performed by the Company’s management, under the supervision and with the
participation of the Company’s chief executive officer and chief financial officer, of the
effectiveness of the Company’s disclosure controls and procedures. Based on that
evaluation, the chief executive officer and the chief financial officer concluded that the
Company’s disclosure controls and procedures were effective. |
| |
| |
(b) |
|
Management’s Report on Internal Control Over Financial Reporting. The Company’s
management’s |
- 74 -
| |
|
|
annual report on internal control over financial reporting is set forth under Item 8 of this
annual report and is incorporated herein by reference. |
| |
| |
(c) |
|
Attestation Report of the Registered Public Accounting Firm. The attestation report of
Ernst & Young LLP, the Company’s independent registered public accounting firm, on
management’s assessment of the Company’s internal control over financial reporting is set
forth under Item 8 of this annual report and is incorporated herein by reference. |
| |
| |
(d) |
|
Changes in Internal Control Over Financial Reporting. There were no changes in the
Company’s internal control over financial reporting that occurred during the quarter ended
December 31, 2006 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting. |
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required under this Item with respect to Directors will be contained in the Company’s
Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2007 (the “Proxy
Statement”) under the captions “Election of Directors” and “Information Regarding Board of
Directors and Committees and Corporate Governance,” which information is incorporated by reference
herein.
Information required under this Item with respect to Executive Officers of the Company is included
as a supplemental item at the end of Part I of this report.
Information required under this Item with respect to compliance with Section 16(a) of the Exchange
Act will be included in the Proxy Statement under the caption “Section 16(a) Beneficial Ownership
Compliance Reporting,” which information is incorporated by reference herein.
Information required under this Item with respect to the Company’s Code of Ethics for Senior
Financial Officers will be included in the Proxy Statement under the caption “Information Regarding
Board of Directors and Committees and Corporate Governance — Code of Ethics,” which information is
incorporated by reference herein.
Information required under this Item with respect to the audit committee and audit committee
financial experts will be included in the Proxy Statement under the caption “Information Regarding
Board of Directors and Committees and Corporate Governance — Committees — Audit Committee,” which
information is incorporated by reference herein.
Information required under this Item with respect to communications between security holders and
Directors will be included in the Proxy Statement under the caption “Information Regarding Board of
Directors and Committees and Corporate Governance — Director Nomination Process,” and “Information
Regarding Board of Directors and Committees and Corporate Governance – Communications with the
Board of Directors,” which information is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be included in the Proxy Statement under the captions
“Organizational Development & Compensation Committee Report” and “Executive Compensation,” which
information is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
- 75 -
Information required under this Item will be included in the Proxy Statement under the captions
“Certain Beneficial Owners” and “Equity Compensation Plan Information,” which information is
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required under this Item with respect to certain relationships and related transactions
will be included in the Proxy Statement under the caption “Certain Relationships and Related
Transactions,” which information is incorporated by reference herein.
Information required under this Item with respect to director independence will be included in the
Proxy Statement under the caption “Information Regarding Board of Directors and Committees and
Corporate Governance – Director Independence,” which information is incorporated by reference
herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required under this Item will be included in the Proxy Statement under the caption
“Ratification of Appointment of Independent Registered Public Accounting Firm,” which information
is incorporated by reference herein.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The following is a list of the financial statements of Newell Rubbermaid Inc. included in
this report on Form 10-K, which are filed herewith pursuant to Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations — Years Ended December 31, 2006, 2005 and 2004
Consolidated Balance Sheets — December 31, 2006 and 2005
Consolidated Statements of Cash Flows — Years Ended December 31, 2006, 2005 and 2004
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income — Years
Ended December 31, 2006, 2005 and 2004
Notes to Consolidated Financial Statements — December 31, 2006, 2005 and 2004
(2) The following consolidated financial statement schedule of the Company included in this report
on Form 10-K is filed herewith pursuant to Item 15(c) and appears immediately following the Exhibit
Index:
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
All other financial schedules are not required under the related instructions or are inapplicable
and, therefore, have been omitted.
(3) The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on
Form 10-K. Each management contract or compensatory plan or arrangement of the Company listed on
the Exhibit Index is separately identified by an asterisk.
- 76 -
(b) EXHIBIT INDEX
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Exhibit |
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Number |
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Description of Exhibit |
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Item 3.
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Articles of
Incorporation and
By-Laws
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3.1 |
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Restated Certificate of Incorporation of Newell Rubbermaid
Inc., as amended as of April 5, 2001 (incorporated by
reference to Exhibit 3.1 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2001). |
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3.2 |
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By-Laws of Newell Rubbermaid Inc., as amended (incorporated by
reference to Exhibit 3.1 of the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2006). |
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Item 4.
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Instruments
Defining the
Rights
of Security
Holders,
Including
Indentures
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4.1 |
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Restated Certificate of Incorporation of Newell Rubbermaid
Inc., as amended as of April 5, 2001, is included in Item 3.1. |
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4.2 |
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By-Laws of Newell Rubbermaid Inc., as amended, are included in
Item 3.2. |
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4.3 |
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Indenture dated as of April 15, 1992, between the Company and
The Chase Manhattan Bank (now known as JPMorgan Chase Bank),
as Trustee (incorporated by reference to Exhibit 4.4 to the
Company’s Report on Form 8 amending the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1992, File No. 001-09608). |
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4.4 |
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Indenture dated as of November 1, 1995, between the Company
and The Chase Manhattan Bank (now known as JPMorgan Chase
Bank), as Trustee (incorporated by reference to Exhibit 4.4 to
the Company’s Report on Form 8 amending the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1992, File No. 001-09608). |
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4.5 |
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Junior Convertible Subordinated Indenture for the 5.25%
Convertible Subordinated Debentures, dated as of December 12,
1997, between the Company and The Chase Manhattan Bank (now
known as JPMorgan Chase Bank), as Indenture Trustee
(incorporated by reference to Exhibit 4.3 to the Company’s
Registration Statement on Form S-3, File No. 333-47261, filed
March 3, 1998 (the “1998 Form S-3”)). |
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4.6 |
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Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2006). |
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4.7 |
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Credit Agreement, dated as of November 14, 2005, by and among,
the Company, JPMorgan Chase Bank, N.A., as administrative
agent, and each lender a signatory thereto (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated November 14, 2005), as amended effective
October 10, 2006, and as further amended as of October 12,
2006 (which amendments are included as Exhibit 4.7 to this
Report). |
- 77 -
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Exhibit |
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Number |
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Description of Exhibit |
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Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the
Company is not filing certain documents. The Company agrees to
furnish a copy of each such document upon the request of the
Commission. |
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Item 10.
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Material Contracts
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*10.1 |
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Newell Rubbermaid Inc. Management Cash Bonus Plan, effective
January 1, 2002, as amended effective November 9, 2005
(incorporated by reference to Exhibit 10.3 to the Company’s
Annual Report on Form 10-K for the year ended December 31,
2002, and to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2006). |
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*10.2 |
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Newell Co. Deferred Compensation Plan, as amended and restated
effective January 1, 1997 (incorporated by reference to
Exhibit 10.3 to the Company’s Annual Report on Form 10-K for
the year ended December 31, 1998, File No. 001-09608). |
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*10.3 |
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Newell Rubbermaid Inc. 2002 Deferred Compensation Plan, as
amended and restated as of January 1, 2004 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2004). |
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*10.4 |
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Rubbermaid Incorporated 1993 Deferred Compensation Plan
(incorporated by reference to Exhibit A of the Rubbermaid
Incorporated Proxy Statement for the April 27, 1993 Annual
Meeting of Shareholders, File No. 001-04188). |
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*10.5 |
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Newell Rubbermaid Supplemental Executive Retirement Plan,
effective January 1, 2004 (incorporated by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2004), as amended
effective January 1, 2007 (which amendment is included as
Exhibit 10.5 to this Report). |
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*10.6 |
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Newell Rubbermaid Inc. 1993 Stock Option Plan, effective
February 9, 1993, as amended May 26, 1999 and August 15, 2001
(incorporated by reference to Exhibit 10.12 to the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, File No. 001-09608, and Exhibit 10 to the
Company’s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001). |
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*10.7 |
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Newell Rubbermaid Inc. 2003 Stock Plan, as amended and
restated effective February 8, 2006, and as amended effective
August 9, 2006 (incorporated by reference to Appendix B to the
Company’s Proxy Statement, dated April 3, 2006, and Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006). |
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*10.8 |
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Forms of Stock Option Agreement under the Newell Rubbermaid
Inc. 2003 Stock Plan, as amended and restated effective
February 8, 2006 (incorporated by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006). |
- 78 -
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Exhibit |
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Number |
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Description of Exhibit |
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*10.9 |
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Form of Stock Option Agreement for Chief Executive Officer
under Newell Rubbermaid Inc. 2003 Stock Plan, prior to its
amendment and restatement effective February 8, 2006
(incorporated by reference to Exhibit 10.6 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006). |
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*10.10 |
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Stock Option Agreement granted to Mark D. Ketchum November 9,
2005 under the Newell Rubbermaid Inc. 2003 Stock Plan, prior
to its amendment and restatement effective February 8, 2006
(incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K dated November 9, 2006). |
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*10.11 |
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Forms of Restricted Stock Award Agreement under the Newell
Rubbermaid Inc. 2003 Stock Plan, as amended and restated
effective February 8, 2006 (incorporated by reference to
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006). |
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*10.12 |
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Form of Performance Share Award Agreement under the Newell
Rubbermaid Inc. 2003 Stock Plan, as amended and restated
effective February 8, 2006. |
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*10.13 |
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Performance Share Award Agreement granted to Mark D. Ketchum
March 22, 2006 under the Newell Rubbermaid Inc. 2003 Stock
Plan, as amended and restated effective February 8, 2006
(incorporated by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30,
2006). |
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*10.14 |
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2005 Long Term Incentive Plan under the Newell Rubbermaid Inc.
2003 Stock Plan (incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2005). |
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*10.15 |
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Amended 2006 Long Term Incentive Plan under the Newell
Rubbermaid Inc. 2003 Stock Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006). |
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*10.16 |
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Newell Rubbermaid Inc. 2007 Supplemental Transition Bonus Plan. |
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*10.17 |
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Form of Employment Security Agreement with certain of
Company’s Executive Officers and a limited number of other
senior management employees (incorporated by reference to
Exhibit 10 to the Company’s Current Report on Form 8-K dated
November 10, 2004). |
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*10.18 |
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Compensation Arrangement for Mark D. Ketchum dated February
13, 2006 (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2006). |
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10.19 |
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Amended and Restated Trust Agreement, dated as of December 12,
1997, among the Company, as Depositor, The Chase Manhattan
Bank (now known as JPMorgan Chase Bank), as Property Trustee,
Chase Manhattan Delaware, as Delaware Trustee, and the
Administrative Trustees (incorporated by reference to Exhibit
4.2 to the Company’s Registration Statement on Form S-3, File
No. 333-47261, filed March 3, 1998). |
- 79 -
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Exhibit |
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| |
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Number |
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Description of Exhibit |
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10.20 |
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Indenture dated as of April 15, 1992, between the Company and
The Chase Manhattan Bank (now known as JPMorgan Chase Bank),
as Trustee, is included in Item 4.3. |
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10.21 |
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Indenture dated as of November 1, 1995, between the Company
and The Chase Manhattan Bank (now known as JPMorgan Chase
Bank), as Trustee, is included in Item 4.4. |
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10.22 |
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Junior Convertible Subordinated Indenture for the 5.25%
Convertible Subordinated Debentures, dated as of December 12,
1997, between the Company and The Chase Manhattan Bank (now
known as JPMorgan Chase Bank), as Indenture Trustee, is
included in Item 4.5. |
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10.23 |
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Credit Agreement, dated as of November 14, 2005, by and among,
the Company, JPMorgan Chase Bank, N.A., as administrative
agent, and each lender a signatory thereto, as amended
effective October 10, 2006, and as further amended as of
October 12, 2006, is included in Item 4.7. |
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Item 12.
|
|
Statement re
Computation of
Ratios
|
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12 |
|
|
Statement of Computation of Earnings to Fixed Charges. |
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Item 14.
|
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Code of Ethics
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14 |
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Code of Ethics for Senior Financial Officers (incorporated by
reference to Exhibit 14 of the Company’s Annual Report on Form
10-K for the year ended December 31, 2003). |
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Item 21.
|
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Subsidiaries of the
Registrant
|
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21 |
|
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Significant Subsidiaries of the Company. |
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Item 23.
|
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Consent of experts
and counsel
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23.1 |
|
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Consent of Ernst & Young LLP. |
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Item 31.
|
|
Rule13a-14(a)/15d-14(a) Certifications
|
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31.1 |
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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. |
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31.2 |
|
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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. |
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Item 32.
|
|
Section 1350
Certifications
|
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32.1 |
|
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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. |
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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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| * |
|
Management contract or compensatory plan or arrangement of the Company. |
- 80 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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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By
|
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/s/ J. Patrick Robinson |
Title
|
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Executive Vice President — Chief Financial Officer |
Date
|
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February 28, 2007 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on February 28, 2007 by the following persons on behalf of the Registrant and in the
capacities indicated.
| |
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| Signature |
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Title |
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/s/ Mark D. Ketchum
|
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President, Chief Executive Officer and Director |
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/s/ J. Patrick Robinson
|
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Executive Vice President — Chief Financial Officer |
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/s/ Ricky T. Dillon
|
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Vice President – Corporate Controller and Chief Accounting Officer |
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/s/ William D. Marohn
|
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Chairman of the Board and Director |
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/s/ Thomas E. Clarke
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Director |
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/s/ Scott S. Cowen
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Director |
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/s/ Michael T. Cowhig
|
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Director |
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/s/ Elizabeth Cuthbert Millett
|
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Director |
Elizabeth Cuthbert Millett
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/s/ Cynthia A. Montgomery
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Director |
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/s/ Allan P. Newell
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Director |
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/s/ Steven J. Strobel
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Director |
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/s/ Gordon R. Sullivan
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Director |
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/s/ Michael A. Todman
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Director |
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/s/ Raymond G. Viault
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Director |
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- 81 -
Schedule II
Newell Rubbermaid Inc. and subsidiaries
Valuation and Qualifying Accounts
| |
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Balance |
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Balance at |
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Charges to |
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at |
| |
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Beginning |
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Other |
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|
|
End of |
| (In millions) |
|
of Period |
|
Provision |
|
Accounts (1) |
|
Write-offs (2) |
|
Period |
| |
|
|
Reserve for Doubtful
Accounts and Cash Discounts: |
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|
|
|
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|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
$ |
41.3 |
|
|
$ |
73.7 |
|
|
$ |
1.0 |
|
|
|
($77.8 |
) |
|
$ |
38.2 |
|
Year ended December 31, 2005 |
|
|
53.1 |
|
|
|
71.5 |
|
|
|
0.9 |
|
|
|
(84.2 |
) |
|
|
41.3 |
|
Year ended December 31, 2004 |
|
|
57.4 |
|
|
|
89.3 |
|
|
|
(1.4 |
) |
|
|
(92.2 |
) |
|
|
53.1 |
|
|
|
|
| (1) |
|
Represents recovery of accounts previously written off, currency translation adjustments
and net reserves of acquired or divested businesses. |
| |
| (2) |
|
Represents accounts written off during the year and cash discounts taken by customers. |
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|
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|
|
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| |
|
|
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|
|
|
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|
|
Balance |
| |
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
at |
| |
|
Beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of |
| (In millions) |
|
of Period |
|
Provision |
|
Write-offs |
|
Other (3) |
|
Period |
| |
|
|
Inventory Reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
$ |
74.1 |
|
|
$ |
47.1 |
|
|
|
($53.0 |
) |
|
$ |
— |
|
|
$ |
68.2 |
|
Year ended December 31, 2005 |
|
|
76.3 |
|
|
|
61.0 |
|
|
|
(65.2 |
) |
|
|
2.0 |
|
|
|
74.1 |
|
Year ended December 31, 2004 |
|
|
85.1 |
|
|
|
71.7 |
|
|
|
(80.5 |
) |
|
|
— |
|
|
|
76.3 |
|
|
|
|
| (3) |
|
Represents net reserves of acquired and divested businesses, including provisions for
product line rationalization. |
- 82 -