2005
| DELAWARE | 36-3514169 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| Yes /x/ | No / / |
| Yes /x/ | No / / |
| Yes / / | No /x/ |
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||||||||||
| Net sales | $ | 1,671.8 | $ | 1,729.1 | $ | 4,939.9 | $ | 5,072.0 | $1,598.2 | $1,621.3 | $4,616.3 | $4,759.2 | ||||||||||||||||||||
| Cost of products sold | 1,198.5 | 1,237.3 | 3,571.0 | 3,625.0 | 1,098.0 | 1,156.6 | 3,232.9 | 3,415.2 | ||||||||||||||||||||||||
| GROSS MARGIN | 473.2 | 491.8 | 1,368.9 | 1,447.0 | 500.2 | 464.7 | 1,383.4 | 1,344.0 | ||||||||||||||||||||||||
| Selling, general and administrative expenses | 307.1 | 298.8 | 945.5 | 905.5 | 311.5 | 297.9 | 938.8 | 915.1 | ||||||||||||||||||||||||
| Impairment charges | 348.9 | — | 374.0 | — | 58.6 | 270.0 | 58.6 | 295.1 | ||||||||||||||||||||||||
| Restructuring costs | — | 32.3 | 47.9 | 109.5 | 14.6 | 0.4 | 21.1 | 47.7 | ||||||||||||||||||||||||
| OPERATING (LOSS) INCOME | (182.7 | ) | 160.7 | 1.5 | 432.0 | |||||||||||||||||||||||||||
| OPERATING INCOME (LOSS) | 115.5 | (103.6 | ) | 364.9 | 86.1 | |||||||||||||||||||||||||||
| Nonoperating expenses: | ||||||||||||||||||||||||||||||||
| Interest expense, net | 29.5 | 33.1 | 90.0 | 104.5 | 34.3 | 29.5 | 96.2 | 89.9 | ||||||||||||||||||||||||
| Other (income) expense, net | (0.8 | ) | 1.4 | (3.9 | ) | 18.6 | (0.6 | ) | (0.3 | ) | (1.0 | ) | 3.7 | |||||||||||||||||||
| Net nonoperating expenses | 28.7 | 34.5 | 86.1 | 123.1 | 33.7 | 29.2 | 95.2 | 93.6 | ||||||||||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | (211.4 | ) | 126.2 | (84.6 | ) | 308.9 | ||||||||||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 81.8 | (132.8 | ) | 269.7 | (7.5 | ) | ||||||||||||||||||||||||||
| Income taxes | 23.6 | 40.7 | 58.7 | 100.0 | 28.3 | 22.9 | 27.9 | 57.6 | ||||||||||||||||||||||||
| NET (LOSS) INCOME FROM CONTINUING OPERATIONS | (235.0 | ) | 85.5 | (143.3 | ) | 208.9 | ||||||||||||||||||||||||||
| Gain/(loss) from discontinued operations, net of tax | 8.6 | (10.3 | ) | (97.0 | ) | (43.9 | ) | |||||||||||||||||||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | 53.5 | (155.7 | ) | 241.8 | (65.1 | ) | ||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | 18.0 | (70.7 | ) | (67.5 | ) | (175.2 | ) | |||||||||||||||||||||||||
| NET (LOSS) INCOME | ($ | 226.4 | ) | $ | 75.2 | ($ | 240.3 | ) | $ | 165.0 | ||||||||||||||||||||||
| NET INCOME (LOSS) | $71.5 | ($226.4 | ) | $174.3 | ($240.3 | ) | ||||||||||||||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic | 274.4 | 274.4 | 274.4 | 274.0 | 274.4 | 274.4 | 274.4 | 274.4 | ||||||||||||||||||||||||
| Diluted | 274.4 | 274.4 | 274.4 | 274.3 | 275.0 | 274.4 | 274.8 | 274.4 | ||||||||||||||||||||||||
| (Loss) Earnings per share: | ||||||||||||||||||||||||||||||||
| Basic – | ||||||||||||||||||||||||||||||||
| (Loss) income from continuing operations | ($ | 0.86 | ) | $ | 0.31 | ($ | 0.52 | ) | $ | 0.76 | ||||||||||||||||||||||
| Earnings (Loss) per share: | ||||||||||||||||||||||||||||||||
| Basic — | ||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations | $0.19 | ($0.57 | ) | $0.88 | ($0.24 | ) | ||||||||||||||||||||||||||
| Income (loss) from discontinued operations | 0.03 | (0.04 | ) | (0.35 | ) | (0.16 | ) | 0.07 | (0.26 | ) | (0.25 | ) | (0.64 | ) | ||||||||||||||||||
| Net (loss) income per common share | ($ | 0.83 | ) | $ | 0.27 | ($ | 0.88 | ) | $ | 0.60 | ||||||||||||||||||||||
| Net income (loss) per common share | $0.26 | ($0.83 | ) | $0.64 | ($0.88 | ) | ||||||||||||||||||||||||||
| Diluted – | ||||||||||||||||||||||||||||||||
| (Loss) income from continuing operations | ($ | 0.86 | ) | $ | 0.31 | ($ | 0.52 | ) | $ | 0.76 | ||||||||||||||||||||||
| Diluted — | ||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations | $0.19 | ($0.57 | ) | $0.88 | ($0.24 | ) | ||||||||||||||||||||||||||
| Income (loss) from discontinued operations | 0.03 | (0.04 | ) | (0.35 | ) | (0.16 | ) | 0.07 | (0.26 | ) | (0.25 | ) | (0.64 | ) | ||||||||||||||||||
| Net (loss) income per common share | ($ | 0.83 | ) | $ | 0.27 | ($ | 0.88 | ) | $ | 0.60 | ||||||||||||||||||||||
| Net income (loss) per common share | $0.26 | ($0.83 | ) | $0.63 | ($0.88 | ) | ||||||||||||||||||||||||||
| Dividends per share | $ | 0.21 | $ | 0.21 | $ | 0.63 | $ | 0.63 | $0.21 | $0.21 | $0.63 | $0.63 | ||||||||||||||||||||
2
| September 30, | December 31, | September 30, | December 31, | |||||||||||||
| 2004 | 2003 | 2005 | 2004 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash and cash equivalents | $ | 354.5 | $ | 144.4 | $485.5 | $505.6 | ||||||||||
| Accounts receivable, net | 1,184.3 | 1,397.1 | 1,082.1 | 1,233.0 | ||||||||||||
| Inventories, net | 1,060.0 | 884.8 | 1,010.6 | 938.1 | ||||||||||||
| Deferred income taxes | 115.3 | 152.7 | 69.7 | 73.8 | ||||||||||||
| Prepaid expenses and other | 163.2 | 183.1 | 107.2 | 180.3 | ||||||||||||
| Current assets of discontinued operations | — | 238.1 | 8.0 | 81.6 | ||||||||||||
| TOTAL CURRENT ASSETS | 2,877.3 | 3,000.2 | 2,763.1 | 3,012.4 | ||||||||||||
| OTHER LONG-TERM INVESTMENTS | 15.5 | 15.5 | ||||||||||||||
| OTHER ASSETS | 256.7 | 197.2 | 232.7 | 186.4 | ||||||||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 1,341.3 | 1,608.8 | 1,005.7 | 1,222.4 | ||||||||||||
| DEFERRED INCOME TAXES | 9.3 | 68.1 | 2.1 | 30.2 | ||||||||||||
| GOODWILL | 1,798.0 | 1,989.0 | 1,769.0 | 1,821.0 | ||||||||||||
| OTHER INTANGIBLE ASSETS, NET | 307.1 | 447.9 | 312.2 | 299.1 | ||||||||||||
| NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS | — | 154.0 | 42.2 | 95.0 | ||||||||||||
| TOTAL ASSETS | $ | 6,605.2 | $ | 7,480.7 | $6,127.0 | $6,666.5 | ||||||||||
3
| September 30, | December 31, | September 30, | December 31, | |||||||||||||
| 2004 | 2003 | 2005 | 2004 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Notes payable | $ | 14.0 | $ | 21.9 | ||||||||||||
| Accounts payable | 633.1 | 694.7 | $576.4 | $661.5 | ||||||||||||
| Accrued compensation | 115.4 | 122.1 | 138.3 | 145.2 | ||||||||||||
| Other accrued liabilities | 842.4 | 960.4 | 699.7 | 757.5 | ||||||||||||
| Income taxes | 134.0 | 80.8 | ||||||||||||||
| Income taxes payable | 46.8 | 68.8 | ||||||||||||||
| Notes payable | 6.2 | 21.3 | ||||||||||||||
| Current portion of long-term debt | 215.0 | 13.5 | 25.4 | 185.6 | ||||||||||||
| Current liabilities of discontinued operations | — | 128.6 | 0.1 | 31.4 | ||||||||||||
| TOTAL CURRENT LIABILITIES | 1,953.9 | 2,022.0 | 1,492.9 | 1,871.3 | ||||||||||||
| LONG-TERM DEBT | 2,439.6 | 2,868.6 | 2,377.4 | 2,424.3 | ||||||||||||
| OTHER NONCURRENT LIABILITIES | 585.0 | 572.3 | 537.6 | 606.0 | ||||||||||||
| LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS | — | 1.5 | — | 0.7 | ||||||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||||||||||
| Common stock, authorized shares, | ||||||||||||||||
| 800.0 million at $1.00 par value | 290.1 | 290.1 | ||||||||||||||
| 800.0 at $1.00 par value | 290.2 | 290.1 | ||||||||||||||
| Outstanding shares: | ||||||||||||||||
| 2004 - 290.1 million | ||||||||||||||||
| 2003 - 290.1 million | ||||||||||||||||
| 2005 - 290.2 | ||||||||||||||||
| 2004 - 290.1 | ||||||||||||||||
| Treasury stock, at cost; | (411.6 | ) | (411.6 | ) | (411.6 | ) | (411.6 | ) | ||||||||
| Shares held: | ||||||||||||||||
| 2004 - 15.7 million | ||||||||||||||||
| 2003 - 15.7 million | ||||||||||||||||
| 2005 - 15.7 | ||||||||||||||||
| 2004 - 15.7 | ||||||||||||||||
| Additional paid-in capital | 437.4 | 439.9 | 451.4 | 437.5 | ||||||||||||
| Retained earnings | 1,452.2 | 1,865.7 | 1,519.2 | 1,518.6 | ||||||||||||
| Accumulated other comprehensive loss | (141.4 | ) | (167.8 | ) | (130.1 | ) | (70.4 | ) | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | 1,626.7 | 2,016.3 | 1,719.1 | 1,764.2 | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,605.2 | $ | 7,480.7 | $6,127.0 | $6,666.5 | ||||||||||
4
| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2004 | 2003 | 2005 | 2004 | |||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||||
| Net (loss) income | ($ | 240.3 | ) | $ | 165.0 | |||||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||||||
| Net income (loss) | $174.3 | ($240.3 | ) | |||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 185.4 | 186.5 | 161.5 | 171.5 | ||||||||||||
| Deferred income taxes | 85.1 | 9.6 | 18.5 | 85.1 | ||||||||||||
| Impairment charges | 374.0 | — | ||||||||||||||
| Noncash restructuring charges | 25.3 | 73.0 | ||||||||||||||
| (Gain)/loss on sale of assets/business | (6.5 | ) | 20.5 | |||||||||||||
| Loss on discontinued businesses | 90.5 | — | ||||||||||||||
| Impairment charges — Continuing operations | 58.6 | 295.1 | ||||||||||||||
| Impairment charges — Discontinued operations | — | 78.9 | ||||||||||||||
| Noncash restructuring costs | 5.3 | 25.3 | ||||||||||||||
| Gain on sale of assets/debt extinguishment | (7.1 | ) | (6.5 | ) | ||||||||||||
| Loss on disposal of discontinued operations | 67.4 | 90.5 | ||||||||||||||
| Other | (4.8 | ) | 30.7 | (10.2 | ) | (4.8 | ) | |||||||||
| Changes in current accounts excluding the Effects of acquisitions: | ||||||||||||||||
| Changes in current accounts excluding the effects of acquisitions: | ||||||||||||||||
| Accounts receivable | 211.0 | 47.0 | 122.8 | 211.0 | ||||||||||||
| Inventories | (176.8 | ) | (1.4 | ) | (92.0 | ) | (196.3 | ) | ||||||||
| Other current assets | 17.9 | 2.6 | ||||||||||||||
| Accounts payable | (60.2 | ) | 121.9 | (78.0 | ) | (55.9 | ) | |||||||||
| Accrued liabilities and other | 20.7 | (34.5 | ) | |||||||||||||
| Discontinued operations | (29.8 | ) | 9.9 | 9.5 | 2.7 | |||||||||||
| Accrued liabilities and other | (49.0 | ) | (244.8 | ) | ||||||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 421.8 | 420.5 | 451.3 | 421.8 | ||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||||
| Acquisitions, net of cash acquired | (3.0 | ) | (460.0 | ) | (35.3 | ) | (3.0 | ) | ||||||||
| Expenditures for property, plant and equipment | (95.2 | ) | (247.1 | ) | (69.9 | ) | (95.2 | ) | ||||||||
| Sale of businesses and noncurrent assets | 289.2 | 10.2 | ||||||||||||||
| Disposals of noncurrent assets and sale of businesses | 29.4 | 289.2 | ||||||||||||||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 191.0 | (696.9 | ) | |||||||||||||
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (75.8 | ) | 191.0 | |||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from issuance of debt | 21.3 | 1,040.5 | 134.1 | 21.3 | ||||||||||||
| Proceeds from issuance of stock | — | 200.1 | ||||||||||||||
| Payments on notes payable and long-term debt | (251.9 | ) | (776.7 | ) | (345.0 | ) | (251.9 | ) | ||||||||
| Cash dividends | (173.2 | ) | (173.1 | ) | (173.7 | ) | (173.2 | ) | ||||||||
| Proceeds from exercised stock options and other | 1.4 | 6.0 | (2.8 | ) | 1.4 | |||||||||||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (402.4 | ) | 296.8 | |||||||||||||
| NET CASH USED IN FINANCING ACTIVITIES | (387.4 | ) | (402.4 | ) | ||||||||||||
| Exchange rate effect on cash | (0.3 | ) | 1.6 | |||||||||||||
| INCREASE IN CASH AND CASH EQUIVALENTS | 210.1 | 22.0 | ||||||||||||||
| Exchange rate effect on cash and cash equivalents | (8.2 | ) | (0.3 | ) | ||||||||||||
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (20.1 | ) | 210.1 | |||||||||||||
| Cash and cash equivalents at beginning of year | 144.4 | 55.1 | 505.6 | 144.4 | ||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 354.5 | $ | 77.1 | $485.5 | $354.5 | ||||||||||
5
Note
and Significant Accounting Policies
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
| Net (loss) income: | ||||||||||||||||||||||||||||||||
| Net income (loss): | ||||||||||||||||||||||||||||||||
| As reported | ($ | 226.4 | ) | $ | 75.2 | ($ | 240.3 | ) | $ | 165.0 | $71.5 | ($226.4 | ) | $174.3 | ($240.3 | ) | ||||||||||||||||
| Fair value option expense | (4.6 | ) | (4.7 | ) | (13.7 | ) | (14.1 | ) | ||||||||||||||||||||||||
| Fair value option expense, net of tax | (2.5 | ) | (4.6 | ) | (8.1 | ) | (13.7 | ) | ||||||||||||||||||||||||
| Pro forma | ($ | 231.0 | ) | $ | 70.5 | ($ | 254.0 | ) | $ | 150.9 | $69.0 | ($231.0 | ) | $166.2 | ($254.0 | ) | ||||||||||||||||
| Basic (loss) earnings per share: | ||||||||||||||||||||||||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||||
| As reported | ($ | 0.83 | ) | $ | 0.27 | ($ | 0.88 | ) | $ | 0.60 | $0.26 | ($0.83 | ) | $0.64 | ($0.88 | ) | ||||||||||||||||
| Pro forma | ($ | 0.84 | ) | $ | 0.26 | ($ | 0.93 | ) | $ | 0.55 | $0.25 | ($0.84 | ) | $0.61 | ($0.93 | ) | ||||||||||||||||
| Diluted (loss) earnings per share: | ||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||||
| As reported | ($ | 0.83 | ) | $ | 0.27 | ($ | 0.88 | ) | $ | 0.60 | $0.26 | ($0.83 | ) | $0.63 | ($0.88 | ) | ||||||||||||||||
| Pro forma | ($ | 0.84 | ) | $ | 0.26 | ($ | 0.93 | ) | $ | 0.55 | $0.25 | ($0.84 | ) | $0.60 | ($0.93 | ) | ||||||||||||||||
6
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Net sales | $13.6 | $50.5 | $115.5 | $352.0 | ||||||||||||
| Loss from operations, net of income tax (benefit) expense of ($0.2) and $0.6 for the three months ended September 30, 2005 and 2004, respectively, and $2.8 and ($2.0) for the nine months ended September 30, 2005 and 2004, respectively | ($2.4 | ) | ($79.3 | ) | ($0.1 | ) | ($84.7 | ) | ||||||||
| Gain (loss) on disposal, net of income tax expense of $5.1 and $4.7 for the three months ended September 30, 2005 and 2004, respectively, and ($1.8) and none for the nine months ended September 30, 2005 and 2004, respectively | $20.4 | $8.6 | ($67.4 | ) | ($90.5 | ) | ||||||||||
| Gain (loss) from discontinued operations, net of tax | $18.0 | ($70.7 | ) | ($67.5 | ) | ($175.2 | ) | |||||||||
67
Note 2 – Impairment Charges
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2004 | September 30, 2004 | |||||||
| Goodwill | $ | 181.2 | $ | 182.7 | ||||
| Other indefinite-lived intangible assets | 107.1 | 116.0 | ||||||
| Long-lived assets | 60.6 | 75.3 | ||||||
| $ | 348.9 | $ | 374.0 | |||||
| September 30, | December 31, | |||||||
| 2005 | 2004 | |||||||
| Accounts receivable, net | $— | $45.6 | ||||||
| Inventories, net | 8.0 | 34.2 | ||||||
| Prepaid expenses and other | — | 1.8 | ||||||
| Total Current Assets | 8.0 | 81.6 | ||||||
| Property, plant and equipment, net | 34.9 | 85.8 | ||||||
| Goodwill | 7.3 | 3.6 | ||||||
| Other assets | — | 5.6 | ||||||
| Total Assets | $50.2 | $176.6 | ||||||
| Accounts payable | $— | $21.4 | ||||||
| Other accrued liabilities | 0.1 | 10.0 | ||||||
| Total Current Liabilities | 0.1 | 31.4 | ||||||
| Other noncurrent liabilities | — | 0.7 | ||||||
| Total Liabilities | $0.1 | $32.1 | ||||||
The
The annual strategic planning meeting provides a forum for executive management to review changes recommended by division and group management in the long-term strategy of the individual businesses and approve specific initiatives. At the planning session, division management teams present their long-term vision for the business and recommend changes in response to internal and external factors, which may impact the valuation of long-lived assets, including goodwill, other intangible assets, and fixed assets. Additionally, these meetings are used to discuss the current business environment and outlook, as well as overall brand strategy.
8
The results of the impairment testing were reviewed and discussed with the Audit Committee of the Board of Directors, which agreed with management’s recommendations and concluded on October 22, 2004, that the impairment charges described below are required under generally accepted accounting principles.
Testing Approach
Goodwill
The goodwill impairment test requires that a company estimate the fair value of the business enterprise at the reporting unit level, that is, the operating segment or one reporting level below the operating segment. The fair value of a reporting unit was calculated with the assistance of an independent third party valuation specialist using discounted cash flows. The discounted cash flows were estimated utilizing various assumptions regarding future revenue and expenses, working capital, terminal value, and discount rates. The underlying assumptions used were consistent with those used in the strategic plan. If the fair value of the reporting unit was less than its carrying amount at the valuation date, an impairment loss was recognized to the extent that the implied fair value of the goodwill within the reporting unit was less than the recorded amount of goodwill.
Other Indefinite-Lived Intangible Assets, primarily Trademarks and Tradenames
The impairment test for other indefinite-lived intangible assets, primarily trademarks and tradenames (intangible assets), requires that a company determine the fair value of the intangible asset. Generally, the fair value of the intangible assets was calculated with the assistance of an independent third party valuation specialist using discounted cash flows associated with the underlying intangible asset. The discounted cash flows were estimated utilizing various assumptions regarding future revenue and expenses, working capital, terminal value, and discount rates. The underlying assumptions used were consistent with those used in the strategic plan. The fair value of the intangible asset was then compared to the carrying value. If the fair value of the intangible asset was less than its carrying amount, an impairment charge was recorded.
7
Other Long-Lived Assets, primarily Fixed Assets and Patents
In accordance with SFAS No. 144, the Company evaluated if there were impairment indicators present related to its fixed assets and other long-term assets. If impairment indicators were present, future cash flows related to the asset group was estimated. The sum of the undiscounted future cash flows attributable to the asset group was then compared to the carrying amount of the asset group. The cash flows were 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 exceeded the sum of the future undiscounted future cash flows, the Company discounted the future cash flows using a risk-free discount rate and recorded an impairment charge as the difference between the discounted cash flows and the carrying value of the asset group. Generally, the Company performed its testing of the asset group at the product-line level, as this is the lowest level for which identifiable cash flows are available.
As a result of the impairment testing described above, the Company recorded noncash impairment charges in 2004 and 2005. These charges were required to write-down certain assets to fair value, including goodwill, trademarks and tradenames and other long-lived assets.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Goodwill | $20.6 | $147.2 | $20.6 | $148.7 | ||||||||||||
| Other indefinite-lived intangible assets | 12.4 | 107.1 | 12.4 | 116.0 | ||||||||||||
| Long-lived assets (primarily property, plant, & equipment and patents) | 25.6 | 15.7 | 25.6 | 30.4 | ||||||||||||
| $58.6 | $270.0 | $58.6 | $295.1 | |||||||||||||
| Other Indefinite- | Other Long-Lived | |||||||||||||||
| Lived Intangible | Assets (Fixed | |||||||||||||||
| Segment | Goodwill | Assets | Assets / Patents) | Total | ||||||||||||
| Cleaning & Organization | $ | 34.0 | $ | — | $ | 45.7 | $ | 79.7 | ||||||||
| Office Products | 138.8 | 93.8 | 8.5 | 241.1 | ||||||||||||
| Home Fashions | 8.4 | 13.3 | 3.9 | 25.6 | ||||||||||||
| Tools & Hardware | — | — | 1.0 | 1.0 | ||||||||||||
| Other | — | — | 1.5 | 1.5 | ||||||||||||
| Total | $ | 181.2 | $ | 107.1 | $ | 60.6 | $ | 348.9 | ||||||||
Cleaning & Organization
9
| Accounts receivable, net | $24.5 | |||
| Inventories, net | 26.0 | |||
| Prepaid expenses and other | 0.8 | |||
| Total Current Assets | 51.3 | |||
| Property, plant and equipment, net | 11.6 | |||
| Other assets | 0.2 | |||
| Total Assets | $63.1 | |||
| Accounts payable | $17.7 | |||
| Other accrued liabilities | 13.0 | |||
| Total Current Liabilities | 30.7 | |||
| Other noncurrent liabilities | 1.5 | |||
| Total Liabilities | $32.2 | |||
| Three months ended September 30, 2004 | Nine months ended September 30, 2004 | |||||||||||||||||||||||||||||||
| Other | Other | |||||||||||||||||||||||||||||||
| Indefinite- | Other | Indefinite- | Other | |||||||||||||||||||||||||||||
| Lived | Long- | Lived | Long- | |||||||||||||||||||||||||||||
| Intangible | Lived | Intangible | Lived | |||||||||||||||||||||||||||||
| Segment | Goodwill | Assets | Assets | Total | Goodwill | Assets | Assets | Total | ||||||||||||||||||||||||
| Cleaning & Organization | $— | $— | $0.8 | $0.8 | $— | $— | $11.3 | $11.3 | ||||||||||||||||||||||||
| Office Products | 138.8 | 93.8 | 8.5 | 241.1 | 138.8 | 93.8 | 11.4 | 244.0 | ||||||||||||||||||||||||
| Tools & Hardware | — | — | 1.0 | 1.0 | 1.5 | 3.3 | 2.0 | 6.8 | ||||||||||||||||||||||||
| Home Fashions | 8.4 | 13.3 | 3.9 | 25.6 | 8.4 | 18.9 | 3.9 | 31.2 | ||||||||||||||||||||||||
| Other | — | — | 1.5 | 1.5 | — | — | 1.8 | 1.8 | ||||||||||||||||||||||||
| Total | $147.2 | $107.1 | $15.7 | $270.0 | $148.7 | $116.0 | $30.4 | $295.1 | ||||||||||||||||||||||||
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.
10
| • | Prior year restructuring activity related to a product line in the European business has not resulted in the expected returns, and management is currently exploring alternatives for this product line. Accordingly, an impairment charge was recorded to | |
| • | In the European business, the Company has historically promoted and supported several different brands in the everyday writing category. In the third quarter management developed a plan to consolidate certain brands in Europe in this category. This new plan results 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 that is targeted for rationalization has experienced sales declines, especially in the current year, and management believes 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. | ||
| • | In the third quarter, management decided to rationalize several trademarks and trade names (brands), primarily in the Latin America businesses. The current plan is to reduce the number of brands from 76 to 12 over the next three years. |
8
| 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 |
tradenames associated with product lines that the Company planned on exiting.
The Company cannot predict whether certain events might occur that would adversely affect the reported value of the remaining goodwill and other identifiable intangible assets. Such events may include, but are not limitedproduct lines 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 relationship with significant customers. Additionally, increases in the risk adjusted rate could result in additional impairment charges.
Note 3 — Restructuring Costs
In the second quarter of 2004, the Company completed its accounting charges associated with its strategic restructuring plan (the “Plan”) announced on May 3, 2001. The specific objectives of the 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 $462 million in restructuring charges under the Plan, including $84.2 million on discontinued operations. The following analysis excludes the restructuring amounts related to discontinued operations.
911
Pre-tax
| Three Months Ended September 30, | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, | September 30, | September 30, | ||||||||||||||||||||||||||
| 2003 | 2004 | 2003 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||||||
| Facility and other exit costs | $ | 28.6 | $ | 32.8 | $ | 56.2 | $4.9 | $0.4 | $6.1 | $32.0 | ||||||||||||||||||
| Employee severance and termination benefits | 3.7 | 9.9 | 53.3 | 6.7 | — | 10.7 | 10.4 | |||||||||||||||||||||
| Exited contractual commitments and other | — | 5.2 | — | 3.0 | — | 4.3 | 5.3 | |||||||||||||||||||||
| Recorded as Restructuring Costs | $ | 32.3 | $ | 47.9 | $ | 109.5 | ||||||||||||||||||||||
| $14.6 | $0.4 | $21.1 | $47.7 | |||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Beginning balance | $16.1 | $99.7 | $27.9 | $145.1 | ||||||||||||
| Restructuring costs (provision) | 14.6 | 0.4 | 21.1 | 47.7 | ||||||||||||
| Costs incurred | (12.3 | ) | (61.1 | ) | (30.6 | ) | (153.8 | ) | ||||||||
| Ending balance | $18.4 | $39.0 | $18.4 | $39.0 | ||||||||||||
| 12/31/03 | Costs | 09/30/04 | ||||||||||||||
| Segment | Balance | Provision | Incurred | Balance | ||||||||||||
| Cleaning & Organization | $55.5 | $22.3 | ($69.9 | ) | $7.9 | |||||||||||
| Office Products | 29.9 | 11.6 | (25.1 | ) | 16.4 | |||||||||||
| Tools & Hardware | 17.9 | 1.6 | (16.2 | ) | 3.3 | |||||||||||
| Home Fashions | 17.7 | 8.7 | (24.7 | ) | 1.7 | |||||||||||
| Other | 9.6 | 7.0 | (12.9 | ) | 3.7 | |||||||||||
| Corporate | 14.5 | (3.5 | ) | (5.0 | ) | 6.0 | ||||||||||
| $145.1 | $47.7 | ($153.8 | ) | $39.0 | ||||||||||||
12
A summarytransforming the Company’s portfolio. In connection with Project Acceleration, on September 13, 2005, the Board of Directors of the Company’sCompany approved a three-year restructuring plan, reservescommencing in 2006 (the “2006 Plan”). While the Board of Directors has approved the overall plan, specific approval of each individual project is required (in accordance with the Company’s schedule of corporate authority) prior to commencing the action. As of September 30, 2005, no individual component of the plan had been approved. The 2006 Plan is designed to reduce manufacturing overhead to achieve best cost positions. The keys to the plan are to strategically outsource certain production to low cost suppliers and move manufacturing to lower cost countries where appropriate.
| 12/31/02 | Costs | 09/30/03 | ||||||||||||||
| Balance | Provision | Incurred | Balance | |||||||||||||
| Facility and other exit costs | $ | 31.4 | $ | 56.2 | ($ | 45.6 | ) | $ | 42.0 | |||||||
| Employee severance and termination benefits | 36.4 | 53.3 | (36.9 | ) | 52.8 | |||||||||||
| $ | 67.8 | $ | 109.5 | ($ | 82.5 | ) | $ | 94.8 | ||||||||
| 12/31/03 | Costs | 09/30/04 | ||||||||||||||
| Balance | Provision | Incurred | Balance | |||||||||||||
| Facility and other exit costs | $ | 77.5 | $ | 32.8 | ($ | 90.4 | ) | $ | 19.9 | |||||||
| Employee severance and termination benefits | 61.8 | 9.9 | (56.8 | ) | 14.9 | |||||||||||
| Exited contractual commitments and other | 6.5 | 5.2 | (7.5 | ) | 4.2 | |||||||||||
| $ | 145.8 | $ | 47.9 | ($ | 154.7 | ) | $ | 39.0 | ||||||||
| September 30, | December 31, | |||||||
| 2005 | 2004 | |||||||
| Materials and supplies | $217.3 | $216.0 | ||||||
| Work in process | 199.2 | 168.8 | ||||||
| Finished products | 594.1 | 553.3 | ||||||
| $1,010.6 | $938.1 | |||||||
The facility and other exit cost reserves are primarily related to future minimum lease payments on vacated facilities and other closure costs. The remaining restructuring reserve will require cash payments to settle the liabilities.
Under the Plan, the Company exited 84 facilities and reduced headcount by approximately 12,000. The Company expects total annual savings of between $125 and $150 million ($105 to $115 million related to the reduced headcount, $10 to $20 million related to reduced depreciation, and $10 to $15 million related to other cash savings).
| September 30, | December 31, | |||||||
| 2005 | 2004 | |||||||
| Medium-term notes | $1,487.0 | $1,647.0 | ||||||
| Preferred debt securities | 450.0 | 450.0 | ||||||
| Junior convertible subordinated debentures | 436.7 | 474.3 | ||||||
| Terminated interest rate swaps | 28.2 | 38.3 | ||||||
| Other long-term debt | 0.9 | 0.3 | ||||||
| Total debt | 2,402.8 | 2,609.9 | ||||||
| Current portion of long-term debt | (25.4 | ) | (185.6 | ) | ||||
| Long-Term Debt | $2,377.4 | $2,424.3 | ||||||
1013
| 12/31/02 | Costs | 09/30/03 | ||||||||||||||
| Segment | Balance | Provision | Incurred | Balance | ||||||||||||
| Cleaning & Organization | $ | 3.8 | $ | 29.4 | ($ | 19.2 | ) | $ | 14.0 | |||||||
| Office Products | 27.2 | 24.9 | (28.3 | ) | 23.8 | |||||||||||
| Home Fashions | 12.4 | 35.2 | (22.7 | ) | 24.9 | |||||||||||
| Tools & Hardware | 0.5 | 8.9 | (2.2 | ) | 7.2 | |||||||||||
| Other | 3.6 | 8.2 | (0.5 | ) | 11.3 | |||||||||||
| Corporate | 20.3 | 2.9 | (9.6 | ) | 13.6 | |||||||||||
| $ | 67.8 | $ | 109.5 | ($ | 82.5 | ) | $ | 94.8 | ||||||||
| 12/31/03 | Costs | 09/30/04 | ||||||||||||||
| Segment | Balance | Provision | Incurred | Balance | ||||||||||||
| Cleaning & Organization | $ | 56.2 | $ | 21.5 | ($ | 69.8 | ) | $ | 7.9 | |||||||
| Office Products | 29.9 | 7.4 | (20.9 | ) | 16.4 | |||||||||||
| Home Fashions | 17.7 | 7.3 | (23.3 | ) | 1.7 | |||||||||||
| Tools & Hardware | 17.9 | 4.5 | (19.1 | ) | 3.3 | |||||||||||
| Other | 9.6 | 7.0 | (12.9 | ) | 3.7 | |||||||||||
| Corporate | 14.5 | 0.2 | (8.7 | ) | 6.0 | |||||||||||
| $ | 145.8 | $ | 47.9 | ($ | 154.7 | ) | $ | 39.0 | ||||||||
Note 4 – Discontinued Operations
On January 31, 2004,The following table presents the Company completed the sale of its Panex Brazilian low-end cookware division (previously reported in the Other operating segment) and European picture frames businesses (previously reported in the Home Fashions operating segment).
On April 13, 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, 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 Home Fashions operating segment, while the Anchor Hocking and Mirro businesses were previously reported in the Other operating segment. In September 2004, as part of the final adjustments relating to the transaction, the Company recorded an additional loss of approximately $1.0 million on this sale.
On July 1, 2004, the Company completed the sale of Little Tikes Commercial Playground Systems Inc. (“LTCPS”) to PlayPower, Inc. for approximately $41 million. LTCPS was previously reported in the Other operating segment, as a unitcomponents of the Company’s Little Tikes division. LTCPS is a manufacturer of commercial playground systems and contained playground environments. The Company will retain the consumer portion of its Little Tikes division. The Company recognized a gain on the sale of LTCPS of $14.3 million ($9.6 million, net of tax) in the third quarter of 2004. For the year ended December 31, 2003, LTCPS contributed approximately $60 million of sales to the Company.
The following table summarizes the results of the discontinued operationspension (income) expense for the three and nine months ended September 30, 2004for its United States plans ((in millions)millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Service cost-benefits earned during the year | $0.8 | $10.2 | $1.7 | $31.2 | ||||||||||||
| Interest cost on projected benefit obligation | 12.9 | 16.0 | 38.6 | 40.4 | ||||||||||||
| Expected return on plan assets | (16.2 | ) | (19.5 | ) | (48.5 | ) | (49.2 | ) | ||||||||
| Amortization of: | ||||||||||||||||
| Prior service cost | 0.3 | (0.2 | ) | 0.8 | (0.4 | ) | ||||||||||
| Actuarial loss | 1.2 | 1.5 | 3.7 | 3.8 | ||||||||||||
| Curtailment and special termination benefits | — | — | (16.1 | ) | (1.8 | ) | ||||||||||
| Net pension (income) expense | ($1.0 | ) | $8.0 | ($19.8 | ) | $24.0 | ||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Service cost-benefits earned during the year | $2.0 | $1.8 | $6.2 | $5.3 | ||||||||||||
| Interest cost on projected benefit obligation | 5.8 | 4.9 | 18.0 | 14.8 | ||||||||||||
| Expected return on plan assets | (5.2 | ) | (4.5 | ) | (16.2 | ) | (13.6 | ) | ||||||||
| Amortization of: | ||||||||||||||||
| Actuarial loss | 0.9 | 0.4 | 2.8 | 1.3 | ||||||||||||
| Curtailment and special termination benefit costs | — | — | — | 0.2 | ||||||||||||
| Net pension expense | $3.5 | $2.6 | $10.8 | $8.0 | ||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Service cost-benefits earned during the year | $0.9 | $1.0 | $2.8 | $3.5 | ||||||||||||
| Interest cost on projected benefit obligation | 2.8 | 3.4 | 10.2 | 11.1 | ||||||||||||
1114
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Net sales | $ | — | $ | 215.7 | $ | 171.2 | $ | 585.2 | ||||||||
| Loss from discontinued operations, net of income taxes of ($4.7) million for the three months ended September 30, 2003, and ($3.0) and ($20.9) million for the nine months ended September 30, 2004 and 2003, respectively | — | ($ | 10.3 | ) | ($ | 6.5 | ) | ($ | 43.9 | ) | ||||||
| Gain/(Loss) on disposal of discontinued operations, net of income taxes of $4.7 million for the three months ended September 30, 2004 | $ | 8.6 | — | ($ | 90.5 | ) | — | |||||||||
| Amortization of: | ||||||||||||||||
| Prior service cost | (1.5 | ) | (0.2 | ) | (1.8 | ) | (0.5 | ) | ||||||||
| Actuarial loss | 0.5 | — | 1.0 | 0.5 | ||||||||||||
| Net other postretirement benefits expense | $2.7 | $4.2 | $12.2 | $14.6 | ||||||||||||
No amounts
this issue. The following table presents summarized balance sheet information of the discontinued operationsamount was fully reserved as of December 31, 2003 (in millions):2004.
| December 31, | ||||
| 2003 | ||||
| Accounts receivable, net | $ | 45.5 | ||
| Inventories, net | 181.4 | |||
| Prepaid expenses and other current assets | 11.2 | |||
| Total Current Assets | 238.1 | |||
| Property, plant and equipment, net | 152.3 | |||
| Other assets | 1.7 | |||
| Total Assets | $ | 392.1 | ||
| Accounts payable | $ | 82.8 | ||
| Other accrued liabilities | 45.8 | |||
| Total Current Liabilities | 128.6 | |||
| Long-term liabilities | 1.5 | |||
| Total Liabilities | $ | 130.1 | ||
There were no assets or liabilities attributable to discontinued operations as ofDuring the three months ended September 30, 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.
Note 5 – Income Taxes
12
In the three months ended September 30, 2004, the Company received notification from the Internal Revenue Service that it would receive a refund of $2.9 million relating to amounts previously paid. Accordingly, this amount has been recorded in income taxes for the three and nine months ended September 30, 2004.
Note 6 – Inventories
Inventories are stated at the lower of cost or market value. The components of inventories, net of LIFO reserve, were as follows(in millions):
| September 30, | December 31, | |||||||
| 2004 | 2003 | |||||||
| Materials and supplies | $ | 251.1 | $ | 240.4 | ||||
| Work in process | 170.1 | 115.4 | ||||||
| Finished products | 638.8 | 529.0 | ||||||
| $ | 1,060.0 | $ | 884.8 | |||||
Note 7 – Long-term Debt
The following is a summary of long-term debt(in millions):
| September 30, | December 31, | |||||||
| 2004 | 2003 | |||||||
| Medium-term notes | $ | 1,647.0 | $ | 1,647.0 | ||||
| Commercial paper | — | 217.1 | ||||||
| Preferred debt securities | 450.0 | 450.0 | ||||||
| Junior convertible subordinated debentures | 515.5 | 515.5 | ||||||
| Terminated interest rate swaps | 41.8 | 46.7 | ||||||
| Other long-term debt | 0.3 | 5.8 | ||||||
| Total debt | 2,654.6 | 2,882.1 | ||||||
| Current portion of long-term debt | (215.0 | ) | (13.5 | ) | ||||
| Long-term Debt | $ | 2,439.6 | $ | 2,868.6 | ||||
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 represents 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. The unamortized gain on the terminated interest rate swap is accounted for as long-term debt (of which $0.7 million is classified as current). On March 9, 2004, the Company entered into a fixed to floating rate swap that effectively replaced the terminated swap.
Note 8 – Employee Benefit and Retirement Plans
The following table presents the components of the Company’s pension expense for the three months ended September 30, (in millions):
| United States | International | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Service cost-benefits earned during the year | $ | 10.2 | $ | 8.8 | $ | 1.8 | $ | 2.2 | ||||||||
| Interest cost on projected benefit obligation | 16.0 | 12.1 | 4.9 | 4.5 | ||||||||||||
| Expected return on plan assets | (19.5 | ) | (17.1 | ) | (4.5 | ) | (4.3 | ) | ||||||||
| Actuarial loss | 1.3 | 0.1 | 0.4 | 0.4 | ||||||||||||
| Net pension expense | $ | 8.0 | $ | 3.9 | $ | 2.6 | $ | 2.8 | ||||||||
13
The following table presents the components of the Company’s pension expense for the nine months ended September 30, (in millions):
| United States | International | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Service cost-benefits earned during the year | $ | 31.2 | $ | 26.3 | $ | 5.3 | $ | 6.6 | ||||||||
| Interest cost on projected benefit obligation | 40.4 | 36.3 | 14.8 | 13.5 | ||||||||||||
| Expected return on plan assets | (49.2 | ) | (51.3 | ) | (13.6 | ) | (13.0 | ) | ||||||||
| Curtailment, settlement cost | (1.8 | ) | — | 0.2 | — | |||||||||||
| Actuarial loss | 3.4 | 0.4 | 1.3 | 1.2 | ||||||||||||
| Net pension expense | $ | 24.0 | $ | 11.7 | $ | 8.0 | $ | 8.3 | ||||||||
The following table presents the components of the Company’s other postretirement benefits expense for the three and nine months ended September 30, (in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Service cost-benefits earned during the year | $ | 1.0 | $ | 1.2 | $ | 3.5 | $ | 3.7 | ||||||||
| Interest cost on projected benefit obligation | 3.4 | 4.0 | 11.1 | 12.1 | ||||||||||||
| Amortization of prior service cost | (0.2 | ) | 0.1 | (0.5 | ) | 0.2 | ||||||||||
| Actuarial loss | — | — | 0.5 | — | ||||||||||||
| Net pension expense | $ | 4.2 | $ | 5.3 | $ | 14.6 | $ | 16.0 | ||||||||
In the third quarter of 2004, the Company made a voluntary $50.0 million cash contribution to fund the Company’s pension plan.
Note 9Footnote 10 — Earnings per Share
| “In the | Convertible | Convertible | ||||||||||||||||||||||||||||||
| Basic | Money” | Preferred | Diluted | Basic | Dilutive | Preferred | Diluted | |||||||||||||||||||||||||
| Method | Options(1) | Securities(2) | Method | Method | Securities(1) | Securities(2) | Method | |||||||||||||||||||||||||
Three Months Ended September 30, 2005 | ||||||||||||||||||||||||||||||||
| Income from continuing operations | $53.5 | — | — | $53.5 | ||||||||||||||||||||||||||||
| Earnings per share | $0.19 | — | — | $0.19 | ||||||||||||||||||||||||||||
| Income from discontinued operations | $18.0 | — | — | $18.0 | ||||||||||||||||||||||||||||
| Earnings per share | $0.07 | — | — | $0.07 | ||||||||||||||||||||||||||||
| Net income | $71.5 | — | — | $71.5 | ||||||||||||||||||||||||||||
| Earnings per share | $0.26 | — | — | $0.26 | ||||||||||||||||||||||||||||
| Weighted average shares outstanding | 274.4 | 0.6 | — | 275.0 | ||||||||||||||||||||||||||||
Three Months Ended September 30, 2004 | ||||||||||||||||||||||||||||||||
| Loss from continuing operations | ($ | 235.0 | ) | — | — | ($ | 235.0 | ) | ($155.7 | ) | — | — | ($155.7 | ) | ||||||||||||||||||
| Loss per share | ($ | 0.86 | ) | — | — | ($ | 0.86 | ) | ($0.57 | ) | — | — | ($0.57 | ) | ||||||||||||||||||
| Income from discontinued operations | $ | 8.6 | — | — | $ | 8.6 | ||||||||||||||||||||||||||
| Income per share | $ | 0.03 | — | — | $ | 0.03 | ||||||||||||||||||||||||||
| Net loss | ($ | 226.4 | ) | — | — | ($ | 226.4 | ) | ||||||||||||||||||||||||
| Loss per share | ($ | 0.83 | ) | — | — | ($ | 0.83 | ) | ||||||||||||||||||||||||
| Weighted average shares outstanding | 274.4 | — | — | 274.4 | ||||||||||||||||||||||||||||
Three Months Ended September 30, 2003 | ||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | 85.5 | — | — | $ | 85.5 | ||||||||||||||||||||||||||
| Earnings per share | $ | 0.31 | — | — | $ | 0.31 | ||||||||||||||||||||||||||
| Loss from discontinued operations | ($ | 10.3 | ) | — | — | ($ | 10.3 | ) | ||||||||||||||||||||||||
| Loss per share | ($ | 0.04 | ) | — | — | ($ | 0.04 | ) | ||||||||||||||||||||||||
1415
| Loss from discontinued operations | ($70.7 | ) | — | — | ($70.7 | ) | ||||||||||||||||||||||||||
| Loss per share | ($0.26 | ) | — | — | ($0.26 | ) | ||||||||||||||||||||||||||
| “In the | Convertible | |||||||||||||||||||||||||||||||
| Net loss | ($226.4 | ) | — | — | ($226.4 | ) | ||||||||||||||||||||||||||
| Loss per share | ($0.83 | ) | — | — | ($0.83 | ) | ||||||||||||||||||||||||||
| Basic | Money” | Preferred | Diluted | |||||||||||||||||||||||||||||
| Weighted average shares outstanding | 274.4 | — | — | 274.4 | ||||||||||||||||||||||||||||
Nine Months Ended September 30, 2005 | ||||||||||||||||||||||||||||||||
| Income from continuing operations | $241.8 | — | — | $241.8 | ||||||||||||||||||||||||||||
| Earnings per share | $0.88 | — | — | $0.88 | ||||||||||||||||||||||||||||
| Loss from discontinued operations | ($67.5 | ) | — | — | ($67.5 | ) | ||||||||||||||||||||||||||
| Loss per share | ($0.25 | ) | — | — | ($0.25 | ) | ||||||||||||||||||||||||||
| Method | Options(1) | Securities(2) | Method | |||||||||||||||||||||||||||||
| Net income | $ | 75.2 | — | — | $ | 75.2 | $174.3 | — | — | $174.3 | ||||||||||||||||||||||
| Earnings per share | $ | 0.27 | — | — | $ | 0.27 | $0.64 | — | — | $0.63 | ||||||||||||||||||||||
| Weighted average shares outstanding | 274.4 | — | — | 274.4 | 274.4 | 0.4 | — | 274.8 | ||||||||||||||||||||||||
Nine Months Ended September 30, 2004 | ||||||||||||||||||||||||||||||||
| Loss from continuing operations | ($ | 143.3 | ) | — | — | ($ | 143.3 | ) | ($65.1 | ) | — | — | ($65.1 | ) | ||||||||||||||||||
| Loss per share | ($ | 0.52 | ) | — | — | ($ | 0.52 | ) | ($0.24 | ) | — | — | ($0.24 | ) | ||||||||||||||||||
| Loss from discontinued operations | ($ | 97.0 | ) | — | — | ($ | 97.0 | ) | ($175.2 | ) | — | — | ($175.2 | ) | ||||||||||||||||||
| Loss per share | ($ | 0.35 | ) | — | — | ($ | 0.35 | ) | ($0.64 | ) | — | — | ($0.64 | ) | ||||||||||||||||||
| Net loss | ($ | 240.3 | ) | — | — | ($ | 240.3 | ) | ($240.3 | ) | — | — | ($240.3 | ) | ||||||||||||||||||
| Loss per share | ($ | 0.88 | ) | — | — | ($ | 0.88 | ) | ($0.88 | ) | — | — | ($0.88 | ) | ||||||||||||||||||
| Weighted average shares outstanding | 274.4 | — | — | 274.4 | 274.4 | — | — | 274.4 | ||||||||||||||||||||||||
Nine Months Ended September 30, 2003 | ||||||||||||||||||||||||||||||||
| Income from continuing operations | $ | 208.9 | — | — | $ | 208.9 | ||||||||||||||||||||||||||
| Earnings per share | $ | 0.76 | — | — | $ | 0.76 | ||||||||||||||||||||||||||
| Loss from discontinued operations | ($ | 43.9 | ) | — | — | ($ | 43.9 | ) | ||||||||||||||||||||||||
| Loss per share | ($ | 0.16 | ) | — | — | ($ | 0.16 | ) | ||||||||||||||||||||||||
| Net income | $ | 165.0 | — | — | $ | 165.0 | ||||||||||||||||||||||||||
| Earnings per share | $ | 0.60 | — | — | $ | 0.60 | ||||||||||||||||||||||||||
| Weighted average shares outstanding | 274.0 | 0.3 | — | 274.3 | ||||||||||||||||||||||||||||
| (1) | Dilutive securities include “in the money options” and restricted stock awards. The weighted average shares outstanding for the three months ended September 30, 2005 and 2004 | |
| (2) | The convertible preferred securities are anti-dilutive for the three and nine months ended September 30, |
Note 10 –
adjustments.
| Foreign | After-tax | After-tax | Accumulated | |||||||||||||
| Currency | Derivatives | Minimum | Other | |||||||||||||
| Translation | Hedging | Pension | Comprehensive | |||||||||||||
| Gain | Gain/(Loss) | Liability | Loss | |||||||||||||
| Balance at December 31, 2003 | $ | 15.6 | $ | 6.6 | ($ | 190.0 | ) | ($ | 167.8 | ) | ||||||
| Current year change | 38.2 | (11.8 | ) | — | 26.4 | |||||||||||
| Balance at September 30, 2004 | $ | 53.8 | ($ | 5.2 | ) | ($ | 190.0 | ) | ($ | 141.4 | ) | |||||
1516
| Foreign | After-tax | After-tax | Accumulated | |||||||||||||
| Currency | Derivatives | Minimum | Other | |||||||||||||
| Translation | Hedging | Pension | Comprehensive | |||||||||||||
| Gain/(Loss) | (Loss)/Gain | Liability | Loss | |||||||||||||
| Balance at December 31, 2004 | $120.4 | ($4.3 | ) | ($186.5 | ) | ($70.4 | ) | |||||||||
| Current year change | (75.8 | ) | 16.1 | — | (59.7 | ) | ||||||||||
| Balance at September 30, 2005 | $44.6 | $11.8 | ($186.5 | ) | ($130.1 | ) | ||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
| Net (loss) income | ($ | 226.4 | ) | $ | 75.2 | ($ | 240.3 | ) | $ | 165.0 | ||||||
| Foreign currency translation (loss) gain | 12.6 | (15.5 | ) | 38.2 | 54.0 | |||||||||||
| After-tax derivatives hedging gain (loss) | (3.2 | ) | 0.5 | (11.8 | ) | 4.0 | ||||||||||
| After-tax minimum pension liability | — | (0.2 | ) | — | 6.7 | |||||||||||
| Comprehensive (loss) income | ($ | 217.0 | ) | $ | 60.0 | ($ | 213.9 | ) | $ | 229.7 | ||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||
| Net income (loss) | $71.5 | ($226.4 | ) | $174.3 | ($240.3 | ) | ||||||||||
| Foreign currency translation (loss) gain | (6.3 | ) | 12.6 | (75.8 | ) | 38.2 | ||||||||||
| After-tax derivatives hedging gain (loss) | 3.8 | (3.2 | ) | 16.1 | (11.8 | ) | ||||||||||
| Comprehensive income (loss) | $69.0 | ($217.0 | ) | $114.6 | ($213.9 | ) | ||||||||||
Note 11
| Segment | Description of Products | |
| Cleaning & Organization | Indoor/outdoor organization, storage, food storage, cleaning, refuse | |
| Office Products | Ballpoint/roller ball pens, markers, highlighters, pencils, office products, art supplies | |
| Tools & Hardware | Hand tools, power tool accessories, industrial tool accessories, manual paint applicators, cabinet hardware, propane torches | |
| Home Fashions | Drapery | |
| Other | Operating segments that do not meet aggregation criteria, including aluminum and stainless steel cookware, hair care accessory products, infant and juvenile products, including toys, high chairs, car seats, and strollers | |
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
Net Sales (1) | ||||||||||||||||||||||||||||||||
| Cleaning & Organization | $ | 455.9 | $ | 514.4 | $ | 1,372.0 | $ | 1,504.3 | $392.7 | $405.4 | $1,093.7 | $1,191.3 | ||||||||||||||||||||
| Office Products | 424.3 | 428.7 | 1,246.3 | 1,258.8 | 427.8 | 424.3 | 1,256.1 | 1,246.3 | ||||||||||||||||||||||||
| Tools & Hardware | 300.6 | 299.3 | 875.2 | 859.5 | 318.9 | 300.6 | 910.8 | 875.2 | ||||||||||||||||||||||||
| Home Fashions | 228.1 | 223.5 | 679.1 | 670.9 | 203.8 | 228.1 | 614.1 | 679.1 | ||||||||||||||||||||||||
| Other | 262.9 | 263.2 | 767.3 | 778.5 | 255.0 | 262.9 | 741.6 | 767.3 | ||||||||||||||||||||||||
| $ | 1,671.8 | $ | 1,729.1 | $ | 4,939.9 | $ | 5,072.0 | $1,598.2 | $1,621.3 | $4,616.3 | $4,759.2 | |||||||||||||||||||||
Operating (Loss) Income (2) | ||||||||||||||||||||||||||||||||
Operating Income (Loss) (2) | ||||||||||||||||||||||||||||||||
| Cleaning & Organization | $ | 29.2 | $ | 31.9 | $ | 49.9 | $ | 93.0 | $53.7 | $29.8 | $89.3 | $55.2 | ||||||||||||||||||||
| Office Products | 61.5 | 69.9 | 188.7 | 231.8 | 59.9 | 61.5 | 192.3 | 188.8 | ||||||||||||||||||||||||
| Tools & Hardware | 45.1 | 53.4 | 131.6 | 136.6 | 46.3 | 45.1 | 122.3 | 131.6 | ||||||||||||||||||||||||
| Home Fashions | 15.9 | 17.5 | 25.0 | 30.1 | 13.8 | 15.9 | 12.9 | 25.0 | ||||||||||||||||||||||||
| Other | 24.7 | 31.2 | 55.6 | 74.5 | 25.1 | 24.7 | 57.1 | 55.6 | ||||||||||||||||||||||||
| Corporate (3) | (10.2 | ) | (10.9 | ) | (27.4 | ) | (24.5 | ) | ||||||||||||||||||||||||
| Impairment Charges (4) | (348.9 | ) | — | (374.0 | ) | — | ||||||||||||||||||||||||||
| Restructuring Costs (5) | — | (32.3 | ) | (47.9 | ) | (109.5 | ) | |||||||||||||||||||||||||
| ($ | 182.7 | ) | $ | 160.7 | $ | 1.5 | $ | 432.0 | ||||||||||||||||||||||||
1617
| September 30, | December 31, | |||||||
| Identifiable Assets | 2004 | 2003 | ||||||
| Cleaning & Organization | $ | 1,088.4 | $ | 1,256.5 | ||||
| Office Products | 1,063.0 | 997.5 | ||||||
| Tools & Hardware | 818.5 | 812.1 | ||||||
| Home Fashions | 575.6 | 630.2 | ||||||
| Other | 528.1 | 577.8 | ||||||
| Corporate (6) | 2,531.6 | 2,814.5 | ||||||
| Discontinued Operations | — | 392.1 | ||||||
| $ | 6,605.2 | $ | 7,480.7 | |||||
| Corporate (3) | (10.1 | ) | (10.2 | ) | (29.3 | ) | (27.3 | ) | ||||||||
| Impairment Charges (4) | (58.6 | ) | (270.0 | ) | (58.6 | ) | (295.1 | ) | ||||||||
| Restructuring Costs (5) | (14.6 | ) | (0.4 | ) | (21.1 | ) | (47.7 | ) | ||||||||
| $115.5 | ($103.6 | ) | $364.9 | $86.1 | ||||||||||||
| September 30, | December 31, | |||||||
| Identifiable Assets | 2005 | 2004 | ||||||
| Cleaning & Organization | $776.7 | $825.7 | ||||||
| Office Products | 955.8 | 997.8 | ||||||
| Tools & Hardware | 857.0 | 836.2 | ||||||
| Home Fashions | 517.6 | 599.0 | ||||||
| Other | 476.1 | 523.1 | ||||||
| Corporate (6) | 2,493.6 | 2,708.1 | ||||||
| Discontinued Operations | 50.2 | 176.6 | ||||||
| $6,127.0 | $6,666.5 | |||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 | 2003 | 2004 | 2003 | |||||||||||||
Net Sales | ||||||||||||||||
| United States | $ | 1,169.6 | $ | 1,199.9 | $ | 3,379.2 | $ | 3,511.3 | ||||||||
| Canada | 87.0 | 91.5 | 250.6 | 253.5 | ||||||||||||
| North America | 1,256.6 | 1,291.4 | 3,629.8 | 3,764.8 | ||||||||||||
| Europe | 331.2 | 344.2 | 1,050.2 | 1,045.3 | ||||||||||||
| Central and South America | 48.2 | 54.4 | 149.0 | 156.5 | ||||||||||||
| All other | 35.8 | 39.1 | 110.9 | 105.4 | ||||||||||||
| $ | 1,671.8 | $ | 1,729.1 | $ | 4,939.9 | $ | 5,072.0 | |||||||||
Operating (Loss) Income (7) | ||||||||||||||||
| United States | $ | 119.8 | $ | 145.5 | $ | 308.1 | $ | 401.1 | ||||||||
| Canada | 19.7 | 17.7 | 52.3 | 48.9 | ||||||||||||
| North America | 139.5 | 163.2 | 360.4 | 450.0 | ||||||||||||
| Europe | (290.8 | ) | (8.1 | ) | (330.8 | ) | (41.0 | ) | ||||||||
| Central and South America | (38.9 | ) | (3.9 | ) | (36.4 | ) | 9.4 | |||||||||
| All other | 7.5 | 9.5 | 8.3 | 13.6 | ||||||||||||
| ($ | 182.7 | ) | $ | 160.7 | $ | 1.5 | $ | 432.0 | ||||||||
| September 30, | December 31, | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| Identifiable Assets (8) | 2004 | 2003 | ||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||
Net Sales | ||||||||||||||||||||||||
| United States | $ | 4,646.0 | $ | 5,012.1 | $1,129.0 | $1,155.9 | $3,208.3 | $3,313.7 | ||||||||||||||||
| Canada | 101.0 | 136.2 | 100.3 | 86.9 | 266.2 | 248.7 | ||||||||||||||||||
| North America | 4,747.0 | 5,148.3 | 1,229.3 | 1,242.8 | 3,474.5 | 3,562.4 | ||||||||||||||||||
| Europe | 1,545.0 | 1,628.3 | 267.2 | 294.5 | 864.1 | 937.2 | ||||||||||||||||||
| Central and South America | 192.7 | 195.4 | 61.7 | 48.2 | 162.9 | 148.7 | ||||||||||||||||||
| All other | 120.5 | 116.6 | 40.0 | 35.8 | 114.8 | 110.9 | ||||||||||||||||||
| Discontinued Operations | — | 392.1 | ||||||||||||||||||||||
| $ | 6,605.2 | $ | 7,480.7 | $1,598.2 | $1,621.3 | $4,616.3 | $4,759.2 | |||||||||||||||||
Operating Income (Loss) (7) | ||||||||||||||||||||||||
| United States | $142.9 | $119.6 | $347.6 | $296.1 | ||||||||||||||||||||
| Canada | 21.7 | 19.7 | 50.8 | 52.1 | ||||||||||||||||||||
| North America | 164.6 | 139.3 | 398.4 | 348.2 | ||||||||||||||||||||
| Europe | (61.0 | ) | (211.4 | ) | (66.5 | ) | (241.4 | ) | ||||||||||||||||
| Central and South America | 4.2 | (38.9 | ) | 12.3 | (36.4 | ) | ||||||||||||||||||
| All other | 7.7 | 7.4 | 20.7 | 15.7 | ||||||||||||||||||||
| $115.5 | ($103.6 | ) | $364.9 | $86.1 | ||||||||||||||||||||
| September 30, | December 31, | |||||||
| Identifiable Assets (8) | 2005 | 2004 | ||||||
| United States | $4,530.1 | $4,797.2 | ||||||
| Canada | 98.9 | 114.1 | ||||||
| North America | 4,629.0 | 4,911.3 | ||||||
| Europe | 1,129.2 | 1,257.4 | ||||||
| Central and South America | 186.6 | 185.1 | ||||||
| All other | 132.0 | 136.1 | ||||||
| Discontinued Operations | 50.2 | 176.6 | ||||||
| $6,127.0 | $6,666.5 | |||||||
| 1) | All intercompany transactions have been eliminated. Sales to |
18
| 2) | Operating income (loss) is net sales less cost of products sold, selling, general and administrative expenses, impairment charges, and restructuring costs. Certain headquarters expenses of an operational nature are allocated to business segments and geographic areas primarily on a net sales basis. | |
| 3) | Corporate operating expenses consist primarily of administrative costs that | |
| 4) | Impairment charges have been presented separately in this table; refer to | |
| 5) | Restructuring costs have been presented separately in this table; refer to | |
| 6) | Corporate assets primarily include trade names, goodwill | |
| 7) | The restructuring costs and impairment charges | |
| 8) | Transfers of finished goods between geographic areas are not significant. Corporate assets are primarily reflected in the United States. |
Note 12 –
Note 13 – Subsequent Event
On October 12, 2004, the Company purchased 825,000 shares of its Preferred Securities from a holder for $43.6875 per share. The Company paid a total of $36 million.
On November 4, 2004, the Company declared a quarterly cash dividend of $0.21 per share on the Company’s common stock. The dividend is payable December 3, 2004 to common stockholders of record on November 16, 2004.
1719
| 1. | Strengthen/Broaden Portfolio:The Company continues to evaluate its current portfolio and intends to pursue acquisition opportunities to complement internal growth. In addition to acquiring high potential businesses or product lines, such as the pending DYMO transaction, the Company is focused on divesting non-strategic businesses and rationalizing low margin product lines that do not fit within the Company’s strategy, such as the Curver business and the pending sale of its European Cookware business, as well as certain product lines in the Cleaning & Organization business. See Footnote 2 to the Consolidated Financial Statements (Unaudited) for additional information on acquisitions. See Footnotes 3 and 4 to the Consolidated Financial Statements (Unaudited) for additional information on divestitures. | |
| 2. | Invest in High Margin Businesses:The Company continues to focus significant resources on enhancing its new product development pipeline, as well as strengthening the Company’s numerous brands through targeted advertising and promotion. In the first nine months of 2005, the Company made additional investments in SG&A (primarily in the Office Products and Tools & Hardware segments), which were partially offset by the positive impact of the U.S. pension curtailment (discussed in Footnote 8 to the Consolidated Financial Statements (Unaudited)). The net impact was an increase in SG&A of $23.7 million over the first nine months of 2004. The Company will continue to make investments in SG&A in its invest businesses with planned investments of approximately $10 million in the fourth quarter of 2005. | |
| In order to partially fund increases in SG&A in the invest businesses, the Company is focused on streamlining its operations to reduce non-strategic costs throughout the organization. | ||
| 3. | Address Raw Material Inflation:The Company has several businesses that have been significantly impacted by raw material inflation, particularly in resin and to a lesser extent, steel. The Company historically combated such cost increases through internal productivity initiatives. However, due to the continued inflationary pressure in raw materials, the Company has implemented sales price increases to offset a portion of the increased costs. In the first nine months of 2005, the Company experienced raw material inflation of approximately $105 million (primarily in resin and steel), partially offset by pricing increases of approximately $96 million. For the full year raw material inflation is expected to be $160 million, which will be partially offset by forecasted price increases of approximately $130 million. | |
| 4. | Reduce Manufacturing Overhead:The Company is committed to reducing its manufacturing costs by at least five percent annually. As a result of the recent divestiture and product line rationalization programs, the Company is focused on reengineering its manufacturing overhead structure to accommodate its current manufacturing base. |
1. Continue to divest non-strategic businesses:The Company has completed its previously announced plan to divest certain under-performing, non-strategic businesses in order to concentrate on leveraging brand strength and product innovation in its core portfolio of businesses. In January 2004, the Company completed the sale of its Panex Brazilian low-end cookware division and European picture frames businesses. In April 2004, the Company sold substantially all of its U.S. picture frames business (Burnes), its Anchor Hocking glassware business and its Mirro cookware business for total proceeds of approximately $304 million (after final negotiations). On July 1, 2004, the Company completed the sale of Little Tikes Commercial Playground Systems Inc. (“LTCPS”) to PlayPower, Inc. for approximately $41 million. LTCPS is a manufacturer of commercial playground systems and contained playground environments. The Company will retain the consumer portion of its Little Tikes division.
In connection with these divestitures, the Company recorded an after-tax loss on the sale of these businesses of approximately $91 million in the nine months ending September 30, 2004. Total 2003 sales of the divested businesses were $851.0 million. The divestitures of these businesses are expected to reduce 2004 earnings per share by approximately $0.11 to $0.13, exclusive of the loss to be recognized in 2004. In addition, the divestitures are expected to reduce operating cash flow by $40 to $45 million, annually.
2. Complete the 2001 restructuring plan:In the second quarter of 2004, the Company completed the accounting charges associated with its 2001 restructuring plan. The 2001 restructuring plan resulted in total charges of $462 million, including previously recognized charges on discontinued operations of $84.2 million. In total, the Company exited 84 facilities and reduced headcount by approximately 12,000. The Company expects total annual savings to be approximately $125 to $150 million as a result of this restructuring program.
3. Continue to rationalize low-margin product lines:In the first nine months of 2004, the Company exited approximately $200 million in sales of low-margin product lines. The Company will continue to rationalize low-margin product lines throughout 2004. The completion of this program is expected to reduce annual sales by $275 million.
4. Deploy Newell Operational Excellence (NWL OPEX):The Company is committed to reducing costs by at least 5% annually. In connection with this goal, the Company is committed to deploying and implementing NWL OPEX, which is a methodical process focused on lean manufacturing. It includes installing the right manufacturing and distribution metrics and driving improvement quarter after quarter. In addition to cost reduction, other key components of NWL OPEX are improved quality and service levels and the reduction of inventory and lead times. The Company’s program for driving productivity throughout its manufacturing network gained traction in the first nine months of 2004. The Company delivered approximately $86 million of gross productivity savings during the first nine months of 2004.
1820
| 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, on September 13, 2005, the Board of Directors of the Company approved a three-year restructuring plan, commencing in 2006 (the “2006 Plan”). While the Board of Directors has approved the overall plan, specific approval of each individual project is required prior to commencing the action in accordance with the Company’s schedule of corporate authority. As of September 30, 2005, no individual component of the plan had been approved. The 2006 Plan is designed to reduce manufacturing overhead to advance plans for achieving best cost positions for the Company’s portfolio. | ||
| The 2006 Plan is expected to result in cumulative restructuring charges totaling between $350 and $400 million ($295 - $340 million after tax), with between $220 and $250 million ($185 - $210 million after tax) to be incurred in 2006. The Company expects to use approximately $100 million of cash related to Project Acceleration. The Company expects annual savings from the 2006 Plan of $120 million upon conclusion of the program. | ||
| Additionally, the Company is committed to deploying and implementing Newell Operational Excellence. Newell Operational Excellence is the process that the Company has developed using best practices from methodologies such as Six Sigma, Kaizen, Kanban and other lean manufacturing principles. The Company’s rollout of this program in 2002 introduced a new mindset of continuous improvement in manufacturing. The Company delivered approximately $67 million of gross productivity savings, excluding raw material inflation, during the first nine months of 2005. Gross productivity savings are forecasted to be $90 million for the full year 2005. |
21
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,671.8 | 100.0 | % | $ | 1,729.1 | 100.0 | % | $ | 4,939.9 | 100.0 | % | $ | 5,072.0 | 100.0 | % | $1,598.2 | 100.0 | % | $1,621.3 | 100.0 | % | $4,616.3 | 100.0 | % | $4,759.2 | 100.0 | % | ||||||||||||||||||||||||||||||||||||
| Cost of products sold | 1,198.5 | 71.7 | 1,237.3 | 71.6 | 3,571.0 | 72.3 | 3,625.0 | 71.5 | 1,098.0 | 68.7 | 1,156.6 | 71.3 | 3,232.9 | 70.0 | 3,415.2 | 71.8 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 473.3 | 28.3 | 491.8 | 28.4 | 1,368.9 | 27.7 | 1,447.0 | 28.5 | 500.2 | 31.3 | 464.7 | 28.7 | 1,383.4 | 30.0 | 1,344.0 | 28.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 307.1 | 18.4 | 298.8 | 17.3 | 945.5 | 19.1 | 905.5 | 17.9 | 311.5 | 19.5 | 297.9 | 18.4 | 938.8 | 20.3 | 915.1 | 19.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Impairment charges | 348.9 | 20.9 | — | — | 374.0 | 7.6 | — | — | 58.6 | 3.7 | 270.0 | 16.7 | 58.6 | 1.3 | 295.1 | 6.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring costs | — | — | 32.3 | 1.9 | 47.9 | 1.0 | 109.5 | 2.2 | 14.6 | 0.9 | 0.4 | — | 21.1 | 0.5 | 47.7 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating (loss) income | (182.7 | ) | (10.9 | ) | 160.7 | 9.3 | 1.5 | — | 432.0 | 8.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | 115.5 | 7.2 | (103.6 | ) | (6.4 | ) | 364.9 | 7.9 | 86.1 | 1.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonoperating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 29.5 | 1.8 | 33.1 | 1.9 | 90.0 | 1.8 | 104.5 | 2.1 | 34.3 | 2.1 | 29.5 | 1.8 | 96.2 | 2.1 | 89.9 | 1.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (0.8 | ) | — | 1.4 | 0.1 | (3.9 | ) | (0.1 | ) | 18.6 | 0.4 | (0.6 | ) | — | (0.3 | ) | — | (1.0 | ) | — | 3.7 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||
| Net nonoperating expenses | 28.7 | 1.7 | 34.5 | 2.0 | 86.1 | 1.7 | 123.1 | 2.4 | 33.7 | 2.1 | 29.2 | 1.8 | 95.2 | 2.1 | 93.6 | 2.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) Income before income taxes | (211.4 | ) | (12.6 | ) | 126.2 | 7.3 | (84.6 | ) | (1.7 | ) | 308.9 | 6.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 81.8 | 5.1 | (132.8 | ) | (8.2 | ) | 269.7 | 5.8 | (7.5 | ) | (0.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | 23.6 | 1.4 | 40.7 | 2.4 | 58.7 | 1.2 | 100.0 | 2.0 | 28.3 | 1.8 | 22.9 | 1.4 | 27.9 | 0.6 | 57.6 | 1.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income from continuing operations | (235.0 | ) | (14.1 | ) | 85.5 | 4.9 | (143.3 | ) | (2.9 | ) | 208.9 | 4.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations | 53.5 | 3.3 | (155.7 | ) | (9.6 | ) | 241.8 | 5.2 | (65.1 | ) | (1.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain/(Loss) from discontinued operations, net of tax | 8.6 | 0.5 | (10.3 | ) | (0.6 | ) | (97.0 | ) | (2.0 | ) | (43.9 | ) | (0.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | 18.0 | 1.1 | (70.7 | ) | (4.4 | ) | (67.5 | ) | (1.5 | ) | (175.2 | ) | (3.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | ($ | 226.4 | ) | (13.5 | )% | $ | 75.2 | 4.3 | % | ($ | 240.3 | ) | (4.9 | )% | $ | 165.0 | 3.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $71.5 | 4.5 | % | ($226.4 | ) | (14.0 | )% | $174.3 | 3.8 | % | ($240.3 | ) | (5.0 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||
2004
| $ | % | |||||||
| Favorable currency translation | $14 | 0.9 | % | |||||
| Favorable pricing | 31 | 1.9 | ||||||
| Product line rationalization | (40 | ) | (2.5 | ) | ||||
| Core sales | (28 | ) | (1.7 | ) | ||||
| ($23 | ) | (1.4 | )% | |||||
22
$17 million, primarily in resin.
19
currency impact of $7 millionwas additional strategic advertising and pension cost increases of $4 million. All other SG&A was essentially flat with streamlining initiatives offsetting continuedpromotional investments in the business.
Office Products and Tools & Hardware segments, partially offset by streamlining activities.
costs.
Net
2004.
23
2004.
| 2004 | 2003 | % Change | 2005 | 2004 | % Change | |||||||||||||||||||
| Cleaning & Organization | $ | 455.9 | $ | 514.4 | (11.4 | )% | $392.7 | $405.4 | (3.1 | )% | ||||||||||||||
| Office Products | 424.3 | 428.7 | (1.0 | ) | 427.8 | 424.3 | 0.8 | |||||||||||||||||
| Tools & Hardware | 300.6 | 299.3 | 0.4 | 318.9 | 300.6 | 6.1 | ||||||||||||||||||
| Home Fashions | 228.1 | 223.5 | 2.1 | 203.8 | 228.1 | (10.7 | ) | |||||||||||||||||
| Other | 262.9 | 263.2 | (0.1 | ) | 255.0 | 262.9 | (3.0 | ) | ||||||||||||||||
| Total Net Sales (1) | $ | 1,671.8 | $ | 1,729.1 | (3.3 | )% | $1,598.2 | $1,621.3 | (1.4 | )% | ||||||||||||||
| 2004 | 2003 | % Change | 2005 | 2004 | % Change | |||||||||||||||||||
| Cleaning & Organization | $ | 29.2 | $ | 31.9 | (8.5 | )% | $53.7 | $29.8 | 80.2 | % | ||||||||||||||
| Office Products | 61.5 | 69.9 | (12.0 | ) | 59.9 | 61.5 | (2.6 | ) | ||||||||||||||||
| Tools & Hardware | 45.1 | 53.4 | (15.5 | ) | 46.3 | 45.1 | 2.7 | |||||||||||||||||
| Home Fashions | 15.9 | 17.5 | (9.1 | ) | 13.8 | 15.9 | (13.2 | ) | ||||||||||||||||
| Other | 24.7 | 31.2 | (20.8 | ) | 25.1 | 24.7 | 1.6 | |||||||||||||||||
| Corporate Costs (2) | (10.2 | ) | (10.9 | ) | (10.1 | ) | (10.2 | ) | ||||||||||||||||
| Impairment Charges (3) | (348.9 | ) | — | (58.6 | ) | (270.0 | ) | |||||||||||||||||
| Restructuring Costs (4) | — | (32.3 | ) | (14.6 | ) | (0.4 | ) | |||||||||||||||||
| Total Operating Income (5) | ($ | 182.7 | ) | $ | 160.7 | (213.7 | )% | |||||||||||||||||
| Total Operating Income (Loss) (5) | $115.5 | ($103.6 | ) | 211.5 | % | |||||||||||||||||||
20
| (1) | All intercompany transactions have been eliminated. Sales to | ||
| (2) | Corporate operating expenses consist primarily of administrative costs that | ||
| (3) | Impairment charges have been presented separately in this table; refer to | ||
| (4) | Restructuring costs have been presented separately in this table; refer to | ||
| (5) | Operating income (loss) is net sales less cost of products sold, selling, general and administrative expenses, impairment charges and restructuring costs. Certain headquarters expenses of an operational nature are allocated to business segments primarily on a net sales basis. |
24
25
| $ | % | |||||||
| Favorable currency translation | $62 | 1.3 | % | |||||
| Favorable pricing | 96 | 2.0 | ||||||
| Product line rationalization | (161 | ) | (3.4 | ) | ||||
| Core sales | (140 | ) | (2.9 | ) | ||||
| ($143 | ) | (3.0 | )% | |||||
26
| 2005 | 2004 | % Change | ||||||||||
| Cleaning & Organization | $1,093.7 | $1,191.3 | (8.2 | )% | ||||||||
| Office Products | 1,256.1 | 1,246.3 | 0.8 | |||||||||
| Tools & Hardware | 910.8 | 875.2 | 4.1 | |||||||||
| Home Fashions | 614.1 | 679.1 | (9.6 | ) | ||||||||
| Other | 741.6 | 767.3 | (3.3 | ) | ||||||||
| Total Net Sales (1) | $4,616.3 | $4,759.2 | (3.0 | )% | ||||||||
| 2005 | 2004 | % Change | ||||||||||
| Cleaning & Organization | $89.3 | $55.2 | 61.8 | % | ||||||||
| Office Products | 192.3 | 188.8 | 1.9 | |||||||||
| Tools & Hardware | 122.3 | 131.6 | (7.1 | ) | ||||||||
27
| Home Fashions | 12.9 | 25.0 | (48.4 | ) | ||||||||
| Other | 57.1 | 55.6 | 2.7 | |||||||||
| Corporate Costs (2) | (29.3 | ) | (27.3 | ) | ||||||||
| Impairment Charges (3) | (58.6 | ) | (295.1 | ) | ||||||||
| Restructuring Costs (4) | (21.1 | ) | (47.7 | ) | ||||||||
| Total Operating Income (5) | $364.9 | $86.1 | 323.8 | % | ||||||||
| (1) | All intercompany transactions have been eliminated. Sales to Wal*Mart Stores, Inc. and subsidiaries amounted to approximately 14% and 15% consolidated net sales in the first nine months of 2005 and 2004. Sales to no other customer exceeded 10% of consolidated net sales for either period. | ||
| (2) | Corporate operating expenses consist primarily of administrative costs that are not allocated to a particular segment. | ||
| (3) | Impairment charges have been presented separately in this table; refer to Footnote 4 to the Consolidated Financial Statements (Unaudited) for additional information. | ||
| (4) | Restructuring costs have been presented separately in this table; refer to Footnote 5 to the Consolidated Financial Statements (Unaudited) for a breakout of the costs by reportable segment for 2004. | ||
| (5) | Operating income is net sales less cost of products sold, selling, general and administrative expenses, impairment charges and restructuring costs. Certain headquarters expenses of an operational nature are allocated to business segments |
favorable pricing and foreign currency translation.
facilities.
Operating income for the third quarter of 2004, was $61.5 million, a decrease of $8.4 million, or 12.0%, from $69.9 million in the third quarter of 2003, driven by raw material inflation, unfavorable mix, restructuring related costs at the sales decrease at EldonAmerock and an increaseIRWIN businesses and continued investments in SG&A spending. These werein the tools business, partially offset by a mid single digitproductivity and the sales increase in the writing instruments business.noted above.
28
Tools & Hardware
European Home Fashions business, partially offset by favorable foreign currency translation.
Home Fashions
Net sales for the third quarter of 2004 were $228.1 million, an increase of $4.6 million, or 2.1%, from $223.5 million in the third quarter of 2003, driven by favorable currency translation.
Operating income for the third quarter of 2004 was $15.9 million, a decrease of $1.6 million, or 9.1%, from $17.5 million in the third quarter of 2003.2004. The decrease in operating income was due primarily to an increase in raw materials costs,lower sales, and the liquidation of Douglas Kane, partially offset by productivity.
21
Other
Net sales for the third quarter of 2004 were $262.9 million, a decrease of $0.3 million, or 0.1%, from $263.2 million in the third quarter of 2003. Sales increases at Little Tikes due to new product introductions were offset by declines in the Graco and European Cookware businesses.
Operating income for the third quarter of 2004 was $24.7 million, a decrease of $6.5 million, or 20.8%, from $31.2 million in the third quarter of 2003, driven primarily by raw material inflation and increased SG&A spending in the Little Tikes business.
Nine Months Ended September 30, 2004 vs. Nine Months Ended September 30, 2003
Consolidated Operating Results:
Gross margin as a percentage of net sales for the nine months ended September 30, 2004 was 27.7%, or $1,368.9 million, versus 28.5%, or $1,447.0 million, in the comparable period of 2003. The decline in gross margin is primarily related to unfavorable pricing of $24 million, or 0.4 points, and raw material inflation of $70 million, partially offset by favorable mix driven by the rationalization of unprofitable product lines, primarily in the Rubbermaid Home Products business. Gross productivity of $86 million was largely offset by restructuring related costs of $66 million.
Selling, general and administrative expenses (SG&A) for the nine months ended September 30, 2004 were 19.1% of net sales, or $945.5 million, versus 17.9%, or $905.5 million, in the comparable period of 2003. The increase in SG&A reflects a foreign currency impact of $31 million and pension cost increases of $12 million. All other SG&A was essentially flat with streamlining initiatives offsetting continued investments in the business.
The Company recorded total non-cash pretax impairment charges of $374.0 million for the nine months ended September 30, 2004. These charges were required to write certain assets to fair value. See Note 2 to the Consolidated Financial Statements (Unaudited) for additional information.
The Company recorded pre-tax strategic restructuring charges of $47.9 million and $109.5 million for the nine months ended September 30, 2004 and 2003, respectively. The 2004 pre-tax charge included $32.8 million of facility and other exit costs, $9.9 million of employee severance and termination benefits, and $5.2 million in other restructuring costs. The 2003 pre-tax charge included $56.2 million of facility and other exit costs and $53.3 million of employee severance and termination benefits. See Note 3 to the Consolidated Financial Statements (Unaudited) for further information on the strategic restructuring plan.
translation.
Net nonoperating expenses for the nine months ended September 30, 2004 were 1.7% of net sales, or $86.1 million, versus 2.4%2.7%, or $123.1from $55.6 million in the comparable period of 2003. In March 2003,2004, driven primarily by strong productivity, favorable pricing and reduced SG&A in the Company recognized a $21.2 million non-cash pre-tax loss on the sale of the Cosmolab business. Net interest expensejuvenile products businesses, partially offset by raw material inflation.
The effective tax rate was (69.4)% for the nine months ended September 30, 2004 versus 32.4% for the nine months ended September 30, 2003. The change in the effective tax rate is primarily related to the non-deductibility associated with a portion of the Company’s $374.0 million impairment charge. See Notes 2 and 5 to the Consolidated Financial Statements (Unaudited) for further information.
Net (loss) income from continuing operations for the nine months ended September 30, 2004 was ($143.3) million, compared to $208.9 million for the nine months ended September 30, 2003. Diluted (loss) earnings per share from continuing operations was ($0.52) for the nine months ended September 30, 2004 compared to $0.76 for the nine months ended September 30, 2003.
22
The net loss recognized from discontinued operations for the nine months ended September 30, 2004 was $97.0 million, net of tax, compared to $43.9 million, net of tax, for the nine months ended September 30, 2003. Diluted loss per share from discontinued operations was ($0.35) for the nine months ended September 30, 2004 compared to ($0.16) for the nine months ended September 30, 2003. See Note 4 to the Consolidated Financial Statements (Unaudited) for further information.
Net (loss) income for the nine months ended September 30, 2004 was ($240.3) million, compared to $165.0 million for the nine months ended September 30, 2003. Diluted (loss) earnings per share was ($0.88) for the nine months ended September 30, 2004 compared to $0.60 for the nine months ended September 30, 2003.
Business Segment Operating Results:
Net sales by reportable segment were as follows for the nine months ended September 30, (in millions):
| 2004 | 2003 | % Change | ||||||||||
| Cleaning & Organization | $ | 1,372.0 | $ | 1,504.3 | (8.8 | )% | ||||||
| Office Products | 1,246.3 | 1,258.8 | (1.0 | ) | ||||||||
| Tools & Hardware | 875.2 | 859.5 | 1.8 | |||||||||
| Home Fashions | 679.1 | 670.9 | 1.2 | |||||||||
| Other | 767.3 | 778.5 | (1.4 | ) | ||||||||
| Total Net Sales (1) | $ | 4,939.9 | $ | 5,072.0 | (2.6 | )% | ||||||
Operating income by segment was as follows for the nine months ended September 30, (in millions):
| 2004 | 2003 | % Change | ||||||||||
| Cleaning & Organization | $ | 49.9 | $ | 93.0 | (46.3 | )% | ||||||
| Office Products | 188.7 | 231.8 | (18.6 | ) | ||||||||
| Tools & Hardware | 131.6 | 136.6 | (3.7 | ) | ||||||||
| Home Fashions | 25.0 | 30.1 | (16.9 | ) | ||||||||
| Other | 55.6 | 74.5 | (25.4 | ) | ||||||||
| Corporate Costs (2) | (27.4 | ) | (24.5 | ) | ||||||||
| Impairment Charges (3) | (374.0 | ) | — | |||||||||
| Restructuring Costs (4) | (47.9 | ) | (109.5 | ) | ||||||||
| Total Operating Income (5) | $ | 1.5 | $ | 432.0 | (99.7 | )% | ||||||
Cleaning & Organization
Net sales for the nine months ended September 30, 2004 were $1,372.0 million, a decrease of $132.3 million, or 8.8%, from $1,504.3 million in the comparable period of 2003, driven primarily by a decline in the Rubbermaid Home Products business due to planned product line rationalizations in low-margin products.
Operating income for the nine months ended September 30, 2004 was $49.9 million, a decrease of $43.1 million, or 46.3%, from $93.0 million in the comparable period of 2003. The decrease in operating income is the result of higher raw material costs, lost absorption in manufacturing facilities and restructuring related charges.
23
Office Products
Net sales for the nine months ended September 30, 2004 were $1,246.3 million, a decrease of $12.5 million, or 1.0%, from $1,258.8 million in the comparable period of 2003, driven primarily by the exit of low margin resin based products in the Eldon office products business.
Operating income for the nine months ended September 30, 2004 was $188.7 million, a decrease of $43.1 million, or 18.6%, from $231.8 million in the comparable period of 2003, driven by lower sales, restructuring related costs in the European writing instruments business, raw material inflation, primarily in resin costs in the Eldon office products division, and other cost inflation.
Tools & Hardware
Net sales for the nine months ended September 30, 2004 were $875.2 million, an increase of $15.7 million, or 1.8%, from $859.5 million in the comparable period of 2003. The increase in net sales was driven by increases in the Lenox and BernzOmatic businesses.
Operating income for the nine months ended September 30, 2004 was $131.6 million, a decrease of $5.0 million, or 3.7%, from $136.6 million in the comparable period of 2003. The decrease in operating income was related to increases in raw material costs, particularly steel, restructuring related costs and increased SG&A spending, partially offset by the sales increases described above and strong productivity.
Home Fashions
Net sales for the nine months ended September 30, 2004 were $679.1 million, an increase of $8.2 million, or 1.2%, from $670.9 million in the comparable period of 2003. The increase in net sales was driven primarily by favorable foreign currency fluctuation.
Operating income for the nine months ended September 30, 2004 was $25.0 million, a decrease of $5.1 million, or 16.9%, from $30.1 million in the comparable period of 2003. The decrease in operating income was due to increases in raw material costs and lower pricing, partially offset by productivity.
Other
Net sales for the nine months ended September 30, 2004 were $767.3 million, a decrease of $11.2 million, or 1.4%, from $778.5 million in the comparable period of 2003. The decrease in net sales was primarily attributable to the sale of Cosmolab in March 2003, which contributed $10 million in sales in the first quarter of 2003.
Operating income for the nine months ended September 30, 2004 was $55.6 million, a decrease of $18.9 million, or 25.4%, from $74.5 million in the comparable period of 2003. The decrease in operating income was due primarily to raw material inflation and increased SG&A spending in the Little Tikes business.
Liquidity and Capital Resources
Cash and cash equivalents increased by $210.1 million for the nine months ended September 30, 2004.2005. The change in cash and cash equivalents is as follows for the nine months ended September 30, (in millions):
| 2004 | 2003 | |||||||
| Cash provided by operating activities | $ | 421.8 | $ | 420.5 | ||||
| Cash provided by/(used in) investing activities | 191.0 | (696.9 | ) | |||||
| Cash (used in)/provided by financing activities | (402.4 | ) | 296.8 | |||||
| Exchange effect on cash and cash equivalents | (0.3 | ) | 1.6 | |||||
| Increase in cash and cash equivalents | $ | 210.1 | $ | 22.0 | ||||
| 2005 | 2004 | |||||||
| Cash provided by operating activities | $451.3 | $421.8 | ||||||
| Cash (used in) provided by investing activities | (75.8 | ) | 191.0 | |||||
| Cash used in financing activities | (387.4 | ) | (402.4 | ) | ||||
| Exchange effect on cash and cash equivalents | (8.2 | ) | (0.3 | ) | ||||
| (Decrease) Increase in cash and cash equivalents | ($20.1 | ) | $210.1 | |||||
24
Sources:
The Company’s primary sources of liquidity and capital resources include cash provided from operations, proceeds from the disposal of noncurrent assets, proceeds from the sale of businesses, and use of available borrowing facilities.
The following table reconciles earnings before non-cash charges to net (loss) income as of September 30, (in millions):2005.
| 2004 | 2003 | Change | ||||||||||
| Net (loss)/income | ($ | 240.3 | ) | $ | 165.0 | |||||||
| Depreciation and amortization | 185.4 | 186.5 | ||||||||||
| Impairment charges | 374.0 | — | ||||||||||
| Non-cash restructuring charges | 25.3 | 73.0 | ||||||||||
| Deferred income taxes | 85.1 | 9.6 | ||||||||||
| (Gain)/loss on sale of assets/business | (6.5 | ) | 20.5 | |||||||||
| Loss on discontinued businesses | 90.5 | — | ||||||||||
| Earnings before non-cash charges | $ | 513.5 | $ | 454.6 | $ | 58.9 | ||||||
The Company did not renew its $650.0 million 364-day Syndicated Revolving Credit Agreement, which expired on its scheduled maturity date of June 11, 2004. The Company’shas a $650.0 million five-year Syndicated Revolving Credit Agreement (the “Revolver”) that is scheduled to expire in June 2007 remains in place.2007. At September 30, 2004,2005, there were no borrowings under the Revolver.
29
Little Tikes Commercial Playground Systems business.
expenditures for property, plant and equipment.
year ago period.
25
Cash usedperiod, including the purchases in 2005 of 550,000 shares and 200,000 shares of its Preferred Securities from holders for restructuring activities was $68.6$47.375 per share and $46.25 per share, respectively. The Company paid $26.1 million and $63.4$9.3 million, inrespectively, for the first nine monthspurchases of 2004 and 2003, respectively. Such cash payments represent primarily employee termination benefits.
Capital expenditures were $95.2 million and $247.1 million in the first nine months of 2004 and 2003, respectively. The reduction in capital expenditures is largely due to the Company’s decision to reduce capital investment in the Rubbermaid Home Products business, where capital expenditures decreased from $69.6 million in the first nine months of 2003 to $7.8 million in the first nine months of 2004.
Aggregate dividends paid were $173.2 million and $173.1 million in the first nine months of 2004 and 2003, respectively.
these securities. In the third quarter of 2004, the Company made a voluntary $50.0 million cash contribution to fund the Company’s pension plan.
Retained earnings decreased in the first nine months of 2004 by $413.5 million. The reduction in retained earnings is due to cash dividends paid on common stock and the current year net loss.
Working capital at September 30, 2004 was $923.4 million compared to $978.2 million at December 31, 2003. The current ratio at September 30, 2004 was 1.47:1 compared to 1.48:1 at December 31, 2003. The reduction in working capital is due to the use of cash to pay down commercial paper and the collection of accounts receivable, partially offset by seasonal inventory build.
Total debt to total capitalization (total debt is net of cash and cash equivalents, and total capitalization includes total debt and stockholders’ equity) was .59:1 at September 30, 2004 and .58:1 at December 31, 2003.
On October 12, 2004, the Company purchased 825,000 shares of its Preferred Securities from a holder for $43.6875 per share. The Company paid a total of $36 million.
On November 4, See Footnote 7 to the Consolidated Financial Statements (Unaudited) for additional information on these transactions.
30
The Company’s primary market risk is foreign exchange and interest rate exposure.
26
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.
In the first nine months of 2005, the Company experienced raw material inflation of approximately $105 million (primarily in resin and steel), partially offset by pricing increases of approximately $96 million. For the full year, raw material inflation is expected to be $160 million, which will be partially offset by forecasted price increases of $130 million.
| 2004 | 2003 | |||||||||||||||||||
| Nine | Nine | |||||||||||||||||||
| Month | September 30, | Month | September 30, | Confidence | ||||||||||||||||
| Average | 2004 | Average | 2003 | Level | ||||||||||||||||
| Interest rates | $ | 12.3 | $ | 11.3 | $ | 22.4 | $ | 21.1 | 95 | % | ||||||||||
| Foreign exchange | $ | 2.3 | $ | 1.6 | $ | 1.2 | $ | 1.1 | 95 | % | ||||||||||
31
| 2005 | 2004 | |||||||||||||||||||
| Nine | Nine | |||||||||||||||||||
| Month | September 30, | Month | September 30, | Confidence | ||||||||||||||||
| Average | 2005 | Average | 2004 | Level | ||||||||||||||||
| Interest rates | $10.0 | $9.2 | $12.3 | $11.3 | 95 | % | ||||||||||||||
| Foreign exchange | $2.3 | $2.6 | $2.3 | $1.6 | 95 | % | ||||||||||||||
Item
27
2832
| Stock Purchase Agreement, dated as of | ||||
| 10.1 | 2005 Long Term Incentive Plan | |||
| 12 | Statement of Computation | |||
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
| 99.1 | Safe Harbor Statement. |
33
| NEWELL RUBBERMAID INC. Registrant | ||||
| Date: November | /s/ | |||
| Vice President | ||||