Graco 2008 Annual Report Download - page 22

Newell Rubbermaid Inc. 2008 Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s
consolidated results of operations and financial condition. The discussion should be read in conjunction with the accompanying Consolidated Financial
Statements and Notes thereto.
BUSINESS OVERVIEW
Newell Rubbermaid is a global marketer of consumer and commercial products that touch the lives of people where they work, live and play. With annual
sales of over $6 billion, the Company’s products are marketed under a strong portfolio of brands, including Sharpie,
® Paper Mate, ® Dymo, ® Expo, ® Waterman, ®
Parker,® Rolodex,
® Irwin, ® Lenox, ® BernzOmatic, ® Rubbermaid, ® TC, ® Levolor, ® Graco, ® Aprica, ® Calphalon® and Goody.® The Company’s multi-product offering
consists of well-known name-brand consumer and commercial products in four business segments during 2008: Cleaning, Organization & Décor; Office
Products; Tools & Hardware; and Home & Family.
Business Strategy
Newell Rubbermaid’s vision is to become a global company of Brands That MatterTM and great people, known for best-in-class results. The Company is
committed to building consumer-meaningful brands through understanding the needs of consumers and using those insights to create innovative, highly
differentiated product solutions that offer performance and value. To support its multi-year transformation into a best-in-class global consumer branding
and marketing organization, the Company has adopted a strategy that focuses on optimizing the business portfolio, building consumer-meaningful brands
on a global scale, and achieving best cost and efficiency in its operations.
•฀ ฀Optimizing฀the฀business฀portfolio฀includes฀reducing฀the฀Company’s฀exposure฀to฀non-strategic฀businesses฀and฀product฀lines฀and฀acquiring฀
businesses that facilitate geographic and category expansion, thus enhancing the potential for growth and improved profitability of the
overall portfolio.
•฀ ฀Building฀consumer-meaningful฀brands฀involves฀embracing฀a฀consumer-driven฀innovation฀process,฀developing฀best-in-class฀marketing฀and฀
branding capabilities across the organization and investing in strategic brand building activities, including investments in research and
development to better understand target consumers and their needs.
•฀ ฀Achieving฀best฀cost฀involves฀the฀Company’s฀adoption฀of฀best-in-class฀practices,฀such฀as฀leveraging฀scale,฀restructuring฀the฀supply฀chain฀to฀
improve capacity utilization and to deliver productivity savings, reducing costs in non-market facing activities, designing products to optimize
input costs, and utilizing strategic sourcing partners when it is cost effective. Achieving best cost allows the Company to improve its competitive
position, generate funds for increased investment in strategic brand building initiatives, and preserve cash and liquidity in the midst of volatile
commodity and currency markets and the current global economic slowdown.
Market Overview
The Company operates in the consumer and commercial products markets, which are generally impacted by overall economic conditions in the regions in
which the Company operates. During 2008, the Company’s results were impacted by the deterioration in worldwide economic conditions, significant inflation,
a volatile currency environment, instability in the credit markets, and disruption of global equity markets. These factors, combined with rising unemployment
levels and the contraction of consumer credit markets, adversely impacted consumer confidence leading to reductions in consumer spending. The Company’s
results were impacted as follows:
•฀ ฀The฀inflationary฀commodity฀environment฀and฀volatile฀currency฀environment฀led฀to฀significant฀year-over-year฀inflation฀in฀raw฀materials,฀including฀
resin, and sourced finished goods. The primary drivers for the increases were record-high energy prices, including the price of oil and natural
gas, and currency volatility on sourced products. The record-high energy prices contributed to increases in transportation costs and the cost of
resin, since oil and natural gas are key inputs in the production and cost of certain types of resin. For 2008, inflation adversely impacted year-
over-year gross margins by approximately $200.0 million.
•฀ ฀As฀consumer฀confidence฀waned,฀the฀Company฀experienced฀pressure฀on฀its฀sales,฀particularly฀in฀the฀fourth฀quarter฀of฀2008,฀across฀all฀businesses฀
and geographies since consumer spending declined and retailers responded by tightly managing inventory levels.
•฀ ฀Declines฀in฀residential฀and฀commercial฀construction฀markets฀contributed฀to฀sales฀declines฀in฀the฀Tools฀&฀Hardware฀segment฀and฀the฀Décor฀
business. An estimated 0.9 million housing units were started in 2008 compared to 1.4 million housing units started in 2007, and existing home
sales declined from 5.7 million units in 2007 to 4.9 million units in 2008.
In response to these market conditions, the Company took the following actions:
•฀ ฀Expanded฀Project฀Acceleration,฀the฀Company’s฀restructuring฀initiative,฀to฀include฀the฀divestiture,฀rationalization,฀or฀exit฀of฀selected฀low฀margin,฀
commodity-like, and resin-intensive product categories, to create a more focused and more profitable platform for growth by reducing the
Company’s exposure to volatile commodity markets and raw material inflation.
•฀ ฀Implemented฀pricing฀initiatives฀to฀offset฀inflationary฀pressures฀experienced฀across฀multiple฀product฀lines฀in฀2008,฀particularly฀those฀where฀
resin is the primary cost of products, including quarterly price adjustment mechanisms to adjust prices to reflect actual changes in raw
material, processing and transportation costs. These price increases offset a portion of the input cost inflation experienced in 2008.