Graco 2005 Annual Report Download

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Brands That Matter
2005 ANNUAL REPORT

Table of contents

  • Page 1
    2005 ANNUAL REPORT Brands That Matter

  • Page 2
    ... SEGMENT OFFICE PRODUCTS 27% CLEANING & ORGANIZATION 25% HOME FASHIONS 13% HOME & FAMILY 15% TOOLS & HARDWARE 20% MEASURING OUR FINANCIAL PERFORMANCE We delivered on our key financial commitments in 2005, strategically exiting low-margin product lines while growing high-margin sales, expanding...

  • Page 3
    ... begins by understanding consumers' preferences and using those insights to design, test and deliver solutions, like our compact, tri-fold Graco® MosaicTM stroller, and our bold Expo® dry erase markers used in offices and classrooms around the world. 2005 NEWELL RUBBERMAID ANNUAL REPORT / P. 2

  • Page 4
    ... worthy of driving organic growth. P. 3 / 2005 NEWELL RUBBERMAID ANNUAL REPORT Key Developments in 2005 Net sales in our Invest businesses grew 2 percent. Our Office Products markers and highlighters, IRWIN® branded tools, Lenox, BernzOmatic, Shur-Line and Rubbermaid Commercial businesses all grew...

  • Page 5
    ...At Newell Rubbermaid our guiding light will be "brands that matter". Brands matter when they offer better performance or value; when they excite or delight the end-user. We will fund additional investment in research and development to gain greater insight into consumer preferences and address their...

  • Page 6
    ... Rubbermaid Home Products for improved profitability. Rubbermaid Commercial Products is a leading supplier of highly engineered commercial solutions, including Brute® trash cans that offer extreme durability, WaveBrakeTM mop buckets that enhance productivity, Microfiber Cleaning Systems...

  • Page 7
    ...the high-growth on-demand labeling market with a well-known brand and proven leader in new product development and intellectual property. DYMO is a global leader in on-demand labeling solutions for the home, office and jobsite. DYMO has strong market share across Europe, North America and Australia...

  • Page 8
    ... do-it-yourselfers. Our new product development processes continue to develop leading-edge solutions, like our fast-cutting, durable LENOX® GoldTM reciprocating blade and Rubbermaid® Commercial Products comprehensive line of Microfiber cleaning tools. P. 7 / 2005 NEWELL RUBBERMAID ANNUAL REPORT

  • Page 9
    ... sets and related accessories. With a growing presence in the do-it-yourself and home center channel, IRWIN continues to aggressively expand its product offering to drive top-line growth. (5) Please refer to the Reconciliation of Non-GAAP Financial Measures, provided as part of this annual report...

  • Page 10
    ..., Home & Family businesses offer an extensive line of premium kitchenware, infant and juvenile products and hair care products. The Graco® brand represents the highest commitment to quality and safety for juvenile products. From strollers and car seats to high chairs, playards and monitors, Graco...

  • Page 11
    ... for Financial Statements and Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Ì Ernst & Young LLP Report of Independent Registered Public Accounting Firm Ì Ernst & Young LLP Consolidated Statements of Operations Consolidated Balance Sheets...

  • Page 12
    ... and stainless steel cookware, hair care accessory products, infant and juvenile products, including toys, high chairs, car seats, strollers and play yards The Company remains committed to investing in strategic brands and new product development, having best-cost platforms, and strengthening its...

  • Page 13
    ...signiÃ'cant resources on enhancing its new product development pipeline, as well as strengthening the Company's numerous brands through targeted advertising and promotion. In 2005, the Company made additional investments in SG&A (primarily in the OÇce Products and Tools & Hardware segments) through...

  • Page 14
    ...'s product lines and customer base. In 2003, the Company acquired LENOX, a leading manufacturer of power tools accessories and hand tools. The Company also divests businesses that do not Ã't its business model (i.e., businesses that can sustain high margins and grow through investments in brands and...

  • Page 15
    ... in these businesses. The Company plans to use those savings to fund investments in SG&A in its Invest businesses, primarily through increased advertising, new product development, promotion and brand building activities. Consolidated Results of Operations The following table sets forth for...

  • Page 16
    ... in Rubbermaid Commercial Products and IRWIN- branded tools businesses. The acquisition of DYMO contributed $24.9 million in net sales in 2005. Net sales in the Company's Fix businesses declined 8.0% for 2005 versus 2004, as a result of low margin product line exits in Rubbermaid Home Products and...

  • Page 17
    ... raw material inÃ-ation of $116 million and unfavorable pricing of $3 million, partially oÃ...set by favorable mix driven by the rationalization of unproÃ'table product lines, primarily in the Rubbermaid Home Products business, gross productivity and other savings of $76 million. Selling, general and...

  • Page 18
    ... and Latin American OÇce Products businesses. The 2003 charge was required to write-down certain assets to fair value, primarily in the Company's Cleaning & Organization segment, resulting from the decision to exit certain product lines. See Footnote 18 to the Consolidated Financial Statements for...

  • Page 19
    ...was as follows for the year ended December 31, (in millions, except percentages): 2005 2004 % Change Cleaning & Organization OÇce Products Tools & Hardware Home Fashions Other Corporate Impairment charge Restructuring costs Total Operating Income Cleaning & Organization $116.9 $100.7 266...

  • Page 20
    ...set by raw material inÃ-ation. 2004 vs. 2003 Business Segment Operating Results Net sales by segment were as follows for the year ended December 31, (in millions, except percentages): 2004 2003 % Change Cleaning & Organization OÇce Products Tools & Hardware Home Fashions Other Total Net Sales...

  • Page 21
    ... was as follows for the year ended December 31, (in millions): 2004 2003 % Change Cleaning & Organization OÇce Products Tools & Hardware Home Fashions Other Corporate Impairment charges Restructuring costs Total Operating Income Cleaning & Organization $100.7 $103.6 261.9 309.6 181...

  • Page 22
    ... Graco and raw material inÃ-ation in resin based products. Liquidity and Capital Resources Cash and cash equivalents (decreased) increased as follows for the year ended December 31, (in millions): 2005 2004 2003 Cash provided by operating activities Cash (used in)/provided by investing activities...

  • Page 23
    ...in 2005, compared to $6.6 million in 2004. The cash used in 2005 related primarily to the acquisition of DYMO for $706 million, which was funded by approximately $487 million of cash on hand and $219 million from existing credit facilities. See Footnote 2 to the Consolidated Financial Statements for...

  • Page 24
    ... external Ã'nancing on a long-term basis. Minimum Pension Liability In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded an additional minimum pension liability adjustment at December 31, 2005. The eÃ...ect of this...

  • Page 25
    ...to its pension and post retirement medical beneÃ't plans. See Footnote 13 to the Consolidated Financial Statements. As of December 31, 2005, the Company had $96.7 million in standby letters of credit primarily related to the Company's self-insurance programs, including workers' compensation, product...

  • Page 26
    ...in the third quarter because it coincides with its annual strategic planning process for all of its businesses. The Company also tests for impairment if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or the indeÃ'nite life intangible asset is...

  • Page 27
    ... Ã-ows, the Company discounts the future cash Ã-ows using a risk-free discount rate and records an impairment charge as the diÃ...erence between the fair value and the carrying value of the asset group. Generally, the Company performs its testing of the asset group at the product-line level, as this...

  • Page 28
    ...in additional expense in 2006. International Operations For the years ended December 31, 2005, 2004 and 2003, the Company's non-U.S. businesses accounted for approximately 28%, 29% and 28% of net sales, respectively (see Footnote 20 to the Consolidated Financial Statements). Changes in both U.S. and...

  • Page 29
    ... product suppliers to use, resulting in downward pricing pressures and the need for strong end-user brands, the ongoing introduction of innovative new products, continuing improvements in customer service, and the maintenance of strong relationships with large, high-volume purchasers. The Company...

  • Page 30
    ... of programs, including periodic purchases, purchases for future delivery, long-term contracts and sales price adjustments. Where practical, the Company uses derivatives as part of its risk management process. Raw material price increases may oÃ...set productivity gains and could materially impact...

  • Page 31
    ... brands and new product innovation. The Company is undergoing a transformation from a portfolio-holding company that grew through acquisitions to a focused group of leadership platforms that generate internal growth driven by strong brands and new product innovation. Although the process is well...

  • Page 32
    ... Rubbermaid Home Products, Rubbermaid Foodservice Products, Rubbermaid Europe, Rubbermaid Canada, and Rubbermaid Asia PaciÃ'c market their products directly and through distributors to mass merchants, home centers, warehouse clubs, grocery/drug stores and hardware distributors. Rubbermaid Commercial...

  • Page 33
    ... Accessories, IRWIN North America Hand Tools, IRWIN Latin America, IRWIN Europe and Asia PaciÃ'c, LENOX, and Amerock market their products directly and through distributors to mass merchants, home centers, department/specialty stores, hardware distributors, industrial/construction outlets, custom...

  • Page 34
    ... and Graco businesses design, manufacture or source, package and distribute infant and juvenile products such as toys, high chairs, car seats, strollers, and play yards. Goody designs, manufactures or sources, packages and distributes hair care accessories. Calphalon primarily sells its products...

  • Page 35
    ... Ã'nancial statements and footnotes contained in this annual report. The Company's management is also responsible for establishing and maintaining adequate internal control over Ã'nancial reporting. Newell Rubbermaid Inc. operates under a system of internal accounting controls designed to...

  • Page 36
    ...three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the eÃ...ectiveness of Newell Rubbermaid Inc.'s internal control...

  • Page 37
    ... PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Newell Rubbermaid Inc. We have audited management's assessment, included in the accompanying Management's Responsibility for Financial Statements and Annual Report on Internal Control Over Financial Reporting, that Newell Rubbermaid...

  • Page 38
    Consolidated Statements of Operations Year Ended December 31, (Amounts in millions, except per share data) 2005 2004 2003 Net sales Cost of products sold Gross margin Selling, general and administrative expenses Impairment charges Restructuring costs Operating income Non-operating expenses: ...

  • Page 39
    ...: Cash and cash equivalents Accounts receivable, net of allowances of $31.8 for 2005 and $45.2 for 2004 Inventories, net Deferred income taxes Prepaid expenses and other Current assets of discontinued operations Total Current Assets Property, plant and equipment, net Deferred income taxes...

  • Page 40
    ... Accounts payable Discontinued operations Accrued liabilities and other Net Cash Provided by Operating Activities Investing Activities Acquisitions, net of cash acquired Expenditures for property, plant and equipment Disposals of non-current assets and sale of businesses Net Cash (Used...

  • Page 41
    ... currency translationÏÏÏÏ Minimum pension liability adjustment, net of ($29.3) tax Gain on derivative instruments, net of $6.8 tax Total comprehensive income ÏÏÏÏÏ Cash dividends on common stock Exercise of stock options Other Balance at December 31, 2005 ÏÏÏ $283.1 $(409.9) $237...

  • Page 42
    ... of Business: Newell Rubbermaid Inc. (the ""Company'') is a global manufacturer and marketer of branded consumer products and their commercial extensions, serving a wide array of retail channels including department stores, discount stores, warehouse clubs, home centers, hardware stores, commercial...

  • Page 43
    ...144, the Company evaluates if impairment indicators related to its property, plant and equipment and other long-lived assets are present. These impairment indicators may include a signiÃ'cant decrease in the market price of a longlived asset or asset group, a signiÃ'cant adverse change in the extent...

  • Page 44
    ... assets' fair value by discounting the future cash Ã-ows using a risk-free discount rate and records an impairment charge as the diÃ...erence between the fair value and the carrying value of the asset group. Generally, the Company performs its testing of the asset group at the product-line level, as...

  • Page 45
    ... Company utilizes forward exchange contracts and options to manage foreign exchange risk related to both known and anticipated intercompany transactions and thirdparty commercial transaction exposures of approximately one year in duration or less. The eÃ...ective portion of the changes in fair value...

  • Page 46
    ... Principles Board Opinion (""APB'') No. 25, ""Accounting for Stock Issued to Employees,'' and will require adoption no later than January 1, 2006. The Company has adopted the provisions of the new standard using the modiÃ'ed prospective method and using the Black-Scholes option pricing model...

  • Page 47
    ... Ã'nal purchase price is subject to further adjustment relating to changes in the closing working capital. This acquisition strengthens the Company's global leadership position in the OÇce Products segment by expanding and enhancing the Company's product lines and customer base. The Company funded...

  • Page 48
    ... of the Company's product lines and customer base, launching it squarely into the estimated $10 billion-plus global markets for hand tools and power tool accessories. Both of these acquisitions are reported in the Company's Tools & Hardware business segment. The purchase price of the LENOX...

  • Page 49
    ... 2005 In June 2005, the Company completed the sale of its Curver business. The Curver business included the Company's European indoor organization and home storage division and was previously reported in the Cleaning & Organization segment. The sales price, which was subject to reduction for working...

  • Page 50
    ...reÃ-ected in continuing operations. 2004 In January 2004, 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). In April...

  • Page 51
    ... that commenced in the fourth quarter of 2005. The Plan is designed to reduce manufacturing overhead to achieve best cost positions, and to allow the Company to increase investment in new product development, brand building and marketing. Project Acceleration includes the closures of approximately...

  • Page 52
    ... following table depicts the changes in accrued restructuring reserves for the year ended December 31, aggregated by reportable business segment (in millions): Segment 12/31/04 Balance Provision Costs Incurred 12/31/05 Balance Cleaning & Organization OÇce Products Tools & Hardware Home Fashions...

  • Page 53
    ...for the balance, cost was determined using the FIFO method. The Company recognized a gain of $0.6 million and a loss of $5.1 million in 2004 and 2003, respectively, related to the liquidation of LIFO based inventories. FOOTNOTE 6 Property, Plant & Equipment Property, plant and equipment consisted of...

  • Page 54
    ... 32.9 93.1 $750.9 Customer accruals are promotional allowances and rebates, including cooperative advertising, given to customers in exchange for their selling eÃ...orts. The self-insurance accrual is primarily casualty liabilities such as workers' compensation, general and product liability and auto...

  • Page 55
    ...424.3 The following table summarizes the Company's average commercial paper obligations and interest rate for the year ended December 31, (in millions, except percentages): 2005 2004 ÃŒBorrowing Average interest rate $30.7 $66.3 3.5% 1.1% The aggregate maturities of long-term debt outstanding...

  • Page 56
    ... redemption of the preferred debt securities. The receivables and preferred debt securities are recorded in the consolidated accounts of the Company. The Ã'nancing entity may cause the preferred debt securities to be exchanged on September 18, 2006 for a two year Ã-oating rate note in an aggregate...

  • Page 57
    ... interest rate swaps range from three to four years. Foreign Currency Management: The following table summarizes the Company's forward exchange contracts, long-term cross currency interest rate swaps and option contracts in U.S. dollars by major currency and contractual amount. The ""buy'' amounts...

  • Page 58
    ... Balance Sheets. The Company has a Supplemental Executive Retirement Plan (""SERP''), which is a nonqualiÃ'ed deÃ'ned beneÃ't plan pursuant to which the Company will pay supplemental pension beneÃ'ts to certain key employees upon retirement based upon the employees' years of service and compensation...

  • Page 59
    ... Balance Sheets: Prepaid beneÃ't cost(1 Intangible asset(1 Accrued beneÃ't cost(2 Accumulated other comprehensive loss Net amount recognized Accumulated beneÃ't obligation Weighted-average assumptions used to determine beneÃ't obligation: Discount rate Long-term rate of return on plan...

  • Page 60
    ... other non-current liabilities. The weighted average discount rate at the measurement dates for the Company's other postretirement beneÃ't plans is developed using a spot interest yield curve based upon a broad population of corporate bonds rated AA or higher, adjusted to match the duration of each...

  • Page 61
    ....6 $ 340.5 $ 303.4 In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, ""Employers' Accounting for Pensions,'' the Company recorded an additional minimum pension liability adjustment at December 31, 2005. In 2005, the Company recorded a charge to equity of $59.8 million...

  • Page 62
    ...stocks as well as growth, value and international stock positions. The Company's common stock comprised zero and $41.1 million of noncontributory pension plan assets at December 31, 2005 and 2004, respectively. The Company employs a building block approach in determining the long-term rate of return...

  • Page 63
    ... sale of 6.67 million shares of its common stock at a public oÃ...ering price of $30.10 per share pursuant to an eÃ...ective shelf registration statement that was previously Ã'led with the Securities and Exchange Commission. The net proceeds of $200.1 million were used to reduce the Company's commercial...

  • Page 64
    ... closing price on the date of grant; options vest over a Ã've-year period and expire ten years from the date of grant. In 2003, a new plan was approved by the Company stockholders (""2003 Plan''). The 2003 Plan provides for grants of up to an aggregate of 15.0 million stock options, stock awards and...

  • Page 65
    ... 4.3 4.0 5.3 The Company also grants restricted stock awards to directors and certain employees. Generally, these awards are subject to three-year cliÃ... vesting and pay dividends quarterly. As of December 31, 2005 and 2004, the Company had outstanding restricted stock awards of 1.0 million shares...

  • Page 66
    ... 2005 to $232.6 million at December 31, 2005. This decrease is primarily due to foreign net operating losses generated during the year which management is uncertain as to the ability to utilize in the future, reduced by foreign net operating losses no longer available for use due to business changes...

  • Page 67
    ... in property, plant and equipment) related to its United Kingdom window fashion business, which is included in the Company's Home Fashions segment. Restructuring and other investments made in the business in prior years have not resulted in the expected returns. Additionally, the business continues...

  • Page 68
    ...down the long-lived assets to fair value (disposal value). The impairment charge recognized on this product line was $80.8 million, of which $8.5 million related to the write-down of property, plant & equipment. ‚ In the European business, the Company historically promoted and supported several di...

  • Page 69
    ... expire and Ã'xed assets that were held for sale, and accordingly, were written-down to fair value. In 2004, the Company began exploring various options for certain businesses and product lines in the Tools & Hardware segment, including evaluating those businesses for potential sale. As this process...

  • Page 70
    ..., hair care accessory products, infant and juvenile products, including toys, high chairs, car seats, strollers, and play yards The Company's segment results are as follows as of December 31, (in millions): 2005 2004 2003 Net Sales(1) Cleaning & Organization OÇce Products Tools & Hardware Home...

  • Page 71
    2005 2004 2003 Operating Income(2) Cleaning & Organization OÇce Products Tools & Hardware Home Fashions Other Corporate Impairment Charges Restructuring Costs $ 116.9 266.0 171.1 22.7 98.1 (46.0) (34.4) (72.2) $ 522.2 $ 100.7 261.9 181.8 33.0 92.0 (39.4) (295.1) (44.2) $ 290.7 $ 81.9 ...

  • Page 72
    ... (25.2) 12.2 30.0 $ 522.2 Property, Plant and Equipment, Net United States Canada North America Europe Central and South America Other $ 705.6 19.1 724.7 164.7 35.6 46.1 $ 971.1 (1) All intercompany transactions have been eliminated. Sales to Wal*Mart Stores, Inc. and subsidiaries amounted...

  • Page 73
    ... not have a material eÃ...ect on the Company's business, Ã'nancial condition or results of operation. As of December 31, 2005, the Company had $96.7 million in standby letters of credit primarily related to the Company's self-insurance programs, including workers' compensation, product liability, and...

  • Page 74
    ... RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York and Chicago Stock Exchanges (symbol: NWL). As of March 15, 2006 there were 18,732 stockholders of record. The following table sets forth the high and low sales prices of the common stock on the New York Stock Exchange...

  • Page 75
    ... derived in part from, and should be read in conjunction with, the Consolidated Financial Statements of the Company included elsewhere in this report. 2005(1) 2004(1) 2003(1) 2002 2001 STATEMENTS OF OPERATIONS DATA Net sales Cost of products sold Gross margin Selling, general and administrative...

  • Page 76
    ... employee severance and termination beneÃ'ts and other costs. (3) Prior to 2002, goodwill was amortized over its estimated useful life. Commencing in 2002, goodwill is no longer amortized, but rather is subject to annual impairment tests in accordance with FASB Statement No. 142. (4) Working capital...

  • Page 77
    ... SUMMARIES Summarized quarterly data for the last two years is as follows (in millions, except per share data) (unaudited): Calendar Year 1st 2nd 3rd 4th Year 2005 Net sales Gross margin Income from continuing operations Loss from discontinued operations Net income Earnings (loss) per share...

  • Page 78
    ... Sales 3) Free Cash Flow $ 522.2 85.7 607.9 6,342.5 9.6% $ 290.7 356.3 647.0 6,479.8 10.0% $ 497.6 239.2 736.8 6,614.8 11.1% 12 Months Ending December 31, 2005 2004 2003 Net cash provided by operating activities Less: Expenditure for plant, property and equipment Free Cash Flow 4) Earnings...

  • Page 79
    ...by segment was as follows for the year ended December 31, (in millions, except percentages): 2005 2004 % Change OÇce Products Cleaning & Organization Tools & Hardware Home Fashions Other Corporate Impairment charge Restructuring costs Total Operating Income $266.0 $261.9 116.9 100.7 171...

  • Page 80
    ... Newell Rubbermaid is traded on the New York Stock Exchange under the symbol NWL. Additional copies of this annual report, Newell Rubbermaid's Form 10-K and proxy statement filed with the Securities and Exchange Commission, dividend reinvestment plan information, recent and historical financial data...

  • Page 81
    Brands That Matter 10B Glenlake Parkway, Suite 300, Atlanta, Georgia 30328 w w w. n e w e l l r u b b e r m a i d . c o m / b r a n d s