Graco 2007 Annual Report Download - page 29

Newell Rubbermaid Inc. 2007 Annual Report
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The effective tax rate was 23.8% for 2007 versus 8.6% for 2006. The change in the effective tax rate is primarily related to the $41.3 million of
income tax benefits recorded in 2007 compared to $102.8 million income tax benefits recorded in 2006. The income tax benefits in 2007 and 2006 resulted
from the favorable resolution of certain tax positions, the expiration of the statute of limitations on certain deductions, and the reorganization of certain
legal entities in Europe. See Footnote 16 of the Notes to Consolidated Financial Statements for further information.
The loss from discontinued operations for 2007 was $12.1 million, compared to $85.7 million for 2006. The loss on the disposal of discontinued
operations for 2007 was $11.9 million, net of tax, compared to a gain of $0.7 million, net of tax, for 2006. The 2007 loss related primarily to the disposal of
the remaining operations of the Home Décor Europe business. The 2006 gain related primarily to the disposal of the Little Tikes business, partially offset
by the loss recognized on the disposal of portions of the Home Décor Europe business. The loss from operations of discontinued operations for 2007 was
$0.2 million, net of tax, compared to $86.4 million, net of tax, for 2006. The 2007 loss related only to the results of the remaining operations of the Home
Décor Europe business, while the 2006 loss included a $50.9 million impairment charge to write off goodwill of the Home Décor Europe business. See
Footnote 3 of the Notes to Consolidated Financial Statements for further information.
Results of Operations
— 2006 vs. 2005
Net sales for 2006 were $6,201.0 million, representing an increase of $483.8 million, or 8.5%, from $5,717.2 million for 2005. Excluding sales related
to the Dymo acquisition, sales were up approximately $268 million, or 4.7%, driven by core sales growth of approximately 2.6%. The impact of positive
currency translation and favorable pricing contributed approximately two points of additional improvement.
Gross margin, as a percentage of net sales, for 2006 was 33.4%, or $2,070.0 million, versus 30.8%, or $1,758.1 million, for 2005. The 260 basis point
improvement in gross margin was driven by productivity, favorable pricing, and favorable mix, which more than offset the impact of raw material inflation.
SG&A expenses for 2006 were 21.7% of net sales, or $1,347.0 million, versus 19.5%, or $1,117.7 million, for 2005. Approximately 40% of the
increase is related to the impact of acquisitions, 40% represented increased investment in strategic brand building, and the remainder resulted from the
impact of foreign currency and stock option accounting and the pension curtailment benefit recognized in 2005 that did not repeat in 2006.
The Company recorded restructuring costs of $66.4 million and $72.6 million for 2006 and 2005, respectively. The 2006 restructuring costs included
$14.9 million of facility and other exit costs, $44.7 million of employee severance and termination benefits and $6.8 million of exited contractual
commitments and other restructuring costs. The 2005 restructuring costs included $51.3 million in non-cash facility restructuring costs relating to Project
Acceleration and $21.3 million relating to restructuring actions approved prior to the commencement of Project Acceleration. The $21.3 million of pre-Project
Acceleration costs included $7.9 million of facility and other exit costs, $11.1 million of employee severance and termination benefits and $2.3 million of exited
contractual commitments and other restructuring costs. See Footnote 4 of the Notes to Consolidated Financial Statements for further information.
Operating income for 2006 was $656.6 million, or 10.6% of net sales, versus $567.4 million, or 9.9% of net sales, in 2005. The improvement
in operating margins is the result of increased sales and gross margin expansion partially offset by increased investment in strategic brand building.
Net nonoperating expenses for 2006 were 2.3% of net sales, or $141.7 million, versus 1.8% of net sales, or $104.0 million, for 2005. The increase
in net nonoperating expenses is mainly attributable to gains recognized in 2005 on the sale of property, plant and equipment and the liquidation of a
foreign subsidiary that did not repeat in 2006, along with an increase in net interest expense, $132.0 million for 2006 compared to $127.1 million for 2005.
The increase in net interest expense was primarily due to higher borrowing rates and higher average debt balances. See Footnote 17 of the Notes to
Consolidated Financial Statements for further information.
The effective tax rate was 8.6% for 2006 versus 12.3% for 2005. The change in the effective tax rate is primarily related to $102.8 million income tax
benefits recorded in 2006 compared to income tax benefits of $73.9 million recorded in 2005, as a result of favorable resolution of certain tax positions and
the expiration of the statute of limitations on other deductions. See Footnote 16 of the Notes to Consolidated Financial Statements for further information.
The loss from discontinued operations for 2006 was $85.7 million, compared to $155.0 million for 2005. The (gain) loss on the disposal of discontinued
operations for 2006 was ($0.7) million, net of tax, compared to $96.8 million, net of tax, for 2005. The 2006 gain was primarily related to the disposal of the
Little Tikes business, which was partially offset by the loss recognized on disposal of portions of the Home Décor Europe business. The 2005 loss related
primarily to the disposal of the Curver and the European Cookware businesses. The loss from operations of discontinued operations for 2006 was $86.4 million,
net of tax, compared to $58.2 million, net of tax, for 2005. See Footnote 3 of the Notes to Consolidated Financial Statements for further information.