Graco 2010 Annual Report Download - page 28

Newell Rubbermaid Inc. 2010 Annual Report
24 NEWELL RUBBERMAID 2010 Annual Report
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Operating income for 2010 was 10.9% of net sales, or $629.9 million, versus 10.3% of net sales, or $574.9 million for 2009. The
60 basis point improvement in operating margin is primarily attributable to productivity gains and improved product mix
combined with lower restructuring costs and better leverage of structural SG&A as a result of increased sales, partially offset
by increased spend for brand building and other strategic SG&A activities and input cost inflation.
Net nonoperating expenses for 2010 increased $182.9 million to $329.6 million compared to $146.7 million for 2009. During
2010, the Company executed a series of transactions under its Capital Structure Optimization Plan under which losses related
to extinguishments of debt of $218.6 million were recognized. See Footnote 9 of the Notes to Consolidated Financial Statements
for further information. The increase in net nonoperating expenses attributable to the losses associated with the Capital
Structure Optimization Plan was partially offset by a $21.6 million decline in interest expense due to lower outstanding debt
levels and lower interest rates. In addition, the Company recognized a foreign exchange gain of $5.6 million during 2010
associated with the Company’s transition to the SITME rate for remeasuring the Company’s Venezuelan assets and liabilities
denominated in Bolivar Fuerte. See Footnote 1 of the Notes to Consolidated Financial Statements for further information.
The Company recognized income tax expense of $7.5 million in 2010 compared to $142.7 million in 2009, representing
effective rates of 2.5% and 33.3%, respectively. In 2010, the Company entered into a binding closing agreement related to its
2005 and 2006 U.S. Federal income tax examination, including all issues that were at the IRS Appeals Office, which resulted in a
significant reduction to the Company’s unrecognized tax benefits in the amount of $63.6 million including penalties and
interest. In addition, the Company’s pretax income was $127.9 million lower in 2010 primarily due to charges associated with
the Capital Structure Optimization Plan, and the charges were deductible at a higher rate than the Company’s overall tax rate.
As a result of the charges associated with the Capital Structure Optimization Plan, the Company recognized lower income tax
expense and a lower effective tax rate in 2010 compared to 2009. See Footnote 16 of the Notes to Consolidated Financial
Statements for further information.
Results of Operations — 2009 vs. 2008
Net sales for 2009 were $5,577.6 million, representing a decrease of $893.0 million, or 13.8%, from $6,470.6 million for 2008.
The following table sets forth an analysis of changes in consolidated net sales for 2009 as compared to 2008 (in millions,
except percentages):
Core sales $ (474.0) (7.3)%
Foreign currency (136.7) (2.1)
Product line exits and rationalizations (334.3) (5.2)
Acquisitions 52.0 0.8
Total change in net sales $ (893.0) (13.8)%
Core sales declined 7.3% compared to the prior year resulting from lower consumer foot traffic and lower product demand
as well as inventory destocking at the retail level and in the commercial and industrial channels. Geographically, core sales of
the Company’s North American and international businesses declined approximately 6% and 11%, respectively, versus the prior
year. Planned product line exits and foreign currency contributed an additional 5.2% and 2.1% to the year-over-year sales decline,
respectively. The Technical Concepts and Aprica acquisitions increased sales 0.8% over the prior year.
Gross margin, as a percentage of net sales, for 2009 was 36.7%, or $2,049.5 million, versus 32.8% of net sales, or $2,123.2 million,
for 2008. The primary drivers of the 390 basis point gross margin expansion included benefits realized from product line exits
and rationalizations, moderating input costs compared to 2008 and pricing actions initiated late in 2008 and early 2009. These
improvements more than offset the adverse impacts of reduced production volumes in the Company’s manufacturing facilities
and unfavorable product and customer mix.
SG&A expenses for 2009 were 24.6% of net sales, or $1,374.6 million, versus 23.2% of net sales, or $1,502.7 million, for 2008.
The $128.1 million decrease was primarily driven by the Company’s continued management of SG&A spending as well as cost
reduction programs initiated during late 2008 and early 2009 to mitigate the negative impact of the decline in sales. Foreign
currency translation represented $37.8 million of the $128.1 million decline, which was partially offset by $21.2 million of
incremental SG&A costs resulting from the Technical Concepts and Aprica acquisitions.
The Company recorded restructuring costs of $100.0 million and $120.3 million for 2009 and 2008, respectively. The Company’s
restructuring costs in 2009 related primarily to optimizing the cost structure of the business and secondarily to reducing the
Company’s manufacturing footprint, whereas the restructuring costs in 2008 primarily related to product line exits and rationalizations
and reducing the Company’s manufacturing footprint. The restructuring costs for 2009 included $32.4 million of facility and
other exit and impairment costs, $48.8 million of employee severance, termination benefits and employee relocation costs,
and $18.8 million of exited contractual commitments and other restructuring costs. The restructuring costs for 2008 included
$46.1 million of facility and other exit and impairment costs, $57.5 million of employee severance, termination benefits and
employee relocation costs, and $16.7 million of exited contractual commitments and other restructuring costs. See Footnote 4
of the Notes to Consolidated Financial Statements for further information.
The adverse impact of the macroeconomic environment on the Company during the fourth quarter of 2008, particularly the
rapid decrease in consumer demand, combined with the updated outlook for certain of the Company’s reporting units led the
Company to evaluate the carrying value of goodwill as of December 31, 2008. As a result of this evaluation, the Company recorded
a non-cash impairment charge of $299.4 million during the fourth quarter of 2008 principally related to goodwill of certain
reporting units in the Tools, Hardware & Commercial Products and Office Products segments. No similar impairment charges
were recorded in 2009.