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NWL > SEC Filings for NWL > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for NEWELL RUBBERMAID INC



Quarterly Report

Item 2. 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 condensed consolidated financial statements and notes thereto.

Business Overview
Newell Rubbermaid is a global marketer of consumer and commercial products that help people flourish every day, where they live, learn, work and play. The Company's products are marketed under a strong portfolio of brands, including Sharpie®, Paper Mate®, Parker®, Waterman®, Dymo®, Rubbermaid®, Levolor®, Goody®, Calphalon®, Irwin®, Lenox®, Graco® and Aprica®. Business Strategy
Newell Rubbermaid's vision is to become a global company of Brands That Matter™ 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 superior performance and value. The Company's portfolio of leading brands creates a margin structure that allows for brand investment. The Company is executing against its Growth Game Plan, which is the strategy the Company is implementing to fulfill its ambition to build a bigger, faster-growing, more global and more profitable company. The Growth Game Plan encompasses the following aspects:
Business Model
• A brand-led business with a strong home in the United States and global ambition.

• Consumer brands that win at the point of decision through excellence in performance, design and innovation.

• Professional brands that win the loyalty of the chooser by improving the productivity and performance of the user.

• Collaboration with our partners across the total enterprise in a shared commitment to growth and creating value.

• Delivering competitive returns to shareholders through consistent, sustainable and profitable growth.

Where To Play
• Win Bigger - Deploying resources to businesses and regions with higher growth opportunities through investments in innovation and geographic expansion.

• Win Where We Are - Optimizing the performance of businesses and brands in existing markets by investing in innovation to increase market share and reducing structural spend within the existing geographic footprint.

• Incubate For Growth - Investing in businesses that have unique opportunities for growth, with a primary focus on businesses that are in the early stages of the business cycle.

5 Ways To Win
• Make The Brands Really Matter - Sharpening brand strategies on the highest impact growth levers and partnering to win with customers and suppliers.

• Build An Execution Powerhouse - Realigning the customer development organization and developing joint business plans for new channel penetration and broader distribution.

• Unlock Trapped Capacity For Growth - Delivering savings from ongoing restructuring projects, working capital reductions and simplification of business processes.

• Develop The Team For Growth - Driving a performance culture aligned to the business strategy and building a more global perspective and talent base.

• Extend Beyond Our Borders - Accelerating investments and growth in emerging markets.

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During 2012, the Company executed against the delivery phase of the Growth Game Plan. In this phase, the Company implemented structural changes in the organization while ensuring consistent execution and delivery. The Company is transitioning from the delivery phase to the strategic phase in 2013. In the strategic phase, the Company expects to expand investment behind its Win Bigger businesses to drive accelerated growth.

In 2013, the Company will continue implementing changes to drive the Growth Game Plan into action. These changes are the foundation of Project Renewal and are organized into the following five workstreams:
• Organizational Simplification: The Company has de-layered its top structure by eliminating the two groups (Newell Consumer and Newell Professional) and further consolidated its businesses into five business segments. In addition, the Company has consolidated the Development and Customer Development organizations to simplify the organization.

• EMEA Simplification: The Company will focus its resources on fewer products and countries, while simplifying go-to-market, delivery and back office support structures.

• Best Cost Finance: The Company will deliver a simplified approach to decision support, transaction processing and information management by leveraging SAP and the streamlined business segments to align resources with the Growth Game Plan.

• Best Cost Back Office: The Company will drive "One Newell Rubbermaid" efficiencies in customer and consumer services and sourcing functions.

• Global Supply Chain Footprint: The Company will further optimize manufacturing and distribution facilities across its global supply chain.

In implementing the tenets of its strategy, the Company is focused on Every Day Great Execution, or EDGE, to capitalize on and maximize the benefits of investment and growth opportunities and to optimize the cost structure of the business.
Organizational Structure
During the first nine months of 2013, the Company divested its Hardware and Teach platform businesses, which were primarily included in the former Specialty segment. Accordingly, the results of operations of these businesses were classified as discontinued operations. These disposal groups consist of convenience, cabinet and window hardware (Bulldog®, Ashland™ and Amerock® as well as the Levolor® and private label drapery hardware business); manual paint applicators (Shur-line®); and interactive teaching solutions (mimio® and Headsprout®). The remaining businesses in the former Specialty segment, specifically Dymo® Office and Endicia®, were combined with the Writing segment given the significant channel and operating synergies.

In the new Growth Game Plan operating model, the Company has reorganized around two core activity systems, Development and Delivery, supported by three business partnering functions, Human Resources, Finance/IT and Legal, and four winning capabilities in Design, Marketing & Insight, Supply Chain and Customer Development, all in service to drive accelerated performance in the Company's five segments. The Company's five segments and the key brands included in each segment are as follows:

Segment                     Key Brands               Description of Primary Products
Writing               Sharpie®, Paper Mate®,   Writing instruments, including markers and
                      Expo®, Parker®,          highlighters, pens and pencils; art
                      Waterman®,               products; fine writing instruments; office
                      Dymo® Office, Endicia®   technology solutions, including labeling
                                               and on-line postage solutions
Home Solutions        Rubbermaid®,             Indoor/outdoor organization, food storage
                      Calphalon®, Levolor®,    and home storage products; gourmet
                      Goody®                   cookware, bakeware, cutlery and small
                                               kitchen electrics; window treatments; hair
                                               care accessories
Tools                 Irwin®, Lenox®,          Hand tools and power tool accessories;
                      Dymo® Industrial,        industrial bandsaw blades; tools for HVAC
                      hilmor™                  systems; label makers and printers for
                                               industrial use
Commercial Products   Rubbermaid®              Cleaning and refuse products, hygiene
                      Commercial               systems, material handling solutions;
                      Products,                medical and computer carts and wall-mounted
                      Rubbermaid® Healthcare   workstations
Baby & Parenting      Graco®, Aprica®,         Infant and juvenile products such as car
                      Teutonia®                seats, strollers, highchairs and playards

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Market and Performance 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. The Company's results for the first nine months of 2013 were impacted by the following factors:
• Core sales, which exclude the impact of changes in foreign currency, increased 2.8% in 2013 compared to the same period last year. Core sales growth in Latin America and North America were partially offset by declines in Europe and Asia Pacific. Core sales is determined by applying a fixed exchange rate, calculated as the 12-month average in 2012, to the current and prior year local currency sales amounts, with the difference equal to changes in core sales, and the difference between the changes in reported sales and the changes in core sales being attributable to currency.

• Core sales increased 8.5% in the Baby & Parenting segment, with improved retail-level sales in North America primarily due to new product launches. Home Solutions segment's core sales increased 4.5%, primarily due to targeted marketing initiatives in Rubbermaid® Consumer, new Levolor® product launches and increased distribution in Calphalon®. Core sales grew 2.5% in the Commercial Products segment, with substantially all of the growth attributable to the segment's North America and Latin America businesses. Core sales declined 0.6% in the Writing segment primarily driven by weak Fine Writing results in China and office superstore channel contraction in the U.S. partially offset by strong core sales growth in Latin America.

• Gross margin was 38.6%, compared with 38.7% in the prior year, reflecting productivity gains partially offsetting the effects of input cost inflation, less favorable mix and increased investment in customer programs.

• During the first nine months of 2013, the Company's spend for strategic brand-building and consumer demand creation and commercialization activities included spend for the following:

•a new line of premium Sharpie® markers called Sharpie® Neon;
•a television advertising campaign in support of Paper Mate® InkJoy®;
•a new line of Paper Mate mechanical pencils, with exceptional design;
• targeted merchandising and marketing programs in Rubbermaid® Consumer;

•            hilmor™, a new brand of professional tools that revolutionizes the
             heating, ventilation and air conditioning/refrigeration (HVAC/R)
             tool category with 150 tools featuring intuitive functionality and
             durable designs that make HVAC/R technicians' jobs easier and more

•            the hand tool category in Latin America with the launch of Irwin®
             DuplaTM, a new double-sided hacksaw blade;

•            marketing programs and television advertising in Irwin® in support
             of National Tradesmen Day and significant expansion of product
             offerings in Latin America;

•            a new Graco® travel system called Graco Modes™ in North America, 3
             strollers in 1 with ten riding options from infant to toddler;

•            a new line of Aprica® ultra-lightweight strollers in Japan called
             AirRia™, now the best-selling stroller in the country; and

•            support for the continued expansion of sales forces in the Tools,
             Writing and Commercial Products segments to drive greater sales
             penetration, enhance the availability of products and to support
             geographic expansion for these Win Bigger businesses.

•      Continued the execution of Project Renewal to simplify the business,
       reduce structural costs and increase investment in the most significant
       growth platforms within the business by taking significant steps in
       implementing the Organizational Simplification, EMEA Simplification and
       Best Cost Finance workstreams, resulting in $98 million of restructuring
       costs in the first nine months of 2013.

•      Realized an $11 million foreign exchange loss in the first nine months of
       2013 due to the devaluation of the Venezuelan Bolivar because of highly
       inflationary accounting for the Company's Venezuelan operations.

•      Reported a 24% effective tax rate in the first nine months of 2013
       compared to 31% in the first nine months of 2012 primarily due to the
       geographical mix in earnings and net tax benefits that are discrete to the
       first nine months of 2013.

•      Sold the Hardware and Teach platform businesses, primarily included in the
       former Specialty segment, during the third quarter of 2013. The Company
       recorded a net gain of $58 million, net of tax, which included a net gain
       from the sale of

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the Hardware business offset by a net loss associated with the sale of the Teach platform business. The results of operations of the Hardware and Teach platform businesses as well as the net gain on sale are presented in discontinued operations in the statements of operations.
• Continued the $300.0 million three-year share repurchase plan that expires in August 2014, pursuant to which the Company repurchased and retired an additional 4.7 million shares of common stock for $119.2 million during the first nine months of 2013.

Projects and Initiatives
Project Renewal
In October 2011, the Company launched Project Renewal, a program designed to reduce complexity in the organization and increase investment in the most significant growth platforms within the business, funded by a reduction in structural selling, general & administrative ("SG&A") costs. Project Renewal is designed to simplify and align the business around two key activities - Brand & Category Development and Market Execution & Delivery. Project Renewal encompasses projects centered around the five workstreams referenced above - Organizational Simplification, EMEA Simplification, Best Cost Finance, Best Cost Back Office and Supply Chain Footprint. In addition, the Company is consolidating certain manufacturing facilities and distribution centers as part of the program, with the goal of increasing operational efficiency, reducing costs and improving gross margin.
The total costs of Project Renewal are expected to be $340 to $375 million, with $300 to $340 million representing cash costs. Approximately 75% of the cash costs consist of employee-related costs, including severance, retirement and other termination benefits and costs, as approximately 2,250 employees are expected to be impacted as a result of the implementation of the Project Renewal initiatives. Project Renewal is expected to be fully implemented by mid-2015 and generate annualized savings of $270 to $325 million, with more than $160 million of annualized savings realized to date. The majority of the savings from Project Renewal will be invested in the business to unlock accelerated growth and to strengthen brand building and selling capabilities in priority markets around the world.

Through September 30, 2013, the Company has incurred $169 million and $26 million of restructuring and restructuring-related charges, respectively, the majority of which were employee-related cash costs, including severance, retirement and other termination benefits and costs. Restructuring-related charges represent certain organizational change implementation costs and incremental cost of products sold and SG&A expenses associated with the implementation of Project Renewal. Thus far, the Company has reduced structural overhead by eliminating the operating groups, consolidating its 13 Global Business Units into five segments and consolidating its sales organization into the newly formed Customer Development Organization. The Company has also completed the consolidation of its Greenville, Texas operations into its existing operations in Kansas and Ohio.

In the first nine months of 2013, the Company initiated the following activities under Project Renewal:
• The implementation of the EMEA Simplification workstream, initiating projects aimed at refocusing the region on profitable growth, including the closure, consolidation and/or relocation of certain manufacturing facilities, distribution centers, customer support and sales and administrative offices. The Company has also begun exiting certain markets and product lines as an enabler to reduce complexity and infrastructure in EMEA, including initiating the following actions:

• Exit direct sales in over 50 of the 120 countries and territories that the EMEA region serves;

• Exit the custom-logo Fine Writing business; and,

• Discontinuing the Baby business in about 19 countries.

• The implementation of the Best Cost Finance workstream by consolidating and realigning its shared services and decision support capabilities.

• The restructuring of the Development organization as part of the Organizational Simplification workstream, which includes the consolidation and relocation of its design and innovation capabilities into a new center of excellence - a design center in Kalamazoo, Michigan which is expected to open by early 2014, the creation of a larger, independent consumer marketing research organization, the consolidation of the marketing function into a global center of excellence, and the staffing of the Company's global e-commerce initiative.

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• The Company refocused its channel marketing team and realigned its distributor and field sales organizations in the Delivery organization to enable cost savings that will be reinvested into new capabilities.

• The roll out of a new Global Supply Chain organization in the Delivery organization to strengthen capabilities across all five supply chain disciplines of Plan, Source, Make, Deliver and Serve.

• The completion of the closure of its U.S. manufacturing facility in Lowell, Indiana (included in discontinued operations).

One Newell Rubbermaid
The Company strives to leverage the common business activities and best practices of its segments, and to build one common culture of shared values with a focus on collaboration and teamwork. Through this initiative, the Company has established regional shared service centers to leverage nonmarket-facing functional capabilities to reduce costs. In addition, the Company is expanding its focus on leveraging the common business activities and best practices by reorganizing the business around two of the critical elements of the Growth Game Plan - Brand & Category Development and Market Execution & Delivery, enhancing its newly created Customer Development Organization, creating a new Global Supply Chain organization and creating new centers of excellence for design and innovation capabilities and marketing capabilities.
The Company is also migrating multiple legacy systems and users to a common SAP global information platform in a phased, multi-year rollout. SAP is expected to enable the Company to integrate and manage its worldwide business and reporting processes more efficiently. During the nine months ended September 30, 2013, certain operations within the Company's Hardware business and the Company's Brazil operations went live on SAP. Through September 30, 2013, substantially all of the North American, European and Brazilian operations of the Company's five segments have successfully gone live with their SAP implementation efforts. Foreign Currency - Venezuela
The Company began accounting for its Venezuelan operations using highly inflationary accounting in January 2010. Under highly inflationary accounting, the Company remeasures assets, liabilities, sales and expenses denominated in Bolivar Fuertes into U.S. Dollars using the applicable exchange rate, and the resulting translation adjustments are included in earnings. In February 2013, the exchange rate for Bolivar Fuertes declined to 6.3 Bolivar Fuertes to U.S. Dollar. Previously, the Company remeasured its operations denominated in Bolivar Fuertes at the rate of exchange used by the Transaction System for Foreign Currency Denominated Securities (SITME) of 5.3 Bolivar Fuertes to U.S. Dollar. As a result, the Company recorded a charge of $11 million in the first quarter of 2013, based on the decline in value of the net monetary assets of its Venezuelan operations that are denominated in Bolivar Fuertes. In addition, the Company's 2013 reported net sales and operating income are expected to be adversely impacted by an estimated $9 million and $5 million, respectively, due solely to the devaluation of the Bolivar Fuerte.
As of September 30, 2013, the Company's Venezuelan subsidiary had approximately $76.6 million of net monetary assets denominated in Bolivar Fuertes at the rate of 6.3 Bolivar Fuertes to U.S. Dollar, and as a result, a 10% increase (decrease) in the applicable exchange rate would result in an estimated pretax charge (benefit) of $8 million. On an ongoing basis, excluding the impacts of any actions management might otherwise take in response to a change in exchange rates, such as raising or decreasing prices, a 10% increase (decrease) in the exchange rate would unfavorably (favorably) impact annual net sales and operating income by an estimated $8 million and $4 million, respectively.

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Results of Operations
The following table sets forth for the periods indicated items from the
Condensed Consolidated Statements of Operations as reported and as a percentage
of net sales (in millions, except percentages):
                            Three Months Ended September 30,                 Nine Months Ended September 30,
                             2013                     2012                    2013                     2012
Net sales            $ 1,487.2     100.0 %   $ 1,456.9     100.0  %   $ 4,202.7     100.0 %   $ 4,132.7     100.0  %
Cost of products
sold                     922.3      62.0         897.9      61.6        2,581.5      61.4       2,533.0      61.3
Gross margin             564.9      38.0         559.0      38.4        1,621.2      38.6       1,599.7      38.7
Selling, general and
expenses                 355.0      23.9         359.7      24.7        1,061.7      25.3       1,077.7      26.1
Restructuring costs       31.3       2.1          12.3       0.8           97.7       2.3          34.4       0.8
Operating income         178.6      12.0         187.0      12.8          461.8      11.0         487.6      11.8
Interest expense,
net                       15.7       1.1          18.0       1.2           45.3       1.1          58.7       1.4
Losses related to
extinguishments of
debt                         -         -           6.8       0.5              -         -           6.8       0.2
Other expense
(income), net              0.7         -          (1.3 )    (0.1 )         17.9       0.4          (1.0 )       -
Net nonoperating
expenses                  16.4       1.1          23.5       1.6           63.2       1.5          64.5       1.6
Income before income
taxes                    162.2      10.9         163.5      11.2          398.6       9.5         423.1      10.2
Income tax expense        39.9       2.7          57.3       3.9           95.9       2.3         132.3       3.2
Income from
operations               122.3       8.2         106.2       7.3          302.7       7.2         290.8       7.0
Income from
operations                71.0       4.8           2.1       0.1           54.6       1.3           8.6       0.2
Net income           $   193.3      13.0 %   $   108.3       7.4  %   $   357.3       8.5 %   $   299.4       7.2  %

Three Months Ended September 30, 2013 vs. Three Months Ended September 30, 2012
Consolidated Operating Results:
Net sales for the three months ended September 30, 2013 were $1,487.2 million,
representing an increase of $30.3 million, or 2.1%, from $1,456.9 million for
the three months ended September 30, 2012. Core sales increased 3.3%, and
foreign currency had the effect of decreasing net sales by 1.2%. The following
table sets forth an analysis of changes in consolidated net sales for the three
months ended September 30, 2013 as compared to the three months ended
September 30, 2012 (in millions, except percentages):
Core sales                $ 48.0      3.3  %
Foreign currency           (17.7 )   (1.2 )
Total change in net sales $ 30.3      2.1  %

Core sales in the Company's North American and international businesses increased 4.1% and 1.0%, respectively. In North America, core sales growth was led by strong growth in the Baby & Parenting and Home Solutions segments. In EMEA, core sales decreased 9.9%, reflecting the ongoing macroeconomic challenges in Western Europe as well as the early impacts of the Company's plans to simplify its EMEA footprint, which involves exiting certain markets and product lines in the region. Core sales in the Company's Latin America businesses increased 34.7% driven by continued growth in the Writing segment driven by volume and price increases, including price increases in Venezuela in response to inflation, and growth in the Tools segment primarily related to the expansion of the product offering in Brazil. In the Asia Pacific region, core sales declined 7.4% due to core sales declines realized by Fine Writing in China as the business continues to transition the distribution model in China to better align inventory levels with consumer level point-of-sale.
Gross margin, as a percentage of net sales, for the three months ended September 30, 2013 was 38.0%, or $564.9 million, versus 38.4%, or $559.0 million, for the three months ended September 30, 2012. Gross margin decreased 40 basis points reflecting improved productivity and net pricing partially offsetting less favorable mix and inflation.

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SG&A expenses for the three months ended September 30, 2013 were 23.9% of net sales, or $355.0 million, versus 24.7% of net sales, or $359.7 million, for the three months ended September 30, 2012. SG&A expenses decreased when compared to the third quarter of 2012 as an $8.7 million increase in advertising and promotion, including incremental advertising and promotional investment in the Tools segment, was offset by a $10.5 million net decrease in other strategic and structural SG&A due to Renewal-related cost savings and a $2.9 million decrease in restructuring-related costs.
The Company recorded restructuring costs of $31.3 million and $12.3 million for the three months ended September 30, 2013 and 2012, respectively. The year-over-year increase in restructuring costs is primarily due to the implementation of restructuring plans and initiatives under Project Renewal in Europe as part of the EMEA Simplification workstream. The restructuring costs for the three months ended September 30, 2013 primarily related to Project Renewal and consisted of $1.7 million of facility and other exit costs, . . .

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