Newell Rubbermaid Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing is an annual report, not a standalone Q4 filing; fourth-quarter figures below are from unaudited quarterly data. The company reported six segments: Home Solutions, Writing, Tools, Commercial Products, Baby & Parenting, and Specialty.
Financial performance
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $5,902.7 million | $5,864.6 million |
| Gross margin | $2,229.1 million; 37.8% | $2,205.2 million; 37.6% |
| Operating income | $651.9 million; 11.0% | $257.2 million; 4.4% |
| Income from continuing operations | $399.6 million | $134.6 million |
| Net income | $401.3 million | $125.2 million |
| Diluted EPS | $1.37 | $0.42 |
| Cash from operating activities | $618.5 million | $561.3 million |
| Capital expenditures | $177.2 million | $222.9 million |
FY2012 net sales rose 0.6%; core sales, excluding currency effects, grew 2.2%, while foreign exchange reduced reported sales by 1.6%. Input-cost inflation was more than offset by pricing and productivity, improving gross margin by 20 basis points. FY2011 operating income included $382.6 million of impairment charges; excluding that item, FY2011 operating income was $639.8 million (10.9% of sales), making FY2012 growth on that comparison approximately 1.9%.
Fourth quarter: Sales were $1,518.8 million versus $1,495.2 million in Q4 2011. Gross margin was $555.0 million versus $556.6 million; continuing-operations income was $101.9 million versus $81.7 million. Diluted EPS was $0.35 versus $0.28.
Segment trends: Baby & Parenting sales increased 8.2% and operating income 40.9%; Writing operating income rose 6.1%; Specialty operating income rose 13.3%. Home Solutions sales declined 3.9%, Tools operating income fell 7.8%, and Commercial Products operating income fell 14.2%. Home Solutions was affected by challenges in Décor and a major retailer’s merchandising change; Commercial Products faced European softness and higher strategic spending.
Liquidity, debt, and capital allocation
Cash and cash equivalents were $183.8 million. Total debt was $1,918.4 million, down from $2,176.8 million; net debt to total capitalization improved to 0.46 from 0.52. Working capital was $700.3 million and the current ratio was 1.45, compared with $487.1 million and 1.29 a year earlier. The company had an $800 million revolving facility, with no year-end borrowings under it; $200 million was outstanding under the receivables facility. Management reported compliance with debt covenants.
FY2012 financing included $850 million of note issuances and repayment or redemption of significant maturities, including the $500 million 2013 notes. Interest expense declined to $76.1 million from $86.2 million. Dividends paid were $125.9 million; the quarterly dividend rose during the year to $0.15 per share. The company repurchased 4.9 million shares for $91.5 million under its $300 million program.
Outlook, risks, and unusual items
- For 2013, management forecast operating cash flow of $575–$625 million after $70–$90 million of restructuring cash payments and approximately $100 million of U.S. pension contributions. Planned capital expenditures were $175–$200 million.
- Project Renewal was expanded. Total expected pretax costs were $340–$375 million, cash costs $300–$340 million, annualized savings $270–$325 million, and estimated headcount impact approximately 2,250. Completion was expected by mid-2015; a substantial portion of savings is intended for growth investment.
- Management expected the February 2013 Venezuelan currency devaluation to cause an estimated $10 million one-time charge and reduce 2013 reported sales by about $9 million and operating income by about $5 million.
- Key risks include retailer bargaining power and pricing pressure, weak economic conditions (particularly in Europe), raw-material and sourced-product inflation, reliance on third-party suppliers, execution of restructuring and SAP implementation, currency volatility, pension funding, tax uncertainty, product-liability claims, and potential future impairment charges.
- Unusual FY2012 items included $56.1 million of restructuring costs, $10.9 million of debt-extinguishment losses, and $23.1 million of tax expense related to incremental tax contingencies and statute expirations/audit settlements. The prior year included $382.6 million of impairment charges. The 2012 discontinued-operations gain of $1.7 million primarily reflected release of sale escrow proceeds.
- Environmental response costs were estimated at $21.9–$25.4 million, with $22.3 million reserved. The company also disclosed an unresolved Lower Passaic River matter for which ultimate liability could not be estimated; it stated that an adverse outcome could be material. Product-liability reserves were $33.0 million.
Most important facts for investors to verify
- Whether Project Renewal delivers projected savings on schedule and without disrupting operations.
- Whether core growth and segment margins improve, particularly in Home Solutions and Commercial Products.
- The cash-flow and liquidity effects of pension contributions, restructuring payments, and debt maturities.
- Actual effects of Venezuelan devaluation and any further currency controls or devaluations.
- Progress and remaining execution risks for SAP deployment, especially in Asia Pacific and Latin America.
- Potential outcomes of environmental, product-liability, tax, and goodwill-impairment exposures.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective as of December 31, 2012.