SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 2000
Commission File Number 1-9608
NEWELL RUBBERMAID INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3514169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29 East Stephenson Street
Freeport, Illinois 61032-0943
(Address of principal executive offices)
(Zip Code)
(815) 235-4171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes /x/ No / /
Number of shares of Common Stock outstanding (net of treasury
shares) as of May 8, 2000: 266,531,372
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
---- ----
Net sales $1,550,844 $1,516,193
Cost of products sold 1,142,360 1,092,885
--------- ---------
GROSS INCOME 408,484 423,308
Selling, general and
administrative expenses 239,608 259,965
Restructuring costs 763 178,024
Goodwill amortization and other 13,222 12,038
-------- ---------
OPERATING INCOME (LOSS) 154,891 (26,719)
-------- ---------
Nonoperating expenses:
Interest expense 27,849 25,261
Other, net 3,107 3,042
-------- ---------
Net nonoperating expenses 30,956 28,303
-------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 123,935 (55,022)
Income taxes 47,715 23,977
-------- ---------
NET INCOME (LOSS) $ 76,220 $ (78,999)
======== ==========
Earnings (loss) per share:
Basic $ 0.28 $(0.28)
Diluted 0.28 (0.28)
Dividends per share $ 0.21 $ 0.20
Weighted average shares outstanding:
Basic 274,059 281,447
Diluted 274,059 281,447
See notes to consolidated financial statements.
2
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
MARCH 31, % OF DECEMBER 31, % OF
2000 TOTAL 1999 TOTAL
--------- ----- ------------ -----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,028 0.1% $ 102,164 1.5%
Accounts receivable, net 1,130,110 16.9% 1,178,423 17.5%
Inventories, net 1,168,486 17.5% 1,034,794 15.4%
Deferred income taxes 237,449 3.6% 250,587 3.7%
Prepaid expenses and other 151,284 2.3% 172,601 2.6%
--------- ---- --------- ----
TOTAL CURRENT ASSETS 2,695,357 40.4% 2,738,569 40.7%
MARKETABLE EQUITY SECURITIES 9,620 0.1% 10,799 0.2%
OTHER LONG-TERM INVESTMENTS 68,034 1.0% 65,905 1.0%
OTHER ASSETS 302,498 4.5% 335,699 5.0%
PROPERTY, PLANT AND
EQUIPMENT, NET 1,565,358 23.5% 1,548,191 23.0%
TRADE NAMES AND GOODWILL 2,037,121 30.5% 2,024,925 30.1%
--------- ---- --------- ----
TOTAL ASSETS $6,677,988 100.0% $6,724,088 100.0%
========== ====== ========== ======
See notes to consolidated financial statements.
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
MARCH 31, % OF DECEMBER 31, % OF
2000 TOTAL 1999 TOTAL
--------- ----- ------------ -----
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 167,047 2.5% $ 97,291 1.4%
Accounts payable 361,622 5.4% 376,596 5.6%
Accrued compensation 90,270 1.3% 113,373 1.7%
Other accrued liabilities 783,263 11.7% 892,481 13.3%
Income taxes 5,244 0.1% - -
Current portion of long-term debt 150,286 2.3% 150,142 2.2%
--------- ---- ---------- ----
TOTAL CURRENT LIABILITIES 1,557,732 23.3% 1,629,883 24.2%
LONG-TERM DEBT 1,877,109 28.1% 1,455,779 21.7%
OTHER NONCURRENT LIABILITIES 355,255 5.3% 354,107 5.3%
DEFERRED INCOME TAXES 83,948 1.3% 85,655 1.3%
MINORITY INTEREST 1,114 0.0% 1,658 0.0%
COMPANY-OBLIGATED MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST 500,000 7.5% 500,000 7.4%
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
800.0 million at $1 par value; 282,118 4.2% 282,026 4.2%
Outstanding shares:
2000 282.1 million
1999 282.0 million
Treasury Stock (405,889) (6.0)% (2,760) (0.1)%
Additional paid-in capital 213,652 3.2% 213,112 3.2%
Retained earnings 2,353,620 35.2% 2,334,609 34.7%
Accumulated other comprehensive
income (140,671) (2.1)% (129,981) (1.9)%
--------- ---- ---------- ----
TOTAL STOCKHOLDERS' EQUITY 2,302,830 34.5% 2,697,006 40.1%
--------- ---- ---------- ----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,677,988 100.0% $6,724,088 100.0%
========= ===== ========== =====
See notes to consolidated financial statements.
4
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 76,220 $ (78,999)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 77,083 70,040
Deferred income taxes 12,498 16,809
Other (2,573) 35,492
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 61,623 20,834
Inventories (135,967) (40,660)
Other current assets 17,837 984
Accounts payable (32,115) (50,525)
Accrued liabilities and other (100,474) (70,134)
---------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (25,868) (96,159)
---------- ----------
INVESTING ACTIVITIES:
Acquisitions, net (54,445) (727)
Expenditures for property,
plant and equipment (81,188) (78,119)
Disposals of non-current assets
and other 11,989 18,794
---------- ----------
NET CASH USED IN
INVESTING ACTIVITIES $ (123,644) $ (60,052)
---------- ----------
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited, in thousands)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of debt $ 574,537 $ 615,401
Payments on notes payable
and long-term debt (58,823) (438,522)
Common stock repurchased (402,962) -
Proceeds from exercised stock
options and other 405 22,097
Cash dividends (57,149) (56,625)
---------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 56,008 142,351
---------- -----------
Exchange rate effect on cash (632) (2,836)
DECREASE IN CASH AND
CASH EQUIVALENTS (94,136) (16,696)
Cash and cash equivalents at
beginning of year 102,164 86,554
---------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 8,028 $ 69,858
========= ==========
Supplemental cash flow disclosures -
Cash paid during the period for:
Income taxes $ 24,738 $ 9,130
Interest $ 44,396 $ 41,795
See notes to consolidated financial statements.
6
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments necessary to present a fair statement of the results for
the periods reported, subject to normal recurring year-end
adjustments, none of which is expected to be material. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest Annual Report on Form 10-K.
On March 24, 1999, Newell Co. ("Newell") completed a merger with
Rubbermaid Incorporated ("Rubbermaid") in which Rubbermaid became a
wholly-owned subsidiary of Newell. Simultaneously with the
consummation of the merger, Newell changed its name to Newell
Rubbermaid Inc. (the "Company"). The merger was accounted for as a
pooling of interests and the financial statements were restated to
retroactively combine Rubbermaid's financial statements with those of
Newell as if the merger had occurred at the beginning of the earliest
period presented.
NOTE 2 - ACQUISITIONS AND MERGERS
2000
----
On January 24, 2000, the Company acquired Mersch SA ("Mersch"), a
manufacturer and supplier of picture frames in Europe. Mersch operates
as part of Newell Frames and Albums Europe.
1999
----
On April 2, 1999, the Company purchased Ateliers 28 ("Ateliers"),
a manufacturer and marketer of decorative and functional drapery
hardware in Europe. Ateliers operates as part of Newell Window
Fashions Europe.
On October 18, 1999, the Company purchased a controlling interest
in Reynolds S.A. ("Reynolds"), a manufacturer and marketer of writing
instruments in Europe. Reynolds operates as part of Sanford
International. As of December 31, 1999, the Company owned 100% of
Reynolds.
7
On October 29, 1999, the Company acquired the consumer products
division of McKechnie plc ("McKechnie"), a manufacturer and marketer
of drapery hardware and window furnishings, shelving and storage
products, cabinet hardware and functional trims. The drapery hardware
and window furnishings portion of McKechnie is operated as part of
Newell Window Fashions Europe. The remaining portion of McKechnie
operates as a separate division, Newell Hardware Europe.
On December 29, 1999, the Company acquired Ceanothe Holding
("Ceanothe"), a manufacturer of picture frames and photo albums in
Europe. Ceanothe operates as part of Newell Frames and Albums Europe.
For these and for other minor acquisitions, the Company paid
$434.4 million in cash and assumed $38.9 million of debt. The
transactions were accounted for as purchases; therefore, results of
operations are included in the accompanying consolidated financial
statements since their respective acquisition dates. The acquisition
costs were allocated on a preliminary basis to the fair market value
of assets acquired and liabilities assumed and resulted in trade names
and goodwill of approximately $266.2 million.
The Company began to formulate an integration plan for these
acquisitions as of their respective acquisition dates. These plans
may include exit costs for certain plants and product lines and
employee terminations associated with the integration of Ateliers into
Newell Window Fashions Europe, Reynolds into Sanford International,
McKechnie into Newell Window Fashions Europe and Newell Hardware
Europe and Ceanothe and Mersch into Newell Frames and Albums Europe.
The integration of Ateliers was finalized during the first quarter of
2000 and resulted in total integration liabilities of $4.6 million.
The final adjustments to the purchase price allocations are not
expected to be material to the consolidated financial statements.
The unaudited consolidated results of operations for the three
months ended March 31, 2000 and 1999 on a pro forma basis, as though
the Mersch, Ateliers, Reynolds, McKechnie and Ceanothe businesses had
been acquired on January 1, 1999, are as follows (in millions, except
per share amounts):
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Net sales $1,552.9 $ 1,615.2
Net income (loss) $ 76.1 $ (78.8)
Basic earnings (loss) per share $ 0.28 $ (0.28)
On March 24, 1999, the Company completed the Rubbermaid merger.
The merger qualified as a tax-free exchange and was accounted for as a
pooling of interests. Newell issued .7883 Newell Rubbermaid shares
8
for each outstanding share of Rubbermaid common stock. A total of
119.0 million shares (adjusted for fractional and dissenting shares)
of the Company's common stock were issued as a result of the merger,
and Rubbermaid's outstanding stock options were converted into options
to purchase approximately 2.5 million Newell Rubbermaid common shares.
No adjustments were made to the net assets of the combining
companies to adopt conforming accounting practices or fiscal years
other than adjustments to eliminate the accounting effects related to
Newell's purchase of Rubbermaid's office products business ("Eldon")
in 1997. Because the Newell Rubbermaid merger was accounted for as a
pooling of interests, the accounting effects of Newell's purchase of
Eldon were eliminated as if Newell had always owned it.
NOTE 3 - RESTRUCTURING COSTS
In the first quarter of 2000, the Company recorded a planned pre-
tax restructuring charge of $0.8 million ($0.5 million after taxes)
related primarily to costs associated with facility closures from
recent non-Rubbermaid acquisitions. During 1999, the Company recorded
pre-tax charges of $246.4 million ($195.7 million after tax) related
primarily to the integration of the Rubbermaid businesses into Newell.
The charges consisted of $39.9 million in merger transaction costs,
$101.9 million in employee severance and termination benefit costs and
$104.6 million in facility and product line exit costs.
The merger transaction costs related primarily to investment
banking, legal and accounting costs for the merger between Newell and
Rubbermaid. Employee severance and termination benefit costs related
to benefits for approximately 750 employees terminated during 1999.
Such costs included $80.9 million in termination payments in
accordance with employment agreements made to former Rubbermaid
executives and $21.0 million in severance and termination costs at
Rubbermaid's former headquarters ($5.5 million), Rubbermaid Home
Products division ($6.9 million), Rubbermaid Europe division ($4.0
million), Little Tikes division ($2.7 million), Rubbermaid Commercial
Products division ($0.7 million) and Newell divisions ($1.2 million).
The facility and product line exit costs consisted of $72.0 million of
impaired Rubbermaid centralized computer software costs, which were
abandoned as a result of converting Rubbermaid onto existing Newell
centralized computer software, and $32.6 million in exit costs
relating to discontinued product lines ($4.8 million), the closure of
seven Rubbermaid facilities ($10.2 million), write-off of assets
associated with abandoned projects ($10.3 million), write-off of
impaired assets ($5.7 million) and other miscellaneous exit costs
($1.6 million).
As of March 31, 2000, $14.8 million of reserves remain for the
1999 restructuring program. These reserves consist primarily of $6.3
million for exit costs associated with the closure of four facilities,
$5.9 million in contractual future maintenance costs on abandoned
Rubbermaid computer software, $2.4 million for exit costs associated
9
with discontinued product lines at Little Tikes and $0.2 million for
severance and termination benefits.
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market value. The
components of inventories, net of the LIFO reserve, were as follows
(in millions):
March 31, December 31,
2000 1999
--------- ------------
Materials and supplies $ 266.5 $ 240.0
Work in process 166.5 149.5
Finished products 735.5 645.3
--------- ---------
$ 1,168.5 $ 1,034.8
========= =========
NOTE 5 - LONG-TERM MARKETABLE EQUITY SECURITIES
Long-term Marketable Equity Securities classified as available
for sale are carried at fair value with adjustments to fair value
reported separately, net of tax, as a component of stockholders'
equity (and excluded from earnings). Gains and losses on the sales of
Long-term Marketable Equity Securities are based upon the average cost
of the securities sold. Long-term Marketable Equity Securities are
summarized as follows (in millions):
March 31, December 31,
2000 1999
--------- ------------
Aggregate market value $ 9.6 $ 10.8
Aggregate cost 11.0 10.6
---------- ---------
Unrealized pre-tax gain (loss) $ (1.4) $ 0.2
========== =========
10
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
millions):
March 31, December 31,
2000 1999
--------- ------------
Land $ 62.0 $ 63.4
Buildings and improvements 705.6 691.3
Machinery and equipment 2,202.9 2,200.7
--------- ---------
2,970.5 2,955.4
Allowance for depreciation (1,405.1) (1,407.2)
--------- ---------
$ 1,565.4 $ 1,548.2
========= =========
Replacements and improvements are capitalized. Expenditures for
maintenance and repairs are charged to expense. The components of
depreciation are provided by annual charges to income calculated to
amortize, principally on the straight-line basis, the cost of the
depreciable assets over their depreciable lives. Estimated useful
lives determined by the Company are: buildings and improvements (5-40
years) and machinery and equipment (2-15 years).
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
March 31, December 31,
2000 1999
--------- ------------
Medium-term notes $ 1,159.5 $ 859.5
Commercial paper 854.0 718.5
Other long-term debt 13.9 27.9
--------- ---------
2,027.4 1,605.9
Current portion (150.3) (150.1)
--------- ---------
$ 1,877.1 $ 1,455.8
========= =========
At March 31, 2000, $854.0 million (principal amount) of
commercial paper was outstanding. The entire amount is classified as
long-term debt because the total commercial paper is not expected to
be repaid within one year.
11
NOTE 8 - EARNINGS PER SHARE
The earnings per share amounts are computed based on the weighted
average monthly number of shares outstanding during the year. "Basic"
earnings per share is calculated by dividing net income by weighted
average shares outstanding. "Diluted" earnings per share is
calculated by dividing net income by weighted average shares
outstanding, including the assumption of the exercise and/or
conversion of all potentially dilutive securities ("in the money"
stock options and company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust). A reconciliation of the
difference between basic and diluted earnings per share for the first
quarters of 2000 and 1999 is shown below (in millions, except per
share data):
Convertible
Basic "In the Money" Preferred Diluted
Method Stock Options(1) Securities(1) Method(1)
------ ---------------- ------------- ---------
First Quarter, 2000
Net Income $ 76.2 $ N/A $ N/A $ 76.2
Weighted average
shares outstanding 274.1 N/A N/A 274.1
Earnings per Share $ 0.28 N/A N/A $ 0.28
First Quarter, 1999
Net Loss $ (79.0) $ N/A $ N/A $ (79.0)
Weighted average
shares outstanding 281.4 N/A N/A 281.4
Loss per Share $ (0.28) N/A N/A $ (0.28)
(1) Diluted earnings per share for the three months ended March 31,
2000 and 1999 exclude the impact of "in the money" stock options
and convertible preferred securities because they are
antidilutive.
NOTE 9 - COMPREHENSIVE INCOME
The following tables display Comprehensive Income and the
components of Accumulated Other Comprehensive Income, in millions:
Comprehensive Income: Three months ended March 31,
2000 1999
-------- --------
Net income (loss) $ 76.2 $ (79.0)
Unrealized loss on
marketable securities (1.0) (1.4)
12
Foreign currency translation (9.7) (30.4)
-------- ---------
Total Comprehensive Income (loss) $ 65.5 $(110.8)
======== =========
Net Accumulated
Unrealized Foreign Other
Gains/(Losses) Currency Comprehensive
on Securities Translation Income
------------- ----------- -------------
Balance at December 31, 1999 $ 0.1 $ (130.1) $ (130.0)
Change during three months ended
March 31, 2000 (1.0) (9.7) (10.7)
--------- --------- ----------
Balance at March 31, 2000 $ (0.9) $ (139.8) $ (140.7)
========= ========= ==========
NOTE 10 - INDUSTRY SEGMENT INFORMATION
To take full advantage of continuing global growth opportunities,
the Company is implementing a management structure responsible for
maximizing procurement, manufacturing and distribution synergies on a
global basis. Based on this management structure, the Company is
reporting its results in six business segments: Plastic Storage &
Organization; Home Decor; Office Products; Infant/Juvenile Care &
Play; Food Preparation, Cooking & Serving and Hardware & Tools. The
segment results were as follows, in millions:
Three months
Net Sales ended March 31,
--------- 2000 1999
---- ----
Plastic Storage & Organization 410.1 447.2
Home Decor 313.5 293.8
Office Products 253.7 243.5
Infant/Juvenile Care & Play 231.0 221.9
Food Preparation, Cooking
& Serving 173.0 173.0
Hardware & Tools 169.5 136.8
-------- --------
$1,550.8 $1,516.2
======== ========
13
Three months
Operating Income ended March 31,
---------------- 2000 1999
---- ----
Plastic Storage & Organization 43.0 48.3
Home Decor 29.1 31.6
Office Products 36.8 31.1
Infant/Juvenile Care & Play 30.1 20.3
Food Preparation, Cooking
& Serving 16.9 19.3
Hardware & Tools 20.6 20.4
Corporate (20.8) (19.7)
-------- --------
155.7 151.3
Restructuring costs (0.8) (178.0)
-------- --------
$154.9 $(26.7)
======== ========
Identifiable Assets March 31, December 31,
------------------- 2000 1999
---- ----
Plastic Storage & Organization 1,177.3 1,155.3
Home Decor 824.9 818.0
Office Products 696.5 720.9
Infant/Juvenile Care & Play 463.7 433.9
Food Preparation, Cooking
& Serving 537.4 539.8
Hardware & Tools 387.3 376.4
Corporate 2,590.9 2,679.8
-------- --------
$6,678.0 $6,724.1
======== ========
Operating income is net sales less cost of products sold and
selling, general and administrative expenses, but is not affected
either by nonoperating (income) expenses or by income taxes.
Nonoperating (income) expenses consist principally of net interest
expense. In calculating operating income for individual business
segments, certain headquarter expenses of an operational nature are
allocated to business segments primarily on a net sales basis. Trade
names and goodwill amortization is considered a corporate expense and
not allocated to business segments. All intercompany transactions
have been eliminated and transfers of finished goods between areas are
not significant. Corporate assets primarily include trade names and
goodwill, equity investments and deferred tax assets.
14
NOTE 11 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company will adopt SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities."
Management believes that the adoption of this statement will not be
material to the consolidated financial statements.
15
PART I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
---------------------
The following table sets forth for the periods indicated items
from the Consolidated Statements of Income as a percentage of net
sales.
Three Months Ended
March 31,
------------------
2000 1999
---- ----
Net sales 100.0% 100.0%
Cost of products sold 73.7% 72.1%
----- -----
GROSS INCOME 26.3% 27.9%
Selling, general and
administrative expenses 15.5% 17.1%
Restructuring costs 0.0% 11.7%
Goodwill amortization and other 0.8% 0.9%
----- -----
OPERATING INCOME (LOSS) 10.0% (1.8)%
----- -----
Nonoperating expenses:
Interest expense 1.8% 1.7%
Other, net 0.2% 0.1%
----- -----
Net nonoperating
expenses 2.0% 1.8%
----- -----
INCOME (LOSS) BEFORE INCOME
TAXES 8.0% (3.6)%
Income taxes 3.1% 1.6%
----- -----
NET INCOME (LOSS) 4.9% (5.2)%
===== =====
See notes to consolidated financial statements.
16
Three Months Ended March 31, 2000 Vs. Three Months Ended March 31,
1999
----------------------------------------------------------------------
Net sales for the first three months of 2000 were $1,550.8
million, representing an increase of $34.6 million or 2.3% from
$1,516.2 million in the comparable quarter of 1999.
To take full advantage of continuing global growth opportunities,
the Company is implementing a management structure responsible for
maximizing procurement, manufacturing and distribution synergies on a
global basis. Based on this management structure, the Company is
reporting its results in six business segments: Plastic Storage &
Organization; Food Preparation, Cooking & Serving; Infant/Juvenile
Care & Play; Home Decor; Hardware & Tools and Office Products. Their
results in the first quarter are as follows:
Percentage
Net Sales 2000 1999 Increase/Decrease
--------- ---- ---- -----------------
Plastic Storage &
Organization $410.1 $447.2 (8.3)%
Food Preparation,
Cooking and Serving 173.0 173.0 0.0%
Infant/Juvenile
Care & Play 231.0 221.9 4.1%
-----------------
Former Household
Products Segment 814.1 842.1 (3.3)%
Home Decor 313.5 293.8 6.7%
Hardware & Tools 169.5 136.8 23.9%
-----------------
Former Hardware
& Home Furnishings
Segment 483.0 430.6 12.2%
Office Products 253.7 243.5 4.2%
-----------------
Total $1,550.8 $1,516.2 2.3%
===================
Sales for Plastic Storage & Organization were impacted by
negative foreign currency translation, product line rationalization
and lower than expected sales at Rubbermaid Home Products. Results
for Home Decor, Hardware & Tools and Office Products include the
McKechnie, Reynolds, Ceanothe and Mersch acquisitions.
17
Gross income as a percentage of net sales in the first three
months of 2000 was 26.3% or $408.5 million versus 27.9% or $423.3
million in the comparable quarter of 1999. Gross margins improved due
to integration cost savings at Rubbermaid Home Products, Rubbermaid
Europe and Little Tikes; however, this was more than offset by
negative foreign currency translation and increased raw material costs
in 2000.
Selling, general and administrative expenses ("SG&A") in the
first three months of 2000 were 15.5% of net sales or $239.6 million
versus 17.1% or $260.0 million in the comparable quarter of 1999.
SG&A declined as a result of integration cost savings at Rubbermaid
Home Products, Rubbermaid Europe, Little Tikes, Panex and Rotring, and
tight spending control at the rest of the Company's core businesses.
In the first quarter of 2000, the Company recorded a planned pre-
tax restructuring charge of $0.8 million ($0.5 million after taxes)
related primarily to costs associated with facility closures from
recent non-Rubbermaid acquisitions. In the first quarter of 1999, the
Company recorded a pre-tax restructuring charge of $178.0 million
($154.0 million after taxes). The pre-tax charge in 1999 related to
the Rubbermaid acquisition, and included $33.4 million of merger costs
(investment banking, legal and accounting fees), executive severance
costs of $83.1 million and a $61.5 million write-off of impaired
Rubbermaid capitalized computer software costs. Concurrent with the
merger with Rubbermaid, the Company decided to integrate all
Rubbermaid businesses into Newell's existing information systems,
resulting in an impairment of Rubbermaid's capitalized software asset.
Goodwill amortization and other in the first three months of 2000
were 0.8% of net sales or $13.2 million versus 0.9% or $12.0 million
in the comparable quarter of 1999.
Operating income in the first three months of 2000 was 10.0% of
net sales or $154.9 million versus an operating loss of $26.7 million
(or 1.8% of net sales) in the comparable quarter of 1999. Excluding
restructuring costs, operating income in the first quarter of 2000 was
10.0% or $155.7 million versus 10.0% or $151.3 million in the first
quarter of 1999. Substantial integration cost savings during the
first quarter of 2000 were offset by higher raw material costs and
negative foreign currency translation.
Net nonoperating expenses in the first three months of 2000 were
2.0% of net sales or $31.0 million versus 1.8% of net sales or $28.3
million in the comparable quarter of 1999.
Excluding restructuring costs in 2000 and 1999, the effective tax
was 38.5% in the first quarter of 2000 versus 39.0% in the first
quarter of 1999.
Net income for the first three months of 2000 was 4.9% of net
sales or $76.2 million versus a net loss of 5.2% of net sales or $79.0
18
million in the first three months of 1999. Diluted earnings (loss)
per share were $0.28 in the first quarter of 2000 compared to $(0.28)
in the first quarter of 1999. Excluding restructuring costs, net
income was $76.7 million or $0.28 per share in the first quarter of
2000 versus $75.0 million or $0.27 in the first quarter of 1999.
Liquidity and Capital Resources
-------------------------------
Sources:
The Company's primary sources of liquidity and capital resources
include cash provided from operations and use of available borrowing
facilities.
Net cash used in operating activities in the first three months
of 2000 was $25.9 million compared to $96.2 million for the comparable
period of 1999. The decrease in net cash used in operating activities
in the first quarter of 2000 versus the first quarter of 1999 is
primarily due to the year over year decrease in cash restructuring
costs.
The Company has short-term foreign and domestic uncommitted lines
of credit with various banks which are available for short-term
financing. Borrowings under the Company's uncommitted lines of credit
are subject to discretion of the Lender. The Company's uncommitted
lines of credit do not have a material impact on the Company's
liquidity. Borrowings under the Company's uncommitted lines of credit
at March 31, 2000 totaled $167.0 million.
During 1997, the Company amended its revolving credit agreement
to increase the aggregate borrowing limit to $1.3 billion, at a
floating interest rate. The revolving credit agreement will terminate
in August 2002. At March 31, 2000, there were no borrowings under the
revolving credit agreement.
In lieu of borrowings under the Company's revolving credit
agreement, the Company may issue up to $1.3 billion of commercial
paper. The Company's revolving credit agreement provides the
committed backup liquidity required to issue commercial paper.
Accordingly, commercial paper may only be issued up to the amount
available for borrowing under the Company's revolving credit
agreement. At March 31, 2000, $854.0 million (principal amount) of
commercial paper was outstanding. The entire amount is classified as
long-term debt.
On March 24, 2000, the Company issued $300.0 million (principal
amount) of 3-Year Medium Term Notes pursuant to our universal shelf
program. The securities mature on March 24, 2003, and bear a 3-month
floating interest rate based on 3-month LIBOR +22 basis points. The
initial interest rate was 6.5%. Proceeds were used to pay down
19
commercial paper. Including this financing, the Company had
outstanding at March 31, 2000, a total of $1,159.5 million (principal
amount) of Medium Term Notes. The maturities on these notes range
from 3 to 30 years at an average interest rate of 6.3%.
A universal shelf registration statement became effective in July
1999. As of March 31, 2000, $449.5 million of Company debt and equity
securities may be issued under the shelf.
Uses:
The Company's primary uses of liquidity and capital resources
include acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $54.4 million and $0.7
million in the first three months of 2000 and 1999, respectively. In
the first quarter of 2000, the Company acquired Mersch and other minor
acquisitions. This acquisition was accounted for as a purchase and was
paid for with proceeds obtained from the issuance of commercial paper.
Cash used for restructuring activities was $0.8 million and
$116.5 million in the first three months of 2000 and 1999,
respectively. Cash payments in 1999 represent primarily employee
termination benefits and other merger expenses. There are no
remaining cash payments to be made associated with the restructuring
charges reflected in the consolidated financial statements.
Capital expenditures were $81.2 million and $78.1 million in the
first three months of 2000 and 1999, respectively.
Aggregate dividends paid during the first three months of 2000
and 1999 were $57.1 million ($0.21 per share) and $56.6 million ($0.20
per share), respectively.
During the first quarter of 2000, the Company repurchased 15.5
million shares of its common stock at an average price of $26 per
share, for a total purchase price of $403.0 million.
Retained earnings increased in the first three months of 2000 by
$19.0 million. Retained earnings decreased in the first three months
of 1999 by $135.6 million. The decrease in 1999 was primarily due to
restructuring costs of $178.0 million ($154.0 million after taxes).
Working capital at March 31, 2000, was $1,137.6 million compared
to $1,108.7 million at December 31, 1999. The current ratio at March
31, 2000 was 1.73:1 compared to 1.68:1 at December 31, 1999.
Total debt to total capitalization (total debt is net of cash and
cash equivalents, and total capitalization includes total debt,
20
convertible preferred securities and stockholders' equity) was .44:1
at March 31, 2000 and .33:1 at December 31, 1999.
The Company believes that cash provided from operations and
available borrowing facilities will continue to provide adequate
support for the cash needs of existing businesses; however, certain
events, such as significant acquisitions, could require additional
external financing.
Market Risk
-----------
The Company's market risk is impacted by changes in interest
rates, foreign currency exchange rates, and certain commodity prices.
Pursuant to the Company's policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact
of adverse changes in market prices. The Company does not hold or
issue derivative instruments for trading purposes, and has no material
sensitivity to changes in market rates and prices on its derivative
financial instrument positions.
The Company's primary market risk is interest rate exposure,
primarily in the United States. The Company manages interest rate
exposure through its conservative debt ratio target and its mix of
fixed and floating rate debt. Interest rate exposure was reduced
significantly in 1997 from the issuance of $500 million 5.25%
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of a Subsidiary Trust, the proceeds of which reduced
commercial paper. Interest rate swaps may be used to adjust interest
rate exposures when appropriate based on market conditions, and, for
qualifying hedges, the interest differential of swaps is included in
interest expense.
The Company's foreign exchange risk management policy emphasizes
hedging anticipated intercompany and third-party commercial
transaction exposures of one year duration or less. The Company
focuses on natural hedging techniques of the following form: 1)
offsetting or netting of like foreign currency flows, 2) structuring
foreign subsidiary balance sheets with appropriate levels of debt to
reduce subsidiary net investments and subsidiary cash flows subject to
conversion risk, 3) converting excess foreign currency deposits into
U.S. dollars or the relevant functional currency and 4) avoidance of
risk by denominating contracts in the appropriate functional currency.
In addition, the Company utilizes forward contracts and purchased
options to hedge commercial and intercompany transactions. Gains and
losses related to qualifying hedges of commercial transactions are
deferred and included in the basis of the underlying transactions.
Derivatives used to hedge intercompany transactions are marked to
market with the corresponding gains or losses included in the
consolidated statements of income.
21
Due to the diversity of its product lines, the Company does not
have material sensitivity to any one commodity. The Company manages
commodity price exposures primarily through the duration and terms of
its vendor contracts.
The amounts shown below represent the estimated potential
economic loss that the Company could incur from adverse changes in
either interest rates or foreign exchange rates using the
value-at-risk estimation model. The value-at-risk model uses
historical foreign exchange rates and interest rates to estimate the
volatility and correlation of these rates in future periods. It
estimates a loss in fair market value using statistical modeling
techniques and including substantially all market risk exposures
(specifically excluding equity-method investments). The fair value
losses shown in the table below have no impact on results of
operations or financial condition as they represent economic not
financial losses.
Time Confidence
March 31, 2000 Period Level
-------------- ------ ---------
(In millions)
Interest rates $7.1 1 day 95%
Foreign exchange $1.9 1 day 95%
The 95% confidence interval signifies the Company's degree of
confidence that actual losses would not exceed the estimated losses
shown above. The amounts shown here disregard the possibility that
interest rates and foreign currency exchange rates could move in the
Company's favor. The value-at-risk model assumes that all movements
in these rates will be adverse. Actual experience has shown that
gains and losses tend to offset each other over time, and it is highly
unlikely that the Company could experience losses such as these over
an extended period of time. These amounts should not be considered
projections of future losses, since actual results may differ
significantly depending upon activity in the global financial
markets.
EURO CURRENCY CONVERSION
On January 1, 1999, the "Euro" became the common legal currency
for 11 of the 15 member countries of the European Union. On that
date, the participating countries fixed conversion rates between their
existing sovereign currencies ("legacy currencies") and the Euro. On
January 4, 1999, the Euro began trading on currency exchanges and
became available for non-cash transactions, if the parties elect to
use it. The legacy currencies will remain legal tender through
December 31, 2001. Beginning January 1, 2002, participating countries
will introduce Euro-denominated bills and coins, and effective July 1,
2002, legacy currencies will no longer be legal tender.
22
After the dual currency phase, all businesses in participating
countries must conduct all transactions in the Euro and must convert
their financial records and reports to be Euro-based. The Company has
commenced an internal analysis of the Euro conversion process to
prepare its information technology systems for the conversion and
analyze related risks and issues, such as the benefit of the decreased
exchange rate risk in cross-border transactions involving
participating countries and the impact of increased price transparency
on cross-border competition in these countries.
The Company believes that the Euro conversion process will not
have a material impact on the Company's businesses or financial
condition on a consolidated basis.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Report are made in reliance
upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements may relate to, but
are not limited to, such matters as sales, income, earnings per share,
return on equity, capital expenditures, dividends, capital structure,
free cash flow, debt to capitalization ratios, interest rates,
internal growth rates, Euro conversion plans and related risks,
pending legal proceeding and claims (including environmental matters),
future economic performance, operating income improvements, synergies,
management's plans, goals and objectives for future operations and
growth or the assumptions relating to any of the forward-looking
information. The Company cautions that forward-looking statements are
not guarantees since there are inherent difficulties in predicting
future results, and that actual results could differ materially from
those expressed or implied in the forward-looking statements. Factors
that could cause actual results to differ include, but are not limited
to, those matters set forth in the Company's Annual Report on Form
10-K, the documents incorporated by reference therein and on Exhibit
99 in thereto.
23
PART I.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in the Company's
Management's Discussion and Analysis of Results of Operations and
Financial Condition (Part I, Item 2).
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to certain legal proceedings and claims,
including the environmental matters described below, that have arisen
in the ordinary conduct of its business or have been assumed by the
Company when it purchased certain businesses.
As of March 31, 2000, the Company was involved in various matters
concerning federal and state environmental laws and regulations,
including matters in which the Company has been identified by the U.S.
Environmental Protection Agency and certain state environmental
agencies as a potentially responsible party ("PRP") at contaminated
sites under the Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and equivalent state laws.
In assessing its environmental response costs, the Company has
considered several factors, including: the extent of the Company's
volumetric contribution at each site relative to that of other PRPs;
the kind of waste; the terms of existing cost sharing and other
applicable agreements; the financial ability of other PRPs to share in
the payment of requisite costs; the Company's prior experience with
similar sites; environmental studies and cost estimates available to
the Company; the effects of inflation on cost estimates; and the
extent to which the Company's and other parties' status as PRPs is
disputed.
Based on information available to it, the Company's estimate of
environmental response costs associated with these matters as of March
31, 2000 ranged between $18.4 million and $22.6 million. As of March
31, 2000, the Company had a reserve equal to $21.3 million for such
environmental response costs in the aggregate. No insurance recovery
was taken into account in determining the Company's cost estimates or
reserve, nor do the Company's cost estimates or reserve reflect any
discounting for present value purposes.
Because of the uncertainties associated with environmental
investigations and response activities, the possibility that the
Company could be identified as a PRP at sites identified in the future
that require the incurrence of environmental response costs and the
possibility of additional sites as a result of businesses acquired,
actual costs to be incurred by the Company may vary from the Company's
estimates.
Subject to difficulties in estimating future environmental
response costs, the Company does not expect that any amount it may
have to pay in connection with environmental matters in excess of
amounts reserved will have a material adverse effect on its
consolidated financial statements.
25
The Company is involved in a legal proceeding relating to the
importation and distribution of vinyl mini-blinds made with plastic
containing lead stabilizers. In 1996, the Consumer Product Safety
Commission found that such stabilizers deteriorate over time from
exposure to sunlight and heat, causing lead dust to form on mini-blind
surfaces and presenting a health risk to children under six years of
age.
In December 1998, 13 companies, including a subsidiary of the
Company, were named as defendants in a case involving the importation
and distribution of vinyl mini-blinds containing lead. The case,
filed as a Massachusetts class action in the Superior Court, alleges
misrepresentation, breaches of express and implied warranties,
negligence, loss of consortium and violation of Massachusetts consumer
protection laws. The plaintiffs seek injunctive relief, unspecified
damages, compensatory damages for personal injury and court costs.
As of March 31, 2000, eight complaints were filed against the
Company and certain of its officers and directors in the U.S. District
Court for the Northern District of Illinois on behalf of a purported
class consisting of persons who purchased common stock of the Company,
Newell Co. or Rubbermaid Incorporated during the period from October
21, 1998 through September 3, 1999 or exchanged shares of Rubbermaid
common stock for the Company's common stock as part of the Newell
Rubbermaid merger. The complaints allege that during the relevant time
period the defendants violated Sections 10(b), 14(a) and 20(a) of the
Securities Exchange Act as a result of, among other allegations,
issuing false and misleading statements concerning the Company's
financial condition and results of operations. Subsequent to March 31,
2000, the eight cases were consolidated before a single judge in the
United States District Court for the Northern District of Illinois,
Eastern Division. The court has appointed lead plaintiffs, has
approved counsel for the lead plaintiffs, has set a date for the
filing of an amended and consolidated complaint and has set a briefing
schedule on defendants' anticipated motion to dismiss that complaint
when it is filed. The Company believes that these claims are without
merit and intends to vigorously defend these lawsuits.
Although management of the Company cannot predict the ultimate
outcome of these matters with certainty, it believes that their
ultimate resolution, including any amounts it may have to pay in
excess of amounts reserved, will not have a material effect on the
Company's consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.2 Amendment to By-laws and Amended By-Laws of Newell
Rubbermaid Inc., as amended through May 11, 2000
26
11. Computation of Earnings per Share of Common Stock
12. Statement of Computation of Ratio of Earnings to Fixed
Charges
27. Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated March 1, 2000, filing
the Company's Consolidated Financial Statements and the Management's
Discussion and Analysis of Financial Condition and Results of
Operations of Newell Rubbermaid Inc. for the fiscal year ended
December 31, 1999.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NEWELL RUBBERMAID INC.
Registrant
Date: May 15, 2000 /s/ Dale L. Matschullat
-----------------------
Dale L. Matschullat
Vice President - Finance
Date: May 15, 2000 /s/ Brett E. Gries
-------------------------
Brett E. Gries
Vice President - Accounting & Audit
28