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, 2001
Commission File Number 1-9608
NEWELL RUBBERMAID INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3514169
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
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 2, 2001: 266,646,855
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,
---------
2001 2000
---- ----
Net sales $1,610,736 $1,628,979
Cost of products sold 1,218,960 1,220,495
---------- ----------
GROSS INCOME 391,776 408,484
Selling, general and administrative expenses 264,607 239,608
Restructuring costs 9,979 763
Goodwill amortization and other 14,073 13,222
---------- ----------
OPERATING INCOME 103,117 154,891
Nonoperating expenses:
Interest expense 39,321 27,849
Other, net 2,809 3,107
----------- ----------
Net nonoperating expenses 42,130 30,956
----------- ----------
INCOME BEFORE INCOME TAXES 60,987 123,935
Income taxes 22,566 47,715
----------- ----------
NET INCOME $ 38,421 $ 76,220
=========== ==========
Weighted average shares outstanding:
Basic 266,618 274,059
Diluted 266,618 284,016
Earnings per share:
Basic $ 0.14 $ 0.28
Diluted 0.14 0.28
Dividends per share $ 0.21 $ 0.21
See notes to consolidated financial statements.
-2-
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
March 31, December 31,
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,873 $ 22,525
Accounts receivable, net 1,131,531 1,183,363
Inventories, net 1,309,991 1,262,551
Deferred income taxes 221,979 231,875
Prepaid expenses and other 189,469 196,338
---------- ----------
TOTAL CURRENT ASSETS 2,872,843 2,896,652
MARKETABLE EQUITY SECURITIES 7,920 9,215
OTHER LONG-TERM INVESTMENTS 74,937 72,763
OTHER ASSETS 342,832 336,344
PROPERTY, PLANT AND EQUIPMENT, NET 1,719,462 1,756,903
TRADE NAMES AND GOODWILL 2,150,125 2,189,948
---------- ----------
TOTAL ASSETS $7,168,119 $7,261,825
========== ==========
-3-
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
March 31, December 31,
2001 2000
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 13,844 $ 23,492
Accounts payable 366,475 342,406
Accrued compensation 79,945 126,970
Other accrued liabilities 758,658 781,122
Income taxes 113,073 73,122
Current portion of long-term debt 214,294 203,714
---------- ----------
TOTAL CURRENT LIABILITIES 1,546,289 1,550,826
LONG-TERM DEBT 2,318,273 2,319,552
OTHER NON-CURRENT LIABILITIES 355,070 347,855
DEFERRED INCOME TAXES 103,092 93,165
MINORITY INTEREST 1,026 1,788
COMPANY-OBLIGATED
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST 499,998 499,998
STOCKHOLDERS' EQUITY
Common stock - authorized
shares, 800.0 million at
$1 par value 282,268 282,174
Outstanding shares:
2001 282.3 million
2000 282.2 million
Treasury stock, at cost (408,459) (407,456)
Shares held:
2001 15.6 million
2000 15.6 million
Additional paid-in capital 217,619 215,911
Retained earnings 2,513,229 2,530,864
Accumulated other comprehensive
loss (260,286) (172,852)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,344,371 2,448,641
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,168,119 $7,261,825
========== ==========
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,
---------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $ 38,421 $ 76,220
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 87,551 77,083
Deferred income taxes 11,183 12,498
Non-cash restructuring charges 6,691 -
Other 1,735 (2,573)
Changes in current accounts, excluding the effects
of acquisitions:
Accounts receivable 45,893 61,623
Inventories (56,123) (135,967)
Other current assets 7,677 17,837
Accounts payable 24,516 (32,115)
Accrued liabilities and other (43,480) (100,474)
---------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 124,064 (25,868)
---------- ---------
INVESTING ACTIVITIES:
Acquisitions, net (15,367) (54,445)
Expenditures for property, plant
and equipment (59,744) (81,188)
Disposals of non-current assets and other 4,672 11,989
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (70,439) (123,644)
---------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 19,122 574,537
Payments on notes payable
and long-term debt (18,659) (58,823)
Common stock repurchase - (402,962)
Cash dividends (55,994) (57,149)
Proceeds from exercised stock options
and other 737 405
---------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (54,794) 56,008
---------- ---------
Exchange rate effect on cash (1,483) (632)
DECREASE IN CASH AND CASH
EQUIVALENTS (2,652) (94,136)
Cash and cash equivalents at beginning of year 22,525 102,164
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,873 $ 8,028
========== =========
Supplemental cash flow disclosures -
Cash paid during the period for:
Income taxes, net of refunds $ (40,819) $ 3,723
Interest $ 52,529 $ 44,396
See notes to consolidated financial statements.
-5-
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.
NOTE 2 - ACQUISITIONS
The Company acquired Mersch SA on January 24, 2000 and Brio on
May 24, 2000. Both are manufacturers and suppliers of picture frames
in Europe, and now operate as part of Newell Photo Fashions Europe.
The Company acquired the stationery products business of The
Gillette Company ("Paper Mate/Parker") on December 29, 2000. The U.S.
and Canadian operations were merged into Sanford North America, while
all other operations were consolidated into Sanford International.
For these and for other minor acquisitions, the Company paid
$600.6 million in cash and assumed $15.0 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 the assets acquired and liabilities assumed and resulted in trade
names and goodwill of approximately $253.6 million.
The unaudited consolidated results of operations for the three
months ended March 31, 2001 and 2000 on a pro forma basis, as though
the Mersch, Brio and Paper Mate/Parker businesses had been acquired on
January 1, 2000, are as follows (in millions, except per share
amounts):
Three Months Ended March 31,
----------------------------
2001 2000
---- ----
Net sales $ 1,610.7 $ 1,767.4
Net income $ 38.4 $ 68.1
Basic earnings per share $ 0.14 $ 0.26
-6-
NOTE 3 - RESTRUCTURING COSTS
Certain expenses incurred in the reorganization of the Company's
operations are considered to be restructuring expenses. Pre-tax
restructuring costs consisted of the following (in millions):
Three Months Ended March 31,
----------------------------
2001 2000
---- ----
Employee severance and
termination benefits $ 5.9 $ 0.3
Facility and product line
exit costs 1.1 0.5
Other merger transaction
costs 3.0 -
------ ------
$ 10.0 $ 0.8
====== ======
Reserves that remained for restructuring costs consisted of the
following (in millions):
March 31, December 31,
2001 2000
---- ----
Facility and product line
exit costs $ 9.7 $ 11.4
Employee severance and
termination benefits 6.4 3.3
Contractual future
maintenance costs 4.0 4.6
Other merger transaction
costs 5.2 2.6
------ ------
$ 25.3 $ 21.9
====== ======
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market value. The
components of inventories, net of LIFO reserve, were as follows (in
millions):
March 31, December 31,
2001 2000
---- ----
Materials and supplies $ 171.3 $ 244.8
Work in process 180.9 165.3
Finished products 957.8 852.5
--------- ---------
$ 1,310.0 $ 1,262.6
========= =========
-7-
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
millions):
March 31, December 31,
2001 2000
---- ----
Land $ 59.8 $ 60.7
Buildings and improvements 727.7 736.1
Machinery and equipment 2,441.7 2,421.6
--------- ---------
$ 3,229.2 $ 3,218.4
Allowance for depreciation (1,509.7) (1,461.5)
---------- ---------
$ 1,719.5 $ 1,756.9
========= =========
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 6 - LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
March 31, December 31,
2001 2000
---- ----
Medium-term notes $ 1,012.5 $ 1,012.5
Commercial paper 1,514.3 1,503.7
Other long-term debt 5.8 7.1
--------- ---------
$ 2,532.6 $ 2,523.3
Current portion (214.3) (203.7)
--------- ---------
$ 2,318.3 $ 2,319.6
========= =========
At March 31, 2001, $1,514.3 million (principal amount) of
commercial paper was outstanding. Of this amount, $1,300.0 million is
classified as long-term debt because it is supported by a long-term
$1,300.0 million revolving credit agreement, and the remainder of
$214.3 million is classified as current portion of long-term debt.
-8-
NOTE 7 - 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
three months of 2001 and 2000 is shown below (in millions, except per
share data):
Convertible
Basic "In the money" Preferred Diluted
Method stock options Securities Method
------ ------------- ---------- -------
Three months ended
March 31, 2001 (1):
Net Income $ 38.4 - - $ 38.4
Weighted average
shares outstanding 266.6 - - 266.6
Earnings per Share $ 0.14 - - $ 0.14
Three months ended
March 31, 2000:
Net Income $ 76.2 - $ 4.1 $ 80.3
Weighted average
shares outstanding 274.1 - 9.9 284.0
Earnings per Share $ 0.28 - - $ 0.28
(1) Diluted earnings per share for this period exclude the impact of
"in the money" stock options and convertible preferred securities
because they are antidilutive.
-9-
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
The following tables display Comprehensive Income (Loss) and the
components of Accumulated Other Comprehensive Income (Loss) (in
millions):
Three months ended March 31,
----------------------------
2001 2000
---- ----
Comprehensive (Loss) Income:
Net income $ 38.4 $ 76.2
Unrealized loss on marketable securities (0.8) (1.0)
Derivatives hedging loss (17.1) -
Foreign currency translation loss (69.5) (9.7)
-------- --------
Total Comprehensive (Loss) Income $ (49.0) $ 65.5
======== ========
Net Foreign Accumulated
Unrealized Currency Derivatives Other
Loss Translation Hedging Comprehensive
on Securities Loss Loss Loss
------------- ---- ---- ----
Accumulated Other
Comprehensive Loss:
Balance at
December 31, 2000 $ (1.1) $ (171.8) $ - $ (172.9)
Change during
three months
ended March 31, 2001 (0.8) (69.5) (17.1) (87.4)
------- --------- --------- ---------
Balance at March 31, 2001 $ (1.9) $ (241.3) $ (17.1) $ (260.3)
======= ========= ========= =========
-10-
NOTE 9 - INDUSTRY SEGMENT INFORMATION
On April 2, 2001, the Company announced the realignment of its
operating segment structure. This realignment reflects the Company's
focus on building large consumer brands, promoting organizational
integration and operating efficiencies and aligning the businesses
with the Company's key account strategy. The five new segments have
been named for leading worldwide brands in the Company's product
portfolio. The realignment streamlines what had been six operating
segments. Based on this management structure, the Company is
reporting its results as follows (in millions):
For the three months ended March 31,
------------------------------------
Net Sales 2001 2000
---- ----
Rubbermaid $ 432.0 $ 479.6
Parker/Eldon 334.5 263.7
Levolor/Hardware 331.0 354.9
Calphalon/WearEver 276.3 283.0
Little Tikes/Graco 236.9 247.8
--------- ---------
$ 1,610.7 $ 1,629.0
========= =========
For the three months ended March 31,
------------------------------------
Operating Income 2001 2000
---- ----
Rubbermaid $ 44.6 $ 45.0
Parker/Eldon 32.4 36.8
Levolor/Hardware 22.3 35.1
Calphalon/WearEver 22.1 29.0
Little Tikes/Graco 13.2 30.6
Corporate (21.5) (20.8)
-------- -------
113.1 155.7
Restructuring costs (10.0) (0.8)
-------- -------
$ 103.1 $ 154.9
======== =======
March 31, December 31,
Identifiable Assets 2001 2000
---- ----
Rubbermaid $ 1,133.8 $1,185.2
Parker/Eldon 1,080.8 1,050.9
Levolor/Hardware 770.5 775.9
Calphalon/WearEver 806.4 849.3
Little Tikes/Graco 557.7 537.5
Corporate 2,818.9 2,863.0
--------- --------
$ 7,168.1 $7,261.8
========= ========
-11-
Operating income is net sales less cost of products sold and
selling, general and administrative expenses. Certain headquarters
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.
-12-
NOTE 10 - ACCOUNTING PRONOUNCEMENTS
Since June 1998, the Financial Accounting Standards Board
("FASB") has issued SFAS Nos. 133, 137 and 138 related to "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133, as
amended" or "Statements"). These Statements establish accounting and
reporting standards requiring that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured
at its fair value. The Statements require that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met, in which case the gains or
losses would offset the related results of the hedged item. These
Statements require that, as of the date of initial adoption, the
impact of adoption be recorded as a cumulative effect of a change in
accounting principle. To the extent that these amounts are recorded
in other comprehensive income, they will be reversed into earnings in
the period in which the hedged transaction occurs. The impact of
adopting these Statements on January 1, 2001 resulted in a cumulative
after-tax gain of approximately $13.0 million recorded in accumulated
other comprehensive income and had no material impact on net income.
The adoption resulted in an increase in assets and liabilities of
approximately $99.0 million and $86.0 million, respectively.
In May 2000, the EITF issued EITF No. 00-14 "Accounting for
Certain Sales Incentives." The EITF subsequently amended the
transition provisions of this issue in November 2000. EITF No. 00-14
prescribes guidance regarding timing of recognition and income
statement classification of costs incurred for certain sales incentive
programs. This guidance requires certain coupons, rebate offers and
free products offered concurrently with a single exchange transaction
to be recognized when incurred and reported as a reduction of revenue.
In January 2001, the EITF issued EITF No. 00-22 "Accounting for
'Points' and Certain Other Time-Based or Volume-Based Sales Incentive
Offers and Offers for Free Products or Services to be Delivered in the
Future." EITF No. 00-22 prescribes guidance regarding timing of
recognition and income statement classification of costs incurred in
connection with offers of "free" products or services that are
exercisable by an end consumer as a result of a single exchange
transaction with the retailer which will not be delivered by the
vendor until a future date. This guidance requires certain rebate
offers and free products that are delivered subsequent to a single
exchange transaction to be recognized when incurred and reported as a
reduction of revenue.
The effective dates of EITF No. 00-14 and EITF No. 00-22 are
March 31, 2001 and June 30, 2001, respectively. The Company's
adoption of EITF No. 00-14 and EITF No. 00-22 on December 31, 2000 did
not impact the results of operations because the Company's past and
current accounting policy is to report such costs as reductions in
revenue.
-13-
PART I. FINANCIAL INFORMATION
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,
----------------------------
2001 2000
---- ----
Net sales 100.0% 100.0%
Cost of products sold 75.7 74.9
----- -----
GROSS INCOME 24.3 25.1
Selling, general and
administrative expenses 16.4 14.7
Restructuring costs 0.6 0.1
Trade names and goodwill amortization
and other 0.9 0.8
----- -----
OPERATING INCOME 6.4 9.5
----- -----
Nonoperating expenses:
Interest expense 2.4 1.6
Other, net 0.2 0.3
----- -----
Net nonoperating expenses 2.6 1.9
----- -----
INCOME BEFORE INCOME TAXES 3.8 7.6
Income taxes 1.4 2.9
----- -----
NET INCOME 2.4% 4.7%
===== =====
See notes to consolidated financial statements.
-14-
THREE MONTHS ENDED MARCH 31, 2001 VS. THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------
Net sales for the three months ended March 31, 2001 ("first
quarter") were $1,610.7 million, representing a decrease of $18.3
million or 1.1% from $1,629.0 million in the comparable quarter of
2000. The decrease in net sales is primarily due to internal declines
of 6.8% due to slowness in the economy offset by contributions from
Paper Mate/Parker (acquired in December 2000).
The Company announced the realignment of its operating segment
structure to reflect the Company's focus on building large consumer
brands, promoting organizational integration and operating
efficiencies and aligning the businesses with the Company's key
account strategy. The five new segments have been named for leading
worldwide brands in the Company's product portfolio and streamlines
what had been six operating segments. Based on this management
structure, the Company is reporting its results as follows (in
millions):
Percentage
Increase/
2001 2000 Decrease
---- ---- --------
Rubbermaid $ 432.0 $ 479.6 (9.9)%(1)
Parker/Eldon 334.5 263.7 26.8 (2)
Levolor/Hardware 331.0 354.9 (6.7) (1)
Calphalon/WearEver 276.3 283.0 (2.4)
Little Tikes/Graco 236.9 247.8 (4.4)
-------- --------
Total $1,610.7 $1,629.0 (1.1)%
======== ========
(1) Internal sales decline due to slowness in the economy.
(2) Internal sales decline of 4.4% plus sales from the Paper
Mate/Parker acquisition.
Gross income as a percentage of net sales in the first quarter of
2001 was 24.3% or $391.8 million versus 25.1% or $408.5 million in the
comparable quarter of 2000. Excluding charges of $3.1 million ($2.0
million after taxes) related to recent acquisitions, gross income in
the first quarter of 2001 was $394.9 million or 24.5% of net sales.
Excluding charges, gross income declined as a result of decreased
sales volume.
Selling, general and administrative expenses ("SG&A") in the
first quarter of 2001 were 16.4% of net sales or $264.6 million versus
14.7% or $239.6 million in the comparable quarter of 1999. Excluding
charges of $1.1 million ($0.7 million after taxes) relating to recent
acquisitions, SG&A in the first quarter of 2001 were $263.5 million or
16.4% of net sales. Excluding charges, SG&A increased as a result of
the Paper Mate/Parker acquisition.
-15-
In the first quarter of 2001, the Company recorded a pre-tax
restructuring charge of $10.0 million ($6.3 million after taxes). The
pre-tax charge included $5.9 million of severance costs, $1.1 million
of facility exit costs and $3.0 million of other transaction costs.
In the first quarter of 2000, the Company recorded a pre-tax
restructuring charge of $0.8 million ($0.5 million after taxes). The
pre-tax charge related primarily to costs associated with facility
closures from non-Rubbermaid acquisitions.
Trade names and goodwill amortization and other in the first
quarter of 2001 were 0.9% of net sales or $14.1 million versus 0.8% or
$13.2 million in the comparable quarter of 2000. The increases are
primarily related to an increase in goodwill associated with the
recent Paper Mate/Parker acquisition.
Operating income in the first quarter of 2001 was 6.4% of net
sales or $103.1 million versus operating income of 9.5% or $154.9
million in the comparable quarter of 2000. Excluding restructuring
costs and other charges in 2001 and 2000, operating income in the
first quarter of 2001 was 7.3% or $117.3 million versus 9.6% or $155.7
million in the first quarter of 2000. The decrease in operating
income was primarily due to lower than expected sales volume and the
Paper Mate/Parker acquisition.
Net nonoperating expenses in the first quarter of 2001 were 2.6%
of net sales or $42.1 million versus net nonoperating income of 1.9%
or $31.0 million in the comparable quarter of 2000. The increase in
net non-operating expenses is primarily due to $11.5 million of
increased interest expense as a result of higher debt levels.
The effective tax rate was 37.0% in the first quarter of 2001
versus 38.5% in the first quarter of 2000.
Net income for the first quarter of 2001 was $38.4 million,
compared to net income of $76.2 million in the first quarter of 2000.
Basic earnings per share were $0.14 in the first quarter of 2001
compared to $0.28 in the first quarter of 2000. Excluding 2001
restructuring costs of $10.0 million ($6.3 million after taxes) and
other 2001 pre-tax charges of $4.2 million ($2.7 million after taxes)
and 2000 restructuring costs of $0.8 million ($0.5 million after
taxes), net income decreased $29.3 million or 38.3% to $47.4 million
in the first quarter of 2001 from $76.7 million in 2000. Earnings per
share, calculated on the same basis, decreased 36.5% to $0.18 in the
first quarter of 2001 from $0.28 in the first quarter of 2000. The
decrease in net income was primarily due to internal sales declines
and increased interest expense resulting from higher debt levels.
-16-
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 provided by operating activities in the first three
months of 2001 was $124.1 million, representing an increase of $150.0
million from $25.9 million of cash used for the comparable period of
2000. The increase in cash provided from operating activities was
primarily due to improved working capital management throughout the
Company.
The Company has short-term foreign and domestic committed and
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 lines of credit do not have a material impact on the
Company's liquidity. Borrowings under the Company's lines of credit at
March 31, 2001 totaled $13.8 million.
The Company has a revolving credit agreement of $1,300.0 million
that will terminate in August 2002. During 2000, the Company entered
into a new 364-day revolving credit agreement in the amount of $700.0
million. This revolving credit agreement will terminate in October
2001. At March 31, 2001, there were no borrowings under these
revolving credit agreements.
In lieu of borrowings under the Company's revolving credit
agreements, the Company may issue up to $2,000.0 million of commercial
paper. The Company's revolving credit agreements provide 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
agreements. At March 31, 2001, $1,514.3 million (principal amount) of
commercial paper was outstanding. Of this amount, $1,300.0 million is
classified as long-term debt and the remaining $214.3 million is
classified as current portion of long-term debt.
The revolving credit agreements permit the Company to borrow
funds on a variety of interest rate terms. These agreements require,
among other things, that the Company maintain a certain Total
Indebtedness to Total Capital Ratio, as defined in the agreements. As
of March 31, 2001, the Company was in compliance with these
agreements.
The Company had outstanding at March 31, 2001 a total of $1,012.5
million (principal amount) of medium-term notes. The maturities on
these notes range from 3 to 30 years at an average interest rate of
6.34%.
-17-
A universal shelf registration statement became effective in July
1999. As of March 31, 2001, $449.5 million of Company debt and equity
securities may be issued under the shelf.
Uses:
Cash used in acquiring businesses was $15.4 million and $54.4
million in the first three months of 2001 and 2000, respectively. In
the first quarter of 2001, the Company made minor acquisitions for
cash purchase prices totaling $6.6 million; in the first quarter of
2000, the Company acquired Mersch SA and made other minor acquisitions
for cash purchase prices totaling $31.3 million. All of these
acquisitions were accounted for as purchases and were paid for with
proceeds obtained from the issuance of commercial paper.
Cash used for restructuring activities was $3.3 million and $0.8
million in the first three months of 2001 and 2000, respectively.
Such cash payments represent primarily employee termination benefits
and other merger expenses.
Capital expenditures were $59.7 million and $81.2 million in the
first three months of 2001 and 2000, respectively.
Aggregate dividends paid during the first three months of 2001
and 2000 were $56.0 million ($0.21 per share) and $57.1 million ($0.21
per share), respectively.
During the first three months of 2000, the Company repurchased
15.5 million shares of its common stock at an average price of $26 per
share, for a total cash price of $403.0 million under the Company's
stock repurchase program.
Retained earnings decreased in the first three months of 2001 by
$17.6 million. Retained earnings increased in the first three months
of 2000 by $19.0 million. The difference between 2001 and 2000 was
due to weaker operating results in 2001 versus 2000 and restructuring
costs in 2001 of $10.0 million ($6.3 million after taxes) and other
pre-tax charges of $4.1 million ($2.7 million after taxes).
Working capital at March 31, 2001 was $1,326.6 million compared
to $1,345.9 million at December 31, 2000. The current ratio at March
31, 2001 was 1.86:1 compared to 1.87:1 at December 31, 2000.
Total debt to total capitalization (total debt is net of cash and
cash equivalents, and total capitalization includes total debt,
convertible preferred securities and stockholders equity) was .47:1 at
March 31, 2001 and .46:1 at December 31, 2000.
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.
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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.
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 $500.0 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 and intercompany
transactions are deferred and included in the basis of the underlying
transactions. Derivatives used to hedge intercompany loans are marked
to market with the corresponding gains or losses included in the
consolidated statements of income.
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
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the table below have no impact on results of operations or financial
condition as they represent economic, not financial, losses.
March 31, Time Confidence
2001 Period Level
---- ------ ----------
(In millions)
Interest rates $8.7 1 day 95%
Foreign exchange $2.4 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 elected 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.
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.
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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, return on invested capital, capital
expenditures, working capital, dividends, capital structure, free cash
flow, debt to capitalization ratios, interest rates, internal growth
rates, Euro conversion plans and related risks, pending legal
proceedings 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
statements. The Company cautions that forward-looking statements are
not guarantees since there are inherent difficulties in predicting
future results. 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 this Report and Exhibit 99 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
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PART I. FINANCIAL INFORMATION
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).
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. 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 be required to pay in excess of amounts reserved, will
not have a material effect on the Company's consolidated financial
statements.
As of March 31, 2001, 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, 2001 ranged between $15.7 million and $21.6 million. As of March
31, 2001, the Company had a reserve equal to $19.3 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, except with respect to two
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long term (30 years) operation and maintenance CERCLA matters which
are estimated at present value.
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 be
required to pay in connection with environmental matters in excess of
amounts reserved will have a material adverse effect on its
consolidated financial statements.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
3.1 Restated Certificate of Incorporation of Newell
Rubbermaid Inc., as amended as of April 5, 2001.
10. Confidential Separation Agreement and General Release
dated as of March 20, 2001, between Daniel DalleMolle
and the Company.
12. Statement of Computation of Ratio of Earnings to Fixed
Charges
(b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated March 12, 2001,
filing the Company's Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Newell Rubbermaid Inc. for the fiscal
year ended December 31, 2000.
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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 11, 2001 /s/ William T. Alldredge
--------------------------------
William T. Alldredge
Chief Financial Officer
Date: May 11, 2001 /s/ Brett E. Gries
--------------------------------
Brett E. Gries
Vice President - Accounting & Audit
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