UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 20, 1998
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NEWELL CO.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-9608 36-3514169
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(State or Other (Commission IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
29 East Stephenson Street, Freeport, Illinois 61032
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Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (815) 235-4171
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<PAGE>
This Amendment is being filed to amend Item 7(a) of Newell Co.'s
Current Report on Form 8-K, dated November 20, 1998 (the "Form 8-K"),
to include therein the audited financial statements of Rubbermaid
Incorporated for the fiscal year ended December 31, 1997. Item 7(b)
(Pro Forma Financial Information) of the Form 8-K is not being amended.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
The following unaudited financial statements of Rubbermaid have
previously been filed with the Commission as part of Rubbermaid's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1998
and are incorporated herein by reference:
-Condensed Consolidated Balance Sheets as of October 2, 1998
and December 31, 1997.
-Condensed Consolidated Statements of Earnings for the Nine Months
Ended October 2, 1998 and September 30, 1997.
-Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended October 2, 1998 and September 30, 1997.
-Notes to Condensed Consolidated Financial Statements.
The following audited financial statements of Rubbermaid for the
fiscal year ended December 31, 1997 are filed herewith:
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings for the Fiscal
Years Ended December 31, 1997, 1996 and 1995 . . . . . . 4
Consolidated Balance Sheets as of December 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the Fiscal
Years Ended December 31, 1997, 1996 and 1995 . . . . . . 6
Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended December 31, 1997, 1996 and 1995 . 7
Notes to Consolidated Financial Statements . . . . . . . . . 8
(c) Exhibits.
--------
23.1 Consent of KPMG Peat Marwick LLP.
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<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------------------------------------------------
SHAREHOLDERS AND BOARD OF DIRECTORS
RUBBERMAID INCORPORATED:
We have audited the accompanying consolidated balance sheets of
Rubbermaid Incorporated and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of earnings, cash flows,
and shareholders' equity for each of the years in the three-year
period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Rubbermaid Incorporated and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Cleveland, Ohio
January 30, 1998
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<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,399,701 $ 2,354,989 $ 2,344,170
Cost of sales 1,748,424 1,649,520 1,673,232
Selling, general, and administrative expenses 416,641 432,063 402,586
Realignment costs 16,000 -- 158,000
Other charges (credits), net:
Interest expense 37,944 26,281 13,682
Interest income (2,182) (1,933) (3,422)
Miscellaneous (51,032) 4,046 4,457
----------------------------------------------------------------------------------------------------------------------
(15,270) 28,394 14,717
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Earnings before income taxes 233,906 245,012 95,635
Income taxes 91,370 92,614 35,863
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NET EARNINGS $ 142,536 $ 152,398 $ 59,772
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BASIC AND DILUTED NET EARNINGS PER COMMON SHARE $ .95 $ 1.01 $ .38
----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
CONSOLIDATED BALANCE SHEET
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
At December 31 1997 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
-------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 114,024 $ 27,599
Receivables, less allowance for doubtful accounts
of $8,882 in 1997 and $10,900 in 1996 421,911 496,601
Inventories 250,597 276,811
Other current assets 29,672 55,709
-------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 816,204 856,720
Property, plant, and equipment, net 707,974 721,914
Intangible and other assets, net 399,716 475,346
-------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,923,894 $ 2,053,980
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LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Notes payable $ 223,744 $ 399,865
Long-term debt, current 281 3,287
Payables 160,820 154,518
Accrued liabilities 182,239 185,151
-------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 567,084 742,821
Other deferred liabilities 153,385 142,992
Long-term debt, non-current 153,163 154,467
SHAREHOLDERS' EQUITY:
Preferred stock, without par value.
Authorized 20,000,000 shares; none issued -- --
Common Shares of $1 par value.
Authorized 400,000,000 shares; issued
162,677,082 shares in 1997 and 1996 162,677 162,677
Paid-in capital 68,819 70,829
Retained earnings 1,216,166 1,165,052
Foreign currency translation adjustment (36,682) (25,359)
Treasury shares, at cost (12,975,131 shares in 1997
and 12,924,764 shares in 1996) (360,718) (359,499)
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TOTAL SHAREHOLDERS' EQUITY 1,050,262 1,013,700
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,923,894 $ 2,053,980
-------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------------------------------
(Dollars in thousands)
( ) Denotes decrease in cash and cash equivalents
<TABLE>
<CAPTION>
Years Ended December 31 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 142,536 $ 152,398 $ 59,772
Adjustments to reconcile net earnings to
net cash from operating activities:
Gain on sale of business (134,447) -- --
Asset impairment charges 81,000 -- --
Depreciation and amortization 118,133 109,082 104,158
Non-cash realignment costs 16,000 -- 129,000
Employee benefits 15,982 8,762 11,992
Deferred income taxes 9,793 49,046 (22,388)
Other (2,577) 4,411 2,110
Changes in:
Receivables 43,575 9,078 (27,506)
Inventories (2,845) (1,980) 4,052
Other assets (24,867) (17,723) (39,265)
Payables 13,725 10,345 (5,771)
Accrued liabilities (17,941) (8,178) 13,867
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NET CASH FROM OPERATING ACTIVITIES 258,067 315,241 230,021
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (145,847) (171,764) (151,528)
Acquisition of businesses, net of cash -- (318,047) (43,996)
Proceeds from sale of business 246,500 -- --
Purchase of marketable securities -- -- (100,000)
Proceeds from sale of marketable securities -- -- 159,049
Other, net 1,839 (6,246) (8,867)
-------------------------------------------------------------------------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES 102,492 (496,057) (145,342)
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in notes payable (176,121) 283,326 95,562
Proceeds from long-term debt -- 150,000 --
Repayment of long-term debt (3,035) (4,382) (6,999)
Cash dividends paid (91,422) (86,016) (81,731)
Common Shares repurchased (2,575) (185,482) (134,190)
Other, net (981) -- 1,399
-------------------------------------------------------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES (274,134) 157,446 (125,959)
-------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 86,425 (23,370) (41,280)
Cash and cash equivalents at beginning of year 27,599 50,969 92,249
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 114,024 $ 27,599 $ 50,969
-------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 36,002 $ 48,762 $ 94,683
Interest paid $ 33,407 $ 17,720 $ 12,971
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
-6-
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Foreign
Currency Total
Common Paid-in Retained Translation Treasury Shareholders'
Shares Capital Earnings Adjustment Shares Equity
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TRANSACTIONS FOR 1995:
Opening balance $ 162,677 $ 69,795 $ 1,120,629 $ (16,583) $ (50,692) $ 1,285,826
Net earnings -- -- 59,772 -- -- 59,772
Cash dividends, $.52 per share -- -- (81,731) -- -- (81,731)
Employee stock plans -- 726 -- -- 4,244 4,970
Common Shares repurchased -- -- -- -- (134,190) (134,190)
Shares issued for an acquisition -- 304 -- -- 2,259 2,563
Foreign currency translation
adjustment -- -- -- (1,837) -- (1,837)
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 162,677 70,825 1,098,670 (18,420) (178,379) 1,135,373
TRANSACTIONS FOR 1996:
Net earnings -- -- 152,398 -- -- 152,398
Cash dividends, $.57 per share -- -- (86,016) -- -- (86,016)
Employee stock plans -- 4 -- -- 4,362 4,366
Common Shares repurchased -- -- -- -- (185,482) (185,482)
Foreign currency translation
adjustment -- -- -- (6,939) -- (6,939)
---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 162,677 70,829 1,165,052 (25,359) (359,499) 1,013,700
TRANSACTIONS FOR 1997:
Net earnings -- -- 142,536 -- -- 142,536
Cash dividends, $.61 per share -- -- (91,422) -- -- (91,422)
Employee stock plans -- (2,010) -- -- 1,356 (654)
Common Shares repurchased -- -- -- -- (2,575) (2,575)
Foreign currency translation
adjustment -- -- -- (11,323) -- (11,323)
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ 162,677 $ 68,819 $ 1,216,166 $ (36,682) $ (360,718) $ 1,050,262
---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
-7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Rubbermaid Incorporated and its subsidiaries manufacture, market,
sell, and distribute primarily plastic products in three major
categories: home products, juvenile products, and commercial products.
The Company's products are distributed primarily through its own sales
personnel and manufacturers' agents to a variety of retailers and
wholesalers, including mass merchandisers, toy stores, home centers,
hardware stores, catalog showrooms, and distributors serving
institutional markets. The Company's raw materials are readily
available, and the Company is not dependent on a single supplier or
only a few suppliers.
Principles of Consolidation
The consolidated financial statements include the accounts of
Rubbermaid Incorporated and its subsidiary companies, all of which are
wholly owned except for 51.0% owned Rubbermaid Japan Inc. and 89.6%
owned Dom-Plast S.A. All significant intercompany profits,
transactions, and balances have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for 78.2% and
78.4% of inventories in 1997 and 1996, respectively. Cost of the
remaining inventories is determined using the first-in, first-out
(FIFO) method.
Long-Lived Assets
Property, plant, and equipment, net, is stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization are computed on the straight-line method over the
following estimated useful lives:
Land improvements 5 to 45 years
Buildings and fixtures 5 to 45 years
Machinery and equipment 2 to 15 years
The excess of cost over fair value of net assets of businesses
acquired at December 31, 1997 and 1996 of $303,618 and $380,524,
respectively, net of accumulated amortization of $13,589 and $28,385,
respectively, is amortized on a straight-line basis over periods
ranging from 20 to 40 years.
The Company utilizes the undiscounted cash flow method to determine
impairment in the carrying value of its long-lived assets. Measurement
of an impairment loss is determined by reducing the carrying value of
assets to fair value. Assets to be disposed of by sale or abandonment,
as part of a plan committed to and approved by management, are
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
recorded at the lower of carrying value or fair value less cost to
sell. During 1997, the Company recorded a pretax asset impairment
charge of $81,000, or $59,797 after-tax, or $.40 per Common Share.
Stock-Based Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its stock-based compensation. The
Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), which was
effective in 1996. FAS 123 provides the option either to continue the
Company's current method of accounting for stock-based compensation or
to adopt the fair value method of accounting. The Company elected to
continue accounting for stock-based compensation using APB 25.
Financial Instruments
Investments with maturities of three months or less at date of
purchase are considered cash equivalents. The fair value of financial
instruments, consisting of investments in cash, cash equivalents,
receivables, obligations under accounts payable, and debt instruments,
is based on interest rates available to the Company and comparisons to
quoted prices. At December 31, 1997 and 1996, the fair value of these
financial instruments approximates carrying value.
Derivative financial instruments are utilized by the Company to manage
foreign exchange and interest rate risks. The Company does not use
derivative financial instruments for trading.
A limited number of foreign exchange instruments are used by the
Company to hedge firm and anticipated commitments and net investments
in foreign subsidiaries. Instruments have included forward contracts,
currency swaps, foreign currency loans, and foreign currency options,
all in the same currency as the hedged commitment and net investment.
In accordance with Financial Accounting Standards Board Statement No.
52, "Foreign Currency Translation" (FAS 52), before hedge accounting
is applied, derivative financial instruments are designated and
considered effective as hedges. When hedging commitments, gains and
losses on financial instruments are deferred and recognized in income
in the same period as the hedged transaction. When hedging net
investments in foreign subsidiaries, gains and losses on financial
instruments are included in the foreign currency translation
adjustment. The fair value of these foreign currency instruments is
estimated using current market prices provided by an outside quotation
service. Should the Company terminate the foreign exchange instrument
or the underlying hedged transaction, the Company would follow the
applicable principles of FAS 52. The net unrealized gains or losses
from hedging anticipated transactions were not material at December
31, 1997 and 1996.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
The Company also uses floating-to-fixed interest rate swap agreements
on a portion of its floating interest rate debt. Before hedge
accounting is utilized, the swap agreement is designated to a specific
debt instrument or commercial paper facility and the terms are closely
related to the terms of the debt instrument or commercial paper
facility. After designation, interest is recorded on the notional
portion of debt covered by the agreements at the revised interest
rate. Gains or losses on interest rate swap agreements terminated are
deferred and recognized as a component of interest expense over the
shorter of the term of the underlying debt obligation or the term of
the terminated swap agreement. If the underlying debt obligation is
retired, the Company would mark the swap agreement to market and
recognize the related gain or loss. At December 31, 1997 and 1996, the
carrying value of interest rate swaps approximates fair value.
Basic and Diluted Net Earnings Per Common Share
Basic and diluted net earnings per Common Share are based on the
weighted average number of Common Shares outstanding during each year.
Average shares used in the calculations were 149,849,551, 151,003,599,
and 158,765,812 in 1997, 1996, and 1995, respectively. For the periods
presented, the dilutive effect of stock options is not significant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
2. REALIGNMENT COSTS
During the fourth quarter of 1995, the Company's management approved a
two-year strategic realignment program designed to reduce costs,
improve operating efficiencies, and accelerate growth. During the
second quarter of 1997, the Company revised the estimate of the costs
to complete the program and included an additional $16,000 non-cash
charge, or $9,920 after-tax, or $.07 per Common Share, in the 1997
Consolidated Statement of Earnings.
Subsequent to year end, the Company announced that the Board of
Directors authorized the finalization of a major restructuring plan,
designed to expand the Company's global market leadership and
accelerate quality growth. Major initiatives will include the
centralization of global procurement, and the consolidation of
manufacturing and distribution worldwide. The Company expects that the
restructuring actions could reach a pretax charge of at least
$200,000. The charge will include cash outlays for severance, removal
of equipment, and other activities that will be incurred over the next
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
two years. Other charges related to consolidation or relocation of
facilities will be recorded primarily in 1998.
3. BUSINESS DEVELOPMENT
Acquisitions
During November 1997, the Company agreed to acquire Curver Consumer
Products, the European market leader in plastic consumer goods, from
DSM N.V. The acquisition includes all Curver facilities, brands, and
other assets and liabilities, in a total transaction valued at
approximately $140,000. Subsequent to year end, the Company completed
the transaction, which was funded by debt and cash.
During 1996, the Company acquired Graco Children's Products Inc.
(Graco), a leading manufacturer of strollers and other children's
products, for $318,047, net of cash. The excess of the purchase price
over the fair value of the net identifiable assets acquired of
$242,589 is being amortized over 40 years. The Graco acquisition was
accounted for as a purchase and was funded with a combination of debt
and cash.
Divestiture
During June 1997, the Company sold its Office Products business to
Newell Co. in a cash transaction. The transaction included the sale of
the worldwide manufacturing and distribution facilities, related
equipment, and inventory for $246,500, resulting in a one-time, pretax
gain of $134,447, or $79,447 after-tax, or $.53 per share.
4. INVENTORIES
A summary of inventories follows:
1997 1996
-----------------------------------------------------------
FIFO cost:
Raw materials $ 65,411 $ 83,250
Work-in-process 8,571 11,494
Finished goods 201,900 213,000
-----------------------------------------------------------
275,882 307,744
Excess of FIFO over LIFO cost (25,285) (30,933)
-----------------------------------------------------------
$ 250,597 $ 276,811
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
5. PROPERTY, PLANT, AND EQUIPMENT, NET
The components of property, plant, and equipment, net, are summarized
below:
1997 1996
------------------------------------------------------------
Land and land improvements $ 29,750 $ 33,724
Buildings and fixtures 300,489 320,527
Machinery and equipment 920,586 877,148
------------------------------------------------------------
1,250,825 1,231,399
Accumulated depreciation (648,377) (614,220)
------------------------------------------------------------
602,448 617,179
Additions in progress 105,526 104,735
------------------------------------------------------------
$ 707,974 $ 721,914
------------------------------------------------------------
6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist primarily of commercial paper and uncommitted
credit facilities. The commercial paper, of which $49,738 was
outstanding at December 31, 1997, was placed through brokers and is
supported by a $500,000 committed credit facility entered into in
January 1996. This facility is subject to normal banking terms and
conditions, and expires in January 2001. In addition, as of December
31, 1997, the Company had approximately $259,400 in uncommitted credit
facilities made available by commercial banks, of which $174,006 had
been utilized. The Company's weighted average interest rate for notes
payable was 5.9% and 5.7% as of December 31, 1997 and 1996,
respectively.
During January 1996, the Company filed a Shelf Registration with the
Securities and Exchange Commission for up to $400,000 of senior
unsecured debt securities and in November 1996, issued $150,000 senior
notes with a maturity of 2006 and a coupon rate of 6.6%.
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
Long-term debt at December 31, 1997 and 1996, is summarized as
follows:
1997 1996
-----------------------------------------------------------
6.6% Notes due 2006 $ 150,000 $ 150,000
Other 3,444 7,754
-----------------------------------------------------------
153,444 157,754
Less current portion 281 3,287
-----------------------------------------------------------
$ 153,163 $ 154,467
-----------------------------------------------------------
The aggregate principal payments due on the long-term debt for the
five years subsequent to December 31, 1997 are as follows:
1998 1999 2000 2001 2002
-----------------------------------------------------------
$281 $290 $318 $301 $306
-----------------------------------------------------------
7. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1996, consist of the
following:
1997 1996
-----------------------------------------------------------
Compensation and commissions $ 25,091 $ 31,351
Retirement plans 18,133 24,574
Income taxes 40,681 --
Other 98,334 129,226
-----------------------------------------------------------
$ 182,239 $ 185,151
-----------------------------------------------------------
8. EMPLOYEE BENEFIT AND RETIREMENT PLANS
The Company provides retirement benefits primarily through
noncontributory defined contribution plans. The cost of these plans
aggregated $10,265, $13,742, and $11,834 in 1997, 1996, and 1995,
respectively.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
The Company maintains an incentive plan and an unfunded deferred
compensation plan for participating officers and key management
associates. The liability related to the deferred compensation plan
($37,088 and $33,881 at December 31, 1997 and 1996, respectively) is
included in other deferred liabilities. The Company also maintains a
Voluntary Employee Beneficiary Association (VEBA).
9. STOCK-BASED COMPENSATION PLANS
The Company's Stock Incentive and Option Plan (Plan) provides for
Common Share awards to be made to key management associates with
restrictions as to disposition and subject to forfeiture upon
termination of employment or if certain performance goals are not
achieved. In addition, the Plan provides for supplemental cash awards
in the event performance goals are exceeded. The Plan also provides
for the granting of non-qualified stock options as well as incentive
stock options. No incentive stock options have been granted to date.
The number of Common Shares as to which stock-based compensation
awards may be granted under the Plan in any calendar year is limited
to 1.0% of the total outstanding Common Shares as of the first day of
the year.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and
related Interpretations in accounting for its employee stock options
because the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock-Based Compensation" (FAS 123), requires use of option
pricing models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized. Generally, stock options become exercisable over a three-
year vesting period and expire 10 years from the date of grant.
Pro forma information for net earnings and basic and diluted net
earnings per Common Share is required by FAS 123 and has been
determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value
for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average
assumptions for 1997, 1996, and 1995, respectively: risk-free interest
rates of 6.1%, 6.3%, and 6.2%; dividend yield of 2.0%; volatility
factor of the expected market price of the Company's common stock of
23.0% in 1997 and 21.0% in 1996 and 1995; and an expected life of the
option of 5 years.
Had compensation cost for the stock options been determined based on
the fair value at the grant dates, the Company's net earnings and
basic and diluted net earnings per Common Share would have been
reduced. For purposes of pro forma disclosures, the estimated fair
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
value of the options is amortized to expense over the option's vesting
period. The pro forma amounts for the years ending December 31, 1997,
1996, and 1995 are indicated below:
1997 1996 1995
-----------------------------------------------------------
Net earnings:
As reported $ 142,536 $ 152,398 $ 59,772
Pro forma 137,937 151,937 59,564
Basic and diluted
net earnings per
Common Share:
As reported .95 1.01 .38
Pro forma .92 1.01 .38
-----------------------------------------------------------
A summary of the Company's stock option activity, and related
information for the years ended December 31, 1997, 1996, and 1995, are
as follows:
Options
------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------
Outstanding at
beginning of year 1,078,101 528,756 372,350
Granted 1,365,013 595,871 170,646
Exercised (2,141) (225) --
Forfeited (179,981) (46,301) (14,240)
------------------------------------------------------------
Outstanding at
end of year 2,260,992 1,078,101 528,756
------------------------------------------------------------
Exercisable at
end of year 1,263,142 278,546 121,250
------------------------------------------------------------
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
Weighted Average Exercise Price
------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------
Outstanding at
beginning of year $ 26.61 $ 29.47 $ 29.99
Granted 24.21 24.08 28.13
Exercised 27.02 26.06 --
Forfeited 24.13 26.74 26.88
------------------------------------------------------------
Outstanding at
end of year $ 25.36 $ 26.61 $ 29.47
------------------------------------------------------------
Exercisable at
end of year $ 26.58 $ 29.93 $ 30.09
------------------------------------------------------------
The weighted average fair values of stock options granted during 1997,
1996, and 1995 were $6.31, $6.05, and $7.00, respectively. Exercise
prices for options outstanding as of December 31, 1997 ranged from
$22.81 to $34.63. The weighted average remaining contractual life of
the outstanding stock options is 8.7 years.
During 1996 and 1995 the Company awarded 172,988 and 147,946 Common
Shares, respectively, related to the Company's restricted stock
awards. During 1997, 1996, and 1995, stock awards for 33,828, 39,230,
and 31,824 Common Shares, respectively, were forfeited. The cost of
the restricted stock awards, determined as the market value of the
shares at the date of grant, is being amortized over the award's cycle
period which ranges from three to five years. In 1997, 1996, and 1995,
$2,171, $1,755, and $2,894, respectively, were charged to expense for
restricted stock awards.
In addition, the Plan provides that shares of common stock may be
awarded as performance shares to certain key executives having a
critical impact on the long-term performance of the Company.
Substantially all of the participants elected to receive stock options
in lieu of performance shares in 1997.
10. OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors defined benefit health care plans that provide
medical benefits to retired associates who meet certain eligibility
requirements. The plans generally contain cost-sharing features such
as deductibles and coinsurance, and some plans are contributory. The
Company's annual per capita contributions under certain plans are
limited. The plans are unfunded.
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
At December 31, 1997 and 1996, the actuarially determined status of
these plans is as follows:
1997 1996
-------------------------------------------------------------
Accumulated postretirement benefit
obligation:
Retirees $ 37,208 $ 32,110
Other fully eligible participants 2,188 1,935
Other active participants 20,954 16,959
-------------------------------------------------------------
60,350 51,004
Unrecognized net reduction
in prior service costs (321) 4,266
Unrecognized net gain 10,433 14,681
-------------------------------------------------------------
Amount included in other
deferred liabilities $ 70,462 $ 69,951
-------------------------------------------------------------
The expense related to the plans is as follows:
1997 1996 1995
---------------------------------------------------------
Service cost $ 1,394 $ 1,520 $ 1,284
Interest cost 3,846 3,681 3,721
Amortization (1,449) (1,110) (1,799)
---------------------------------------------------------
$ 3,791 $ 4,091 $ 3,206
---------------------------------------------------------
In estimating the Company's December 31, 1997 obligation under these
plans, the annual increase in the per capita cost of covered benefits
is assumed to decrease approximately one percentage point per year
from 9.0% in 1997 to an ultimate rate of 6.0% in 2000. Adjusting the
assumed annual increase in the per capita cost of covered benefits
upward by one percentage point each year would increase the
accumulated postretirement benefit obligation and the expense related
to these plans by approximately 10.4% and 11.8%, respectively. The
discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% and 7.75% at December 31, 1997 and 1996,
respectively.
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
11. RESEARCH AND DEVELOPMENT COSTS
Research and development costs relating to both future and present
products are charged to selling, general, and administrative expenses
as incurred. These costs aggregated $27,772, $29,505, and $28,963 in
1997, 1996, and 1995, respectively.
12. ADVERTISING COSTS
Costs incurred for producing and communicating advertising and other
brand support, including costs incurred under cooperative advertising
programs with customers, are charged to selling, general, and
administrative expenses as incurred or expensed ratably during the
year in relation to revenues or certain other performance measures.
Advertising costs were $137,963, $153,313, and $142,025 in 1997, 1996,
and 1995, respectively.
13. INCOME TAXES
Income taxes are summarized as follows:
1997 1996 1995
------------------------------------------------------------
Current:
Federal $ 66,257 $ 36,778 $ 44,500
State and local 9,125 4,496 6,151
OUS 6,195 2,294 7,600
------------------------------------------------------------
81,577 43,568 58,251
Deferred:
Federal 10,562 43,796 (13,663)
State and local 1,455 3,753 (2,725)
OUS (2,224) 1,497 (6,000)
------------------------------------------------------------
9,793 49,046 (22,388)
------------------------------------------------------------
$ 91,370 $ 92,614 $ 35,863
------------------------------------------------------------
Earnings (loss) before income taxes aggregated $222,604, $234,010, and
$98,835 for domestic operations and $11,302, $11,002, and $(3,200) for
outside United States (OUS) operations in 1997, 1996, and 1995,
respectively.
US income tax expense at the statutory tax rate is reconciled to the
combined US and OUS income tax expense below:
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
1997 1996 1995
---------------------------------------------------------------
Tax at US federal
statutory rate $ 81,867 $ 85,754 $ 33,472
State and local income
taxes, net of US
federal benefit 5,848 6,125 2,391
Non-deductible
amortization of
intangible assets 4,867 -- --
Tax basis differential
on sale of business 5,814 -- --
Other (7,026) 735 --
---------------------------------------------------------------
$ 91,370 $ 92,614 $ 35,863
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities as of December 31, 1997 and 1996 are as follows:
December 31 1997 1996
-----------------------------------------------------------
Deferred tax assets:
Postretirement benefits $ 26,807 $ 26,211
Other employee benefits 23,669 25,105
Realignment costs 6,342 10,064
Accruals, reserves, and
other items 36,016 50,067
-----------------------------------------------------------
Total deferred tax assets 92,834 111,447
-----------------------------------------------------------
Deferred tax liabilities:
Property, plant, and equipment 76,428 59,892
Intangible assets and
other items 1,786 28,355
-----------------------------------------------------------
Total deferred tax liabilities 78,214 88,247
-----------------------------------------------------------
Net deferred tax assets $ 14,620 $ 23,200
-----------------------------------------------------------
As of December 31, 1997 and 1996, current deferred tax assets of
$22,400 and $43,715, respectively, are reflected in other current
assets.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
14. COMMON SHARES
Share Repurchase Program
As part of a program previously authorized by the Board of Directors,
the Company purchased approximately 100,000, 6,587,000, and 4,843,700
Common Shares in 1997, 1996, and 1995, respectively, for the treasury
at an aggregate cost of $2,575, $185,482, and $134,190, respectively.
Approximately 12,800,000 Common Shares remain available for repurchase
through 1999 based on the current Board authorization.
Shareholder Rights Plan
Under the Company's Rights Agreement, each shareholder has the right
to purchase from the Company one Common Share at a price that is
currently $125.00 per share. The rights are only exercisable in the
event a person acquires or commences a tender offer or exchange offer
for 10.0% or more of the Company's outstanding Common Shares. In the
event that a person who owns 10.0% or more of the Company's
outstanding Common Shares merges into the Company, engages in one of a
number of self-dealing transactions, or increases ownership to 15.0%
or more, each right would entitle its holder to purchase a number of
the Company's Common Shares having a market value equal to twice the
right's exercise price. In the event that the Company engages in a
merger or other business transaction in which the Company is not the
surviving corporation, engages in a merger or other business
combination transaction in which its Common Shares are changed or
exchanged, or 50.0% or more of the Company's assets or earning power
are sold, each right would entitle its holder to purchase a number of
common shares of the acquiring, surviving, or resulting person having
a market value equal to twice the right's exercise price.
The rights expire June 24, 2006, and may be redeemed by the Company at
a price that is currently $.01 per right, prior to the occurrence of
the events described above.
15. BUSINESS AND CREDIT CONCENTRATIONS
The Company operates exclusively in one industry, which is the
manufacture and distribution of primarily plastic products, and sells
to a broad range of customers, one of which accounted for 15.5%,
13.9%, and 14.5% of net sales in 1997, 1996, and 1995, respectively.
Sales to a second customer amounted to 10.1% of net sales in 1997. The
Company estimates an allowance for doubtful accounts based on the
credit worthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could
affect the Company's estimate.
16. GEOGRAPHIC SEGMENTS
At December 31, 1997, 1996, and 1995, the Company's equity in OUS
subsidiaries was $173,957, $164,195, and $148,143, respectively.
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
Revenues from OUS customers, including OUS net sales and exports from
US operations, represented 19.5%, 18.9%, and 18.0% of total net sales
in 1997, 1996, and 1995, respectively.
The following is information about the Company's operations in
different geographic areas:
<TABLE>
<CAPTION>
Net Sales Operating Earnings Total Assets
--------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995 1997(a) 1996 1995(a) 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 2,078.0 $2,045.0 $ 2,007.4 $ 209.6 $ 257.9 $ 108.5 $ 1,572.7 $ 1,774.9 $1,410.0
OUS 321.7 310.0 336.8 9.0 15.5 1.9 351.2 279.1 281.5
--------------------------------------------------------------------------------------------------------------------------
$ 2,399.7 $2,355.0 $ 2,344.2 $ 218.6 $ 273.4 $ 110.4 $ 1,923.9 $ 2,054.0 $1,691.5
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating earnings in 1997 and 1995 include a pretax realignment
charge of $16.0 million and $158.0 million, respectively. The charge
in 1997 reduced United States and OUS operating earnings by $14.8
million and $1.2 million, respectively, while the 1995 charge reduced
respective operating earnings by $140.8 million and $17.2 million.
17. QUARTERLY FINANCIAL INFORMATION - UNAUDITED
<TABLE>
<CAPTION>
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997(a) 1996 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 574,285 $ 616,021 $ 583,349 $ 632,694 $ 640,379 $ 572,989 $ 601,688 $ 533,285
Cost of sales 420,368 456,078 429,113 438,361 466,364 389,127 432,579 365,954
Net earnings 31,790 19,863 30,126 46,108 46,595 44,750 34,025 41,677
---------------------------------------------------------------------------------------------------------------------------
Per Common Share:
Net earnings --
basic and diluted .21 .13 .20 .31 .31 .30 .23 .27
Cash dividends paid .16 .15 .15 .14 .15 .14 .15 .14
Market price range:
High 26.50 24.75 30.31 29.25 30.00 29.13 24.88 30.25
Low 23.31 22.63 24.75 22.38 24.00 26.75 21.63 25.25
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Included in the second quarter of 1997 is a pretax gain of $134.4
million ($79.4 million after-tax, or $.53 per Common Share) on the
divestiture of the Office Products business, partially offset by
pretax asset impairment charges and revised realignment costs
totaling $97.0 million ($69.7 million after-tax, or $.47 per Common
Share).
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------
(Dollars in thousands except per share amounts)
18. CONTINGENCIES
In September 1997, an administrative law judge of the Federal Trade
Commission ("F.T.C.") ruled that a major customer of the Company illegally
pressured manufacturers not to sell toys to warehouse clubs. That decision
is being appealed. Subsequent to the F.T.C. decision, numerous class
action suits seeking damages on behalf of consumers have been filed
against the customer and certain manufacturers, including the Company,
which was not named as a defendant in the F.T.C. suit, nor were any other
manufacturers. The Company is of the opinion, supported by legal counsel,
that it has not violated any law and intends to contest any such class
action suits. Management believes the outcome of this matter will not have
a material adverse effect on the financial position or overall trends in
the results of operations of the Company.
-22-
<PAGE>
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 hereunto duly authorized.
NEWELL CO.
(Registrant)
Date: December 1, 1998 By: /s/ Dale L. Matschullat
----------------------------------
Dale L. Matschullat
Vice President -- General Counsel
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
23.1 Consent of KPMG Peat Marwick LLP.
-24-
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Rubbermaid Incorporated:
We consent to the incorporation by reference in Newell Co.'s Form S-3
Registration Statement File Nos. 333-53039, 333-47261 and 33-64225, of our
report dated January 30, 1998, with respect to the consolidated balance
sheets of Rubbermaid Incorporated and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of earnings, cash flows
and shareholders' equity for each of the years in the three-year period
ended December 31, 1997, which report is included in the Form 8-K/A of
Newell Co. dated November 20, 1998.
/s/ KPMG PEAT MARWICK LLP
Cleveland, Ohio
December 1, 1998
