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 June 30, 1999
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
as of July 27, 1999: 281,916,330
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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1999 1998* 1999 1998*
<S> <C> <C> <C> <C>
Net sales $1,597,314 $1,559,537 $3,113,507 $2,961,630
Cost of products sold 1,176,508 1,082,609 2,269,393 2,088,479
--------- --------- --------- ---------
GROSS INCOME 420,806 476,928 844,114 873,151
Selling, general and
administrative expenses 322,528 229,052 582,493 463,110
Restructuring costs 8,697 8,546 186,721 51,928
Trade names and goodwill
amortization and other 12,625 10,576 24,663 32,384
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 76,956 228,754 50,237 325,729
--------- --------- --------- ---------
Nonoperating expenses (income):
Interest expense 24,440 21,344 49,701 43,677
Other, net 3,246 (21,557) 6,288 (208,260)
--------- --------- --------- ---------
Net nonoperating
expenses (income) 27,686 (213) 55,989 (164,583)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES 49,270 228,967 (5,752) 490,312
Income taxes 19,216 86,952 43,193 189,804
--------- --------- --------- ---------
NET INCOME (LOSS) $30,054 $142,015 $(48,945) $300,508
========= ========= ========== ==========
Earnings (loss) per share:
Basic $ 0.11 $ 0.51 $ (0.17) $ 1.07
Diluted 0.11 0.50 (0.17) 1.06
Dividends per share $ 0.20 $0.19 $ 0.40 $ 0.38
Weighted average shares
outstanding:
Basic 281,830 280,652 281,639 280,547
Diluted 293,251 292,100 292,647 291,685
</TABLE>
See notes to consolidated financial statements.
*Restated for the merger with Rubbermaid Incorporated on March 24,
1999, and the merger with Calphalon on May 7, 1998, both of which
were accounted for as poolings of interests.
2
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
June 30, % of December 31, % of
1999 Total 1998 Total
-------- ----- ------------ -----
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 48,996 0.8% $ 86,554 1.3%
Accounts receivable, net 1,166,204 18.5% 1,078,530 17.1%
Inventories, net 1,078,431 17.1% 1,033,488 16.4%
Deferred income taxes 86,624 1.4% 108,192 1.7%
Prepaid expenses and other 151,338 2.4% 143,885 2.3%
--------- ---- --------- ----
TOTAL CURRENT ASSETS 2,531,593 40.1% 2,450,649 38.0%
MARKETABLE EQUITY SECURITIES 26,935 0.4% 19,317 0.3%
OTHER LONG-TERM INVESTMENTS 61,933 1.0% 57,967 0.9%
OTHER ASSETS 301,244 4.8% 267,073 4.2%
PROPERTY, PLANT AND
EQUIPMENT, NET 1,514,561 24.0% 1,627,090 25.8%
TRADE NAMES AND GOODWILL 1,871,987 29.7% 1,867,059 29.7%
---------- ----- ---------- -----
TOTAL ASSETS $6,308,253 100.0% $6,289,155 100.0%
========== ===== ========== =====
</TABLE>
See notes to consolidated financial statements.
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
<TABLE>
<CAPTION>
June 30, % of December 31, % of
1999 Total 1998 Total
-------- ----- ------------ -----
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 51,442 0.8% $ 94,634 1.5%
Accounts payable 323,458 5.1% 322,080 5.1%
Accrued compensation 111,891 1.8% 110,471 1.8%
Other accrued liabilities 744,190 11.8% 610,618 9.7%
Income taxes 9,737 0.2% 26,744 0.4%
Current portion of long-term debt 7,244 0.1% 7,334 0.1%
--------- ---- --------- ----
TOTAL CURRENT LIABILITIES 1,247,962 19.8% 1,171,881 18.6%
LONG-TERM DEBT 1,550,023 24.6% 1,393,865 22.2%
OTHER NONCURRENT LIABILITIES 326,457 5.2% 374,293 6.0%
DEFERRED INCOME TAXES - - 4,527 -
MINORITY INTEREST 1,306 0.0% 857 0.0%
COMPANY-OBLIGATED
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED
SECURITIES OF A
SUBSIDIARY TRUST 500,000 7.9% 500,000 8.0%
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
400.0 million at $1 par value; 281,898 4.5% 281,747 4.5%
Outstanding shares:
1999 281.8 million
1998 281.7 million
Additional paid-in capital 208,914 3.3% 183,102 3.3%
Retained earnings 2,303,129 36.5% 2,465,064 38.2%
Accumulated other comprehensive
income (111,436) (1.8%) (86,181) (1.4%)
--------- ---- --------- ----
TOTAL STOCKHOLDERS'
EQUITY 2,682,505 42.5% 2,843,732 45.2%
--------- ---- --------- ----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,308,253 100.0% $6,289,155 100.0%
--------- ---- --------- ----
</TABLE>
See notes to consolidated financial statements.
4
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998*
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ (48,946) $ 300,508
Adjustments to reconcile net income
to net cash provided by
Operating activities:
Depreciation and amortization 141,265 140,022
Deferred income taxes 18,808 22,670
Net gain on sale of marketable
equity securities - (115,674)
Sale of Businesses - (24,141)
Write-off of intangible
assets and other - 4,288
Other 111,354 38,253
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (107,623) (107,383)
Inventories (93,204) (33,413)
Other current assets (33,532) (27,429)
Accounts payable (2,306) (23,305)
Accrued liabilities and other 38,280 (127,022)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 24,096 47,374
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net (35,334) (370,509)
Expenditures for property,
plant and equipment (89,031) (117,463)
Proceeds on sale of businesses,
Net of taxes paid - 51,262
Sale of marketable
Equity securities - 378,321
Disposals of non-current assets
and other 11,250 (13,027)
-------- --------
NET CASH PROVIDED BY
(USED IN) INVESTING
ACTIVITIES $ (113,115) $ (71,416)
========= ===========
</TABLE>
See notes to consolidated financial statements.
*Restated for the merger with Rubbermaid Incorporated on March 24,
1999, and the merger with Calphalon on May 7, 1998, both of which
were accounted for as poolings of interests.
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited, in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1999 1998*
---- ----
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from issuance of debt $ 719,424 $ 203,792
Payments on notes payable
and long-term debt (577,889) (107,243)
Proceeds from exercised stock
options and other 25,963 (1,560)
Cash dividends (112,989) (105,823)
-------- --------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES 54,509 (10,834)
-------- --------
Exchange rate effect on cash (3,048) (156)
INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (37,558) (35,032)
Cash and cash equivalents at
beginning of year 86,554 150,131
-------- --------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 48,996 $ 115,099
========== =========
Supplemental cash flow disclosures -
Cash paid during the period for:
Income taxes $ 87,327 $ 137,677
Interest $ 60,903 $ 50,909
</TABLE>
See notes to consolidated financial statements.
*Restated for the merger with Rubbermaid Incorporated on March 24,
1999, and the merger with Calphalon on May 7, 1998, both of which
were accounted for as poolings of interests.
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 have been 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. Certain 1998 amounts have been
reclassified to conform with 1999 presentation.
NOTE 2 - ACQUISITIONS, MERGERS AND DIVESTITURES
Acquisitions
------------
During January 1998, the Company acquired Curver Consumer
Products ("Curver"). Curver is a manufacturer and marketer of plastic
housewares in Europe. Curver operates as part of Rubbermaid Europe.
On March 27, 1998, the Company acquired Swish Track and Pole ("Swish")
from Newmond Group PLC. Swish is a manufacturer and marketer of
decorative and functional window furnishings in Europe and operates as
part of Newell Window Fashions Europe. On May 19, 1998, the Company
acquired certain assets of Century Products ("Century"). Century is a
manufacturer and marketer of infant products such as car seats,
strollers and infant carriers and operates as part of the
Graco/Century division. On June 30, 1998, the Company purchased Panex
S.A. Industria e Comercio ("Panex"), a manufacturer and marketer of
aluminum cookware products in Brazil. Panex operates as part of the
Mirro division. On August 31, 1998, the Company purchased the
Gardinia Group ("Gardinia"), a manufacturer and supplier of window
treatments in Germany. Gardinia operates as part of Newell Window
7
Fashions Europe. On September 30, 1998, the Company purchased the
rotring Group ("Rotring"), a manufacturer and supplier of writing
instruments, drawing instruments, art materials and color cosmetic
products in Germany. The writing and drawing instruments piece of
Rotring operates as part of the Company's Sanford International
division. The art materials piece of Rotring operates as part of the
Company's Sanford North America division. The color cosmetic products
piece of Rotring operates as a separate U.S. division, Cosmolab. On
March 30, 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.
For these and other minor acquisitions, the Company paid $693.9
million in cash and assumed $102.9 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 dates of acquisition. 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 $513.3 million.
The Company began to formulate an integration plan for these
acquisitions as of their respective acquisition dates. The integration
plan for Curver was finalized during the first quarter of 1999 and
resulted in no integration liabilities included in the purchase price.
The Company's integration plans combined Curver into Rubbermaid
Europe. The integration plans for Century and Panex were finalized
during the second quarter of 1999 and resulted in integration liabilities
of $3.2 million for exit costs and employee terminations. The Company's
integration plans combined Century into Graco and Panex into Mirro.
No integration liabilities have been included in the allocation
of purchase price for Gardinia, Rotring and Ateliers as of June 30, 1999.
Such costs will be accrued upon finalization of each acquisition's
integration plan. The Company's finalized integration plans will
include exit costs for certain plants and product lines and employee
terminations associated with the integration of Gardinia into Newell
Window Fashions Europe and Rotring into Sanford International and
Sanford North America. The final adjustments to the purchase price
allocations are not expected to be material to the consolidated
financial statements.
8
The unaudited consolidated results of operations for the six
months ended June 30, 1999 and 1998 on a pro forma basis, as though
the Curver, Swish, Century, Panex, Gardinia, Rotring and Ateliers
businesses had been acquired on January 1, 1998, are as follows (in
millions, except per share amounts):
Six Months Ended
June 30,
-----------------
1999 1998
---- ----
Net sales $ 3,122.7 $ 3,293.2
Net income (loss) $ (49.0) $ 295.4
Basic earnings (loss) per share $ (0.17) $ 1.05
Mergers
-------
On May 7, 1998, a subsidiary of the Company merged with Calphalon
Corporation ("Calphalon"), a manufacturer and marketer of gourmet
cookware. The Company issued approximately 3.1 million shares of
common stock for all of the common stock of Calphalon. This
transaction was accounted for as a pooling of interests; therefore
prior financial statements were restated to reflect this merger.
Calphalon now operates as a separate division of the company.
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
for each outstanding share of Rubbermaid common stock. A total of
119.0 million shares (after adjustment 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. In connection with the merger, the Company incurred $36.8
million ($.13 per common share) of merger costs which were expensed
during the six months ended June 30, 1999 as restructuring costs. See
Note 3 for further detail of restructuring costs.
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 a former Rubbermaid operating division (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 have been eliminated as if Newell had always owned Eldon. The
following table presents a reconciliation of net sales and net income
for Newell, Rubbermaid and Calphalon individually to those presented
in the accompanying consolidated financial statements:
9
Six months ended June 30, 1999 1998
---------- ----------
Net sales:
Newell $ 1,832.3 $ 1,654.3
Rubbermaid 1,228.5 1,268.4
Calphalon 52.7 38.9
-------- --------
Combined $ 3,113.5 $ 2,961.6
======== ========
Net income:
Newell $ 98.9 $ 239.6
Rubbermaid (149.5) 61.6
Calphalon 1.7 (0.7)
-------- --------
Combined $ (48.9) $ 300.5
======== =======
Divestitures
------------
On April 29, 1998, the Company sold the assets of its
decorative covering product line (Decora). On August 21, 1998, the
Company sold its school supplies and stationery business (Stuart Hall).
On September 9, 1998, the Company sold its plastic storage and serveware
business (Newell Plastics). The pre-tax net gain on the sales of these
businesses was $59.8 million, most of which was offset by non-deductible
goodwill, resulting in a net after-tax gain of $15.1 million. Sales for
these businesses prior to their divestitures were approximately $131
million in 1998 and $229 million in 1997.
NOTE 3 - RESTRUCTURING COSTS
1998
----
During January 1998, Rubbermaid announced a series of
restructuring initiatives to establish a central global procurement
organization and to consolidate, automate, or relocate its worldwide
manufacturing and distribution operations. During the first six months
of 1998, Rubbermaid recorded pre-tax charges of $51.9 million. The
1998 restructuring charge included: (1) $4.5 million relating to employee
severance and termination benefits for sales and administrative employees,
(2) $15.2 million for costs to exit business activities at five facilities
and (3) $32.2 million to write down impaired long-lived assets to their
fair value. The charge for costs to exit business activities related to
exit plans for the closure of a plastic housewares molding and warehouse
operation in the state of New York, the closure of a commercial play
systems warehouse and manufacturing facility in Australia, the closure of
a cleaning products manufacturing operation in North Carolina, the
elimination of Rubbermaid's Asia Pacific regional headquarters and the
related joint venture in Japan and the closure of a distribution facility
in France.
10
The closure of the operations described above necessitated a
revaluation of the cash flows related to those operations, resulting
in a $32.2 million charge to write down $12.4 million of fixed assets
and $19.8 million of goodwill to fair value. Rubbermaid determined
that the future cash flows on an undiscounted basis (before taxes and
interest) were not sufficient to cover the carrying value of these
long-lived assets affected by these decisions. Management determined
the fair value of these assets using discounted cash flows.
1999
----
The 1998 restructuring program was terminated in the first
quarter of 1999 after the Newell merger with Rubbermaid. Management
is currently formulating a new restructuring plan for the combined
company and will be recording a restructuring reserve in 1999 to reflect
costs associated with redundant facility closures and related employee
termination benefits.
In the first six months of 1999, the Company recorded a pre-tax
restructuring charge of $186.7 million ($159.3 million after taxes).
The pre-tax charge related to the Rubbermaid acquisition, and included
$36.8 million of merger costs (investment banking, legal and
accounting fees), executive severance costs of $85.1 million and $64.8
million of exit costs primarily related to impaired Rubbermaid
capitalized computer software costs and facility exit costs
(concurrent with the merger with Rubbermaid, the Company decided that
all Rubbermaid businesses will be integrated into Newell's existing
information systems, resulting in an impairment of Rubbermaid's
capitalized software asset which will no longer be used).
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):
June 30, December 31,
1999 1998
-------- ------------
Materials and supplies $ 239.9 $ 223.8
Work in process 151.5 137.2
Finished products 687.0 672.5
--------- ---------
$ 1,078.4 $ 1,033.5
========= =========
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
11
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. On March 3, 1998, the Company sold 7,862,300
shares it held in The Black & Decker Corporation. The Black & Decker
transaction resulted in net proceeds of approximately $378.3 million
and a net pre-tax gain, after fees and expenses, of approximately
$191.5 million. Long-Term Marketable Equity Securities are summarized
as follows (in millions):
June 30, December 31,
1999 1998
-------- ------------
Aggregate market value $ 26.9 $ 19.3
Aggregate cost 26.3 26.0
-------- --------
Unrealized pre-tax gain (loss) $ 0.6 $ (6.7)
========= =========
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
millions):
June 30, December 31,
1999 1998
-------- ------------
Land $ 56.7 $ 78.4
Buildings and improvements 700.1 705.6
Machinery and equipment 2,149.8 2,166.9
-------- --------
2,906.6 2,950.9
Allowance for depreciation (1,392.0) (1,323.8)
-------- --------
$1,514.6 $ 1,627.1
======== =========
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).
12
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
June 30, December 31,
1999 1998
-------- ------------
Medium-term notes $ 877.5 $ 883.5
Commercial paper 644.5 500.2
Other long-term debt 35.2 17.5
--------- ---------
1,557.2 1,401.2
Current portion (7.2) (7.3)
--------- ---------
$ 1,550.0 $ 1,393.9
========= =========
Commercial paper in the amount of $644.5 million at June 30, 1999
was classified as long-term since it is supported by the 5-year $1.3
billion revolving credit agreement.
NOTE 8 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST OF THE COMPANY
In December 1997, a wholly owned subsidiary trust of the Company
issued 10,000,000 of its 5.25% convertible quarterly income preferred
securities (the "Convertible Preferred Securities"), with a
liquidation preference of $50 per security, to certain institutional
buyers. The Convertible Preferred Securities represent an undivided
beneficial interest in the assets of the trust. Each of the
Convertible Preferred Securities is convertible at the option of the
holder into shares of the Company's Common Stock at the rate of 0.9865
shares of Common Stock for each preferred security (equivalent to
$50.685 per share of Common Stock), subject to adjustment in certain
circumstances. Holders of the Convertible Preferred Securities are
entitled to a quarterly cash distribution at the annual rate of 5.25%
of the $50 liquidation preference commencing March 1, 1998. The
Convertible Preferred Securities are subject to a Company guarantee
and are callable by the Company initially at 103.15% of the
liquidation preference beginning in December 2001 and decreasing over
time to 100% of the liquidation preference beginning in December 2007.
The trust invested the proceeds of this issuance of the Convertible
Preferred Securities in $500 million of the Company's 5.25% Junior
Convertible Subordinated Debentures due 2027 (the "Debentures"). The
Debentures are the sole assets of the trust, mature December 1, 2027,
bear interest at the rate of 5.25%, payable quarterly, commencing
March 1, 1998, and are redeemable by the Company beginning in December
2001. The Company may defer interest payments on the Debentures for a
period not to exceed 20 consecutive quarters during which time
distribution payments on the Convertible Preferred Securities are also
13
deferred. Under this circumstance, the Company may not declare or pay
any cash distributions with respect to its capital stock or debt
securities that rank PARI PASSU with or junior to the Debentures.The
Company has no current intention to exercise its right to defer
payments of interest on the Debentures.
The Convertible Preferred Securities are reflected as outstanding
in the Company's consolidated financial statements as
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of a Subsidiary Trust.
NOTE 9 - 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 are calculated by dividing net income by weighted
average shares outstanding. "Diluted" earnings per share are
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
six months of 1999 and 1998 is shown below (in millions, except per
share data):
<TABLE>
<CAPTION>
Convertible
Basic "In the money" Preferred Diluted
Method stock options Securities Method(1)
------ --------------- ---------- ---------
<S> <C> <C> <C> <C>
Three months ended
June 30, 1999
Net Income $ 30.1 $ N/A $ N/A $ 30.1
Weighted average
shares outstanding 281.8 N/A N/A 281.8
Earnings per Share $ 0.11 - - $ 0.11
Three months ended
June 30, 1998
Net Income $ 142.0 $ 0.0 $ 4.0 $ 146.0
Weighted average
shares outstanding 280.7 1.5 9.9 292.1
Earnings per share $ 0.51 - - $ 0.50
First six months, 1999
Net loss $ (48.9) $ N/A $ N/A $ (48.9)
Weighted average
shares outstanding 281.6 N/A N/A 281.6
Loss per Share $ (0.17) - - $ (0.17)
First six months, 1998
Net Income $ 300.5 $ 0.0 $ 8.1 $ 308.6
Weighted average
shares outstanding 280.5 1.3 9.9 291.7
Earnings per share $ 1.07 - - $ 1.06
</TABLE>
(1) Diluted earnings per share for the three and six months ended
June 30, 1999 exclude the impact of "in the money" stock options
and convertible preferred securities because they are
antidilutive.
14
NOTE 10 - COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," (SFAS No. 130),
which requires companies to report all changes in equity during a
period, except those resulting from investment by owners and
distribution to owners, in a financial statement for the period in
which they are recognized. The Company has chosen to report
Comprehensive Income and Accumulated Other Comprehensive Income, which
encompasses net income, net unrealized gains on securities available
for sale and foreign currency translation adjustments, in the
Consolidated Statements of Stockholders' Equity and Comprehensive
Income. Prior years have been restated to conform to the SFAS No. 130
requirements.
The following table displays the components of Accumulated Other
Comprehensive Income:
<TABLE>
<CAPTION>
Net Accumulated
Unrealized Foreign Other
Gains/(Losses) Currency Comprehensive
(In Millions) on Securities Translation Income (Loss)
-------------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ (4.1) $ (82.1) $ (86.2)
Change during six months 4.5 (29.7) (25.2)
--------- --------- ----------
Balance at June 30, 1999 $ 0.4 $ (111.8) $ (111.4)
========= ========= ==========
</TABLE>
NOTE 11 - INDUSTRY SEGMENT INFORMATION
The Company reviewed the criteria for determining segments of an
enterprise in accordance with SFAS No. 131 and concluded it has three
reportable operating segments: Household Products, Hardware & Home
Furnishings and Office Products. This segmentation is appropriate
because the Company organizes its product categories into these groups
when making operating decisions and assessing performance. The
Company divisions included in each segment also sell primarily to the
same retail channel: Household Products (discount stores and warehouse
clubs), Hardware and Home Furnishings (home centers and hardware
15
stores) and Office Products (office superstores and contract
stationers). Based on the recent merger with Rubbermaid, the Company
added the Rubbermaid divisions to the former Housewares segment to
create the Household Products segment.
Three Months
Net Sales Ended June 30,
--------- ------------------------
1999 1998
---- ----
(In Millions)
Household Products $ 796.4 $ 831.4
Hardware & Home Furnishings 468.2 429.7
Office Products 332.7 298.4
-------- --------
Total Net Sales $1,597.3 $1,559.5
======== =======
Three Months
Operating Income Ended June 30,
---------------- -------------------------
1999 1998
---- ----
(In Millions)
Household Products $ (50.7) $ 101.4
Hardware & Home Furnishings 76.8 71.5
Office Products 80.5 76.3
Corporate (21.0) (12.0)
-------- --------
Subtotal $ 85.6 $ 237.2
Restructuring costs (8.7) (8.5)
-------- --------
Total Operating Income $ 76.9 $ 228.7
======== ========
Six Months
Net Sales Ended June 30,
--------- ------------------------
1999 1998
(In Millions) ---- ----
Household Products $ 1,638.5 $ 1,657.0
Hardware & Home Furnishings 898.8 803.3
Office Products 576.2 501.3
-------- --------
Total Net Sales $ 3,113.5 $ 2,961.6
======== =======
Six Months
Operating Income Ended June 30,
---------------- -------------------------
1999 1998
---- ----
(In Millions)
Household Products $ 37.2 $ 193.4
Hardware & Home Furnishings 128.8 112.7
Office Products 111.6 111.6
Corporate (40.7) (40.1)
-------- --------
Subtotal $ 236.9 $ 377.6
Restructuring costs (186.7) (51.9)
-------- --------
Total Operating Income $ 50.2 $ 325.7
======== ========
16
Identifiable Assets June 30, December 31,
------------------- -----------------------------
1999 1998
(In Millions) ---- ----
Household Products $2,279.8 $2,286.3
Hardware & Home Furnishings 1,027.9 995.8
Office Products 692.8 643.0
Corporate 2,307.8 2,364.1
-------- --------
Total Identifiable Assets $6,308.3 $6,289.2
======== =======
Operating income is net sales less cost of products sold and SG&A
expenses, but is not affected either by nonoperating (income) expenses
or by income taxes. Nonoperating (income) expenses consists
principally of net interest expense, and in 1998, the net gain on the
sale of Black & Decker common stock. In calculating operating income
for individual business segments, 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.
NOTE 12 - 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.
17
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1999 1998* 1999 1998*
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 73.7% 69.4% 72.9% 70.5%
----- ----- ----- -----
GROSS INCOME 26.3% 30.6% 27.1% 29.5%
Selling, general and
administrative expenses 20.2% 14.7% 18.7% 15.6%
Restructuring costs 0.5% 0.5% 6.0% 1.8%
Trade names and goodwill
amortization and other 0.8% 0.7% 0.8% 1.1%
----- ----- ----- -----
OPERATING INCOME 4.8% 14.7% 1.6% 11.0%
----- ----- ----- -----
Nonoperating expenses (income):
Interest expense 1.8% 1.4% 1.7% 1.5%
Other, net (0.1)% (1.4)% 0.1% (7.1)%
----- ----- ----- -----
Net nonoperating
expenses (income) 1.7% 0.0% 1.8% (5.6)%
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME
TAXES 3.1% 14.7% (0.2)% 16.6%
Income taxes 1.2% 5.6% 1.4% 6.5%
----- ----- ----- -----
NET INCOME (LOSS) 1.9% 9.1% (1.6)% 10.1%
===== ===== ===== =====
</TABLE>
See notes to consolidated financial statements.
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, and the merger with Calphalon on May 7, 1998, both of which
were accounted for as poolings of interests.
18
Three Months Ended June 30, 1999 Vs. Three Months Ended June 30, 1998
---------------------------------------------------------------------
Net sales for the three months ended June 30, 1999 ("second
quarter") were $1,597.3 million, representing an increase of $37.8
million or 2.4% from $1,559.5 million in the comparable quarter of
1998. Results for 1998 have been restated to include the March 1999
Rubbermaid merger and the May 1998 Calphalon merger, which were
accounted for as poolings of interests. The overall increase in net
sales was primarily attributable to contributions from Panex (acquired
in June 1998), Gardinia (acquired in August 1998), Rotring (acquired
in September 1998), Ateliers 28 (acquired in March 1999) and 4%
internal growth in the Newell core businesses. These increases were
partially offset by a 7% decline at the Rubbermaid divisions. Net
sales for each of the Company's segments (and the primary reasons for
the increase or decrease) were as follows, in millions:
<TABLE>
<CAPTION>
1999 1998 % change
---- ---- --------
<S> <C> <C> <C>
Household Products:
Former Housewares Group $ 201.8 $ 194.6 3.7%(1)
Rubbermaid Divisions 594.6 636.8 (6.6)%(2)
------- -------
796.4 831.4 (4.2)%
Hardware & Home Furnishings 468.2 429.7 9.0%(3)
Office Products 332.7 298.4 11.5%(4)
------- -------
$1,597.3 $1,559.5 2.4%
======== ========
</TABLE>
(1) Internal growth* of 4% plus Panex acquisition less Newell
Plastics divestiture.
(2) Unforecasted Rubbermaid promotional commitments made prior
to the merger.
(3) Gardinia and Ateliers 28 acquisitions.
(4) Internal growth of 9% plus Rotring acquisition less
Stuart Hall divestiture.
* The Company defines internal growth as growth from the core
businesses, which include continuing businesses owned more than two
years and minor acquisitions.
Gross income as a percentage of net sales in the second quarter
of 1999 was 26.3% or $420.8 million versus 30.6% or $476.9 million in
the comparable quarter of 1998. Excluding charges of $38.4 million
relating to the Rubbermaid merger, gross income in the second quarter
of 1999 was $459.2 million or 28.7% of net sales. Excluding charges,
gross margins at the Newell core businesses were maintained while the
1998 acquisitions had gross margins which were lower than the
Company's average gross margins and the Rubbermaid divisions' gross
margins declined in the second quarter of 1999 versus the second
quarter of 1998. As the 1998 acquisitions and Rubbermaid divisions
are integrated, the Company expects their gross margins to improve.
19
Selling, general and administrative expenses ("SG&A") in the
second quarter of 1999 were 20.2% of net sales or $322.5 million
versus 14.7% or $229.1 million in the comparable quarter of 1998.
Excluding charges of $89.0 million relating to the Rubbermaid merger,
SG&A in the second quarter of 1999 was $233.5 million or 14.6% of net
sales. Excluding charges, SG&A as a percentage of net sales
declined at Newell core businesses and at Newell Window Fashions
Europe due to integration efforts. This was offset by higher than
average SG&A expenditures at Rotring and Rubbermaid. As these
acquisitions are integrated, the Company expects their SG&A spending
as a percentage of net sales to decline.
In the second quarter of 1999, the Company recorded a pre-tax
restructuring charge of $8.7 million ($5.3 million after taxes). The
pre-tax charge related to the Rubbermaid acquisition, and included
$3.5 million of merger costs, executive severance costs of $1.8
million and a $3.4 million of exit costs primarily related to impaired
Rubbermaid capitalized computer software costs and facility exit costs
(concurrent with the merger with Rubbermaid, the Company decided that
all Rubbermaid businesses will be integrated into Newell's existing
information systems, resulting in an impairment of Rubbermaid's
capitalized software asset which will no longer be used).
In the second quarter of 1998, Rubbermaid recorded a pre-tax
restructuring charge of $8.5 million ($5.5 million after taxes). The
1998 restructuring charge primarily included costs associated with a
U.S. plant closure in the Rubbermaid Home Products division, a
reduction of the Rubbermaid sales and administrative staff in Asia, an
Australian plant closure in the Rubbermaid Commercial Products
division and the sale of Rubbermaid's joint venture in Japan.
Trade names and goodwill amortization and other in the second
quarter of 1999 were 0.8% of net sales or $12.6 million versus 0.7% or
$10.6 million in the comparable quarter of 1998.
Operating income in the second quarter of 1999 was 4.8% of net
sales or $70.9 million versus operating income of 14.7% or $228.7
million in the comparable quarter of 1998. Excluding restructuring
costs in 1998 and 1999 and other charges in 1999, operating income in the
second quarter of 1999 was 13.3% or $213.0 million versus 15.2% or
$237.2 million in the second quarter of 1998. The decrease in
operating margins was primarily due to the 1998 Rotring, Panex and
Gardinia acquisitions and to the Rubbermaid divisions whose margins
declined in the second quarter of 1999 versus the second quarter of
1998. This decrease was offset partially by an increase in margins at
several of the Company's core businesses. As the 1998 acquisitions
and Rubbermaid are integrated, the Company expects their operating
margins to improve.
Net nonoperating expenses in the second quarter of 1999 were 1.7%
of net sales or $27.6 million versus net nonoperating income of $0.3
million in the comparable quarter of 1998. The $27.9 million decrease
in income was primarily due to a one-time net gain of $24.1 million on
20
the sale of the Company's decorative coverings product line in the
second quarter of 1998.
Excluding restructuring costs and other gains and charges
in 1999 and 1998, the effective tax was 39.0% in the second
quarter of 1999 versus 37.8% in the second quarter of 1998.
Net income for the second quarter of 1999 was $30.1 million,
compared to net income of $142.0 million in the second quarter of
1998. Diluted earnings per share were $0.11 in the second quarter of
1999 compared to $0.50 in the second quarter of 1998. Excluding 1999
restructuring costs of $8.7 million ($5.3 million after taxes), other
1999 pre-tax charges of $127.4 million ($77.7 million after taxes),
1998 restructuring costs of $8.5 million ($5.3 million after
taxes), and the one-time net gain in 1998 on the sale of the Company's
decorative coverings product line of $24.1 million ($14.7 million
after taxes), net income declined $19.7 million or 14.8% to $113.1
million in the second quarter of 1999 versus $132.8 million in 1998.
Diluted earnings per share, calculated on the same basis, decreased
14.9% to $0.40 in the second quarter of 1999 versus $0.47 in the
second quarter of 1998. The decrease in net income and earnings per
share in the second quarter of 1999 was primarily due to profit
declines at the Rubbermaid divisions. These results were offset
partially by an increase in operating results at several of the
Newell's core businesses.
Six Months Ended June 30, 1999 Vs. Six Months Ended June 30, 1998
-----------------------------------------------------------------
Net sales for the first six months of 1999 were $3,113.5 million,
representing an increase of $151.9 million or 5.1% from $2,961.6
million in the comparable period of 1998. Results for 1998 have been
restated to include the March 1999 Rubbermaid merger and the May 1998
Calphalon merger, which were accounted for as poolings of interests.
The overall increase in net sales was primarily attributable to
contributions from Panex (acquired in June 1998), Gardinia (acquired
in August 1998), Rotring (acquired in September 1998), Ateliers 28
(acquired in March 1999) and 5% internal growth in the Newell core
businesses. These increases were offset by a 3% decline at the
Rubbermaid divisions. Net sales for each of the Company's segments
(and the primary reasons for the increase or decrease) were as
follows, in millions:
1999 1998 % change
---- ---- --------
Household Products:
Former Housewares Group $ 409.9 $ 388.6 5.5%(1)
Rubbermaid Divisions 1,228.6 1,268.4 (3.1)%(2)
------- -------
1,638.5 1,657.0 (1.1)%
Hardware & Home Furnishings 898.8 803.3 11.9%(3)
Office Products 576.2 501.3 14.9%(4)
------- -------
$3,113.5 $2,961.6 5.1%
======= ========
21
(1) Internal growth* of 7% plus Panex acquisition less Newell
Plastics divestiture.
(2) Unforecasted Rubbermaid promotional commitments made prior
to the merger.
(3) Internal growth of 2% plus the Gardinia and Ateliers 28
acquisitions.
(4) Internal growth of 7% plus the Rotring acquisition less
the Stuart Hall divestiture.
* The Company defines internal growth as growth from the core
businesses, which include continuing businesses owned more than two
years and minor acquisitions.
Gross income as a percentage of net sales in the first six months
of 1999 was 27.1% or $844.1 million versus 29.5% or $873.1 million in
the comparable period of 1998. Excluding charges of $38.4 million
relating to the Rubbermaid merger, gross income in the first six
months of 1999 was $882.5 million or 28.3% of net sales. Excluding
charges, gross margins at the Newell core businesses increased while
the 1998 acquisitions had gross margins which were lower than the
Company's average gross margins and the Rubbermaid divisions' gross
margins declined in the first six months of 1999 versus the first six
months of 1998. As the 1998 acquisitions and Rubbermaid divisions are
integrated, the Company expects their gross margins to improve.
Selling, general and administrative expenses ("SG&A") in the
first six months of 1999 were 18.7% of net sales or $582.5 million
versus 15.6% or $463.1 million in the comparable period of 1998.
Excluding charges of $89.0 million relating to the Rubbermaid merger,
SG&A in the first six months of 1999 was $493.5 million or 15.9% of
net sales. Excluding charges, SG&A as a percentage of net sales
declined at Newell core businesses and at Newell Window Fashions
Europe through integration efforts. This was more than offset by
higher than average SG&A expenditures at Rotring and Rubbermaid. As
these acquisitions are integrated, the Company expects their SG&A
spending as a percentage of net sales to decline.
In the first six months of 1999, the Company recorded a pre-tax
restructuring charge of $186.7 million ($159.3 million after taxes).
The pre-tax charge related to the Rubbermaid acquisition, and included
$36.8 million of merger costs (investment banking, legal and
accounting fees), executive severance costs of $85.1 million, a $64.8
million of exit costs primarily related to impaired Rubbermaid
capitalized computer software costs and facility exit costs
(concurrent with the merger with Rubbermaid, the Company decided that
all Rubbermaid businesses will be integrated into Newell's existing
information systems, resulting in an impairment of Rubbermaid's
capitalized software asset which will no longer be used).
In the first six months of 1998, Rubbermaid recorded a pre-tax
restructuring charge of $51.9 million ($33.7 million after taxes).
The 1998 restructuring charge primarily included costs associated with
22
a U.S. plant closure in the Rubbermaid Home Products division, a
reduction of the Rubbermaid sales and administrative staff in Asia, an
Australian plant closure in the Rubbermaid Commercial Products
division and the sale of Rubbermaid's joint venture in Japan.
Trade names and goodwill amortization and other in the first six
months of 1999 were 0.8% of net sales or $24.7 million versus 1.1% or
$32.4 million in the first six months of 1998. Excluding charges in
1998 of $11.4 million (which included write-offs of intangible
assets), trade names and goodwill amortization and other was 0.7% of
net sales.
Operating income in the first six months of 1999 was 1.6% of net
sales or $50.2 million versus 11.0% or $325.7 million in the
comparable period of 1998. Excluding restructuring costs in 1998 and
1999 and other charges in 1998 and 1999, operating income in the first
six months of 1999 was 11.7% or $364.3 million versus 13.1% or $389.0
million in the first six months of 1999 versus 1998. The decrease in
operating margins was primarily due to the 1998 acquisitions and to the
Rubbermaid divisions whose margins declined in the first six months of
1998. This decrease was offset partially by an increase in margins at
several of the Newell's core businesses. As the 1998 acquisitions and
Rubbermaid are integrated, the Company expects their operating margins
to improve.
Net nonoperating expenses in the first six months of 1999 were
1.8% of net sales or $55.9 million versus net nonoperating income of
5.6% of net sales or 164.6 million in the comparable period of 1998.
The $220.5 million decrease in income was primarily due to net gains
of $191.5 million and $24.1 million on the sales of the Company's
stake in Black & Decker and the Company's decorative coverings product
line.
Excluding restructuring costs and other gains and charges in 1999
and 1998, the effective tax was 39.0% in the first six months of 1999
versus 37.7% in the first six months of 1998.
The net loss for the first six months of 1999 was $48.9 million,
compared to net income of $300.5 million in the first six months of
1998. Diluted earnings (loss) per share were $(0.17) in the six months
of 1999 compared to $1.06 in the first six months of 1998. Excluding
1999 restructuring costs of $186.7 million ($159.3 million after
taxes), other 1999 pre-tax charges of $127.4 million ($77.7 million
after taxes), 1998 restructuring costs of $51.9 million ($33.7 million
after taxes), the net gain in 1998 on the sale of Black & Decker stock
of $191.5 million ($115.7 million after taxes), the 1998 net gain of
$24.1 million ($14.7 million after taxes) on the sale of the Company's
decorative coverings product line, and other 1998 pre-tax charges of
$11.4 million ($6.9 million after taxes), net income declined $22.6
million or 10.7% to $188.1 million the first six months of 1999 versus
$210.7 million in 1998. Diluted earnings per share, calculated on the
same basis, decreased 10.7% to $0.67 in the first six months of 1999
23
versus $0.75 in the first six months of 1998. The decrease in net
income and earnings per share in the first six months of 1999 was
primarily due to declines in profits at the Rubbermaid divisions.
These results were offset partially by an increase in operating
results at several of the Newell core businesses.
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.
Cash provided by operating activities in the first six months of
1999 was $24.1 million compared $47.4 million for the comparable
period of 1998.
On March 3, 1998, the Company received $378.3 million from the
sale of 7,862,300 shares of Black & Decker common stock. In April 1998,
the Company received $51.3 million from the sale of its decorative
coverings product line. The proceeds from the sales were used to pay
down commercial paper.
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 June 30, 1999 totaled $86.7 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 June 30, 1999, 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 June 30, 1999, $644.5 million (principal amount) of
commercial paper was outstanding. The entire amount is classified as
long-term debt.
The Company had outstanding at June 30, 1999 a total of $470.5
million of Medium-term notes issued during 1998. The maturities on
24
these notes range from five to thirty years at an average interest
rate of 6.0%. At June 30, 1999, the Company also had outstanding
$257.0 million (principal amount) of Medium-term notes issued under a
previous program with maturities ranging from five to ten years at an
average interest rate of 6.2%.
At June 30, 1999 the Company had outstanding $150.0 million
(principal amount) of Senior Notes with a maturity of November 15,
2006 at an interest rate of 6.6%.
Uses:
The Company's primary uses of liquidity and capital resources
include acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $48.8 million and $370.5
million in the first six months of 1999 and 1998, respectively. In the
first six months of 1998, the Company acquired Swish Track and Pole,
Curver, Panex and made another minor acquisition for cash purchase
prices totaling $371.6 million. In the first six months of 1999, the
Company acquired Ateliers 28 for a cash purchase price of $40.3
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 $121.7 million and $19.7
million in the first six months of 1999 and 1998, respectively. Such
cash payments 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 $89.0 million and $117.5 million in the
first six months of 1999 and 1998, respectively.
Aggregate dividends paid during the first six months of 1999 and
1998 were $113.0 million ($0.40 per share) and $105.8 million ($0.38
per share), respectively.
Retained earnings decreased in the first six months of 1999 by
$161.9 million. Retained earnings increased in the first six months
of 1998 by $168.2 million. The decrease in 1999 was primarily due to
restructuring costs of $186.7 million ($159.3 million after taxes) and
other pre-tax charges of $127.4 million ($77.7 million after taxes).
The increase in 1998 was primarily due to a net gain of $191.5 million
($115.7 million after taxes) on the sale of the Black & Decker common
stock.
Working capital at June 30, 1999 was $1,283.6 million compared to
$1,278.8 million at December 31, 1998. The current ratio at June 30,
1999 was 2.03:1 compared to 2.09:1 at December 31, 1998.
25
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 .33:1 at
June 30, 1999 and .30:1 at December 31, 1998.
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.
26
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
June 30, 1999 Period Level
------------- ------ ----------
(In millions)
Interest rates $9.2 1 day 95%
Foreign exchange $2.5 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.
YEAR 2000 COMPUTER COMPLIANCE
State of Readiness
------------------
Any computer equipment that uses two digits instead of four to
specify the year will be unable to interpret dates beyond the year
1999. This "Year 2000" issue could result in system failures or
miscalculations causing disruptions of operations.
27
In order to address Year 2000 compliance issues, the Company has
initiated a comprehensive project designed to minimize or eliminate
these kinds of operational disruptions in its information technology
("IT") systems, as well as its non-IT systems (e.g., HVAC systems and
building security systems). The project consists of six phases:
company recognition, inventory of systems, impact analysis, planning,
fixing and testing.
The Company's project is approximately 90% complete with all
phases for its IT systems and 80% complete for its non-IT systems in
the United States and Canada. The Company anticipates that all phases
will be completed for all IT and non-IT systems in the United States
and Canada by November 30, 1999. With respect to International IT
systems, approximately 75% of the Company's business systems are
currently compliant and approximately 25% are in the process of being
fixed and tested. With respect to International non-IT systems,
approximately 80% of the Company's non-IT systems are currently
compliant and 20% are in the process of being fixed and tested. The
Company anticipates that all phases will be completed for all foreign
IT and non-IT systems by
November 30, 1999.
As part of its Year 2000 project, the Company has initiated
communications with all of its key vendors and services suppliers
(including raw material and utility providers) to assess their state
of Year 2000 readiness. Most of its key vendors and service
suppliers have responded in writing to the Company's Year 2000
readiness inquiries and have said they will be Year 2000 compliant.
The Company plans to continue assessment of its third party
business partners, including face-to-face meetings with management
and/or onsite visits as deemed appropriate. The Company is prepared in
cases where its main vendor or service provider cannot continue with
its business due to Year 2000 problems to use alternate vendors as
sources for required materials. Despite the Company's efforts, there
can be no guarantee that the systems of other companies which the
Company relies upon to conduct its day-to-day business will be
compliant.
Costs
-----
The Company estimates that it will incur total expenses of $14
million to $16 million in conjunction with the Year 2000 compliance
project (including such expenses relating to the Rubbermaid
operations). As of June 30, 1999, the Company has spent $15 million in
conjunction with this project. The majority of these expenditures were
capitalized since they were associated with purchased software that
would have been replaced in the normal course of business.
28
Risks
-----
With respect to the risks associated with its IT and non-IT
systems, the Company believes that the most likely worst case scenario
is that the Company may experience minor system malfunctions and
errors in the early days and weeks of 2000 that were not detected
during its fixing and testing efforts. The Company also believes that
these problems will not have a material effect on the Company's
financial condition or results of operations.
With respect to the risks associated with third parties, the
Company believes that the most likely worst case scenario is that some
of the Company's vendors will not be compliant and will have
difficulty filling orders and delivering goods. Management also
believes that the number of such vendors will have been minimized by
the Company's program of identifying non-compliant vendors and
replacing or jointly developing alternative supply or delivery
solutions prior to 2000. Due to the diversity of its product lines,
the Company does not have material sensitivity to any one vendor or
service supplier.
The Company has limited the scope of its risk assessment to those
factors upon which it can reasonably be expected to have an
influence. For example, the Company has made the assumption that
government agencies, utility companies and telecommunications
providers will continue to operate. Obviously, the lack of such
services could have a material effect on the Company's ability to
operate, but the Company has little if any ability to influence such
an outcome, or to reasonably make alternative arrangements in advance
for such services in the event they are unavailable. Newell
Rubbermaid products are not dependent on dates and therefore are not
affected by the transition to the Year 2000.
Contingency Plans
-----------------
In the United States, the Company has all of its major business
systems running on a centralized system for all of its operating
divisions. Although extensive testing has been completed for these
systems, the following contingency plan has been adopted for Year 2000
issues that may occur on January 1, 2000 and thereafter:
- A triage team has been assembled which has the authority and
financial capabilities to rectify all systems problems that
may occur.
- The team consists of Corporate officers and managers from
every support function.
- The team has access to vendor support hotlines and internal
staffs.
- Once a problem has been identified and course of action
determined, staff will be assigned to provide
around-the-clock corrective actions until the problem is
resolved.
29
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.
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, the Euro conversion plan and related risks, the
Year 2000 plan and related risks, pending legal proceeding and claims
(including environmental matters), future economic performance,
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 in Exhibit
99 thereto.
30
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).
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.
As of June 30, 1999, 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 ("PRPs") 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 June
30, 1999 ranged between $17.0 million and $22.0 million. As of June
30, 1999, the Company had a reserve equal to $20.3 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,
31
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.
Reference is made to the disclosure of several legal proceedings
relating to the importation and distribution of vinyl mini-blinds made
with plastic containing lead stabilizers in Note 14 to the
consolidated financial statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. All such litigation
is pending. Although management of the Company cannot predict the
ultimate outcome of these matters with certainty, it believes that
their ultimate resolution will not have a material effect on the
Company's consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.12 The Company's 1993 Stock Option Plan, effective February 9,
1993, as amended May 26, 1999.
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 Current Report on Form 8-K dated June 30,
1999, restating Registrant's financial statements for 1998, 1997 and
1996 to reflect the pooling of interests accounting used in the merger
with Rubbermaid Incorporated.
32
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: August 13, 1999 /s/ William T. Alldredge
------------------------------------
William T. Alldredge
Vice President - Finance
Date: August 13, 1999 /s/ Brett E. Gries
-------------------------------------
Brett E. Gries
Vice President - Accounting & Audit
33
EXHIBIT 10.12
-------------
NEWELL RUBBERMAID INC.
AMENDED 1993 STOCK OPTION PLAN
---------------------
Section 1. Purpose
The purpose of the 1993 Stock Option Plan of Newell Rubbermaid
Inc. (the "Plan") is to benefit Newell Rubbermaid Inc. (the "Company")
and its Subsidiaries (as defined in Section 2) by recognizing the
contributions made to the Company by officers and other key employees
(including Directors of the Company who are also employees) of the
Company and its Subsidiaries, to provide such persons with additional
incentive to devote themselves to the future success of the Company,
and to improve the ability of the Company to attract, retain and
motivate individuals, by providing such persons with a favorable
opportunity to acquire or increase their proprietary interest in the
Company over a period of years through receipt of options to acquire
common stock of the Company. In addition, the Plan is intended as an
additional incentive to members of the Board of Directors of the
Company who are not employees of the Company ("Non-Employee
Directors") to serve on the Board of Directors of the Company (the
"Board of Directors") and to devote themselves to the future success
of the Company by providing them with a favorable opportunity to
acquire or increase their proprietary interest in the Company through
receipt of options to acquire common stock of the Company.
The Company may grant stock options which constitute "incentive
stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or stock
options which do not constitute ISO ("NSOs") (ISOs and NSOs being
hereinafter collectively referred to as "Options").
Section 2. Eligibility
Non-Employee Directors shall participate in the Plan only in
accordance with the provisions of Section 5 of the Plan. The Board
(as defined in Section 3) shall initially, and from time to time
thereafter, select those officers and other key employees (including
Directors of the Company who are also employees) (collectively
referred to herein as "Key Employees") of the Company or any other
entity of which the Company is the direct or indirect beneficial owner
of not less than fifty percent (50%) of all issued and outstanding
equity interests ("Subsidiaries"), to participate in the Plan on the
basis of the special importance of their services in the management,
development and operations of the Company or its Subsidiaries (each
such Director and Key Employee receiving Options granted under the
Plan is referred to herein as an "Optionee").
Section 3. Administration
3.1 The Board
The Plan shall be administered by the Board of Directors,
except that the Board of Directors may delegate administration of the
Plan to the Executive Compensation Committee for such time as the
Executive Compensation Committee is comprised of two (2) or more members
of the Board of Directors, all of which must (a) satisfy the
"disinterested" administration requirements set forth in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or any successor rule or regulation, and (b) not be officers
or employees of the Company or any Subsidiary. If at any time any member
of the Executive Compensation Committee does not satisfy such
disinterested administration requirements, the Executive Compensation
Committee may not grant any Options under this Plan to any person until
such time as all members of the Executive Compensation Committee satisfy
such requirements. For purposes of the Plan, the term "Board" shall
refer to the Board of Directors or the Executive Compensation Committee,
as applicable.
3.2 Authority of the Board
No person, other than members of the Board, shall have any
authority concerning decisions regarding the Plan. Subject to the
express provisions of this Plan, including but not limited to Section
5, the Board shall have sole discretion concerning all matters
relating to the Plan and Options granted hereunder. The Board, in its
sole discretion, shall determine the Key Employees of the Company and
its Subsidiaries to whom, and the time or times at which Options will
be granted, the number of shares to be subject to each Option, the
expiration date of each Option, the time or times within which the
Option may be exercised, the cancellation of the Option (with the
consent of the holder thereof) and the other terms and conditions of
the grant of the Option. The terms and conditions of the Options need
not be the same with respect to each Optionee or with respect to each
Option.
The Board may, subject to the provisions of the Plan,
establish such rules and regulations as it deems necessary or
advisable for the proper administration of the Plan, and may make
determinations and may take such other action in connection with or in
relation to the Plan as it deems necessary or advisable. Each
determination or other action made or taken pursuant to the Plan,
including interpretation of the Plan and the specific terms and
conditions of the Options granted hereunder by the Board shall be
final and conclusive for all purposes and upon all persons including,
but without limitation, the Company, its Subsidiaries, the Board of
Directors, officers and the affected employees of the Company and/or
its Subsidiaries and their respective successors in interest.
No member of the Board shall, in the absence of bad faith,
be liable for any act or omission with respect to service on the
Board. Service on the Board shall constitute service as a Director of
the Company so that members of the Board shall be entitled to
indemnification pursuant to the Company's Restated Certificate of
Incorporation and By-Laws.
Section 4. Shares of Common Stock Subject to Plan
4.1 The total number of shares of common stock, par value $1.00
per share, and associated preferred stock purchase rights of the
Company (the "Common Stock"), that may be issued and sold under the
Plan shall initially be 4,000,000. The total number of shares of
Common Stock that may be available for Options under the Plan shall be
adjusted on January 1 of each calendar year, within the Applicable
Period (as defined below), so that the total number of shares of
Common Stock that may be issued and sold under the Plan as of January
1 of each calendar year within the Applicable Period shall be equal to
five percent (5%) of the outstanding shares of Common Stock of the
Company on such date; provided, however, that no such adjustment shall
reduce the total number of shares of Common Stock that may be issued
and sold under the Plan below 4,000,000. For purposes of the
preceding sentence, Applicable Period shall be the ten-year period
commencing on January 1, 1993 and ending on December 31, 2002. The
aforementioned total number of shares of Common Stock shall be
adjusted in accordance with the provisions of Section 4.2 hereof.
Notwithstanding the foregoing, the total number of shares of Common
Stock that may be subject to ISOs under the Plan shall be 4,000,000
shares of Common Stock, adjusted in accordance with the provisions of
Section 4.2 hereof. The number of shares of Common Stock delivered by
any such Optionee or withheld by the Company on behalf of any such
Optionee pursuant to Sections 8.2 or 8.3 of the Plan shall once again
be available for issuance pursuant to subsequent Options. Any shares
of Common Stock subject to issuance upon exercise of Options but which
are not issued because of a surrender (other than pursuant to Sections
8.2 or 8.4 of the Plan), forfeiture, expiration, termination or
cancellation of any such Option, to the extent consistent with
applicable law, rules and regulations, shall once again be available
for issuance pursuant to subsequent Options.
4.2 The number of shares of Common Stock subject to the Plan and
to Options granted under the Plan shall be adjusted as follows: (a)
in the event that the number of outstanding shares of Common Stock is
changed by any stock dividend, stock split or combination of shares,
the number of shares subject to the Plan and to Options previously
granted thereunder shall be proportionately adjusted, (b) in the event
of any merger, consolidation or reorganization of the Company with any
other corporation or corporations, there shall be substituted on an
equitable basis as determined by the Board of Directors, in its sole
discretion, for each share of Common Stock then subject to the Plan
and for each share of Common Stock then subject to an Option granted
under the Plan, the number and kind of shares of stock, other
securities, cash or other property to which the holders of Common
Stock of the Company are entitled pursuant to the transaction, and (c)
in the event of any other change in the capitalization of the Company,
the Board, in its sole discretion, shall provide for an equitable
adjustment in the number of shares of Common Stock then subject to the
Plan and to each share of Common Stock then subject to an Option
granted under the Plan. In the event of any such adjustment, the
exercise price per share shall be proportionately adjusted.
Section 5. Grant of Options to Non-Employee Directors
5.1. Grants
All grants of Options to Non-Employee Directors shall be
automatic and non-discretionary. Each individual who is a Non-
Employee Director on November 6, 1997 shall be granted automatically a
NSO to purchase 5,000 shares of Common Stock on November 6, 1997.
Thereafter, each such Non-Employee Director shall be granted an
additional NSO to purchase 5,000 shares of Common Stock on the fifth
anniversary of the date the Director was last granted an Option
pursuant to this paragraph 5.1. Each individual who becomes a Non-
Employee Director after November 6, 1997 shall be granted
automatically a NSO to purchase 10,000 shares of Common Stock on the
date he or she becomes a Non-Employee Director. Thereafter, each such
Non-Employee Director shall be granted automatically an additional NSO
to purchase 10,000 shares of Common Stock on the fifth anniversary of
the date the Director was last granted an Option pursuant to this
paragraph 5.1.
5.2 Exercise Price and Period
The per share Option exercise price of each such NSO granted
to a Non-Employee Director shall be the "Fair Market Value," on the
date on which the Option is granted, of the Common Stock subject to
the Option. "Fair Market Value" shall mean the closing sales price of
the Common Stock on the New York Stock Exchange Composite Tape (as
reported in THE WALL STREET JOURNAL, Midwest Edition). Each such NSO
shall become exercisable with respect to one-fifth of the total number
of shares of Common Stock subject to the Option on the date twelve
months after the date of its grant and with respect to an additional
one-fifth of the total number of shares of Common Stock subject to the
Option at the end of each twelve-month period thereafter during the
succeeding four years. Each NSO shall expire on the date ten years
after the date of grant.
Section 6. Grants of Options to Employees
6.1 Grant
Subject to the terms of the Plan, the Board may from time to
time grant Options, which may be ISOs or NSOs, to Key Employees of the
Company or any of its Subsidiaries. Unless otherwise expressly
provided at the time of the grant, Options granted under the Plan to
Key Employees will be ISOs.
6.2 Option Agreement
Each Option shall be evidenced by a written Option Agreement
specifying the type of Option granted, the Option exercise price, the
terms for payment of the exercise price, the expiration date of the
Option, the number of shares of Common Stock to be subject to each
Option and such other terms and conditions established by the Board,
in its sole discretion, not inconsistent with the Plan.
6.3 Expiration
Except to the extent otherwise provided in or pursuant to
Section 7, each Option shall expire, and all rights to purchase shares
of Common Stock shall expire, on the tenth anniversary of the date on
which the Option was granted.
6.4 Exercise Period
Except to the extent otherwise provided in or pursuant to
Section 7, or in the proviso to this sentence, Options shall become
exercisable pursuant to the following schedule: with respect to one-
fifth of the total number of shares of Common Stock subject to Option
on the date twelve months after the date of its grant and with respect
to an additional one-fifth of the total number of shares of Common
Stock subject to the Option at the end of each twelve-month period
thereafter during the succeeding four years; provided, however, that
the Board, in its sole discretion, shall have the authority to shorten
or lengthen the exercise schedule with respect to any or all Options,
or any part thereof, granted to Key Employees under the Plan.
6.5 Required Terms and Conditions of ISOs
Each ISO granted to a Key Employee shall be in such form and
subject to such restrictions and other terms and conditions as the
Board may determine, in its sole discretion, at the time of grant,
subject to the general provisions of the Plan, the applicable Option
Agreement, and the following specific rules:
(a) Except as provided in Section 6.5(d), the per
share exercise price of each ISO shall be the Fair Market
Value of the shares of Common Stock on the date such ISO is
granted.
(b) The aggregate Fair Market Value (determined with
respect to each ISO at the time such Option is granted) of
the shares of Common Stock with respect to which ISOs are
exercisable for the first time by an individual during any
calendar year (under all incentive stock option plans of the
Company and its parent and subsidiary corporations) shall
not exceed $100,000. If the aggregate Fair Market Value
(determined at the time of grant) of the Common Stock
subject to an Option, which first becomes exercisable in any
calendar year exceeds the limitation of this Section 6.5(b),
so much of the Option that does not exceed the applicable
dollar limit shall be an ISO and the remainder shall be a
NSO; but in all other respects, the original Option
Agreement shall remain in full force and effect.
(c) As used in this Section 6, the words "parent" and
"subsidiary" shall have the meanings given to them in
Section 425(e) and 425(f) of the Code.
(d) Notwithstanding anything herein to the contrary,
if an ISO is granted to an individual who owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of
its parent or subsidiary corporations, within the meaning of
Section 422(b)(6) of the Code, (i) the purchase price of
each share of Common Stock subject to the ISO shall be not
less than one hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the date the ISO is granted,
and (ii) the ISO shall expire and all rights to purchase
shares thereunder shall cease no later than the fifth
anniversary of the date the ISO was granted.
(e) No ISOs may be granted under the Plan after
February 9, 2003.
6.6 Required Terms and Conditions of NSOs
Each NSO granted to Key Employees shall be in such form and
subject to such restrictions and other terms and conditions as the
Board may determine, in its sole discretion, at the time of grant,
subject to the general provisions of the Plan, the applicable Option
Agreement, and the following specific rule: the per share exercise
price of each NSO shall be the Fair Market Value of the shares of
Common Stock on the date the NSO is granted; provided however, that in
no event may the exercise price be less than the par value of the
shares of Common Stock subject to such NSO.
Section 7. Effect of Termination of Employment
7.1 Termination Generally
Except as provided in Sections 7.2, 7.3 and 11, or by the
Board of Directors, in its sole discretion, any Option held by an
Optionee whose employment with the Company and its Subsidiaries or
during service on the Board is terminated for any reason, shall
terminate on the date of termination of employment or service on
the Board of Directors. The transfer of employment from the Company
to a Subsidiary, or from a Subsidiary to the Company, or from a
Subsidiary to another Subsidiary, shall not constitute a termination
of employment for purposes of the Plan. Options granted under the Plan
shall not be affected by any change of duties in connection with the
employment of the Optionee or by leave of absence authorized by the
Company or a Subsidiary.
7.2 Death and Disability
In the event of the death or Disability (as defined below)
of an Optionee during employment with the Company or any of its
Subsidiaries or during service on the Board of Directors, all Options
held by the Optionee shall become fully exercisable on such date of
death or Disability. Each of the Options held by such an Optionee
shall expire on the earlier of (a) the first anniversary of the date
of death or Disability and (b) the date that such Option expires in
accordance with its terms. For purposes of this Section 7.2,
"Disability" shall mean the inability of an individual to engage in
any substantial gainful activity by reason of any medical determinable
physical or mental impairment which is expected to result in death or
which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Board, in its sole discretion,
shall determine the date of any Disability.
7.3 Retirement of Employees
(a) KEY EMPLOYEES (OTHER THAN KEY EMPLOYEES WHO ARE ALSO
DIRECTORS OF THE COMPANY). In the event the employment of a Key
Employee with the Company and/or its Subsidiaries (other than a Key
Employee who is also a Director of the Company) shall be terminated by
reason of Employee Retirement, all Options held by the Key Employee
shall become fully exercisable. Each of the Options held by such a
Key Employee shall expire on the earlier of (i) the first anniversary
of the date of the Employee Retirement and (ii) the date that such
Option expires in accordance with its terms. For purposes of this
Section 7.3, "Employee Retirement" shall mean retirement of a Key
Employee at age 65. In the event the employment of a Key Employee
with the Company and/or its Subsidiaries shall be terminated by reason
of a retirement that is not an Employee Retirement as herein defined,
the Board may, in its sole discretion, determine that the
exercisability and exercise periods set forth in this Section 7.3(a)
shall be applicable to Options held by such Key Employee.
(b) NON-EMPLOYEE DIRECTORS. In the event the service of a
Non-Employee Director on the Board of Directors shall be terminated by
reason of the retirement of such Non-Employee Director of the Company in
accordance with the Company's retirement policy for Directors, any
Option or Options granted to such Non-Employee Director shall continue
to vest and remain exercisable pursuant to Section 5, in the same
manner and to the same extent as if such Director had continued his or
her service on the Board of Directors during such period.
(c) KEY EMPLOYEES WHO ARE ALSO DIRECTORS. Section 7.3(b)
shall be applicable to Options held by any Key Employee who is also a
Director in the event the employment of such Key Employee with the
Company and/or its Subsidiaries shall be terminated by reason of
Employee Retirement, so long as the service of such Key Employee on
the Board of Directors continues after such Employee Retirement.
Section 7.3(a) shall be applicable to Options held by any Key Employee
who is also a Director in the event the employment of such Key Employee
with the Company and/or its Subsidiaries shall be terminated by reason of
Employee Retirement, if such Key Employee ceases to be a Director on
the date of such Key Employee's Employee Retirement.
Section 8. Exercise of Options
8.1. Notice
A person entitled to exercise an Option may do so by
delivery of a written notice to that effect specifying the number of
shares of Common Stock with respect to which the Option is being
exercised and any other information the Board may prescribe. The
notice shall be accompanied by payment as described in Section 8.2.
The notice of exercise shall be accompanied by the Optionee's copy of
the writing or writings evidencing the grant of the Option. All
notices or requests provided for herein shall be delivered to the
Secretary of the Company.
8.2 Exercise Price
Except as otherwise provided in the Plan or in any Option
Agreement, the Optionee shall pay the purchase price of the shares of
Common Stock upon exercise of any Option (a) in cash, (b) in cash
received from a broker-dealer to whom the Optionee has submitted an
exercise notice consisting of a fully endorsed Option (however, in the
case of an Optionee subject to Section 16 of the 1934 Act, this
payment option shall only be available to the extent such insider
complies with Regulation T issued by the Federal Reserve Board), (c)
by delivering shares of Common Stock having an aggregate Fair Market
Value on the date of exercise equal to the Option exercise price, (d)
by directing the Company to withhold such number of shares of Common
Stock otherwise issuable upon exercise of such Option having an
aggregate Fair Market Value on the date of exercise equal to the
Option exercise price, (e) in the case of a Key Employee, by such
other medium of payment as the Board, in its discretion, shall
authorize at the time of grant, or (f) by any combination of (a), (b),
(c), (d) and (e). In the case of an election pursuant to (a) or (b)
above, cash shall mean cash or a check issued by a federally insured
bank or savings and loan, and made payable to Newell Rubbermaid Inc.
In the case of payment pursuant to (b), (c) or (d) above, the Optionee's
election must be made on or prior to the date of exercise and shall be
irrevocable. In lieu of a separate election governing each exercise
of an Option, an Optionee may file a blanket election with the Board
which shall govern all future exercises of Options until revoked by
the Optionee. The Company shall issue, in the name of the Optionee,
stock certificates representing the total number of shares of Common
Stock issuable pursuant to the exercise of any Option as soon as
reasonably practicable after such exercise, provided that any shares
of Common Stock purchased by an Optionee through a broker-dealer
pursuant to clause (b) above shall be delivered to such broker-dealer
in accordance with 12 C.F.R. Section 220.3(e)(4) or other applicable
provision of law.
8.3 Taxes Generally
At the time of the exercise of any Option, as a condition of
the exercise of such Option, the Company may require the Optionee to
pay the Company an amount equal to the amount of the tax the Company
or any subsidiary may be required to withhold to obtain a deduction
for federal and state income tax purposes as a result of the exercise
of such Option by the Optionee or to comply with applicable law.
8.4 Payment of Taxes
At any time when an Optionee is required to pay an amount
required to be withheld under applicable income tax or other laws in
connection with the exercise of an Option, the Optionee may satisfy
this obligation in whole or in part by (a) directing the Company to
withhold such number of shares of Common Stock otherwise issuable upon
exercise of such Option having an aggregate Fair Market Value on the
date of exercise equal to the amount of tax required to be withheld,
or (b) delivering shares of Common Stock of the Company having an
aggregate Fair Market Value equal to the amount required to be
withheld. In the case of payment of taxes pursuant to (a) or (b)
above, the Optionee's election must be made on or prior to the date of
exercise and shall be irrevocable. The Board may disapprove any
election or delivery or may suspend or terminate the right to make
elections or deliveries. In lieu of a separate election governing
each exercise of an Option, an Optionee may file a blanket election
with the Board which shall govern all future exercises of Options
until revoked by the Optionee.
Section 9. Transferability of Options
No Option granted pursuant to the Plan shall be transferable
otherwise than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the
Code.
Section 10. Rights as Stockholder
An Optionee or a transferee of an Optionee pursuant to Section 9
shall have no rights as a stockholder with respect to any Common Stock
covered by an Option or receivable upon the exercise of an Option
until the Optionee or transferee shall have become the holder of
record of such Common Stock, and no adjustments shall be made for
dividends in cash or other property or other distributions or rights
in respect to such Common Stock for which the record date is prior to
the date on which the Optionee shall have in fact become the holder of
record of the shares of Common Stock acquired pursuant to the Option.
Section 11. Change in Control
11.1 Effect of Change in Control
Notwithstanding any of the provisions of the Plan or any
Option Agreement evidencing Options granted hereunder, upon a Change
in Control of the Company (as defined in Section 11.2) all outstanding
Options shall become fully exercisable and all restrictions thereon
shall terminate in order that Optionees may fully realize the benefits
thereunder. Further, in addition to the Board's authority set forth
in Section 3, the Board, as constituted before such Change in Control,
is authorized, and has sole discretion, as to any Option, either at
the time such Option is granted hereunder or any time thereafter, to
take any one or more of the following actions: (a) provide for the
purchase of any such Option, upon the Optionee's request, for an
amount of cash equal to the difference between the exercise price and
the then Fair Market Value of the Common Stock covered thereby had
such Option been currently exercisable; (b) make such adjustment to
any such Option then outstanding as the Board deems appropriate to
reflect such Change in Control; and (c) cause any such Option then
outstanding to be assumed, by the acquiring or surviving corporation,
after such Change in Control.
11.2 Definition of Change in Control
The term "Change in Control" shall mean the occurrence, at
any time during the specified term of an Option granted under the
Plan, of any of the following events:
(a) The occurrence of any "Distribution Date," as such
term is defined in Section 3 of the Rights Agreement between
the Company and First Chicago Trust Company of New York
dated October 20, 1988, as such may be amended from time to
time;
(b) The Company is merged or consolidated or
reorganized into or with another corporation or other legal
person (an "Acquiror") and as a result of such merger,
consolidation or reorganization less than 50% of the
outstanding voting securities or other capital interests of
the surviving, resulting or acquiring corporation or other
person are owned in the aggregate by the stockholders of the
Company, directly or indirectly, immediately prior to such
merger, consolidation or reorganization, other than the
Acquiror or any corporation or other person controlling,
controlled by or under common control with the Acquiror;
(c) The Company sells all or substantially all of its
business and/or assets to an Acquiror, of which less than
50% of the outstanding voting securities or other capital
interests are owned in the aggregate by the stockholders of
the Company, directly or indirectly, immediately prior to
such sale, other than the Acquiror or any corporation or
other person controlling, controlled by or under common
control with the Acquiror; or
(d) The election to the Board of Directors, without the
recommendation or approval of the incumbent Board of Directors,
of the lesser of (i) three Directors or (ii) Directors constituting
a majority of the number of Directors of the Company then in
office.
Section 12. Postponement of Exercise
The Board may postpone any exercise of an Option for such time as
the Board in its sole discretion may deem necessary in order to permit
the Company (a) to effect, amend or maintain any necessary
registration of the Plan or the shares of Common Stock issuable upon
the exercise of an Option under the Securities Act of 1933, as
amended, or the securities laws of any applicable jurisdiction, (b) to
permit any action to be taken in order to (i) list such shares of
Commons Stock on a stock exchange if shares of Common Stock are then
listed on such exchange or (ii) comply with restrictions or
regulations incident to the maintenance of a public market for its
shares of Common Stock, including any rules or regulations of any
stock exchange on which the shares of Common Stock are listed, or (c)
to determine that such shares of Common Stock and the Plan are exempt
from such registration or that no action of the kind referred to in
(b)(ii) above needs to be taken; and the Company shall not be
obligated by virtue of any terms and conditions of any Option or any
provision of the Plan to recognize the exercise of an Option or to
sell or issue shares of Common Stock in violation of the Securities
Act of 1933 or the law of any government having jurisdiction thereof.
Any such postponement shall not extend the term of an Option and
neither the Company nor its directors or officers shall have any
obligation or liability to an Optionee, to the Optionee's successor or
to any other person with respect to any shares of Common Stock as to
which the Option shall lapse because of such postponement.
Section 13. Termination or Amendment of Plan
The Board may terminate, suspend, or amend the Plan, in whole
or in part, from time to time, without the approval of the
stockholders of the Company, unless such approval is required by
applicable law or the rules and regulations of any stock exchange on
which the shares of Common Stock are listed.
The Board may correct any defect or supply an omission or
reconcile any inconsistency in the Plan or in any Option granted
hereunder in the manner and to the extent it shall deem desirable, in
its sole discretion, to effectuate the Plan.
No amendment or termination of the Plan shall in any manner
affect any Option theretofore granted without the consent of the
Optionee, except that the Board may amend the Plan in a manner that
does affect Options theretofore granted upon a finding by the Board
that such amendment is in the best interest of holders of outstanding
Options affected thereby.
This Plan is intended to comply with all applicable requirements
of Rule 16b-3 or its successors under the 1934 Act, insofar as
participants subject to Section 16 of the 1934 Act are concerned. To
the extent any provision of the Plan does not so comply, the provision
shall, to the extent permitted by law and deemed advisable by the
Board, be deemed null and void with respect to such participants.
Section 14. Effective Date
The Plan has been adopted and authorized by the Board of
Directors for submission to the stockholders of the Company. If the
Plan is approved by the affirmative vote of a majority of the shares
of the voting stock of the Company entitled to be voted by the holders
of stock represented at a duly held stockholders' meeting, it shall be
deemed to have become effective as of February 9, 1993. Options may
be granted under the Plan prior, but subject, to approval of the Plan
by stockholders of the Company and, in each such case, the date of
grant shall be determined without reference to the date of approval of
the Plan by the stockholders of the Company.
EXHIBIT 11
----------
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS
PER SHARE OF COMMON STOCK
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998*
---- ----
<S> <C> <C>
Basic Earnings (loss) per Share:
Net income (loss) $(48,945) $ 300,508
Weighted average outstanding 281,639 280,547
Basic Earnings (loss) per Share (0.17) $ 1.07
Diluted Earnings per Share:
Net income (loss) $(48,945) $ 300,508
Minority interest in income of
subsidiary trust, net of tax N/A (1) 8,115
------ --------
Net income, assuming conversion
of all applicable securities $(48,945) $ 308,623
Weighted average shares outstanding: 281,639 280,547
Incremental common shares applicable
to common stock options based on
the market price during the period N/A (1) 1,273
Average common shares issuable assuming
conversion of the Company-Obligated
Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary
Trust N/A (1) 9,865
------ --------
Weighted average shares outstanding
assuming full dilution 281,639 291,685
Diluted Earnings (loss) per Share assuming
conversion of all applicable securities(1) $ (0.17) $ 1.06
</TABLE>
*Restated for the March 1999 merger with Rubbermaid Incorporated and the
merger with Calphalon on May 7, 1998, both of which were accounted for as
poolings of interests.
(1) Diluted earnings per share for the six months ended June 30, 1999
exclude the impact of "in the money" stock options and convertible
preferred securities because they are anti-dilutive.
EXHIBIT 12
----------
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio data)
Six Months Ended June 30,
1999 1998*
---- ----
Earnings (loss) available to
fixed charges:
Income before income taxes $(5,752) $490,312
Fixed charges:
Interest expense 49,701 43,677
Portion of rent determined
to be interest (1) 13,996 12,168
Minority interest in
income of subsidiary trust 13,396 13,304
Eliminate equity in earnings of
unconsolidated entities (4,056) (4,458)
-------- --------
$67,285 $555,003
======== ========
Fixed charges:
Interest expense 49,701 43,677
Portion of rent determined
to be interest (1) 13,996 12,168
Minority interest in
income of subsidiary trust 13,396 13,304
-------- --------
$ 77,093 $ 69,149
======== ========
Ratio of earnings to fixed charges 0.87 8.03
======== ========
(1) A standard ratio of 33% was applied to gross rent expense to
approximate the interest portion of short-term and long-term leases.
*Restated for the March 1999 merger with Rubbermaid Incorporated and the
merger with Calphalon on May 7, 1998, both of which were accounted for
as poolings of interests.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial informa-
tion extracted from the Newell Rubbermaid Inc. and
Subsidiaries Consolidated Balance Sheets and
Statements of Income and is qualified in its
entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 48,996
<SECURITIES> 0
<RECEIVABLES> 1,166,204
<ALLOWANCES> (33,868) <F1>
<INVENTORY> 1,078,431
<CURRENT-ASSETS> 2,531,593
<PP&E> 2,906,611 <F2>
<DEPRECIATION> (1,392,050) <F2>
<TOTAL-ASSETS> 6,308,253
<CURRENT-LIABILITIES> 1,247,962
<BONDS> 1,550,023
500,000
0
<COMMON> 281,898
<OTHER-SE> 2,400,607
<TOTAL-LIABILITY-AND-EQUITY> 6,308,253
<SALES> 3,113,507
<TOTAL-REVENUES> 844,114
<CGS> 2,269,383
<TOTAL-COSTS> 3,063,270
<OTHER-EXPENSES> 55,989
<LOSS-PROVISION> 8,437 <F1>
<INTEREST-EXPENSE> 49,701
<INCOME-PRETAX> (5,752)
<INCOME-TAX> 43,193
<INCOME-CONTINUING> (48,945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,945)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
<FN>
<F1> Allowances for doubtful accounts are reported as contra accounts
to accounts receivable. The corporate reserve for bad debts is a
percentage of trade receivables based on the bad debts experienced
in one or more past years, general economic conditions, the age of
the receivables and other factors that indicate the element of
uncollectibility in the receivables outstanding at the end of the
period.
<F2> See notes to consolidated financial statements.
</TABLE>
