SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1999 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.)
Newell Center
29 East Stephenson Street
Freeport, Illinois 61032-0943
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (Zip Code)
Registrant's telephone number, including area code: (815) 235-4171
--------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1 par value per share, New York Stock Exchange
and associated Common Stock Purchase Chicago Stock Exchange
Rights
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. / /
There were 282.0 million shares of the Registrant's Common Stock
outstanding as of December 31, 1999. The aggregate market value of
the shares of Common Stock (based upon the closing price on the New
York Stock Exchange on that date) beneficially owned by non-affiliates
of the Registrant was approximately $8,178 million. For purposes of
the foregoing calculation only, which is required by Form 10-K, the
Registrant has included in the shares owned by affiliates those shares
owned by directors and officers of the Registrant, and such inclusion
shall not be construed as an admission that any such person is an
affiliate for any purpose.
DOCUMENTS INCORPORATED BY REFERENCE
PART III
Portions of the Registrant's Definitive Proxy Statement for its Annual
Meeting of Stockholders to be held May 10, 2000.
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ITEM 1. BUSINESS
"Newell" or the "Company" refers to Newell Rubbermaid Inc. alone
or with its wholly-owned subsidiaries, as the context requires.
GENERAL
The Company is a manufacturer and full-service marketer of staple
consumer products sold to high-volume purchasers, including discount
stores and warehouse clubs, home centers and hardware stores, and
office superstores and contract stationers. The Company's basic
business strategy is to merchandise a multi-product offering of brand
name, staple consumer products, which are concentrated in product
categories with relatively steady demand not dependent on changes in
fashion, technology or season, and to differentiate itself by
emphasizing superior customer service. The Company's multi-product
offering consists of staple consumer products in three business
segments: Household Products, Hardware and Home Furnishings and Office
Products. The Company's primary financial goals are to achieve above
average sales and earnings growth, to achieve an annual return on
beginning equity of 20% and to maintain a conservative level of debt.
The Company's growth strategy emphasizes acquisitions and
internal growth. The Company has grown both domestically and
internationally by acquiring businesses with brand name product lines
and improving the profitability of such businesses through an
integration process called "Newellization." Since 1990, the Company
has completed more than 20 major acquisitions (excluding Rubbermaid)
representing more than $3 billion in additional sales. The Company
supplements acquisition growth with internal growth, principally by
introducing new products, entering new domestic and international
markets, adding new customers, cross-selling existing product lines to
current customers and supporting its U.S.-based customers'
international expansion.
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, information or assumptions about sales,
income, earnings per share, return on equity, capital expenditures,
dividends, capital structure, free cash flow, debt to capitalization
ratios, interest rates, internal growth rates, Euro conversion plans
and related risks, Year 2000 plans and related risks, pending legal
proceedings and claims (including environmental matters), future
economic performance, operating income improvements, synergies,
management's plans, goals and objectives for future operations and
growth or the assumptions relating to any of the forward-looking
statements. The Company cautions that forward-looking statements are
not guarantees since there are inherent difficulties in predicting
future results; 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
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to, those matters set forth in this Report, the documents incorporated
by reference herein and Exhibit 99 to this Report.
Product Groups
--------------
The Company's three business segments are Household Products,
Hardware and Home Furnishings and Office Products.
HOUSEHOLD PRODUCTS
Household Products
------------------
The Company's Household Products business is conducted by the
Rubbermaid Home Products, Curver (Europe) and Goody divisions.
Rubbermaid Home Products and Curver design, manufacture or source,
package and distribute indoor and outdoor organization, storage, and
cleaning products. Goody is a leading manufacturer of hair care
accessories.
Rubbermaid Home Products, Curver and Goody products are primarily
sold under the Rubbermaid{R}, Curver{R}, Ace{R}, Wilhold{R} and
Goody{R} trademarks.
Rubbermaid Home Products, Curver and Goody market their products
directly and through distributors to mass merchants, warehouse clubs,
grocery/drug stores and hardware distributors, using a network of
manufacturers' representatives, as well as regional direct sales
representatives and market-specific sales managers.
Principal U.S. facilities are located in Phoenix, Arizona;
Centerville, Iowa; Winfield, Kansas; Greenville, North Carolina;
Wooster, Ohio; Mogadore, Ohio; Cleburn, Texas; Manchester, Georgia;
and Greenville, Texas. Principal foreign facilities are located in
Muhltal, Germany; Mississauga, Ontario; Amiens, France; Lomme, France;
Grossiat, France; Dreiech, Germany; Debrecen, Hungary; Cartagena,
Mexico; Brunssum, Netherlands; Goirle, Netherlands; Seupsk, Poland;
Zaragoza, Spain; and Corby, United Kingdom.
Food Preparation, Cooking and Serving
-------------------------------------
The Company's Food Preparation, Cooking and Serving business is
conducted by the Mirro, Panex and Calphalon cookware and bakeware
divisions and the Anchor Hocking and Newell Europe glassware
divisions. Mirro and Panex primarily design, manufacture, package and
distribute aluminum and steel cookware and bakeware for the U.S. and
Latin American retail marketplace. Mirro also designs, manufactures,
packages and distributes various specialized aluminum cookware and
bakeware items for the food service industry. It also produces
aluminum contract stampings and components for other manufacturers and
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makes aluminum and plastic kitchen tools and utensils. Mirro
manufacturing operations are highly integrated, rolling sheet stock
from aluminum ingot, and producing phenolic handles and knobs at its
own plastics molding facility. Calphalon primarily designs,
manufactures or sources, packages and distributes hard anodized
aluminum cookware and bakeware for the department/specialty store
marketplace. Anchor Hocking and Newell Europe primarily design,
manufacture, package and distribute glass products. These products
include glass ovenware, servingware, cookware and dinnerware products.
Anchor Hocking also produces foodservice products, glass lamp parts,
lighting components, meter covers and appliance covers for the
foodservice and specialty markets. Newell Europe also produces glass
components for appliance manufacturers, and its products are marketed
primarily in Europe, the Middle East and Africa only.
Mirro and Calphalon products are sold primarily under the
trademarks Mirro{R}, WearEver{R}, Calphalon{R}, Regal{R}, Panex{R},
Penedo{TM}, Rochedo{TM} and Clock{TM}, AirBake{R}, Cushionaire{R},
Concentric Air{R}, Channelon{R}, WearEver Air{R}, Club{R}, Royal
Diamond{R} and Kitchen Essentials{TM}. Anchor Hocking products are
sold primarily under the trademarks Anchor{R}, Anchor Hocking{R} and
Oven Basics{R}. Newell Europe's products are sold primarily under
the trademarks of Pyrex{R}, Vision{R} and Visions{R} (each used under
exclusive license from Corning Incorporated and its subsidiaries in
Europe, the Middle East and Africa only), Pyroflam{R} and Vitri{R}.
Mirro markets its products directly to mass merchants, warehouse
clubs, grocery/drug stores, department/specialty stores, hardware
distributors, cable TV networks and select contract customers, using a
network of manufacturers' representatives, as well as regional zone
and market-specific sales managers. Calphalon primarily markets its
products directly to department/specialty stores. Anchor Hocking
markets its products directly to mass merchants, warehouse clubs,
grocery/drug stores, department/specialty stores, hardware
distributors and select contract customers, using a network of
manufacturers' representatives, as well as regional zone and
market-specific sales managers. Anchor Hocking also markets its
products to manufacturers which supply the mass merchant and home
party channels of trade. Newell Europe markets its products to mass
merchants, industrial manufacturers and buying groups using a direct
sales force and manufacturers' representatives in some markets.
Principal U.S. facilities are located in Manitowoc and Chilton,
Wisconsin; Toledo, Ohio; Lancaster, Ohio and Monaca, Pennsylvania.
Principal foreign facilities are located in Sao Paulo, Brazil;
Sunderland, Great Britain; Muhltal, Germany; and Chateauroux, France.
Infant/Juvenile Care & Play
---------------------------
The Company's Infant/Juvenile Care & Play business is conducted
by the Graco/Century and Little Tikes divisions. These businesses
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design, manufacture or source, package and distribute infant and
juvenile products such as high chairs, infant seats, strollers, play
yards, ride-ons and outdoor activity play equipment.
Graco/Century and Little Tikes are primarily sold under the
Graco{R}, Little Tikes{R} and Century{R} trademarks.
Graco/Century and Little Tikes market their products directly and
through distributors to mass merchants, warehouse clubs, grocery/drug
stores and hardware distributors, using a network of manufacturers'
representatives, as well as regional direct sales representatives and
market-specific sales managers.
Principal U.S. facilities are located in City of Industry,
California; Hudson, Ohio; Sebring, Ohio; Macedonia, Ohio; Elverson,
Pennsylvania; and Greer, South Carolina. The principal foreign
facility is located in Niedercorn, Luxembourg.
Commercial Products
-------------------
The Company's Commercial Products business is conducted by
Rubbermaid Commercial Products division, which designs, manufactures
or sources, packages and distributes industrial and commercial waste
and recycling containers, cleaning equipment, food storage, serving
and transport containers, outdoor play systems and home health care
products. The products of Rubbermaid Commercial Products are sold
under the Rubbermaid{R}, Carex{R} and Brute{R} trademarks.
Rubbermaid Commercial Products markets its products directly and
through distributors to commercial channels and home centers using a
direct sales force.
Principal U.S. facilities are located in Cleveland, Tennessee;
Winchester, Virginia; and Farmington, Missouri. The principal foreign
facility is located in Cadereyta, Mexico.
HARDWARE AND HOME FURNISHINGS
-----------------------------
Hardware and Tools
------------------
The Company's hardware and tools business is conducted by the
Amerock Cabinet and Window Hardware Systems, Bulldog Fastener, EZ
Paintr, BernzOmatic, Lee Rowan and Newell Hardware Europe divisions.
Amerock Cabinet and Window Hardware Systems manufacture or source,
package and distribute cabinet hardware for the retail and O.E.M.
marketplace and window hardware for window manufacturers. Bulldog
packages and distributes hardware, which includes bolts, screws and
mechanical fasteners. EZ Paintr manufactures and distributes manual
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paint applicator products. BernzOmatic manufactures and distributes
propane/oxygen hand torches. Lee Rowan primarily designs,
manufactures or sources, packages and distributes wire storage and
laminate products and ready-to-assemble closet organization and work
shop cabinets. Newell Hardware Europe is a manufacturer and
marketer of shelving and storage products, cabinet hardware and
functional trims.
Amerock, Bulldog, EZ Paintr, BernzOmatic, Lee Rowan and Newell
Hardware Europe products are sold primarily under the trademarks
Amerock{R}, Allison{R}, Bulldog{R}, EZ Paintr{R}, BernzOmatic{R},
Doorfile{R}, Lee Rowan{R}, System Works{R}, Douglas Kane{R}, Spur{R},
Nenplas{R}, Homelux{R} and Ashland{TM}.
Amerock, Bulldog, EZ Paintr, BernzOmatic and Lee Rowan market
their products directly and through distributors to mass merchants,
home centers, hardware distributors, cabinet shops and window
manufacturers, using a network of manufacturers' representatives, as
well as regional zone and market-specific sales managers.
Principal facilities are located in Rockford, Illinois; St.
Francis, Wisconsin; Jackson, Missouri; Vista, California; and Medina,
New York. The principal foreign facilities are located in Watford,
Ontario, Canada; Borken, Germany; Birmingham, United Kingdom;
Ashbourne, United Kingdom; and Watford Hurts, United Kingdom.
Window Furnishings
------------------
The Company's window furnishings business is conducted by the
Levolor Home Fashions, Newell Window Furnishings and Newell Window
Fashions Europe divisions. Levolor Home Fashions and Newell Window
Furnishings primarily design, manufacture or source, package and
distribute drapery hardware, made-to-order and stock horizontal and
vertical blinds, and pleated, cellular and roller shades for the
retail marketplace. Levolor Home Fashions also produces window
treatment components for custom window treatment fabricators. Newell
Window Fashions Europe primarily designs, manufactures, packages and
distributes drapery hardware and made-to-order window treatments for
the European retail marketplace.
Levolor Home Fashions, Newell Window Furnishings and Newell
Window Fashions Europe products are sold primarily under the
trademarks Newell{R}, Levolor{R}, Louverdrape{R}, Del Mar{R},
Kirsch{R}, Acrimo{R}, Swish{R}, Gardinia{R}, Harrison Drape{R},
Spectrim{R}, MagicFit{R}, Riviera{R} and Levolor Cordless{TM}.
Levolor Home Fashions and Newell Window Furnishings market their
products directly and through distributors to mass merchants, home
centers, department/specialty stores, hardware distributors, custom
shops and select contract customers, using a network of manufacturers'
representatives, as well as regional account and market-specific sales
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managers. Newell Window Fashions Europe markets its products to mass
merchants and buying groups using a direct sales force.
Principal U.S. facilities are located in Freeport, Illinois; High
Point, North Carolina and Sturgis, Michigan. Principal foreign
facilities are located in Ablis, France; Isny, Germany; Milan, Italy;
Lisbon, Portugal; Vitoria, Spain; Malmo, Sweden; and Tamworth, Great
Britain.
Picture Frames and Albums
-------------------------
The Company's picture frames and albums business is conducted by
the Intercraft/Burnes and Newell Frames and Albums Europe divisions.
These divisions primarily design, manufacture or source, package and
distribute wood, wood composite and metal ready-made picture frames
and photo albums.
Intercraft/Burnes ready-made picture frames are sold primarily
under the trademarks Intercraft{R}, Decorel{R}, Burnes of Boston{R},
Carr{R}, Rare Woods{R} and Terragrafics{R}, while photo albums are
sold primarily under the Holson{R} trademark. Newell Frames and
Albums Europe products are sold primarily under the trademarks
Albadecor{R} and Panodia{R}.
Intercraft/Burnes markets its products directly to mass
merchants, warehouse clubs, grocery/drug stores and
department/specialty stores, using a network of manufacturers'
representatives, as well as regional zone and market-specific sales
managers. Intercraft{R}, Decorel{R} and Holson{R} products are sold
primarily to mass merchants, while the remaining U.S. brands are sold
primarily to department/specialty stores. Newell Frames and Albums
Europe markets its products to mass merchants, buying groups and the
do it yourself market using a direct sales force.
Principal U.S. facilities are located in Taylor, Texas;
Statesville, North Carolina; Claremont, New Hampshire; and Covington,
Tennessee; principal foreign facilities are located in Mississauga,
Ontario, Canada; St. Laurent Sur Gorre, France; Neunge Sur Beuvron,
France; La Ferte Milon, France; and Durango, Mexico.
OFFICE PRODUCTS
Markers and Writing Instruments
-------------------------------
The Company's Markers and Writing Instruments business is
conducted by the Sanford North America, Sanford International and
Cosmolab divisions. Sanford North America primarily designs,
manufactures or sources, packages and distributes permanent/waterbase
markers, dry erase markers, overhead projector pens, highlighters,
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wood-cased pencils, ballpoint pens and inks, and other art supplies,
and distributes other writing instruments including roller ball pens
and mechanical pencils for the retail marketplace. Sanford
International primarily designs and manufactures, packages and
distributes ball point pens, wood-cased pencils, roller ball pens and
other art supplies for the retail and distributor markets. Cosmolab
primarily designs and manufactures, packages and distributes private
label cosmetic pencils for commercial customers.
Sanford products are sold primarily under the trademarks
Sanford{R}, Eberhard Faber{R}, Berol{R}, Grumbacher{R}, Reynolds{R},
Rotring{R}, Sharpie{R}, Uni-Ball{R} (used under exclusive license from
Mitsubishi Pencil Co. Ltd. and its subsidiaries), Expo{R}, Accent{R},
Vis-a-Vis{R}, Expresso{R} and Mongol{R}.
Sanford North America markets its products directly and through
distributors to mass merchants, warehouse clubs, grocery/drug stores,
office superstores, office supply stores, contract stationers, and
hardware distributors, using a network of company sales
representatives, regional sales managers, key account managers and
selected manufacturers' representatives. Sanford International markets
its products directly to retailers and distributors using a direct
sales force.
Principal U.S. facilities are located in Bellwood, Illinois and
Lewisburg and Shelbyville, Tennessee. Principal foreign facilities
are located in Tlalnepantla, Mexico; Bogota, Colombia; Maracay,
Venezuela; Kings Lynn, United Kingdom; Oakville, Ontario, Canada;
Pasteje, Mexico; Valence, France; and Hamburg, Germany.
Office Products
---------------
The Company's office products business is conducted through its
Newell Office Products division. Newell Office Products primarily
designs, manufactures or sources, packages and distributes desktop
accessories, computer accessories, storage products, card files and
chair mats.
Newell Office Products markets its products under the Rolodex{R},
Eldon{R}, Rogers{R} and Rubbermaid{R} trademarks.
Newell Office Products markets its products directly and through
distributors to mass merchants, warehouse clubs, grocery/drug stores,
office superstores, office supply stores and contract stationers,
using a network of manufacturers' representatives, as well as regional
zone and market-specific key account representatives and sales
managers.
Principal facilities are located in Moca, Puerto Rico; Maryville,
Tennessee; and Madison, Wisconsin.
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Net Sales by Industry Segment
-----------------------------
The following table sets forth the amounts and percentages of the
Company's net sales for the three years ended December 31 (including
sales of acquired businesses from the time of acquisition and sales of
divested businesses through date of sale), for the Company's three
operating segments. Sales to Wal-Mart Stores, Inc. and subsidiaries
amounted to approximately 12% of consolidated net sales in 1999, 14%
in 1998 and 15% in 1997. Sales to no other customer exceeded 10% of
consolidated net sales.
<TABLE>
<CAPTION>
% of % of % of
1999 total 1998 total 1997 total
---- ----- ---- ----- ---- -----
(In millions, except percentages)
Household Products Segment:
<S> <C> <C> <C>
Household Products $1,345.6 21% $ 1,492.7 24% $1,307.7 23%
Food Preparation, Cooking & Serving 763.3 12% 768.8 12% 780.6 14%
Infant/Juvenile Care & Play 807.6 13% 736.4 12% 727.3 13%
Commercial Products 418.5 6% 387.4 7% 384.0 7%
-------- -- --------- -- -------- --
Total Household Products
Segment $3,335.0 52% $ 3,385.3 55% $3,199.6 57%
Hardware & Home Furnishings Segment:
Window Furnishings $ 914.9 14% $ 808.7 13% $ 562.6 10%
Hardware & Tools 585.1 9% 562.8 9% 562.8 10%
Picture Frames & Albums 397.2 7% 386.6 6% 359.4 6%
-------- -- --------- -- --------- --
Total Hardware & Home Furnishings
Segment $1,897.2 30% $1,758.1 28% 1,484.8 26%
Office Products Segment:
Markers & Writing Instruments $ 926.2 14% $ 714.7 12% $ 601.4 11%
Office Products 254.7 4% 254.9 4% 267.7 5%
School Supplies & Stationery(1) - - 70.7 1% 87.9 1%
-------- -- -------- -- -------- --
Total Office Products Segment $1,180.9 18% 1,040.3 17% 957.0 17%
Total Company $6,413.1 100% $6,183.7 100% $5,641.4 100%
======== === ======== === ======== ===
</TABLE>
(1) On August 21, 1998, the Company sold its Stuart Hall school
supplies and stationery business.
Certain 1998 and 1997 amounts have been reclassified to conform with
the 1999 presentation.
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Export Sales
------------
The Company's export sales business, defined as sales of products
made in the U.S. and sold abroad, is conducted through its Newell
International division. For purposes of the table immediately above,
sales attributable to the Newell International division are allocated
to the operating segment that manufactured the products.
GROWTH STRATEGY
The Company's growth strategy emphasizes acquisitions and
internal growth. The Company has grown both domestically and
internationally by acquiring businesses with brand name product lines
and improving the profitability of such businesses through an
integration process referred to as "Newellization." Since 1990, the
Company has completed more than 20 major acquisitions (excluding
Rubbermaid) representing more than $3 billion in additional sales.
The Company supplements acquisition growth with internal growth,
principally by introducing new products, entering new domestic and
international markets, adding new customers, cross-selling existing
product lines to current customers and supporting its U.S.-based
customers' international expansion.
Acquisitions and Integration
----------------------------
Acquisition Strategy
--------------------
The Company primarily grows by acquiring businesses and product
lines with a strategic fit with the Company's existing businesses. It
also seeks to acquire product lines with a number one or two position
in the markets in which they compete, a low technology level, a long
product life cycle and the potential to reach the Company's standard
of profitability. In addition to adding entirely new product lines,
the Company uses acquisitions to round out existing businesses and
fill gaps in its product offering, add new customers and distribution
channels, expand shelf space for the Company's products with existing
customers, and improve operational efficiency through shared
resources.
Newellization
-------------
"Newellization" is the Company's well-established profit
improvement and productivity enhancement process that is applied to
integrate newly acquired product lines. The Newellization process
includes establishing a more focused business strategy, improving
customer service, reducing corporate overhead through centralization
of administrative functions and tightening financial controls. In
integrating acquired businesses, the Company typically centralizes
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accounting systems, capital expenditure approval, cash management,
order processing, billing, credit, accounts receivable and data
processing operations. To enhance efficiency, Newellization also
focuses on improving manufacturing processes, eliminating
non-productive lines, reducing inventories, increasing accounts
receivable turnover and trimming excess costs.
Newellization also builds partnerships with customers and
improves sales mix profitability through program merchandising
techniques. The Newellization process usually takes approximately two
to three years to complete.
Internal Growth
---------------
The second element of the Company's growth strategy is internal
growth. Once an acquired business has been Newellized, the Company's
strategy is to build profitable sales and contribute to the Company's
internal growth. Avenues for internal growth include introducing new
products, entering new domestic and international markets, adding new
customers, cross-selling existing product lines to current customers
and supporting its U.S.-based customers' international expansion. The
Company's goal is to achieve an internal growth rate of 3-5% per year.
Internal growth is defined by the Company as growth from its "core
businesses," which include continuing businesses owned more than two
years and minor acquisitions. The Company intends to continue to
pursue internal growth opportunities to complement its acquisition
growth.
International
-------------
The Company is pursuing international opportunities to further
its acquisition and internal growth objectives. The rapid growth of
consumer goods economies and retail structures in several regions
outside the U.S., particularly Europe, Mexico and South America, makes
them attractive to the Company by providing opportunities to acquire
businesses, develop partnerships with new foreign customers and extend
relationships with the Company's domestic customers whose businesses
are growing internationally. The Company's recent acquisitions,
combined with existing sales to foreign customers, increased its sales
outside the U.S. to approximately 23% of total sales in 1999 from 15%
in 1997.
Additional information regarding acquisitions of businesses is
included in Item 6 and Note 2 to the consolidated financial
statements.
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MARKETING AND DISTRIBUTION
Customer Service
----------------
The Company believes that one of the primary ways it
distinguishes itself from its competitors is through customer service.
The Company's ability to provide superior customer service is a result
of its information technology, marketing and merchandising programs
designed to enhance the sales and profitability of its customers and
consistent on-time delivery of its products.
Information Technology
----------------------
The Company is an industry leader in the application of
Electronic Data Interchange ("EDI") technology, an electronic link
between the Company and many of its retail customers and invests in
advanced computer systems. The Company uses EDI to receive and
transmit purchase orders, invoices and payments. With the replacement
of paper-based processing with computer-to-computer business
transactions, EDI has cut days off the order/shipping cycle.
Building upon its EDI expertise, the Company has established
"Quick Response" programs with several major customers. These
programs allow the Company to implement customized features such as
vendor-managed inventories in which the Company manages certain or all
aspects of inventory of several product categories at customer
locations. The Company's experience is that its customers benefit
from such programs by increased inventory turnover and reduced
customer waiting periods for out-of-stock product.
On-Time Delivery
----------------
A critical element of the Company's customer service is
consistent on-time delivery of products to its customers. Retailers
are pursuing a number of strategies to deliver the highest-quality,
lowest-cost products to their customers. A growing trend among
retailers is to purchase on a "just-in-time" basis in order to reduce
inventory costs and increase returns on investment. As retailers
shorten their lead times for orders, manufacturers need to more
closely anticipate consumer buying patterns. The Company supports its
retail customers' "just-in-time" inventory strategies through
investments in improved forecasting systems, more responsive
manufacturing and distribution capabilities and electronic
communications. The Company manufactures the vast majority of its
products and has extensive experience in high-volume, cost-effective
manufacturing. The high-volume nature of its manufacturing processes
and the relatively consistent demand for its products enables the
Company to ship most products directly from its factories without the
need for independent warehousing and distribution centers. For 1999,
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approximately 98% of the items ordered by customers were shipped on
time, typically within two to three days of the customer's order.
Marketing and Merchandising
---------------------------
The Company's objective is to develop long-term, mutually
beneficial partnerships with its customers and become their supplier
of choice. To achieve this goal, the Company has a value-added
marketing program that offers a family of leading brand name staple
products, tailored sales programs, innovative merchandising support,
in-store services and responsive top management.
The Company's merchandising skills help customers stimulate store
traffic and sales through timely advertising and innovative
promotions. The Company also assists customers in differentiating
their offerings by customizing products and packaging. Through
self-selling packaging and displays that emphasize good-better-best
value relationships, retail customers are encouraged to trade up to
higher-value, best quality products.
Customer service also involves customer contact with top-level
decision makers at the Company's divisions. As part of its
decentralized structure, the Company's division presidents are the
chief marketing officers of their product lines and communicate
directly with customers. This structure permits early recognition of
market trends and timely response to customer problems.
Multi-Product Offering
----------------------
The Company's increasingly broad product coverage in multiple
product lines permits it to more effectively meet the needs of its
customers. With families of leading, brand name products and
profitable new products, the Company also can help volume purchasers
sell a more profitable product mix. As a potential single source for
an entire product line, the Company can use program merchandising to
improve product presentation, optimize display space for both sales
and income and encourage impulse buying by retail customers.
Corporate Structure
-------------------
By decentralizing its manufacturing and marketing efforts while
centralizing key administrative functions, the Company seeks to foster
a responsive entrepreneurial culture. The Company's divisions
concentrate on designing, manufacturing, merchandising, selling their
products and servicing their customers, which facilitates product
development and responsiveness to customers. Administrative functions
that are centralized at the corporate level include cash management,
accounting systems, capital expenditure approvals, order processing,
billing, credit, accounts receivable, data processing operations and
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legal functions. Centralization concentrates technical expertise in
one location, making it easier to observe overall business trends and
manage the Company's businesses.
Backlog
-------
The dollar value of unshipped factory orders is not material.
Seasonal Variations
-------------------
The Company's product groups are only moderately affected by
seasonal trends. Household products typically have higher sales in
the second half of the year due to retail stocking related to the
holiday season; Hardware and Home Furnishings products have higher
sales in the second and third quarters due to an increased level of
do-it-yourself projects completed in the summer months; and Office
Products have higher sales in the second and third quarters due to the
back-to-school season. Because these seasonal trends are moderate,
the Company's consolidated quarterly sales do not fluctuate
significantly, unless a significant acquisition is made.
Foreign Operations
------------------
Information regarding the Company's 1999, 1998 and 1997 foreign
operations is included in Note 14 to the consolidated financial
statements and is incorporated by reference herein.
Raw Materials
-------------
The Company has multiple foreign and domestic sources of supply
for substantially all of its material requirements. The raw materials
and various purchased components required for its products have
generally been available in sufficient quantities.
Patents and Trademarks
----------------------
The Company has many patents, trademarks, brand names and trade
names, none of which is considered material to the consolidated
operations.
Competition
-----------
The rapid growth of high-volume retailers, such as discount
stores and warehouse clubs, home centers and hardware stores, and
office superstores and contract stationers, together with changes in
consumer shopping patterns, have contributed to a significant
-15-
consolidation of the U.S. retail industry and the formation of
dominant multi-category retailers. Other trends among retailers are
to require manufacturers to maintain or reduce product prices or
deliver products with shorter lead times, or for the retailer to
import generic products directly from foreign sources. The
combination of these market influences creates a highly competitive
environment in which the Company's principal customers continuously
evaluate which product suppliers to use, resulting in pricing
pressures and the need for ongoing improvements in customer service.
For more than 30 years, the Company has positioned itself to
respond to the challenges of this retail environment by developing
strong relationships with large, high-volume purchasers. The Company
markets its strong multi-product offering through virtually every
category of high-volume retailer, including discount, drug, grocery
and variety chains, warehouse clubs, department, hardware and
specialty stores, home centers, office superstores, contract
stationers and military exchanges. The Company's largest customer,
Wal-Mart (including Sam's Club), accounted for approximately 12% of
net sales in 1999. Other top ten customers included Kmart, The Home
Depot, Toys 'R Us, The Office Depot, Target, JCPenney, United
Stationers, Office Max and Lowe's.
The Company's other principal methods of meeting its competitive
challenges are high brand name recognition, superior customer service
(including industry leading information technology, innovative
"good-better-best" marketing and merchandising programs), consistent
on-time delivery, decentralized manufacturing and marketing,
centralized administration, and experienced management.
Environment
-----------
Information regarding the Company's environmental matters is
included in the Management's Discussion and Analysis section of this
report and in Note 15 to the consolidated financial statements and is
incorporated by reference herein.
Employees
---------
The Company has approximately 44,000 employees worldwide, of whom
9,668 are covered by collective bargaining agreements or, in certain
countries, other collective arrangements decreed by statute.
ITEM 2. PROPERTIES
The following table shows the location and general character of
the principal operating facilities owned or leased by the Company. The
properties are listed within their designated industry segment:
Household Products, Hardware & Home Furnishings and Office Products.
These are the primary manufacturing locations and in many instances
-16-
also contain administrative offices and warehouses used for
distribution of our products. The Company also maintains sales
offices throughout the United States and the world. The executive
offices are located in Beloit, Wisconsin, which is an owned facility
occupying approximately 9,000 square feet. The corporate offices are
located in Illinois in owned facilities at Freeport (approximately
91,000 square feet) and in owned and leased space in Rockford
(approximately 8,700 square feet). Most of the idle facilities, which
are excluded from the following list, are subleased while being held
pending sale or lease expiration. The Company's properties are
generally in good condition, well-maintained, and are suitable and
adequate to carry on the Company's business.
<TABLE>
<CAPTION>
OWNED OR
INDUSTRY SEGMENT LOCATION CITY LEASED GENERAL CHARACTER
---------------- -------- ---- ------ -----------------
<S> <C> <C> <C> <C>
HOUSEHOLD PRODUCTS OH Lancaster O Glassware & Bakeware
PA Monaca O Glassware & Food Service
France Chateauroux O Glassware & Bakeware
United Kingdom Sunderland O Glassware & Bakeware
OH Perrysburg O Cookware
WI Manitowoc O Cookware & Bakeware - 5 facilities
WI Chilton O Cookware Components
Brazil Sao Paulo L Cookware
Germany Muhltal O Plastic Storage Ware
AZ Phoenix O Home Products
IA Centerville O Home Products
KS Winfield O Home Products - 2 facilities
NC Greenville O Home Products
OH Wooster O Home Products
OH Mogadore O Home Products
Ontario Mississauga O Home Products
TX Cleburne O Home Products
TX Greenville O Home Products
France Amiens O Home Products
France Lomme L Home Products
France Grossiat O Home Products
Germany Dreieich O Home Products
Hungary Debrecen L Home Products
Mexico Cartagena O Home Products
Netherlands Brunssum O Home Products
Netherlands Goirle O Home Products
Poland Seupsk O Home Products
Spain Zaragoza O Home Products
United Kingdom Corby O Home Products
TN Cleveland O Commercial Products - 2 facilities
VA Winchester L Commercial Products - 2 facilities
Mexico Cadereyta O Commercial Products
MO Farmington O Outdoor Play Systems
-17-
OWNED OR
INDUSTRY SEGMENT LOCATION CITY LEASED GENERAL CHARACTER
---------------- -------- ---- ------ -----------------
CA City of L Juvenile Products
Industry
OH Hudson O Juvenile Products
OH Sebring O Juvenile Products
Luxembourg Niedercorn O Juvenile Products
OH Macedonia O Infant Products
PA Elverson O Infant Products
SC Greer L Infant Products
GA Manchester O Hair Accessories - 2 facilities
HARDWARE & HOME
FURNISHINGS
IL Rockford O Cabinet & Window Hardware
IN Lowell O Window Hardware
TN Johnson City O Paint Applicators
WI Milwaukee O Paint Applicators
NY Ogdensburg O Small Hardware
NY Medina O Propane/Oxygen Hand Torches
NC Statesville O Picture Frames
NH Claremont O Picture Frames & Photo Albums
TX Taylor O Picture Frames
Mexico Durango O Picture Frames
Mexico Tijuana L Picture Frames
France St. Laurent Sur O Picture Frames
Gorre
France Neunge Sur O Picture Frames
Beuvion
Milon
France La Ferte Milon O Picture Frames
IL Freeport O Window Treatments
GA Athens O Window Treatments
CA Westminster L Window Treatments - 3 facilities
UT Salt Lake City L Window Treatments
PA Shamokin O Window Treatments
TX Waco O Window Treatments
IL Holland L Window Treatments
NJ Rockaway L Window Treatments
NC High Point O Window Treatments
UT Ogden O Window Treatments
MI Sturgis O Window Treatments
Denmark Hornum O Window Treatments
France Tremblay-les- O Window Treatments
Villages
France Feuquieres-en- O Window Treatments
Vimeu
Germany Borken L Window Treatments
Germany Isny O Window Treatments
-18-
OWNED OR
INDUSTRY SEGMENT LOCATION CITY LEASED GENERAL CHARACTER
---------------- -------- ---- ------ -----------------
Italy Como O Window Treatments
Italy Frosinone O Window Treatments
Spain Vitoria O Window Treatments
Sweden Anderstorp O Window Treatments
Sweden Malmo O Window Treatments
United Kingdom Birmingham O/L Window Treatments
United Kingdom Ashbourne O Window Treatments
United Kingdom Watford Herts L Window Treatments
United Kingdom Tamworth O Window Treatments
CA Vista O Home Storage Systems
MO Jackson O Home Storage Systems
Ontario Watford O Home Storage Systems
OFFICE PRODUCTS TN Maryville O Office & Storage Organizers
WI Madison O Office & Storage Organizers - 4 facilities
Puerto Rico Moca O Office & Storage Organizers
TN Lewisburg O Cosmetic Pencils
IL Bellwood O Writing Instruments - 3 facilities
TN Lewisburg O Writing Instruments
TN Shelbyville O Writing Instruments - 2 facilities
Germany Hamburg O Writing Instruments
Mexico Tlalnepantla O Writing Instruments
Mexico Pasteje L Writing Instruments
Colombia Bogota O Writing Instruments
United Kingdom Kings Lynn O Writing Instruments
Venezuela Maracay O Writing Instruments
France Valence O Writing Instruments
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings is included in Note 15 to
the consolidated financial statements and is incorporated by reference
herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
shareholders during the fourth quarter of fiscal year 1999.
SUPPLEMENTARY ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT AS OF
12/31/99.
-19-
<TABLE>
<CAPTION>
Name Age Present Position With the Company
---- --- ---------------------------------
<S> <C> <C>
John J. McDonough 63 Chief Executive Officer
Thomas A. Ferguson, Jr. 52 President and Chief Operating Officer
William T. Alldredge 59 President-International Business Development
Dale L. Matschullat 54 Chief Financial Officer
Richard C. Dell 53 Group President
William J. Denton 55 Group President
Robert S. Parker 54 Group President
Gilbert A. Niesen 55 Vice President - Personnel Relations
Jeffrey J. Burbach 43 Vice President - Controller
</TABLE>
John J. McDonough has been Vice Chairman and Chief Executive Officer
of the Company since January 1, 1998 and a Director since 1992. He
was Senior Vice President-Finance of the Company from November 1981
through April 1983. Mr. McDonough has also been President and Chief
Executive Officer of McDonough Capital Company LLC (an investment
management company) since April 1995. Prior thereto, he was Vice
Chairman and a Director of Dentsply International Inc. (a manufacturer
and distributor of dental and medical x-ray equipment and other dental
products) from 1983 through October 1995, and was Chief Executive
Officer from April 1983 through February 1995.
Thomas A. Ferguson, Jr. has been President and Chief Operating Officer
since May 1992. From January 1989 to May 1992, he was
President-Operating Companies.
William T. Alldredge was appointed President-International Business
Development in November 1999. He was Vice President-Finance of the
Company from August 1983 to November 1999.
Dale L. Matschullat has been the Chief Financial Officer since
December 1999. He was Vice President-General Counsel from September
1989 to December 1999.
Richard C. Dell has been Group President since June 1992. He was
President of Amerock from November 1989 to June 1992. He was
President of EZ Paintr from September 1987 to November 1989.
William J. Denton has been Group President since March 1990. From
April 1989 to March 1990, he was Vice President-Corporate Controller.
-20-
He was President of Anchor Hocking Glass from August 1987 to April
1989.
Robert S. Parker has been Group President since August 1998. He was
President of Sanford Corporation from February 1992 to August 1998.
Gilbert A. Niesen has been Vice President-Personnel Relations since
May 1998. He was Vice President of Human Resources of the Mirro
Division from March 1994 to May 1998, and Vice President of Human
Resources of Amerock Corporation from December 1987 to March 1994.
Jeffrey J. Burbach has been Vice President-Controller since June 1999.
He was President of EZ Paintr from December 1994 to June 1999. He was
President of BernzOmatic from September 1992 to December 1994.
-21-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed on the New York and Chicago
Stock Exchanges (symbol: NWL). As of December 31, 1999, there were
29,404 stockholders of record. The following table sets forth the
high and low sales prices of the Common Stock on the New York Stock
Exchange Composite Tape (as published in the Wall Street Journal) for
the calendar periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- --------------------------- ----------------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Quarters:
First $ 50 $ 36 3/8 $ 50 3/16 $ 40 7/8 $ 38 3/8 $30 3/8
Second 52 40 1/8 49 3/16 45 7/16 40 1/16 32 7/8
Third 47 11/16 27 3/16 54 7/16 43 3/16 43 1/4 37 1/2
Fourth 36 1/2 26 1/4 49 1/16 37 3/16 43 3/16 35 1/8
</TABLE>
The Company has paid regular cash dividends on its Common Stock
since 1947. On February 1, 2000, the quarterly cash dividend was
increased to $0.21 per share from the $0.20 per share that had been
paid since February 8, 1999. Prior to this date, the quarterly cash
dividend paid was $0.18 per share since February 10, 1998, which was
an increase from the $0.16 per share paid since February 11, 1997.
Information about the 5.25% convertible quarterly income
preferred securities issued by a wholly owned subsidiary trust of the
Company, which are reflected as outstanding in the Company's
consolidated financial statements as Company-Obligated Mandatorily
Redeemable Convertible Preferred Securities of a Subsidiary Trust, is
included in Note 6 to the consolidated financial statements and is
incorporated by reference herein.
-22-
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain consolidated financial
information relating to the Company at December 31. The summary has
been derived in part from, and should be read in conjunction with, the
consolidated financial statements of the Company included elsewhere in
this report and the schedules thereto.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $6,413,074 $6,183,674 $5,641,441 $5,233,930 $4,837,953
Cost of products sold 4,671,875 4,360,860 4,005,958 3,669,559 3,432,132
---------- ---------- ---------- ---------- ---------
Gross income 1,741,199 1,822,814 1,635,483 1,564,371 1,405,821
Selling, general and
administrative expenses 1,104,491 967,916 838,871 789,887 708,242
Restructuring Costs 246,381 115,154 37,200 - 158,000
Trade names and goodwill
amortization and other 46,722 59,405 119,743 30,487 23,964
---------- --------- -------- -------- -------
Operating income 343,605 680,339 639,663 735,007 515,615
Nonoperating expenses (income):
Interest expense 100,021 100,514 114,357 84,822 65,125
Other, net 12,645 (237,148) (19,284) (23,127) (22,296)
--------- --------- --------- --------- ---------
Net 112,666 (136,634) 95,073 61,695 42,829
--------- --------- --------- --------- ---------
Income before income taxes 230,939 816,973 544,590 673,312 472,786
Income taxes 135,502 335,139 222,973 261,872 186,539
--------- --------- --------- --------- ---------
Net income $ 95,437 $ 481,834 $ 321,617 $ 411,440 $ 286,247
========= ========= ========== ========= =========
Earnings Per Share
Basic $ 0.34 $ 1.72 $ 1.15 $ 1.46 $ 1.00
Diluted $ 0.34 $ 1.70 $ 1.14 $ 1.46 $ 1.00
Dividends per share $ 0.80 $ 0.76 $ .70 $ 0.63 $ 0.55
Weighted Average Shares
Outstanding
Basic 281,806 280,731 280,300 280,894 286,461
Diluted 281,806 291,883 281,653 281,482 286,779
-23-
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
BALANCE SHEET DATA
Inventories $1,034,794 $1,033,488 $ 902,978 $ 801,255 $ 769,762
Working capital 1,108,700 1,278,768 1,006,624 953,890 899,158
Total assets 6,724,088 6,289,155 5,775,248 5,112,410 4,656,718
Short-term debt 247,433 101,968 258,201 154,555 287,546
Long-term debt, net of current
maturities 1,455,779 1,393,865 989,694 1,197,486 782,744
Stockholders' equity 2,697,006 2,843,732 2,661,417 2,513,722 2,436,958
</TABLE>
1996
----
On January 19, 1996, the Company acquired the Holson Burnes
Group, Inc. ("Holson Burnes"), a manufacturer and marketer of photo
albums and picture frames. Holson Burnes was combined with
Intercraft, creating the Intercraft/Burnes division.
The transaction was accounted for as a purchase; therefore the
results of operations are included in the accompanying consolidated
financial information since their respective dates of acquisition.
1995
----
On October 2, 1995, the Company acquired Decorel Incorporated
("Decorel"), a manufacturer and marketer of ready-made picture frames.
Decorel was combined with Intercraft. On November 2, 1995, the
Company acquired Berol Corporation ("Berol"), a designer, manufacturer
and marketer and markers and writing instruments. Berol was combined
with Sanford. The U.S. component of Berol is operated as part of the
Sanford North America division. The international piece is operated
as part of Sanford International. For these and other minor 1995
acquisitions, the Company paid $210.6 million in cash, issued 379,507
shares of the Company's Common Stock (valued at approximately $9.5
million) and assumed $144.2 million of debt.
The transactions were accounted for as purchases; therefore
results of operations are included in the accompanying consolidated
financial information since their respective dates of acquisition.
The acquisition costs were allocated to the fair market value of the
assets acquired and liabilities assumed and resulted in trade names
and goodwill of approximately $181.1 million.
Subsequent Years
----------------
-24-
Information regarding businesses acquired in the last three years
is included in Note 2 to the consolidated financial statements.
QUARTERLY SUMMARIES
Summarized quarterly data for the last three years is as follows
(unaudited):
<TABLE>
<CAPTION>
Calendar Year 1st 2nd 3rd 4th Year
--- --- --- --- ----
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
1999
----
Net sales $1,516.2 $1,597.3 $1,609.5 $1,690.1 $6,413.1
Gross income 423.3 420.8 444.6 452.5 1,741.2
Net income (79.0) 30.1 72.7 71.6 95.4
Earnings per share:
Basic (0.28) 0.11 0.26 0.25 0.34
Diluted (0.28) 0.11 0.26 0.25 0.34
1998
----
Net sales $ 1,402.1 $1,559.5 $ 1,559.9 $1,662.2 $6,183.7
Gross income 396.2 487.0 477.0 461.7 1,822.8
Net income 158.5 141.9 117.5 63.9 481.8
Earnings per share:
Basic 0.57 0.51 0.42 0.22 1.72
Diluted 0.56 0.50 0.42 0.22 1.70
1997
----
Net sales $1,229.0 $1,436.1 $1,486.1 $1,490.2 $5,641.4
Gross income 344.0 419.7 430.1 441.7 1,635.5
Net income 71.7 21.4 118.0 110.5 321.6
Earnings per share:
Basic 0.26 0.08 0.42 0.39 1.15
Diluted 0.26 0.07 0.42 0.39 1.14
</TABLE>
-25-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of
the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated items from the
Consolidated Statements of Income as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of products sold 72.8 70.5 71.0
GROSS INCOME 27.2 29.5 29.0
----- ----- -----
Selling, general and
administrative expenses 17.2 15.7 14.9
Restructuring costs 3.8 1.9 0.7
Goodwill amortization
and other 0.8 0.9 2.1
----- ----- -----
OPERATING INCOME 5.4 11.0 11.3
Nonoperating
(income) expenses:
Interest expense 1.6 1.6 2.0
Other, net 0.2 (3.8) (0.3)
----- ---- -----
NET NONOPERATING
(INCOME) EXPENSES 1.8 (2.2) 1.7
INCOME BEFORE ----- ---- -----
INCOME TAXES 3.6 13.2 9.6
Income taxes 2.1 5.4 3.9
----- ----- -----
NET INCOME 1.5% 7.8% 5.7%
===== ===== =====
</TABLE>
1999 vs. 1998
-------------
Net sales for 1999 were $6,413.1 million, representing an increase of
$229.4 million or 3.7% from $6,183.7 million in 1998. Net sales for
each of the Company's segments (and the primary reasons for the year-
to-year changes) were as follows, in millions:
-26-
YEAR ENDED DECEMBER 31, 1999 1998 % Change
---- ---- --------
Household Products $3,335.0 $3,385.3 (1.5)%(1)
Hardware and
Home Furnishings 1,897.2 1,758.1 7.9%(2)
Office Products 1,180.9 1,040.3 13.5%(3)
-------- -------
$6,413.1 $6,183.7 3.7%
======== ========
Primary Reasons for Changes:
(1) 1998 Decora (April 1998) and Newell Plastics (September 1998)
divestitures and weak sales performance at Rubbermaid Home
Products and Little Tikes, offset partially by Century (May 1998)
acquisition+ and strong sales at Graco and Rubbermaid Commercial
Products.
(2) Swish (March 1998), Gardinia (August 1998), Ateliers 28 (April
1999) and McKechnie (October 1999) acquisitions.
(3) 7% internal growth* and Rotring (September 1998) and Reynolds
(October 1999) acquisitions, offset partially by 1998 Stuart Hall
(August 1998) divestiture.
+ Acquisitions and divestitures are described in note 2 to the
consolidated financial statements.
* Internal growth is defined by the Company as growth from its
core businesses, which include continuing businesses owned
more than two years and minor acquisitions.
Gross income as a percent of net sales in 1999 was 27.2% or $1,741.2
million versus 29.5% or $1,822.8 million in 1998. Excluding costs
associated with the Rubbermaid and Calphalon mergers and certain
realignment and other charges of $106.2 million and $27.9 million in
1999 and 1998, respectively, gross income as a percent of net sales
was 28.8% in 1999 versus 29.9% in 1998. This decrease in gross
margins in 1999 was primarily attributable to promotional commitments
made prior to the Rubbermaid merger, which affected first half 1999
results at Rubbermaid Home Products, higher than expected resin and
other material costs, which affected second half 1999 results, and
operating inefficiencies at certain glassware and window treatments
facilities.
Selling, general and administrative expenses ("SG&A") in 1999 were
17.2% of net sales or $1,104.5 million versus 15.7% or $967.9 million
in 1998. Excluding costs associated with the Rubbermaid and Calphalon
mergers and certain realignment and other charges of $178.8 million
and $23.6 million in 1999 and 1998, respectively, SG&A as a percent
-27-
of net sales was 14.4% or $925.7 million versus 15.2% or $944.3
million in 1998. This decrease in SG&A expenses is primarily due to
SG&A savings as a result of integrating Rubbermaid into Newell.
The Company recorded restructuring charges of $246.4 million in 1999
and $115.2 million in 1998. See note 3 to the consolidated financial
statements for a review of the charges.
Goodwill amortization and other as a percentage of net sales was 0.8%
in 1999 and 0.9% in 1998. Excluding charges of $15.0 million in 1998
(which included write-offs of intangible assets), goodwill
amortization and other was 0.7% of net sales.
Operating income in 1999 was 5.4% of net sales or $343.6 million
versus 11.0% or $680.3 million in 1998. Excluding charges as discussed
above of $531.4 million in 1999 and $181.7 million 1998, operating
income was $875.0 million or 13.6% in 1999 versus $862.0 million or
13.9% in 1998.
Other nonoperating expenses in 1999 were 1.8% of net sales or $112.7
million versus other nonoperating income of 2.2% or $136.6 million in
1998. The $249.3 million difference was due primarily to a 1998 net
pre-tax gain of $191.5 million on the sale of the Company's stake in
The Black & Decker Corporation and 1998 net pre-tax gains of $59.8
million on the sales of Stuart Hall, Newell Plastics and Decora. This
was offset partially by $3.7 million of Rubbermaid merger transaction
costs in 1998.
For 1999 and 1998, the effective tax rates were 58.7% and 41.0%,
respectively. The increase in 1999 was primarily due to nondeductible
transaction costs related to the Rubbermaid merger. See note 12 to the
consolidated financial statements for an explanation of the effective
tax rate.
Net income for 1999 was $95.4 million, representing a decrease of
$386.4 million or 80.2% from 1998. Basic earnings per share in 1999
decreased 80.2% to $0.34 versus $1.72 in 1998; diluted earnings per
share in 1999 decreased 80.0% to $0.34 versus $1.70 in 1998. Excluding
1999 pre-tax charges of $531.4 million ($369.6 million after taxes) as
discussed above, net income in 1999 was $465.0 million. Excluding 1998
pre-tax charges of $185.4 million ($119.4 million after taxes), the
net pre-tax gain on the sale of Black & Decker common stock of $191.5
million ($116.8 million after taxes) and net pre-tax gains of $59.8
million ($15.1 million after taxes) on the sales of businesses as
discussed above, net income in 1998 was $469.3 million.
1998 vs. 1997
-------------
Net sales for 1998 were $6,183.7 million, representing an increase of
$542.3 million or 9.6% from $5,641.4 million in 1997. Net sales for
-28-
each of the Company's segments (and the primary reasons for the year-
to-year changes) were as follows, in millions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 % Change
---- ---- --------
<S> <C> <C> <C>
Household Products $3,385.3 $3,199.6 5.8%(1)
Hardware and
Home Furnishings 1,758.1 1,484.8 18.4%(2)
Office Products 1,040.3 957.0 8.7%(3)
-------- -------- ----
$6,183.7 $5,641.4 9.6%
======== ======== ====
</TABLE>
PRIMARY REASONS FOR CHANGES:
(1) Curver (January 1998), Century (May 1998) and Panex (June 1998)
acquisitions, offset partially by weak sales performance at
Mirro, Rubbermaid Home Products and Little Tikes and the
divestitures of Newell Plastics and Decora.
(2) 6% internal growth and Kirsch (May 1997), Swish (March 1998) and
Gardinia (August 1998) acquisitions.
(3) 8% internal growth and Rolodex (March 1997) and Rotring
(September 1998) acquisitions, offset partially by Stuart Hall
divestiture.
Gross income as a percent of net sales in 1998 was 29.5% or $1,822.8
million versus 29.0% or $1,635.5 million in 1997. Excluding costs
associated with the 1998 Calphalon acquisition and certain realignment
and other charges of $27.9 million, gross income as a percent of net
sales was 29.9% in 1998. The increase in gross margins was due to
increases in gross margins at several of the Company's core
businesses, offset partially by the 1998 acquisitions which had gross
margins which were lower than the Company's average. As acquisitions
are integrated, the Company's gross margins generally improve.
Selling, general and administrative expenses ("SG&A") in 1998 were
15.7% of net sales or $967.9 million versus 14.9% or $838.9 million in
1997. Excluding costs associated with the 1998 Calphalon acquisition
and certain realignment and other charges of $23.6 million, SG&A in
1998 was 15.3% of net sales. Excluding transaction costs of $21.3
million related to the sale of Eldon, SG&A in 1997 was 14.5% of net
sales. The increase in SG&A as a percent of net sales was primarily
due to increased advertising expenditures at Rubbermaid divisions in
addition to the 1998 acquisitions, whose spending levels were higher
than the Company's average. As acquisitions are integrated, the
Company's SG&A spending levels as a percentage of net sales generally
decline.
-29-
The Company recorded restructuring charges of $115.2 million in 1998
and $37.2 million in 1997. See note 3 to the consolidated financial
statements for a review of the charges.
Trade names and goodwill amortization as a percentage of net sales was
less than 1.0% in both 1998 and 1997, excluding charges of $15.0
million in 1998 (which included write-offs of intangible assets) and
$81.0 million in 1997 (write-off of impaired assets).
Operating income in 1998 was 11.0% of net sales or $680.3 million
versus 11.3% or $639.7 million in 1997. Excluding restructuring
charges and costs associated with the 1998 Calphalon acquisition and
certain realignment and other charges of $181.7 million as discussed
above, operating income in 1998 was $862.0 million or 13.9% of net
sales. Excluding restructuring charges, the write-off of impaired
assets and transaction costs related to Eldon totaling $139.5 million
as discussed above, operating income in 1997 was $779.2 million or
13.8% of net sales. The slight increase in operating margins, net of
charges, was primarily due to increases in operating margins at
several of the Company's core businesses, offset partially by the 1998
acquisitions, whose operating margins are improving as they are being
integrated but operated in 1998 at less than the Company's average
operating margins.
Other nonoperating income in 1998 was 2.2% of net sales or $136.6
million versus other nonoperating expenses of 1.7% or $95.1 million in
1997. The $231.7 million difference was due primarily to a net pre-tax
gain of $191.5 million on the sale of the Company's stake in The Black
& Decker Corporation and pre-tax gains of $59.8 million on the sales
of Stuart Hall, Newell Plastics and Decora. These transactions were
partially offset by increases in distributions of $25.2 million
related to the convertible preferred securities issued by a subsidiary
trust in December 1997.
For 1998 and 1997, the effective tax rates were 41.0% and 40.9%,
respectively. See note 12 to the consolidated financial statements for
an explanation of the effective tax rate.
Net income for 1998 was $481.8 million, representing an increase of
$160.2 million or 49.8% from $321.6 million in 1997. Basic earnings
per share in 1998 increased 49.6% to $1.72 versus $1.15 in 1997;
diluted earnings per share in 1998 increased 49.1% to $1.70 versus
$1.14 in 1997. Excluding 1998 pre-tax charges of $185.4 million
($119.4 million after taxes), the net pre-tax gain on the sale of
Black & Decker stock of $191.5 million ($116.8 million after taxes)
and the net pre-tax gains of $59.8 million on the sales of Stuart
Hall, Newell Plastics and Decora ($15.1 million after taxes) as
discussed above, net income in 1998 was $469.3 million. Excluding 1997
pre-tax charges of $139.5 million ($103.8 million after taxes) as
discussed above, net income was $425.4 million in 1997. The 10.3%
increase in net income, excluding the gains and charges noted above,
-30-
was primarily due to strong shipments at the Company's core Office
Products and Hardware and Home Furnishings 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 1999 was $554.0 million,
representing an increase of $76.6 million from $477.4 million for
1998.
The Company has short-term foreign and domestic committed and
uncommitted lines of credit with various banks which are available for
short-term financing. Borrowings under the Company's uncommitted lines
of credit are subject to discretion of the lender. The Company's lines
of credit do not have a material impact on the Company's liquidity.
Borrowings under the Company's lines of credit at December 31, 1999
totaled $97.3 million.
During 1997, the Company amended its revolving credit agreement to
increase the aggregate borrowing limit to $1,300.0 million. The
revolving credit agreement will terminate in August 2002. At December
31, 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 $1,300.0 million 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 December 31, 1999,
$718.5 million (principal amount) of commercial paper was outstanding.
The entire amount is classified as long-term debt because the total
commercial paper is not expected to be repaid in 2000.
The revolving credit agreement permits the Company to borrow funds on
a variety of interest rate terms. This agreement requires, among other
things, that the Company maintain a certain Total Indebtedness to
Total Capital Ratio, as defined in this agreement. As of December 31,
1999, the Company was in compliance with this agreement.
The Company had outstanding at December 31, 1999 a total of $859.5
million (principal amount) of Medium-term notes. The maturities on
these notes range from 5 to 30 years at an average interest rate of
6.24%.
-31-
A new universal shelf registration statement became effective in July
1999. As of December 31, 1999, $750 million of Company debt and equity
securities may be issued under the shelf.
Uses
----
The Company's primary uses of liquidity and capital resources include
acquisitions, dividend payments and capital expenditures.
In 1999, the Company acquired Ateliers 28, Reynolds, McKechnie and
Ceanothe and made other minor acquisitions for cash purchase prices
totaling $392.5 million. In 1998, the Company acquired Curver, Swish,
Century, Panex, Gardinia and Rotring and made other minor acquisitions
for cash purchase prices totaling $615.7 million. In 1997, the Company
acquired Rolodex and Kirsch and made other minor acquisitions for cash
purchase prices totaling $514.2 million. All of these acquisitions
were accounted for as purchases and were paid for with proceeds
obtained from the issuance of commercial paper, Medium-term notes and
notes payable under the Company's lines of credit.
Capital expenditures were $200.1 million, $318.7 million and $249.0
million in 1999, 1998 and 1997, respectively. Aggregate dividends paid
during 1999, 1998 and 1997 were $225.8 million, $212.5 million and
$193.2 million, respectively.
Retained earnings decreased in 1999 by $130.5 million. In 1998 and
1997, retained earnings increased by $269.3 million and $128.4
million, respectively. The decrease in 1999 versus the increase in
1998 was due primarily to pre-tax charges of $531.4 million ($369.6
million after tax) relating primarily to the Rubbermaid acquisition.
The higher increase in 1998 versus the increase in 1997 was primarily
due to a pre-tax gain of $191.5 million ($116.8 million after taxes)
on the sale of the Black & Decker common stock. The dividend payout
ratio to common stockholders in 1999, 1998 and 1997 was 235%, 45% and
61%, respectively (represents the percentage of diluted earnings per
share paid in cash to stockholders).
Working capital at December 31, 1999 was $1,108.7 million compared to
$1,278.8 million at December 31, 1998 and $1,006.6 million at December
31, 1997. The current ratio at December 31, 1999 was 1.68:1 compared
to 2.09:1 at December 31, 1998 and 1.81:1 at December 31, 1997.
Total debt to total capitalization (total debt is net of cash and cash
equivalents, and total capitalization includes total debt, company-
obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust and stockholders' equity) was .33:1 at December 31,
1999, .30:1 at December 31, 1998 and .26:1 at December 31, 1997.
The Company believes that cash provided from operations and available
borrowing facilities will continue to provide adequate support for the
-32-
cash needs of existing businesses; however, certain events, such as
significant acquisitions, could require additional external financing.
Subsequent to December 31, 1999, the Company announced a stock
repurchase program of up to $500.0 million of the Company's
outstanding common stock. The repurchase program will remain in effect
until December 31, 2000 and will be financed through the use of
working capital and commercial paper.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is subject to certain legal proceedings and claims,
including various environmental matters, that have arisen in the
ordinary conduct of its business or have been assumed by the Company
when it purchased certain businesses. Such matters are more fully
described in note 15 to the Company's consolidated financial
statements. Although management of the Company cannot predict the
ultimate outcome of these matters with certainty, it believes that
their ultimate resolution, including any amounts it may have to pay in
excess of amounts reserved, will not have a material effect on the
Company's consolidated financial statements.
YEAR 2000 COMPUTER COMPLIANCE
Any computer equipment that uses two digits instead of four to specify
the year may be unable to interpret dates beyond the year 1999. This
"Year 2000" issue could result in system failures or miscalculations
causing disruptions of operations.
The Company experienced no significant Year 2000-related issues to
date. The Company plans to continue monitoring its systems and has a
response team available in the event that a Year 2000 failure should
occur.
As of December 31, 1999, the Company had incurred total expenses of
approximately $15.4 million in conjunction with the Year 2000
compliance 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.
INTERNATIONAL OPERATIONS
The Company's non-U.S. business is growing at a faster pace than its
business in the United States. This growth outside the U.S. has been
fueled by recent international acquisitions, primarily in Europe. For
the year ended December 31, 1999, the Company's non-U.S. business
accounted for approximately 23% of net sales (see note 14 to the
consolidated financial statements). Growth of both U.S. and non-U.S.
businesses is shown below:
-33-
YEAR ENDED DECEMBER 31, 1999 1998 % CHANGE
----------------------- ---- ---- -------
(In millions)
Net sales:
- U.S. $4,921.4 $4,825.4 2.0%
- Non-U.S. 1,491.7 1,358.3 9.8
-------- --------
$6,413.1 $6,183.7 3.7%
======== =========
YEAR ENDED DECEMBER 31, 1998 1997 % CHANGE
---------------------- ---- ---- --------
(In millions)
Net sales:
- U.S. $4,825.4 $4,769.5 1.2%
- Non-U.S. 1,358.3 871.9 55.8
-------- --------
$6,183.7 $5,641.4 9.6%
======== ========
MARKET RISK
The Company's market risk is impacted by changes in interest rates,
foreign currency exchange rates, and certain commodity prices.
Pursuant to the Company's policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact
of adverse changes in market prices. The Company does not hold or
issue derivative instruments for trading purposes.
The Company's primary market risk is interest rate exposure, primarily
in the United States. The Company manages interest rate exposure
through its conservative debt ratio target and its mix of fixed and
floating rate debt. Interest rate exposure was reduced significantly
in 1997 from the issuance of $500.0 million 5.25% Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities of a
Subsidiary Trust, the proceeds of which reduced commercial paper.
Interest rate swaps may be used to adjust interest rate exposures when
appropriate based on market conditions, and, for qualifying hedges,
the interest differential of swaps is included in interest expense.
The Company's foreign exchange risk management policy emphasizes
hedging anticipated intercompany and third-party commercial
transaction exposures of one year duration or less. The Company
focuses on natural hedging techniques of the following form:
* offsetting or netting of like foreign currency cash flows,
-34-
* structuring foreign subsidiary balance sheets with appropriate
levels of debt to reduce subsidiary net investments and
subsidiary cash flows subject to conversion risk,
* converting excess foreign currency deposits into U.S. dollars or
the relevant functional currency and
* avoidance of risk by denominating contracts in the appropriate
functional currency.
In addition, the Company utilizes forward contracts and purchased
options to hedge commercial and intercompany transactions. Gains and
losses related to qualifying hedges of commercial and intercompany
transactions are deferred and included in the basis of the underlying
transactions. Derivatives used to hedge intercompany loans are marked
to market with the corresponding gains or losses included in the
consolidated statements of income.
Due to the diversity of its product lines, the Company does not have
material sensitivity to any one commodity. The Company manages
commodity price exposures primarily through the duration and terms of
its vendor contracts.
The amounts shown below represent the estimated potential economic
loss that the Company could incur from adverse changes in either
interest rates or foreign exchange rates using the value-at-risk
estimation model. The value-at-risk model uses historical foreign
exchange rates and interest rates to estimate the volatility and
correlation of these rates in future periods. It estimates a loss in
fair market value using statistical modeling techniques and including
substantially all market risk exposures (specifically excluding
equity-method investments). The fair value losses shown in the table
below have no impact on results of operations or financial condition
as they represent economic not financial losses.
TIME CONFIDENCE
AMOUNT PERIOD LEVEL
------ ------ ---------
(In millions)
Interest rates $3.5 1 day 95%
Foreign exchange $5.2 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
-35-
unlikely that the Company could experience losses such as these over
an extended period of time. These amounts should not be considered
projections of future losses, since actual results may differ
significantly depending upon activity in the global financial markets.
EURO CURRENCY CONVERSION
On January 1, 1999, the "Euro" became the common legal currency for 11
of the 15 member countries of the European Union. On that date, the
participating countries fixed conversion rates between their exiting
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, legal proceedings 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. Actual results could differ materially from those
expressed or implied in the forward-looking statements. Factors that
could cause actual results to differ include, but are not limited to,
those matters set forth in this Report and Exhibit 99 of this Report.
-36-
Item 7A. 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 II, Item 7).
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Newell Rubbermaid Inc.:
We have audited the accompanying consolidated balance sheets of Newell
Rubbermaid Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1999, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and comprehensive income
and cash flows for each of the three years in the period ended
December 31, 1999. We did not audit the financial statements of
Rubbermaid Incorporated for the two years in the period ended December
31, 1998. Rubbermaid was acquired on March 24, 1999 in a transaction
accounted for as a pooling of interests, as discussed in note 1 to the
consolidated financial statements. Such statements are included in the
consolidated financial statements of Newell Rubbermaid Inc. and
subsidiaries and reflect total assets and total revenues of 34 percent
and 40 percent, respectively, in 1998 and 33 percent and 41 percent,
respectively, in 1997 of the related consolidated totals. These
statements were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts
included for Rubbermaid Incorporated, is based solely upon the report
of the other auditors. These consolidated financial statements and the
schedule referred to below are the responsibility of Newell Rubbermaid
Inc.'s management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the
report of the other auditors provide a reasonable basis for our
opinion.
-37-
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all
material respects, the financial position of Newell Rubbermaid Inc.
and subsidiaries as of December 31, 1999, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
Part IV Item 14(a)(2) of this Form 10-K is presented for the purposes
of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 26, 2000
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Rubbermaid Incorporated:
We have audited the consolidated balance sheets of Rubbermaid
Incorporated and subsidiaries (the Company) as of January 1, 1999 and
December 31, 1997, and the related consolidated statements of
earnings, shareholders' equity and comprehensive income, and cash
flows for each of the years in the two-year period ended January 1,
1999 (the consolidated financial statements are not included herein).
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
-38-
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Rubbermaid Incorporated and subsidiaries as of January 1, 1999 and
December 31, 1997, and the results of their operations and their cash
flows for each of the years in the two-year period ended January 1,
1999, in conformity with generally accepted accounting principles.
KPMG LLP
Cleveland, Ohio
February 5, 1999, except as to note 15,
which is as of March 24, 1999
-39-
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Year Ended December 31,
(In thousands, except per share data)
Net sales $ 6,413,074 $ 6,183,674 $5,641,441
Cost of products sold 4,671,875 4,360,860 4,005,958
----------- ----------- ----------
Gross Income 1,741,199 1,822,814 1,635,483
Selling, general and administrative expenses 1,104,491 967,916 838,877
Restructuring costs 246,381 115,154 37,200
Goodwill amortization and other 46,722 59,405 119,743
----------- ----------- ----------
Operating Income 343,605 680,339 639,663
Nonoperating (income) expenses:
Interest expense 100,021 100,514 114,357
Other, net 12,645 (237,148) (19,284)
----------- ---------- ---------
Net Nonoperating (Income) Expenses 112,666 (136,634) 95,073
----------- ---------- ---------
Income Before Income Taxes 230,939 816,973 544,590
135,502 335,139 222,973
Income taxes ----------- ---------- ---------
Net Income $ 95,437 $ 481,834 $ 321,617
=========== ========== =========
Earnings per share
Basic $0.34 $1.72 $1.15
Diluted $0.34 $1.70 $1.14
</TABLE>
-40-
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
1999 1998 1997
Year Ended December 31, ---- ---- ----
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 95,437 $ 481,834 $ 321,617
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 271,731 263,804 247,827
Deferred income taxes (9,600) 81,734 68,482
Net gains on:
Marketable equity securities 700 (116,800) (1,723)
Sales of businesses - (24,529) -
Write-off of assets - 4,288 83,365
Non-cash restructuring charges 100,924 45,800 16,000
Other 51,748 24,075 27,597
Changes in current accounts,
excluding the effects of acquisitions:
Accounts receivable (16,137) 39,619 44,250
Inventories 52,662 (37,142) 2,388
Other current assets (41,793) (29,906) (30,444)
Accounts payable 14,617 (72,020) (8,249)
Accrued liabilities and other 33,662 (183,367) (137,989)
------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 553,951 477,390 633,121
INVESTING ACTIVITIES
Acquisitions, net (345,934) (654,591) (467,473)
Expenditures for property, plant and equipment (200,066) (318,731) (249,042)
Purchase of marketable equity securities - (26,056) -
Sales of businesses, net of taxes paid - 224,487 -
Sales of marketable securities, net of taxes paid 14,328 303,869 6,389
Disposals of non-current assets and other 720 9,773 6,921
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES (530,952) (461,249) (703,205)
Proceeds from issuance of debt 803,298 676,759 158,518
Proceeds from the issuance of company-obligated
mandatorily redeemable convertible preferred - - 500,000
Proceeds from exercised stock options and other 27,411 4,089 6,202
Payments on notes payable and long-term debt (608,573) (546,603) (277,870)
Redemption of stock - - (3,177)
Cash dividends (225,774) (212,486) (193,220)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (3,638) (78,241) 190,453
Exchange rate effect on cash (3,751) (1,477) (2,200)
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 15,610 (63,577) 118,169
-41-
Cash and cash equivalents at beginning of year 86,554 150,131 31,962
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 102,164 $86,554 $150,131
========= ======= ========
Supplemental cash flow disclosures -
Cash paid during the year for:
Income taxes $201,558 $280,902 $198,102
Interest 124,786 103,831 102,677
See notes to consolidated financial statements.
</TABLE>
-42-
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 102,164 $ 86,554 $ 150,131
Accounts receivable, net 1,178,423 1,078,530 935,657
Inventories, net 1,034,794 1,033,488 902,978
Deferred income taxes 250,587 108,192 157,132
Prepaid expenses and other 172,601 143,885 103,181
----------- ---------- ----------
Total Current Assets 2,738,569 2,450,649 2,249,079
Marketable Equity Securities 10,799 19,317 307,121
Other Long-Term Investments 65,905 57,967 51,020
Other Assets 335,699 267,073 240,573
Property, Plant and Equipment, Net 1,548,191 1,627,090 1,410,522
Trade Names and Goodwill, Net 2,024,925 1,867,059 1,516,933
----------- ---------- ----------
Total Assets $ 6,724,088 $6,289,155 $5,775,248
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $97,291 $94,634 $226,642
Accounts payable 376,596 322,080 299,351
Accrued compensation 113,373 110,471 107,767
Other accrued liabilities 892,481 610,618 524,658
Income taxes - 26,744 52,478
Current portion of long-term debt 150,142 7,334 31,559
----------- ---------- ----------
TOTAL CURRENT LIABILITIES 1,629,883 1,171,881 1,242,455
Long-Term Debt 1,455,779 1,393,865 989,694
Other Non-Current Liabilities 354,107 374,293 332,278
Deferred Income Taxes 85,655 4,527 41,052
Minority Interest 1,658 857 8,352
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust 500,000 500,000 500,000
Stockholders' Equity
Common Stock ($1 par value) - 282,026 281,747 281,338
Authorized shares:
1999 - 800.0 million
1998 - 400.0 million
1997 - 400.0 million
Outstanding shares:
1999 - 282.0 million
1998 - 281.7 million
1997 - 281.3 million
Additional paid-in capital 210,352 183,102 164,842
Retained earnings 2,334,609 2,465,064 2,195,716
-43-
Accumulated other comprehensive income (129,981) (86,181) 19,521
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,697,006 2,843,732 2,661,417
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' $6,724,088 $6,289,155 $5,775,248
EQUITY ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
-44-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Current
Additional Accumulated Other Year
Common Paid-In Retained Comprehensive Comprehensive
Stock Capital(1) Earnings Income Income
------ ----------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Balance at December 31, 1996 $ 280,973 $161,855 $2,067,319 $3,575
Net income 321,617 $ 321,617
Other comprehensive income:
Unrealized gain on securities available for 42,244 42,244
sale, net of $29.2 million tax
Foreign currency translation adjustments (26,298) (26,298)
---------
Total comprehensive income $ 337,563
=========
Cash dividends:
Common stock $.70 per share (193,220)
Common stock repurchased (2,575)
Exercise of stock options 365 6,164
Other (602)
-------- -------- ---------- -------
BALANCE AT DECEMBER 31, 1997 281,338 164,842 2,195,716 19,521
Net income 481,834 $ 481,834
Other comprehensive income:
Unrealized gain on securities available for
sale, net of $23.5 million tax 33,850 33,850
Reclassification adjustment for gains realized
in net income, net of $74.7 million tax (116,800) (116,800)
Foreign currency translation adjustments (22,752) (22,752)
---------
Total comprehensive income $ 376,132
=========
Cash dividends:
Common stock $.76 per share (212,486)
Exercise of stock options 409 22,890
Other (4,630)
-------- -------- ---------- --------
BALANCE AT DECEMBER 31, 1998 281,747 183,102 2,465,064 (86,181)
Net income 95,437 $ 95,437
Other comprehensive income:
Unrealized gain on securities available for
sale, net of $2.3 million tax 3,545 3,545
Reclassification adjustment for losses realized
in net income, net of $0.4 million tax 700 700
-45-
Foreign currency translation adjustments (48,045) (48,045)
----------
Total comprehensive income $ 51,637
==========
Cash dividends:
Common stock $.80 per share (225,774)
Exercise of stock options 279 24,015
Other 3,235 (118)
-------- --------- ----------- ----------
BALANCE AT DECEMBER 31, 1999 $282,026 $ 210,352 $ 2,334,609 $ (129,981)
======== ========= =========== ==========
(1) Net of treasury stock (at cost) of $2,760, $21,607 and $34,667 as of December 31, 1999, 1998 and 1997,
respectively.
See notes to consolidated financial statements.
</TABLE>
-46-
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of Newell Rubbermaid Inc. and its majority owned
subsidiaries (the "Company") after elimination of intercompany
accounts and transactions.
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 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.
USE OF ESTIMATES: The preparation of these financial statements
required the use of certain estimates by management in determining the
Company's assets, liabilities, revenue and expenses and related
disclosures. Actual results could differ from those estimates.
REVENUE RECOGNITION: Sales of merchandise are recognized upon
shipment to customers.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following
methods and assumptions were used to estimate the fair value of each
class of financial instruments:
LONG-TERM DEBT: The fair value of the Company's long-term debt
issued under the Medium-term note program is estimated based on
quoted market prices which approximate cost. All other
significant long-term debt is pursuant to floating rate
instruments whose carrying amounts approximate fair value.
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST: The fair value of the $500.0
million Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust was $381.9 million at
December 31, 1999 based on quoted market prices.
CASH AND CASH EQUIVALENTS: Cash and highly liquid short-term
investments having a maturity of three years or less.
ALLOWANCES FOR DOUBTFUL ACCOUNTS: Allowances for doubtful accounts at
December 31 totaled $41.9 million in 1999, $34.2 million in 1998 and
$30.1 million in 1997.
INVENTORIES: Inventories are stated at the lower of cost or market
value. Cost of certain domestic inventories (approximately 72%, 72%
and 81% of total inventories at December 31, 1999, 1998 and 1997,
respectively) was determined by the "last-in, first-out" ("LIFO")
-47-
method; for the balance, cost was determined using the "first-in,
first-out" ("FIFO") method. If the FIFO inventory valuation method had
been used exclusively, inventories would have increased by $11.4
million, $14.2 million and $44.5 million at December 31, 1999, 1998
and 1997, respectively.
The components of inventories, net of the LIFO reserve, were as
follows:
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
Materials and supplies $ 240.0 $ 223.8 $202.2
Work in process 149.5 137.2 117.7
Finished products 645.3 672.5 583.1
-------- -------- ------
$1,034.8 $1,033.5 $903.0
======== ======== ======
Inventory reserves (excluding LIFO reserves) at December 31 totaled
$119.4 million in 1999, $113.8 million in 1998 and $119.2 million in
1997.
OTHER LONG-TERM INVESTMENTS: The Company has a 49% ownership interest
in American Tool Companies, Inc., a manufacturer of hand tools and
power tool accessory products marketed primarily under the Vise-
Grip{R} and Irwin{R} trademarks. This investment is accounted for on
the equity method with a net investment of $65.9 million at December
31, 1999.
LONG-TERM MARKETABLE EQUITY SECURITIES: Long-term Marketable Equity
Securities classified as available for sale are carried at fair value
with adjustments to fair value reported separately, net of tax, as a
component of stockholders' equity (and excluded from earnings). Gains
and losses on the sales of Long-term Marketable Equity Securities are
based upon the average cost of securities sold. On March 8, 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:
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
Aggregate market value $10.8 $19.3 $307.1
Aggregate cost 10.6 26.0 176.8
Unrealized pre-tax gain (loss) $ 0.2 $(6.7) $130.3
-48-
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
consisted of the following:
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
Land $ 63.4 $ 62.1 $ 63.8
Buildings and improvements 691.3 721.9 578.4
Machinery and equipment 2,200.7 2,166.9 1,873.1
---------- ---------- ----------
2,955.4 2,950.9 2,515.3
========== ========== ==========
Allowance for Depreciation (1,407.2) (1,323.8) (1,104.8)
---------- ---------- ----------
$ 1,548.2 $ 1,627.1 $ 1,410.5
========== ========== ==========
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).
TRADE NAMES AND GOODWILL: The cost of trade names and goodwill
represents the excess of cost over identifiable net assets of
businesses acquired. The Company does not allocate such excess cost to
trade names separate from goodwill. In addition, the Company may
allocate excess cost to other identifiable intangible assets and
record such intangible assets in Other Assets (long-term). Trade names
and goodwill are amortized over 40 years and other identifiable
intangible assets are amortized over 5 to 40 years. Trade names and
goodwill and other identifiable intangible assets, respectively,
consisted of the following:
NET TRADE NAMES AND GOODWILL
DECEMBER 31, 1999 1998 1997
---- ---- ----
(In millions)
Cost $ 2,270.5 $ 2,068.7 $ 1,669.3
Accumulated amortization (245.6) (201.6) (152.4)
---------- ---------- ----------
$ 2,024.9 $ 1,867.1 $ 1,516.9
========== ========== ==========
-49-
NET OTHER IDENTIFIABLE INTANGIBLE ASSETS(1)
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
Cost $ 93.0 $ 131.2 $ 118.6
Accumulated amortization (34.3) (37.6) (37.9)
------- -------- -------
$ 58.7 $ 93.6 $ 80.7
======= ======== ========
(1) Recorded in Other Assets
LONG-LIVED ASSETS: Subsequent to an acquisition, the Company
periodically evaluates whether later events and circumstances have
occurred that indicate the remaining estimated useful life of long-
lived assets may warrant revision or that the remaining balance of
long-lived assets may not be recoverable. If factors indicate that
long-lived assets should be evaluated for possible impairment, the
Company would use an estimate of the relevant business' undiscounted
net cash flow over the remaining life of the long-lived assets in
measuring whether the carrying value is recoverable. An impairment
loss would be measured by reducing the carrying value to fair value,
based on a discounted cash flow analysis.
ACCRUED LIABILITIES: Accrued Liabilities included the following:
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
Customer accruals $ 296.6 $ 190.2 $ 167.6
Accrued self-insurance liability 92.0 80.2 53.8
Customer accruals are promotional allowances and rebates given to
customers in exchange for their selling efforts. The self-insurance
accrual is primarily for workers' compensation and product liability
and is estimated based upon historical claim experience.
FOREIGN CURRENCY TRANSLATION: Foreign currency balance sheet accounts
are translated into U.S. dollars at the rates of exchange in effect at
fiscal year end. Income and expenses are translated at the average
rates of exchange in effect during the year. The related translation
adjustments are made directly to a separate component of stockholders'
equity. International subsidiaries operating in highly inflationary
economies translate non-monetary assets at historical rates, while net
monetary assets are translated at current rates, with the resulting
translation adjustment included in net income as other nonoperating
-50-
(income) expenses. Foreign currency transaction gains and losses were
immaterial in 1999, 1998 and 1997.
ADVERTISING COSTS: The company expenses advertising costs as
incurred, including cooperative advertising programs with customers.
Total advertising expense was $305.2 million, $281.5 million and
$239.1 million for 1999, 1998 and 1997, respectively. Cooperative
advertising is recorded in the financial statements as a reduction of
sales because it is viewed as part of the negotiated price of its
products. All other advertising costs are charged to selling, general
and administrative expenses.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs
relating to both future and present products are charged to selling,
general and administrative expenses as incurred. These costs
aggregated $49.9 million, $44.5 million and $41.2 million in 1999,
1998 and 1997, respectively.
EARNINGS PER SHARE: The earnings per share amounts are computed based
on the weighted average monthly number of shares outstanding during
the year. "Basic" earnings per share is calculated by dividing net
income by weighted average shares outstanding. "Diluted" earnings per
share is calculated by dividing net income by weighted average shares
outstanding, including the assumption of the exercise and/or
conversion of all potentially dilutive securities ("in the money"
stock options and company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust.)
A reconciliation of the difference between basic and diluted earnings
per share for the years ended December 31, 1999, 1998 and 1997,
respectively, is shown below:
<TABLE>
<CAPTION>
"In the Convertible
Basic Money" Preferred Diluted
1999 Method Stock Options(1) Securities(1) Method(1)
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net Income $95.4 - - $95.4
Weighted average share outstanding 281.8 - - 281.8
Earnings per share $0.34 - - $0.34
(1) Diluted earnings per share for 1999 exclude the impact of "in the money" stock options and convertible preferred
securities because they are anti-dilutive.
"In the Convertible
Basic Money" Stock Preferred Diluted
1998 Method Options Securities Method
---- ------ ------------ ------------- -----------
(In millions, except per share data)
-51-
Net Income $481.8 - $15.7 $497.5
Weighted average
share outstanding 280.7 1.3 9.9 291.9
Earnings per share $1.72 - - $1.70
"In the Convertible
Basic Money" Stock Preferred Diluted
1997 Method Options Securities Method
---- ------ ----------- ------------- -----------
(In millions, except per share data)
Net Income $321.6 - $0.8 $322.4
Weighted average
share outstanding 280.3 0.9 0.5 281.7
Earnings per share $1.15 - - $1.14
</TABLE>
COMPREHENSIVE INCOME: In 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," 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. Comprehensive Income and Accumulated Other
Comprehensive Income encompasses net income, net after-tax unrealized
gains on securities available for sale and foreign currency
translation adjustments in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income.
The following table displays the components of Accumulated Other
Comprehensive Income:
<TABLE>
<CAPTION>
Accumulated
Unrealized Foreign Other
Gains/(Losses) Currency Comprehensive
on Securities Translation Income
-------------- ----------- -------------
(In millions)
<S> <C> <C> <C>
Balance at Dec. 31, 1996 $36.6 $(33.0) $ 3.6
Current year change 42.2 (26.3) 15.9
------ ------- --------
Balance at Dec. 31, 1997 78.8 (59.3) 19.5
Current year change (82.9) (22.8) (105.7)
------ ------- --------
Balance at Dec. 31, 1998 (4.1) (82.1) (86.2)
Current year change 4.2 (48.0) (43.8)
------ -------- --------
Balance at Dec. 31, 1999 $ 0.1 $(130.1) $(130.0)
====== ======== ========
</TABLE>
-52-
NEW ACCOUNTING PRONOUNCEMENTS: 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.
Reclassifications: Certain 1998 and 1997 amounts have been
reclassified to conform with the 1999 presentation.
2. ACQUISITIONS OF BUSINESSES
1997
----
On March 5, 1997, the Company purchased Insilco Corporation's Rolodex
business unit ("Rolodex"), a marketer of office products including
card files, personal organizers and paper punches. Rolodex was
integrated into the Company's Newell Office Products division.
On May 30, 1997, the Company acquired Cooper Industries Incorporated's
Kirsch business ("Kirsch"), a manufacturer and distributor of drapery
hardware and custom window coverings in the United States and
international markets. The Kirsch North American operations were
combined with the Newell Window Furnishings and Levolor Home Fashions
divisions. The European operations of Kirsch exist as a separate
division called Newell Window Fashions Europe.
For these and for other minor acquisitions, the Company paid $514.2
million in cash and assumed $4.3 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 to the fair market value of the assets acquired and
liabilities assumed and resulted in trade names and goodwill of
approximately $351.3 million.
1998
----
On January 21, 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 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
-53-
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 based 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 based
in Germany. Gardinia operates as part of Newell Window 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 based
in Germany. The writing and drawing instruments portion of Rotring
operates as part of the Sanford International division. The art
materials portion of Rotring operates as part of the Sanford North
America division. The color cosmetic products portion of Rotring
operates as a separate U.S. division, Cosmolab.
For these and for other minor acquisitions, the Company paid $615.7
million in cash and assumed $99.5 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 $387.1 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 total
integration liabilities of $3.7 million for exit costs and employee
terminations. The Company's integration plans combined Century into
Graco and Panex into Mirro. The integration plans for Gardinia and
Rotring were finalized during the third quarter of 1999 and resulted
in total integration liabilities of $80.1 million for exit costs and
employee terminations. The Company's integration plans combined
Gardinia into Newell Window Fashions Europe and Rotring into Sanford
International and Sanford North America.
-54-
1999
----
On April 2, 1999, the Company purchased Ateliers 28 ("Ateliers"), a
manufacturer and marketer of decorative and functional drapery
hardware in Europe. Ateliers operates as part of Newell Window
Fashions Europe.
On October 18, 1999, the Company purchased a controlling interest in
Reynolds S.A. ("Reynolds"), a manufacturer and marketer of writing
instruments in Europe. Reynolds operates as part of the Sanford
International division. As of December 31, 1999, the Company owns 100%
of Reynolds.
On October 29, 1999, the Company acquired the consumer products
division of McKechnie plc ("McKechnie"), a manufacturer and marketer
of drapery hardware and window furnishings, shelving and storage
products, cabinet hardware and functional trims. The drapery hardware
and window furnishings portion of McKechnie is operated as part of
Newell Window Fashions Europe. The remaining portion of McKechnie
operates as a separate European division, Newell Hardware Europe.
On December 29, 1999, the Company acquired Ceanothe Holding
("Ceanothe"), a manufacturer of picture frames and photo albums in
Europe. Ceanothe operates as a separate European division, Newell
Frames and Albums Europe.
For these and for other minor acquisitions, the Company paid $392.5
million in cash and assumed $56.4 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 $251.8 million.
The Company's finalized integration plans may include exit costs for
certain plants and product lines and employee terminations associated
with the integration of Ateliers into Newell Window Fashions Europe,
Reynolds into Sanford International, McKechnie into Newell Window
Fashions Europe and Newell Hardware Europe, and Ceanothe into Newell
Frames and Albums Europe. The final adjustments to the purchase price
allocations are not expected to be material to the consolidated
financial statements.
The unaudited consolidated results of operations for the year ended
December 31, 1999 and 1998 on a pro forma basis, as though the Curver,
Swish, Century, Panex, Gardinia, Rotring, Ateliers, Reynolds,
McKechnie and Ceanothe businesses had been acquired on January 1,
1998, are as follows:
-55-
YEAR ENDED DECEMBER 31, 1999 1998
----------------------- ---- ----
(In millions, except per share amounts)
Net sales $6,701.1 $6,961.5
Net income 98.2 477.9
Earnings per share (basic) $ 0.35 $ 1.70
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 its own division.
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 (adjusted for fractional and dissenting shares) of the
Company's common stock were issued as a result of the merger, and
Rubbermaid's outstanding stock options were converted into options to
purchase approximately 2.5 million Newell Rubbermaid common shares.
No adjustments were made to the net assets of the combining companies
to adopt conforming accounting practices or fiscal years other than
adjustments to eliminate the accounting effects related to Newell's
purchase of Rubbermaid's office products business ("Eldon") in 1997.
Because the Newell Rubbermaid merger was accounted for as a pooling of
interests, the accounting effects of Newell's purchase of Eldon have
been eliminated as if Newell had always owned it.
The following table presents a reconciliation of net sales and net
income (loss) for Newell, Rubbermaid and Calphalon individually to
those presented in the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C>
Net sales
Newell $3,881.0 $3,613.5 $3,234.3
Rubbermaid 2,408.1 2,463.6 2,305.2
Calphalon 124.0 106.6 101.9
--------- --------- --------
$6,413.1 $6,183.7 $5,641.4
========= ========= ========
-56-
Net income (loss):
Newell $ 273.1 $ 405.9 $ 279.0
Rubbermaid (189.8) 82.9 39.9
Calphalon 12.1 (7.0) 2.7
--------- ---------- -------
$ 95.4 $ 481.8 $ 321.6
</TABLE>
DIVESTITURES
On April 29, 1998, the Company sold its Decora decorative coverings
product line. On August 21, 1998, the Company sold its Stuart Hall
school supplies and stationery business. On September 9, 1998, the
Company sold its Newell Plastics plastic storage and serveware
business. The pre-tax net gain on the sales of these businesses was
$59.8 million, which was primarily 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.
3. RESTRUCTURING COSTS
1997
----
During 1997, the Company recorded pre-tax charges of $37.2 million
($22.7 million after taxes) of restructuring costs. These charges
included $16.0 million of non-cash charges recorded by Rubbermaid to
revise the estimate of costs for their 1995 restructuring program
related to impaired fixed assets. As a result of the merger with
Rubbermaid, Newell reversed the accounting effects of its acquisition
of Rubbermaid's office products business ("Eldon"). The elimination of
the accounting effects resulted in the Company recording $21.2 million
restructuring charge to reflect costs for plant closure ($1.4
million), product line discontinuance ($15.7 million, including $5.5
million for fixed asset and mold impairments associated with the
discontinued product lines and $7.1 million to write-off packaging
that could no longer be used in accordance with the asset purchase
agreement) and employee termination costs ($4.1 million) related to
the integration of Eldon into the Newell Office Products division.
These costs had previously been reflected in the purchase price
allocation of the business. This restructuring program was completed
by December 31, 1998 and no reserves remain.
1998
----
During January 1998, Rubbermaid announced a series of restructuring
initiatives to establish a central global procurement organization and
to consolidate, automate and/or relocate its worldwide manufacturing
and distribution operations. During 1998, Rubbermaid recorded pre-tax
-57-
charges of $115.2 million ($74.9 million after tax). The 1998
restructuring charge included $16.0 million relating to employee
severance and termination benefits for approximately 600 sales and
administrative employees, $53.4 million for costs to exit business
activities at five facilities and $45.8 million to write-down impaired
long-lived assets to their fair value. The $53.4 million charge for
costs to exit business activities related to exit plans for the
closure of a plastics houseware 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.
The exiting of the operations described above necessitated a
revaluation of cash flows related to those operations, resulting in
the $45.8 million charge to write-down $26.0 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 the long-
lived assets affected by those decisions. Management determined the
fair value of these assets using discounted cash flows. As of December
31, 1999, no reserves remain for the 1998 restructuring program.
1999
----
During 1999, the Company recorded pre-tax charges of $246.4 million
($195.7 million after tax), primarily related to the integration of
the Rubbermaid businesses into Newell. The charges consist of $39.9
million in merger transaction costs, $101.9 million in employee
severance and termination benefit costs and $104.6 million in facility
and product line exit costs.
The merger transaction costs relate primarily to investment banking,
legal and accounting costs related to the merger between Newell and
Rubbermaid. Employee severance and termination benefit costs related
to benefits for approximately 750 employees terminated during 1999.
Such costs include $80.9 million in termination payments in accordance
with employment agreements made to former Rubbermaid executives and
$21.0 million in severance and termination costs at Rubbermaid's
former headquarters ($5.5 million), Rubbermaid Home Products division
($6.9 million), Rubbermaid Europe division ($4.0 million), Little
Tikes division ($2.7 million), Rubbermaid Commercial Products division
($0.7 million) and Newell divisions ($1.2 million). The facility and
product line exit costs consist of $72.0 million of impaired
Rubbermaid centralized computer software costs, which were abandoned
as a result of converting Rubbermaid onto existing Newell centralized
computer software, and $32.6 million in exit costs relating to
discontinued product lines ($4.8 million), the closure of seven
Rubbermaid facilities ($10.2 million), write-off of assets associated
with abandoned projects ($10.3 million), write-off of impaired assets
($5.7 million) and other costs ($1.6 million).
-58-
As of December 31, 1999, $17.9 million of reserves remain for the 1999
restructuring program. These reserves consist primarily of $6.9
million for exit costs associated with the closure of four facilities,
$7.4 million in contractual future maintenance costs on abandoned
Rubbermaid computer software, $3.0 million for exit costs associated
with discontinued product lines at Little Tikes and $0.6 million for
severance and termination benefits. Approximately $145.4 million of
the restructuring charges recorded in 1999 have been or will be
settled in cash in 2000.
4. CREDIT ARRANGEMENTS
The Company has short-term foreign and domestic committed and
uncommitted lines of credit with various banks which are available for
short-term financing. Borrowings under the Company's uncommitted lines
of credit are subject to discretion of the lender. The Company's lines
of credit do not have a material impact on the Company's liquidity.
Borrowings under these lines of credit at December 31, 1999 totaled
$97.3 million. The following is a summary of borrowings under foreign
and domestic lines of credit:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
<S> <C> <C> <C>
Notes payable to banks:
Outstanding at year-end
- borrowing $97.3 $94.6 $226.6
- weighted average interest rate 6.8% 5.8% 5.6%
Average for the year
- borrowing $59.1 $144.7 $240.8
- weighted average interest rate 9.9% 6.1% 5.6%
Maximum borrowing
outstanding during the year $97.3 $205.1 $455.7
</TABLE>
The Company can also issue commercial paper (as described in note 5 to
the consolidated financial statements), as summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions)
<S> <C> <C> <C>
Commercial paper:
Outstanding at year-end
- borrowing $718.5 $500.2 $566.7
- average interest rate 5.9% 5.5% 6.4%
Average for the year
- borrowing $534.9 $620.4 $979.7
- average interest rate 5.2% 5.5% 5.7%
-59-
Maximum borrowing
outstanding during the year $807.0 $1,028.8 $1,618.2
</TABLE>
5. LONG-TERM DEBT
The following is a summary of long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
<S> <C> <C> <C>
Medium-term notes $ 859.5 $ 883.5 $ 413.0
Commercial paper 718.5 500.2 566.7
Other long-term debt 27.9 17.5 41.6
-------- --------- ---------
1,605.9 1,401.2 1,021.3
Current portion (150.1) (7.3) (31.6)
-------- ---------- ---------
$ 1,455.8 $ 1,393.9 $ 989.7
========== ========== =========
</TABLE>
During 1997, the Company amended its revolving credit agreement to
increase the aggregate borrowing limit to $1,300.0 million. The
revolving credit agreement will terminate in August 2002. At December
31, 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 $1,300.0 million 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 December 31, 1999,
$718.5 million (principal amount) of commercial paper was outstanding.
The entire amount is classified as long-term debt because the total
commercial paper is not expected to be repaid in 2000.
The revolving credit agreement permits the Company to borrow funds on
a variety of interest rate terms. This agreement requires, among other
things, that the Company maintain a certain Total Indebtedness to
Total Capital Ratio, as defined in this agreement. As of December 31,
1999, the Company was in compliance with this agreement.
The Company had outstanding at December 31, 1999 a total of $859.5
million (principal amount) of Medium-term notes. The maturities on
these notes range from 5 to 30 years at an average interest rate of
6.24%.
A new universal shelf registration statement became effective in July
1999. As of December 31, 1999, $750 million of Company debt and equity
securities may be issued under the shelf.
-60-
The aggregate maturities of Long-term Debt outstanding are as follows:
Aggregate
DECEMBER 31, Maturities
------------ ----------
(In millions)
2000 $ 150.1
2001 16.3
2002 818.7
2003 115.5
---------
2004 0.1
Thereafter 505.2
---------
$ 1,605.9
=========
6. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST
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 the
approximate conversion price of $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. The Convertible Preferred Securities are subject to a
guarantee by the Company 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 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 on December 1,
2027, bear interest at the rate of 5.25%, payable quarterly 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 deferred. Under this
circumstance, the Company may not declare or pay any cash
distributions with respect to its capital stock or debt securities
-61-
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.
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used
to manage certain interest rate and foreign currency risks.
The Company has entered into several interest rate swap agreements as
a means of converting certain floating rate debt instruments into
fixed rate debt. Cash flows related to these interest rate swap
agreements are included in interest expense over the terms of the
agreements, which range from three to seven years in maturity. At
December 31, 1999, the Company had an outstanding notional principal
amount of $522.1 million, with a net accrued interest receivable of
$3.6 million. The termination value of these contracts is not included
in the consolidated financial statements since these contracts
represent the hedging of long-term activities to be amortized in
future reporting periods.
The Company utilizes forward exchange contracts to manage foreign
exchange risk related to both known and anticipated intercompany and
third-party commercial transaction exposures of one year duration or
less.
The Company also utilizes cross-currency swaps to hedge long-term
intercompany transactions. The maturities on these cross-currency
swaps range from three to five years.
The following table summarizes the Company's forward exchange
contracts and cross-currency swaps in U.S. dollars by major currency
and contractual amount. The "buy" amounts represent the U.S.
equivalent of commitments to purchase foreign currencies, and the
"sell" amounts represent the U.S. equivalent of commitments to sell
foreign currencies according to local needs in foreign subsidiaries.
The contractual amounts of significant forward exchange contracts and
cross-currency swaps and their fair value were as follows:
-62-
DECEMBER 31, 1999 1998
------------ ----------------- ----------------
(In millions)
Buy Sell Buy Sell
--- ---- --- ----
British pounds $ 1.1 $ 172.8 $ - $ 80.1
Canadian dollars 71.1 - 71.1 18.8
Euro 4.9 490.8 0.4 449.6
Japanese yen - 4.1 - -
Swedish krona - 12.5 - -
Swiss francs 8.0 - - -
------ ------- ------ -------
$ 85.1 $ 680.2 $ 71.5 $ 548.5
====== ======= ====== =======
Fair Value $ 84.5 $ 665.7 $ 66.8 $ 560.0
====== ======= ====== =======
The Company's forward exchange contracts and cross-currency swaps do
not subject the Company to risk due to foreign exchange rate movement,
since gains and losses on these contracts generally offset losses and
gains on the assets, liabilities and other transactions being hedged.
The Company does not obtain collateral or other security to support
derivative financial instruments subject to credit risk but monitors
the credit standing of the counterparties.
Gains and losses related to qualifying hedges of commercial and
intercompany transactions are deferred and included in the basis of
the underlying transactions. Derivatives used to hedge intercompany
loans are marked to market with the corresponding gains or losses
included in the consolidated statements of income.
8. LEASES
The Company has minimum rental payments through the year 2018 under
noncancellable operating leases as follows:
Minimum
DECEMBER 31, Payments
------------ --------
(In millions)
2000 $ 44.4
2001 28.3
2002 19.3
2003 15.2
2004 9.7
Thereafter 12.4
-------
$ 129.3
=======
-63-
Total rental expense for all operating leases was approximately $91.9
million, $79.7 million and $70.7 million in 1999, 1998 and 1997,
respectively.
9. EMPLOYEE BENEFIT RETIREMENT PLANS
The Company and its subsidiaries have noncontributory pension and
profit sharing plans covering substantially all of their foreign and
domestic employees. Pension plan benefits are generally based on years
of service and/or compensation. The Company's funding policy is to
contribute not less than the minimum amounts required by the Employee
Retirement Income Security Act of 1974 or local statutes to assure
that plan assets will be adequate to provide retirement benefits. The
Company's common stock comprised $48.7 million, $69.3 million and
$71.4 million of pension plan assets at December 31, 1999, 1998 and
1997, respectively.
Total expense under all profit sharing plans was $12.3 million, $25.0
million, and $18.3 million for the years ended December 31, 1999, 1998
and 1997, respectively.
In addition to the Company's pension and profit sharing plans, several
of the Company's subsidiaries currently provide retiree health care
benefits for certain employee groups.
The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans within the guidelines of SFAS
No. 132:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
-------------------------------- ----------------------------------
DECEMBER 31, 1999 1998 1997 1999 1998 1997
------------ ---- ---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 $ 691.1 $ 578.0 $ 484.7 $ 184.0 $ 175.2 $ 147.9
Service cost 25.4 20.2 15.9 3.5 3.2 3.0
Interest cost 50.1 43.9 38.7 12.6 12.8 11.9
Amendments 6.5 2.2 0.1 (0.5) - -
Actuarial (gain)/loss (59.6) 34.3 11.9 11.9 7.8 1.8
Acquisitions 50.4 51.3 60.6 1.7 - 24.7
Currency exchange (5.0) (0.3) - - - -
Benefits paid from plan assets (49.8) (38.5) (33.9) (16.9) (15.0) (14.1)
-------- ------- -------- -------- -------- -------
Benefit obligation at December 31 $ 709.1 $ 691.1 $ 578.0 $ 196.3 $ 184.0 $ 175.2
======== ======== ======== ======== ======== =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1 $ 713.8 $ 738.4 $ 587.6 $ - $ - $ -
Actual return on plan assets 119.5 (5.9) 111.6 - - -
-64-
Contributions 11.6 6.5 4.1 16.9 15.0 14.1
Acquisitions 62.3 14.1 69.1 - - -
Currency exchange 1.2 (0.8) (0.1) - - -
Benefits paid from plan assets (49.8) (38.5) (33.9) (16.9) (15.0) (14.1)
-------- ------- ------- ------- -------- -------
Fair value of plan assets at December 31 $ 858.6 $ 713.8 $ 738.4 $ - $ - $ -
======== ======= ======= ======= ======== =======
Pension Benefits Other Postretirement Benefits
-------------------------------- -----------------------------------
DECEMBER 31, 1999 1998 1997 1999 1998 1997
------------ ---- ---- ---- ---- ---- ----
(In millions)
FUNDED STATUS
Funded status at December 31 $ 149.5 $ 22.7 $ 160.4 $ (196.3) $ (184.0) $ (175.2)
Unrecognized net gain (118.9) (7.9) (105.4) (8.0) (20.2) (28.7)
Unrecognized prior service cost (0.9) (2.0) (5.1) (0.2) 0.2 0.3
Unrecognized net asset (3.3) (5.0) (5.2) - - -
-------- ------- ------- --------- --------- ---------
Net amount recognized $ 26.4 $ 7.8 $ 44.7 $ (204.5) $ (204.0) $ (203.6)
======== ======= ======== ========= ========= =========
Amounts recognized in the
Consolidated Balance Sheets
Prepaid benefit cost(1) $ 102.9 $ 71.8 $ 77.4 $ - $ - $ -
Accrued benefit cost(2) (80.9) (67.9) (34.4) (204.5) (204.0) (203.6)
Intangible asset(1) 4.4 3.9 1.7 - - -
-------- ------- -------- --------- --------- ---------
Net amount recognized $ 26.4 $ 7.8 $ 44.7 $ (204.5) $ (204.0) $ (203.6)
======== ======= ======== ========= ========= =========
Assumptions as of December 31
Discount rate 7.50% 7.00% 7.75% 7.50% 6.75-7.00% 7.25-7.50%
Long-term rate of return on plan assets 10.00% 10.00% 9.00% - - -
Long-term rate of compensation increase 5.00% 5.00% 5.00% - - -
Health care cost trend rate - - - 7.00-9.00% 7.00-8.00% 9.00%
(1) Recorded in Other Non-current Assets
(2) Recorded in Other Non-current Liabilities
Net pension costs and other postretirement benefit costs include the following components:
Pension Benefits Other Postretirement Benefits
----------------------------------- ----------------------------------
DECEMBER 31, 1999 1998 1997 1999 1998 1997
------------ ---- ---- ---- ---- ---- ----
(In millions)
Service cost-benefits earned
during the year $ 30.9 $ 19.3 $ 16.0 $ 3.5 $ 3.3 $ 3.0
Interest cost on projected benefit
obligation 50.9 46.6 38.7 12.6 12.9 11.9
-65-
Expected return on plan assets (76.7) (59.0) (57.7) - - -
Amortization of:
Transition asset (1.2) (1.1) (1.1) (0.2) (0.5) (0.2)
Prior service cost recognized (0.4) (0.3) (0.3) - (0.4) (1.4)
Actuarial (gain)/loss 0.8 (1.8) 5.5 - - -
------- ------- ------ ------ ------ ------
$ 4.3 $ 3.7 $ 1.1 $15.9 $15.3 $13.3
======= ======= ====== ====== ====== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets are as follows:
DECEMBER 31, 1999 1998 1997
------------ ---- ---- ----
(In millions)
Projected benefit obligation $145.2 $147.1 $68.4
Accumulated benefit obligation 131.0 127.5 55.1
Fair value of plan assets 50.8 52.1 22.1
The health care cost trend rate significantly affects the reported
postretirement benefit costs and benefit obligations. A one percentage
point change in the assumed rate would have the following effects:
1% Increase 1% Decrease
----------- -----------
(In millions)
Effect on total of service and
interest cost components $1.9 $(1.4)
Effect on postretirement benefit
obligations 16.9 (14.7)
10. STOCKHOLDERS' EQUITY
The Company's Common Stock consists of 800.0 million authorized shares
with a par value of $1 per share. Of the total unissued common shares
at December 31, 1999, total shares in reserve included 10.4 million
shares for issuance under the Company's stock option plans.
Each share of Common Stock includes a stock purchase right (a
"Right"). Each Right will entitle the holder, until the earlier of
October 31, 2008 or the redemption of the Rights, to buy the number of
shares of Common Stock having a market value of two times the exercise
price of $200, subject to adjustment under certain circumstances. The
Rights will be exercisable only if a person or group acquires 15% or
more of voting power of the Company or announces a tender offer
following which it would hold 15% or more of the Company's voting
power. The Rights held by the 15% stockholder would not be exercisable
in this situation.
-66-
Furthermore, if, following the acquisition by a person or group of 15%
or more of the Company's voting stock, the Company was acquired in a
merger or other business combination or 50% or more of its assets were
sold, each Right (other than Rights held by the 15% stockholder) would
become exercisable for that number of shares of Common Stock of the
Company (or the surviving company in a business combination) having a
market value of two times the exercise price of the Right.
The Company may redeem the Rights at $0.001 per Right prior to the
occurrence of an event that causes the Rights to become exercisable
for Common Stock.
11. STOCK OPTIONS
The Company's stock option plans are accounted for under APB Opinion
No. 25. As a result, the Company grants fixed stock options under
which no compensation cost is recognized. Had compensation cost for
the plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
(In millions, except per share data)
Net income: As reported $95.4 $481.8 $321.6
Pro forma 75.5 467.3 313.9
Diluted earnings per share: As reported $0.34 $1.70 $1.14
Pro forma 0.27 1.65 1.11
</TABLE>
Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be
expected in future years.
The Company may grant up to 8.1 million shares under the 1993 Stock
Option Plan, of which the Company has granted 4.2 million shares and
canceled 0.4 million shares through December 31, 1999. Under this
plan, the option exercise price equals the Common Stock's closing
price on the date of grant, vests over a five-year period and expires
after ten years. In addition, options to acquire common stock of
Rubbermaid Incorporated that were outstanding at the time of the
merger under various Rubbermaid option plans were converted into
options to acquire the Company's Common Stock. Those additional
options are included in the summary below.
The following summarizes the changes in number of shares of Common
Stock under option:
-67-
<TABLE>
<CAPTION>
Weighted
Average
Exercise
1999 Shares Price
---- ------ --------
<S> <C> <C>
Outstanding at
beginning of year 4,353,147 $32
Granted 2,498,980 39
Exercised (842,288) 30
Canceled (190,015) 35
---------
Outstanding at end of year 5,819,824 35
=========
Exercisable at end of year 2,622,352 30
=========
Weighted average fair value of options
granted during the year $15
=========
</TABLE>
The 5,819,824 options outstanding at December 31, 1999 have exercise
prices between $12 and $50 and are summarized below:
Options Outstanding
-------------------
Weighted
Average
Range of Weighted Remaining
Exercise Number Outstanding Average Contractual
Prices at December 31, 1999 Exercise Price Life
-------- -------------------- -------------- ------------
$12-15 120,846 $14 1
16-25 533,073 21 4
26-35 2,399,336 33 8
36-45 2,584,169 41 9
46-50 182,400 48 9
$12-50 5,819,824 35 8
The 2,622,352 options exercisable at December 31, 1999 have exercise
prices between $12 and $50 and are summarized below:
Range of
Exercise Number Outstanding Weighted Average
Prices at December 31, 1999 Exercise Price
-------- -------------------- -----------------
$12-15 120,846 $14
16-25 499,673 21
26-35 1,517,675 32
36-45 453,678 40
-68-
46-50 30,480 48
---------
$12-50 2,622,352 30
=========
Weighted Average
1998 Shares Exercise Price
---- ------ ----------------
Outstanding at beginning
of year 3,720,301 $28
Granted 1,576,467 38
Exercised (753,261) 23
Canceled (190,360) 30
----------
Outstanding at end of year 4,353,147 32
===========
Exercisable at end of year 3,189,309 30
===========
Weighted average fair
value of options granted $13
during the year ===========
Weighted Average
1997 Shares Exercise Price
---- ------
Outstanding at
beginning of year 2,808,901 $25
Granted 1,488,242 33
Exercised (366,275) 18
Canceled (210,567) 28
---------
Outstanding at end of year 3,720,301 28
=========
Exercisable at end of year 1,898,754 27
=========
Weighted average fair
value of options granted $9
during the year =========
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants in 1999, 1998 and 1997, respectively:
risk-free interest rate of 6.6%, 4.1-6.4% and 6.1-6.3%; expected
dividend yields of 2.0%, 1.6-2.0% and 1.8-2.0%; expected lives of
9.0, 5.0-9.9 and 5.0-9.9 years; and expected volatility of 25%, 20-34%
and 23%.
12. INCOME TAXES
The provision for income taxes consists of the following:
-69-
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions)
Current:
Federal $120.6 $217.1 $109.5
State 6.3 26.0 19.7
Foreign 18.2 10.3 25.3
------ ------ -----
145.1 253.4 154.5
Deferred (9.6) 81.7 68.5
------- ------ ------
$135.5 $335.1 $223.0
======= ====== ======
The non-U.S. component of income before income taxes was $56.3 million
in 1999, $19.1 million in 1998 and $75.8 million in 1997.
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions)
Deferred tax assets:
Accruals, not currently
deductible for tax purposes $198.0 $132.9 $159.2
Postretirement liabilities 80.5 78.5 79.8
Inventory reserves 28.4 25.3 35.7
Self-insurance liability 29.5 44.1 39.1
Amortization of intangibles 27.2 13.6 43.6
Other 8.7 2.9 1.0
------- ------- -------
372.3 297.3 358.4
Deferred tax liabilities:
Accelerated depreciation (157.5) (152.1) (136.7)
Prepaid pension asset (33.7) (27.1) (31.1)
Unrealized gain on securities - - (51.5)
available for sale
Other (16.2) (14.4) (23.1)
------- ------- -------
(207.4) (193.6) (242.4)
------- ------- -------
Net deferred tax asset $164.9 $103.7 $116.0
======= ======= =======
The net deferred tax asset is classified in the consolidated balance
sheets as follows:
-70-
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions)
Current net deferred income tax asset $250.6 $108.2 $157.1
Non-current deferred income tax
liability (85.7) (4.5) (41.1)
------- ------- -------
$164.9 $103.7 $116.0
======= ======= =======
A reconciliation of the U.S. statutory rate to the effective income
tax rate is as follows:
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In percent)
Statutory rate 35.0% 35.0% 35.0%
Add (deduct) effect of:
State income taxes, net of
federal income tax effect 2.7 3.2 3.4
Nondeductible trade names and
goodwill amortization 4.2 1.3 2.5
Nondeductible transaction 19.7 - -
costs
Tax basis differential on sales - 2.7 1.1
of businesses
Other (2.9) (1.2) (1.1)
----- ----- -----
Effective rate 58.7% 41.0% 40.9%
===== ===== =====
No U.S. deferred taxes have been provided on the undistributed non-
U.S. subsidiary earnings which are considered to be permanently
invested. At December 31, 1999, the estimated amount of total
unremitted non-U.S. subsidiary earnings is $82.0 million.
13. OTHER NONOPERATING (INCOME) EXPENSES
Total other nonoperating (income) expenses consist of the following:
YEAR ENDED DECEMBER 31, 1999 1998 1997
----------------------- ---- ---- ----
(In percent)
Equity earnings* $ (8.1) $ (7.1) $ (5.8)
Interest income (9.9) (14.8) (7.5)
Dividend income (0.3) (0.1) (4.0)
(Gain)/loss on sale of
marketable equity securities 1.1 (191.5) (2.9)
-71-
Gain on sales
of businesses - (59.8) -
Minority interest in income
of subsidiary trust 26.8 26.7 1.5
Currency translation loss 1.1 6.0 0.3
Other 1.9 3.5 (0.9)
------- -------- --------
$ 12.6 $(237.1) $(19.3)
======= ======== ========
* American Tool Companies, Inc., in which the Company has a 49%
interest.
14. OTHER OPERATING INFORMATION
Industry Segment Information
The Company operates in three reportable operating segments: Household
Products, Hardware and Home Furnishings and Office Products. The
principal product categories included in each of the Company's
business segments are as follows:
SEGMENT PRODUCT CATEGORY
Household Products Household Products, Food Preparation,
Cooking and Serving, Infant/Juvenile Care
and Play, Commercial Products
Hardware & Home Window Treatments, Furnishings Hardware and
Tools, Picture Frames and Albums
Office Products Markers and Writing Instruments, Office
Products
NET SALES(1)(2)
Year Ended December 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions)
Household Products $3,335.0 $3,385.3 $3,199.6
Hardware & Home
Furnishings 1,897.2 1,758.1 1,484.8
Office Products 1,180.9 1,040.3 957.0
$6,413.1 $6,183.7 $5,641.4
(1) Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to
approximately 12% of consolidated net sales in 1999, 14% in 1998 and
15% in 1997. Sales to no other customer exceeded 10% of consolidated
net sales.
-72-
(2) All intercompany transactions have been eliminated.
OPERATING INCOME(3)
Year Ended December 31, 1999 1998 1997
----------------------- ---- ---- ----
(In millions)
Household Products $207.8 $376.7 $397.5
Hardware & Home Furnishings 297.4 290.2 241.1
Office Products 218.3 212.3 194.5
Corporate (133.5) (83.7) (156.2)
-------- ------- --------
590.0 795.5 676.9
Restructuring costs (246.4) (115.2) (37.2)
------- ------- ------
$ 343.6 $ 680.3 $ 639.7
======= ======= =======
(3) 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 and the net gains on the sales of
Stuart Hall, Newell Plastics and Decora. In calculating operating
income for individual business segments, certain headquarters expenses
of an operational nature are allocated to business segments and
geographic areas primarily on a net sales basis. Trade names and
goodwill amortization is considered a corporate expense and not
allocated to business segments.
IDENTIFIABLE ASSETS
December 31, 1999 1998 1997
---------------------------- -------- --------- --------
(In millions)
Household Products $ 2,129.0 $ 2,286.3 $ 2,036.1
Hardware & Home Furnishings 1,194.4 995.8 850.8
Office Products 720.9 643.0 520.7
Corporate (4) 2,679.8 2,364.1 2,367.6
--------- --------- ---------
$ 6,724.1 $ 6,289.2 $ 5,775.2
========= ========= =========
(4) Corporate assets primarily include trade names and goodwill,
equity investments and deferred tax assets.
-73-
CAPITAL EXPENDITURES
Year Ended December 31, 1999 1998 1997
----------------------------- ---- ---- ----
(In millions)
Household Products $ 138.3 $ 213.9 $ 168.4
Hardware & Home Furnishings 10.1 39.1 30.3
Office Products 33.7 24.9 26.4
Corporate 18.0 40.8 23.9
------- ------- -------
$ 200.1 $ 318.7 $ 249.0
======= ======= =======
DEPRECIATION AND AMORTIZATION
Year Ended December 31, 1999 1998 1997
----------------------------- ------ ------ -------
(In millions)
Household Products $148.7 $149.2 $140.6
Hardware & Home Furnishings 30.4 31.2 33.4
Office Products 35.7 28.7 21.6
Corporate 56.9 54.7 52.2
------ ------ ------
$271.7 $263.8 $247.8
====== ====== ======
GEOGRAPHIC AREA INFORMATION
NET SALES
Year Ended December 31, 1999 1998 1997
-------------------------- -------- -------- --------
(In millions)
United States $4,921.4 $4,825.4 $4,769.5
Canada 263.2 273.9 258.9
-------- -------- --------
North America 5,184.6 5,099.3 5,028.4
Europe 966.9 849.8 395.4
South America(1) 231.0 205.3 136.8
All other 30.6 29.3 80.8
-------- -------- --------
$6,413.1 $6,183.7 $5,641.4
======== ======== ========
-74-
(1) Includes Mexico, Venezuela and Colombia, and in 1998 and 1999,
Brazil and Argentina.
OPERATING INCOME
Year Ended December 31, 1999 1998 1997
---------------------------- --------- --------- ---------
(In millions)
United States $ 276.6 $ 617.0 $ 542.0
Canada 22.6 16.6 32.9
North America 299.2 633.6 574.9
Europe 4.5 24.0 31.3
South America(1) 43.6 41.2 32.9
All other (3.7) (18.5) 0.6
--------- --------- --------
$ 343.6 $ 680.3 $ 639.7
========= ========= ========
OPERATING INCOME
Year Ended December 31, 1999 1998 1997
-------------------------- -------- ------- --------
(In millions)
United States $4,813.3 $4,648.2 $4,948.6
Canada 157.1 207.0 253.7
North America 4,970.4 4,855.2 5,202.3
Europe 1,459.8 1,135.2 400.7
South America(1) 273.2 276.7 118.4
All other 20.7 22.1 53.8
-------- -------- --------
$6,724.1 $6,289.2 $5,775.2
======== ======== ========
(2) Transfers of finished goods between geographic areas are not
significant.
15. LITIGATION
The Company is subject to certain legal proceedings and claims,
including the environmental matters described below, that have arisen
in the ordinary conduct of its business or have been assumed by the
Company when it purchased certain businesses.
As of December 31, 1999, the Company was involved in various matters
concerning federal and state environmental laws and regulations,
-75-
including matters in which the Company has been identified by the U.S.
Environmental Protection Agency and certain state environmental
agencies as a potentially responsible party ("PRP") at contaminated
sites under the Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and equivalent state laws.
In assessing its environmental response costs, the Company has
considered several factors, including: the extent of the Company's
volumetric contribution at each site relative to that of other PRPs;
the kind of waste; the terms of existing cost sharing and other
applicable agreements; the financial ability of other PRPs to share in
the payment of requisite costs; the Company's prior experience with
similar sites; environmental studies and cost estimates available to
the Company; the effects of inflation on cost estimates; and the
extent to which the Company's and other parties' status as PRPs is
disputed.
Based on information available to it, the Company's estimate of
environmental response costs associated with these matters as of
December 31, 1999 ranged between $18.4 million and $22.6 million. As
of December 31, 1999, the Company had a reserve equal to $21.1 million
for such environmental response costs in the aggregate. No insurance
recovery was taken into account in determining the Company's cost
estimates or reserve, nor do the Company's cost estimates or reserve
reflect any discounting for present value purposes.
Because of the uncertainties associated with environmental
investigations and response activities, the possibility that the
Company could be identified as a PRP at sites identified in the future
that require the incurrence of environmental response costs and the
possibility of additional sites as a result of businesses acquired,
actual costs to be incurred by the Company may vary from the Company's
estimates.
Subject to difficulties in estimating future environmental response
costs, the Company does not expect that any amount it may have to pay
in connection with environmental matters in excess of amounts reserved
will have a material adverse effect on its consolidated financial
statements.
The Company is involved in several legal proceedings relating to the
importation and distribution of vinyl mini-blinds made with plastic
containing lead stabilizers. In 1996, the Consumer Product Safety
Commission found that such stabilizers deteriorate over time from
exposure to sunlight and heat, causing lead dust to form on mini-blind
surfaces and presenting a health risk to children under six years of
age.
Two lawsuits, which were commenced in California in 1996 against a
number of companies, including a subsidiary of the Company, alleging
failure to warn consumers adequately about the presence of lead in
accordance with California law, were resolved during 1998-99. A
-76-
national, injunction-only, class action settlement covering the
Company's subsidiary and several other mini-blinds distributors and
retailers was entered in the Superior Court of Passaic County, New
Jersey on October 8, 1999. An additional related lawsuit filed in
Illinois in 1997 against a Company subsidiary and other companies is
also being dismissed pursuant to the terms of the national settlement
entered in New Jersey. The Company's contribution to the settlement
and related amounts was not material to the Company's consolidated
financial statements.
In December 1998, 13 companies, including a subsidiary of the Company,
were named as defendants in another case involving the importation and
distribution of vinyl mini-blinds containing lead. The case, filed as
a Massachusetts class action in the Superior Court, alleges
misrepresentation, breaches of express and implied warranties,
negligence, loss of consortium and violation of Massachusetts consumer
protection laws. The plaintiffs seek injunctive relief, unspecified
damages, compensatory damages for personal injury and court costs.
The Company has also been involved in a separate legal proceeding. In
September 1997, an administrative law judge of the Federal Trade
Commission ("F.T.C.") ruled that a major customer of a subsidiary of
the Company illegally pressured manufacturers not to sell toys to
warehouse clubs. Subsequent to the F.T.C. decision, numerous class
action suits seeking damages on behalf of consumers were filed against
the customer and certain manufacturers, including the Company's
subsidiary, which was not named as a defendant in the F.T.C. suit. A
settlement agreement has been entered into by the Company and the
plaintiffs, including the Attorneys General for the 46 states involved
in the suit and the named class plaintiffs (for themselves and the
plaintiff settlement class). The parties to the case have agreed on a
settlement, the monetary portion of which has been delivered to an
escrow agent, and expect shortly the court's order approving the
settlement. The Company's contribution to the settlement and related
amounts was not material to the Company's consolidated financial
statements.
As of December 31, 1999, eight complaints were filed against the
Company and certain of its officers and directors in the U.S. District
Court for the Northern District of Illinois on behalf of a purported
class consisting of persons who purchased common stock of the Company,
Newell Co. or Rubbermaid Incorporated during the period from October
21, 1998 through September 3, 1999 or exchanged shares of Rubbermaid
common stock for the Company's common stock as part of the Newell
Rubbermaid merger. The complaints allege that during the relevant time
period the defendants violated Sections 10(b), 14(a) and 20(a) of the
Securities Exchange Act as a result of, among other allegations,
issuing false and misleading statements concerning the Company's
financial condition and results of operations. The Company believes
that these claims are without merit and intends to vigorously defend
these lawsuits.
-77-
Although management of the Company cannot predict the ultimate outcome
of these matters with certainty, it believes that their ultimate
resolution, including any amounts it may have to pay in excess of
amounts reserved, will not have a material effect on the Company's
consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Company is included as
a Supplementary Item at the end of Part I of this Form 10-K.
Information regarding directors of the Company is included in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 10, 2000 ("Proxy Statement") under the
caption "Proposal 1 - Election of Directors," which information is
hereby incorporated by reference herein.
Information regarding compliance with Section 16(a) of the Exchange
Act is included in the Proxy Statement under the caption "Section
16(a) Beneficial Ownership Compliance Reporting," which information is
hereby incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is included in the Proxy
Statement under the caption "Proposal 1 - Election of Directors -
Information Regarding Board of Directors and Committees," under the
captions "Executive Compensation - Summary Compensation Table; -
Option Grants in 1999; - Option Exercises in 1999; - Pension and
Retirement Plans; - Employment Security Agreements," and the caption
"Executive Compensation Committee Interlocks and Insider
Participation," which information is hereby incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership is included in the Proxy
Statement under the caption "Certain Beneficial Owners," which
information is hereby incorporated by reference herein.
-78-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
-79-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)(1) The following is a list of the financial statements of Newell
Rubbermaid Inc. included in this report on Form 10-K which are filed
herewith pursuant to Item 8:
Report of Independent Public Accountants
Consolidated Statements of Income - Years Ended December 31, 1999,
1998 and 1997
Consolidated Balance Sheets - December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements - December 31, 1999, 1998
and 1997
(2) The following consolidated financial statement schedule of the
Company included in this report on Form 10-K is filed herewith
pursuant to Item 14(d) and appears immediately preceding the Exhibit
Index:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(3) The exhibits filed herewith are listed on the Exhibit Index
filed as part of this report on Form 10-K. Each management contract
or compensatory plan or arrangement of the Company listed on the
Exhibit Index is separately identified by an asterisk.
(b) Reports on Form 8-K:
None.
-80-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
-----------------
Balance at (A) Balance
Allowance for Beginning of Charges to (B) at End of
Doubtful Accounts Period Provision Other Accounts Deductions Period
---------------------------- ------------- ----------- -------------- --------- --------
<S> <C> <C> <C> <C> <C>
For the year ended:
December 31, 1999 $34,157 $17,928 $1,922 ($12,137) $41,870
December 31, 1998 30,075 5,488 14,028 (15,434) 34,157
December 31, 1997 25,890 3,870 8,321 (8,006) 30,075
Note A - Represents recovery of accounts previously written off, along with net reserves of acquired and divested
businesses.
Note B - Represents accounts charged off.
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
Beginning (C) End of
Inventory Reserves of Period Provision Write-offs Other Period
---------------------- ----------- ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended:
December 31, 1999 $113,775 $75,660 ($72,768) $ 2,722 $119,389
December 31, 1998 119,179 13,338 (29,293) 10,551 113,775
December 31, 1997 113,487 16,821 (30,332) 19,203 119,179
Note C - Represents net reserves of acquired and divested businesses, including provisions for product line
rationalization.
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
Restructuring Reserves of Period Provision (D) Reserves Other Period
-------------------------------- ------------ ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
For the year ended:
December 31, 1999 $1,559 $246,381 ($230,010) - $17,930
December 31, 1998 1,529 115,154 (115,124) - 1,559
December 31, 1997 26,483 37,200 (62,154) - 1,529
Note D - Represents costs charged to restructuring reserves in accordance with the restructuring plan.
</TABLE>
-81-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Dale L. Matschullat
------------------------
Date March 29, 2000
------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 29, 2000 by the
following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
--------- -----
______________________________ Chairman of the Board and
William P. Sovey Director
/s/ John J. McDonough Vice Chairman of the Board,
------------------------------ Chief Executive Officer and
John J. McDonough Director (Principal Executive
Officer)
/s/ Thomas A. Ferguson, Jr. President and Chief Operating
------------------------------ Officer and Director
Thomas A. Ferguson, Jr.
/s/ Jeffrey J. Burbach Vice President-Controller
------------------------------ (Principal Accounting Officer)
Jeffrey J. Burbach
/s/ Dale L. Matschullat Chief Financial Officer
------------------------------ (Principal Financial Officer)
Dale L. Matschullat
-82-
Signature Title
--------- -----
______________________________ Director
Alton F. Doody
/s/ Scott S. Cowen Director
------------------------------
Scott S. Cowen
/s/ Daniel C. Ferguson Director
------------------------------
Daniel C. Ferguson
/s/ Robert L. Katz Director
------------------------------
Robert L. Katz
______________________________ Director
Elizabeth Cuthbert Millett
/s/ Cynthia A. Montgomery Director
------------------------------
Cynthia A. Montgomery
/s/ Allan P. Newell Director
------------------------------
Allan P. Newell
/s/ Tom H. Barrett Director
------------------------------
Tom H. Barrett
______________________________ Director
Thomas J. Falk
/s/ Wolfgang R. Schmitt Director
------------------------------
Wolfgang R. Schmitt
/s/ Gordon R. Sullivan Director
------------------------------
Gordon R. Sullivan
-83-
/s/ William D. Marohn Director
------------------------------
William D. Marohn
-84-
<TABLE>
<CAPTION>
(C) EXHIBIT INDEX
Exhibit
Number Description of Exhibit
---------- ----------------------
<S> <C> <C> <C>
Item 3. Articles of 3.1 Restated Certificate of Incorporation of Newell Rubbermaid
Incorporation and Inc., as amended as of March 24, 1999 (incorporated by
By-Laws reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K dated March 24, 1999).
3.2 By-Laws of Newell Rubbermaid Inc, as amended through August 8,
1999 (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September
30, 1999).
Item 4 Instruments defining 4.1 Restated Certificate of Incorporation of Newell Rubbermaid
the rights of security Inc., as amended as of March 24, 1999, is included in Item 3.1.
holders, including
indentures
4.2 By-Laws of Newell Rubbermaid Inc., as amended through August 8,
1999, are included in Item 3.2.
4.3 Rights Agreement dated as of August 6, 1998 between the Company
and First Chicago Trust Company of New York, as Rights Agent
(incorporated by reference to Exhibit 4 to the Company's
Current Report on Form 8-K dated August 6, 1998).
4.4 Indenture dated as of April 15, 1992, between the Company and
The Chase Manhattan Bank (National Association), as Trustee
(incorporated by reference to Exhibit 4.4 to the Company's
Report on Form 8 amending the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1992).
4.5 Indenture dated as of November 1, 1995 between the Company and
The Chase Manhattan Bank (National Association), as Trustee
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated May 3, 1996).
4.6 Specimen Common Stock (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-4, File No.
333-71747, filed February 4, 1999).
Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the
Company is not filing certain documents. The Company agrees to
furnish a copy of each such document upon the request of the
Commission.
-85-
Exhibit
Number Description of Exhibit
---------- ----------------------
Item 10. Material Contracts *10.1 The Newell Long-Term Savings and Investment Plan, as amended
and restated effective May 1, 1993 and amended through December
29, 1995 (incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (the "1998 Form 10-K")).
*10.2 The Company's Amended and Restated 1984 Stock Option Plan, as
amended through February 14, 1990 (incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990 (the "1990 Form 10-K")).
*10.3 Newell Co. Deferred Compensation Plan, as amended, effective
August 1, 1980, as amended and restated effective January 1,
1997 (incorporated by reference to Exhibit 10.3 to the 1998
Form 10-K).
*10.4 Newell Operating Company's ROA Cash Bonus Plan, effective
January 1, 1977, as amended (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form
S-14, Reg. No. 002-71121, filed March 4, 1981).
*10.5 Newell Operating Company's ROI Cash Bonus Plan, effective
January 1, 1986 (incorporated by reference to Exhibit 10.5 to
the 1998 Form 10-K).
*10.6 Newell Operating Company's Pension Plan for Salaried and
Clerical Employees, as amended and restated, effective January
1, 1996, as amended through June 15, 1998 (incorporated by
reference to Exhibit 10.6 to the 1998 Form 10-K).
*10.7 Newell Operating Company's Pension Plan for Factory and
Distribution Hourly-Paid Employees, as amended and restated
effective January 1, 1989 and amended through September 30,
1997 (incorporated by reference to Exhibit 10.7 to the 1998
Form 10-K).
*10.8 Newell Operating Company's Restated Supplemental Retirement
Plan for Key Executives, effective January 1, 1982, as amended
effective May 13, 1998 (incorporated by reference to Exhibit
10.8 to the 1998 Form 10-K).
*10.9 Form of Employment Security Agreement with certain executive
officers (incorporated by reference to Exhibit 10.10 to the
1990 Form 10-K).
-86-
Exhibit
Number Description of Exhibit
---------- ----------------------
10.10 Credit Agreement dated as of June 12, 1995 and amended and
restated as of August 5, 1997 among the Company, certain of its
affiliates, The Chase Manhattan Bank (National Association), as
Agent, and the banks whose names appear on the signature pages
thereto (incorporated by reference to Exhibit 10.17 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997).
10.11 Shareholder's Agreement and Irrevocable Proxy dated as of June
21, 1985. among American Tool Companies, Inc., Newell Co.,
Allen D. Petersen, Kenneth L. Cheloha, Robert W. Brady, William
L. Kiburz, Flemming Andresen and Ane C. Patterson (incorporated
by reference to Exhibit 10.15 to the Company's Annual Report on
From 10-K for the year ended December 31, 1997 (the "1997 Form
10-K")).
*10.12 Newell Rubbermaid Inc. 1993 Stock Option Plan, effective
February 9, 1993, as amended May 26, 1999 (incorporated by
reference to Exhibit 10.12 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999).
10.13 Amended and Restated Trust Agreement, dated as of December 12,
1997 among Newell Co., as Depositor, The Chase Manhattan Bank,
as Property Trustee, Chase Manhattan Delaware, as Delaware
Trustee, and the Administrative Trustees (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-3, File No. 333-47261, filed March 3, 1998
(the "1998 Form S-3").
10.14 Junior Convertible Subordinated Indenture for the 5.25%
Convertible Subordinated Debentures, dated as of December 12,
1997, among Newell Co. and The Chase Manhattan Bank, as
Indenture Trustee (Incorporated by reference to Exhibit 4.3 to
the 1998 Form S-3).
10.15 Terms Agreement dated as of July 9, 1998 among Newell Co.,
Morgan Stanley Dean Witter, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Chase Securities Inc. and First Chicago
Capital Markets, Inc. (incorporated by reference to Exhibit 1.1
to the Company's Current Report on Form 8-K dated July 9,
1998).
Item 11. Exhibit 11 Statement of Computation of Earnings per Share of Common Stock.
Item 12. Exhibit 12 Statement of Computation of Earnings to Fixed Charges.
Item 21. Subsidiaries of the 21.1 Significant Subsidiaries of the Company.
Registrant
-87-
Exhibit
Number Description of Exhibit
---------- ----------------------
Item 23. Consent of experts and 23.1 Consent of Arthur Andersen LLP.
counsel
23.2 Consent of KPMG LLP
Item 27. Financial Data 27 Financial Data Schedule.
Schedule
Item 99. Additional Exhibits 99 Safe Harbor Statement.
* Management contract or compensatory plan or arrangement of the Company.
-88-
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 95,437 $481,834 $321,617
Weighted average shares outstanding 281,806 280,731 280,300
Basic earnings per share $0.34 $1.72 $1.15
Diluted earnings per share:
Net income $95,437 $481,834 $321,617
Minority interest in income of subsidiary trust,
net of tax (A) 15,742 807
-------- -------- --------
Net income, assuming conversion of all applicable
securities $95,437 $497,576 $322,424
Weighted average shares outstanding 281,806 280,731 280,300
Incremental common shares applicable to common
stock options based on the average market price
during the period (A) 1,287 839
Average common shares issuable assuming conversion
of the Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of a Subsidiary (A) 9,865 514
Trust -------- -------- --------
Weighted average shares outstanding assuming full
dilution 281,806 291,883 281,653
Diluted earnings per share, assuming conversion of
all applicable securities $0.34 $1.70 $1.14
Note A - Diluted earnings per share for the twelve months exclude the impact of "in-the-money" stock options and
convertible preferred securities because they are anti-dilutive.
-89-
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except ratio data)
<S> <C> <C> <C> <C> <C>
Earnings available to fixed charges:
Income before income taxes $230,939 $816,973 $544,590 $673,312 $472,786
Fixed charges -
Interest expense 100,021 100,514 114,357 84,822 65,125
Portion of rent determined to be
interest(A) 30,319 26,287 23,343 17,561 15,340
Minority interest in income of
subsidiary trust 26,771 26,692 1,528 0 0
(8,118) (7,127) (5,831) (6,364) (5,993)
Equity in earnings elimination ---------- ---------- ---------- --------- ---------
$379,932 $963,339 $677,987 $769,331 $547,258
========== ========== ========== ========= =========
Fixed charges:
Interest expense $100,021 $100,514 $114,357 $ 84,822 $ 65,125
Portion of rent determined to be
interest(A) 30,319 26,287 23,343 17,561 15,340
Minority interest in income of 26,771 26,692 1,528 0 0
subsidiary trust ---------- ---------- ---------- --------- ---------
$157,111 $153,493 $139,228 $102,383 $ 80,465
========== ========== ========== ========= =========
2.42 6.28 4.87 7.51 6.80
Ratio of earnings to fixed charges ========== ========== ========== ========= =========
Note A - A standard ratio of 33% was applied to gross rent expense to approximate the interest portion of short-term
and long-term leases.
-90-
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES
Name Ownership
---------------------------------- ---------------------------------------------------
<S> <C> <C>
Intercraft Company Delaware 100% of stock owned by Newell Rubbermaid Inc.
Newell Investments Inc. Delaware 100% of stock owned by Newell Operating Company
Newell Operating Company Delaware 77.5% of stock owned by Newell Rubbermaid Inc.;
22.5% of stock owned by Anchor Hocking Corporation
Rubbermaid Incorporated Ohio 100% of stock owned by Newell Rubbermaid Inc.
Rubbermaid Texas Limited Texas (limited Rubbermaid Incorporated is the general partner and
Partnership partnership) Rubfinco Inc. is the limited partner
Sanford, L.P. Illinois Newell Operating Company is the general partner and
(limited Sanford Investment Company is the limited partner
partnership)
-91-
</TABLE>
EXHIBIT 23.1
[ARTHUR ANDERSEN LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated
January 26, 2000, into the Company's previously filed Form S-8
Registration Statements File Nos. 33-24447, 33-25196, 33-40641,
33-67632, 33-62047, and 333-38621, Form S-3 Registration Statements
File Nos. 33-46208, 33-64225, 333-47261, 333-53039, and 333-82829, and
Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration
Statement File No. 33-44957.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 29, 2000
-92-
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
Newell Rubbermaid Inc.:
We consent to the incorporation by reference in Newell Rubbermaid
Inc.'s previously filed Form S-8 Registration Statements (File Nos.
33-24447, 33-25196, 33-40641, 33-62047, 33-67632, and 333-38621), and
Form S-3 Registration Statements (File Nos. 33-46208, 33-64225, 333-
47261, 333-53039, and 333-82829), and Post Effective Amendment No. 1
on Form S-8 to Form S-4 Registration Statement (File No. 33-44957) of
our report dated February 5, 1999, except as to Note 15, which is as
of March 24, 1999, with respect to the consolidated balance sheets of
Rubbermaid Incorporated and subsidiaries as of January 1, 1999, and
December 31, 1997, and the related consolidated statements of
earnings, shareholder's equity and comprehensive income, and cash
flows for each of the years in the two-year period ended January 1,
1999.
KPMG LLP
Cleveland, Ohio
March 28, 2000
-93-
<TABLE> <S> <C>
<CAPTION>
<S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 102,164
<SECURITIES> 0
<RECEIVABLES> 1,178,423
<ALLOWANCES> (41,870) <F1>
<INVENTORY> 1,034,794
<CURRENT-ASSETS> 2,738,569
<PP&E> 2,955,364 <F2>
<DEPRECIATION> (1,407,173) <F2>
<TOTAL-ASSETS> 6,724,088
<CURRENT-LIABILITIES> 1,629,883
<BONDS> 1,455,779
500,000
0
<COMMON> 282,026
<OTHER-SE> 2,414,980
<TOTAL-LIABILITY-AND-EQUITY> 6,724,088
<SALES> 6,413,074
<TOTAL-REVENUES> 1,741,199
<CGS> 4,671,875
<TOTAL-COSTS> 6,069,469
<OTHER-EXPENSES> 112,666
<LOSS-PROVISION> 17,928 <F1>
<INTEREST-EXPENSE> 100,021
<INCOME-PRETAX> 230,939
<INCOME-TAX> 135,502
<INCOME-CONTINUING> 95,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,437
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
<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 the consolidated financial statements.
-94-
</TABLE>
EXHIBIT 99
NEWELL RUBBERMAID INC. SAFE HARBOR STATEMENT
The Company has made statements in its Annual Report on Form 10-K
for the year ended December 31, 1999, and the documents incorporated
by reference therein that constitute forward-looking statements, as
defined by the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties. The
statements relate to, and other forward-looking statements that may be
made by the Company, may relate to, information or assumptions about
sales, income, earnings per share, return on equity, capital
expenditures, dividends, capital structure, free cash flow, debt to
capitalization ratios, interest rates, internal growth rates, Euro
conversion plans and related risks, Year 2000 plans and related risks,
pending legal proceedings and claims (including environmental
matters), future economic performance, operating income improvements,
synergies, management's plans, goals and objectives for future
operations and growth. These statements generally are accompanied by
words such as "intend," "anticipate," "believe," "estimate,"
"project," "expect," "should" or similar statements. You should
understand that forward-looking statements are not guarantees since
there are inherent difficulties in predicting future results. Actual
results could differ materially from those expressed or implied in the
forward-looking statements. The factors that are discussed below, as
well as the matters set forth generally in the 1999 Form 10-K and the
documents that are incorporated by reference therein could cause
actual results to differ. In addition, there can be no assurance
that:
- we have correctly identified and assessed all
of the factors affecting the Company; or
- the publicly available and other information with
respect to these factors is complete or correct.
Retail Economy
--------------
Our business depends on the strength of the retail economies in
various parts of the world, primarily in the U.S. and to a lesser
extent in:
- Europe, including the Middle East and Africa;
- Latin America; including Mexico and Central
America;
- Canada; and
- Asia, including Australia and New Zealand.
These retail economies are affected by such factors as consumer
demand, the condition of the consumer products retail industry and
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weather conditions. In recent years, the consumer products retail
industry has been characterized by intense competition and
consolidation among both product suppliers and retailers.
Nature of the Marketplace
-------------------------
We compete with numerous other manufacturers and distributors of
consumer products, many of which are large and well-established. In
addition, our principal customers are volume purchasers, many of which
are much larger than us and have strong bargaining power with
suppliers, which limits our ability to recover cost increases through
increased selling prices. The rapid growth of large mass
merchandisers, such as discount stores, warehouse clubs, home centers
and office superstores, together with changes in consumer shopping
patterns, have contributed to a significant consolidation of the
consumer product retail industry and the formulation of dominant
multi-category retailers. Other trends among retailers are to require
manufacturers to supply innovative new products, maintain or reduce
product prices or deliver products with shorter lead times, or for the
retailer to import generic products directly from foreign sources.
The combination of these market influences has created an intensely
competitive environment in which our principal customers continuously
evaluate which product suppliers to use, resulting in pricing
pressures and the need for ongoing improvements in customer service.
Growth by Acquisition
---------------------
The acquisition of companies that sell name brand, staple
consumer product lines to volume purchasers is one of the foundations
of our growth strategy. Our ability to continue to make sufficient
strategic acquisitions at reasonable prices and to integrate the
acquired businesses within a reasonable period of time are important
factors in our future earnings growth.
Foreign Operations
------------------
Foreign operations, which include manufacturing in Canada,
Mexico, Brazil, Columbia, Venezuela and many countries in Europe, and
importing products from the Far East, increasingly are becoming
important to our business. Foreign operations can be affected by
factors such as currency devaluation, other currency fluctuations and
the Euro currency conversion, tariffs, nationalization, exchange
controls, interest rates, limitations on foreign investment in local
business and other political, economic and regulatory risks and
difficulties.
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Integration of Rubbermaid
-------------------------
Our merger with Rubbermaid incorporated was effective on March
24, 1999. Since the merger, we have continued the process of
integrating Rubbermaid's businesses into our businesses,
administrative savings initiatives, operations savings initiatives and
customer service/sales inititatives. Our ability to integrate these
businesses successfully and to realize anticipated operating income
improvements continues to be a challenge given the size of Rubbermaid
and the differences in corporate culture. All of these issues
continue to be important factors in our future earnings growth.
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