SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended September 30, 2000
Commission File Number 1-9608
NEWELL RUBBERMAID INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3514169
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29 East Stephenson Street
Freeport, Illinois 61032-0943
(Address of principal executive offices)
(Zip Code)
(815) 235-4171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes /x/ No / /
Number of shares of Common Stock outstanding (net of treasury
shares) as of October 25, 2000: 266,578,587
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $1,686,741 $1,609,480 $4,949,100 $4,722,987
Cost of products sold 1,217,988 1,164,910 3,584,387 3,434,303
--------- --------- --------- ---------
GROSS INCOME 468,753 444,570 1,364,713 1,288,684
Selling, general and
administrative expenses 214,509 267,485 675,706 849,978
Restructuring costs 4,243 14,506 12,780 201,227
Goodwill amortization and other 13,378 12,692 39,096 37,355
--------- --------- --------- ---------
OPERATING INCOME 236,623 149,887 637,131 200,124
Nonoperating expenses:
Interest expense 33,184 26,012 95,021 75,713
Other, net 3,440 4,634 10,022 10,922
--------- --------- --------- ---------
Net nonoperating expenses 36,624 30,646 105,043 86,635
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 199,999 119,241 532,088 113,489
Income taxes 77,000 46,504 204,854 89,697
--------- --------- --------- ---------
NET INCOME $ 122,999 $ 72,737 $ 327,234 $ 23,792
========= ========= ========= =========
Earnings per share:
Basic $ 0.46 $ 0.26 $ 1.22 $ 0.08
Diluted 0.46 0.26 1.22 0.08
Dividends per share $ 0.21 $ 0.20 $ 0.63 $ 0.60
Weighted average shares outstanding:
Basic 266,567 281,937 269,056 281,738
Diluted 276,500 292,041 278,987 281,738
See notes to consolidated financial statements.
2
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30, % of December 31, % of
2000 Total 1999 Total
------------- ----- ------------ -----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,439 0.3% $ 102,164 1.5%
Accounts receivable, net 1,236,989 18.2% 1,178,423 17.5%
Inventories, net 1,170,533 17.3% 1,034,794 15.4%
Deferred income taxes 260,914 3.8% 250,587 3.7%
Prepaid expenses and other 164,401 2.4% 172,601 2.6%
--------- ---- --------- ----
TOTAL CURRENT ASSETS 2,854,276 42.0% 2,738,569 40.7%
MARKETABLE EQUITY SECURITIES 6,892 0.1% 10,799 0.2%
OTHER LONG-TERM INVESTMENTS 71,863 1.1% 65,905 1.0%
OTHER ASSETS 308,228 4.5% 335,699 5.0%
PROPERTY, PLANT AND EQUIPMENT, NET 1,573,960 23.2% 1,548,191 23.0%
TRADE NAMES AND GOODWILL 1,973,309 29.1% 2,024,925 30.1%
--------- ---- --------- ----
TOTAL ASSETS $6,788,528 100.0% $6,724,088 100.0%
========== ===== ========== =====
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
September 30, % of December 31, % of
2000 Total 1999 Total
------------- ----- ------------ -----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 19,501 0.3% $ 97,291 1.4%
Accounts payable 343,511 5.1% 376,596 5.6%
Accrued compensation 103,236 1.5% 113,373 1.7%
Other accrued liabilities 781,421 11.5% 892,481 13.3%
Income taxes 92,523 1.3% - -
Current portion of long-term debt 100,017 1.5% 150,142 2.2%
--------- ---- --------- ----
TOTAL CURRENT LIABILITIES 1,440,209 21.2% 1,629,883 24.2%
LONG-TERM DEBT 2,064,746 30.4% 1,455,779 21.7%
OTHER NON-CURRENT LIABILITIES 345,477 5.1% 354,107 5.3%
DEFERRED INCOME TAXES 58,877 0.9% 85,655 1.3%
MINORITY INTEREST 1,181 0.0% 1,658 0.0%
COMPANY-OBLIGATED MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST 500,000 7.4% 500,000 7.4%
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
800.0 million at $1 par value; 282,170 4.1% 282,026 4.2%
Outstanding shares:
2000 282.2 million
1999 282.0 million
Treasury stock; (407,458) (6.0%) (2,760) (0.1%)
Outstanding shares:
2000 15.6 million
1999 0.1 million
Additional paid-in capital 214,868 3.2% 213,112 3.2%
Retained earnings 2,492,564 36.7% 2,334,609 34.7%
Accumulated other comprehensive
loss (204,106) (3.0%) (129,981) (1.9%)
--------- ----- --------- -----
TOTAL STOCKHOLDERS' EQUITY 2,378,038 35.0% 2,697,006 40.1%
--------- ---- --------- ----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,788,528 100.0% $6,724,088 100.0%
========== ===== ========= =====
See notes to consolidated financial statements.
</TABLE>
4
<TABLE>
<CAPTION>
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Nine Months Ended
September 30,
-------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income 327,234 23,792
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 221,837 198,202
Deferred income taxes (32,992) 25,061
Net loss on marketable equity securities - 822
Other (6,813) 159,323
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (53,870) (123,436)
Inventories (145,570) (57,339)
Other current assets 1,164 (12,756)
Accounts payable (31,025) 1,416
Accrued liabilities and other 4,873 73,210
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 284,838 $ 288,295
--------- ---------
INVESTING ACTIVITIES:
Acquisitions, net $ (70,790) $ (34,907)
Expenditures for property, plant and equipment (240,501) (139,726)
Sale of marketable equity securities - 11,438
Disposals of non-current assets and other 15,504 22,301
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $ (295,787) $ (140,894)
--------- ---------
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited, in thousands)
For the Nine Months Ended
September 30,
-------------------------
2000 1999
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of debt $ 831,945 $548,779
Payments on notes payable
and long-term debt (324,939) (603,812)
Proceeds from exercised stock options
and other (147) 26,537
Common stock repurchase (402,962) -
Cash dividends (169,102) (169,437)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES $ (65,205) $(197,933)
--------- ---------
Exchange rate effect on cash (4,571) (2,040)
DECREASE IN CASH AND CASH EQUIVALENTS
$ (80,725) $ (52,572)
Cash and cash equivalents at beginning
of year 102,164 86,554
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,439 $ 33,982
========= =========
Supplemental cash flow disclosures -
Cash paid during the period for:
Income taxes $ 121,315 $ 105,995
Interest $ 133,768 $ 100,841
See notes to consolidated financial statements.
</TABLE>
6
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments necessary to present a fair statement of the results for
the periods reported, subject to normal recurring year-end adjust-
ments, none of which is expected to be material. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest Annual
Report on Form 10-K.
NOTE 2 - ACQUISITIONS
The Company acquired Mersch SA ("Mersch") on January 24, 2000 and
Brio on May 24, 2000. Both are manufacturers and suppliers of picture
frames in Europe, and now operate as part of Newell Frames and Albums
Europe.
For these and for other minor acquisitions, the Company paid
$50.8 million in cash and assumed $10.6 million of debt. The
transactions were accounted for as purchases; therefore, results of
operations are included in the accompanying consolidated financial
statements since their respective acquisition dates. The acquisition
costs were allocated on a preliminary basis to the fair market value
of the assets acquired and liabilities assumed and resulted in trade
names and goodwill of approximately $31.2 million.
The Company began to formulate an integration plan for these
acquisitions as of their respective acquisition dates. These plans
may include exit costs for certain plants and product lines and
employee terminations associated with the integrations. 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 nine
months ended September 30, 2000 and 1999 on a pro forma basis, as
though the Mersch and Brio businesses (as well as the 1999 acquisi-
tions of Ateliers 28, Reynolds, McKechnie and Ceanothe) had been
acquired on January 1, 1999, are as follows:
7
Nine Months Ended
September 30,
-----------------
(in millions,
except per share amounts)
2000 1999
---- ----
Net sales $ 4,962.5 $ 5,018.6
Net income $ 327.0 $ 24.0
Basic earnings per share $ 1.22 $ 0.09
NOTE 3 - RESTRUCTURING COSTS
In the first nine months of 2000, the Company recorded a pre-tax
restructuring charge of $12.8 million ($7.9 million after taxes).
This restructuring charge included $5.6 million of facility exit
costs, $4.8 million of severance costs, $1.7 million of costs to exit
contractual commitments and $0.7 million of discontinued product
lines. Most of these restructuring charges were associated with the
integration of the Rubbermaid businesses into Newell.
As of September 30, 2000, $12.6 million of reserves remain.
These reserves consist primarily of $5.5 million for exit costs
associated with the closure of four facilities, $4.7 million in
contractual future maintenance costs on abandoned Rubbermaid computer
software and $2.4 million for exit costs associated with discontinued
product lines at Little Tikes.
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market value. The
components of inventories, net of LIFO reserve, were as follows (in
millions):
September 30, December 31,
2000 1999
------------- ------------
Materials and supplies $ 249.7 $ 240.0
Work in process 179.0 149.5
Finished products 741.8 645.3
--------- ---------
$ 1,170.5 $ 1,034.8
========= =========
8
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
millions):
September 30, December 31,
2000 1999
------------- ------------
Land $ 58.9 $ 63.4
Buildings and improvements 688.6 691.3
Machinery and equipment 2,265.5 2,200.7
--------- ---------
$ 3,013.0 $ 2,955.4
Allowance for depreciation (1,439.0) (1,407.2)
--------- ---------
$ 1,574.0 $ 1,548.2
========= =========
Replacements and improvements are capitalized. Expenditures for
maintenance and repairs are charged to expense. The components of
depreciation are provided by annual charges to income calculated to
amortize, principally on the straight-line basis, the cost of the
depreciable assets over their depreciable lives. Estimated useful
lives determined by the Company are: buildings and improvements (5-40
years) and machinery and equipment (2-15 years).
NOTE 6 - LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
September 30, December 31,
2000 1999
------------- ------------
Medium-term notes $ 1,109.5 $ 859.5
Commercial paper 1,050.0 718.5
Other long-term debt 5.2 27.9
-------- --------
$ 2,164.7 $ 1,605.9
Current portion (100.0) (150.1)
-------- --------
$ 2,064.7 $ 1,455.8
======== ========
At September 30, 2000, $1,050.0 million (principal amount) of
long-term commercial paper was outstanding. The entire amount is
classified as long-term debt because the amount is backed by a long-
term revolving credit agreement.
9
NOTE 7 - EARNINGS PER SHARE
The earnings per share amounts are computed based on the weighted
average monthly number of shares outstanding during the year. "Basic"
earnings per share is calculated by dividing net income by weighted
average shares outstanding. "Diluted" earnings per share is calculated
by dividing net income by weighted average shares outstanding, including
the assumption of the exercise and/or conversion of all potentially
dilutive securities ("in the money" stock options and company-obligated
mandatorily redeemable convertible preferred securities of a subsidiary
trust). A reconciliation of the difference between basic and diluted
earnings per share for the first nine months of 2000 and 1999 is shown
below (in millions, except per share data):
<TABLE>
<CAPTION>
Convertible
Basic "In the money" Preferred Diluted
Method stock options Securities Method
------ ------------- ------------ -------
<S> <C> <C> <C> <C>
Three months ended September 30, 2000:
Net Income $ 123.0 N/A $ 4.1 $ 127.1
Weighted average
shares outstanding 266.6 0.0 9.9 276.5
Earnings per Share $ 0.46 - - $ 0.46
Three months ended September 30, 1999:
Net Income $ 72.7 N/A 4.1 $ 76.8
Weighted average
shares outstanding 281.9 0.2 9.9 292.0
Earnings per Share $ 0.26 - - $ 0.26
Nine months ended September 30, 2000:
Net Income $ 327.2 N/A 12.3 $ 339.5
Weighted average
shares outstanding 269.1 0.0 9.9 279.0
Earnings per Share $ 1.22 - - $ 1.22
Nine months ended September 30, 1999:
Net Income $ 23.8 N/A 0.0 $ 23.8
Weighted average
shares outstanding 281.7 0.0 0.0 281.7
Earnings per Share (A) $ 0.08 - - $ 0.08
(A) Diluted earnings per share for this period excludes the impact
of "in the money" stock options and convertible preferred
securities because they are antidilutive.
</TABLE>
10
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
The following tables display Comprehensive Income (Loss) and the
components of Accumulated Other Comprehensive Income (Loss), in
millions:
Nine months ended
September 30,
-----------------
2000 1999
---- ----
Comprehensive Income (Loss):
Net income $ 327.2 $ 23.8
Unrealized gain (loss) on (2.6) 4.5
marketable securities
Foreign currency translation (loss) (71.5) (35.1)
------- ------
Total Comprehensive Income (Loss) $ 253.1 $(6.8)
======= ======
<TABLE>
<CAPTION>
Net Foreign Accumulated
Unrealized Currency Other
Gain/(Loss) Translation Comprehensive
on Securities (Loss) Loss
--------------- ----------- -------------
<S> <C> <C> <C>
Accumulated Other
Comprehensive Income (Loss):
Balance at December 31, 1999 $ 0.1 $ (130.1) $ (130.0)
Change during nine months
ended September 30, 2000 (2.6) (71.5) (74.1)
------ -------- --------
Balance at September 30, 2000 $ (2.5) $ (201.6) $ (204.1)
====== ======== ========
</TABLE>
11
NOTE 9 - INDUSTRY SEGMENT INFORMATION
The Company's results by business segment were as follows, in
millions:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
----------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales
---------------------------------------
<S> <C> <C> <C> <C>
Plastic Storage & Organization $ 433.2 $ 435.9 $ 1,286.6 $ 1,327.9
Home Decor 326.4 327.8 972.1 941.6
Office Products 326.9 309.3 948.0 885.5
Infant/Juvenile Care & Play 221.5 194.4 675.2 609.3
Hardware & Tools 181.1 147.7 535.0 432.7
Food Preparation, Cooking & Serving 197.6 194.4 532.2 526.0
-------- -------- -------- --------
$1,686.7 $1,609.5 $4,949.1 $4,723.0
======== ======== ======== ========
Operating Income
---------------------------------------
Plastic Storage & Organization $ 58.0 $ 33.3 $ 153.6 $ 9.8
Home Decor 43.3 40.0 117.0 118.5
Office Products 62.4 46.7 195.5 158.4
Infant/Juvenile Care & Play 25.3 (0.8) 82.3 24.2
Hardware & Tools 35.1 27.3 87.8 77.6
Food Preparation, Cooking & Serving 35.3 34.8 72.3 70.5
Corporate (18.6) (16.9) (58.6) (57.7)
------ ------ ------ ------
240.8 164.4 649.9 401.3
Restructuring costs (4.2) (14.5) (12.8) (201.2)
------ ------ ------ ------
$236.6 $149.9 $637.1 $200.1
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
Identifiable Assets
---------------------------------------
<S> <C> <C>
Plastic Storage & Organization $1,178.3 $1,155.3
Home Decor 821.4 818.0
Office Products 745.8 720.9
Infant/Juvenile Care & Play 490.1 433.9
Hardware & Tools 368.1 376.5
Food Preparation, Cooking & Serving 567.4 539.8
Corporate 2,617.4 2,679.7
-------- --------
$6,788.5 $6,724.1
======== ========
</TABLE>
12
Operating income is net sales less cost of products sold and
selling, general and administrative ("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. In calculating operating income for individual business
segments, certain headquarter expenses of an operational nature are
allocated to business segments primarily on a net sales basis. Trade
names and goodwill amortization is considered a corporate expense and
not allocated to business segments. All intercompany transactions
have been eliminated and transfers of finished goods between areas are
not significant. Corporate assets primarily include trade names and
goodwill, equity investments and deferred tax assets.
NOTE 10 - NEW ACCOUNTING PRONOUNCEMENTS
Since June 1998, the Financial Accounting Standards Board
("FASB") has issued SFAS Nos. 133, 137 and 138 related to "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133, as
amended" or "Statements"). These Statements establish accounting and
reporting standards requiring that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured
at its fair value. The Statements require that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met, in which case the gains or
losses would offset the related results of the hedged item. The
Company is required to adopt these Statements on January 1, 2001.
While the impact of the adoption of this statement is dependent on the
fair value of our derivatives at the date of adoption, the impact of
adopting SFAS 133, as amended, is not expected to have a material
impact on the consolidated financial statements. However, the
adoption of these Statements could increase volatility in earnings and
other comprehensive income.
13
PART I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
---------------------
The following table sets forth for the periods indicated items
from the Consolidated Statements of Income as a percentage of net
sales.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 72.2% 72.4% 72.4% 72.7%
----- ----- ----- -----
GROSS INCOME 27.8% 27.6% 27.6% 27.3%
Selling, general and
administrative expenses 12.7% 16.6% 13.7% 18.0%
Restructuring costs 0.3% 0.9% 0.2% 4.3%
Trade names and goodwill
amortization and other 0.8% 0.8% 0.8% 0.8%
----- ----- ----- -----
OPERATING INCOME 14.0% 9.3% 12.9% 4.2%
----- ----- ----- -----
Nonoperating expenses:
Interest expense 1.9% 1.6% 1.9% 1.6%
Other, net 0.2% 0.3% 0.2% 0.2%
----- ----- ----- -----
Net nonoperating expenses 2.1% 1.9% 2.1% 1.8%
----- ----- ----- -----
INCOME BEFORE
INCOME TAXES 11.9% 7.4% 10.8% 2.4%
Income taxes 4.6% 2.9% 4.2% 1.9%
----- ----- ----- -----
NET INCOME 7.3% 4.5% 6.6% 0.5%
===== ===== ===== =====
See notes to consolidated financial statements.
14
Three Months Ended September 30, 2000 Vs.
Three Months Ended September 30, 1999
----------------------------------------
Net sales for the three months ended September 30, 2000 ("third
quarter") were $1,686.7 million, representing an increase of $77.2
million or 4.8% from $1,609.5 million in the comparable quarter of
1999. The increase in net sales is primarily due to contributions
from Reynolds (acquired in October 1999), McKechnie (acquired in
October 1999), Ceanothe (acquired in December 1999), Mersch (acquired
in January 2000), Brio (acquired in May 2000) and internal sales
growth of 1.9%. The Company defines internal growth as growth from
the core businesses, which include continuing businesses owned more
than two years and minor acquisitions. Sales by business segment for
the third quarter were as follows, in millions:
Percentage
Increase/
2000 1999 Decrease
---- ---- --------
Plastic Storage & Organization $ 433.2 $ 435.9 (0.6)%
Food Preparation, Cooking & Serving 197.6 194.4 1.6%
Infant/Juvenile Care & Play 221.5 194.4 13.9% (1)
Home Decor 326.4 327.8 (0.4)%
Hardware & Tools 181.1 147.7 22.6% (2)
Office Products 326.9 309.3 5.7% (3)
-------- --------
Total $1,686.7 $1,609.5 4.8%
======== ========
(1) Internal growth.
(2) 7.8% internal growth plus sales from the McKechnie
acquisition.
(3) 3.7% internal growth plus sales from the Reynolds acquisition.
Gross income as a percentage of net sales in the third quarter of
2000 was 27.8% or $468.8 million versus 27.6% or $444.6 million in the
comparable quarter of 1999.
Selling, general and administrative expenses ("SG&A") in the
third quarter of 2000 were 12.7% of net sales or $214.5 million versus
16.6% or $267.5 million in the comparable quarter of 1999. Excluding
charges of $47.2 million relating to recent acquisitions, SG&A
expenses in the third quarter of 1999 was $220.3 million or 13.7% of
net sales. Excluding charges, SG&A declined as a result of integration
15
cost savings at Rubbermaid Home Products, Rubbermaid Europe, Little Tikes,
Panex and Rotring, and tight spending control throughout the rest of the
Company's core businesses.
In the third quarter of 2000, the Company recorded a pre-tax
restructuring charge of $4.2 million ($2.6 million after taxes). The
pre-tax charge included $1.5 million of facility exit costs, $1.4
million of severance costs and $1.3 million of costs to exit
contractual commitments and discontinue product lines primarily
related to the Rubbermaid acquisition.
In the third quarter of 1999, the Company recorded a pre-tax
restructuring charge of $14.5 million ($8.9 million after taxes). The
pre-tax charge related to the Rubbermaid acquisition, and included
$1.3 million of merger costs, executive severance costs of $4.5
million and $8.7 million of exit costs primarily related to impaired
Rubbermaid capitalized computer software costs and facility exit
costs.
Trade names and goodwill amortization and other in the third
quarter of 2000 were 0.8% of net sales or $13.4 million versus 0.8% or
$12.7 million in the comparable quarter of 1999.
Operating income in the third quarter of 2000 was 14.0% of net
sales or $236.6 million versus operating income of 9.3% or $149.9
million in the comparable quarter of 1999. Excluding restructuring
costs and other charges in 1999 and 2000, operating income in the
third quarter of 2000 was 14.3% or $240.9 million versus 14.6% or
$234.8 million in the third quarter of 1999. The increase in
operating income was primarily due to $39.3 million of cost savings
and synergies achieved as a result of the Rubbermaid merger. These
gains were partially offset by $34.6 million of increased raw
materials costs.
Net nonoperating expenses in the third quarter of 2000 were 2.1%
of net sales or $36.6 million versus net nonoperating income of 1.9%
or $30.6 million in the comparable quarter of 1999. The increase in
net non-operating expenses is primarily due to $7.2 million of increased
interest expense as a result of higher debt levels and interest rates.
The effective tax rate was 38.5% in the third quarter of 2000 versus
39.0% in the third quarter of 1999.
Net income for the third quarter of 2000 was $123.0 million,
compared to net income of $72.7 million in the third quarter of 1999.
Diluted earnings per share were $0.46 in the third quarter of 2000
compared to $0.26 in the third quarter of 1999. Excluding 2000
restructuring costs of $4.2 million ($2.6 million after taxes), 1999
restructuring costs of $14.5 million ($8.9 million after taxes), and
other 1999 pre-tax charges of $70.4 million ($42.9 million after
taxes), net income increased $1.0 million or 0.8% to $125.6 million in
the third quarter of 2000 from $124.5 million in 1999. Diluted earnings
16
per share, calculated on the same basis, increased 6.8% to $0.47 in the
third quarter of 2000 from $0.44 in the third quarter of 1999. The increase
in net income was primarily due to Rubbermaid integration cost savings.
These gains were partially offset by increased raw materials costs. The
increase in earings per share was primarily due to Rubbermaid integration
cost savings and the impact of the stock repurchase, partially offet by
increased raw materials costs.
Nine Months Ended September 30, 2000 Vs.
Nine Months Ended September 30, 1999
----------------------------------------
Net sales for the first nine months of 2000 were $4,949.1
million, representing an increase of $226.1 million or 4.8% from
$4,723.0 million in the comparable period of 1999. The increase in
net sales was primarily attributable to contributions from Reynolds
(acquired in October 1999), McKechnie (acquired in October 1999),
Ceanothe (acquired in December 1999), Mersch (acquired in January
2000), and 1.6% internal growth. Net sales for each of the Company's
segments (and the primary reasons for the increase or decrease were as
follows in millions:
Percentage
Increase/
2000 1999 Decrease
---- ---- --------
Plastic Storage & Organization $1,286.6 $1,327.9 (3.1) %
Food Preparation, Cooking & Serving 532.2 526.0 (1.1) %
Infant/Juvenile Care & Play 675.2 609.3 10.8 (1)%
Home Decor 972.1 941.6 3.2 %
Hardware & Tools 535.0 432.7 23.6 (2)%
Office Products 948.0 885.5 7.1 (3)%
-------- -------
Total $4,949.1 $4,723.0 4.8%
======== ========
(1) Internal growth.
(2) 6.6% internal growth plus sales from the McKechnie
acquisition.
(3) 5.2% internal growth plus sales from the Reynolds acquisition.
Gross income as a percentage of net sales in the first nine
months of 2000 was 27.6% or $1,364.7 million versus 27.3% or $1,288.7
million in the comparable period of 1999. Excluding charges of $3.1
million relating to recent acquisitions, gross income in the first
17
nine months of 2000 was $1,367.8 million or 27.6% of net sales.
Excluding 1999 charges of $61.6 million relating to the Rubbermaid
merger, gross income for the nine months ended September 30, 1999 was
$1,350.3 million or 28.6% of net sales. The increase in gross income
was primarily due to internal growth and cost savings related to recent
acquisitions, offset by increased raw materials costs.
Selling, general and administrative expenses ("SG&A") in the
first nine months of 2000 were 13.7% of net sales or $675.7 million
versus 18.0% or $850.0 million in the comparable period of 1999.
Excluding charges of $5.9 million relating to recent acquisitions,
SG&A in the first nine months of 2000 was $669.8 million or 13.5% of
net sales. Excluding 1999 charges of $136.2 million relating to the
Rubbermaid merger, SG&A for the nine months ended September 30, 1999
were $713.8 million or 15.1% of net sales. SG&A declined as a result
of integration cost savings at Rubbermaid Home Products, Rubbermaid
Europe, Little Tikes, Panex and Rotring, and tight spending control
throughout the rest of the Company's core businesses.
In the first nine months of 2000, the Company recorded a pre-tax
restructuring charge of $12.8 million ($7.9 million after taxes). The
pre-tax charge included $5.6 million of facility exit costs, $4.8
million of severance costs and $2.4 million of costs to exit
contractual commitments and discontinue product lines primarily
related to the Rubbermaid acquisition.
In the first nine months of 1999, the Company recorded a pre-tax
restructuring charge of $201.2 million ($168.1 million after taxes).
The pre-tax charge related to the Rubbermaid acquisition, and included
$38.2 million of merger costs (investment banking, legal and
accounting fees), executive severance costs of $89.4 million and $73.6
million of exit costs primarily related to impaired Rubbermaid
capitalized computer software costs and facility exit costs.
Trade names and goodwill amortization and other in the first nine
months of 2000 were 0.8% of net sales or $39.1 million versus 0.8% or
$37.4. million in the first nine months of 1999.
Operating income in the first nine months of 2000 was 12.9% of
net sales or $637.1 million versus 4.2% or $200.1 million in the
comparable period of 1999. Excluding restructuring costs and other
charges in 1999 and 2000, operating income in the first nine months of
2000 was 13.3% or $658.9 million versus 12.7% or $599.1 million in the
first nine months of 1999. The increase in operating margins excluding
charges was primarily due to $123.1 million of cost savings and synergies
achieved as a result of the Rubbermaid merger during the nine months ended
September 30, 2000 and internal growth. These savings were partially offset
by increased raw materials costs of $97.6 million.
Net nonoperating expenses in the first nine months of 2000 were
2.1% of net sales or $105.0 million versus 1.8% of net sales or $86.6
million in the comparable period of 1999. Net nonoperating expenses
18
increased due to $19.3 million higher interest expense as a result of the
Company's increased level of debt and higher interest rates.
Excluding restructuring costs and other gains and charges in 2000
and 1999, the effective tax rate was 38.5% in the first nine months of
2000 versus 39.0% in the first nine months of 1999.
Net income for the first nine months of 2000 was $327.2 million,
compared to $23.8 million in the first nine months of 1999. Diluted
earnings per share were $1.22 in the first nine months of 2000
compared to $0.08 in the first nine months of 1999. Excluding 2000
restructuring costs of $12.8 million ($7.9 million after taxes), other
2000 pre-tax charges of $9.0 million ($5.5 million after taxes), 1999
restructuring costs of $201.2 million ($168.1 million after taxes),
and other 1999 pre-tax charges of $197.8 million ($120.7 million after
taxes), net income increased $28.0 million or 8.9% to $340.6 million
the first nine months of 2000 versus $312.6 million in 1999. Diluted
earnings per share, calculated on the same basis, increased 14.4% to
$1.27 in the first nine months of 2000 versus $1.11 in the first nine
months of 1999. The increase in net income for the nine months ended
September 30, 2000 was primarily due to Rubbermaid integration cost
savings, tight spending control at our core businesses and internal
growth. These gains were partially offset by increased raw materials
costs. The increase in earnings per share was primarily due to
Rubbermaid integration cost savings, tight spending control, internal
growth and the impact of the stock repurchase, partially offset by
increased raw materials costs.
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 from operating activities in the first nine months
ended September 30, 2000 was $284.8 million compared to $ 288.3
million for the comparable period of 1999. The decrease in operating
cash flows is primarily a result of increased inventory levels
partially offset by the increase in net income.
The Company has short-term foreign and domestic uncommitted lines
of credit with various banks which are available for short-term
financing. Borrowings under the Company's uncommitted lines of credit
are subject to discretion of the Lender. The Company's uncommitted
lines of credit do not have a material impact on the Company's
liquidity. Borrowings under the Company's uncommitted lines of credit
at September 30, 2000 totaled $19.5 million.
During 1997, the Company amended its revolving credit agreement
to increase the aggregate borrowing limit to $1.3 billion, at a
19
floating interest rate. The revolving credit agreement will terminate
in August 2002. At September 30, 2000, there were no borrowings under
the revolving credit agreement.
In lieu of borrowings under the Company's revolving credit
agreement, the Company may issue up to $1.3 billion of commercial
paper. The Company's revolving credit agreement provides the
committed backup liquidity required to issue commercial paper.
Accordingly, commercial paper may only be issued up to the amount
available for borrowing under the Company's revolving credit
agreement. At September 30, 2000, $1,050.0 million (principal amount)
of commercial paper was outstanding. The entire amount is classified
as long-term debt.
On March 24, 2000, the Company issued $300.0 million (principal
amount) of 3-Year Medium Term Notes pursuant to its universal shelf
program. The securities mature on March 24, 2003, and bear a 3-month
floating interest rate based on 3-month LIBOR +22 basis points. The
initial interest rate was 6.5%. Proceeds were used to pay down
commercial paper. Including this financing, the Company had
outstanding at September 30, 2000, a total of $1,109.5 million
(principal amount) of Medium Term Notes. The maturities on these
notes range from 3 to 30 years at an average interest rate of 6.45%.
A universal shelf registration statement became effective in July
1999. As of September 30, 2000, $449.5 million of Company debt and
equity securities may be issued under the shelf.
Uses:
The Company's primary uses of liquidity and capital resources
include acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $70.8 million and $34.9
million in the first nine months of 2000 and 1999, respectively. In
the first nine months of 2000, the Company acquired Mersch and Brio
and made other minor acquisitions for cash purchase prices totaling
$50.8 million. In the first nine months of 1999, the Company acquired
Ateliers 28 for a cash purchase price of $40.3 million. All of these
acquisitions were accounted for as purchases and were paid for with
proceeds obtained from the issuance of commercial paper.
Cash used for restructuring activities was $15.4 million and
$127.6 million in the first nine months of 2000 and 1999,
respectively. Such cash payments represent primarily employee
termination benefits and other merger expenses.
Capital expenditures were $240.5 million and $139.7 million in the
first nine months of 2000 and 1999, respectively. The increase in capital
expenditures is primarily a result of increased capital spending at those
divisions acquired as part of the Rubbermaid merger.
20
Aggregate dividends paid during the first nine months of 2000 and
1999 were $169.1 million ($0.63 per share) and $169.4 million ($0.60
per share), respectively.
During the first nine months of 2000, the Company repurchased
15.5 million shares of its common stock at an average price of $26 per
share, for a total cash price of $403.0 million under the company's
stock repurchase program. As of September 30, 2000, the company can
use up to an additional $97 million to repurchase shares under the plan.
Retained earnings increased in the first nine months of 2000 by
$158.0 million. Retained earnings decreased in the first nine months
of 1999 by $145.6 million. The difference between 1999 and 2000 was
due to improved operating results in 2000 versus 1999 and restructuring
costs in 1999 of $201.2 million ($168.1 million after taxes) and
other pre-tax charges of $197.8 million ($120.7 million after taxes).
Working capital at September 30, 2000 was $1,414.1 million
compared to $1,108.7 million at December 31, 1999. The current ratio
at September 30, 2000 was 1.98:1 compared to 1.68:1 at December 31,
1999.
Total debt to total capitalization (total debt is net of cash and
cash equivalents, and total capitalization includes total debt,
convertible preferred securities and stockholders equity) was .43:1 at
September 30, 2000 and .33:1 at December 31, 1999.
The Company believes that cash provided from operations and
available borrowing facilities will continue to provide adequate
support for the cash needs of existing businesses; however, certain
events, such as significant acquisitions, could require additional
external financing.
Market Risk
-----------
The Company's market risk is impacted by changes in interest
rates, foreign currency exchange rates, and certain commodity prices.
Pursuant to the Company's policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact
of adverse changes in market prices. The Company does not hold or
issue derivative instruments for trading purposes, and has no material
sensitivity to changes in market rates and prices on its derivative
financial instrument positions.
The Company's primary market risk is interest rate exposure,
primarily in the United States. The Company manages interest rate
exposure through its conservative debt ratio target and its mix of
fixed and floating rate debt. Interest rate exposure was reduced
significantly in 1997 from the issuance of $500 million 5.25%
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of a Subsidiary Trust, the proceeds of which reduced
commercial paper. Interest rate swaps may be used to adjust interest
rate exposures when appropriate based on market conditions, and, for
21
qualifying hedges, the interest differential of swaps is included in
interest expense.
The Company's foreign exchange risk management policy emphasizes
hedging anticipated intercompany and third-party commercial
transaction exposures of one year duration or less. The Company
focuses on natural hedging techniques of the following form: 1)
offsetting or netting of like foreign currency flows, 2) structuring
foreign subsidiary balance sheets with appropriate levels of debt to
reduce subsidiary net investments and subsidiary cash flows subject to
conversion risk, 3) converting excess foreign currency deposits into
U.S. dollars or the relevant functional currency and 4) avoidance of
risk by denominating contracts in the appropriate functional currency.
In addition, the Company utilizes forward contracts and purchased
options to hedge commercial and intercompany transactions. Gains and
losses related to qualifying hedges of commercial transactions are
deferred and included in the basis of the underlying transactions.
Derivatives used to hedge intercompany transactions are marked to
market with the corresponding gains or losses included in the
consolidated statements of income.
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.
September 30, Time Confidence
2000 Period Level
------------- ------ ---------
(In millions)
Interest rates $4.7 1 day 95%
Foreign exchange $4.5 1 day 95%
The 95% confidence interval signifies the Company's degree of
confidence that actual losses would not exceed the estimated losses
shown above. The amounts shown here disregard the possibility that
22
interest rates and foreign currency exchange rates could move in the
Company's favor. The value-at-risk model assumes that all movements
in these rates will be adverse. Actual experience has shown that
gains and losses tend to offset each other over time, and it is highly
unlikely that the Company could experience losses such as these over
an extended period of time. These amounts should not be considered
projections of future losses, since actual results may differ
significantly depending upon activity in the global financial
markets.
EURO CURRENCY CONVERSION
On January 1, 1999, the "Euro" became the common legal currency
for 11 of the 15 member countries of the European Union. On that
date, the participating countries fixed conversion rates between their
existing sovereign currencies ("legacy currencies") and the Euro. On
January 4, 1999, the Euro began trading on currency exchanges and
became available for non-cash transactions, if the parties elect to
use it. The legacy currencies will remain legal tender through
December 31, 2001. Beginning January 1, 2002, participating countries
will introduce Euro-denominated bills and coins, and effective July 1,
2002, legacy currencies will no longer be legal tender.
After the dual currency phase, all businesses in participating
countries must conduct all transactions in the Euro and must convert
their financial records and reports to be Euro-based. The Company has
commenced an internal analysis of the Euro conversion process to
prepare its information technology systems for the conversion and
analyze related risks and issues, such as the benefit of the decreased
exchange rate risk in cross-border transactions involving
participating countries and the impact of increased price transparency
on cross-border competition in these countries.
The Company believes that the Euro conversion process will not
have a material impact on the Company's businesses or financial
condition on a consolidated basis.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Report are made in reliance
upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements may relate to, but
are not limited to, such matters as sales, income, earnings per share,
return on equity, capital expenditures, dividends, capital structure,
free cash flow, debt to capitalization ratios, interest rates,
internal growth rates, Euro conversion plans and related risks,
pending legal proceeding and claims (including environmental matters),
future economic performance, operating income improvements, synergies,
management's plans, goals and objectives for future operations and
growth or the assumptions relating to any of the forward-looking
information. The Company cautions that forward-looking statements are
not guarantees since there are inherent difficulties in predicting
future results, and that actual results could differ materially from
those expressed or implied in the forward-looking statements. Factors
that could cause actual results to differ include, but are not limited
to, those matters set forth in the Company's Annual Report on Form
10-K, the documents incorporated by reference therein and in Exhibit
99 in thereto.
23
PART I.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in the Company's
Management's Discussion and Analysis of Results of Operations and
Financial Condition (Part I, Item 2).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to certain legal proceedings and claims,
including the environmental matters described below, that have arisen
in the ordinary conduct of its business or have been assumed by the
Company when it purchased certain businesses.
As of September 30, 2000, the Company was involved in various
matters concerning federal and state environmental laws and
regulations, including matters in which the Company has been
identified by the U.S. Environmental Protection Agency and certain
state environmental agencies as a potentially responsible party
("PRP") at contaminated sites under the Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and
equivalent state laws.
In assessing its environmental response costs, the Company has
considered several factors, including: the extent of the Company's
volumetric contribution at each site relative to that of other PRPs;
the kind of waste; the terms of existing cost sharing and other
applicable agreements; the financial ability of other PRPs to share in
the payment of requisite costs; the Company's prior experience with
similar sites; environmental studies and cost estimates available to
the Company; the effects of inflation on cost estimates; and the
extent to which the Company's and other parties' status as PRPs is
disputed.
Based on information available to it, the Company's estimate of
environmental response costs associated with these matters as of
September 30, 2000 ranged between $18.0 million and $26.0 million. As
of September 30, 2000, the Company had a reserve equal to $25 million
for such environmental response costs in the aggregate. No insurance
recovery was taken into account in determining the Company's cost
estimates or reserve, nor do the Company's cost estimates or reserve
reflect any discounting for present value purposes, except with
respect to two long term (30 years) operation and maintenance CERCLA
matters which are estimated at present value.
24
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 a legal proceeding relating to the
importation and distribution of vinyl mini-blinds made with plastic
containing lead stabilizers. In 1996, the Consumer Product Safety
Commission found that such stabilizers deteriorate over time from
exposure to sunlight and heat, causing lead dust to form on mini-blind
surfaces and presenting a health risk to children under six years of
age. In December 1998, 13 companies, including a subsidiary of the
Company, were named as defendants in a case involving the importation
and distribution of vinyl mini-blinds containing lead. The case,
filed as a Massachusetts class action in the Superior Court, alleges
misrepresentation, breaches of express and implied warranties,
negligence, loss of consortium and violation of Massachusetts consumer
protection laws. The plaintiffs seek injunctive relief, unspecified
damages, compensatory damages for personal injury and court costs.
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 alleged that during the relevant time period
the defendants violated the federal securities laws by issuing false
and misleading statements concerning the Company's financial condition
and results of operations. The cases were consolidated before a
single judge of that court. The court appointed lead plaintiffs for
the uncertified class and approved counsel for the lead plaintiffs.
Plaintiffs then filed a Consolidated Amended Class Action Complaint
consisting of six counts asserting claims under Sections 11, 12(a)(2)
and 15 of the Securities Act and Sections 10(b) and 20(a) of the
Securities Exchange Act in which they alleged, among other things,
that the Company and Rubbermaid Incorporated made materially false and
misleading statements in documents filed with the SEC, including the
registration statement filed by the Company in connection with the
merger with Rubbermaid. All defendants moved to dismiss that amended
complaint. On October 2, 2000 the court issued a Memorandum Opinion
and Order dismissing the amended complaint for failure to state a
25
claim upon which relief may be granted and on October 3, 2000 the
court entered a judgment dismissing the complaint. Plaintiffs have
moved to reconsider two aspects of the court's ruling. The court is
scheduled to rule on that motion on November 15, 2000. The Company
believes that these claims are without merit and intends to continue
to vigorously defend these lawsuits.
Although management of the Company cannot predict the ultimate
outcome of these matters with certainty, it believes that their
ultimate resolution, including any amounts it may have to pay in
excess of amounts reserved, will not have a material effect on the
Company's consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.2 Amendment to By-Laws and Amended By-laws of Newell
Rubbermaid Inc., as amended through November 13, 2000.
12. Statement of Computation of Ratio of Earnings to Fixed
Charges
27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NEWELL RUBBERMAID INC.
Registrant
Date: November 14, 2000 /s/ Dale L. Matschullat
--------------------------------------
Dale L. Matschullat
Vice President - Finance
Date: November 14, 2000 /s/ Brett E. Gries
--------------------------------------
Brett E. Gries
Vice President - Accounting & Audit
