<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
----------------- ------------------
Commission File Number 1-4188
------
RUBBERMAID INCORPORATED
-----------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0628700
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1147 AKRON ROAD, WOOSTER, OHIO 44691
------------------------------------
(Address of principal executive offices and zip code)
330-264-6464
------------
(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
------------- --------------
Common Shares, Par Value $1.00, Outstanding at September 30, 1997 -- 149,794,963
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RUBBERMAID INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
Sept. 30, 1997 Sept. 30, 1996
-------------------- ---------------------
<S> <C> <C>
Net sales $ 583,349 $ 632,694
Cost of sales 429,113 438,361
Selling, general, and administrative expenses 103,668 114,724
Other charges (credits), net:
Interest expense 7,998 5,292
Interest income (444) (244)
Miscellaneous, net 2,557 433
-------------------- ---------------------
10,111 5,481
-------------------- ---------------------
Earnings before income taxes 40,457 74,128
Income taxes 10,331 28,020
-------------------- ---------------------
Net earnings $ 30,126 $ 46,108
==================== =====================
Net earnings per Common Share (note 3) $ .20 $ .31
==================== =====================
Dividends paid per Common Share (note 4) $ .15 $ .14
==================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 1
<PAGE> 3
RUBBERMAID INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------------
Sept. 30, 1997 Sept. 30, 1996
-------------------- ---------------------
<S> <C> <C>
Net sales $ 1,825,416 $ 1,738,968
Cost of sales 1,327,990 1,193,442
Selling, general, and administrative expenses 314,229 315,382
Other charges (credits), net:
Interest expense 29,377 15,685
Interest income (914) (1,111)
Miscellaneous, net (notes 7 and 8) (33,729) 2,491
-------------------- ---------------------
(5,266) 17,065
-------------------- ---------------------
Earnings before income taxes 188,463 213,079
Income taxes 77,717 80,544
-------------------- ---------------------
Net earnings $ 110,746 $ 132,535
==================== =====================
Net earnings per Common Share (note 3) $ .74 $ .88
==================== =====================
Dividends paid per Common Share (note 4) $ .45 $ .42
==================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE> 4
RUBBERMAID INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
-------------------- ---------------------
(Unaudited)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 50,049 $ 27,599
Receivables, less allowance for doubtful accounts
of $10,300 in 1997 and $10,900 in 1996 460,889 496,601
Inventories (note 5) 254,777 276,811
Prepaid expenses 61,270 55,709
-------------------- ---------------------
Total current assets 826,985 856,720
Property, plant, and equipment, net 700,480 721,914
Intangible and other assets, net (note 6) 387,125 475,346
-------------------- ---------------------
Total Assets $ 1,914,590 $ 2,053,980
==================== =====================
</TABLE>
(Continued)
Page 3
<PAGE> 5
RUBBERMAID INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
----------- -----------
(Unaudited)
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable $ 235,696 $ 399,865
Long-term debt, current 281 3,287
Payables 119,351 154,518
Accrued liabilities 202,823 185,151
----------- -----------
Total current liabilities 558,151 742,821
Other deferred liabilities 150,177 142,992
Long-term debt, non-current 154,225 154,467
Shareholders' equity:
Preferred stock, without par value
Authorized 20,000,000 shares; none issued -- --
Common Shares of $1 par value
Authorized 400,000,000 shares; issued
162,677,082 shares in 1997 and 1996 162,677 162,677
Paid-in capital 66,974 70,829
Retained earnings 1,208,343 1,165,052
Foreign currency translation adjustment (28,341) (25,359)
Treasury shares, at cost (12,882,119 shares in
1997 and 12,924,764 shares in 1996) (357,616) (359,499)
----------- -----------
Total shareholders' equity 1,052,037 1,013,700
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,914,590 $ 2,053,980
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE> 6
RUBBERMAID INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
( ) Denotes decrease in cash and cash equivalents
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
Sept. 30, 1997 Sept. 30, 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 110,746 $ 132,535
Adjustments to reconcile net earnings to net
cash from operating activities:
Gain on sale of business (note 7) (134,447) --
Write-down of intangible assets (note 8) 81,000 --
Non-cash realignment costs (note 8) 16,000 --
Depreciation and amortization 92,757 78,198
Other 8,462 10,760
Changes in:
Receivables 5,516 (15,630)
Inventories (4,142) (7,525)
Other assets (14,596) (38,291)
Payables (30,627) 21,057
Accrued liabilities (13,865) 9,317
------------ ------------
Net cash from operating activities 116,804 190,421
Cash flows from investing activities:
Capital expenditures (109,961) (95,506)
Proceeds from sale of business (note 7) 246,500 --
Other, net 5,587 843
------------ ------------
Net cash from investing activities 142,126 (94,663)
Cash flows from financing activities:
Net change in notes payable (164,169) 151,352
Repayment of long-term debt (1,973) (6,264)
Cash dividends paid (67,455) (63,552)
Common Shares repurchased (2,575) (185,482)
Other, net (308) 253
------------ ------------
Net cash from financing activities (236,480) (103,693)
------------ ------------
Net change in cash and cash equivalents 22,450 (7,935)
Cash and cash equivalents at beginning of year 27,599 50,969
------------ ------------
Cash and cash equivalents at September 30 $ 50,049 $ 43,034
============ ============
Supplemental cash flow information:
Income taxes paid $ 27,742 $ 42,704
Interest paid $ 26,528 $ 16,103
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE> 7
RUBBERMAID INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
----------------------------------------------------------------
(Dollars in thousands)
(1) In the opinion of management the information furnished herein includes all
the adjustments necessary for a fair presentation of the results for the
interim periods and all such adjustments are of a normal recurring nature.
(2) The Company utilizes derivative financial instruments to manage foreign
exchange and interest rate risks. The Company does not use derivative
financial instruments for any other purposes such as trading or hedging
commodity risks.
The Company uses a limited number of foreign exchange instruments to hedge
firm and anticipated commitments and net investments in foreign
subsidiaries. Instruments have included forward contracts, currency swaps,
foreign currency loans, and foreign currency options, all in the same
currency as the hedged commitment and net investment. In accordance with
Statement No. 52, "Foreign Currency Translation" (FAS 52), before hedge
accounting is applied, derivative financial instruments are designated and
considered effective as hedges. When hedging commitments, gains and losses
on financial instruments are deferred and recognized in income in the same
period as the hedged transaction. When hedging net investments in foreign
subsidiaries, gains and losses on financial instruments are included in the
foreign currency translation adjustment. The fair value of these foreign
currency instruments is estimated using current market prices provided by
an outside quotation service. Should the Company terminate the foreign
exchange instrument or the underlying hedged transaction, the Company would
follow the applicable principles of FAS 52.
The Company also uses floating-to-fixed interest rate swap agreements on a
portion of its floating interest rate debt. Before hedge accounting is
utilized, the swap agreement is designated to a specific debt instrument or
commercial paper facility and the terms are closely related to the terms of
the debt instrument or commercial paper facility. After designation,
interest is recorded on the notional portion of debt covered by the
agreements at the revised interest rate. Gains or losses on interest rate
swap agreements terminated are deferred and recognized as a component of
interest expense over the shorter of the term of the underlying debt
obligation or the term of the terminated swap agreement. If the underlying
debt obligation is retired, the Company would mark the swap agreement to
market and recognize the related gain or loss.
(3) Net earnings per Common Share is computed based on average shares
outstanding of 149,829,683 and 149,763,971 for the respective 1997 and 1996
three-month periods and 149,875,244 and 151,378,149 for the respective 1997
and 1996 nine-month periods.
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<PAGE> 8
RUBBERMAID INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
----------------------------------------------------------------
(Dollars in thousands)
(4) The actual number of shares outstanding on the respective record dates is
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- ----------------------------------------------
Record Date No. Shares Record Date No. Shares
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
February 7 149,975,560 February 9 154,412,532
May 16 149,916,146 May 17 149,772,666
August 15 149,804,652 August 9 149,760,766
</TABLE>
(5) A summary of inventories follows:
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
--------------- ---------------
<S> <C> <C>
FIFO Cost
Raw materials $ 74,226 $ 83,250
Work-in-process 11,086 11,494
Finished goods 198,901 213,000
--------------- ---------------
284,213 307,744
Excess of FIFO over LIFO cost (29,436) (30,933)
--------------- ---------------
$ 254,777 $ 276,811
=============== ===============
</TABLE>
(6) At September 30, 1997 and December 31, 1996, intangible and other assets,
net includes the excess of cost over net assets of businesses acquired of
$308,524 and $380,524, respectively, net of accumulated amortization of
$11,631 and $28,385, respectively.
(7) On June 13, 1997, the Company completed the sale of its Office Products
business to Newell Co. The transaction included the sale of the worldwide
manufacturing and distribution facilities, related equipment and inventory
for $246.5 million, resulting in a one-time pre-tax gain of $134.4 million,
$79.4 million after-tax or 53(cent) per share.
(8) The Company wrote-down certain intangible assets and revised its
realignment costs for a total pre-tax charge in the second quarter of $97.0
million, $69.7 million after-tax or 47(cent) per share. The intangible
asset write-down related to acquisitions which are now integrated into the
core businesses.
(9) In February, 1997, the Financial Accounting Standards Board issued
statement No. 128, "Earnings per Share" (FAS 128), which is effective for
financial statements issued for periods ending after December 15, 1997. FAS
128 replaces primary earnings per share (EPS) with a presentation of basic
EPS and requires dual presentation of basic and diluted EPS on the face of
the income statement. Furthermore, a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation is required. The application of FAS 128 is
not expected to result in EPS amounts materially different from the amounts
reported.
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<PAGE> 9
RUBBERMAID INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
----------------------------------------------------------------
(Dollars in thousands)
(10) In September 1997, an administrative law judge at the Federal Trade
Commission ("F.T.C.") ruled that Toys "R" Us illegally pressured
manufacturers not to sell toys to warehouse clubs. Toys "R" Us is appealing
the ruling to the F.T.C. Commissioners and has further rights of appeal
which it has indicated it will pursue. Subsequent to the ruling by the
administrative law judge, numerous class action suits seeking damages on
behalf of consumers under the antitrust laws have been filed in Federal
courts in New York and New Jersey against Toys "R" Us and certain
"manufacturers", including Rubbermaid. Rubbermaid was not named as a
defendant in the F.T.C. suit and is of the opinion, supported by legal
counsel, that it has not violated any law and intends to contest any such
class action suits. Management believes the outcome of this matter will not
have a material adverse effect on the financial position or overall trends
in the results of operations of the Company.
(11) On November 10, 1997, the Company announced it had reached an agreement in
principle to acquire DSM N.V.'s Curver Group, the market leader in plastic
houseware/consumer goods in Europe. The transaction is subject to customary
regulatory processes and is expected to be completed by December 31, 1997.
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<PAGE> 10
RUBBERMAID INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Net sales for the three-month period ended September 30, 1997, were 8% less than
the third quarter of 1996. These results reflect lower unit-volume of 8%, a 2%
positive contribution from acquisitions net of divestitures, and a negative 2%
effect from pricing and currency. Core unit volumes were primarily depressed by
retail inventory controls, second and third-tier retail consolidation and less
than expected productivity on promotional events. The Juvenile Products business
was also impacted by a temporary lack of production capacity. For the nine-month
period ended September 30, 1997, net sales increased by 5%. Acquisitions net of
divestitures contributed a positive 9%, offset by lower unit-volume of 2% and a
negative effect from pricing and currency of 2%.
Net earnings for the third quarter of 1997 decreased 35% over the comparable
1996 period. The primary factor for the earnings decline was sales volume,
offset to some degree with a reduction in the effective tax rate during the
third quarter. Higher resin and other material costs, lower price realization,
unfavorable product mix, and higher interest costs, also contributed to the
unfavorable year-over-year performance. For the nine-month period ended
September 30, 1997, net earnings were 16% below the first nine months of 1996.
Excluding the one-time non-operating items in the second quarter, net earnings
are 24% lower for the comparable period. The reduced earnings reflect the lower
third quarter sales volume, higher year-over-year resin and other material
inflation, lower price realization, unfavorable product mix, and higher interest
costs.
Cost of sales, as a percent of net sales, for the three-month and nine-month
periods ended September 30, 1997, were 73.6% and 72.7%, respectively, compared
to 69.3% and 68.6% for the comparable 1996 periods. The year-over-year margin
decline was caused by significantly higher raw material costs, a higher mix of
lower margin products, lower price realization and unfavorable operating
variances resulting from the lower sales volumes. LIFO was a credit of $2.4
million in the third quarter compared to a charge of $1.5 million a year ago.
Selling, general and administrative expenses, as a percent of net sales, were
17.8% and 17.2% for the three-month and nine-month periods, respectively,
compared with 18.1% for both comparable 1996 periods. The improvement in dollars
is somewhat masked as a percentage of net sales as a result of the lower sales
volume. The improving trend reflects productivity arising from realignment
activities and strong control over spending.
Other charges, net, were $10.1 million for the three-month period versus $5.5
million last year, and were a credit of $5.3 million for the first nine months
of 1997 versus an expense of $17.1 million for the comparable 1996 period. The
increase for the third quarter reflects increased interest expense
year-over-year. The credit year-to-date reflects the one-time non-operating
items in the second quarter of 1997, partially offset by increased interest
expense.
Page 9
<PAGE> 11
RUBBERMAID INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The effective tax rate on operating activities was reduced to 33% in the third
quarter, primarily resulting from beneficial tax planning strategies. The actual
tax rate in the third quarter was 25.5% as a result of adjustments necessary to
bring the nine-month operating activities to the 33% rate. The nine-month
year-to-date rate of 41.2% reflects the tax effects of the non-operating
activities in the second quarter of 1997.
Changes in Financial Condition
- ------------------------------
During the first nine months of 1997, cash and cash equivalents increased $22.5
million as cash generated from operations of $116.8 million and investing
activities of $142.1 million exceeded cash used for financing activities of
$236.5 million. Cash generated from operations was primarily the result of net
earnings, non-cash charges for asset impairment, realignment, depreciation and
amortization, and decreased receivable levels exceeding the impact of
unfavorable changes in other working capital items and the divestiture gain.
Cash from investing activities was provided by the proceeds from the sale of the
Office Products business offset by capital expenditures. Cash used in financing
activities consisted primarily of dividends paid to shareholders and the
repayment of notes.
Other
- -----
During the second quarter of 1997, the sale of the Office Products business was
completed, realignment cost estimates were increased, and certain intangible
assets were written down. See the Notes to the Condensed Consolidated Financial
Statements for further information.
Subsequent to the end of the quarter, the Company announced an agreement in
principle with DSM N.V., a Dutch chemical and materials company headquartered in
Heerlen, The Netherlands, to acquire DSM's Curver Group. The Curver Group, based
in Goirle, The Netherlands, is currently Europe's largest producer of plastic
consumer products for indoor and outdoor use sold through retail channels. The
products, sold under the Curver(R) brand name through leading retail stores,
include a diverse array of home products, leisure goods, lawn and garden
furniture and a new line of traditional outdoor toys. Curver had annual gross
sales in 1996 of NLG 435 million ($222 million) and currently employs about
1,450 people. The acquisition is not expected to be dilutive to the Company's
shareholders' interests. See the Notes to Condensed Consolidated Financial
Statements for further information.
Page 10
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part I, note (10) of the Notes to Condensed
Consolidated Financial Statements, which information is incorporated
herein by reference.
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibit 27. Financial Data schedule.
(b) There were no reports on Form 8-K for the three month period ended
September 30, 1997.
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.
<TABLE>
<CAPTION>
RUBBERMAID INCORPORATED
<S> <C>
DATE: November 12, 1997 /s/ James A. Morgan
---------------------- -------------------------------------
James A. Morgan
Senior Vice President,
General Counsel and Secretary
DATE: November 12, 1997 /s/ George C. Weigand
---------------------- -------------------------------------
George C. Weigand
Senior Vice President and
Chief Financial Officer
</TABLE>
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND RELATED
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 50,049
<SECURITIES> 0
<RECEIVABLES> 446,875
<ALLOWANCES> 10,300
<INVENTORY> 254,777
<CURRENT-ASSETS> 826,985
<PP&E> 1,334,242
<DEPRECIATION> 633,762
<TOTAL-ASSETS> 1,914,590
<CURRENT-LIABILITIES> 558,151
<BONDS> 154,225
0
0
<COMMON> 162,677
<OTHER-SE> 889,360
<TOTAL-LIABILITY-AND-EQUITY> 1,914,590
<SALES> 1,825,416
<TOTAL-REVENUES> 1,825,416
<CGS> 1,327,990
<TOTAL-COSTS> 1,327,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,377
<INCOME-PRETAX> 188,463
<INCOME-TAX> 77,717
<INCOME-CONTINUING> 110,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,746
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
