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 March 31, 1998
Commission File Number 1-9608
NEWELL CO.
(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)
(815) 235-4171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes? [ X ] No? [ ]
Number of shares of Common Stock outstanding as of April 23, 1998:
159,328,239
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Net sales $747,270 $ 629,374
Cost of products sold 523,834 440,090
-------- --------
GROSS INCOME 223,436 189,284
Selling, general and
administrative expenses 128,737 109,958
------- -------
OPERATING INCOME 94,699 79,326
Nonoperating expenses (income):
Interest expense 11,825 12,785
Other, net (165,244) 4,020
-------- ------
Net nonoperating
expenses (income) (153,419) 16,805
-------- ------
INCOME BEFORE INCOME TAXES 248,118 62,521
Income taxes 98,255 24,758
-------- ------
NET INCOME $149,863 $37,763
======== =======
Earnings per share:
Basic $ 0.94 $ 0.24
Diluted 0.91 0.24
Dividends per share $ 0.18 $ 0.16
Weighted average shares
outstanding:
Basic 159,289 158,958
Diluted 169,876 159,598
See notes to consolidated financial statements.
3
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
March 31, % of December 31, % of
1998 Total 1997 Total
-------- ----- ----------- -----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,548 0.3% $ 36,103 0.9%
Accounts receivable, net 456,388 12.3% 524,613 13.3%
Inventories, net 662,250 17.8% 625,208 15.8%
Deferred income taxes 117,878 3.2% 130,451 3.3%
Prepaid expenses and other 84,976 2.3% 65,245 1.7%
---------- ------ ---------- ------
TOTAL CURRENT ASSETS 1,334,040 35.9% 1,381,620 35.0%
MARKETABLE EQUITY SECURITIES - 0.0% 307,121 7.8%
OTHER LONG-TERM INVESTMENTS 53,750 1.4% 51,020 1.3%
OTHER ASSETS 147,368 4.0% 143,893 3.6%
PROPERTY, PLANT AND EQUIPMENT, NET 703,975 18.9% 696,086 17.7%
TRADE NAMES AND GOODWILL 1,477,953 39.8% 1,364,072 34.6%
---------- ------ ---------- ------
TOTAL ASSETS $3,717,086 100.0% $3,943,812 100.0%
========== ====== ========== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 41,610 1.1% $ 39,220 1.0%
Accounts payable 114,157 3.1% 132,374 3.4%
Accrued compensation 57,537 1.5% 79,306 2.0%
Other accrued liabilities 410,161 11.0% 388,741 9.9%
Income taxes 82,129 2.2% 11,663 0.3%
Current portion of long-term debt 1,214 0.0% 12,721 0.3%
---------- ----- --------- -----
TOTAL CURRENT LIABILITIES 706,808 18.9% 664,025 16.9%
LONG-TERM DEBT 523,120 14.1% 783,980 19.9%
OTHER NONCURRENT LIABILITIES 181,080 4.9% 183,041 4.6%
DEFERRED INCOME TAXES 39,933 1.1% 90,120 2.3%
MINORITY INTEREST 8,035 0.2% 8,352 0.2%
COMPANY-OBLIGATED MANDATORILY
REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST 500,000 13.5% 500,000 12.7%
See notes to consolidated financial statements.
4
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
March 31, % of December 31, % of
1998 Total 1997 Total
--------- ----- ------------ ------
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
400.0 million at $1 par value; 159,328 4.3% 159,236 4.0%
Outstanding shares:
1998 - 159.3 million
1997 - 159.2 million
Additional paid-in capital 205,553 5.5% 204,105 5.2%
Retained earnings 1,415,943 38.1% 1,294,750 32.8%
Net unrealized gain on securities
available for sale - 0.0% 78,839 2.0%
Cumulative translation adjustment (22,714) (0.6)% (22,636) (0.6)%
---------- ------ ---------- ------
TOTAL STOCKHOLDERS' EQUITY 1,758,110 47.3% 1,714,294 43.4%
---------- ------ ---------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,717,086 100.0% $3,943,812 100.0%
========== ====== ========== ======
See notes to consolidated financial statements.
5
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Three Months Ended
March 31,
---------------------------
1998 1997
---- -----
OPERATING ACTIVITIES:
Net income $149,863 $37,763
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 33,823 30,151
Deferred income taxes 12,599 11,357
Net gain on sale of marketable
equity securities (115,674) -
Write-off of intangible
assets and other 4,288 -
Other (1,005) (264)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 84,908 44,717
Inventories (29,381) (17,859)
Other current assets (21,929) 7,438
Accounts payable (26,970) (21,613)
Accrued liabilities and other (30,712) (49,445)
--------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 59,810 42,245
--------- --------
INVESTING ACTIVITIES:
Acquisitions, net (132,474) (117,625)
Expenditures for property,
plant and equipment (27,095) (15,399)
Sale of marketable
equity securities 378,321 -
Disposals of non-current assets
and other (3,968) 9,093
-------- -------
NET CASH PROVIDED BY
(USED IN) INVESTING
ACTIVITIES 214,784 (123,931)
-------- --------
6
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited, in thousands)
For the Three Months Ended
Ended March 31,
--------------------------
1998 1997
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of debt $ 27,129 $137,418
Proceeds from exercised stock
options and other 1,540 3,117
Payments on notes payable
and long-term debt (297,106) (25,620)
Cash dividends (28,670) (25,432)
---------- ---------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES (297,107) 89,483
--------- --------
Exchange rate effect on cash (1,042) (6,459)
INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (23,555) 1,338
Cash and cash equivalents at
beginning of year 36,103 4,360
---------- ---------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 12,548 $ 5,698
========== =========
Supplemental cash flow disclosures -
Cash paid during the period for:
Interest $ 19,401 $ 14,877
Income taxes 4,556 5,294
See notes to consolidated financial statements.
7
NEWELL CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 GENERAL INFORMATION
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all adjustments
necessary to present a fair statement of the results for the periods
reported, subject to normal recurring year-end adjustments, none of
which is 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
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 Product 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 division. The European
operations of Kirsch exist as a separate division, Kirsch Window
Fashions Europe. On June 13, 1997, the Company acquired Rubbermaid
Incorporated's office products business, including the ELDON brand
name (now referred to as "Eldon"). Eldon is a designer, manufacturer
and supplier of computer and plastic desk accessories, resin-based
office furniture and storage and organization products. Eldon was
integrated into the Company's Newell Office Products division. On
March 30, 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
Kirsch Window Fashions Europe. For these and other minor
acquisitions, the Company paid $848.1 million in cash and assumed
$15.4 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 $601.1 million. 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 three months ended March 31, 1998 and 1997 on a pro forma
basis, as though the Rolodex, Kirsch, Eldon and Swish businesses had
8
been acquired on January 1, 1997, are as follows (in millions, except
per share amounts):
Three Months Ended
March 31,
------------------
1998 1997
---- -----
Net sales $763.9 $770.9
Net income 149.4 34.6
Earnings per share (basic) 0.94 0.22
NOTE 3 INVENTORIES
The components of inventories at the end of each period, net of the
LIFO reserve, were as follows (in millions):
March 31, December 31,
1998 1997
--------- ------------
Materials and supplies $ 154.1 $ 136.0
Work in process 114.0 100.6
Finished products 394.2 388.6
-------- ---------
$ 662.3 $ 625.2
======== =========
NOTE 4 MARKETABLE EQUITY SECURITIES
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). Marketable Equity Securities at December 31,
1997 are summarized as follows (in millions):
December
1997
--------
Aggregate market value $ 307.1
Aggregate cost 176.8
---------
Unrealized gain $ 130.3
=========
On March 3, 1998, the Company sold all of its marketable equity
securities, which included 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.
9
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each period consisted of
the following (in millions):
March 31, December 31,
1998 1997
--------- -------------
Land $ 41.1 $ 33.8
Buildings and improvements 277.9 272.1
Machinery and equipment 850.9 835.4
--------- --------
$ 1,169.9 $1,141.3
Allowance for depreciation (465.9) (445.2)
---------- --------
$ 704.0 $ 696.1
========== ========
NOTE 6 - LONG-TERM DEBT
Long-term debt at the end of each period consisted of the following
(in millions):
March 31, December 31,
1998 1997
--------- ------------
Medium-term notes $ 263.0 $ 263.0
Commercial paper 241.0 517.0
Other long-term debt 20.3 16.7
--------- --------
524.3 796.7
Current portion (1.2) (12.7)
--------- --------
$ 523.1 $ 784.0
========= ========
Commercial paper in the amount of $241.0 million at March 31, 1998 was
classified as long-term since it is supported by the 5-year $1.3
billion revolving credit agreement.
NOTE 7 MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST OF THE COMPANY
In December 1997, a wholly owned subsidiary trust of the Company
issued 10,000,000 of its 5.25% convertible quarterly income preferred
securities (the "Convertible Preferred Securities"), with a
liquidation preference of $50 per security, to certain institutional
buyers. The Convertible Preferred Securities represent an undivided
beneficial interest in the assets of the trust. Each of the
Convertible Preferred Securities is convertible at the option of the
holder into shares of the Company's Common Stock at the rate of 0.9865
shares of Common Stock for each preferred security (equivalent to
$50.685 per share of Common Stock), subject to adjustment in certain
10
circumstances. Holders of the Convertible Preferred Securities are
entitled to a quarterly cash distribution at the annual rate of 5.25%
of the $50 liquidation preference commencing March 1, 1998. The
Convertible Preferred Securities are subject to a Company guarantee
and are callable by the Company initially at 103.15% of the
liquidation preference beginning in December 2001 and decreasing over
time to 100% of the liquidation preference beginning in December 2007.
The trust invested the proceeds of this issuance of the Convertible
Preferred Securities in $500 million of the Company's 5.25% Junior
Convertible Subordinated Debentures due 2027 (the "Debentures"). The
Debentures are the sole assets of the trust, mature December 1, 2027,
bear interest at the rate of 5.25%, payable quarterly, commencing
March 1, 1998, and are redeemable by the Company beginning in December
2001. The Company may defer interest payments on the Debentures for a
period not to exceed 20 consecutive quarters during which time
distribution payments on the Convertible Preferred Securities are also
deferred. Under this circumstance, the Company may not declare or pay
any cash distributions with respect to its capital stock or debt
securities that rank PARI PASSU with or junior to the Debentures. The
Company has no current intention to exercise its right to defer
payments of interest on the Debentures.
The Convertible Preferred Securities are reflected as outstanding in
the Company's consolidated financial statements as Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities of a
Subsidiary Trust.
NOTE 8 EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." As a result, the Company's reported earnings
per share for 1997 were restated. The impact on previously reported
earnings per share was immaterial. The earnings per share amounts are
computed based on the weighted average monthly number of shares
outstanding during the year. "Basic" earnings per share are
calculated by dividing net income by weighted average shares
outstanding. "Diluted" earnings per share are calculated by dividing
net income by weighted average shares outstanding, including the
assumption of the exercise and/or conversion of all potentially
dilutive securities ("in the money" stock options and convertible
preferred securities). A reconciliation of the difference between
basic and diluted earnings per share for the first quarter of 1998 is
shown below (in millions, except per share amounts):
Convertible Diluted
Basic Earnings "In the money" Preferred Earnings
Earnings Share stock options Securities per Share
-------------- -------------- ---------- ---------
Net Income $ 149.9 $ - $ 4.0 $ 153.9
Weighted average
shares outstanding 159.3 0.7 9.9 169.9
Earnings per Share $ 0.94 $ 0.91
Basic and diluted earnings per share for the first quarter of 1997
were $.24.
11
NOTE 9 COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." The Company's Comprehensive Income
consists of net income, foreign currency translation adjustments and
unrealized gains on marketable equity securities (if any).
The Company sold its stake in The Black & Decker Corporation during
the first quarter of 1998 and has no other material marketable equity
security position as of March 31, 1998. Therefore, the Company's
Comprehensive Income in the first quarter of 1998 includes, in
addition to net income, only foreign currency translation adjustments,
which were immaterial. The Company's Comprehensive Income in the first
quarter of 1997 included unrealized gains on marketable equity
securities of $9.8 million, offset partially by currency translation
losses of $6.5 million.
The accumulated Other Comprehensive Income balances are summarized as
follows (in millions):
Net Unrealized
Gain On Accumulated
Foreign Securities Other
Currency Available Comprehensive
Translation for Sale (1) Income
----------- -------------- -------------
Balance at December 31, 1997 $ (22.6) $ 78.8 $ 56.2
Change during three months
ended March 31, 1998 (0.1) (78.8) (78.9)
-------- ------- --------
Balance at March 31, 1998 $ (22.7) $ - $ (22.7)
======== ======= ========
(1) On March 3, 1998, the Company sold its stake in The Black & Decker
Corporation and realized a net pre-tax gain of approximately $191.5
million ($115.7 million after taxes). The difference between the
$78.8 million after tax balance at December 31, 1997 and the $115.7
million after tax gain recorded in the first quarter of 1998 primarily
represents the appreciation on the shares sold from December 31, 1997
through March 3, 1998.
NOTE 10 INTERIM SEGMENT REPORTING
Effective December 31, 1998, the Company will adopt SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information."
After reviewing the criteria for determining segments of an
enterprise, the Company believes it has three reportable segments
under the reporting requirements: Hardware and Home Furnishings,
Office Products, and Housewares. The Company believes that this
segmentation is appropriate because it organizes its product
categories into these groups when making operating decisions and
12
assessing performance. The Company Divisions included in each group
also sell primarily to the same retail channel: Hardware and Home
Furnishings (home centers and hardware stores), Office Products
(office superstores and contract stationers), and Housewares (discount
stores and warehouse clubs). Financial statement disclosures
regarding segments will commence with the 1998 10-K Report filing.
NOTE 11 DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective December 31, 1998, the Company will adopt SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits." Management believes that the adoption of this statement
will not be material to the consolidated financial statements.
NOTE 12 SUBSEQUENT EVENT
On May 7, 1998, the Company completed the acquisition of Calphalon
Corporation in a stock-for-stock transaction. The transaction will be
accounted for as a pooling-of-interests, and as such, will require a
restatement of the financial statements for all periods presented.
The restatements will commence with the filing of the Form 10-Q for
the period ended June 30, 1998. Management believes the restatements
will not materially affect the consolidated financial statements.
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
March 31,
------------------
1998 1997
---- ----
Net Sales 100.0% 100.0%
Cost of Products Sold 70.1 69.9
------ ------
GROSS INCOME 29.9 30.1
Selling, general and
administrative expenses 17.2 17.5
------ ------
OPERATING INCOME 12.7 12.6
Nonoperating
expenses (income):
Interest expense 1.6 2.0
Other, net (22.1) 0.7
------ ------
Net nonoperating
expenses (income) (20.5) 2.7
------ ------
INCOME BEFORE
INCOME TAXES 33.2 9.9
Income taxes 13.1 3.9
------ ------
NET INCOME 20.1% 6.0%
====== ======
14
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31,
1997
Net sales for the first three months of 1998 were $747.3 million,
representing an increase of $117.9 million or 18.7% from $629.4
million in the comparable quarter of 1997. The overall increase in net
sales was primarily attributable to contributions from Rolodex
(acquired in March 1997), Kirsch (acquired in May 1997), Eldon
(acquired in June 1997) and strong shipments at the Sanford writing
instruments business. Net sales for each of the Company's product
groups (and the primary reasons for the increase or decrease) were as
follows, in millions:
1998 1997 % Change
---- ---- --------
Hardware & Home Furnishings $ 373.6 $ 297.9 25.4% (1)
Office Products 202.9 150.2 35.1% (2)
Housewares 170.8 181.3 -5.8% (3)
-------- -------
$ 747.3 $ 629.4 18.7
======== =======
(1) Internal growth* of 3% plus the Kirsch acquisition.
(2) Internal growth of 8% plus the Rolodex and Eldon acquisitions.
(3) Internal sales declines due to soft European economies and U.S.
mass merchant sales.
* The Company defines internal growth as growth from the core
businesses, which include continuing businesses owned more than two
years and minor acquisitions.
Gross income as a percentage of net sales in the first three months of
1998 was 29.9% or $223.4 million versus 30.1% or $189.3 million in the
comparable quarter of 1997. Gross margins at the Company's core
businesses were maintained while the 1997 acquisitions had gross
margins which were slightly lower than the Company's average gross
margins. As these acquisitions are integrated, the Company expects
their gross margins to improve.
Selling, general and administrative expenses ("SG&A") in the first
three months of 1998 were 17.2% of net sales or $128.7 million versus
17.5% or $110.0 million in the comparable quarter of 1997. SG&A as a
percentage of net sales declined in 1997 as a result of lower core
business SG&A spending as a percentage of sales, offset partially by
Kirsch, which had a higher SG&A than the Company's average SG&A as a
percentage of net sales. As this acquisition is integrated, the
Company expects its SG&A spending as a percentage of net sales to
decline.
Operating income in the first three months of 1998 was 12.7% of net
sales or $94.7 million versus 12.6% or $79.3 million in the comparable
quarter of 1997. The slight increase in operating margins was
15
primarily due to an increase in margins at several of the company's
core businesses. This increase was offset partially by the 1997
acquisitions, which had operating margins that were slightly lower
than the Company's average operating margins.
Net nonoperating income in the first three months of 1998 was 20.5% of
net sales or $153.4 million versus net nonoperating expenses of 2.7%
of net sales or $16.8 million in the comparable quarter of 1997. The
$170.2 million increase in income was due to a one-time net gain of
$191.5 million on the sale of the Company's stake in The Black &
Decker Corporation. This gain was offset partially by one-time
charges (which included write-offs of intangible assets) of $11.4
million. The Company expects to record additional one-time charges in
the subsequent quarters of 1998 for restructuring related to 1998
acquisitions which were in process at March 31, 1998 but not yet
completed. In addition, net nonoperating expenses increased in 1998 as
a result of $3.1 million in additional trade names and goodwill
amortization related to the 1997 acquisitions and $6.7 million of
distributions related to the convertible preferred securities issued
by a subsidiary trust in December 1997.
For the first three months of both 1998 and 1997, the effective tax
rate was 39.6%.
Net income for the first three months of 1998 was $149.9 million,
representing an increase of $112.1 million from the comparable quarter
of 1997. Basic earnings per share increased 291.7% to $0.94 in the
first quarter of 1998 versus $0.24 in the first quarter of 1997.
Diluted earnings per share increased 279.2% to $0.91 vs. $0.24 in the
first quarter of 1997. Excluding the one-time net gain on the sale of
Black & Decker stock of $191.5 million ($115.7 million after taxes)
and one-time charges of $11.4 million ($6.9 million after taxes), net
income increased $3.3 million or 8.7% to $41.1 million the first
quarter of 1998 versus $37.8 million in 1997. Basic and diluted
earnings per share, excluding the nonrecurring items, increased 8.3%
to $0.26 versus $0.24 in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES:
The Company's primary sources of liquidity and capital resources
include cash provided from operations and use of available borrowing
facilities.
Cash provided by operating activities, in the first three months of
1998 was $59.8 million, representing an increase of $17.6 million from
$42.2 million for the comparable quarter of 1997. The increase was
due to higher collections of receivables resulting from strong 1997
fourth quarter sales.
On March 3, 1998, the Company received $378.3 million from the sale of
7,862,300 shares of Black & Decker common stock. The proceeds from
the sale were used to pay down commercial paper.
16
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 March 31, 1998 totaled $41.6 million.
During 1997, the Company amended its revolving credit agreement to
increase the aggregate borrowing limit to $1.3 billion, at a floating
interest rate. The revolving credit agreement will terminate in
August 2002. At March 31, 1998, 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 March 31, 1998,
$241.0 million (principal amount) of commercial paper was outstanding.
The entire amount is classified as long-term debt.
The Company has a universal shelf registration statement under which
the Company may issue up to $500.0 million of debt and equity
securities, subject to market conditions. At March 31, 1998, the
Company had not issued any securities under that registration
statement.
At March 31, 1998, the Company had outstanding $263.0 million
(principal amount) of medium-term notes issued under a previous shelf
registration statement with maturities ranging from five to ten years
at an average annual rate of interest equal to 6.3%.
USES:
The Company's primary uses of liquidity and capital resources include
acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $132.5 million and $117.6
million in the first three months of 1998 and 1997, respectively. In
the first quarter of 1998, the Company acquired Swish Track and Pole
and made another minor acquisition for cash purchase prices totaling
$127.7 million. In the first quarter of 1997, the Company acquired
Rolodex for a cash purchase price of $118.0 million. All of these
acquisitions were accounted for as purchases and were paid for with
proceeds obtained from the issuance of commercial paper.
Capital expenditures were $27.1 million and $15.4 million in the
first three months of 1998 and 1997, respectively.
The Company has paid regular cash dividends on its common stock since
1947. On February 10, 1998, the quarterly cash dividend was increased
to $0.18 per share from the $0.16 per share that had been paid since
February 11, 1997. Prior to this date, the quarterly cash dividend
17
paid was $0.14 per share since February 6, 1996, which was an increase
from the $0.12 per share paid since May 11, 1995. Aggregate dividends
paid during the first three months of 1998 and 1997 were $28.7 million
and $25.4 million, respectively.
Retained earnings increased in the first three months of 1998 and 1997
by $121.2 million and $12.3 million respectively. The increase in
1998 was primarily due to a net gain of $191.5 million ($115.7 million
after taxes) on the sale of the Black & Decker common stock.
Working capital at March 31, 1998 was $627.2 million compared to
$717.6 million at December 31, 1997. The current ratio at March 31,
1998 was 1.89:1 compared to 2.08:1 at December 31, 1998.
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 .20:1 at March 31,
1998 and .27:1 at December 31, 1997. The decrease in the first
quarter of 1998 was primarily due to the use of the net proceeds from
the sale of the Black & Decker common stock to pay down commercial
paper.
The Company believes that cash provided from operations and available
borrowing facilities will continue to provide adequate support for the
cash needs of existing businesses; however, certain events, such as
significant acquisitions, could require additional external financing.
MARKET RISK
The Company's market risk is impacted by changes in interest rates,
foreign currency exchange rates, and certain commodity prices.
Pursuant to the Company's policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact
of adverse changes in market prices. The Company does not hold or
issue derivative instruments for trading purposes, and has no material
sensitivity to changes in market rates and prices on its derivative
financial instrument positions.
The Company's primary market risk is interest rate exposure, primarily
in the United States. The Company manages interest rate exposure
through its conservative debt ratio target and its mix of fixed and
floating rate debt. Interest rate exposure was reduced significantly
in 1997 from the issuance of $500 million 5.25% Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities of a
Subsidiary Trust, the proceeds of which reduced commercial paper.
Interest rate swaps may be used to adjust interest rate exposures when
appropriate based on market conditions, and, for qualifying hedges,
the interest differential of swaps is included in interest expense.
The Company's foreign exchange risk management policy emphasizes
hedging anticipated intercompany and third-party commercial
transaction exposures of one year duration or less. The Company
focuses on natural hedging techniques of the following form: 1)
offsetting or netting of like foreign currency flows, 2) structuring
foreign subsidiary balance sheets with appropriate levels of debt to
18
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.
Based on the Company's overall interest rate, currency rate and
commodity price exposures at March 31, 1998, management of the Company
believes that a short-term change in any of these exposures will not
have a material effect on the consolidated financial statements of the
Company.
YEAR 2000 COMPUTER COMPLIANCE
In order to address the "Year 2000 Problem" relating to the inability
of certain computer software programs to process 2-digit year-date
codes after December 31, 1999, the Company has conducted a
comprehensive review of its computer systems and formulated a plan to
modify or replace programs where necessary. It is anticipated that all
reprogramming efforts for major systems will be completed by December
31, 1998, allowing more than adequate time for testing. The Company
has received confirmations from its primary vendors and customers that
they have plans underway to address this issue as well. Management
believes that the total cost of implementing the Year 2000 plan will
not be significant to the Company's financial results.
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, expenses, margins,
earnings per share, return on equity, capital expenditures, dividends,
capital structure, free cash flow, debt to capitalization ratios,
internal growth rates, future economic performance, management's
plans, goals and objectives for future operations and growth or the
assumptions relating to any of the forward-looking information. The
Company cautions that forward-looking statements are not guarantees
since there are inherent difficulties in predicting future results,
and that actual results could differ materially from those expressed
or implied in the forward-looking statements. Factors that could cause
actual results to differ include, but are not limited to, those
matters set forth in the Company's Annual Report on Form 10-K, the
documents incorporated by reference therein and in Exhibit 99 thereto.
19
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 Conditions (Part I, Item 2).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of March 31, 1998, the Company was involved in 35 matters
concerning federal and state environmental laws and regulations,
including matters in which it has been identified by the U.S.
Environmental Protection Agency and certain state environmental
agencies as a potentially responsible party ("PRP") for contaminated
sites under the 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 CERCLA site relative to that of other PRPs: the
kind of waste; where applicable, the terms of existing cost sharing
and other 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 March 31, 1998 ranged between $19.0 million and $26.4 million.
As of March 31, 1998, the Company had a reserve equal to $22.7 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 costs, the
Company does not expect that any sum it may have to pay in connection
with environmental matters in excess of amounts reserved will have a
material adverse effect on its consolidated financial statements.
Reference is made to the disclosure of several legal proceedings
relating to the importation and distribution of vinyl mini-blinds made
with plastic containing lead stabilizers in Note 15 to the
consolidated financial statements included in the Company's Annual
20
Report on Form 10-K for the year ended December 31, 1997. With
respect to the civil suit filed by the California Attorney General and
the Alameda County District Attorney against numerous defendants,
including a subsidiary of the Company (which was coordinated with the
case filed as a national and California private class action in 1997),
on April 24, 1998, the California Attorney General moved to settle his
action against the subsidiary of the Company and most of the other
defendants pursuant to a Stipulated Consent Judgment. The Company's
contribution to the judgment amount is not expected to be material to
the Company's consolidated financial statements. Other related
litigation described in Note 15 remains pending. Although management
of the Company cannot predict the ultimate outcome of these matters
with certainty, it believes that their ultimate resolution will not
have a material effect on the Company's consolidated financial
statements.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
11. Computation of Earnings per Share of Common Stock
12. Statement of Computation of Ratio of Earnings to Fixed
Charges
27. Financial Data Schedule
b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated March 3, 1998,
reporting the sale by Registrant of its shares of common stock of
The Black & Decker Corporation.
21
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 CO.
Registrant
Date: May 11, 1998 /s/ William T. Alldredge
---------------------------
William T. Alldredge
Vice President - Finance
Date: May 11, 1998 /s/ Brett E. Gries
---------------------------
Brett E. Gries
Vice President - Accounting & Tax
EXHIBIT 11
NEWELL CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS
PER SHARE OF COMMON STOCK
(In thousands, except per share data)
For the Year Ended
December 31,
Y-T-D through -------------------------------------------
March 31, 1998 1997 1996 1995
-------------- ---- ---- -----
Basic Earnings per Share:
Net income $ 149,863 $ 290,402 $ 256,479 $ 222,471
Weighted average outstanding 159,289 159,079 158,764 158,212
Basic Earnings per Share $ 0.94 $ 1.83 $ 1.62 $ 1.41
Diluted Earnings per Share:
Net income $ 149,863 $ 290,402 $256,479 $ 222,471
Minority interest in income of
subsidiary trust, net of tax 4,034 923 - -
--------- --------- --------- --------
Net income, assuming conversion
of all applicable securities $ 153,897 $ 291,325 $ 256,479 $ 222,471
Weighted average shares outstanding: 159,289 159,079 158,764 158,212
Incremental common shares applicable
to common stock options based on
the market price during the period 722 622 423 318
Average common shares issuable assuming
conversion of the Company-Obligated
Mandatorily Redeemable Convertible
Preferred Securities of a Subsdiary
Trust 9,865 513 - -
--------- --------- --------- --------
Weighted average shares outstanding
assuming full dilution 169,876 160,214 159,187 158,530
Diluted Earnings per Share assuming
conversion of all applicable securities $ 0.91 $ 1.82 $ 1.61 $ 1.40
EXHIBIT 12
NEWELL CO. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio data)
For the Twelve Months
Ended December 31,
Y-T-D through -------------------------------------------
March 31, 1998 1997 1996 1995 1994
-------------- ---- ---- ----- -----
Earnings available to
fixed charges:
Income before income taxes $ 68,003 (1) $ 480,799 $424,634 $370,785 $329,292
Fixed charges:
Interest expense 11,825 73,621 56,989 49,812 29,970
Portion of rent determined
to be interest (2) 4,249 16,633 14,855 12,634 10,494
Minority interest in
income of subsidiary trust 6,678 1,526 - - -
Eliminate equity in earnings (2,775) (5,831) (6,364) (5,993) (5,661)
-------- -------- -------- -------- --------
$ 87,980 $ 566,748 $490,114 $427,238 $364,095
======== ========= ======== ======== ========
Fixed charges:
Interest expense 11,825 73,621 56,989 49,812 29,970
Portion of rent determined
to be interest (2) 4,249 16,633 14,855 12,634 10,494
Minority interest in
income of subsidary trust 6,678 1,526 - - -
-------- --------- -------- -------- --------
$ 22,752 $ 91,780 $71,844 $62,446 $40,464
======== ========= ======== ======== ========
Ratio of earnings to fixed charges 3.87 6.18 6.82 6.84 9.00
(1) Excludes one-time net gain of $191,513 from the sale of Black &
Decker stock, offset partially by $11,398 of one-time charges.
(2) A standard ratio of 33% was applied to gross rent expense to
approximate the interest portion of short-term and long-term leases.
5
