FIRST QUARTER 1996
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, 1996
------------------------
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 (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes __X__ No ______
Number of shares of Common Stock outstanding
as of April 22, 1996: 158,731,906
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
------------------
1996 1995
---- ----
Unaudited
(In thousands, except
per share data)
Net sales $ 618,157 $ 556,579
Cost of products sold 436,907 389,764
------- -------
GROSS INCOME 181,250 166,815
Selling, general and
administrative expenses 111,754 93,420
------- -------
OPERATING INCOME 69,496 73,395
Nonoperating expenses (income):
Interest expense 14,442 11,838
Other (262) 1,392
------- -------
Net nonoperating expenses (income) 14,180 13,230
------- -------
INCOME BEFORE INCOME TAXES 55,316 60,165
Income taxes 22,126 24,066
------- -------
NET INCOME $ 33,190 $ 36,099
======== ========
Earnings per share $ 0.21 $ 0.23
======== ========
Dividends per share $ 0.14 $ 0.10
======== ========
Weighted average shares outstanding 158,675 157,903
======== ========
See notes to consolidated financial statements.
3
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
----------- ------------
Unaudited
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 46,186 $ 58,771
Accounts receivable, net 369,770 390,296
Inventories, net 547,720 509,245
Deferred income taxes 95,993 107,499
Prepaid expenses and other 73,649 67,063
-------- --------
TOTAL CURRENT ASSETS 1,133,318 1,132,874
MARKETABLE EQUITY SECURITIES 57,278 53,309
OTHER LONG-TERM INVESTMENTS 205,920 203,857
OTHER ASSETS 117,076 122,702
PROPERTY, PLANT AND EQUIPMENT, NET 558,307 530,285
TRADE NAMES AND GOODWILL 878,447 888,215
-------- --------
TOTAL ASSETS $2,950,346 $2,931,242
========= =========
See notes to consolidated financial statements.
4
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
March 31, December 31,
1996 1995
----------- ------------
Unaudited
(In thousands except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 110,820 $ 104,017
Accounts payable 102,694 113,927
Accrued compensation 60,679 73,057
Other accrued liabilities 283,420 317,184
Income taxes 31,455 13,043
Current portion of long-term debt 58,052 59,031
--------- ---------
TOTAL CURRENT LIABILITIES 647,120 680,259
LONG-TERM DEBT 805,319 761,578
OTHER NONCURRENT LIABILITIES 160,059 158,321
DEFERRED INCOME TAXES 29,790 30,987
STOCKHOLDERS' EQUITY
Par value of common stock issued ($1 par) 158,732 158,626
Additional paid-in capital 192,519 190,860
Retained earnings 949,543 938,567
Net unrealized gain on securities
available for sale 18,293 15,912
Cumulative translation adjustment (11,029) (3,868)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,308,058 1,300,097
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,950,346 $2,931,242
========= =========
See notes to consolidated financial statements.
5
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
March 31,
--------------------------
1996 1995
---------- --------
Unaudited
(In thousands)
OPERATING ACTIVITIES:
Net Income $ 33,190 $ 36,099
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 29,895 23,100
Deferred income taxes 13,079 (5,865)
Other (2,107) 95
Changes in Current Accounts:
Accounts receivable 36,487 22,333
Inventories (4,195) (44,560)
Other current assets (5,500) 8,657
Accounts payable (21,165) (806)
Accrued liabilities and other (23,000) (8,442)
---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 56,684 30,611
---------- --------
INVESTING ACTIVITIES:
Acquisitions, net (35,287) -
Expenditures for property, plant and equipment (14,847) (18,211)
Disposals of noncurrent assets and other (3,809) (7,293)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES (53,943) (25,504)
---------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 63,439 9,691
Proceeds from exercised stock options and other 1,765 1,304
Payments on notes payable and long-term debt (58,316) (5,184)
Cash dividends (22,214) (15,791)
---------- --------
NET CASH USED IN FINANCING ACTIVITIES (15,326) (9,980)
---------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (12,585) (4,873)
Cash and cash equivalents at beginning of year 58,771 14,892
---------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 46,186 $ 10,019
========== ========
Supplemental cash flow disclosures:
Cash paid during the year for -
Interest $ 16,146 $ 13,722
Income taxes 8,513 2,137
See notes to consolidated financial statements.
6
NEWELL CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - 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 audit 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 - On September 29, 1995, the Company acquired Decorel
Incorporated ("Decorel"), a manufacturer and marketer of
ready-made picture frames. On November 2, 1995, the Company
acquired Berol Corporation ("Berol"), a designer,
manufacturer and marketer of markers and writing
instruments. For these 1995 acquisitions, the Company paid
$152.6 million in cash and assumed $102.2 million of debt.
On January 22, 1996, the Company acquired The Holson Burnes
Group, Inc. ("Holson Burnes"), a manufacturer and marketer
of photo albums and picture frames. For this acquisition,
the Company paid $35.3 million in cash and assumed $44.4
million of debt. These transactions were accounted for as
purchases; therefore results of operations are included in
the accompanying consolidated financial statements since
their 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
goodwill of approximately $125.9 million. The total
adjustments to the purchase price allocations are not
expected to be material to the financial statements.
The unaudited consolidated results of operations for the
three months ended March 31, 1996 and 1995 on a pro forma
basis, as though Decorel, Berol and Holson Burnes had been
acquired on January 1, 1995, are as follows:
Three Months Ended March 31,
1996 1995
---- ----
(In millions, except per share amounts)
Net sales $622.6 $639.2
Net income 32.0 31.1
Earnings per share 0.20 0.20
7
Note 3 - The components of inventories at the end of each period, net
of the LIFO reserve, were as follows:
March 31, December 31,
1996 1995
--------- ------------
(In millions)
Materials and supplies $136.2 $147.7
Work in process 93.7 87.5
Finished products 317.8 274.0
----- -----
$547.7 $509.2
===== =====
Note 4 - Long-term marketable equity securities at the end of each
period are summarized as follows:
March 31, December 31,
1996 1995
--------- ------------
(In millions)
Aggregate market value $57.3 $53.3
Aggregate cost 26.8 26.8
---- ----
Unrealized gain $30.5 $26.5
==== ====
Long-term marketable equity securities are carried at fair value
with adjustments for fair value reported separately as a component of
stockholders' equity and are excluded from earnings.
Note 5 - Property, plant and equipment at the end of each period
consisted of the following:
March 31, December 31,
1996 1995
--------- ------------
(In millions)
Land $ 21.5 $ 16.2
Buildings and improvements 205.5 194.8
Machinery and equipment 650.3 620.2
----- -----
877.3 831.2
Allowance for depreciation (319.0) (300.9)
----- -----
$ 558.3 $ 530.3
====== ======
8
Note 6 - Long-term debt at the end of each period consisted of the
following:
March 31, December 31,
1996 1995
--------- ------------
(In millions)
Medium-term notes $345.0 $345.0
Commercial paper 501.6 448.6
Other long-term deb 16.8 27.0
----- -----
863.4 820.6
Current portion (58.1) (59.0)
----- -----
$805.3 $761.6
===== =====
Commercial paper in the amount of $501.6 million is classified as
long-term since it is supported by the revolving credit agreement
discussed in the liquidity and capital resources section on page
12.
Note 7 - In 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of."
This statement was adopted by the Company on January 1,
1996. The impact of adopting this statement was not
material to the consolidated financial statements.
Also, in 1995, the FASB issued SFAS No. 123, "Accounting for
Stock Based Compensation." The Company adopted this statement
effective January 1, 1996 and will provide additional disclosures
in the footnotes to the annual consolidated financial statements.
9
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 the items from the
Consolidated Statements of Income as a percentage of net sales.
Three Months Ended
March 31,
1996 1995
------ ------
Net sales 100.0% 100.0%
Cost of products sold 70.7 70.0
------ ------
GROSS INCOME 29.3 30.0
Selling, general and
administrative expenses 18.1 16.8
------ ------
OPERATING INCOME 11.2 13.2
Nonoperating expenses (income):
Interest expense 2.3 2.1
Other - 0.3
------ ------
Net nonoperating expenses (income) 2.3 2.4
------ ------
INCOME BEFORE INCOME TAXES 8.9 10.8
Income taxes 3.5 4.3
------ ------
NET INCOME 5.4% 6.5%
====== ======
10
Three Months Ended March 31, 1996 vs. Three Months Ended March 31, 1995
-----------------------------------------------------------------------
Net sales for the first quarter of 1996 were $618.2 million,
representing an increase of $61.6 million or 11.1% from $556.6 million
in the comparable quarter of 1995. The overall increase in net sales
was primarily attributable to the acquisitions of Decorel and Berol in
September and November 1995, respectively, and the January 1996
acquisition of Holson Burnes. Overall, internal sales growth in the
first quarter was affected by a soft retail environment. Internal
sales growth is defined as growth from continuing businesses owned
more than two years ("core businesses"), including minor acquisitions.
Net sales for each of the Company's product groups were as follows, in
millions:
Primary Reasons
1996 1995 % Change for Increases
---- ---- -------- ---------------
Home Furnishings $203.4 $165.9 22.6% Decorel and Holson
Burnes acquisitions
Housewares 175.9 175.9 - No increase
Office Products 145.7 129.6 12.4% Berol acquisition,
offset partially
by internal sales
declines of 13%
Hardware & Tools 93.2 85.2 9.4% Internal sales
------ ------ ------ growth
$618.2 $556.6 11.1%
====== ====== =====
Gross income as a percent of net sales in the first quarter of 1996
decreased slightly to 29.3% from 30.0% in the comparable quarter of
1995. The decrease was due primarily to the soft retail environment
which resulted in reduced manufacturing output at certain divisions.
Inventory levels at these divisions were adjusted to reflect the lower
retail demand.
Selling, general and administrative expenses ("SG&A") as a percent of
net sales in the first quarter of 1996 were 18.1% versus 16.8% in the
comparable quarter of 1995. The increase was due primarily to higher
levels of SG&A at Decorel, Berol and Holson Burnes.
Operating income in the first quarter of 1996 was 11.2% of net sales
or $69.5 million versus $73.4 million in the comparable quarter of
1995. The decrease was primarily attributable to the same factors
that affected gross income, along with the increase in SG&A as a
percentage of net sales.
11
Net nonoperating expenses for 1996 were $14.2 million in the first
quarter of 1996 versus $13.2 million in the comparable quarter of 1995
and are summarized as follows:
Three Months Ended March 31,
1996 1995 Change
-------- ------- ------
(In Millions)
Interest expense (1) $ 14.4 $ 11.8 $ 2.6
Interest income (0.9) (0.3) (0.6)
Goodwill amortization 5.8 4.8 1.0
Dividend income (3.0) (3.2) 0.2
Equity earnings in American Tool
Companies, Inc. (the Company
has a 49% ownership interest) (2.1) (2.1) -
Intangible asset write-off - 2.2 (2.2)
----- ----- -----
$ 14.2 $ 13.2 $ 1.0
====== ====== =====
(1) The increase in interest expense was due to additional borrowings
for the 1995 and 1996 acquisitions.
For the first quarter in both 1996 and 1995, the effective tax rate
was 40.0%.
Net income for the first quarter of 1996 was $33.2 million,
representing a decrease of $2.9 million or (8.1)% from the comparable
quarter of 1995. Earnings per share for the first quarter of 1996
were down 8.7% to $0.21 versus $0.23 in the comparable quarter of
1995. The decreases in net income and earnings per share were
primarily attributable to the same factors that affected operating
income.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
include cash provided from operations and use of available borrowing
facilities.
Operating activities provided net cash of $56.7 million during the
first three months of 1996, an increase of $26.1 million from $30.6
million in the comparable period of 1995. This change was primarily
due to a soft retail environment which resulted in a greater reduction
of trade receivables, a smaller increase in inventory required to
service customers and a decline in trade payables.
The Company has short-term foreign and domestic lines of credit with
various banks and a commercial paper program which are available for
short-term financing. Under the line of credit arrangements, the
Company may borrow up to $309.0 million (of which $197.1 million was
available at March 31, 1996) based upon such terms as the Company and
the respective banks have mutually agreed upon. Committed lines of
credit compose $136.9 million of the total line of credit
arrangements. Borrowings under the Company s uncommitted lines of
credit are subject to the discretion of the lender.
At March 31, 1996, the Company had available and outstanding $345.0
million (principal amount) of medium-term notes with maturities
ranging from one to five years at an average rate of interest equal to
6.3%. The Company had outstanding $345.0 million of medium-term notes
on December 31, 1995.
In June 1995, the Company entered into a five-year $550.0 million
revolving credit agreement and a $200.0 million, 364-day revolving
credit agreement (and terminated its existing revolving credit
agreements). Under these agreements, the Company may borrow, repay
and reborrow funds in an aggregate amount up to $750.0 million, at a
floating interest rate. At March 31, 1996, there were no borrowings
under the revolving credit agreements.
In lieu of borrowings under the revolving credit agreements, the
Company may issue up to $750.0 million of commercial paper. The
Company s revolving credit agreements referred to above provide the
committed backup liquidity required to issue commercial paper.
Accordingly, commercial paper may only be issued up to the amount
available under the Company's revolving credit agreements. At March
31, 1996, $501.6 million (face or principal amount) of commercial
paper was outstanding, all of which was supported by the five-year
revolving credit agreements. The entire amount is classified as long-
term debt.
13
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, 1996, no
securities had been issued under this registration statement.
The Company's primary uses of liquidity and capital resources include
capital expenditures, dividend payments and acquisitions.
Capital expenditures were $14.8 million and $18.2 million in the first
three months of 1996 and 1995, respectively. The decrease is due
primarily to heavy spending during the first quarter of 1995 in
connection with the integration of acquired businesses.
The Company has paid regular cash dividends on its common stock since
1947. On February 6, 1996, the quarterly cash dividend was increased
to $0.14 per share from the $0.12 per share that had been paid since
May 11, 1995. Dividends paid were $22.2 million and $15.8 million in
the first three months of 1996 and 1995, respectively. This increase
in paid dividends affected retained earnings, which increased by
$11.0 million and $20.3 million in the first three months of 1996 and
1995, respectively.
In 1996, the Company acquired Holson Burnes for $35.3 million in cash
and the assumption of $44.4 million of debt. This acquisition was
accounted for as a purchase and the cash portion of the purchase price
was paid for with proceeds obtained from the issuance of commercial
paper.
Working capital at March 31, 1996 was $486.2 million compared to
$452.6 million at December 31, 1995. The current ratio at March 31,
1996 was 1.75:1 compared to 1.67:1 at December 31, 1995. Total debt
to total capitalization (net of cash and cash equivalents) was .42:1
at March 31, 1996 and .40:1 at December 31, 1995.
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.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
27 Financial Data Schedule
b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated January 29, 1996
reporting the issuance of a press release regarding the results
of the quarter and fiscal year ended December 31, 1995.
15
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.
Date May 3, 1996 /s/ William T. Alldredge
----------- ------------------------
William T. Alldredge
Vice President - Finance
Date May 3, 1996 /s/ Brett E. Gries
----------- ------------------
Brett E. Gries
Vice President - Accounting & Tax
5
