FIRST QUARTER 1997
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, 1997
---------------
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 16, 1997: 159,057,402
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
Unaudited
Net sales $ 629,374 $ 618,157
Cost of products sold 440,090 436,907
--------- ---------
GROSS INCOME 189,284 181,250
Selling, general and
administrative expenses 109,958 111,754
--------- ----------
OPERATING INCOME 79,326 69,496
Nonoperating expenses (income):
Interest expense 12,785 14,442
Other 4,020 (262)
--------- ---------
Net nonoperating expenses (income) 16,805 14,180
--------- ---------
INCOME BEFORE INCOME TAXES 62,521 55,316
Income taxes 24,758 22,126
--------- ---------
NET INCOME $ 37,763 $ 33,190
========= =========
Earnings per share $ 0.24 $ 0.21
========= =========
Dividends per share $ 0.16 $ 0.14
========= =========
Weighted average shares outstanding 158,958 158,675
======= =======
See notes to consolidated financial statements.
2
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, % of December 31, % of
1997 Total 1996 Total
--------- ----- ------------ -----
Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,698 0.2% $ 4,360 0.1%
Accounts receivable, net 369,465 11.9 404,170 13.4
Inventories, net 534,838 17.3 509,504 17.0
Deferred income taxes 111,267 3.6 121,152 4.0
Prepaid expenses and other 63,469 2.0 68,928 2.3
--------- ----- --------- -----
TOTAL CURRENT ASSETS 1,084,737 35.0 1,108,114 36.8
MARKETABLE EQUITY SECURITIES 257,077 8.3 240,789 8.0
OTHER LONG-TERM INVESTMENTS 58,922 1.9 58,703 2.0
OTHER ASSETS 118,978 3.8 119,168 4.0
PROPERTY, PLANT AND EQUIPMENT, NET 553,825 17.9 555,434 18.5
TRADE NAMES AND GOODWILL 1,026,278 33.1 922,846 30.7
--------- ----- --------- -----
TOTAL ASSETS $3,099,817 100.0% $3,005,054 100.0%
========= ===== ========= =====
See notes to consolidated financial statements.
3
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(In thousands)
March 31, % of December 31, % of
1997 Total 1996 Total
--------- ----- ------------ -----
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 55,484 1.8% $ 70,877 2.4%
Accounts payable 87,631 2.8 105,333 3.5
Accrued compensation 47,803 1.5 65,632 2.2
Other accrued liabilities 313,749 10.1 324,719 10.8
Income taxes 38,839 1.3 37,209 1.2
Current portion of long-term debt 33,141 1.1 33,243 1.1
--------- ----- --------- -----
TOTAL CURRENT LIABILITIES 576,647 18.6 637,013 21.2
LONG-TERM DEBT 799,326 25.8 672,033 22.4
OTHER NONCURRENT LIABILITIES 157,793 5.1 156,691 5.2
DEFERRED INCOME TAXES 55,377 1.8 47,477 1.6
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
400.0 million at $1 par value; 159,054 5.1 158,871 5.3
Outstanding shares:
1997 - 159.1 million
1996 - 158.9 million
Additional paid-in capital 200,823 6.5 197,889 6.6
Retained earnings 1,118,477 36.1 1,106,146 36.8
Net unrealized gain on securities
available for sale 46,440 1.5 36,595 1.2
Cumulative translation adjustment (14,120) (0.5) (7,661) (0.3)
--------- ---- --------- ----
TOTAL STOCKHOLDERS' EQUITY 1,510,674 48.7 1,491,840 49.6
--------- ----- --------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,099,817 100.0% $3,005,054 100.0%
========= ===== ========= =====
See notes to consolidated financial statements.
4
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Months Ended
March 31,
--------------------------
1997 1996
---------- ---------
Unaudited
OPERATING ACTIVITIES:
Net Income $ 37,763 $ 33,190
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 30,151 29,895
Deferred income taxes 11,357 13,079
Other (264) (2,107)
Changes in Current Accounts, excluding the
effects of acquisitions:
Accounts receivable 44,717 36,487
Inventories (17,859) (4,195)
Other current assets 7,438 (5,500)
Accounts payable (21,613) (21,165)
Accrued liabilities and other (49,445) (23,000)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 42,245 56,684
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net (117,625) (35,287)
Expenditures for property, plant and equipment ( 15,399) (14,847)
Disposals of noncurrent assets and other 9,093 3,352
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (123,931) (46,782)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 137,418 63,439
Proceeds from exercised stock options and other 3,117 1,765
Payments on notes payable and long-term debt (25,620) (58,316)
Cash dividends (25,432) (22,214)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 89,483 (15,326)
-------- --------
EXCHANGE RATE EFFECT ON CASH (6,459) (7,161)
-------- --------
5
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,338 (12,585)
Cash and cash equivalents at beginning of year 4,360 58,771
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,698 $ 46,186
======== ========
Supplemental cash flow disclosures:
Cash paid during the period for
Interest $ 14,877 $ 16,146
Income taxes 5,294 8,513
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 January 19, 1996, the Company acquired The Holson Burnes
Group, Inc. ("Holson Burnes"), a manufacturer and marketer
of photo albums and picture frames. For this and other
minor 1996 acquisitions, the Company paid $42.6 million in
cash and assumed $44.4 million of debt. On March 5, 1997,
the Company purchased the Rolodex business unit of Insilco
Corporation ("Rolodex"), a marketer of office products
including card files, personal organizers and paper punches.
The Company paid $117.6 million in cash and assumed no debt.
These 1996 and 1997 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
$160.9 million. The final 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, 1997 and 1996 on a pro forma
basis, as though Holson Burnes and Rolodex had been acquired
on January 1, 1996, are as follows:
Three Months Ended March 31,
1997 1996
------ ------
(In millions, except per share amounts)
Net sales $640.2 $638.8
Net income 37.9 32.6
Earnings per share 0.24 0.21
On January 30, 1997, the Company signed a letter of intent
with Cooper Industries, Inc. to acquire Cooper's Kirsch
Division. Kirsch manufactures and distributes drapery
7
hardware and custom window coverings in the U.S. and abroad.
Consummation of the acquisition is subject to execution of a
definitive agreement and receipt of the necessary government
approvals.
Note 3 - The components of inventories at the end of each period, net
of the LIFO reserve, were as follows:
March 31, December 31,
1997 1996
---------- ------------
(In millions)
Materials and supplies $126.7 $124.5
Work in process 93.1 87.9
Finished products 315.0 297.1
----- -----
$534.8 $509.5
===== =====
Note 4 - Long-term Marketable Equity Securities classified as
available for sale are carried at fair value with
adjustments to fair value reported separately, net of tax,
as a component of stockholders' equity (and excluded from
earnings). Long-term marketable equity securities at the
end of each period are summarized as follows:
March 31, December 31,
1997 1996
--------- ------------
(In millions)
Aggregate market value $257.1 $240.8
Aggregate cost 180.3 180.3
----- -----
Unrealized gain $ 76.8 $ 60.5
===== ====
Note 5 - Property, plant and equipment at the end of each period
consisted of the following:
March 31, December 31,
1997 1996
--------- ------------
(In millions)
Land $ 21.5 $ 21.1
Buildings and improvements 205.3 206.9
Machinery and equipment 688.7 699.6
------ ------
915.5 927.6
Allowance for depreciation (361.7) (372.2)
------ ------
$ 553.8 $ 555.4
====== ======
8
Note 6 - Commercial paper in the amount of $532.0 million is
classified as long-term since it is supported by the
revolving credit agreement. Long-term debt at the end of
each period consisted of the following:
March 31, December 31,
1997 1996
--------- ------------
(In millions)
Medium-term notes $295.0 $295.0
Commercial paper 532.0 404.0
Other long-term debt 5.4 6.2
----- -----
832.4 705.2
Current portion (33.1) (33.2)
----- -----
$799.3 $672.0
===== =====
Note 7 In 1997, the Financial Accounting Standards Board issued
Statement 128, "Earnings per Share." This statement
establishes a new standard for computing and presenting
earnings per share in financial statements. The Company
will adopt the new standard when it releases its fourth
quarter 1997 earnings; the impact of adoption of this
statement will not be material to the Company's results of
operations.
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 items from
the Consolidated Statements of Income as a percentage of net sales.
Three Months Ended
March 31,
1997 1996
-------- --------
Net sales 100.0% 100.0%
Cost of products sold 69.9 70.7
------ -----
GROSS INCOME 30.1 29.3
Selling, general and
administrative expenses 17.5 18.1
----- -----
OPERATING INCOME 12.6 11.2
Nonoperating expenses (income):
Interest expense 2.0 2.3
Other 0.7 -
----- -----
Net nonoperating expenses (income) 2.7 2.3
----- -----
INCOME BEFORE INCOME TAXES 9.9 8.9
Income taxes 3.9 3.5
----- -----
NET INCOME 6.0% 5.4%
===== =====
10
Three Months Ended March 31, 1997 vs. Three Months Ended March 31,
------------------------------------------------------------------
1996
----
Net sales for the first three months of 1997 were $629.4 million,
representing an increase of $11.2 million or 1.8% from $618.2 million
in the comparable quarter of 1996. The overall increase in net sales
was primarily attributable to contributions from the March 1997
acquisition of Rolodex and internal growth of 2%. Internal growth is
defined as growth from the Company's "core businesses," which include
continuing businesses owned more than two years and minor acquisitions
completed during the last two years. Net sales for each of the
Company's product groups (and the primary reasons for the increases)
were as follows, in millions:
Primary Reasons
1997 1996 % Change for Increases
-------- -------- -------- --------------
Home Furnishings $204.2 $203.4 0.4 Internal growth
of 1.2%, offset
partially by
Decorel/Holson
Burnes (acquired
September 1995/
January 1996)
integration into
Intercraft
Housewares 181.3 175.9 3.1 Internal growth
Office Products 150.2 145.7 3.1 March 1997 Rolodex
acquisition
Hardware & Tools 93.7 93.2 0.5 Internal growth
----- ----- ----
$629.4 $618.2 1.8%
===== ===== ====
Gross income as a percent of net sales in the first three months of
1997 was 30.1% or $189.3 million versus 29.3% or $181.3 million in the
comparable quarter of 1996. Gross margins improved as a result of
increased gross margins from several of the Company's core businesses.
Selling, general and administrative expenses ("SG&A") in the first
three months of 1997 were 17.5% of net sales or $110.0 million versus
18.1% or $111.8 million in the comparable quarter of 1996. The
decrease in spending was primarily attributable to cost savings
achieved as a result of the integration of Holson Burnes and Decorel
into the Intercraft picture frame business.
11
Operating income in the first three months of 1997 was 12.6% of net
sales or $79.3 million versus 11.2% or $69.5 million in the comparable
quarter of 1996. The increase was due to increased core business
gross margins and the integration of the picture frame businesses.
Net nonoperating expenses in the first three months of 1997 were 2.7%
of net sales or $16.8 million versus 2.3% or $14.2 million in the
comparable quarter of 1996. The $2.6 million increase was due
primarily to $2.1 million of lower dividend income. On October 15,
1996, Black & Decker exercised its option to convert the 150,000
shares of privately placed Black & Decker convertible preferred stock,
Series B, owned by the Company (purchased at a cost of $150.0 million)
into 6.4 million shares of Black & Decker common stock. Prior to
conversion, the preferred stock paid a 7.75% cumulative dividend,
aggregating $2.9 million per quarter, before the effect of income
taxes. If Black & Decker continues to pay dividends at the current
rate ($0.12 per share quarterly), the dividends paid to the Company in
1997 on the shares of Black & Decker common stock owned by the Company
as a result of the conversion are expected to total $0.8 million per
quarter, before the effect of income taxes.
For the first quarter in 1997 and 1996, the effective tax rate was
39.6% and 40.0%, respectively.
Net income for the first three months of 1997 was $37.8 million,
representing an increase of $4.6 million or 13.8% from the comparable
quarter of 1996. Earnings per share for the first three months of
1997 increased 14.3% to $0.24 versus $0.21 in the comparable quarter
of 1996. The increase in net income and earnings per share were
primarily attributable to an operating margin improvement in several
of the Company's core businesses and cost savings associated with the
picture frame integration. These increases were offset partially by
increased nonoperating expenses.
12
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; the primary uses of liquidity and capital resources
include capital expenditures, dividend payments and acquisitions.
Cash provided by operating activities was $42.2 million and $56.7
million for the three months ended March 31, 1997 and March 31, 1996,
respectively. This $14.5 million decrease was primarily due to the
reduction in inventory levels in the first quarter of 1996 which did
not recur in the first quarter of 1997.
Cash provided from financing activities totalled $89.5 million for the
three months ended March 31, 1997 and is primarily due to an increase
in long-term borrowings as a result of the Rolodex acquisition.
During 1996, the Company amended its revolving credit agreement with
23 banks to provide for a five-year $900.0 million agreement which
will terminate in June 2001. Under this agreement, the Company may
borrow, repay and reborrow funds in an aggregate amount up to $900.0
million, at a floating interest rate. At March 31, 1997, 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 $900.0 million of commercial paper. The
Company's revolving credit agreement provides the committed backup
liquidity required to issue commercial paper. Accordingly, commercial
paper may only be issued up to the amount available for borrowing
under the Company's revolving credit agreement. At March 31, 1997,
$532.0 million (face or principal amount) of commercial paper was
outstanding. The entire amount is classified as long-term debt.
At March 31, 1997, the Company had outstanding $295.0 million
(principal amount) of medium-term notes with maturities ranging from
five to ten years at an average rate of interest equal to 6.4%.
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, 1997, the
Company had not yet issued any securities under this registration
statement.
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, 1997 totalled $55.5 million.
13
USES:
Cash used in investing activities was $123.9 million and $46.8 million
for the three months ended March 31, 1997 and March 31, 1996,
respectively. In 1997, the Company acquired Rolodex for a total cash
purchase price of $117.6 million. In 1996, the Company acquired
Holson Burnes and completed other minor acquisitions for consideration
that included cash of $42.6 million. These acquisitions were
accounted for as purchases and were paid for with proceeds obtained
from the issuance of commercial paper, medium-term notes, notes
payable under the Company's lines of credit.
Capital expenditures were $15.4 million and $14.8 million in the first
three months of 1997 and 1996, respectively.
The Company has paid regular cash dividends on its common stock since
1947. On February 11, 1997, the quarterly cash dividend was increased
to $0.16 per share from the $0.14 per share that had been paid since
February 6, 1996. Prior to this date, a quarterly cash dividend of
$0.12 per share had been paid since May 11, 1995 which was an increase
from the $0.10 per share paid since May 12, 1994. Dividends paid were
$25.4 million and $22.2 million in the first three months of 1997 and
1996, respectively. This increase in paid dividends affected retained
earnings, which increased by $12.3 million and $11.0 million in the
first three months of 1997 and 1996, respectively.
Working capital at March 31, 1997 was $508.1 million compared to
$471.1 million at December 31, 1996. The current ratio at March 31,
1997 was 1.88:1 compared to 1.74:1 at December 31, 1996. Total debt
to total capitalization (net of cash and cash equivalents) was .37:1
at March 31, 1997 and .34:1 at December 31, 1996.
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 1. Legal Proceedings
-----------------
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 14 to the
Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
In February 1997, a subsidiary of the Company was named as the
defendant in another case involving the importation and distribution
of vinyl mini-blinds containing lead, which was filed as an Illinois and
national private class action in the Cook County, Chancery Division.
In this case, the plaintiffs alleged violations of the Illinois
Consumer Fraud and Deceptive Trade Practices Act and the Illinois
version of the Uniform Deceptive Trade Practices Act, breach of
implied warranty, fraud, negligent misrepresentation, negligence,
unjust enrichment, and reception and retention of money unlawfully
received. The plaintiffs seek injunctive relief, unspecified damages,
suit costs and punitive damages.
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.
15
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:
None
16
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 9, 1997 /s/ William T. Alldredge
------------------ ---------------------------------
William T. Alldredge
Vice President - Finance
Date May 9, 1997 /s/ Brett E. Gries
------------------ ---------------------------------
Brett E. Gries
Vice President - Accounting & Tax
17
[TYPE] EX-27
[DESCRIPTION] ART. 5 FDS FOR 1ST QUARTER 10-Q
[ARTICLE] 5
[LEGEND] This schedule contains summary financial
information extracted from the Newell Co.
and Subsidiaries Consolidated Balance
Sheets and Statements of Income and is
qualified in its entirety by reference to
such financial statements.
[MULTIPLIER] 1,000
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1997
[CASH] 5,698
[SECURITIES] 0
[RECEIVABLES] 369,465
[ALLOWANCES] (13,973)
[INVENTORY] 534,838
[CURRENT-ASSETS] 1,084,737
[PP&E] 915,530
[DEPRECIATION] (361,705)
[TOTAL-ASSETS] 3,099,817
[CURRENT-LIABILITIES] 576,647
[BONDS] 799,326
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 159,054
[OTHER-SE] 1,351,620
[TOTAL-LIABILITY-AND-EQUITY] 3,099,817
[SALES] 629,374
[TOTAL-REVENUES] 189,284
[CGS] 440,090
[TOTAL-COSTS] 550,048
[OTHER-EXPENSES] 16,805
[LOSS-PROVISION] 1,354
[INTEREST-EXPENSE] 12,785
[INCOME-PRETAX] 62,521
[INCOME-TAX] 24,758
[INCOME-CONTINUING] 37,763
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 37,763
[EPS-PRIMARY] 0.24
[EPS-DILUTED] 0.24
Allowances for doubtful accounts are reported as contra
accounts to accounts receivable. The corporate reserve for
bad debts is a percentage of trade receivables based on the
bad debts experienced in one or more past years, general
18
economic conditions, the age of the receivables and other
factors that indicate the element of uncollectibility in the
receivables outstanding at the end of the period.
See notes to consolidated financial statements.
19
