THIRD 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 September 30, 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 ______ No ______
Number of shares of Common Stock outstanding
as of October 20, 1997: 159,153,712
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 Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 889,863 $ 761,902 $2,320,199 $2,115,227
Cost of products sold 603,124 518,198 1,578,361 1,454,387
--------- --------- ---------- ----------
GROSS INCOME 286,739 243,704 741,838 660,840
Selling, general and
administrative expenses 120,588 105,349 348,517 324,540
------- ------- ------- -------
OPERATING INCOME 166,151 138,355 393,321 336,300
Nonoperating expenses:
Interest expense 24,410 14,746 52,515 43,664
Other, net 2,312 657 9,991 1,462
------ ------ ------ ------
Net nonoperating expenses 26,722 15,403 62,506 45,126
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 139,429 122,952 330,815 291,174
Income taxes 55,214 48,320 131,003 115,659
------- ------- ------- -------
NET INCOME $ 84,215 $ 74,632 $ 199,812 $ 175,515
======== ======== ========= =========
Earnings per share $ 0.53 $ 0.47 $ 1.26 $ 1.11
======== ======== ========= =========
Dividends per share $ 0.16 $ 0.14 $ 0.48 $ 0.42
======== ======== ========= =========
Weighted average shares outstanding 159,112 158,790 159,047 158,739
======== ======== ========= =========
See notes to consolidated financial statements.
3
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30, % of December 31, % of
1997 Total 1996 Total
------------- ----- ------------ ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20,789 0.5% $ 4,360 0.1%
Accounts receivable, net 554,575 14.0 404,170 13.4
Inventories, net 669,173 16.8 509,504 17.0
Deferred income taxes 90,827 2.3 121,152 4.0
Prepaid expenses and other 72,610 1.8 68,928 2.3
---------- ---- -------- ----
TOTAL CURRENT ASSETS 1,407,974 35.4 1,108,114 36.8
MARKETABLE EQUITY SECURITIES 292,871 7.4 240,789 8.0
OTHER LONG-TERM INVESTMENTS 49,552 1.2 58,703 2.0
OTHER ASSETS 125,288 3.2 119,168 4.0
PROPERTY, PLANT AND EQUIPMENT, NET 680,378 17.1 555,434 18.5
TRADE NAMES AND GOODWILL 1,420,672 35.7 922,846 30.7
--------- ---- ------- ----
TOTAL ASSETS $3,976,735 100.0% $3,005,054 100.0%
========= ===== ========= =====
See notes to consolidated financial statements.
4
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
September 30, % of December 31, % of
1997 Total 1996 Total
------------- ----- ------------ -----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 81,646 2.1% $ 70,877 2.4%
Accounts payable 117,009 2.9 105,333 3.5
Accrued compensation 70,798 1.8 65,632 2.2
Other accrued liabilities 410,135 10.3 324,719 10.8
Income taxes 4,810 0.1 37,209 1.2
Current portion of long-term debt 15,181 0.4 33,243 1.1
--------- ---- -------- ----
TOTAL CURRENT LIABILITIES 699,579 17.6 637,013 21.2
LONG-TERM DEBT 1,349,809 33.9 672,033 22.4
OTHER NONCURRENT LIABILITIES 192,125 4.8 156,691 5.2
DEFERRED INCOME TAXES 83,079 2.1 47,477 1.6
MINORITY INTEREST 8,340 0.2 - -
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
400.0 million at $1 par value; 159,133 4.0 158,871 5.3
Outstanding shares:
1997 - 159.1 million
1996 - 158.9 million
Additional paid-in capital 201,725 5.1 197,889 6.6
Retained earnings 1,229,624 30.9 1,106,146 36.8
Net unrealized gain on securities
available for sale 70,230 1.8 36,595 1.2
Cumulative translation adjustment (16,909) (0.4) (7,661) (0.3)
--------- ----- ---------- -----
TOTAL STOCKHOLDERS' EQUITY 1,643,803 41.4 1,491,840 49.6
---------- ----- ---------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,976,735 100.0% $3,005,054 100.0%
========= ===== ========= =====
See notes to consolidated financial statements.
5
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Nine Months Ended
September 30,
--------------------------
1997 1996
----- ----
OPERATING ACTIVITIES:
Net Income $ 199,812 $ 175,515
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 92,864 86,974
Deferred income taxes 30,216 31,882
Net gain on marketable securities (2,853) -
Investment write-off - 1,339
Other (4,318) (5,270)
Changes in Current Accounts, excluding the
effects of acquisitions:
Accounts receivable (26,986) (48,550)
Inventories (25,399) 9,407
Other current assets 12,259 (17,312)
Accounts payable (32,058) (26,119)
Accrued liabilities and other (32,356) (12,309)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 211,181 195,557
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net (695,429) (45,650)
Expenditures for property, plant and equipment (48,272) (54,157)
Sale of marketable securities 6,389 -
Disposals of noncurrent assets and other (26,385) (4,045)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (763,697) (103,852)
-------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 706,277 92,744
Proceeds from exercised stock options and other 4,098 6,163
Payments on notes payable and long-term debt (55,848) (123,166)
Cash dividends (76,334) (66,666)
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 578,193 (90,925)
------- --------
EXCHANGE RATE EFFECT ON CASH (9,248) (7,348)
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,429 (6,568)
Cash and cash equivalents at beginning of year 4,360 58,771
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,789 $ 52,203
======== ========
Supplemental cash flow disclosures:
Cash paid during the period for -
Income taxes $ 94,517 $ 70,917
Interest 55,553 45,073
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 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. On March 5, 1997, the
Company purchased Insilco Corporation's Rolodex business
("Rolodex"), a marketer of office products including card
files, personal organizers and paper punches. 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. On June 13, 1997,
the Company acquired Rubbermaid Incorporated's office
products business, including the Eldon(R) 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. For these and other minor acquisitions, the
Company paid $767.2 million in cash and assumed $59.9
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
$583.2 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
nine months ended September 30, 1997 and 1996 on a pro forma
basis, as though the Holson Burnes, Rolodex, Kirsch and
Eldon businesses had been acquired on January 1, 1996, are
as follows:
7
Nine Months Ended September 30,
1997 1996
---- ----
(In millions, except per share amounts)
Net sales $2,539.3 $2,548.3
Net income 194.7 170.7
Earnings per share 1.22 1.08
Note 3 - The components of inventories at the end of each period, net
of the LIFO reserve, were as follows:
September 30, December 31,
1997 1996
------------- ------------
(In millions)
Materials and supplies $154.7 $124.5
Work in process 119.3 87.9
Finished products 395.2 297.1
------ ------
$669.2 $509.5
====== ======
Note 4 - 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 the end of each period are
summarized as follows:
September 30, December 31,
1997 1996
------------- ------------
(In millions)
Aggregate market value $292.9 $240.8
Aggregate cost 176.8 180.3
------ ------
Unrealized gain $116.1 $ 60.5
====== ======
Note 5 - Property, plant and equipment at the end of each period
consisted of the following:
September 30, December 31,
1997 1996
------------- -------------
(In millions)
Land $ 34.3 $ 21.1
Buildings and improvements 268.9 206.9
Machinery and equipment 780.8 699.6
-------- ------
1,084.0 927.6
Allowance for depreciation (403.6) (372.2)
-------- ------
$ 680.4 $ 555.4
======== =======
8
Note 6 - Commercial paper in the amount of $1.1 billion at September
30, 1997 was classified as long-term since it is supported
by the 5-year $1.3 billion revolving credit agreement.
Long-term debt at the end of each period consisted of the
following:
September 30, December 31,
1997 1996
------------ ------------
(In millions)
Medium-term notes $ 263.0 $295.0
Commercial paper 1,082.6 404.0
Other long-term debt 19.4 6.2
-------- ------
1,365.0 705.2
Current portion (15.2) (33.2)
-------- -------
$1,349.8 $672.0
======== ======
Note 7 - Minority Interest represents the minority stockholders'
proportionate share of the equity of Acrimo AB, a Swedish
corporation ("Acrimo"). The Company acquired a controlling
interest in Acrimo on May 30, 1997 as a result of the
acquisition of Kirsch. At September 30, 1997, the Company
held approximately 76% of the capital stock of Acrimo.
Acrimo is one of Europe's leading manufacturers of drapery
hardware and markets a wide range of window furnishing
products including curtain rods, roller blinds and venetian
blinds. The Company has included the operating results of
Acrimo since May 30, 1997. The minority stockholders'
proportionate share in Acrimo's net income after May 30,
1997 is included in the nonoperating expense section of the
1997 Consolidated Statements of Income for the three months
and nine months ended September 30, 1997.
Note 8 - The Company has only limited involvement with derivative
financial instruments and does not use them for trading
purposes. They are used to manage certain interest rate and
foreign currency risks.
Interest rate swap agreements are utilized to convert
certain floating rate debt instruments into fixed rate debt.
Premiums paid related to interest rate swap agreements are
amortized into interest expense over the terms of the
agreements. As of September 30, 1997, the Company did not
have any interest rate swaps outstanding.
The Company uses forward exchange contracts to hedge certain
purchase commitments denominated in currencies other than
the domestic currency. Unamortized premiums are included in
other assets in the consolidated balance sheets. Gains and
losses relating to qualifying hedges of firm commitments are
deferred and are recognized in income as adjustments of
carrying amounts when the hedged transaction occurs.
9
The Company does not obtain collateral or other security to
support financial instruments subject to credit risk but
monitors the credit standing of the counterparties.
Note 9 - 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.
10
PART I. Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Results of Operations
---------------------
The following table sets forth for the periods indicated items from the
Consolidated Statements of Income as a percentage of net sales.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 67.8 68.0 68.0 68.8
----- ----- ----- -----
GROSS INCOME 32.2 32.0 32.0 31.2
Selling, general and
administrative expenses 13.5 13.8 15.0 15.3
----- ----- ----- -----
OPERATING INCOME 18.7 18.2 17.0 15.9
Nonoperating expenses (income):
Interest expense 2.7 2.0 2.3 2.1
Other 0.3 0.1 0.4 -
----- ----- ----- ----
Net nonoperating expenses (income) 3.0 2.1 2.7 2.1
----- ----- ----- ----
INCOME BEFORE INCOME TAXES 15.7 16.1 14.3 13.8
Income taxes 6.2 6.3 5.7 5.5
----- ----- ----- ----
NET INCOME 9.5% 9.8% 8.6% 8.3%
===== ===== ===== =====
11
Three Months Ended September 30, 1997 vs. Three Months Ended
September 30, 1996
- ------------------------------------------------------------
Net sales for the third quarter of 1997 were $889.9 million,
representing an increase of $128.0 million or 16.8% from $761.9
million in the comparable quarter of 1996. 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 back-to-school shipments at the
Company's core office products businesses. As of September 30,
1997, the Company began to present sales information for its
various product categories in three groups rather than four groups.
The Company's three product groups are Hardware and Home Furnishings,
Office Products and Housewares. The Company believes that this
presentation is more appropriate, because (i) it generally organizes
its product categories into these groups when making operating
decisions and assessing performance, and (ii) the Company divisions
included in each group 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). For ease of
comparison with previously published data, certain information
below is also included separately for Hardware and Home Furnishings
which now comprise a single product group. Net sales for each of
the Company's product groups (and the primary reasons for the
increase or decrease) were as follows, in millions:
Primary
Reasons for
1997 1996 % Change for Increase/Decrease
---- ---- -------- ---------------------
Hardware and Home Furnishings
Home Furnishings $309.0 $234.8
Hardware and Tools 99.2 99.7
------ ------
$408.2 $334.5 22.0% Kirsch (May 1997)
acquisitions and 1%
internal growth*
Office Products 267.8 209.0 28.1% 6% internal growth
and Rolodex (March
1997) and Eldon
(June 1997)
acquisitions
Housewares 213.9 218.4 (2.1)% Internal sales decline
------ ------ -----
$889.9 $761.9 16.8%
====== ====== ====
* The Company defines internal growth as growth from the core
businesses, which include continuing businesses owned more than two
years and minor acquisitions.
12
Gross income as a percent of net sales in the third quarter of 1997
was 32.2% or $286.7 million versus 32.0% or $243.7 million in the
comparable quarter of 1996. Gross margins improved as a result of
cost savings achieved through the integration of Holson Burnes and
Decorel into the Intercraft picture frame business, profitability
improvement at the Company's Levolor Home Fashions division and
increased gross margins at several of the Company's other core
businesses. The increase in gross margins was offset partially by
1997 acquisitions, which had gross margins 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 third
quarter of 1997 were 13.6% of net sales or $120.6 million versus
13.8% or $105.3 million in the comparable quarter of 1996. SG&A as a
percent of sales was lower in 1997 as a result of core business SG&A
expense being slightly lower in 1997 and spending levels decreasing at
Decorel and Holson Burnes as a result of their integration into
Intercraft. This decrease as a percent of sales was offset partially
by the 1997 acquisitions, which had higher SG&A than the Company's
average SG&A as a percent of net sales. As these acquisitions are
integrated, the Company expects their SG&A spending as a percentage
of net sales to decline.
Operating income in the third quarter of 1997 was 18.7% of net sales
or $166.2 million versus 18.2% or $138.4 million in the comparable
quarter of 1996. The increase in operating margins was primarily due
to cost savings as a result of the picture frame business integration,
profitability improvement at the Company's Levolor Home Fashions division
and increased core business gross margins, offset partially by 1997
acquisitions, which had average operating margins lower than the Company's
average operating margins.
Net nonoperating expenses in the third quarter of 1997 were 3.0% of
net sales or $26.7 million versus 2.0% or $15.4 million in the
comparable quarter of 1996. The $11.3 million increase was due
primarily to a $9.7 million increase in interest expense and $3.4
million increase in goodwill amortization, primarily a result of the
1997 acquisitions, and a $2.3 million decrease in dividend income.
This was partially offset by a $2.9 million gain resulting from the
sale of stock of another company. On October 15, 1996, Black & Decker
Corporation ("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 would total $0.8 million
per quarter, before the effect of income taxes.
For the third quarters of 1997 and 1996, the effective tax rate was
39.6% and 39.3%, respectively.
Net income for the third quarter of 1997 was $84.2 million,
representing an increase of $9.6 million or 12.8% from the comparable
quarter of 1996. Earnings per share for the third quarter of 1997
13
increased 12.8% to $0.53 versus $0.47 in the comparable quarter of
1996. The increases in net income and earnings per share were
primarily attributable to cost savings associated with the picture
frame business integration, profitability improvement at the Company's
Levolor Home Fashions division, and increased core business operating
margins.
Nine Months Ended September 30, 1997 vs. Nine Months
Ended September 30, 1996
- ----------------------------------------------------
Net sales for the first nine months of 1997 were $2,320.2 million,
representing an increase of $205.0 million or 9.7% from $2,115.2
million in the comparable period of 1996. The overall increase in net
sales was primarily attributable to contributions from the Rolodex,
Kirsch and Eldon acquisitions and strong back-to-school shipments at
the Company's core office products businesses. 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
---- ---- -------- ---------------
Hardware and Home Furnishings
Home Furnishings $ 748.0 $ 656.9
Hardware and Tools 297.8 294.9
-------- --------
$1,045.8 $ 951.8 9.9% Kirsch (May 1997)
acquisition
Office Products 684.4 579.1 18.2% 8% internal growth
and Rolodex (March
1997) and Eldon
(June 1997)
acquisitions
Housewares 590.0 584.3 1.0% Internal growth
-------- --------
$2,320.2 $2,115.2 9.7%
======== ======== ===
Gross income as a percent of net sales in the first nine months of
1997 was 32.0% or $741.8 million versus 31.2% or $660.8 million in the
comparable period of 1996. Gross margins improved as a result of cost
savings achieved through the integration of several picture frame businesses
acquired by the Company in recent years, profitability improvement at
the Company's Levolor Home Fashions division and increased gross
margins at several of the Company's other core businesses. The
increase in gross margins was offset partially by 1997 acquisitions,
which had gross margins lower than the Company's average gross margins.
As these acquisitions are integrated, the Company expects their gross
margins to improve.
SG&A in the first nine months of 1997 were 15.0% of net sales or
$348.5 million versus 15.3% or $324.5 million in the comparable period
of 1996. SG&A as a percent of sales was lower in 1997 as a result of
core business SG&A expense being slightly lower in 1997 and spending
levels decreasing as a result of the picture frame business integration.
This decrease as a percent of sales was offset partially by the 1997
14
acquisitions, which had SG&A higher than the Company's average SG&A as a
percent of net sales. As SG&A acquisitions are integrated, the Company
expects their SG&A spending as a percentage of net sales to decline.
Operating income in the first nine months of 1997 was 17.0% of net
sales or $393.3 million versus 15.9% or $336.3 million in the
comparable period of 1996. The increase in operating margins was
primarily due to cost savings as a result of the picture frame
business integration, profitability improvement at the Company's Levolor
Home Fashions division and increased core business gross margins, offset
partially by operating margins of the 1997 acquisitions which were
lower than the Company's average operating margins.
Net nonoperating expenses in the first nine months of 1997 were 2.7%
of net sales or $62.5 million versus 2.1% or $45.1 million in the
comparable period of 1996. The $17.4 million increase was due
primarily to a $8.9 million increase in interest expense and $5.2
million increase in goodwill amortization, primarily due to the 1997
acquisitions, and a $6.5 million decrease in dividend income. This
was partially offset by a $2.9 million gain resulting from the sale of
stock of another company in 1997 and a $1.3 million write-off of an
intangible asset.
For this nine month period in 1997 and 1996, the effective tax rate
was 39.6% and 39.7%, respectively.
Net income for the first nine months of 1997 was $199.8 million,
representing an increase of $24.3 million or 13.8% from the comparable
period of 1996. Earnings per share for the first nine months of 1997
increased 13.5% to $1.26 versus $1.11 for the comparable period of
1996. The increases in net income and earnings per share were
primarily attributable to cost savings associated with the picture
frame business integration, profitability improvement at the Company's
Levolor Home Fashions division and increased operating margins at several
of the Company's other core businesses.
15
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 for the nine months ended
September 30, 1997 was $211.2 million, reprsenting an increase from
$195.6 million for the comparable period in 1996, primarily due to
an increase in net income.
Cash provided by financing activities totalled $578.2 million for the
nine months ended September 30, 1997, primarily due to an increase in
long-term borrowings as a result of the Rolodex, Kirsch and Eldon
acquisitions, in addition to other minor acquisitions.
The Company has short-term foreign and domestic uncommitted lines of
credit with various banks which are available for short-term
financing. Borrowings under the Company's uncommitted lines of credit
are subject to discretion of the lender. The Company's uncommitted
lines of credit do not have a material impact on the Company's
liquidity. Borrowings under the Company's uncommitted lines of credit
at September 30, 1997 totalled $81.6 million.
During 1997, the Company amended and restated its revolving credit
agreement to provide for a $1.3 billion agreement which will terminate
in August 2002. Under this agreement, the Company may borrow, repay
and reborrow funds in an aggregate amount up to $1.3 billion, at a
floating interest rate. At September 30, 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 $1.3 billion of commercial paper. The
Company's revolving credit agreement provides the committed backup
liquidity required to issue commercial paper. Accordingly, commercial
paper may only be issued up to the amount available for borrowing
under the Company's revolving credit agreement. At September 30,
1997, $1,082.6 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 September 30, 1997, the
Company had not yet issued any securities under that registration
statement.
At September 30, 1997, 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 rate of interest equal to 6.3%.
16
USES:
The primary uses of liquidity and capital resources include
acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $695.4 million and $45.7 million
for the nine months ended September 30, 1997 and 1996, respectively.
In 1997, the Company acquired Rolodex, Kirsch and Eldon and made other
minor acquisitions for cash purchase prices totaling $724.6 million.
In 1996, the Company acquired Holson Burnes and completed other minor
acquisitions for consideration that included cash of $42.6 million.
The 1997 and 1996 acquisitions were accounted for as purchases and
were paid for with proceeds obtained from the issuance of commercial
paper, medium-term notes, and notes payable under the Company's lines
of credit.
Capital expenditures were $48.3 million and $54.2 million in the first
nine 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 $76.3 million and $66.7 million in the first nine months
of 1997 and 1996, respectively. Retained earnings increased by
$123.5 million and $108.9 million in the first nine months of 1997 and
1996, respectively.
Working capital at September 30, 1997 was $708.4 million compared to
$471.1 million at December 31, 1996. The increase is primarily the
result of higher receivables and inventory balances due to the 1997
acquisitions. The current ratio at September 30, 1997 was 2.01:1
compared to 1.74:1 at December 31, 1996. Total debt to total
capitalization (net of cash and cash equivalents) was .46:1 at
September 30, 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.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
As of September 30, 1997, the Company was involved in various
matters concerning federal and state environmental laws and
regulations, including 35 matters in which they have been
identified by the U.S. Environmental Protection Agency and
certain state environmental agencies as potentially responsible
parties ("PRPs") at hazardous waste disposal sites under the
Comprehensive Environmental Response, Compensation and Liability
Act ("Superfund") and equivalent state laws. In assessing its
remediation costs, the Company has considered several factors,
including: the extent of the Company's volumetric contribution at
each site relative to that of other PRPs; the kind of waste;
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
environmental remediation; 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 are disputed. Based on information
available to it, the Company's estimate of remediation costs
associated with these matters as of September 30, 1997 ranged
between $16.7 million and $24.0 million. As of September 30,
1997, the Company had a reserve equal to $20.0 million for such
remediation 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 assessment and
remediation activities, the possibility that sites could be
identified in the future that require environmental remediation
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.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
12 Statement of Computation of Ratio of
Earnings to Fixed Charges
27 Financial Data Schedule
b) Reports on Form 8-K:
None
18
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 November 7, 1997 /s/ William T. Alldredge
--------------- ---------------------------
William T. Alldredge
Vice President - Finance
Date November 7, 1997 /s/ Brett E. Gries
---------------- ----------------------------
Brett E. Gries
Vice President -
Accounting & Tax
19
EXHIBIT 12
NEWELL CO. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio data)
-----------------------------------
Y-T-D THROUGH FOR THE TWELVE MONTHS ENDED DECEMBER 31,
DESCRIPTION SEPT. 30, 1997 1996 1995 1994 1993
----------- -------------- ---- ---- ---- ----
Earnings available to
fixed charges:
Income before income taxes $330,815 $424,634 $370,785 $329,292 $275,556
Fixed charges -
Interest expense 52,515 56,989 49,812 29,970 19,062
Portion of rent determined
to be interest (1) 14,483 14,855 12,634 10,494 8,580
Eliminate equity in earnings (4,318) (6,364) (5,993) (5,661) (3,811)
------- ------ ------- ------- -------
$393,495 $490,114 $427,238 $364,095 $299,387
======= ======= ======= ======= =======
Fixed charges:
Interest expense $ 52,515 $ 56,989 $ 49,812 $ 29,970 $ 19,062
Portion of rent determined
to be interest (1) 14,483 14,855 12,634 10,494 8,580
------- ------- ------- ------- -------
$ 66,998 $ 71,844 $ 62,446 $ 40,464 $ 27,642
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 5.87 6.82 6.84 9.00 10.83
======= ======= ======= ======= =======
(1) A 40% ratio of gross rent expense was deemed to approximate the
interest portion of short-term and long-term leases; it
represents the debt to equity target. A ratio of 33% was used
prior to 1997.
5
