UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 30, 1999
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NEWELL RUBBERMAID INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-9608 36-3514169
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
29 East Stephenson Street, Freeport, Illinois 61032-0943
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (815) 235-4171
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2
ITEM 5. OTHER EVENTS.
On March 24, 1999, pursuant to an Agreement and Plan of Merger,
dated October 20, 1998, by and among Newell Co., a Delaware corporation
("Newell"), Rubbermaid Incorporated, an Ohio corporation ("Rubbermaid"),
Rooster Company, an Ohio corporation and a wholly owned subsidiary of
Newell ("Merger Sub"), Newell acquired all of the outstanding capital
stock of Rubbermaid through the merger of Merger Sub with and into
Rubbermaid, with Rubbermaid surviving as a wholly owned subsidiary of
Newell. The merger was previously reported on Newell's Current Report
on Form 8-K Filed with the Securities and Exchange Commission on March
25, 1999.
Newell is filing herewith Exhibit 11.1 (Restated Computation of
Earnings Per Share of Common Stock), Exhibit 12.1 (Restated Statement
of Computation of Ratio of Earnings to Fixed Charges), and Exhibit 21.1
(Significant Subsidiaries), each restated to reflect the Rubbermaid
merger.
Newell is filing herewith as Exhibit 99.1 the Selected Financial
Data, Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Consolidated Financial Statements of Newell,
each restated to reflect the Rubbermaid Merger, which was accounted for
under the pooling of interests method of accounting. The Consolidated
Financial Statements of Newell are restated for periods prior to the
date of the Rubbermaid merger.
Newell is filing herewith as Exhibit 99.2 the Independent
Auditors' Report of KPMG LLP regarding the audited Consolidated
Financial Statements of Rubbermaid Incorporated and its subsidiaries
for the Years Ended January 1, 1999, December 31, 1997 and December
31, 1996.
Newell is lastly filing herewith as Exhibit 99.3 the current Newell
Safe Harbor Statement for Forward-Looking Statements.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
11.1 Newell Restated Computation of Earnings Per Share of
Common Stock
12.1 Newell Restated Statement of Computation of Ratio of
Earnings to Fixed Charges
21.1 Newell Significant Subsidiaries
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
27.1 Newell Restated Financial Data Schedule for the Year
Ended December 31, 1998.
27.2 Newell Restated Financial Data Schedule for the Year
Ended December 31, 1997.
3
27.3 Newell Restated Financial Data Schedule for the Year
Ended December 31, 1996.
99.1 Newell Restated Selected Financial Data, Management's
Discussion and Analysis of Financial Condition and
Results of Operations, and Consolidated Financial
Statements for the Years Ended December 31, 1998,
December 31, 1997 and December 31, 1996.
99.2 Independent Auditors' Report of KPMG LLP regarding
the audited Consolidated Financial Statements of
Rubbermaid Incorporated and its subsidiaries for the
Years Ended January 1, 1999, December 31, 1997 and
December 31, 1996.
99.3 Newell Safe Harbor Statement for Forward-Looking
Statements.
4
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 hereunto duly authorized.
NEWELL RUBBERMAID INC.
(Registrant)
/s/ Dale L. Matschullat
Date: June 30, 1999 By: -----------------------------------
Dale L. Matschullat
Vice President -- General Counsel
5
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
11.1 Newell Restated Computation of Earnings Per Share of
Common Stock
12.1 Newell Restated Statement of Computation of Ratio of
Earnings to Fixed Charges
21.1 Newell Significant Subsidiaries
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
27.1 Newell Restated Financial Data Schedule for the Year
Ended December 31, 1998.
27.2 Newell Restated Financial Data Schedule for the Year
Ended December 31, 1997.
27.3 Newell Restated Financial Data Schedule for the Year
Ended December 31, 1996.
99.1 Newell Restated Selected Financial Data, Management's
Discussion and Analysis of Financial Condition and
Results of Operations, and Consolidated Financial
Statements for the Years Ended December 31, 1998,
December 31, 1997 and December 31, 1996.
99.2 Independent Auditors' Report of KPMG LLP regarding
the audited Consolidated Financial Statements of
Rubbermaid Incorporated and its subsidiaries for the
Years Ended January 1, 1999, December 31, 1997 and
December 31, 1996.
99.3 Newell Safe Harbor Statement for Forward-Looking
Statements.
EXHIBIT 11.1
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
-------------------------------------------------
Year Ended December 31,
-----------------------
1998* 1997* 1996*
---- ---- ----
(In thousands, except per share data)
Basic earnings per share:
Net income $481,834 $321,617 $411,440
Weighted average shares outstanding 280,731 280,300 280,894
Basic earnings per share: $1.72 $1.15 $1.46
Diluted earnings per share:
Net income $481,834 $321,617 $411,440
Minority interest in income of subsidiary trust, net of tax 15,742 807 0
-------- -------- --------
Net income, assuming conversion of all
applicable securities $497,576 $322,424 $411,440
Weighted average shares outstanding 280,731 280,300 280,894
Incremental common shares applicable to common stock
options based on the average market price during the period 1,287 839 588
Average common shares issuable assuming conversion of the
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust 9,865 514 0
-------- -------- --------
Weighted average shares outstanding assuming full dilution 291,883 281,653 281,482
Diluted earnings per share, assuming conversion of all
applicable securities $1.70 $1.14 $1.46
* Restated for the merger with Rubbermaid Incorporated on March 24, 1999,
which was accounted for as a pooling of interests.
EXHIBIT 12.1
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
---------------------------------------
For The Year Ended December 31,
-------------------------------
1998* 1997* 1996* 1995* 1994*
---- ---- ---- ---- ----
(In thousands, except ratio data)
Earnings available to fixed charges:
Income before income taxes $816,973 $544,590 $673,312 $472,786 $705,583
Fixed charges -
Interest expense 100,514 114,357 84,822 65,125 38,633
Portion of rent determined
to be interest (1) 21,016 19,636 17,561 15,340 13,200
Minority interest in income
of subsidiary trust 26,692 1,528 0 0 0
Eliminate equity in earnings (7,127) (5,831) (6,364) (5,993) (5,661)
-------- -------- -------- -------- --------
$958,068 $674,280 $769,331 $547,258 $751,755
======== ======== ======== ======== ========
Fixed charges:
Interest expense $100,514 $ 114,357 $ 84,822 $ 65,125 $ 38,633
Portion of rent determined
to be interest (1) 21,016 19,636 17,561 15,340 13,200
Minority interest in income
of subsidiary trust 26,692 1,528 0 0 0
-------- --------- --------- -------- --------
$148,222 $ 135,521 $ 102,383 $ 80,465 $ 51,833
======== ========= ========= ======== ========
Ratio of earnings to
fixed charges 6.46 4.98 7.51 6.80 14.50
======== ========= ========= ======== ========
(1) A standard ratio of 33% was applied to gross rent expense to
approximate the interest portion of short-term and long-term leases.
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES
------------------------
NAME OWNERSHIP
Intercraft Company Delaware 100% of stock owned by
Newell Rubbermaid Inc.
Newell Investments Delaware 100% of stock owned by
Inc. Newell Operating
Company
Newell Operating Delaware 77.5% of stock owned
Company by Newell Rubbermaid Inc.;
22.5% of stock owned by
Anchor Hocking Corporation
Rubbermaid
Incorporated Ohio 100% of stock owned by
Newell Rubbermaid Inc.
Rubbermaid Texas Texas Rubbermaid Incorporated is
Limited Partnership (limited the general partner and
partnership) Rubfinco Inc. is the limited
partner
Sanford, L.P. Illinois (limited Newell Operating
partnership) Company is the general
partner and Sanford
Investment Company is
the limited partner
EXHIBIT 23.1
[ARTHUR ANDERSEN LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our report dated March 24, 1999 included in Form
8-K, into the Company's previously filed Form S-8 Registration
Statements (File Nos. 33-24447, 33-25196, 33-40641, 33-67632, 33-62047,
333-38621 and 333-74925), Form S-3 Registration Statements (File Nos.
33-46208, 33-64225, 333-47261, 333-53039, 333-74927 and 333-74929),
Form S-4 (File No. 333-71747), Post-Effective Amendment No. 1 on Form S-8
to Form S-4 Registration Statement (File No. 33-44957) and Post-Effective
Amendments No. 1 on Form S-3 and No. 2 on Form S-8 to Form S-4 Registration
Statement (File No. 333-71747).
/s/ ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
June 29, 1999
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Newell Rubbermaid Inc.:
We consent to the incorporation by reference in Newell Rubbermaid
Inc.'s (formerly named Newell Co.) previously filed Form S-8
Registration Statements (File Nos. 33-24447, 33-25196, 33-40641,
33-62047, 33-67632, 333-38621, and 333-74925), and Form S-3 Registration
Statements (File Nos. 33-46208, 33-64225, 333-47261, 333-53039,
333-74927 and 333-74929), Form S-4 (File No. 333-71747), Post-Effective
Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (File
No. 33-44957) and Post Effective Amendments No. 1 on Form S-3 and No. 2
on Form S-8 to Form S-4 Registration Statement (File No. 333-71747), of
our report dated February 5, 1999, except as to Note 15, which is
as of March 24, 1999, with respect to the consolidated balance sheets
of Rubbermaid Incorporated and subsidiaries as of January 1, 1999,
and December 31, 1997 and 1996, and the related consolidated
statements of earnings, shareholder's equity and comprehensive income,
and cash flows for each of the years in the three-year period ended
January 1, 1999.
/s/ KPMG LLP
Cleveland, Ohio
June 28, 1999
5
5
5
EXHIBIT 99.1
Item 6. Selected Financial Matters
--------------------------
The following is a summary of certain consolidated financial
information relating to the Company at December 31. The summary has
been derived in part from, and should be read in conjunction with, the
consolidated financial statements of the Company included elsewhere in
this report and the schedules thereto.
1998* 1997* 1996* 1995* 1994*
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net sales $6,183,674 $5,641,441 $5,233,930 $4,837,953 $4,262,236
Cost of products sold 4,360,860 4,005,958 3,669,559 3,432,132 2,903,169
---------- --------- ----------- ---------- ----------
Gross income 1,822,814 1,635,483 1,564,371 1,405,821 1,359,067
Selling, general
and administrative expenses 967,916 838,877 798,877 708,242 634,159
Restructuring costs 115,154 37,200 - 158,000 -
Trade names and goodwill
amortization and other 59,405 119,743 30,487 23,964 18,897
---------- -------- --------- --------- ----------
Operating income 680,339 639,663 735,007 515,615 706,011
Non-operating (income) expenses:
Interest expense 100,514 114,357 84,822 65,125 38,633
Other, net (237,148) (19,284) (23,127) (22,296) (38,205)
---------- -------- --------- --------- ----------
Net (136,634) 95,073 61,695 42,829 428
---------- -------- --------- --------- ----------
Income before income taxes 816,973 544,590 673,312 472,786 705,583
Income taxes 335,139 222,973 261,872 186,539 276,166
---------- -------- --------- --------- ----------
Net income $ 481,834 $ 321,617 $ 411,440 $ 286,247 $ 429,417
========== ======== ========= ========= ==========
Earnings Per Share
Basic $ 1.72 $ 1.15 $ 1.46 $ 1.00 $ 1.49
Diluted $ 1.70 $ 1.14 $ 1.46 $ 1.00 $ 1.49
Dividends per share $ 0.76 $ 0.70 $ 0.63 $ 0.55 $ 0.48
Weighted Average Shares Outstanding
Basic 280,731 280,300 280,894 286,461 287,700
Diluted 291,883 281,653 281,482 286,779 287,926
15
1998* 1997* 1996* 1995* 1994*
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA
Inventories $1,033,488 $ 902,978 $ 801,255 $ 769,762 $ 722,027
Working capital 1,278,768 1,006,624 953,890 899,158 772,661
Total assets 6,289,155 5,775,248 5,112,410 4,656,718 4,226,960
Short-term debt 101,968 258,201 154,555 287,546 332,947
Long-term debt, net of
current maturities 1,393,865 989,694 1,197,486 782,744 435,551
Stockholders' equity 2,843,732 2,661,417 2,513,722 2,436,958 2,412,767
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
Acquisitions and Divestitures
-----------------------------
1994
----
In April 1994, the Company completed a joint venture with
Richell Corporation, a leading Japanese housewares manufacturer.
The joint venture, Rubbermaid Japan Inc., develops, markets and
sells housewares, leisure and specialty products for the Japanese
market. The Company initially held a 40% equity interest
in the venture and in October 1994, exercised an option to increase
its equity interest to 51%.
In May 1994, the Company sold its 40% interest in the Curver/
Rubbermaid European houseware joint venture to DSM who held the
remaining 60% share.
In June 1994, the Company acquired Carex Inc., a manufacturer and
marketer of bath safety products, personal care accessories and other
products for the aging and physically challenged, and Empire Brushes,
Inc., a manufacturer and marketer of brushes, brooms and mops for
home and commercial use.
In August 1994, the Company acquired the assets of the
decorative window coverings business of Home Fashions, Inc. ("HFI"),
including vertical blinds and pleated shades sold under the Del Mar{R}
and LouverDrape{R} brand names. HFI was combined with Levolor and
together they are operated as a single entity called Levolor Home
Fashions.
In September 1994, the Company sold its casual outdoor resin
furniture business. In October 1994, the Company acquired
Faber-Castell Corporation ("Faber"), a maker and marketer of markers
and writing instruments, including wood-cased pencils and rolling
ball pens, sold under the Eberhard Faber{R} brand name. Faber was
combined with Sanford and together they are operated as a single entity
called Sanford North America. In October 1994, the Company acquired
the assets of Glenwood Systems Pty., Ltd. and related companies,
well-known in Australia as Ausplay, an innovative designer and marketer
of high-quality commercial playground equipment.
In November 1994, the Company sold the assets of the Davson
Division of Rubbermaid Office Products. In November 1994, the
Company acquired the European consumer products business of Corning
Incorporated (now known as "Newell Europe"). This acquisition
included Corning's consumer products manufacturing facilities in
England, France and Germany, the product lines and right to use the
foreign registered trademarks Pyrex{R}, Pyroflam{TM} and Visions{TM}
brands in Europe, the Middle East and Africa, and Corning's consumer
distribution network throughout these areas under exclusive license
16
from Corning Incorporated. Additionally, the Company became the
distributor in Europe, the Middle East and Africa for Corning's U.S.
manufactured cookware and dinnerware brands.
These acquisitions were accounted for as purchases; therefore,
results of operations are included in the accompanying consolidated
financial statements since their respective dates of acquisition.
1995
----
During 1995, the Company acquired Injectaplastic, S.A., a leading
manufacturer and marketer of plastic housewares, seasonal products and
bath accessories in France; PAR-REC Holdings, Inc., a Canadian
manufacturer of commercial play systems; Decor Concepts, Inc., better
known as Omni, an innovative leader in design and manufacture of
contained soft play systems; and Dom-Plast S.A., the leading
manufacturer and marketer of plastic housewares in Poland.
In January 1995, the Company formed Royal Rubbermaid Structures
Ltd., a joint venture with Royal Plastics Group Limited of Canada, for
the manufacture and marketing of modular plastic components and kits for
small structures, such as storage buildings and sheds. Each partner
entered into this agreement with a 50% share in the joint venture,
accounted for by the equity method.
In October 1995, the Company acquired Decorel Incorporated
("Decorel"), a manufacturer and marketer of ready-made picture frames.
Decorel was combined with Intercraft.
In November 1995, the Company acquired Berol Corporation
("Berol"), a designer, manufacturer and marketer of markers and writing
instruments. Berol was combined with Sanford. The U.S. component of
Berol is operated as part of the Sanford North America division.
The international piece is operated as part of Sanford International.
17
These acquisitions were accounted for as purchases; therefore
results of operations are included in the accompanying consolidated
financial statements since their respective dates of acquisition.
Subsequent Years
----------------
Information regarding businesses acquired in the last three years
is included in Note 2 to the consolidated financial statements.
QUARTERLY SUMMARIES
Summarized quarterly data for the last three years is as follows
(unaudited):
Calendar Year 1st 2nd 3rd 4th Year
------------- --- --- --- --- ----
(In millions, except per share data)
1998
----
Net sales $1,402.1 $1,559.5 $1,559.9 $1,662.2 $6,183.7
Gross income 396.2 487.0 477.9 461.7 1,822.8
Net income 158.5 141.9 117.5 63.9 481.8
Earnings per share:
Basic 0.57 0.51 0.42 0.22 1.72
Diluted 0.56 0.50 0.42 0.22 1.70
1997
----
Net sales $1,229.0 $1,436.1 $1,486.1 $1,490.2 $5,641.4
Gross income 344.0 419.7 430.1 441.7 1,635.5
Net income 71.7 21.4 118.0 110.5 321.6
Earnings per share:
Basic 0.26 0.08 0.42 0.39 1.15
Diluted 0.26 0.07 0.42 0.39 1.14
1996
----
Net sales $1,148.6 $1,302.7 $1,401.0 $1,381.6 $5,233.9
Gross income 333.5 404.2 428.7 398.0 1,564.4
Net income 74.7 112.0 122.4 102.3 411.4
Earnings per share:
Basic 0.26 0.40 0.44 0.36 1.46
Diluted 0.26 0.40 0.44 0.36 1.46
18
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
--------------------------------------------------
The following discussion and analysis provides information
which management believes is relevant to an assessment and
understanding of the Company's consolidated results of operations and
financial condition. The discussion should be read in conjunction
with the consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated
items from the Consolidated Statements of Income as a percentage of
net sales:
Year Ended December 31, 1998* 1997* 1996*
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of products sold 70.5 71.0 70.1
--------------------------------------------
Gross income 29.5 29.0 29.9
Selling, general and
and administrative
expenses 15.7 14.9 15.3
Restructuring costs 1.9 0.7 -
Tradenames and goodwill
amortization and other 0.9 2.1 0.6
--------------------------------------------
Operating income 11.0 11.3 14.0
Non-operating (income) expenses:
Interest expense 1.6 2.0 1.6
Other, net (3.8) (0.3) (0.4)
--------------------------------------------
(2.2) 1.7 1.2
--------------------------------------------
Income before income taxes 13.2 9.6 12.8
Income taxes 5.4 4.0 5.0
--------------------------------------------
Net income 7.8% 5.6% 7.8%
============================================
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
19
1998 vs. 1997
-------------
Net sales for 1998 were $6,183.7 million, representing an
increase of $542.3 million or 9.6% from $5,641.4 million in 1997. The
overall increase in net sales was primarily attributable to
contributions from Rolodex (acquired in March 1997), Kirsch (acquired
in May 1997), Curver (acquired in January 1998), Swish (acquired in
March 1998), Century (acquired in May 1998), Panex (acquired in
June 1998), Gardinia (acquired in August 1998), Rotring (acquired
in September 1998) and 4% internal growth at the core
businesses (a core business is a business owned by the Company
for two or more years). These increased sales were partially
offset by the divestitures of Stuart Hall (school supplies and
stationery), Newell Plastics (plastic storage and serveware products)
and Decora (decorative coverings). The 1997 and 1998 acquisitions and
divestitures are described in Note 2 to the consolidated financial
statements.
As of December 31, 1998, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information."
After reviewing the criteria for determining segments, the Company
believes it has three reportable operating segments: Household Products,
Hardware and Home Furnishings, and Office Products. This segmentation
is appropriate because the Company organizes its product categories into
these groups when making operating decisions and assessing
performance, and the Company divisions included in each group sell
primarily to the same retail channel: Household Products (discount stores
and warehouse clubs), Hardware and Home Furnishings (home centers and
hardware stores) and Office Products (office superstores and contract
stationers). After the recent merger with Rubbermaid, the Company
added the Rubbermaid divisions to the former Housewares segment to create
the Household Products segment.
20
Net sales for each of the Company's segments (and the
primary reasons for the year-to-year changes) were as follows, in
millions:
Year Ended December 31, 1998* 1997* % Change
--------------------------------------------------------------------------------------
Household Products:
Former Housewares Group(1) 921.6 952.2 (3.2)%
Rubbermaid(2) 2,463.7 2,247.4 9.6%
---------------------------------------------
$3,385.3 $3,199.6 5.8%(3)
---------------------------------------------
Hardware and Home
Furnishings 1,758.1 1,484.8 18.4%(4)
Office Products 1,040.3 957.0 8.7%(5)
---------------------------------------------
$6,183.7 $5,641.4 9.6%
=============================================
Primary Reasons for Changes:
(1) This was the former Housewares segment of Newell Co. prior to the
merger with Rubbermaid Incorporated.
(2) Rubbermaid Incorporated net sales prior to the merger with Newell Co.
(3) Curver (January 1998), Century (May 1998) and Panex (June 1998)
acquisitions, offset partially by weak sales performance at the
core businesses of the former Housewares Group, Rubbermaid Home
Products and Little Tikes and the divestitures of Newell Plastics
and Decora.
(4) 6% internal growth and Kirsch (May 1997), Swish (March 1998),
and Gardinia (August 1998) acquisitions.
(5) 8% internal growth and Rolodex (March 1997) and Rotring (September
1998) acquisitions, offset partially by Stuart Hall divestiture.
* Restated for the merger with Rubbermaid Incorporated on
March 24, 1999, which was accounted for as a pooling of interests.
Gross income as a percent of net sales in 1998 was 29.5% or
$1,822.8 million versus 29.0% or $1,635.5 million in 1997. Excluding
costs associated with the 1998 Calphalon acquisition and certain
realignment and other charges of $21.3 million, gross income as a
percent of net sales was 29.8% in 1998. The increase in gross
margins was due to increases in gross margins at several of the
Company's core businesses, offset partially by the 1998 acquisitions
which have gross margins which are lower than the Company's average.
As these acquisitions are integrated, Company expects its gross margins
to improve.
Selling, general and administrative expenses ("SG&A") in
1998 were 15.7% of net sales or $967.9 million versus 14.9% or $838.9
million in 1997. Excluding costs associated with the 1998 Calphalon
acquisition and certain realignment and other charges of $33.8 million,
SG&A in 1998 was 15.1% of net sales. Excluding transaction costs of
$21.3 million related to the sale of Eldon, SG&A in 1997 was 14.5% of
net sales. The increase in SG&A as a percent of net sales
21
was primarily due to increased advertising expenditures at Rubbermaid
divisions in addition to the 1998 acquisitions, whose spending levels are
higher than the Company's average. As these acquisitions are integrated,
the Company expects its SG&A spending levels as a percentage of net sales
to decline.
Trade names and goodwill amortization as a percentage of
net sales was less than 1.0% in both 1998 and 1997, excluding one-time
charges of $16.2 million in 1998 (which included write-offs of intangible
assets) and $81.0 million in 1997 (write-off of impaired assets).
Operating income in 1998 was 11.0% of net sales or $680.3
million versus 11.3% or $639.7 million in 1997. Operating income
in 1998 included restructuring costs ($115.2 million) and costs
associated with the 1998 Calphalon acquisition and certain
realignment and other charges of $71.3 million. Excluding these
charges, operating income in 1998 was $866.8 million or 14.0% of net
sales. Operating income in 1997 included restructuring costs
($37.2 million), the $81.0 million write-off of impaired assets and
$21.3 million of transaction costs related to Eldon. Excluding these
charges, operating income in 1997 was $779.2 million or 13.8% of net
sales. The slight increase in operating margins, net of charges, is
primarily due to increases in operating margins at several of the
Company's core businesses, offset partially by the 1998 acquisitions,
whose operating margins are improving as they are being integrated
but still operate at less than the Company's average operating
margins.
Other nonoperating income in 1998 was 2.2% of net sales or
$136.6 million versus other nonoperating expenses of 1.7% or $95.1
million in 1997. The $231.7 million increase in income was due
primarily to a net pre-tax gain of $191.5 million on the sale of the
Company's stake in The Black & Decker Corporation and a pre-tax gain
of $59.8 million on the sales of Stuart Hall, Newell Plastics and
Decora. These increases were partially offset by increases in
distributions of $25.2 million related to the convertible preferred
securities issued by a subsidiary trust in December 1997.
For 1998 and 1997, the effective tax rates were 41.0% and
40.9%, respectively. See Note 12 to the consolidated financial
statements for an explanation of the effective tax rate.
Net income for 1998 was $481.8 million, representing an
increase of $160.2 million or 49.8% from $321.6 million in 1997.
Basic earnings per share in 1998 increased 49.6% to $1.72 versus
$1.15 in 1997; diluted earnings per share in 1998 increased 49.1%
to $1.70 versus $1.14 in 1997. Excluding the net pre-tax gain on
the sale of Black & Decker stock of $191.5 million ($116.8 million
after taxes), the net pre-tax gain of $59.8 million on the sales of
Stuart Hall, Newell Plastics and Decora ($15.1 million after taxes),
restucturing costs of $115.2 million ($74.9 million after taxes),
costs associated with the 1998 Calphalon acquisition and certain
realignment and other charges of $71.3 million ($44.5 million after
taxes), net income in 1998 was $469.3 million. Excluding the $81.0
million write-off of impaired assets, $37.2 million restructuring
charges, and transaction costs related to the 1997 sale of Eldon of
$21.3 million ($103.8 million after taxes), net income was $425.4
million in 1997. The 10.3% increase in net income, excluding the
gains and charges noted above, was primarily due to strong shipments
at the Company's core Office Products and Hardware and Home Furnishings
businesses.
22
1997 vs. 1996
-------------
Net sales for 1997 were $5,641.4 million, representing an
increase of $407.5 million or 7.8% from $5,233.9 million in 1996. The
overall increase in net sales was primarily attributable to
contributions from Graco (acquired in October 1996), Rolodex (acquired
in March 1997), Kirsch (acquired in May 1997) and 3% internal growth
at the core businesses. The 1996 and 1997 acquisitions are
described in Note 2 to the consolidated financial statements.
Net sales for each of the Company's segments (and the
primary reasons for the year-to-year changes) were as follows, in
millions:
Year Ended December 31, 1997* 1996* % Change
------------------------------------------------------------------------------------------------------
Household Products:
Former Housewares Group(1) 952.2 931.7 2.2%
Rubbermaid(2) 2,247.4 2,111.7 6.4%
-------------------------------------------------------------
$3,199.6 $3,043.4 5.1%(3)
Hardware and
Home Furnishings $1,484.8 $1,299.3 14.3%(4)
Office Products 957.0 891.2 7.4%(5)
-------------------------------------------------------------
$5,641.4 $5,233.9 7.8%
=============================================================
Primary Reasons for Changes:
(1) This was the former Housewares segment of Newell Co. prior
to the merger with Rubbermaid Incorporated.
(2) Rubbermaid Incorporated net sales prior to the merger with Newell Co.
(3) Graco (October 1996) acquisition and internal growth at the
former Housewares Group, partially offset by weak sales performance
at Rubbermaid Home Products and Little Tikes.
(4) 2% internal growth and Kirsch (May 1997) acquisition
(5) 6% internal growth and Rolodex (March 1997) acquisition
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
Gross income as a percent of net sales in 1997 was 29.0% or
$1,635.5 million versus 29.9% or $1,564.4 million in 1996. The decrease
in gross margins was primarily due to weakness at Rubbermaid Home
Products and Little Tikes and the 1997 acquisitions which had gross
margins lower than the Company's average gross margins. As these
acquisitions and the Rubbermaid divisions are integrated, the Company
expects their gross margins to improve.
23
SG&A in 1997 was 14.9% of net sales or $838.9 million versus
15.3% or $798.9 million in 1996. Excluding transaction costs of $21.3
million related to the sale of Eldon, SG&A in 1997 was 14.5% of net sales.
This decrease was primarily attributable to a decrease in core business
SG&A spending primarily as a result of cost savings arising from the
integration of the Company's picture frame businesses. This decrease 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 its SG&A spending levels as a
percentage of net sales to decline.
Trade names and goodwill amortization as a percentage of net
sales was less than 1.0% in both 1977 and 1996, excluding an $81.0 million
write-off of an impaired asset in 1997.
Operating income in 1997 was 11.3% of net sales or $639.7
million versus 14.0% or $735.0 million in 1996. Excluding the $81.0
million impaired asset write-off, restructuring charges of $37.2 million
and reversal of transaction costs related to the 1997 sale of Eldon
totaling $21.3 million, operating income in 1997 was 13.8% of net sales
or $779.2 million. The slight decrease in operating margins was primarily
due to weakness at Rubbermaid Home Products and Little Tikes and the 1997
acquisitions, which had average operating margins lower than the Company's
average operating margins. This was offset partially by increases in
operating margins at several of the company's other core businesses.
Net nonoperating expenses in 1997 were 1.7% of net sales or
$95.1 million versus 1.2% or $61.7 million in 1996. The $33.4 million
increase was due primarily to a $29.5 million increase in interest
expense (as a result of additional borrowings related to the 1997
acquisitions) and a $7.0 million decrease in dividend income. Dividend
income decreased as a result of the conversion on October 15, 1996 by
Black & Decker of 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. After the conversion, the dividends paid to
the Company on the shares of Black & Decker Common Stock owned by the
Company totaled $0.8 million per quarter, before the effect of income
taxes. For supplementary information regarding other nonoperating
expenses, see Note 13 to the consolidated financial statements.
The effective tax rate was 40.9% and 38.9% in 1997 and 1996,
respectively. See Note 12 to the consolidated financial
statements for an explanation of the effective tax rate.
Net income for 1997 was $321.6 million, representing a
decrease of 21.8% or $89.8 million from 411.4 million in 1996. Basic
earnings per share in 1997 decreased 21.2% to $1.15 versus $1.46 in
1996; diluted earnings per share in 1997 decreased 21.9% to $1.14
versus $1.46 in 1996. Excluding a $37.2 million restructuring charge
and a $81.0 million asset impairment charge and transaction costs
related to the sale of Eldon of $21.3 million ($103.8 million after
taxes) net income was $425.4 million, up 3.4% from 1996. The increase
in net income, excluding charges, was primarily attributable to costs
savings arising from the picture frame integration, profitability
improvement at the Company's Levolor Home Fashions division, cost
savings as a result of the Kirsh integration into the Newell Window
Furnishings division and increased operating margins at several of
the other core businesses. These increases were offset partially
by weakness at Rubbermaid Home Products and Little Tikes.
24
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 1998 was $477.4
million, representing a decrease of $155.7 million from $633.1 million
for 1997. This decrease was primarily due to an increase in payments
related to liabilities at acquired businesses.
On March 3, 1998, the Company received $378.3 million
(before the payment of taxes on the net gain) 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.
In April of 1998, the Company received $51.3 million (before
the payment of taxes on the net gain) from the sale of Decora Industries,
Inc. In the third quarter of 1998, the Company received $199.0 million
(before the payment of taxes on the net gains) from the sales of Stuart
Hall and Newell Plastics. The proceeds from the divestitures were used
to pay down commercial paper.
The Company has short-term foreign and domestic uncommitted
lines of credit (notes payable) 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 December 31, 1998 totaled $94.6 million.
During 1997, the Company amended its revolving credit
agreement to increase the aggregate borrowing limit to $1.3 billion.
The revolving credit agreement will terminate in August 2002. At December
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
December 31, 1998, the Company had $125.0 million (principal amount)
of commercial paper outstanding under this agreement.
The Company entered into a committed credit facility agreement
in January of 1996, under which the Company can issue up to $500 million
of commercial paper. This facility is subject to normal banking terms
and conditions and expires in January of 2001. At December 31, 1998,
$375.2 million (principal amount) of commerical paper was outstanding
under this agreement.
The Company has a universal shelf registration statement on
file for the issuance of up to $500.0 million of debt and equity
securities from time to time. The Company issued during 1998 and had
outstanding as of December 31, 1998 a total of $470.5 million of
Medium-term notes under this program. The maturities on these notes
range from five to thirty years at an average interest rate of 6.0%.
25
At December 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 interest rate of 6.3%.
At December 31, 1998, the Company had outstanding $150.0 million
(principal amount) of Medium-term notes issued under a previous shelf
registration statement with a maturity of November 2006 at an average
interest rate of 6.6%.
Uses
----
The Company's primary uses of liquidity and capital resources
include acquisitions, dividend payments and capital expenditures.
In 1998, the Company acquired Curver, Swish, Century,
Panex, Gardinia and Rotring and made other minor acquisitions for cash
purchase prices totaling $603.2 million. In 1997, the Company acquired
Rolodex and Kirsch and made other minor acquisitions for cash purchase
prices totaling $514.3 million. In 1996, the Company acquired Holson
Burnes and Graco Childrens Products Inc. and completed other minor
acquisitions for consideration that included cash of $360.6 million.
All of these 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 $318.7 million, $249.0 million and
$268.0 million in 1998, 1997 and 1996, respectively. The increase in
1998 was primarily due to the replacement of glass manufacturing tanks
at the Newell Europe and Anchor Hocking divisions.
Aggregate dividends paid during 1998, 1997 and 1996 were
$212.5 million, $193.2 million and $174.9 million, respectively.
Retained earnings increased in 1998, 1997 and 1996 by $269.3
million, $128.4 million and $92.3 million, respectively. The higher
increase in 1998 versus the increase in 1997 was primarily due to a
pre-tax gain of $191.5 million ($116.8 million after taxes) on the
sale of the Black & Decker common stock. The average dividend payout
ratio to common stockholders in 1998, 1997 and 1996 was 45%, 61% and
43%, respectively (represents the percentage of diluted earnings per
share paid in cash to stockholders).
Working capital at December 31, 1998 was $1,278.8 million
compared to $1,006.6 million at December 31, 1997 and $953.9 million at
December 31, 1996. The current ratio at December 31, 1998 was 2.09:1
compared to 1.81:1 at December 31, 1997 and 1.91:1 at December 31,
1996.
Total debt to total capitalization (total debt is net of
cash and cash equivalents, and total capitalization includes total
debt, company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust and stockholders' equity) was .30:1
at December 31, 1998, .26:1 at December 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.
26
LEGAL AND ENVIRONMENTAL MATTERS
The Company is subject to certain legal proceedings and
claims, including various environmental matters, that have arisen in
the ordinary conduct of its business. Such matters are more fully
described in Note 15 to the Company's consolidated financial
statements. The Company does not expect any amount it may be required
to pay in excess of amounts reserved will have a material effect on
its consolidated financial statements.
YEAR 2000 COMPUTER COMPLIANCE
State of Readiness
------------------
Any computer equipment that uses two digits instead of four
to specify the year will be unable to interpret dates beyond the year
1999. This "Year 2000" issue could result in system failures or
miscalculations causing disruptions of operations.
In order to address Year 2000 compliance issues, the Company
has initiated a comprehensive project designed to minimize or
eliminate these kinds of operational disruptions in its information
technology ("IT") systems, as well as its non-IT systems (e.g., HVAC
systems and building security systems). The project consists of six
phases: company recognition, inventory of systems, impact analysis,
planning, fixing and testing.
As of December 31, 1998 the Company's project was approximately
60% complete with all phases for its IT systems and 80% complete for its
non-IT systems in the United States and Canada. The Company anticipates
that all phases will be completed for all IT and non-IT systems in the
United States and Canada by November 30, 1999. With respect to
International IT systems, approximately 75% of the Company's business
systems are currently compliant and approximately 25% are in the process
of being fixed and tested. With respect to International non-IT systems,
approximately 80% of the Company's non-IT systems are currently complaint
and 20% are in the process of being fixed and texted. The Company
anticipates that all phases will be completed for all foreign IT and
non-IT systems by November 30, 1999.
As part of its Year 2000 project, the Company has initiated
communications with all of its key vendors and services suppliers
(including raw material and utility providers) to assess their state
of Year 2000 readiness. Most of its key vendors and service suppliers
have responded in writing to the Company's Year 2000 readiness inquiries
and have said they will be Year 2000 compliant. The Company plans to
continue assessment of its third party business partners, including
face-to-face meetings with management and/or onsite visits as deemed
appropriate. The Company is prepared in cases where its main vendor or
service provider cannot continue with its business due to Year 2000
problems to use alternate vendors as sources for required materials.
27
Despite the Company's efforts, there can be no guarantee that the systems
of other companies which the Company relies upon to conduct its day-to-day
business will be compliant.
Costs
-----
The Company estimates that it will incur total expenses of
$14 million to $16 million in conjunction with the Year 2000
compliance project. As of December 31, 1998, the Company had spent $14
million in conjunction with this project. The majority of these
expenditures were capitalized since they were associated with purchased
software that would have been replaced in the normal course of business.
Risks
-----
With respect to the risks associated with its IT and non-IT
systems, the Company believes that the most likely worst case scenario
is that the Company may experience minor system malfunctions and
errors in the early days and weeks of 2000 that were not detected
during its fixing and testing efforts. The Company also believes that
these problems will not have a material effect on the Company's
financial condition or results of operations.
With respect to the risks associated with third parties, the
Company believes that the most likely worst case scenario is that some
of the Company's vendors will not be compliant and will have
difficulty filling orders and delivering goods. Management also
believes that the number of such vendors will have been minimized by
the Company's program of identifying non-compliant vendors and
replacing or jointly developing alternative supply or delivery
solutions prior to 2000. Due to the diversity of its product lines,
the Company does not have material sensitivity to any one vendor or
service supplier.
The Company has limited the scope of its risk assessment to
those factors upon which it can reasonably be expected to have an
influence. For example, the Company has made the assumption that
government agencies, utility companies and telecommunications
providers will continue to operate. Obviously, the lack of such
services could have a material effect on the Company's ability to
operate, but the Company has little if any ability to influence such
an outcome, or to reasonably make alternative arrangements in advance
for such services in the event they are unavailable. Newell Rubbermaid
Products are not dependent on dates and therefore are not affected by
the transition to the Year 2000.
28
Contingency Plans
-----------------
In the United States, the Company has all of its major
business systems running on a centralized system for all of its
operating divisions. Although extensive testing has been completed for
these systems, the following contingency plan has been adopted for
Year 2000 issues that may occur on January 1, 2000 and thereafter:
- A triage team has been assembled which has the
authority and financial capabilities to rectify all
systems problems that may occur.
- The team consists of Corporate officers and managers
from every support function.
- The team has access to vendor support hotlines and
internal staffs.
- Once a problem has been identified and course of action
determined, staff will be assigned to provide
around-the-clock corrective actions until the problem
is resolved.
INTERNATIONAL OPERATIONS
------------------------
The Company's non-U.S. business is growing at a faster pace
than its business in the United States. This growth outside the U.S.
has been fueled by recent international acquisitions, which
supplemented the Company's existing Canadian businesses and Newell
International, the Company's subsidiary responsible for the majority
of exports of the Company's products. For the year ended December 31,
1998, the Company's non-U.S. business accounted for approximately 22%
of sales and 14% of operating income, excluding restructuring costs (see
note 14 to the consolidated financial statements). Growth of both the U.S.
and the non-U.S. businesses is shown below:
29
Year Ended December 31, 1998 1997 % Change
-------------------------------------------------------------------------
(in millions)
Net Sales:
U.S. $4,825.4 $4,769.5 1.2%
Non-U.S. 1,358.3 871.9 55.8%
-----------------------------
Total $6,183.7 $5,641.4 9.6%
==============================
Operating income:
U.S. $ 697.7 $ 579.2 20.5%
Non-U.S. 97.8 97.7 0.1%
Restructuring Costs (115.2) (37.2)
-----------------------------
Total $ 680.3 $ 639.7 6.3%
=============================
Year Ended December 31, 1997 1996 % Change
-------------------------------------------------------------------------
(in millions)
Net Sales:
U.S. $4,769.5 $4,509.2 5.8%
Non-U.S. 871.9 724.7 20.3%
----------------------------
Total $5,641.4 $5,233.9 7.8%
============================
Operating income:
U.S. $ 579.2 $ 653.9 (11.4)%
Non-U.S. 97.7 81.1 20.5%
Restructuring Costs (37.2) -
-----------------------------
Total $ 639.7 $ 735.0 (13.0)%
=============================
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.
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
30
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. 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 cash flows, 2)
structuring foreign subsidiary balance sheets with appropriate levels
of debt to 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.
The amounts shown below represent the estimated potential
economic loss that the Company could incur from adverse changes in
either interest rates or foreign exchange rates using the
value-at-risk estimation model. The value-at-risk model uses
historical foreign exchange rates and interest rates to estimate the
volatility and correlation of these rates in future periods. It
estimates a loss in fair market value using statistical modeling
techniques and including substantially all market risk exposures
(specifically excluding equity-method investments). The fair value
losses shown in the table below have no impact on results of
operations or financial condition as they represent economic not
financial losses.
31
Time Confidence
Amount Period Level
-------------------------------------------------------------------------
(In millions)
Interest rates $9.5 1 day 95%
Foreign exchange $2.5 1 day 95%
The 95% confidence interval signifies the Company's degree
of confidence that actual losses would not exceed the estimated losses
shown above. The amounts shown here disregard the possibility that
interest rates and foreign currency exchange rates could move in the
Company's favor. The value-at-risk model assumes that all movements in
these rates will be adverse. Actual experience has shown that gains
and losses tend to offset each other over time, and it is highly
unlikely that the Company could experience losses such as these over
an extended period of time. These amounts should not be considered
projections of future losses, since actual results may differ
significantly depending upon activity in the global financial markets.
EURO CURRENCY CONVERSION
On January 1, 1999, the "Euro" became the common legal
currency for 11 of the 15 member countries of the European Union. On
that date, the participating countries fixed conversion rates between
their exiting sovereign currencies ("legacy currencies") and the Euro.
On January 4, 1999, the Euro began trading on currency exchanges and
became available for non-cash transactions, if the parties elect to
use it. The legacy currencies will remain legal tender through
December 31, 2001. Beginning January 1, 2002, participating countries
will introduce Euro-denominated bills and coins, and effective July 1,
2002, legacy currencies will no longer be legal tender.
After the dual currency phase, all businesses in
participating countries must conduct all transactions in the Euro and
must convert their financial records and reports to be Euro-based. The
Company has commenced an internal analysis of the Euro conversion
process to prepare its information technology systems for the
conversion and analyze related risks and issues, such as the benefit
of the decreased exchange rate risk in cross-border transactions
involving participating countries and the impact of increased price
transparency on cross-border competition in these countries.
The Company believes that the Euro conversion process will
not have a material impact on the Company's businesses or financial
condition on a consolidated basis.
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
32
relate to, but are not limited to, such matters as sales, income,
earnings per share, return on equity, capital expenditures, dividends,
capital structure, free cash flow, debt to capitalization ratios,
interest rates, internal growth rates, Euro conversion plans and
related risks, Year 2000 plans and related risks, pending legal
proceeding and claims (including environmental matters), 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. 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 this Report, the documents incorporated
by reference herein and Exhibit 99.3 to the Company's Current Report
on Form 8-K dated June 30, 1999.
Item 7A. 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 Condition (Item 7).
33
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Report of Independent Public Accountants
----------------------------------------
To the Stockholders of Newell Rubbermaid Inc.:
We have audited the accompanying consolidated balance sheets
of Newell Rubbermaid Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1998, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity and comprehensive income and cash flows
for each of the three years in the period ended December 31, 1998. We
did not audit the financial statements of Rubbermaid Incorporated, a
company acquired on March 24, 1999 in a transaction accounted for as
a pooling of interests, as discussed in Note 1. Such statements are
included in the consolidated financial statements of Newell Rubbermaid
Inc. and reflect total assets and total revenues of 34 percent and 40
percent, respectively, in 1998; 33 percent and 41 percent in 1997; and
41 percent and 43 percent in 1996, of the related consolidated totals.
These statements were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts
included for Rubbermaid Incorporated, is based solely upon the report of
the other auditors. These consolidated financial statements and the
schedule referred to below are the responsibility of Newell Rubbermaid
Inc.'s management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and
the report of the other auditors provide a reasonable basis for
our opinion.
In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present fairly, in
all material respects, the financial position of Newell Rubbermaid Inc.
and subsidiaries as of December 31, 1998, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed
in Part IV Item 14(a)(2) of Exhibit 99.1 of this Form 8-K is presented
for purposes of complying with the Securities and Exchange Commission's
rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in
our audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as
a whole.
Arthur Andersen LLP
Milwaukee, Wisconsin
March 24, 1999
34
CONSOLIDATED STATEMENTS OF INCOME
----------------------------------------------------------------------------------------------
Year Ended December 31, 1998* 1997* 1996*
----------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net sales $6,183,674 $5,641,441 $5,233,930
Cost of products sold 4,360,860 4,005,958 3,669,559
-----------------------------------------------
Gross Income 1,822,814 1,635,483 1,564,371
Selling, general and administrative expenses 967,916 838,877 798,877
Restructuring Costs 115,154 37,200 -
Trade names and goodwill amortization and other 59,405 119,743 30,487
----------------------------------------------
Operating Income 680,339 639,663 735,007
Non-operating (income) expenses:
Interest expense 100,514 114,357 84,822
Other, net (237,148) (19,284) (23,127)
-----------------------------------------------
Net (136,634) 95,073 61,695
-----------------------------------------------
Income Before Income Taxes 816,973 544,590 673,312
Income taxes 335,139 222,973 261,872
-----------------------------------------------
Net Income $481,834 $321,617 $411,440
===============================================
Earnings per share
Basic $1.72 $1.15 $1.46
Diluted $1.70 $1.14 $1.46
Weighted average shares outstanding
Basic 280,731 280,300 280,894
Diluted 291,883 281,653 281,482
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
See notes to consolidated financial statements.
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------
Year Ended December 31, 1998* 1997* 1996*
----------------------------------------------------------------------------------------------------
(In thousands)
Operating Activities
Net income $ 481,834 $ 321,617 $ 411,440
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation and amortization 263,804 247,827 227,191
Deferred income taxes 81,734 68,482 93,249
Net gains on:
Marketable equity securities (116,800) (1,723) -
Sales of businesses (24,529) - -
Write-off of assets 4,288 83,365 1,338
Non-cash restructuring charges 45,800 16,000 -
Other 24,075 27,597 6,809
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 39,619 44,250 3,122
Inventories (37,142) 2,388 19,130
Other current assets (29,906) (30,444) (17,937)
Accounts payable (72,020) (8,249) (12,071)
Accrued liabilities and other (183,367) (137,989) (51,010)
------------------------------------------------
Net Cash Provided By Operating
Activities 477,390 633,121 681,261
Investing Activities
Acquisitions, net (654,591) (467,473) (376,260)
Expenditures for property, plant and equipment (318,731) (249,042) (267,994)
Purchase of marketable equity securities (26,056) - (3,513)
Sale of businesses, net of taxes paid 224,487 - -
Sale of marketable securities, net of taxes paid 303,869 6,389 -
Disposals of non-current assets and other 9,773 6,921 2,184
----------------------------------------------
Net Cash Used in Investing Activities (461,249) (703,205) (645,583)
Financing Activities
Proceeds from issuance of debt 676,759 158,518 437,490
Proceeds from the issuance of company-obligated
mandatorily redeemable convertible preferred
securities of a subsidiary trust - 500,000 -
Proceeds from exercised stock options and other 4,089 6,202 7,333
Payments on notes payable and long-term debt (546,603) (277,870) (200,181)
Redemption of stock - (3,177) (185,541)
Cash dividends (212,486) (193,220) (174,916)
----------------------------------------------
Net Cash Provided by (Used in)
Financing Activities (78,241) 190,453 (115,815)
----------------------------------------------
Exchange rate effect on cash (1,477) (2,200) 338
Increase (decrease) in cash and cash (63,577) 118,169 (79,799)
equivalents
Cash and cash equivalents at beginning of year 150,131 31,962 111,761
36
------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 86,554 $ 150,131 $ 31,962
================================================
Supplemental cash flow disclosures -
Cash paid during the year for:
Income taxes $280,902 $ 198,102 $ 176,154
Interest 103,831 102,677 74,756
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
See notes to consolidated financial statements.
37
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------
December 31, 1998* 1997* 1996*
---------------------------------------------------------------------------------------------------------
(In thousands)
Assets
Current Assets
Cash and cash equivalents $ 86,554 $ 150,131 $ 31,962
Accounts receivable, net 1,078,530 935,657 921,080
Inventories, net 1,033,488 902,978 801,255
Deferred income taxes 108,192 157,132 169,915
Prepaid expenses and other 143,885 103,181 80,972
------------------------------------------------
Total Current Assets 2,450,649 2,249,079 2,005,184
Marketable Equity Securities 19,317 307,121 240,789
Other Long-Term Investments 57,967 51,020 58,703
Other Assets 267,073 240,573 214,542
Property, Plant and Equipment, Net 1,627,090 1,410,522 1,289,794
Trade Names and Goodwill, Net 1,867,059 1,516,933 1,303,398
------------------------------------------------
Total Assets $ 6,289,155 $ 5,775,248 $5,112,410
================================================
Liabilities and Stockholders'
Equity
Current Liabilities
Notes payable $ 94,634 $ 226,642 $ 116,331
Accounts payable 322,080 299,351 268,676
Accrued compensation 110,471 107,767 98,620
Other accrued liabilities 610,618 524,658 491,529
Income taxes 26,744 52,478 37,914
Current portion of long-term debt 7,334 31,559 38,224
--------------------------------------------------
Total Current Liabilities 1,171,881 1,242,455 1,051,294
Long-Term Debt 1,393,865 989,694 1,197,486
Other Non-Current Liabilities 374,293 332,278 281,916
Deferred Income Taxes 4,527 41,052 67,992
Minority Interest 857 8,352 -
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust 500,000 500,000 -
Stockholders' Equity
Common Stock - authorized shares,
800.0 million at $1 par value; 281,747 281,338 280,973
Outstanding shares:
1998 - 281.7 million
1997 - 281.3 million
1996 - 281.0 million
Additional paid-in capital 183,102 164,842 161,855
Retained earnings 2,465,064 2,195,716 2,067,319
38
Accumulated other comprehensive income (86,181) 19,521 3,575
---------------------------------------------------
Total Stockholders' Equity 2,843,732 2,661,417 2,513,722
---------------------------------------------------
Total Liabilities and Stockholders' $ 6,289,155 $5,775,248 $5,112,410
Equity
===================================================
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
See notes to consolidated financial statements.
39
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
------------------------------------------------------------------------------------------------------------
Accumulated Current
Other Year
Additional Compre- Compre-
Common Paid-In Retained hensive hensive
Stock Capital(1) Earnings Income Income
-------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Balance at December 31, 1995* $284,856 $187,605 $1,975,004 ($10,507)
Net Income $ 411,440 $ 411,440
Other comprehensive income:
Unrealized gain on securities
available for sale, net of
tax of $13.2 million 20,683 20,683
Foreign currency translation adjustments (6,601) (6,601)
-----------
Total comprehensive income $ 425,522
===========
Cash dividends: $0.63 per share (174,916)
Common stock repurchased (185,482)
Common stock cancelled (4,128) 148,337 (144,209)
Exercise of stock options 245 11,454
Other (59)
-----------------------------------------------------------------
Balance at December 31, 1996* 280,973 161,855 2,067,319 3,575
Net income 321,617 321,617
Other comprehensive income:
Unrealized gain on securities
available for sale, net of
tax of $29.2 million 42,244 42,244
Foreign currency translation adjustments (26,298) (26,298)
-----------
Total comprehensive income $337,563
===========
Cash dividends: $0.70 per share (193,220)
Common stock repurchased (2,575)
Exercise of stock options 365 6,164
Other (602)
----------------------------------------------------------------
Balance at December 31, 1997* 281,338 164,842 2,195,716 19,521
Net income 481,834 $481,834
Other comprehensive income:
Unrealized gain on securities
available for sale, net of
tax of $23.5 million 33,850 33,850
Reclassification adjustment for gains realized
in net income, net of tax of $74.7 million (116,800) (116,800)
40
Foreign currency translation adjustments (22,752) (22,752)
---------
Total comprehensive income $376,132
=========
Cash dividends: $0.76 per share (212,486)
Exercise of stock options 409 22,890
Other (4,630)
-----------------------------------------------------------
Balance at December 31, 1998* $281,747 $183,102 $2,465,064 $ (86,181)
=============================================================
(1) Net of treasury stock (at cost) of $21,607, $34,667 and $32,982
as of December 31, 1998, 1997 and 1996, respectively.
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
See notes to consolidated financial statements.
41
NOTE 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND
1996
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial
statements include the accounts of Newell Rubbermaid Inc. and its
majority owned subsidiaries after elimination of intercompany
accounts and transactions.
On March 24, 1999, Newell Co. ("Newell") completed a merger
with Rubbermaid Incorporated ("Rubbermaid") in which Rubbermaid
became a wholly-owned subsidiary of Newell. Simultaneously with
the consummation of the merger, Newell changed its name to Newell
Rubbermaid Inc. (the "Company"). The merger was accounted for as
a pooling of interests and the financial statements have been
restated to retroactively combine Rubbermaid's financial statements
with those of Newell as if the merger had occurred at the beginning
of the earliest period presented.
USE OF ESTIMATES: The preparation of these financial statements
required the use of certain estimates by management in determining the
Company's assets, liabilities, revenue and expenses and related
disclosures.
REVENUE RECOGNITION: Sales of merchandise are recognized upon
shipment to customers.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The
following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
LONG-TERM DEBT: The fair value of the Company's long-term debt
issued under the Medium-term note program is estimated based on
quoted market prices which approximate cost. All other
significant long-term debt is pursuant to floating rate
instruments whose carrying amounts approximate fair value.
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST: The fair value of the Company-
Obligated Mandatorily Redeemable Convertible Preferred Securities
of a Subsidiary Trust was $527.5 million at December 31, 1998
based on quoted market prices.
ALLOWANCES FOR DOUBTFUL ACCOUNTS: Allowances for doubtful
accounts at December 31 totaled $34.2 million in 1998, $30.1 million
in 1997 and $25.9 million in 1996.
42
INVENTORIES: Inventories are stated at the lower of cost or
market value. Cost of certain domestic inventories (approximately
72%, 81% and 84% of total inventories at December 31, 1998, 1997 and
1996, respectively) was determined by the "last-in, first-out"
("LIFO") method; for the balance, cost was determined using the
"first-in, first-out" ("FIFO") method. If the FIFO inventory
valuation method had been used exclusively, inventories would have
increased by $14.2 million, $44.5 million and $58.3 million at
December 31, 1998, 1997 and 1996, respectively.
The components of inventories, net of LIFO reserve, were as
follows:
DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------------------------
(IN MILLIONS)
Materials and supplies $223.8 $202.2 $203.6
Work in process 137.2 117.7 101.7
Finished products 672.5 583.1 495.9
----- ------ ------
$1,033.5 $903.0 $801.3
======= ====== ======
Inventory reserves at December 31 totaled $113.8 million in 1998,
$119.2 million in 1997 and $113.5 million in 1996.
OTHER LONG-TERM INVESTMENTS: The Company has a 49% ownership
interest in American Tool Companies, Inc., manufacturer of hand tools
and power tool accessory products marketed primarily under the Vise-
Grip trademark and Irwin trademarks. This investment is accounted for
under the equity method with a net investment of $58.0 million at
December 31, 1998.
LONG-TERM MARKETABLE EQUITY SECURITIES: 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).
Gains and losses on the sales of Long-term Marketable Equity
Securities are based upon the average cost of securities sold. On
March 8, 1998, the Company sold 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. Long-term
Marketable Equity Securities are summarized as follows:
43
DECEMBER 31, 1998 1997 1996
------------------------------------------------------------------------------------------
(IN MILLIONS)
Aggregate market value $19.3 $307.1 $240.8
Aggregate cost 26.0 176.8 180.3
----- ----- -----
Unrealized gain(loss) $(6.7) $130.3 $60.5
===== ===== =====
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment
consisted of the following:
DECEMBER 31, 1998 1997 1996
---------------------------------------------------------------------------------------------
(IN MILLIONS)
Land $ 78.4 $ 63.8 $ 55.1
Buildings and
improvements 705.6 578.4 533.7
Machinery and
equipment 2,166.9 1,873.1 1,696.5
------- ------- -------
2,950.9 2,515.3 2,285.3
Allowance for
depreciation (1,323.8) (1,104.8) (995.5)
--------- --------- --------
$1,627.1 $1,410.5 $1,289.8
======== ======== ========
Replacements and improvements are capitalized. Expenditures for
maintenance and repairs are charged to expense. The components of
depreciation are provided by annual charges to income calculated to
amortize, principally on the straight-line basis, the cost of the
depreciable assets over their depreciable lives. Estimated useful
lives determined by the Company are: buildings and improvements (5-40
years), machinery and equipment (2-15 years).
TRADE NAMES AND GOODWILL: The cost of trade names and goodwill
represent the excess of cost over identifiable net assets of
businesses acquired. The Company does not allocate such excess cost
to trade names separate from goodwill. In addition, the Company may
allocate excess cost to other identifiable intangible assets and
record such intangible assets in Other Assets (long-term).
44
Trade names and goodwill are amortized over 40 years and other
identifiable intangible assets are amortized over 5 to 40 years.
Trade names and goodwill and other identifiable intangible assets
consisted of the following:
DECEMBER 31, 1998 1997 1996
---------------------------------------------------------------------------------------------
(IN MILLIONS)
Trade Names and Goodwill:
Cost $2,068.7 $1,669.3 $1,438.6
Accumulated amortization (201.6) (152.4) (135.2)
-------- -------- -------
Net Trade Names
and Goodwill $1,867.1 $1,516.9 $1,303.4
======== ======== ========
DECEMBER 31,
------------
(IN MILLIONS)
Other identifiable intangible assets:
Cost $ 131.2 $ 118.6 $ 146.8
Accumulated amortization (37.6) (37.9) (31.6)
Net other identifiable ------ ------- -------
intangible assets
recorded in Other Assets $ 93.6 $ 80.7 $ 115.2
======= ======= =======
Subsequent to an acquisition, the Company periodically evaluates
whether later events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill may warrant revision or
that the remaining balance of goodwill may not be recoverable. If
factors indicate that goodwill should be evaluated for possible
impairment, the Company would use an estimate of the relevant
business' undiscounted net cash flow over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. An
impairment loss would be measured by reducing the carrying value to
fair value, based on a discounted cash flow analysis.
ACCRUED LIABILITIES: Accrued Liabilities included the following:
DECEMBER 31, 1998 1997 1996
---------------------------------------------------------------------------------------------
(IN MILLIONS)
Customer accruals $165.4 $167.6 $139.3
Accrued self-insurance
liability 49.8 48.5 52.0
45
Customer accruals are promotional allowances and rebates given to
customers in exchange for their selling efforts. The self-insurance
accrual is primarily for workers' compensation and is estimated based
upon historical claim experience.
FOREIGN CURRENCY TRANSLATION: Foreign currency balance sheet
accounts are translated into U.S. dollars at the rates of exchange in
effect at fiscal year end. Income and expenses are translated at the
average rates of exchange in effect during the year. The related
translation adjustments are made directly to a separate component of
stockholders' equity. International subsidiaries operating in highly
inflationary economies translate non-monetary assets at historical
rates, while net monetary assets are translated at current rates, with
the resulting translation adjustment included in net income as other
non-operating (income) expenses. Foreign currency transaction gains
and losses were immaterial in 1998, 1997 and 1996.
ADVERTISING COSTS: The Company expenses advertising costs as
incurred, including cooperative advertising programs with customers.
Total advertising expense was $281.5 million, $239.1 million and
$232.2 million for 1998, 1997 and 1996, respectively. Cooperative
advertising is recorded in the financial statements as a reduction of
sales because it is viewed as part of the negotiated price of its
products. All other advertising costs are charged to selling, general
and administrative expenses.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs
relating to both future and present products are charged to selling,
general and administrative expenses as incurred. These costs aggregated
$32.3 million, $30.5 million and $31.9 million in fiscal 1998, 1997 and
1996, respectively.
EARNINGS PER SHARE: The earnings per share amounts are computed
based on the weighted average monthly number of shares outstanding
during the year. "Basic" earnings per share is calculated by dividing
net income by weighted average shares outstanding. "Diluted" earnings
per share is 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 company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust). Effective December 31,
1997, the Company adopted SFAS No. 128, "Earnings Per Share." As a
result, the Company's reported earnings per share for 1996 was
restated.
A reconciliation of the difference between basic and diluted
earnings per share for the years ended 1998, 1997 and 1996 is shown below
(in millions, except per share data):
46
"In the Convertible
Basic Money" Preferred Diluted
Year Ended Method Stock Options Securities Method
-----------------------------------------------------------------------------------
DECEMBER 31, 1998:
Net income $481.8 - $15.7 $497.5
Weighted average
shares outstanding 280.7 1.3 9.9 291.9
Earnings per share $1.72 - - $1.70
December 31, 1997:
Net income $321.6 - $0.8 $322.4
Weighted average
shares outstanding 280.3 0.9 0.5 281.7
Earnings per share $1.15 - - $1.14
December 31, 1996:
Net income $411.4 - - $411.4
Weighted average
shares outstanding 280.9 0.6 - 281.5
Earnings per share $1.46 - - $1.46
COMPREHENSIVE INCOME: In 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," (SFAS No. 130), which requires companies to report all
changes in equity during a period, except those resulting from
investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The Company
has chosen to report Comprehensive Income and Accumulated Other
Comprehensive Income, which encompasses net income, net unrealized
gains (losses) on securities available for sale and foreign currency
translation adjustments, in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income. Prior years have been
restated to conform to the SFAS No. 130 requirements.
The following table displays the components of Accumulated Other
Comprehensive Income:
47
Net Accumulated
Unrealized Foreign Other
Gains/(Losses) Currency Comprehensive
on Securities Translation Income
---------------------------------------------------------------------------------
(IN MILLIONS)
Balance at Dec. 31, 1995 $15.9 $(26.4) $(10.5)
Current year change 20.7 (6.6) 14.1
---------------------------------------
Balance at Dec. 31, 1996 36.6 (33.0) 3.6
Current year change 42.2 (26.3) 15.9
---------------------------------------
Balance at Dec. 31, 1997 78.8 (59.3) 19.5
Current year change (82.9) (22.8) (105.7)
----------------------------------------
Balance at Dec. 31, 1998 $(4.1) $(82.1) $(86.2)
====== ======= =======
NEW ACCOUNTING PRONOUNCEMENTS: Effective December 31, 1998, the
Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information (SFAS No. 131)." See Note 14 to
the consolidated financial statements.
Effective December 31, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits (SFAS No. 132)." See Note 9 to the consolidated financial
statements.
Effective January 1, 2000, the Company will adopt SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
Management believes that the adoption of this statement will not be
material to the consolidated financial statements.
RECLASSIFICATIONS: Certain 1997 and 1996 amounts have been
reclassified to conform with the 1998 presentation. In particular,
the Company began reclassifying the amortization of trade names and
goodwill from non-operating expenses to operating expenses in the
first quarter of 1998. This change required a restatement for all
periods presented.
48
NOTE 2
ACQUISITIONS, MERGERS AND DIVESTITURES OF BUSINESSES
Acquisitions:
1996 AND 1997
On January 19, 1996, the Company acquired The Holson Burnes
Group, Inc. ("Holson Burnes"), a manufacturer and marketer of photo
albums and picture frames. Holson Burnes was combined with
Intercraft, creating the Intercraft/Burnes division. During October
1996, the Company acquired Graco Children's Products Inc. ("Graco"), a
leading manufacturer of strollers and other children's products.
Graco operates as a separate U.S. division.
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 Products 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 called Newell Window
Fashions Europe.
For these and other minor acquisitions, the Company paid $874.9
million in cash and assumed $148.6 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 acquisitions. The acquisition costs were
allocated to the fair market value of the assets acquired and
liabilities assumed and resulted in trade names and goodwill of
approximately $701.6 million.
1998
On January 21, 1998, the Company acquired Curver Consumer Products
("Curver"). Curver is a manufacturer and marketer of plastic
housewares in Europe. Curver operates as part of Rubbermaid
Europe. On March 27, 1998, the Company acquired Swish Track and Pole
("Swish") from Newmond Group PLC. Swish is a manufacturer and
marketer of decorative and functional window furnishings in Europe and
operates as part of Newell Window Fashions Europe. On May 19, 1998,
the Company acquired certain assets of Century Products ("Century").
Century is a manufacturer and marketer of infant products such as car
seats, strollers and infant carriers and operates as part of the
Graco/Century division. On June 30, 1998, the Company purchased Panex
S.A. Industria e Comercio ("Panex"), a manufacturer and marketer of
aluminum cookware products based in Brazil. Panex operates as part of
the Mirro division. On August 31, 1998, the Company purchased the
Gardinia Group ("Gardinia"), a manufacturer and supplier of window
treatments based in Germany. Gardinia operates as part of Newell
Window Fashions Europe. On September 30, 1998, the Company purchased
the rotring Group ("Rotring"), a manufacturer and supplier of writing
instruments, drawing instruments, art materials and color cosmetic
products based in Germany. The writing and drawing instruments piece
49
of Rotring operates as part of the Company's Sanford International
division. The art materials piece of Rotring operates as part of the
Company's Sanford North America division. The color cosmetic products
piece of Rotring operates as a separate U.S. division called Cosmolab.
For these and other minor acquisitions, the Company paid $603.2
million in cash and assumed $118.1 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 acquisitions. 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 $412.4 million.
The Company began to formulate an integration plan for these
acquisitions as of their respective acquisition dates. No integration
liabilities have been included in the allocation of purchase price as
of December 31, 1998. Such costs will be accrued upon finalization of
each acquisition's integration plan. The Company's finalized
integration plan will include exit costs for certain plants and
product lines and employee terminations associated with the
integration of Century into Graco, Panex into Mirro, Curver into
Rubbermaid Europe, Swish and Gardinia into Newell Window Fashions
Europe and Rotring into Sanford International and Sanford North America.
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 years
ended December 31, 1998 and 1997 on a pro forma basis, as though the
Rolodex, Kirsch, Curver, Swish, Century, Panex, Gardinia and Rotring
businesses had been acquired January 1, 1997, are as follows:
YEAR ENDED DECEMBER 31, 1998 1997
----------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net sales $6,613.0 $6,760.1
Net income 475.1 307.5
Basic earnings per share $1.69 $1.10
Mergers:
On May 7, 1998, a subsidiary of the Company merged with Calphalon
Corporation ("Calphalon"), a manufacturer and marketer of gourmet
cookware. The Company issued approximately 3.1 million shares of
common stock for all of the common stock of Calphalon. This
transaction was accounted for as a pooling of interests; therefore,
prior financial statements were restated to reflect this merger.
Calphalon now operates as its own division.
On March 24, 1999, the Company completed the Rubbermaid merger.
The merger qualified as a tax-free exchange and was accounted for as a
pooling of interests. Newell issued .7883 Newell Rubbermaid shares for
each outstanding share of Rubbermaid common stock. A total of 119.0
million shares (after adjustment for fractional and dissenting shares)
of the Company's common stock were issued as a result of the merger, and
Rubbermaid's outstanding stock options were coverted into options to
purchase approximately 2.5 million Newell Rubbermaid common shares.
50
No adjustments were made to the net assets of the combining
companies to adopt conforming accounting practices or fiscal years
other than adjustments to eliminate the accounting effects related to
Newell's purchase of former Rubbermaid operating division (Eldon) in
1997. Because the Newell Rubbermaid merger was accounted for as a
pooling of interests, the accounting effects of Newell's purchase of
Eldon has been eliminated as if Newell had always owned Eldon. The
following table presents a reconciliation of net sales and net
income for Newell, Rubbermaid and Calphalon individually to those
presented in the accompanying consolidated financial statements:
YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------------------------------------
(IN MILLIONS)
Net sales:
Newell $3,613.5 $3,234.3 $2,872.8
Rubbermaid 2,463.6 2,305.2 2,261.1
Calphalon 106.6 101.9 100.0
-------- ------- --------
Total net sales $6,183.7 $5,641.4 $5,233.9
======= ======= ========
Net income (loss):
Newell $ 405.9 $ 279.0 $ 256.5
Rubbermaid 82.9 39.9 152.4
Calphalon (7.0) 2.7 2.5
------- ------ --------
Total net income $ 481.8 $ 321.6 $ 411.4
======= ======= ========
Divestitures:
On April 29, 1998, the Company sold the assets representing the
operations of its decorative covering product line (Decora). On
August 21, 1998, the Company sold its school supplies and stationery
business (Stuart Hall). On September 9, 1998, the Company sold its
plastic storage and serveware business (Newell Plastics). The pre-tax
net gain on the sales of these businesses was $59.8 million, most of
which was offset by non-deductible goodwill, resulting in a net
after-tax gain of $15.1 million. Sales for these businesses prior
to their divestitures were approximately $131 million in 1998 and
$229 million in 1997.
51
NOTE 3
RESTRUCTURING COSTS
1995 Restructuring Program
--------------------------
During the fourth quarter of 1995, Rubbermaid approved a two-year
strategic restructuring program designed to reduce costs, improve
operating efficiencies and accelerate growth. During 1997, Rubbermaid
revised the estimate of costs to complete the program and included an
additional $16.0 million non-cash charge ($9.9 million after tax) in
1997 to revise an estimate of costs to write-down certain fixed assets
to fair value. This program was completed in 1997 and no reserves remain.
1997 Restructuring Program
--------------------------
As a result of the merger with Rubbermaid, Newell reversed the
accounting impacts of its acquisition of Rubbermaid's office products
business acquired by Newell on June 13, 1997. The reversal of the
purchase price allocation resulted in the Company recording a $21.2
million ($12.8 million after taxes) restructuring charge to reflect
costs for plant closure, product line discontinuance and employee
termination costs related to the integration of the Rubbermaid office
products business into the Newell Office Products division. These
costs had previously been reflected in the purchase price allocation of
the business. Plant closure costs of $1.4 million were recorded related
to the closure of a U.K. facility in Sheffield England. Product line
discontinuance costs of $15.7 million were recorded for exiting certain
product lines. Such exit costs include $5.5 million for fixed asset
and mold impairments associated with the discontinued product lines, and
$7.1 million to write-off packaging that could no longer be used in
accordance with the asset purchase agreement. Employee termination costs
of $4.1 million were also recorded related to severed employees. This
restructuring program was completed by December 31, 1998, and no
reserves remain.
1998 Restructuring Program
--------------------------
During January 1998, Rubbermaid announced a series of restructuring
initiatives to establish a central global procurement organization and
to consolidate, automate, or relocate its worldwide manufacturing and
distribution operations. During 1998, Rubbermaid recorded pretax charges
of $115.2 million ($74.9 million after tax). The 1998 restructuring
charge included: (1) $16.0 million relating to employee severance and
termination benefits for approximately 600 sales and administrative
employees, (2) $53.4 million for costs to exit business activities
at five facilities and (3) $45.8 million to write-down impaired long-
lived assets to their fair value. The $53.4 million charge for costs
to exit business activities related to exit plans for the closure of a
plastics houseware molding and warehouse operation in the State of New
York, the closure of a commercial play systems warehouse and
manufacturing facility in Australia, the closure of a cleaning products
manfacturing operation in North Carolina, the elimination of Rubbermaid's
Asia Pacific regional headquarters and the related joint venture in
Japan and the closure of a distribution facility in France. The
exiting of the operations described above necessitated a revaluation of
cash flows related to those operations, resulting in the $45.8 million
charge to write-down $26.0 million of fixed assets and $19.8 million of
goodwill to fair value. Rubbermaid determined that the future cash
flows on an undiscounted basis (before taxes and interest) were not
sufficient to cover the carrying value of the long-lived assets affected
by those decisions. Management determined the fair value of these
assets using discounted cash flows. Approximately $67.0 million of the
restructuring charges recorded in 1998 have been or will be settled
in cash. As of December 31, 1998, $1.6 million of reserves remain for
the 1998 restructuring program for employee severance costs that have been
incurred, but not paid.
52
1999 Restructuring Program
---------------------------
The 1998 restructuring program was terminated in the first quarter
of 1999 after the Newell merger with Rubbermaid. Management is currently
formulating a new restructuring plan for the combined Company and will
likely record a restructuring reserve in 1999 to reflect costs associated
with redundant facility closures and related employee termination
benefits.
53
NOTE 4
CREDIT ARRANGEMENTS
The Company has short-term foreign and domestic uncommitted lines
of credit (notes payable) 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.
The following is a summary of borrowings under foreign and
domestic lines of credit:
DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------------------------------------
(IN MILLIONS)
Notes payable to banks:
Outstanding at year-end
- borrowing $94.6 $226.6 $116.3
- weighted average
interest rate 5.8% 5.6% 5.1%
Average for the year
- borrowing $144.7 $240.8 $122.1
- weighted average
interest rate 6.1% 5.6% 5.4%
Maximum borrowing
outstanding during
the year $205.1 $455.7 $371.0
The Company can also issue commercial paper (as described in note 5
to the consolidated financial statements), as summarized below:
DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------------------------------
(IN MILLIONS)
Commercial paper:
Outstanding at year-end
- borrowing $500.2 $566.7 $761.4
- average interest rate 5.5% 6.4% 5.8%
Average for the year
- borrowing $620.4 $979.7 $756.5
- average interest rate 5.5% 5.7% 5.4%
Maximum borrowing
outstanding during
the year $1,028.8 $1,618.2 $1,094.0
54
NOTE 5
LONG-TERM DEBT
The following is a summary of long-term debt:
DECEMBER 31, 1998 1997 1996
------------------------------------------------------------------------------------
(IN MILLIONS)
Medium-term notes $883.5 $413.0 $445.0
Commercial paper 500.2 566.7 761.4
Other long-term debt 17.5 41.6 29.3
------ ------- ------
1,401.2 1,021.3 1,235.7
Current portion (7.3) (31.6) (38.2)
------- ------- -------
$1,393.9 $989.7 $1,197.5
======= ======= =======
During 1997, the Company amended its revolving credit agreement
to increase the aggregate borrowing limit to $1.3 billion. The revolving
credit agreement will terminate in August 2002. At December 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 December 31, 1998, $125.0 million (principal
amount) of commercial paper was outstanding. The entire amount is
classified as long-term debt.
The revolving credit agreement permits the Company to borrow
funds on a variety of interest rate terms. This agreement requires,
among other things, that the Company maintain a certain Total
Indebtedness to Total Capital Ratio, as defined in this agreement. As
of December 31, 1998, the Company was in compliance with this
agreement.
The Company entered into a committed credit facility agreement in
January of 1996, under which the Company can issue up to $500 million of
commercial paper. This facility is subject to normal banking terms and
conditions and expires in January of 2001. At December 31, 1998, $375.2
million (principal amount) of commercial paper was outstanding under this
agreement and classified as long-term debt.
The Company has a universal shelf registration statement on file
for the issuance of up to $500.0 million of debt and equity securities
from time to time. The Company issued during 1998 and has
outstanding as of December 31, 1998 a total of $470.5 million of
Medium-term notes under this program. The maturities on these notes
range from five to thirty years at an average interest rate of 6.0%.
55
At December 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 interest rate of 6.3%.
During January 1996, the Company filed a shelf registration with
the Securities and Exchange Commission for up to $400.0 million of
Medium-term Unsecured Debt Securities and in November 1996, issued $150.0
million Medium-term Notes with a maturity of 2006 and a coupon rate of
6.6%. At December 31, 1998, $150.0 million (principal amount) of these
Notes were outstanding.
The aggregate maturities of Long-term Debt outstanding are as
follows:
DECEMBER 31, AGGREGATE MATURITIES
---------------------------------------------------------------
(In millions)
1999 $ 7.3
2000 148.4
2001 378.3
2002 227.7
2003 118.2
Thereafter 521.3
------
$1,401.2
========
56
NOTE 6
COMPANY-OBLIGATED 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 the
approximate conversion price of $50.685 per share of Common Stock),
subject to adjustment in certain 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 limited guarantee by the Company 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 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 on 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.
57
NOTE 7
DERIVATIVE FINANCIAL INSTRUMENTS
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. Cash flows
related to interest rate swap agreements are included in interest
expense over the terms of the agreements.
The Company utilizes forward exchange contracts to manage foreign
exchange risk related to anticipated intercompany and third-party
commercial transaction exposures of one year duration or less. 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 and losses included in the
consolidated statements of income.
The following table summarizes the Company's forward contracts in
U.S. dollars by major currency and contractual amount. The "buy"
amounts represent the U.S. equivalent of commitments to purchase
foreign currencies, and the "sell" amounts represent the U.S.
equivalent of commitments to purchase foreign currencies according to
local needs in foreign subsidiaries. The contractual amounts of
significant forward contracts and their fair value were as follows:
DECEMBER 31, 1998 1997
------------------------------------------- ---------------
(IN MILLIONS)
Buy Sell Buy Sell
-------------- ---------------
British pounds $ - $ 7.4 $ - $ -
Belgian francs - 8.6 - -
Canadian dollars - 18.8 - -
French francs - 154.8 8.4 23.5
Deutsch marks 0.4 171.5 0.3 4.1
Japanese yen - - 18.2 -
--------------- ----------------
$0.4 $361.1 $26.9 $27.6
=============== ================
Fair Value $0.3 $361.2 $26.2 $27.3
=============== =================
The Company's forward contracts do not subject the Company to
risk due to foreign exchange rate movement, since gains and losses on
these contracts generally offset losses and gains on the assets,
liabilities and other transactions being hedged. The Company does not
obtain collateral or other security to support derivative financial
instruments subject to credit risk but monitors the credit standing of
the counterparties.
58
NOTE 8
LEASES
The Company has minimum rental payments through the year 2018 under
noncancellable operating leases as follows:
YEAR ENDED DECEMBER 31, MINIMUM PAYMENTS
--------------------------------------------------------------
(IN MILLIONS)
1999 $ 40.6
2000 26.3
2001 19.0
2002 14.7
2003 8.8
Thereafter 13.1
-----
$122.5
=====
Total rental expense for all operating leases was approximately
$63.7 million, $59.5 million and $53.8 million in 1998, 1997 and 1996,
respectively.
59
NOTE 9
EMPLOYEE BENEFIT RETIREMENT PLANS
The Company and its subsidiaries have noncontributory pension and
profit sharing plans covering substantially all of its foreign and
domestic employees. Pension plan benefits are generally based on
years of service and/or compensation. The Company's funding policy is
to contribute not less than the minimum amounts required by the
Employee Retirement Income Security Act of 1974 or local statutes to
assure that plan assets will be adequate to provide retirement
benefits. The Company's common stock comprised $69.3 million, $71.4
million and $52.9 million of pension plan assets at December 31, 1998,
1997 and 1996, respectively. Total expense under all profit sharing
plans was $25.0 million, $18.3 million and $20.8 million for the
years ended December 31, 1998, 1997 and 1996, respectively. In
addition to the Company's pension and profit sharing plans, several of
the Company's subsidiaries currently provide retiree health care
benefits for certain employee groups. The following provides a
reconciliation of benefit obligations, plan assets and funded status
of the plans, within the guidelines of SFAS No. 132:
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, 1998 1997 1996 1998 1997 1996
--------------------------------------------- ------------------------
(IN MILLIONS)
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation at
January 1 $578.0 $484.7 $313.4 $175.3 $147.9 $147.1
Service cost 20.1 15.9 16.3 3.3 3.1 3.6
Interest cost 42.7 38.7 36.2 12.8 11.9 11.4
Amendments 2.2 0.1 - - - -
Actuarial loss/(gain) 34.3 11.9 (13.1) 7.8 1.8 1.4
Acquisitions 33.7 60.6 162.3 - 24.7 -
Currency exchange (0.3) - 1.6 - - -
Benefits paid
from plan assets (37.1) (33.9) (32.0) (15.0) (14.1) (15.6)
----- ----- ----- ------ ----- -----
Benefit obligation
at December 31 $673.6 $578.0 $484.7 $184.2 $175.3 $147.9
====== ====== ====== ====== ====== ======
60
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, 1998 1997 1996 1998 1997 1996
------------------------------------------------------ -----------------------------
(IN MILLIONS)
CHANGE IN PLAN ASSETS
Fair value of plan
assets at January 1 $738.4 $587.6 $341.9 $ - $ - $ -
Actual return on plan assets (5.9) 111.6 73.1 - - -
Employer contributions 5.0 4.1 4.5 15.0 14.1 15.6
Acquisitions 14.1 69.1 198.7 - - -
Currency exchange (0.8) (0.1) 1.4 - - -
Benefits paid
from plan assets (37.1) (33.9) (32.0) (15.0) (14.1) (15.6)
----- ----- ----- ----- ----- -----
Fair value of plan
assets at December 31 $713.7 $738.4 $587.6 $ - $ - $ -
====== ====== ====== ===== ====== ======
FUNDED STATUS
Funded status at
December 31 $40.1 $160.4 $102.9 $(184.2) $(175.2) $(147.9)
Unrecognized net gain (7.9) (105.4) (46.8) (20.1) (28.7) (27.7)
Unrecognized prior
service cost (2.0) (5.1) (5.6) 0.3 0.3 (4.3)
Unrecognized net asset (4.9) (5.2) (6.2) - - -
------ ------ ------ ----- ----- -----
Net amount recognized $ 25.3 $ 44.7 $ 44.3 $(204.0) $(203.6) $(179.9)
====== ====== ====== ====== ====== ======
AMOUNTS RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost(1) $71.8 $77.4 $71.3 $- $- $-
Accrued benefit cost(2) (50.4) (34.4) (27.6) (204.0) (203.6) (179.9)
Intangible asset(1) 3.9 1.7 0.6 - - -
------ ------ ------ ------ ------ ------
Net amount recognized $25.3 $44.7 $44.3 $(204.0) $(203.6) $(179.9)
====== ====== ====== ====== ====== ======
ASSUMPTIONS AS OF
DECEMBER 31
Discount rate 7.00% 7.75% 7.75% 6.75-7.00% 7.25-7.50% 7.75%
Long-term rate of
return on plan assets 10.00% 9.00% 9.00% - - -
Long-term rate of
compensation increase 5.00% 5.00% 5.00% - - -
Health care cost
trend rate(3) - - - 7.00-8.00% 9.00% 9.00-10.00%
(1) Recorded in Other Non-current Assets
(2) Recorded in Other Non-current Liabilities
(3) The assumed health care cost trend rate decreases one percent every
year through 2000 to 6% and remains constant beyond that point.
61
Net pension costs and other postretirement benefit costs include the
following components:
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
YEAR ENDED DECEMBER 31, 1998 1997 1996 1998 1997 1996
---------------------------------------------------- ---------------------------------------
(IN MILLIONS)
Service cost-benefits
earned during the year $19.3 $16.0 $16.3 $3.3 $3.0 $3.6
Interest cost on projected
benefit obligation 45.3 38.7 36.2 12.9 11.9 11.4
Expected return on plan assets
(59.0) (57.7) (50.0) - - -
Amortization of:
Transition asset (1.1) (1.1) (1.1) (0.5) (0.2) (0.2)
Prior service cost recognized(0.3) (0.3) (0.3) (0.4) (1.4) (1.1)
Actuarial (gain)/loss (1.8) 5.5 1.6 - - -
------ ------ ------ ------ ------ ------
$2.4 $1.1 $2.7 15.3 13.3 13.7
====== ====== ====== ====== ====== ======
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets are as follows:
DECEMBER 31, 1998 1997 1996
---------------------------------------------------------------------
(IN MILLIONS)
Projected benefit
obligation $129.6 $68.4 $39.7
Accumulated benefit
obligation 110.0 55.1 28.4
Fair value of plan assets 52.1 22.1 1.8
The health care cost trend rate significantly affects the reported
postretirement benefit costs and benefit obligations. A one percentage
point change in the assumed rate would have the following effects:
1% Increase 1% Decrease
----------------------------------------------------------------------
(IN MILLIONS)
Effect on total of service
and interest cost components $2.0 $(1.2)
Effect on postretirement
benefit obligations 16.9 (11.2)
62
NOTE 10
STOCKHOLDERS' EQUITY
The Company's Common Stock consists of 400.0 million authorized
shares, with a par value of $1 per share. Of the total unissued
common shares at December 31, 1998, total shares in reserve included
9.2 million shares for issuance under the Company's stock option plans.
Each share of Common Stock includes a stock purchase right (a
"Right"). Each Right will entitle the holder, until the earlier of
October 31, 2008 or the redemption of the Rights, to buy the number
of shares of Common Stock having a market value of two times the exercise
price of $200, subject to adjustment under certain circumstances. The
Rights will be exercisable only if a person or group acquires 15% or more
of voting power of the Company or announces a tender offer following which
it would hold 15% or more of the Company's voting power. The Rights held
by the 15% stockholder would not be exercisable in this situation.
Furthermore, if, following the acquisition by a person or group of
15% or more of the Company's voting stock, the Company was acquired in
a merger or other business combination of 50% or more or it assets were
sold, each Right (other than Rights held by the 15% stockholder) would
become exercisable for that number of shares of Common Stock of the Company
(or the surviving company in a business combination) having a market
value of 2 times the exercise price of the Right.
The Company may redeem the Rights at $0.001 per Right prior to the
occurrence of an event that causes the Rights to become exercisable
for Common Stock.
63
NOTE 11
STOCK OPTIONS
The Company's stock option plans are accounted for under APB
Opinion No. 25. As a result, the Company grants fixed stock options
under which no compensation cost is recognized. Had compensation cost
for the plans been determined consistent with FASB Statement No. 123,
the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
YEAR ENDED DECEMBER 31, 1998 1997
---------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net income: As reported $481.8 $321.6
Pro forma 467.3 313.9
Diluted EPS: As reported $1.70 $ 1.14
Pro forma 1.65 1.11
Because the FASB Statement No. 123 method of accounting has not
been applied to options granted prior to January 1, 1995, the
resulting pro forma compensation cost may not be representative of
that to be expected in future years.
The Company may grant up to 8.0 million shares under the 1993 Stock
Option Plan, of which, the Company has granted 2.5 million shares and
cancelled 0.3 million shares through December 31, 1998. Under this
plan, the option exercise price equals the Common Stock's closing
price on the date of grant, vests over a five-year period and expires
after ten years.
64
The following summarizes the changes in number of shares of Common
Stock under option:
Weighted
Average
Exercise
1998 Shares Price
-----------------------------------------------------------------
Outstanding at
beginning of year 3,720,301 $28
Granted 1,576,467 38
Exercised (753,261) 23
Cancelled (190,360) 30
---------
Outstanding at end of year 4,353,147 32
==========
Exercisable at end of year 3,189,309 30
==========
Weighted average
fair value of options
granted during the year $13
===
The 4,353,147 options outstanding at December 31, 1998 have exercise
prices between $12 and $49 and are summarized below:
Options Outstanding
-------------------
Weighted
Range of Number Weighted Average
Exercise Outstanding at Average Remaining
Prices December 31, 1998 Exercise Price Contractual Life
-----------------------------------------------------------------------
$12-15 142,676 $14 2
16-25 662,787 21 5
26-35 2,219,785 31 8
36-45 1,167,199 40 8
46-49 160,700 48 9
---------
$12-49 4,353,147 32 7
=========
65
The 3,189,309 options exercisable at December 31, 1998 have exercise
prices between $12 and $44 and are summarized below:
Options Exercisable
-------------------
Range of Number Weighted
Exercise Exercisable at Average
Prices December 31, 1998 Exercise Price
------------------------------------------------------------------------------------------------------------
$12-15 142,676 $14
16-25 540,435 20
26-35 1,992,638 32
36-44 513,560 39
---------
$12-44 3,189,309 30
=========
Weighted
Average
Exercise
1997 Shares Price
------------------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 2,808,901 $25
Granted 1,488,242 33
Exercised (366,275) 18
Cancelled (210,567) 28
=========
Outstanding at end of year 3,720,301 28
=========
Exercisable at end of year 1,898,754 27
=========
Weighted average
fair value of options
granted during the year $9
==
66
Weighted
Average
Exercise
1996 Shares Price
------------------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 2,362,548 $23
Granted 870,545 26
Exercised (243,773) 17
Cancelled (180,419) 24
---------
Outstanding at end of year 2,808,901 25
=========
Exercisable at end of year 1,218,696 22
=========
Weighted average
fair value of options $8
granted during the year ==
The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model. The assumptions used
for grants in 1998, 1997 and 1996 were adjusted for market conditions at
the date of grant. The following ranges of assumptions were used in the
option pricing model, risk-free interest rates of 4.1% to 6.4%, expected
dividend yields of 1.6% to 2.0%, expected lives of 5 to 9.9 years and
expected violatility of 20% to 34%.
67
NOTE 12
INCOME TAXES
The provision for income taxes consists of the following:
DECEMBER 31, 1998 1997 1996
--------------------------------------------------------
(IN MILLIONS)
Current:
Federal $217.1 $109.5 $135.4
State 26.0 19.7 20.4
Foreign 10.3 25.3 12.9
----------------------------
253.4 154.5 168.7
Deferred 81.7 68.5 93.2
----------------------------
Total $335.1 $223.0 $261.9
============================
The non-U.S. component of income before income taxes was $19.1
million in 1998, $75.8 million in 1997 and $51.4 million in 1996.
The components of the net deferred tax asset are as follows:
DECEMBER 31, 1998 1997 1996
-----------------------------------------------------------------
(IN MILLIONS)
Deferred tax assets:
Accruals, not currently
deductible for
tax purposes $132.9 $159.2 $172.1
Postretirement liabilities 78.5 79.8 70.1
Inventory reserves 25.3 35.7 29.2
Self-insurance liability 44.1 39.1 41.6
Amortization of intangibles 13.6 43.6 -
Other 2.9 1.0 1.9
----------------------------
$297.3 $358.4 $314.9
Deferred tax liabilities:
Accelerated depreciation (152.1) (136.7) (106.8)
Prepaid pension asset (27.1) (31.1) (30.5)
Unrealized gain on
securities available
for sale - (51.5) (23.9)
Amortization of
Intangibles - - (32.5)
Other (14.4) (23.1) (19.3)
----------------------------
(193.6) (242.4) (213.0)
----------------------------
Net deferred tax asset $103.7 $116.0 $101.9
============================
68
The net deferred tax asset is classified in the consolidated
balance sheets as follows:
DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------
(IN MILLIONS)
Current net deferred
income tax asset $108.2 $157.1 $169.9
Non-current deferred
income tax liability (4.5) (41.1) (68.0)
----------------------------
$103.7 $116.0 101.9
============================
A reconciliation of the U.S. statutory rate to the effective income
tax rate is as follows:
YEAR ENDED DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------------
(IN PERCENT)
Statutory rate 35.0% 35.0% 35.0%
Add (deduct) effect of:
State income taxes, net of
federal income tax effect 3.2 3.4 3.2
Nondeductible trade names
and goodwill amortization 1.3 2.5 1.0
Tax basis differential on
sales of businesses 2.7 1.1 -
Other (1.2) (1.1) (0.3)
--------------------------
Effective rate 41.0% 40.9% 38.9%
==========================
No U.S. deferred taxes have been provided on the undistributed non-
U.S. subsidiary earnings which are considered to be permanently invested.
At December 31, 1998, the estimated amount of total unremitted non-U.S.
subsidiary earnings is $72.9 million.
69
NOTE 13
OTHER NON-OPERATING (INCOME) EXPENSES
Total other non-operating (income) expenses consist of the following:
YEAR ENDED DECEMBER 31, 1998 1997 1996
------------------------------------------------------------
(IN MILLIONS)
Equity earnings* $ (7.1) $ (5.8) $ (6.4)
Interest income (14.8) (7.5) (5.6)
Dividend income (0.1) (4.0) (11.0)
Gain on sale of marketable
equity securities (191.5) (2.9) -
Gain on sale of
businesses (59.8) - -
Minority interest in income
of subsidiary trust 26.7 1.5 -
Currency translation loss 6.0 0.3 -
Other 3.5 (0.9) (0.1)
---------------------------
$(237.1) $(19.3) $(23.1)
===========================
*Equity earnings in American Tool Companies, Inc., in which
the Company has a 49% interest.
70
NOTE 14
OTHER OPERATING INFORMATION
INDUSTRY SEGMENT INFORMATION
As of December 31, 1998, the Company adopted SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information."
After reviewing the criteria for determining segments, the Company
believes it has three reportable operating segments: Household Products,
Hardware and Home Furnishings and Office Products. This segmentation
is appropriate because the Company organizes its product categories into
these groups when making operating decisions and assessing
performance, and the Company divisions included in each group sell
primarily to the same retail channel: Household Products (discount stores
and warehouse clubs), Hardware and Home Furnishings (home centers and
hardware stores) and Office Products (office superstores and contract
stationers). After the recent merger with Rubbermaid, the Company
added the Rubbermaid divisions to the former Housewares segment to create
the Household Products segment.
The principal product categories included in each of the Company's
business segments are as follows:
Segment Product Category
---------------------------------------------------------
Household Products Home Products,
Aluminum Cookware and
Bakeware, Glassware,
Infant/Juvenile
Products, Hair Accessories
Hardware & Home Window Treatments,
Furnishings Hardware and Tools,
Picture Frames,
Home Storage
Office Products Markers and Writing
Instruments, Office
Storage and Organization
71
Net Sales*
YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
Household Products $3,385.3 $3,199.6 $3,043.4
Hardware &
Home Furnishings 1,758.1 1,484.8 1,299.3
Office Products 1,040.3 957.0 891.2
---------------------------------
Total Net Sales $6,183.7 $5,641.4 $5,233.9
=================================
* Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to
approximately 14% of consolidated net sales in 1998, 15% in 1997
and 14% in 1996. Sales to no other customer exceeded 10% of
consolidated net sales.
Operating Income (Expense)
YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
Household Products $376.7 $397.5 $430.6
Hardware &
Home Furnishings 290.2 241.1 185.3
Office Products 212.3 194.5 179.0
Corporate (83.7) (156.2) (59.9)
-------------------------------
Subtotal $795.5 $676.9 $735.0
Restructuring Costs (115.2) (37.2) -
-------------------------------
Total Operating Income $680.3 $639.7 $735.0
===============================
Identifiable Assets
DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
Household Products $2,286.3 $2,036.1 $2,162.0
Hardware &
Home Furnishings 995.8 850.8 656.8
Office Products 643.0 520.7 355.5
Corporate 2,364.1 2,367.6 1,938.1
---------------------------------
Total Identifiable Assets $6,289.2 $5,775.2 $5,112.4
=================================
72
Capital Expenditures
YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
Household Products $213.9 $168.4 $213.0
Hardware &
Home Furnishings 39.1 30.3 27.7
Office Products 24.9 26.4 20.3
Corporate 40.8 23.9 7.0
-------------------------------
Total Capital Expenditures $318.7 $249.0 $268.0
===============================
Depreciation and Amortization
YEAR ENDED DECEMBER 31, 1998 1997 1996
----------------------------------------------------------------
(IN MILLIONS)
Household Products $149.2 $140.6 $132.9
Hardware &
Home Furnishings 31.2 33.4 28.0
Office Products 28.7 21.6 16.0
Corporate 54.7 52.2 50.3
-------------------------------
Total Depreciation
and Amortization $263.8 $247.8 $227.2
===============================
GEOGRAPHIC AREA INFORMATION
Net Sales
YEAR ENDED DECEMBER 31, 1998 1997 1996
--------------------------------------------------------------
(IN MILLIONS)
United States $4,825.4 $4,769.5 $4,509.2
Canada 273.9 258.9 239.8
---------------------------------
North America $5,099.3 $5,028.4 $4,749.0
Europe 849.8 395.4 299.3
Latin America* 205.3 136.8 100.8
All other 29.3 80.8 84.8
---------------------------------
Total Net Sales $6,183.7 $5,641.4 $5,233.9
=================================
73
Operating Income (Expense)
YEAR ENDED DECEMBER 31, 1998 1997 1996
---------------------------------------------------------------
(IN MILLIONS)
United States $617.0 $542.0 $653.9
Canada 16.6 32.9 23.3
-------------------------------
North America $633.6 $574.9 $677.2
Europe 24.0 31.3 28.6
Latin America* 41.2 32.9 25.4
All other (18.5) 0.6 3.8
-------------------------------
Total Operating Income $680.3 $639.7 $735.0
================================
*Includes Mexico, Venezuela and Colombia, and in 1998, Brazil and
Argentina.
Identifiable Assets
DECEMBER 31, 1998 1997 1996
-------------------------------------------------------------
(IN MILLIONS)
United States $4,648.2 $4,948.6 $4,563.8
Canada 207.0 253.7 169.9
----------------------------------
North America $4,855.2 $5,202.3 $4,733.7
Europe 1,135.2 400.7 245.1
Latin America* 276.7 118.4 70.0
All other 22.1 53.8 63.6
---------------------------------
Total Identifiable Assets $6,289.2 $5,775.2 $5,112.4
=================================
* Includes Mexico, Venezuela and Colombia, and in 1998, Brazil and
Argentina.
Operating income is net sales less cost of products sold and
selling, general and administrative expenses, but is not affected
either by nonoperating (income) expenses or by income taxes.
Nonoperating (income) expenses consists principally of net interest
expense, and in 1998, the net gain on the sale of Black & Decker
common stock and the net gains on the sales of Stuart Hall and Newell
Plastics and Decora. In calculating operating income for individual
business segments, certain headquarter expenses of an operational nature
are allocated to business segments and geographic areas primarily on a net
sales basis. Trade names and goodwill amortization is considered a
corporate expense and not allocated to business segments. All
intercompany transactions have been eliminated, and transfers of
finished goods between geographic areas are not significant.
Corporate assets primarily include trade names and goodwill, equity
investments and deferred tax assets.
74
NOTE 15
LITIGATION
The Company is subject to certain legal proceedings and claims,
including the environmental matters described below, that have arisen
in the ordinary conduct of its business.
As of December 31, 1998, the Company was involved in various
matters concerning federal and state environmental laws and
regulations, including matters in which the Company has been
identified by the U.S. Environmental Protection Agency and certain
state environmental agencies as a potentially responsible party
("PRPs") at contaminated sites under the Federal 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 contributions at each site relative to that of other PRPs;
the kind of waste; the terms of existing cost sharing and other
applicable 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
December 31, 1998 ranged between $15.6 million and $20.1 million. As
of December 31, 1998, the Company had a reserve equal to $18.6 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.
Subject to the difficulties in estimating future environmental
response costs, the Company does not expect that any amount it may
have to pay in connection with environmental matters in excess of the
amounts reserved will have a material adverse effect on its consolidated
financial statements. However, 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,
the actual costs to be incurred by the Company may vary from the Company's
estimates.
The Company is involved in several legal proceedings relating to
the importation and distribution of vinyl mini-blinds made with
plastic containing lead stabilizers. In 1996, the Consumer Product
75
Safety Commission found that such stabilizers deteriorate over time
from exposure to sunlight and heat, causing lead dust to form on mini-
blind surfaces and presenting a health risk to children under six
years of age.
California. In July 1996, the California Attorney General and
the Alameda County District Attorney filed a civil suit against 12 named
companies, including a subsidiary of the Company, alleging failure to
warn consumers adequately about the presence of lead in accordance
with California law and seeking injunctions, civil penalties and
restitutionary relief.
In August 1996, 15 companies, including the subsidiary of the
Company, were named as defendants in a national and California private
class action in Sacramento County Superior Court. In October 1997, 16
additional companies were named as defendants in this case, in which
the plaintiffs alleged that the Company's subsidiary used false and
misleading advertising and employed unfair or fraudulent business
practices in connection with the presence of lead in their blinds.
These two cases were coordinated in 1996.
On June 22, 1998, the Court entered a Stipulated Consent Judgment
resolving the Attorney General's case as to the Company's subsidiary
and most of the defendants. On July 27, 1998, the coordination trial
judge ruled that this Consent Judgment barred the California claims of
the private class action plaintiffs, and on October 6, 1998, judgment
was entered for the Company's subsidiary and 22 of the other
defendants in the private class action. The private class action
plaintiffs have filed an appeal for both the Consent Judgment and the
Judgment entered in their action and applying for attorneys' fees for
their efforts at the trial court level. The Company's contribution to
the judgment amount was not material to the Company's consolidated financial
statements.
Illinois. 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.
Massachusetts. In December 1998, 13 companies, including a
subsidiary of the Company, were named as defendants in a third case
involving the importation and distribution of vinyl mini-blinds containing
lead. The case, filed as a Massachusetts class action in the Superior
Court, alleges misrepresentation, breaches of express and implied
warranties, negligence, loss of consortium and violation of Massachusetts
consumer protection laws. The plaintiffs seek injunctive relief,
unspecified damages, compensatory damages for personal injury and court
costs.
The Company has been involved in an additional legal proceeding. In
September 1997, an administrative law judge of the Federal Trade
Commission ("F.T.C.") ruled that a major customer of a subsidiary of
the Company illegally pressured manufacturers not to sell toys to
warehouse clubs. Subsequent to the F.T.C. decision, numerous class
action suits seeking damages on behalf of consumers were filed against
the customer and certain manfacturers, including the Company's
subsidiary, which was not named as a defendant in the F.T.C. suit. A
settlement agreement has been entered into by the Company and the
76
plaintiffs, including the Attorneys General for the 46 states involved
in the suit and the named class plaintiffs (for themselves and the
plaintiff settlement class). The settlement has been agreed to by counsel
for all parties and is awaiting notification of the class, a public
hearing and an order of the court awaiting notification of the class,
a public hearing and an order of the court approving it.
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.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
------------------------------------------------------
(a)(2) The following consolidated financial statement schedule of
the Company is included in this Exhibit 99.1 to the Company's
Current Report on Form 8-K is filed herewith pursuant to Item 14(d)
and appears immediately after this page:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
77
SCHEDULE II
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
---------------------------------------
Additions
-----------------------
Charged
Balance at to Costs Charged Balance at
Beginning and to Other End of
Description of Period Expenses Accounts (A) Deductions (B) Period
----------- --------- -------- -------- ---------- -----------
Allowance for
doubtful accounts
for the years ended:
December 31, 1998* $30,075 $5,488 $14,028 ($15,434) $34,157
December 31, 1997* 25,890 3,870 8,321 (8,006) 30,075
December 31, 1996* 22,781 6,967 2,200 (6,058) 25,890
Note A - Represents recovery of accounts previously written off, along with net reserves of acquired and divested businesses.
Note B - Represents accounts charged off.
Balance at Balance at
Beginning End of
of Period Provision Write-offs Other(C) Period
--------- --------- ---------- -------- ----------
Inventory reserves for
the years ended:
December 31, 1998* $119,179 $13,338 ($29,293) $10,551 $113,775
December 31, 1997* 113,487 16,821 (30,332) 19,203 119,179
December 31, 1996* 99,151 22,708 (30,721) 22,349 113,487
Note C - Represents net reserves of acquired and divested businesses, including provisions for product line rationalization.
Balance at Balance at
Beginning Charges to End of
of Period Provision reserves (D) Other Period
--------- --------- ------------ ------ ----------
Restructuring reserves for
the years ended:
December 31, 1998* $ 1,529 $115,154 ($115,124) $ - $ 1,559
December 31, 1997* 26,483 37,200 (62,154) - 1,529
December 31, 1996* 117,011 - (90,528) - 26,483
Note D - Represents costs charged to restructuring reserves in accordance with the restructuring plan.
* Restated for the merger with Rubbermaid Incorporated on March 24,
1999, which was accounted for as a pooling of interests.
EXHIBIT 99.2
------------
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Rubbermaid Incorporated:
We have audited the consolidated balance sheets of Rubbermaid
Incorporated and subsidiaries (the Company) as of January 1, 1999, and
December 31, 1997 and 1996, and the related consolidated statements
of earnings, shareholders' equity and comprehensive income, and
cash flows for each of the years in the three-year period ended
January 1, 1999 (the consolidated financial statements are not
included herein). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Rubbermaid Incorporated and subsidiaries as of January 1, 1999, and
December 31, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period ended
January 1, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Cleveland, Ohio
February 5, 1999, except as to note 15,
which is as of March 24, 1999
EXHIBIT 99.3
NEWELL SAFE HARBOR STATEMENT
----------------------------
The Company has made statements in its Annual Report on Form 10-K
for the year ended December 31, 1998 and the documents incorporated by
reference therein that constitute forward-looking statements, as
defined by the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties. The statements
may relate to information or assumptions about sales, income, earnings
per share, return on equity, capital expenditures, dividends, capital
structure, free cash flow, debt to capitalization ratios, interest rates,
internal growth rates, Euro conversion plans and related risks, Year
2000 plans and related risks, pending legal proceedings and claims
(including environmental matters), future economic performance,
operating income improvements, synergies, management's plans, goals
and objectives for future operations and growth. These statements
generally are accompanied by words such as "intend," "anticipate,"
"believe," "estimate," "project," "expect," "should" or similar
statements. You should understand that forward-looking statements are
not guarantees since there are inherent difficulties in predicting
future results. Actual results could differ materially from those
expressed or implied in the forward-looking statements. The factors
that are discussed below, as well as the matters set forth generally
in the 1998 Form 10-K and the documents that are incorporated by
reference therein, could cause actual results to differ. In addition,
there can be no assurance that:
- we have correctly identified and assessed all of the factors
affecting the Company; or
- the publicly available and other information with respect to
these factors is complete or correct.
Retail Economy
--------------
Our business depends on the strength of the retail economies in
various parts of the world, primarily in the U.S. and to a lesser
extent in:
- Europe, including the Middle East and Africa;
- Latin America; including Mexico and Central America;
- Canada; and
- Asia, including Australia and New Zealand.
These retail economies are affected by such factors as consumer
demand, the condition of the consumer products retail industry and
weather conditions. In recent years, the consumer products retail
industry has been characterized by intense competition and
consolidation among both product suppliers and retailers.
80
Nature of the Marketplace
-------------------------
We compete with numerous other manufacturers and distributors of
consumer products, many of which are large and well-established. In
addition, our principal customers are volume purchasers, many of which
are much larger than us and have strong bargaining power with
suppliers, which limits our ability to recover cost increases through
increased selling prices. The rapid growth of large mass
merchandisers, such as discount stores, warehouse clubs, home centers
and office superstores, together with changes in consumer shopping
patterns, have contributed to a significant consolidation of the
consumer products retail industry and the formulation of dominant
multi-category retailers. Other trends among retailers are to require
manufacturers to supply innovative new products, maintain or reduce
product prices or deliver products with shorter lead times, or for the
retailer to import generic products directly from foreign sources.
The combination of these market influences has created an intensely
competitive environment in which our principal customers continuously
evaluate which product suppliers to use, resulting in pricing
pressures and the need for ongoing improvements in customer service.
Growth by Acquisition
---------------------
The acquisition of companies that sell branded, staple consumer
product lines to volume purchasers is one of the foundations of our
growth strategy. Our ability to continue to make sufficient strategic
acquisitions at reasonable prices and to integrate the acquired
businesses within a reasonable period of time are important factors in
our future earnings growth.
Foreign Operations
------------------
Foreign operations, which include manufacturing in Canada,
Mexico, Brazil, Colombia, Venezuela and many countries in Europe, and
importing products from the Far East, increasingly are becoming
important to our business. Foreign operations can be affected by
factors such as currency devaluation, other currency fluctuations and
the Euro currency conversion, tariffs, nationalization, exchange
controls, interest rates, limitations on foreign investment in local
businesses and other political, economic and regulatory risks and
difficulties.
Integration of Rubbermaid
-------------------------
Our merger with Rubbermaid Incorporated was effective on March 24,
1999. After the merger, we commenced the process of integrating
81
Rubbermaid's businesses into our businesses, making senior management
changes at four of the five Rubbermaid divisions, administrative savings
initiatives, operations savings initiatives and customer service/sales
initiatives. Our ability to integrate these businesses successfully
and to realize anticipated operating income improvements will be
a challenge given the size of Rubbermaid and the differences in corporate
culture. All of these issues will be important factors in our future
earnings growth.