SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 2001
Commission File Number 1-9608
NEWELL RUBBERMAID INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3514169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29 East Stephenson Street
Freeport, Illinois 61032-0943
(Address of principal executive offices)
(Zip Code)
(815) 235-4171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes /x/ No / /
Number of shares of Common Stock outstanding (net of treasury shares)
as of August 6, 2001: 266,663,290
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $1,724,653 $1,787,025 $3,335,389 $3,416,004
Cost of products sold 1,271,118 1,299,549 2,490,078 2,520,044
---------- ---------- ---------- ----------
GROSS INCOME 453,535 487,476 845,311 895,960
Selling, general and
administrative expenses 278,459 221,589 543,066 461,197
Restructuring costs 7,695 7,774 17,674 8,537
Goodwill amortization and other 14,182 12,496 28,255 25,718
------- ------- ------- -------
OPERATING INCOME 153,199 245,617 256,316 400,508
------- ------- ------- -------
Nonoperating expenses:
Interest expense 35,596 33,988 74,917 61,837
Other, net 3,306 3,475 6,115 6,582
------ ------ ------ ------
Net nonoperating expenses 38,902 37,463 81,032 68,419
------ ------ ------ ------
INCOME BEFORE
INCOME TAXES 114,297 208,154 175,284 332,089
Income taxes 42,290 80,139 64,856 127,854
------- ------- ------- -------
NET INCOME $ 72,007 $ 128,015 $ 110,428 $ 204,235
========== =========== =========== ===========
Weighted average shares outstanding:
Basic 266,648 266,542 266,633 270,300
Diluted 266,648 276,492 266,633 280,255
Earnings per share:
Basic $ 0.27 $ 0.48 $ 0.41 $ 0.76
Diluted 0.27 0.48 0.41 0.76
Dividends per share $ 0.21 $ 0.21 $ 0.42 $ 0.42
See notes to consolidated financial statements.
2
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30, December 31,
2001 2000
------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,790 $ 22,525
Accounts receivable, net 1,246,645 1,183,363
Inventories, net 1,271,658 1,262,551
Deferred income taxes 237,248 231,875
Prepaid expenses and other 164,677 180,053
---------- ----------
TOTAL CURRENT ASSETS 2,936,018 2,880,367
MARKETABLE EQUITY SECURITIES 10,094 9,215
OTHER LONG-TERM INVESTMENTS 76,963 72,763
OTHER ASSETS 319,902 352,629
PROPERTY, PLANT AND
EQUIPMENT, NET 1,702,000 1,756,903
TRADE NAMES AND GOODWILL 2,155,713 2,189,948
---------- ----------
TOTAL ASSETS $7,200,690 $7,261,825
========== ==========
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, dollars in thousands)
June 30, December 31,
2001 2000
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 25,581 $ 23,492
Accounts payable 429,131 342,406
Accrued compensation 91,897 126,970
Other accrued liabilities 782,195 781,122
Income taxes 161,827 73,122
Current portion of long-term debt 174,040 203,714
---------- ----------
TOTAL CURRENT LIABILITIES 1,664,671 1,550,826
LONG-TERM DEBT 2,215,505 2,319,552
OTHER NON-CURRENT LIABILITIES 368,544 347,855
DEFERRED INCOME TAXES 95,008 93,165
MINORITY INTEREST 602 1,788
COMPANY-OBLIGATED MANDATORILY
REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF A
SUBSIDIARY TRUST 499,998 499,998
STOCKHOLDERS' EQUITY
Common stock - authorized shares,
800.0 million at $1 par value; 282,284 282,174
Outstanding shares:
2001 282.3 million
2000 282.2 million
Treasury stock, at cost; (408,459) (407,456)
Shares held:
2001 15.6 million
2000 15.6 million
Additional paid-in capital 217,925 215,911
Retained earnings 2,529,175 2,530,864
Accumulated other comprehensive loss (264,563) (172,852)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,356,362 2,448,641
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,200,690 $7,261,825
========== ==========
See notes to consolidated financial statements.
4
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $ 110,429 $ 204,235
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 167,404 154,153
Deferred income taxes 3,395 6,270
Non-cash restructuring charges 7,972 -
Other 1,620 (4,851)
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (71,259) (37,745)
Inventories (26,739) (171,959)
Other current assets 14,876 6,824
Accounts payable 88,332 (39,742)
Accrued liabilities and other 63,727 (13,910)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 359,757 $ 103,275
--------- ---------
INVESTING ACTIVITIES:
Acquisitions, net $ (16,383) $ (68,147)
Expenditures for property, plant and equipment (124,273) (159,067)
Disposals of non-current assets and other 17,684 8,302
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES $(122,972) $ (218,912)
--------- ----------
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited, in thousands)
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of debt $ 12,675 $ 768,075
Payments on notes payable and long-term debt (143,531) (219,176)
Proceeds from exercised stock options and other 992 (989)
Common stock repurchase - (402,962)
Cash dividends (111,990) (113,121)
---------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES $ (241,854) $ 31,827
---------- ----------
Exchange rate effect on cash (1,666) (2,457)
DECREASE IN CASH AND CASH EQUIVALENTS $ (6,735) $ (86,267)
Cash and cash equivalents at beginning of year 22,525 102,164
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,790 $ 15,897
========== ==========
Supplemental cash flow disclosures -
Cash paid during the period for:
Income taxes, net of refunds $ (27,643) $ 25,981
Interest $ 81,457 $ 79,199
See notes to consolidated financial statements.
6
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and reflect all
adjustments necessary to present a fair statement of the results for
the periods reported, subject to normal recurring year-end
adjustments, none of which is expected to be material. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest Annual Report on Form 10-K.
NOTE 2 - ACQUISITIONS
The Company made only minor acquisitions in 2001, for $6.5
million in cash and $0.1 million of assumed debt. In 2000, the
Company acquired the following:
BUSINESS BUSINESS DESCRIPTION ACQUISITION DATE INDUSTRY SEGMENT
Mersch SA Picture Frames January 24, 2000 Levolor/Hardware
Brio Picture Frames May 24, 2000 Levolor/Hardware
Paper Mate/Parker Writing Instruments December 29, 2000 Parker/Eldon
For these and for other minor acquisitions in 2000, the Company
paid $595.1 million in cash and assumed $15.0 million of debt.
The transactions summarized above were accounted for as
purchases; therefore, results of operations are included in the
accompanying consolidated financial statements since their respective
acquisition dates. The acquisition costs for the 2001 acquisitions
were allocated on a preliminary basis to the fair market value of the
assets acquired and liabilities assumed. The Company's finalized
integration plans may include exit costs for certain plants and
product lines and employee termination costs. The final adjustments
to the purchase price allocations are not expected to be material to
the consolidated financial statements.
The preliminary purchase price allocations for the 2001
acquisitions and the finalized purchase price allocations for the 2000
acquisitions resulted in trade names and goodwill of approximately
$285.7 million.
The unaudited consolidated results of operations for the six
months ended June 30, 2001 and 2000 on a pro forma basis, as though
7
the Mersch, Brio and Paper Mate/Parker businesses had been acquired on
January 1, 2000, are as follows (in millions, except per share
amounts):
Six Months Ended June 30,
-------------------------
2001 2000
---- ----
Net sales $3,335.4 $3,700.2
Net income $ 110.4 $ 187.9
Basic earnings per share $ 0.41 $ 0.70
NOTE 3 - RESTRUCTURING COSTS
Certain expenses incurred in the reorganization of the Company's
operations are considered to be restructuring expenses. Pre-tax
restructuring costs consisted of the following (in millions):
Six Months Ended
June 30,
----------------
2001 2000
---- ----
Employee severance and termination benefits $ 9.8 $ 3.4
Facility and product line exit costs 3.3 4.4
Contractual future maintenance costs - 0.7
Other Rubbermaid merger transaction costs 4.6 -
----- -----
$17.7 $ 8.5
===== =====
Restructuring provisions were determined based on estimates
prepared at the time the restructuring actions were approved by
management. Reserves that remained for restructuring provisions
consisted of the following (in millions):
June 30, December 31,
2001 2000
-------- ------------
Facility and product line exit costs $ 8.0 $11.4
Employee severance and termination
benefits 6.4 3.3
Contractual future maintenance costs 3.3 4.6
Other Rubbermaid merger transaction costs 4.8 2.6
----- -----
$22.5 $21.9
===== =====
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market value. The
components of inventories, net of LIFO reserve, were as follows (in
millions):
8
June 30, December 31,
2001 2000
-------- -----------
Materials and supplies $ 230.6 $ 244.8
Work in process 180.2 165.3
Finished products 860.9 852.5
--------- ----------
$ 1,271.7 $ 1,262.6
========= ==========
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
millions):
June 30, December 31,
2001 2000
-------- ------------
Land $ 59.4 $ 60.7
Buildings and improvements 744.8 736.1
Machinery and equipment 2,462.6 2,421.6
---------- ----------
$ 3,266.8 $ 3,218.4
Allowance for depreciation (1,564.8) (1,461.5)
---------- ----------
$ 1,702.0 $ 1,756.9
========== ==========
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) and machinery and equipment (2-15 years).
NOTE 6 - LONG-TERM DEBT
Long-term debt consisted of the following (in millions):
June 30, December 31,
2001 2000
-------- -----------
Medium-term notes $ 1,012.5 $ 1,012.5
Commercial paper 1,371.5 1,503.7
Other long-term debt 5.5 7.1
--------- ---------
$ 2,389.5 $ 2,523.3
Current portion (174.0) (203.7)
--------- ---------
$ 2,215.5 $ 2,319.6
========= =========
9
At June 30, 2001, $1,371.5 million (principal amount) of
commercial paper was outstanding. Of this amount, $1,300.0 million is
classified as long-term debt because it is supported by a $1,300.0
million long-term revolving credit agreement, and the remainder of
$71.5 million is classified as current portion of long-term debt.
NOTE 7 - EARNINGS PER SHARE
Basic and diluted earnings per share for the second quarter and
the first six months of 2001 and 2000 are calculated as follows (in
millions, except per share data):
Convertible
Basic "In the money" Preferred Diluted
Method stock options Securities Method
------ -------------- ----------- -------
Three months ended June 30, 2001:
Net Income $ 72.0 - $ - $ 72.0
Weighted average
shares outstanding 266.6 - - 266.6
Earnings per share (1) $ 0.27 - - $ 0.27
Three months ended June 30, 2000:
Net Income $ 128.0 - 4.1 $ 132.1
Weighted average
shares outstanding 266.5 0.1 9.9 276.5
Earnings per share $ 0.48 - - $ 0.48
Six months ended June 30, 2001:
Net Income $ 110.4 - - $ 110.4
Weighted average
shares outstanding 266.6 - - 266.6
Earnings per share (1) $ 0.41 - - $ 0.41
Six months ended June 30, 2000:
Net Income $ 204.2 - 8.2 $ 212.4
Weighted average
shares outstanding 270.3 - 10.0 280.3
Earnings per share $ 0.76 - $ - $ 0.76
(1) Diluted earnings per share for these periods exclude the impact
of "in the money" stock options and convertible preferred
securities because they are antidilutive.
10
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
The following tables display Comprehensive Income and the
components of Accumulated Other Comprehensive Loss (in millions):
Six Months Ended June 30
------------------------
2001 2000
---- ----
Comprehensive Income:
Net income $110.4 $204.2
Unrealized gain (loss) on
marketable securities 0.5 (1.4)
Derivatives hedging loss (8.2) -
Foreign currency
translation loss (84.0) (39.6)
------- ------
Total Comprehensive Income $ 18.7 $163.2
======= ======
After-tax Foreign Accumulated
Unrealized Currency Derivatives Other
Loss on Translation Hedging Comprehensive
Securities Loss Loss Loss
---------- ----------- ---------- -------------
Accumulated Other Comprehensive
Loss:
Balance at December 31, 2000 $ (1.1) $ (171.8) $ - $ (172.9)
Change during six months
ended June 30, 2001 0.5 (84.0) (8.2) (91.7)
------ --------- ------- --------
Balance at June 30, 2001 $ (0.6) $ (255.8) $ (8.2) $(264.6)
====== ========= ========
NOTE 9 - INDUSTRY SEGMENTS
On April 2, 2001, the Company announced the realignment of its
operating segment structure. This realignment reflects the Company's
focus on building large consumer brands, promoting organizational
integration and operating efficiencies and aligning the businesses
with the Company's key account strategy. The five new segments have
been named for leading worldwide brands in the Company's product
portfolio. The realignment streamlines what had previously been six
operating segments. Based on this management structure, the Company's
segment results are as follows (in millions):
11
Six Months Ended June 30, Six Months Ended June 30,
------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales
---------
Rubbermaid $ 475.9 $ 507.0 $ 907.9 $ 986.6
Parker/Eldon 469.5 378.0 804.0 641.7
Levolor/Hardware 349.4 389.0 680.4 743.9
Calphalon/WearEver 241.7 269.3 518.0 552.3
Little Tikes/Graco 188.2 243.7 425.1 491.5
-------- -------- -------- --------
$1,724.7 $1,787.0 $3,335.4 $3,416.0
======== ======== ======== ========
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Operating Income
Rubbermaid $ 44.9 $ 53.4 $ 89.5 $ 98.4
Parker/Eldon 92.6 96.4 125.0 133.2
Levolor/Hardware 35.3 62.6 57.6 97.7
Calphalon/WearEver 9.0 29.3 31.1 58.3
Little Tikes/Graco 1.3 30.9 14.5 61.5
Corporate (22.2) (19.3) (43.7) (40.1)
-------- -------- -------- --------
$ 160.9 $ 253.3 $ 274.0 $ 409.0
Restructuring costs (7.7) (7.7) (17.7) (8.5)
-------- -------- -------- --------
$ 153.2 $ 245.6 $ 256.3 $ 400.5
======== ======== ======== ========
June 30, December 31,
2001 2000
------- ------------
Identifiable Assets
-------------------
Rubbermaid $1,109.4 $1,185.2
Parker/Eldon 1,243.3 1,050.9
Levolor/Hardware 763.0 775.9
Calphalon/WearEver 774.1 849.3
Little Tikes/Graco 503.5 537.5
Corporate 2,807.4 2,863.0
-------- --------
$7,200.7 $7,261.8
======== ========
12
Operating income is net sales less cost of products sold and
selling, general and administrative expenses. Certain headquarters
expenses of an operational nature are allocated to business segments
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 areas are not significant.
Corporate assets primarily include trade names and goodwill, equity
investments and deferred tax assets.
NOTE 10 - ACCOUNTING PRONOUNCEMENTS
At the beginning of the year, the Company adopted Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). This statement requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Any changes in fair value of
these instruments are recorded in the income statement or other
comprehensive income. The impact of adopting FAS 133 on January 1,
2001 resulted in a cumulative after-tax gain of approximately $13.0
million, recorded in accumulated other comprehensive income. The
cumulative effect of adopting FAS 133 on the results of operations had
no material impact.
In 2001 and 2000, the Emerging Issues Task Force ("EITF")
discussed a number of topics related to product merchandising expenses
that the Company reports as a reduction of gross sales. Ultimately,
the EITF issued EITF No. 00-14 "Accounting for Certain Sales
Incentives" and EITF No. 00-25 "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's
Products," and reached a consensus on an element of EITF No. 00-22
"Accounting for Points and Certain Other Time-Based Sales Incentives
or Volume-Based Sales Incentive Offers, and Offers of Free Products or
Services to Be Delivered in the Future." These EITF's prescribe
guidance regarding the timing of recognition and income statement
classification of costs incurred for certain sales incentive programs
to retailers and end consumers. These EITF's had no impact on the
Company as the Company currently recognizes these costs and classifies
them as reductions of gross sales in accordance with the prescribed
rules. EITF No. 00-14 and 00-25 are effective for the first quarter
beginning after December 15, 2001 and EITF No. 00-22 was effective for
the first quarter ended after February 15, 2001.
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets"
effective for fiscal years beginning after December 31, 2001. Under
the new rules, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to
periodic impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful
lives. The statement also requires business combinations initiated
after June 30, 2001 to be accounted for using the purchase method of
13
accounting, and broadens the criteria for recording intangible assets
separate from goodwill.
The nonamortization provisions of the Statement will not
initially impact amortization expense related to acquisitions
initiated prior to June 30, 2001, but any goodwill or indefinite lived
intangibles acquired subsequent to June 30, 2001 will not be
amortized. Effective January 1, 2002, all amortization expense on
goodwill and intangible assets with indefinite lives will stop.
During fiscal 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002. The Company has not yet determined what effect
these tests or the application of the nonamortization provisions will
have on its net income and financial position.
14
PART I
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
The following table sets forth for the periods indicated items
from the Consolidated Statements of Income as a percentage of net
sales.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 73.7% 72.7% 74.7% 73.8%
----- ----- ----- -----
GROSS INCOME 26.3% 27.3% 25.3% 26.2%
Selling, general and
administrative expenses 16.1% 12.4% 16.3% 13.5%
Restructuring costs 0.5% 0.5% 0.5% 0.2%
Trade names and goodwill
amortization and other 0.8% 0.7% 0.8% 0.8%
----- ----- ----- -----
OPERATING INCOME 8.9% 13.7% 7.7% 11.7%
----- ----- ----- -----
Nonoperating expenses:
Interest expense 2.1% 1.9% 2.2% 1.8%
Other, net 0.2% 0.1% 0.2% 0.2%
----- ----- ----- -----
Net nonoperating expenses 2.3% 2.0% 2.4% 2.0%
----- ----- ----- -----
INCOME (LOSS) BEFORE
INCOME TAXES 6.6% 11.7% 5.3% 9.7%
Income taxes 2.4% 4.5% 2.0% 3.7%
----- ----- ----- -----
NET INCOME (LOSS) 4.2% 7.2% 3.3% 6.0%
===== ===== ===== =====
See notes to consolidated financial statements.
15
Three Months Ended June 30, 2001 vs. Three Months Ended June 30, 2000
---------------------------------------------------------------------
Net sales for the three months ended June 30, 2001 ("second
quarter") were $1,724.7 million, representing a decrease of $62.3
million or 3.5% from $1,787.0 million in the comparable quarter of
2000. The decrease in net sales primarily resulted from internal
declines of 10.7% due to slowness in the economy, inventory
adjustments at retail and competitive pressures. These declines were
partially offset by contributions from PaperMate/Parker (acquired in
December 2000).
Percentage
Increase
2001 2000 Decrease
---- ---- ----------
Rubbermaid $ 475.9 $ 507.0 (6.1)%(1)
Parker/Eldon 469.5 378.0 24.2 (2)
Levolor/Hardware 349.4 389.0 (10.2) (1)
Calphalon/WearEver 241.7 269.3 (10.2) (1)
Little Tikes/Graco 188.2 243.7 (22.8) (1)
-------- --------
Total $1,724.7 $1,787.0 (3.5%)
======== ========
(1) Internal sales decline.
(2) Internal sales decline of 10.0% plus sales from the PaperMate/Parker acquisition.
Gross income as a percentage of net sales in the second quarter
was 26.3% or $453.5 million versus 27.3% or $487.5 million in the
comparable quarter of 2000. Excluding charges of $3.1 million
relating to recent acquisitions, gross income in the second quarter of
2000 was $490.6 million or 27.5% of net sales. Excluding charges,
gross income declined as a result of decreased sales volume and the
absorption impact related to slowed production as part of the further
implementation of the Company's working capital management
initiatives.
Selling, general and administrative expenses ("SG&A") in the
second quarter were 16.1% of net sales or $278.5 million versus 12.4%
or $221.7 million in the comparable quarter of 2000. Excluding
charges of $0.5 million relating to recent acquisitions, SG&A expenses
were $278.0 million or 16.1% of net sales for the second quarter.
Excluding charges of $5.9 million relating to recent acquisitions,
SG&A in the second quarter of 2000 were $215.8 million or 12.4% of
sales. Excluding charges, SG&A increased as a result of the
PaperMate/Parker acquisition and the Company's increased marketing
initiatives.
16
In the second quarter, the Company recorded a pre-tax
restructuring charge of $7.7 million ($4.8 million after taxes). The
pre-tax charge included $3.9 million of severance costs, $2.1 million
of facility exit costs, and $1.7 million of other transaction costs.
In the second quarter of 2000, the Company recorded a pre-tax
restructuring charge of $7.7 million ($4.8 million after taxes). The
pre-tax charge included $3.2 million of facility exit costs, $3.4
million of severance costs and $1.1 million of other transaction
costs.
Trade names and goodwill amortization and other in the second
quarter were 0.8% of net sales or $14.2 million versus 0.7% or $12.5
million in the comparable quarter of 2000.
Operating income in the second quarter was 8.9% of net sales or
$153.2 million versus operating income of 13.7% or $245.6 million in
the comparable quarter of 2000. Excluding restructuring costs and
other charges in 2000 and 2001, operating income in the second quarter
was 9.4% or $161.4 million versus 14.7% or $262.3 million in the
second quarter of 2000. The decrease in operating income was
primarily due to lower than expected sales volume and the further
implementation of the Company's working capital management
initiatives.
Net nonoperating expenses in the second quarter were 2.3% of net
sales or $38.9 million versus net nonoperating income of 2.0% of net
sales or $37.4 million in the comparable quarter of 2000. Not
nonoperating expenses increased from the prior year due to higher
interest expenses as a result of the Company's increased level of
debt.
Excluding restructuring costs and other charges in 2001 and 2000,
the effective tax rate was 37.0% in the second quarter versus 38.5% in
the second quarter of 2000.
Net income for the second quarter was $72.0 million, compared to
net income of $128.0 million in the second quarter of 2000. Diluted
earnings per share were $0.27 in the second quarter compared to $0.48
in the second quarter of 2000. Excluding 2001 restructuring costs of
$7.7 million ($4.8 million after taxes), other 2001 pre-tax charges of
$0.5 million ($0.3 million after taxes), 2000 restructuring costs of
$7.8 million ($4.8 million after taxes), and other 2000 pre-tax
charges of $9.0 million ($5.5 million after taxes), net income
decreased $56.0 million or 44.3% to $77.1 million in the second
quarter from $138.3 million in 2000. Diluted earnings per share,
calculated on the same basis, decreased 44.2% to $0.29 in the second
quarter from $0.52 in the second quarter of 2000. The decrease in net
income and earnings per share was primarily due to internal sales
declines and the further implementation of the Company's working
capital management initiatives.
17
Six Months Ended June 30, 2001 vs. Six Months Ended June 30, 2000
-----------------------------------------------------------------
Net sales for the first six months of 2001 were $3,335.4 million,
representing a decrease of $80.6 million or 2.4% from $3,416.0 million
in the comparable period of 2000. The decrease in net sales primarily
resulted from internal declines of 8.9% due to slowness in the
economy, inventory adjustments at retail and competitive pressures.
These declines were partially offset by contributions from
PaperMate/Parker (acquired in December 2000). Segment results for the
six months ended June 30, 2001 were as follows, in millions:
Percentage
Increase/
2001 2000 Decrease
---- ---- ----------
Rubbermaid $ 907.9 $ 986.6 (8.0)%(1)
Parker/Eldon 804.0 641.7 25.3 (2)
Levolor/Hardware 680.4 743.9 (8.5) (1)
Calphalon/WearEver 518.0 552.3 (6.2) (1)
Little Tikes/Graco 425.1 491.5 (13.5) (1)
-------- --------
Total $3,335.4 $3,416.0 (2.4)%
======== ========
(1) Internal sales decline.
(2) Internal sales decline of 9.4% plus sales from the PaperMate/
Parker acquisition.
Gross income as a percentage of net sales in the first six months
of 2001 was 25.3% or $845.3 million versus 26.2% or $896.0 million in
the comparable period of 2000. Excluding charges of $3.1 million
relating to recent acquisitions, gross income in the first six months
of 2001 was $848.4 million or 25.4% of net sales. Excluding 2000
charges of $3.1 million relating to the recent acquisitions, gross
income for the six months ended June 30, 2000 was $899.1 million or
26.3% of net sales. Excluding charges, gross income declined as a
result of decreased sales volume and the absorption impact related to
slowed production as part of the further implementation of the
Company's working capital management initiatives.
SG&A in the first six months of 2001 were 16.3% of net sales or
$543.0 million versus 13.5% or $461.3 million in the comparable period
of 2000. Excluding charges of $1.6 million relating to recent
acquisitions, SG&A in the first six months of 2001 was $541.4 million
or 16.2% of net sales. Excluding 2000 charges of $5.9 million
relating to the recent acquisitions, SG&A for the six months ended
June 30, 2000 was $455.4 million or 13.3% of net sales. Excluding
charges, SG&A increased as a result of the PaperMate/Parker
acquisition and the Company's increased marketing initiatives.
18
In the first six months of 2001, the Company recorded a pre-tax
restructuring charge of $17.7 million ($11.1 million after taxes).
The pre-tax charge included $9.8 million of severance costs, $3.2
million of facility exit costs and $4.7 million of other transaction
costs.
In the first six months of 2000, the Company recorded a pre-tax
restructuring charge of $8.5 million ($5.2 million after taxes). The
pre-tax change related primarily to costs associated with facility
closures from non-Rubbermaid acquisitions.
Trade names and goodwill amortization and other in the first six
months of 2001 were 0.8% of net sales or $28.3 million versus 0.8% or
$25.7 million in the first six months of 2000.
Operating income in the first six months of 2001 was 7.7% of net
sales or $256.3 million versus 11.7% or $400.5 million in the
comparable period of 2000. Excluding restructuring costs and other
charges in 2000 and 2001, operating income in the first six months of
2001 was 8.4% or $278.7 million versus 12.2% or $418.0 million in the
first six months of 2000. The decrease in net income and earnings per
share was due to internal sales declines, increased interest expense
and further implementation of the Company's working capital management
initiatives.
Net nonoperating expenses in the first six months of 2001 were
2.4% of net sales or $81.0 million versus net nonoperating income of
2.0% of net sales or $68.4 million in the comparable period of 2000.
Net nonoperating expenses increased from the prior year due to higher
interest expense as a result of the Company's increased level of debt.
Excluding restructuring costs and other gains and charges in 2001
and 2000, the effective tax rate was 37.0% in the first six months of
2001 versus 38.5% in the first six months of 2000.
Net income for the first six months of 2001 was $110.4 million,
compared to net income of $204.2 million in the first six months of
2000. Diluted earnings per share were $0.41 in the first six months
of 2001 compared to $0.76 in the first six months of 2000. Excluding
2001 restructuring costs of $17.7 million ($11.1 million after taxes),
other 2001 pre-tax charges of $4.7 million ($3.0 million after taxes),
2000 restructuring costs of $8.5 million ($5.2 million after taxes),
and other 2000 pre-tax charges of $9.0 million ($5.5 million after
taxes), net income decreased $90.5 million or 42.1% to $124.5 million
the first six months of 2001 versus $215.0 million in 2000. Diluted
earnings per share, calculated on the same basis, decreased 41.3% to
$0.47 in the first six months of 2001 versus $0.80 in the first six
months of 2000. The decrease in net income and earnings per share was
due to internal sales declines, increased interest expense and further
implementation of the Company's working capital management
initiatives.
19
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.
Net cash provided from operating activities in the first six
months ended June 30, 2001 was $359.8 million compared to $103.3
million for the comparable period of 2000. The increase in net cash
provided from operating activities in 2001 versus 2000 is primarily
due to improved working capital management, primarily in the areas of
inventory and accounts payable.
The Company has short-term foreign and domestic uncommitted lines
of credit with various banks which are available for short-term
financing. Borrowings under the Company's uncommitted lines of credit
are subject to the 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 June 30, 2001 totaled $25.6 million.
The Company has a revolving credit agreement of $1,300.0 million
that will terminate in August 2002. During 2000, the Company entered
into a new 364-day revolving credit agreement in the amount of $700.0
million. This revolving credit agreement will terminate in October
2001. At June 30, 2001, there were no borrowings under these
revolving credit agreements.
In lieu of borrowings under the Company's revolving credit
agreements, the Company may issue up to $2,000 million of commercial
paper. The Company's revolving credit agreements provide 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
agreements. At June 30, 2001, $1,371.5 million (principal amount) of
commercial paper was outstanding. Of this amount, $1,300 million is
classified as long-term debt and the remaining $71.5 million is
classified as current portion of long-term debt.
The revolving credit agreements permit the Company to borrow
funds on a variety of interest rate terms. These agreements require,
among other things, that the Company maintain a certain Total
Indebtedness to Total Capital Ratio, as defined in the agreements. As
of June 30, 2001, the Company was in compliance with these agreements.
The Company had outstanding at June 30, 2001 a total of $1,012.5
million (principal amount) of medium-term notes. The maturities on
these notes range from 3 to 30 years at an average interest rate of
6.34%.
20
A universal shelf registration statement became effective in July
1999. As of June 30, 2001, $449.5 million of Company debt and equity
securities may be issued under the shelf.
Uses:
The Company's primary uses of liquidity and capital resources
include acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $16.4 million and $68.1
million in the first six months of 2001 and 2000, respectively. In the
first six months of 2001, the Company made minor acquisitions for cash
purchase prices totaling $6.5 million. In the first six months of
2000, the Company acquired Mersch and Brio and made other minor
acquisitions for cash purchase prices totaling $47.3 million. All of
these acquisitions were accounted for as purchases and were paid for
with proceeds obtained from the issuance of commercial paper.
Cash used for restructuring activities was $9.7 million and $8.5
million in the first six months of 2001 and 2000, respectively. Such
cash payments represent primarily employee termination benefits and
other merger expenses.
Capital expenditures were $124.3 million and $159.1 million in
the first six months of 2001 and 2000, respectively.
Aggregate dividends paid during the first six months of 2001 and
2000 were $112.0 million ($0.42 per share) and $113.0 million ($0.42
per share), respectively.
During the first three months of 2000, the Company repurchased
15.5 million shares of its common stock at an average price of $26 per
share, for a total cash price of $403.0 million.
Retained earnings decreased in the first six months of 2001 by
$1.7 million. Retained earnings increased in the first six months of
2000 by $91.0 million. The difference between 2000 and 2001 was
primarily due to weak operating results.
Working capital at June 30, 2001 was $1,271.3 million compared to
$1,329.6 million at December 31, 2000. The current ratio at June 30,
2001 was 1.76:1 compared to 1.86:1 at December 31, 2000.
Total debt to total capitalization (total debt is net of cash and
cash equivalents, and total capitalization includes total debt,
convertible preferred securities and stockholders equity) was .46:1 at
June 30, 2001 and .46:1 at December 31, 2000.
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
21
events, such as significant acquisitions, could require additional
external financing.
Market Risk
-----------
The Company's market risk is impacted by changes in interest
rates, foreign currency exchange rates and certain commodity prices.
Pursuant to the Company's policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact
of adverse changes in market prices. The Company does not hold or
issue derivative instruments for trading purposes.
The Company's primary market risk is interest rate exposure,
primarily in the United States. The Company manages interest rate
exposure through its conservative debt ratio target and its mix of
fixed and floating rate debt. Interest rate exposure was reduced
significantly in 1997 from the issuance of $500.0 million 5.25%
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of a Subsidiary Trust, the proceeds of which reduced
commercial paper. Interest rate swaps may be used to adjust interest
rate exposures when appropriate based on market conditions, and, for
qualifying hedges, the interest differential of swaps is included in
interest expense.
The Company's foreign exchange risk management policy emphasizes
hedging anticipated intercompany and third-party commercial
transaction exposures of one year duration or less. The Company
focuses on natural hedging techniques of the following form: 1)
offsetting or netting of like foreign currency flows, 2) structuring
foreign subsidiary balance sheets with appropriate levels of debt to
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 and intercompany
transactions are deferred and included in the basis of the underlying
transactions. Derivatives used to hedge intercompany loans 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
22
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.
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
existing 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 elected 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.
23
Forward Looking Statements
--------------------------
Forward-looking statements in this Report are made in reliance
upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements may relate to,
but are not limited to, such matters as sales, income, earnings per
share, return on equity, return on invested capital, capital
expenditures, working capital, dividends, capital structure, free cash
flow, debt to capitalization ratios, interest rates, internal growth
rates, Euro conversion 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 or the assumptions relating to any of the forward-looking
statements. 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 and Exhibit 99 to this Report.
PART I.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in the Company's
Management's Discussion and Analysis of Results of Operations and
Financial Condition (Part I, Item 2).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 or have been assumed by the
Company when it purchased certain businesses.
As of June 30, 2001, 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 ("PRP") 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
24
volumetric contribution 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.
The Company's estimate of environmental response costs associated
with these matters as of June 30, 2001 ranged between $16.6 million
and $20.5 million. As of June 30, 2001, the Company had a reserve
equal to $18.9 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, except with respect to two long-term (30
years) operation and maintenance CERCLA matters which are estimated at
present value.
Because of the uncertainties associated with environmental
investigations and response activities, the possibility that the
Company could be identified as a PRP at sites identified in the future
that require the incurrence of environmental response costs and the
possibility of additional sites as a result of businesses acquired,
actual costs to be incurred by the Company may vary from the Company's
estimates.
Subject to difficulties in estimating future environmental
response costs, the Company does not expect that any amount it may be
required to pay in connection with environmental matters in excess of
amounts reserved will have a material adverse effect on its
consolidated financial statements.
Although management of the Company cannot predict the ultimate
outcome of these legal proceedings and claims with certainty, it
believes that their ultimate resolution, including any amounts it may
be required to pay in excess of amounts reserved, will not have a
material effect on the Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of the Security-Holders
On May 9, 2001, the 2001 Annual Meeting of Stockholders of the
Company was held. The following is a brief description of the matters
voted upon at the meeting and tabulation of the voting
therefor:
25
Proposal 1. Election of a Board of Directors to hold office for
a term of three years.
Number of Shares
----------------
Nominee For Withheld
------- --- --------
Scott S. Cowen 233,067,222 4,148,732
Elizabeth Cuthbert Millett 233,001,453 4,214,501
Cynthia A. Montgomery 233,189,624 4,026,330
Allan P. Newell 233,035,782 4,180,172
Gordon R. Sullivan 233,076,064 4,139,890
Proposal 2. Ratification of Appointment of Independent
Accountants. A proposal to ratify the appointment of Arthur Andersen
LLP as independent accountants to audit the consolidated balance sheet
and related consolidated statements of income, stockholder's equity
and comprehensive income and cash flows of the Company for 2001 was
adopted, with 235,429,604 votes cast for, 999,563 votes cast against,
786,787 votes abstained and 0 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12. Statement of Computation of Ratio of Earnings to Fixed
Charges
99. Safe Harbor Statement
(b) Reports on Form 8-K:
None.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NEWELL RUBBERMAID INC.
Registrant
Date: August 10, 2001 /s/ William T. Alldredge
-----------------------------------
William T. Alldredge
Chief Financial Officer
Date: August 10, 2001 /s/ Brett E. Gries
-----------------------------------
Brett E. Gries
Vice President - Accounting & Audit
27
EXHIBIT 12
----------
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
-----------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
Earnings available to fixed charges: 2001 2000 2001 2000
---- ---- ---- ----
(In thousands, except ratio data)
Income before income taxes $114,297 $208,154 $175,284 $332,089
Fixed charges:
Interest expense 35,596 33,988 74,917 61,837
Portion of rent determined to be interest (1) 8,637 5,953 17,579 16,561
Minority interest in income of subsidiary trust 6,677 6,678 13,354 13,363
Eliminate equity in earnings of unconsolidated entities (1,422) (2,703) (3,728) (4,877)
-------- -------- ------- --------
$163,785 $252,070 $277,406 $418,973
======== ======== ======== ========
Fixed charges:
Interest expense $ 35,596 $ 33,988 $ 74,917 $ 61,837
Portion of rent determined to be interest (1) 8,637 5,953 17,579 16,561
Minority interest in income of subsidiary trust 6,677 6,678 13,354 13,363
-------- -------- -------- --------
$ 50,910 $ 46,619 $105,850 $ 91,761
======== ======== ======== ========
Ratio of earnings to fixed charges 3.22 5.41 2.62 4.57
======== ======== ======== ========
(1) A standard ratio of 33% was applied to gross rent expense to approximate the interest portion of short-term
and long-term leases.
1
EXHIBIT 99
----------
NEWELL RUBBERMAID INC. SAFE HARBOR STATEMENT
--------------------------------------------
The Company has made statements in its Annual Report on Form 10-K
for the year ended December 31, 2000, and the documents incorporated
by reference therein, as well as in its Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2001 and June 30, 2001, 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 relate to, and other
forward-looking statements that may be made by the Company may relate
to, information or assumptions about sales, income, earnings per
share, return on equity, return on invested capital, capital
expenditures, working capital, dividends, capital structure, free cash
flow, debt to capitalization ratios, interest rates, internal growth
rates, Euro conversion 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," "target,"
"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 that are set forth generally in the 2000 Form 10-K and the
documents incorporated by reference therein and in the 2001 Forms 10-
Q, could cause actual results to differ. Some of these factors are
described as criteria for success. Our failure to achieve, or limited
success in achieving, these objectives could result in actual results
differing materially from those expressed or implied in the forward-
looking statements. In addition, there can be no assurance that we
have correctly identified and assessed all of the factors affecting
the Company or that the publicly available and other information we
receive 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 North America and to a lesser
extent Europe, Central and South America and Asia.
These retail economies are affected primarily by such factors as
consumer demand and the condition of the consumer products retail
industry, which, in turn, are affected by general economic conditions.
In recent years, the consumer products retail industry in the U.S.
1
and, increasingly, elsewhere has been characterized by intense
competition and consolidation among both product suppliers and
retailers.
Nature of the Marketplace
-------------------------
We compete with numerous other manufacturers and distributors of
consumer products, many of which are large and well-established. Our
principal customers are large mass merchandisers, such as discount
stores, home centers, warehouse clubs and office superstores. The
rapid growth of these large mass merchandisers, together with changes
in consumer shopping patterns, have contributed to the formation of
dominant multi-category retailers, many of which have strong
bargaining power with suppliers. This environment significantly
limits our ability to recover cost increases through selling prices.
Other trends among retailers are to foster high levels of competition
among suppliers, to demand that manufacturers supply innovative new
products and to require suppliers to maintain or reduce product prices
and deliver products with shorter lead times. Another trend is for
retailers 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 strong end-user brands, the
continuing introduction of innovative new products and constant
improvements in customer service.
New Product Development
----------------------
Our long-term success in this competitive retail environment
depends on our consistent ability to develop innovative new products
that create consumer demand for our products. Although many of our
businesses have had notable success in developing new products, we
need to improve our new product development capability. There are
numerous uncertainties inherent in successfully developing and
introducing innovative new products on a consistent basis.
Marketing
---------
Our competitive success also depends increasingly on our ability
to develop, maintain and strengthen our end-user brands so that our
retailer customers will need our products to meet consumer demand.
Our success also requires increased focus on serving our largest
customers through key account management efforts. We will need to
devote more marketing resources to achieving these objectives.
2
Productivity and Streamlining
-----------------------------
Our success also depends on our ability to improve productivity
and streamline operations to control and reduce costs. We need to do
this while maintaining consistently high customer service levels and
making substantial investments in new product development and in
marketing our end-user brands. Our objective is to become our
retailer customers' low-cost provider and global supplier of choice.
To do this, we will need to continuously improve our manufacturing
efficiencies and develop alternative sources of supply on a world-wide
basis.
The Company has recently added or promoted more than 60
executives. The Company's long-term success depends on its ability to
integrate these management changes.
Acquisition Integration
-----------------------
The acquisition of companies that sell name-brand, staple
consumer product lines to volume purchasers has historically been one
of the foundations of our growth strategy. Over time, our ability to
continue to make sufficient strategic acquisitions at reasonable
prices and to integrate the acquired businesses successfully,
obtaining anticipated cost savings and operating income improvements
within a reasonable period of time, will be important factors in our
future growth.
Foreign Operations
------------------
Foreign operations, which include manufacturing and/or sourcing
in many countries in Europe, Asia, Central and South America and
Canada, are increasingly 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 business and other political, economic and
regulatory risks and difficulties.
3
