SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 2002
Commission File Number 1-9608
NEWELL RUBBERMAID INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3514169
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
29 East Stephenson Street
Freeport, Illinois 61032-0943
(Address of principal executive offices)
(Zip Code)
(815) 235-4171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes /x/ No / /
Number of shares of common stock outstanding as of April 29,
2002: 266,949,498
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Quarter Ended March 31,
2002 2001
---- ----
Net sales $1,597,008 $1,610,736
Cost of products sold 1,177,894 1,218,960
--------- ---------
GROSS INCOME 419,114 391,776
Selling, general and administrative expenses 299,155 264,607
Restructuring costs 9,787 9,979
Goodwill amortization - 14,073
------- -------
OPERATING INCOME 110,172 103,117
Nonoperating expenses:
Interest expense 25,060 39,321
Other, net 7,894 2,809
------ -------
Net nonoperating expenses 32,954 42,130
------ -------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 77,218 60,987
Income taxes 26,254 22,566
------ -------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $50,964 $38,421
Cumulative effect of accounting change (514,949) -
--------- -------
NET INCOME (LOSS) $(463,985) $38,421
========== =======
Weighted average shares outstanding:
Basic 266,826 266,618
Diluted 267,508 266,782
Earnings (loss) per share:
Basic--
Before cumulative effect of accounting change $0.19 $0.14
Cumulative effect of accounting change (1.93) -
------ -----
Net income (loss) per common share $(1.74) $0.14
======= =====
Diluted--
Before cumulative effect of accounting change $0.19 $0.14
Cumulative effect of accounting change (1.92) -
------ ----
Net income (loss) per common share $(1.73) $0.14
======= =====
Dividends per share $0.21 $0.21
See Footnotes to Condensed Consolidated Financial Statements.
2
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,159 $6,802
Accounts receivable, net 1,191,346 1,298,177
Inventories, net 1,147,358 1,113,797
Deferred income taxes 226,794 238,468
Prepaid expenses and other 201,203 193,408
--------- ---------
TOTAL CURRENT ASSETS 2,776,860 2,850,652
LONG-TERM INVESTMENTS 80,120 79,492
OTHER ASSETS 363,248 329,886
PROPERTY, PLANT AND EQUIPMENT, NET 1,645,410 1,689,152
GOODWILL, NET 1,744,630 2,316,940
--------- ---------
TOTAL ASSETS $6,610,268 $7,266,122
========== ==========
3
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT.)
(Dollars in thousands)
March 31, December 31,
2002 2001
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $29,700 $19,104
Accounts payable 525,831 501,259
Accrued compensation 84,505 124,660
Other accrued liabilities 895,628 936,146
Income taxes 121,968 145,183
Current portion of long-term debt 553,000 807,500
------- -------
TOTAL CURRENT LIABILITIES 2,210,632 2,533,852
LONG-TERM DEBT 1,565,177 1,365,001
OTHER NONCURRENT LIABILITIES 372,516 359,526
DEFERRED INCOME TAXES 75,751 73,685
MINORITY INTEREST 767 685
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF A SUBSIDIARY TRUST 499,997 499,997
STOCKHOLDERS' EQUITY:
Common stock, authorized shares,
800.0 million at $1.00 par value; 282,557 282,376
Outstanding shares:
2002 - 282.6 million
2001 - 282.4 million
Treasury stock, at cost; (408,828) (408,457)
Shares held:
2002 - 15.6 million
2001 - 15.6 million
Additional paid-in capital 223,964 219,823
Retained earnings 2,051,182 2,571,255
Accumulated other comprehensive loss (263,447) (231,621)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,885,428 2,433,376
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,610,268 $7,266,122
========== ==========
See Footnotes to Condensed Consolidated Financial Statements.
4
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Quarter Ended March 31,
2002 2001
---- ----
OPERATING ACTIVITIES:
Net income (loss) ($463,985) $38,421
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 67,991 87,551
Noncash restructuring charges 3,781 6,691
Deferred income taxes 35,609 11,183
Cumulative effect of accounting change 514,949 -
Other 5,751 1,735
Changes in current accounts excluding the
effects of acquisitions:
Accounts receivable 95,747 45,893
Inventories (49,964) (56,123)
Other current assets (12,640) 7,677
Accounts payable 28,695 24,516
Accrued liabilities and other (103,462) (43,480)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 122,472 124,064
------- -------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired 11,341 (15,367)
Expenditures for property, plant and equipment (35,998) (59,744)
Disposals of noncurrent assets and other 3,391 4,672
------- -------
NET CASH USED IN INVESTING ACTIVITIES (21,266) (70,439)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of debt 515,076 19,122
Payments on notes payable and long-term debt (561,102) (18,659)
Cash dividends (56,028) (55,994)
Proceeds from exercised stock options and other 3,893 737
------- -------
NET CASH USED IN FINANCING ACTIVITIES (98,161) (54,794)
-------
Exchange rate effect on cash 312 (1,483)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,357 (2,652)
Cash and cash equivalents at beginning of year 6,802 22,525
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $10,159 $19,873
======= =======
Supplemental cash flow disclosures -
cash paid during the period for:
Income taxes, net of refunds 12,983 (40,819)
Interest, net of amounts capitalized 24,347 52,529
See Footnotes to Condensed Consolidated Financial Statements.
5
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
SEASONAL VARIATIONS: The Company's product groups are only moderately
affected by seasonal trends. The Rubbermaid and Calphalon/WearEver
business segments typically have higher sales in the second half of
the year due to retail stocking related to the holiday season; the
Levolor/Hardware business segment has higher sales in the second and
third quarters due to an increased level of do-it-yourself projects
completed in the summer months; and the Parker/Eldon business segment
has higher sales in the second and third quarters due to the back-to-
school season. Because these seasonal trends are moderate, the
Company's consolidated quarterly sales typically do not fluctuate
significantly, unless a significant acquisition is made.
TRADE NAMES AND GOODWILL: In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("FAS") 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 accounting, and establishes new
criteria for recording intangible assets separate from goodwill.
Pursuant to the adoption of FAS No. 142, all amortization expense on
goodwill and intangible assets with indefinite lives ceased on January
1, 2002. The Company anticipates that the application of the
nonamortization provisions will increase annual net income in 2002 by
approximately $41.0 million or $0.15 per diluted share. During 2001
and the first quarter 2002, the Company performed the required
6
impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002 and recorded a pre-tax goodwill impairment charge
of $538.0 million in the first quarter of 2002 (with an after-tax
charge totaling $514.9 million). There are no additional impairment
charges anticipated for 2002.
The cost of trade names and goodwill represented the excess of cost
over identifiable net assets of businesses acquired. Prior to the
adoption of FAS No. 142, trade names acquired in a business
combination were not recognized separately from goodwill. Through the
year ended December 31, 2001, trade names and goodwill were amortized
over 40 years and other identifiable intangible assets were amortized
over 5 to 20 years. Upon adoption of FAS No. 142, trade names have not
been "carved-out" from goodwill as they had not been identified and
measured at fair value in the initial recording of a business
combination.
A summary of changes in the Company's trade names and goodwill during
the quarter at March 31, 2002 is as follows (IN MILLIONS):
Balance at December 31, 2001 $2,316.9
Acquisitions and adjustments (34.3)
Impairments -
Levolor/Hardware segment (322.0)
Parker/Eldon segment (126.9)
Calphalon/WearEver segment (89.1)
--------
Balance at March 31, 2002 $1,744.6
========
The March 31, 2001 year-to-date consolidated results of operations on
a pro forma basis, restated as though the amortization for trade names
and goodwill had been discontinued on January 1, 2001 are as follows
(IN MILLIONS):
As reported Restated
----------- --------
Operating income $103.1 $118.6
Income before taxes $61.0 $76.5
Income taxes $22.6 $27.7
Net income $38.4 $48.8
Earnings per share - basic and diluted $0.14 $0.18
7
NOTE 2 - ACQUISITIONS AND DIVESTITURES
ACQUISITIONS:
On April 30, 2002, the Company completed the purchase of American
Tool Companies, Inc. (American Tool), a leading manufacturer of hand
tools and power tool accessories in which the Company had previously
held a 49-1/2 percent stake. The purchase price was $419.0 million,
which included cash for the majority shareholder's equity and the
assumption of 100 percent of American Tool's debt.
The Company also made minor acquisitions in 2002, for $5.3 million in
cash and no assumption of debt. The Company made only minor acquisitions
throughout the year 2001, for $58.1 million in cash ($6.6 million paid
in the first quarter of 2001) and $0.1 million of assumed debt.
The first quarter 2002 and the 2001 transactions were all accounted
for as purchases; therefore, results of operations are included in the
accompanying Condensed Consolidated Financial Statements since their
respective acquisition dates. The transaction costs for the 2002
acquisitions were allocated on a preliminary basis to the fair market
value of the assets acquired and liabilities assumed. The Company's
final 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 financial statements. The preliminary purchase price allocations
for the 2002 acquisitions and the final purchase price allocations for
the 2001 acquisitions resulted in trade names and goodwill of
approximately $30.2 million.
A pro forma calculation is not necessary at this time because the
effect of the 2002 and 2001 acquisitions was immaterial.
PENDING DIVESTITURE:
On June 18, 2001, the Company announced an agreement for the sale of
Anchor for $322.0 million. On January 14, 2002, the FTC filed a
complaint seeking to enjoin the sale of Anchor. On January 21, 2002,
the Company signed an amended agreement with the buyer to divest
Anchor, excluding the foodservice business, for $277.5 million because
the Federal Trade Commission (the "FTC") believes the sale of Anchor
to the current buyer could reduce competition in the market for
glassware in the foodservice industry. On April 22, 2002 the U. S.
District Court for the District of Columbia granted the FTC's motion
for a preliminary injunction. The Company continues to defend the
restructured transaction. Net sales from Anchor (including the
foodservice business) totaled $46.8 million and $44.4 million for the
quarters ended March 31, 2002 and 2001, respectively. Anchor is
included in the Calphalon/WearEver segment.
8
NOTE 3 - RESTRUCTURING COSTS
During 2002 and 2001, the Company recorded restructuring charges
associated with the Company's strategic restructuring plan announced
on May 3, 2001. Through this restructuring plan, management intends
to streamline the Company's supply chain to enable it to be the low
cost global provider throughout the Company's product portfolio. The
plan's terms include reducing worldwide headcount by approximately
3,000 people over the three years beginning in 2001, and consolidating
duplicative manufacturing facilities. In the first quarter of 2002,
the Company incurred facility exit costs and employee severance and
termination benefit costs for approximately 650 employees as described
in the table below.
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):
Quarter Ended March 31, 2002 2001
----------------------- ---- ----
Facility and other exit costs $3.0 $1.5
Employee severance and termination benefits 6.3 5.9
Exited contractual commitments 0.5 -
Other - 2.6
---- -----
Recorded as Restructuring Costs $9.8 $10.0
Discontinued Product Lines (in Cost of Sales) 3.6 -
----- -----
Total Costs Related to Restructuring Plans $13.4 $10.0
===== =====
Restructuring provisions were determined based on estimates prepared
at the time the restructuring actions were approved by management, and
also include amounts recognized as incurred. A summary of the
Company's restructuring plan reserves is as follows (IN MILLIONS):
12/31/00 Costs 12/31/01
Balance Provision Incurred* Balance
-------- --------- --------- --------
Facility and other exit costs $11.8 $38.4 $(30.1) $20.1
Employee severance and termination benefits 3.3 28.5 (25.6) 6.2
Exited contractual commitments 4.6 1.0 (3.7) 1.9
Other 2.2 2.6 (4.8) -
----- ----- ------ -----
$21.9 $70.5 $(64.2) $28.2
===== ===== ====== =====
9
12/31/01 Costs 03/31/02
Balance Provision Incurred* Balance
-------- --------- -------- --------
Facility and other exit costs $20.1 $ 6.6 $ (8.7) $18.0
Employee severance and termination benefits 6.2 6.3 (7.7) 4.8
Exited contractual commitments 1.9 0.5 (0.6) 1.8
----- ----- ------ -----
$28.2 $13.4 $(17.0) $24.6
===== ===== ====== =====
* Cash paid for restructuring activities was $11.7 million in the
first quarter of 2002 and $49.7 million in the full year 2001.
The facility and other exit cost reserves of $18.0 million at March
31, 2002 are primarily related to future minimum lease payments on a
vacated Levolor/Hardware European facility and closure costs related
to six additional facilities (one at Rubbermaid, one at Parker/Eldon,
two at Levolor/Hardware and two at Calphalon/WearEver). Severance
reserves of $4.8 million at March 31, 2002 are primarily related to
payments to approximately 25 former Newell executives who are
receiving severance payments under employment agreements. As of March
31, 2002, $1.8 million of reserves remain for restructuring charges
recorded in 1999 for contractual commitments on abandoned Rubbermaid
computer software.
10
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):
March 31, December 31,
2002 2001
---- ----
Materials and supplies $186.9 $223.2
Work in process 186.6 162.0
Finished products 773.9 728.6
------- -------
$1,147.4 $1,113.8
======== ========
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Replacements and improvements are capitalized. Expenditures for
maintenance and repairs are charged to expense. Depreciation expense
is calculated to amortize, principally on the straight-line basis, the
cost of the depreciable assets over their depreciable lives. Maximum
useful lives determined by the Company are: buildings and improvements
(20 to 40 years) and machinery and equipment (3 to 12 years).
Property, plant and equipment consisted of the following (IN
MILLIONS):
March 31, December 31,
2002 2001
---- ----
Land $58.7 $59.5
Buildings and improvements 724.3 732.5
Machinery and equipment 2,564.1 2,546.2
-------- --------
3,347.1 3,338.2
Accumulated depreciation (1,701.7) (1,649.0)
-------- --------
$1,645.4 $1,689.2
======== ========
11
NOTE 6 - LONG-TERM DEBT
The following is a summary of long-term debt (IN MILLIONS):
March 31, December 31,
2002 2001
---- ----
Medium-term notes $1,512.5 $1,012.5
Commercial paper 153.0 707.5
Preferred debt securities 450.0 450.0
Other long-term debt 2.7 2.5
------- -------
Total debt 2,118.2 2,172.5
Current portion of long-term debt (553.0) (807.5)
-------
Long-term Debt $1,565.2 $1,365.0
======= =======
On March 11, 2002 the Company issued $500.0 million of Senior Notes
with five-year and 10-year maturities. The $500.0 million Senior
Notes were priced in two tranches: $250.0 million in 6.00% Senior
Notes due 2007 and $250.0 million in 6.75% Senior Notes due 2012. The
five-year notes were swapped at a floating rate of six months Libor
plus a credit spread of 75.55 basis points, resulting in an all in
rate of 2.98% for the first six months. The proceeds of this issuance
were used to pay down commercial paper. This issuance is reflected in
the outstanding amount of medium-term notes noted above and the entire
amount is considered to be long-term debt.
12
NOTE 7 - EARNINGS PER SHARE
The calculation of basic and diluted earnings per share for the
quarter ended March 31, 2002 and 2001, respectively, is shown below
(IN MILLIONS, EXCEPT PER SHARE DATA):
"In the Convertible
Basic Money" Preferred
Method Options (1) Securities (2) Diluted Method
------ ----------- -------------- --------------
2002
----
Income before cumulative effect of accounting change $51.0 - - $51.0
Weighted average shares outstanding 266.8 0.7 - 267.5
Earnings per share $0.19 $0.19
Net loss $(464.0) - - $(464.0)
Weighted average shares outstanding 266.8 0.7 - 267.5
Loss per share $(1.74) $(1.73)
2001
----
Net income $38.4 - - $38.4
Weighted average shares outstanding 266.6 0.2 - 266.8
Earnings per share $0.14 $0.14
(1) The weighted average shares outstanding for 2002 and 2001 exclude
the dilutive effect of approximately 2.3 million and 8.0 million
stock options, respectively, because such options had an exercise
price in excess of the average market value of the Company's
common stock during the respective periods.
(2) The convertible preferred securities are anti-dilutive in 2002
and 2001, and therefore have been excluded from diluted earnings
per share. Had the convertible preferred shares been included in
the diluted earnings per share calculation, net income would be
increased by $4.4 million and $4.2 million in 2002 and 2001,
respectively, and weighted average shares outstanding would have
increased by 9.9 million shares in both periods.
13
NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) encompasses net after-
tax unrealized gains or losses on securities available for sale,
foreign currency translation adjustments, net losses on derivative
instruments and net minimum pension liability adjustments and is
recorded within stockholders' equity.
The following table displays the components of accumulated other
comprehensive income or loss (IN MILLIONS):
After-Tax Foreign After-tax After-tax Accumulated
Unrealized Currency Derivatives Minimum Other
Gain Translation Hedging Pension Comprehensive
(Loss) Loss Gain (Loss) Liability Loss
---------- ----------- ------------ --------- -------------
Balance at December 31, 2000 $(1.1) $(171.8) $ - $ - $(172.9)
Current year change 1.1 (41.3) (14.0) (4.5) (58.7)
----- ------- ------ ----- -------
Balance at December 31, 2001 - (213.1) (14.0) (4.5) (231.6)
Current year change - (33.5) 1.7 - (31.8)
----- ------- ------ ----- -------
Balance at March 31, 2002 $ - $(246.6) $(12.3) $(4.5) $(263.4)
===== ======= ====== ===== =======
Total comprehensive income (loss) amounted to the following (IN MILLIONS):
March 31, December 31,
2002 2002
--------- -----------
Net income (loss) $(464.0) $264.6
Foreign currency translation loss (33.5) (41.3)
After-tax derivatives hedging gain (loss) 1.7 (14.0)
After-tax minimum pension loss - (4.5)
After-tax unrealized gain on securities - 1.1
------ ------
$(495.8) $205.9
======= ======
14
NOTE 9 - INDUSTRY SEGMENTS
In the first quarter of 2002, 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 four
operating segments have been named for leading worldwide brands
in the Company's product portfolio. The realignment streamlines
what had previously been five operating segments. Last year's
amounts have been reclassified to conform with the 2002 presenta-
tion. The Company's segment results are as follows (IN MILLIONS):
2002 2001
---- ----
Net Sales (1) (2) - Quarter Ended March 31,
-------------------------------------------
Rubbermaid $621.8 $642.5
Parker/Eldon 380.3 360.9
Levolor/Hardware 331.1 331.0
Calphalon/WearEver 263.8 276.3
----- -----
$1,597.0 $1,610.7
======== ========
Operating Income (3) - Quarter Ended March 31,
----------------------------------------------
Rubbermaid $55.1 $57.9
Parker/Eldon 32.8 32.2
Levolor/Hardware 22.4 22.3
Calphalon/WearEver 20.8 22.1
Corporate (4) (7.5) (21.4)
---- ----
123.6 113.1
Restructuring Costs (5) (13.4) (10.0)
---- ----
$110.2 $103.1
----- -----
Identifiable Assets - At March 31 and December 31,
--------------------------------------------------
Rubbermaid $1,513.0 $1,551.3
Parker/Eldon 1,132.2 1,216.8
Levolor/Hardware 808.7 790.8
Calphalon/WearEver 746.4 787.4
Corporate (6) 2,410.0 2,919.8
------- -------
$6,610.3 $7,266.1
======= =======
Capital Expenditures - Quarter Ended March 31,
----------------------------------------------
Rubbermaid $13.5 $25.0
Parker/Eldon 8.9 11.7
Levolor/Hardware 6.4 8.0
Calphalon/WearEver 5.0 12.2
Corporate 2.2 2.8
----- -----
$36.0 $59.7
===== =====
15
Depreciation and Amortization - Quarter Ended March 31,
--------------------------------------------------------
Rubbermaid $30.4 $30.9
Parker/Eldon 15.0 14.6
Levolor/Hardware 7.2 9.9
Calphalon/WearEver 10.7 12.1
Corporate 4.7 20.1
----- -----
$68.0 $87.6
===== =====
16
GEOGRAPHIC AREA INFORMATION
2002 2001
---- ----
Net Sales - Quarter Ended March 31,
-----------------------------------
United States $1,174.2 $1,161.1
Canada 63.7 66.0
------- -------
North America 1,237.9 1,227.1
Europe 292.2 306.5
Central and South America (7) 47.9 59.9
All other 19.0 17.2
------- -------
$1,597.0 $1,610.7
======= =======
Operating Income - Quarter Ended March 31,
------------------------------------------
United States $92.5 $73.0
Canada 4.3 9.6
---- ----
North America 96.8 82.6
Europe 6.9 15.5
Central and South America 2.8 3.6
All other 3.7 1.4
---- ----
$110.2 $103.1
===== =====
Identifiable Assets (7) - At March 31 and December 31,
------------------------------------------------------
United States $4,486.3 $5,067.8
Canada 103.0 118.0
------- -------
North America 4,589.3 5,185.8
Europe 1,686.9 1,737.0
Central and South America 280.3 295.7
All other 53.8 47.6
------- -------
$6,610.3 $7,266.1
======= =======
(1) Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to
approximately 16% of consolidated net sales in 2002 and 15% in
the first quarter of 2001. Sales to no other customer exceeded
10% of consolidated net sales for either period.
(2) All intercompany transactions have been eliminated.
17
(3) 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 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.
(4) Corporate operating expenses consist primarily of administrative
costs that cannot be allocated to a particular segment.
(5) Restructuring costs are recorded as both Restructuring Costs and
as part of Cost of Products Sold in the Condensed Consolidated
Statements of Income (refer to Footnote 3 for additional detail.)
(6) Corporate assets primarily include trade names and goodwill,
equity investments and deferred tax assets.
(7) This category includes Argentina, Brazil, Colombia, Mexico and
Venezuela.
(8) Transfers of finished goods between geographic areas are not
significant.
18
NOTE 10 - ACCOUNTING PRONOUNCEMENTS
At the beginning of 2001, the Company adopted FAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." 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 No. 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 No. 133
did not materially impact the results of operations.
In August 2001, the FASB issued FAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." This statement
established a single accounting model for long-lived assets to be
disposed of by sale and provides additional implementation guidance
for assets to be held and used and assets to be disposed of other than
by sale. The statement supersedes FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" and amends the accounting and reporting provisions of
Accounting Principles Board ("APB") Opinion No. 30 related to the
disposal of a segment of a business. The statement is effective for
fiscal years beginning after December 15, 2001. As of March 31, 2002,
the Company's Anchor Hocking Glass business has not been reflected as
a discontinued operation pending the results of an administrative
hearing, and further discussions with the potential buyer and the FTC
as disclosed further in Footnote 2.
In August 2001, the Emerging Issues Task Force ("EITF") issued EITF
No. 01-09 "Accounting for Consideration Given by Vendor to a Customer
or a Reseller of Vendor's Products" which codified and reconciled the
Task Force's consensuses in EITF 00-14 "Accounting for Certain Sales
Incentives", EITF 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",
and EITF 00-25 "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products". These
EITFs prescribe guidance regarding the timing of recognition and
income statement classification of costs incurred for certain sales
incentive programs to resellers and end consumers. EITF No. 01-09 did
not impact results of operations because the Company recognizes sales
incentives upon recognition of revenue and classifies them as
reductions of gross revenue and recognizes free goods as a cost of
goods sold when shipped, both in accordance with the prescribed rules.
Refer to Footnote 1 for discussion of FAS No. 141, "Business
Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets".
19
NOTE 11 - CONTINGENCIES
The Company is involved in legal proceedings in the ordinary course of
its business. These proceedings include claims for damages arising
out of use of the Company's products, allegations of infringement of
intellectual property, commercial disputes and employment matters, as
well as environmental matters. Some of the legal proceedings include
claims for punitive as well as compensatory damages, and a few
proceedings purport to be class actions.
Although management of the Company cannot predict the ultimate outcome
of these legal proceedings with certainty, it believes that the
ultimate resolution of the Company's legal proceedings, including any
amounts it may be required to pay in excess of amounts reserved, will
not have a material effect on the Company's financial statements.
20
PART I.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
---------------------
The following table sets forth for the periods indicated items from
the Consolidated Statements of Income as a percentage of net sales.
Three Months Ended
March 31,
---------
2002 2001
---- ----
Net sales 100.0% 100.0%
Cost of products sold 73.8 75.7
----- -----
GROSS INCOME 26.2 24.3
Selling, general and
administrative expenses 18.7 16.4
Restructuring costs 0.6 0.6
Trade names and goodwill
amortization and other - 0.9
----- -----
OPERATING INCOME 6.9 6.4
Nonoperating expenses:
Interest expense 1.6 2.4
Other, net 0.5 0.2
----- -----
Net nonoperating expenses 2.1 2.6
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 4.8 3.8
Income taxes 1.6 1.4
----- -----
NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 3.2 2.4
Cumulative effect of accounting change (32.3) 0.0
----- -----
NET INCOME (29.1)% 2.4%
21
Three Months Ended March 31, 2002 Vs.
Three Months Ended March 31, 2001
---------------------------------------
Net sales for the three months ended March 31, 2002 ("first quarter")
were $1,597.0 million, representing a decrease of $13.7 million, or
0.9%, from $1,610.7 million in the comparable quarter of 2001. Growth
in sales was more than offset by negative currency exchange impacts
and pricing deterioration resulting from competitive pressures. Sales
by business segment for the first quarter were as follows, in
millions:
Percentage
Increase/
2002 2001 Decrease
---- ---- --------
Rubbermaid $621.8 $642.5 (3.2)%
Parker/Eldon (1) 380.3 360.9 5.4
Levolor/Hardware 331.1 331.0 0.0
Calphalon/WearEver 263.8 276.3 (4.5)
----- -----
Total $1,597.0 $1,610.7 (0.9)%
======= =======
Primary reasons for changes:
(1) Internal sales growth.
* Internal sales growth/decline is defined by the Company as
growth/decline from its core businesses, which include continuing
businesses owned more than one year and minor acquisitions.
Gross income as a percentage of net sales in the first quarter of 2002
was 26.2%, or $419.1 million, versus 24.3%, or $391.8 million, in the
comparable quarter of 2001. Excluding $6.7 million ($4.4 million after
taxes) of items relating to recent acquisitions and product line exits,
gross income for the first quarter of 2002 was $425.8 million, or 26.7%
of net sales. In the comparable period of 2001, excluding $3.1 million
($2.0 million after taxes) of items relating to recent acquisition and
product line exits, gross income was $394.9 million, or 24.5% of net
sales. The improvement in gross income is primarily due to the
implementation of productivity initiatives throughout the Company and
the positive impact of a change in product mix.
Selling, general and administrative expenses ("SG&A") in the first
quarter of 2002 were 18.7% of net sales, or $299.2 million, versus
16.4%, or $264.6 million, in the comparable quarter of 2001.
22
Excluding $3.3 million ($2.2 million after taxes) of items relating to
recent acquisitions, SG&A in the first quarter of 2002 was $295.9 million,
or 18.5% of net sales. In the comparable period of 2001, excluding $1.1
million ($0.7 million after taxes) of items relating to recent
acquisitions, SG&A was $263.5 million or 16.4% of net sales. SG&A
increased primarily as a result of increased investment in new product
development and planned marketing initiatives, including the Company's
Key Account and Phoenix Programs, supporting the Company's brand portfolio
and key account strategy.
In April 2001, the Company introduced the Key Account Program,
establishing sales organizations specifically for Wal*Mart, The Home
Depot and Lowe's. As part of this program, the company established
President-level positions to more effectively manage the relationships
with these accounts. The program allows the Company to present these
customers with "one face" to enhance the Company's response time and
understanding of the customer's needs, to support the best possible
relationship.
In July 2001, the Company introduced its Phoenix Program. This
initiative is an action-oriented field sales force consisting of
approximately 500 recent university graduates. The team works in the
field, primarily within our Key Account structure, performing product
demonstrations, merchandising product, interacting with the end-user,
and maintaining an ongoing relationship with store personnel. This
initiative allows the Company to enhance product placement and
minimize stock outages and, together with the Key Account Program, to
maximize shelf space potential. Impact from this initiative is
expected to drive revenue growth through shelf space gains.
During 2001 the Company announced a three-year restructuring plan
intended to streamline the Company's supply chain to enhance the
Company's position as a low cost supplier to major mass merchandisers.
The plan consists of reducing worldwide headcount and consolidating
duplicate manufacturing and distribution facilities. In the first
quarter of 2002, the Company recorded a pre-tax restructuring charge
of $9.8 million ($6.5 million after taxes). This charge included $6.3
million of severance costs and $3.5 million of facility exit costs. In
the first quarter of 2001, the Company recorded a pre-tax
restructuring charge of $10.0 million ($6.3 million after taxes).
This charge included $1.5 million of facility exit costs, $5.9 million
of severance costs and $2.6 million of other transaction costs.
In the first quarter of 2002 the Company adopted the provisions of FAS
No. 142 "Goodwill and Other Intangible Assets". In accordance with
this standard, goodwill will no longer be amortized but will be
subject to annual assessment for impairment by applying a fair-value-
based test. Goodwill amortization in the first quarter of 2001 was
0.9% of net sales or $14.1 million. The Company anticipates that the
application of the nonamortization provisions of FAS 142 will increase
annual net income in 2002 and subsequent years by approximately $41.0
million, after tax, or $0.15 per share. See footnote 1 to the
condensed consolidated financial statements for a review of this
provision.
23
Operating income in the first quarter of 2002 was 6.9% of net sales,
or $110.2 million, versus operating income of 6.4% or $103.1 million,
in the comparable quarter of 2001. Excluding restructuring costs and
other items in 2001 and 2002, operating income in the first quarter of
2002 was 8.1% of net sales, or $130.0 million, versus 7.3% of net sales,
or $117.3 million, in the first quarter of 2001. The increase in
operating margins was primarily due to the implementation of a
productivity initiative throughout the Company.
Net nonoperating expenses in the first quarter of 2002 were 2.1% of
net sales, or $33.0 million, versus net nonoperating expenses of 2.6%,
or $42.1 million, in the comparable quarter of 2001. Net nonoperating
expenses decreased primarily as a result of a reduction in interest
expense related to declining interest rates in the first quarter of
2002 in comparison to the same period of 2001.
The effective tax rate was 34% in the first quarter of 2002 versus 37%
in the first quarter of 2001. This lower rate reflects the benefit of
the accounting change relating to goodwill amortization for financial
reporting purposes, the full year impact of 2001 tax rate initiatives
and continued projected foreign losses.
Net income before cumulative effect of accounting change for the first
quarter of 2002 was $51.0 million, compared to net income of $38.4
million in the first quarter of 2001. Diluted earnings per share based
on net income before cumulative effect of accounting change were $0.19
in the first quarter of 2002 compared to $0.14 in the first quarter of
2001. Excluding 2002 restructuring costs and other pre-tax items of
of $19.8 million ($13.0 million after taxes) and 2001 restructuring
costs and other pre-tax items of $14.2 million ($9.0 million after taxes),
net income before cumulative effect of accounting change increased $16.6
million or 35.0% to $64.0 million in the first quarter of 2002 from $47.4
million in 2001. Diluted earnings per share, calculated on the same
basis, increased 33.3% to $0.24 in the first quarter of 2002 from $0.18
in the first quarter of 2001. The increase in net income and earnings
per share was primarily due to the implementation of the company's
productivity, collaboration and streamlining initiatives and the initial
results of key strategic investments necessary to generate future growth.
During the first quarter of 2002, the Company performed the required
impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002, which resulted in an impairment charge of $514.9
million, net of tax.
The net loss for the first quarter of 2002 was $464.0 million,
compared to net income of $38.4 million in the first quarter of 2001.
Diluted earnings per share based on net income were $(1.73) in the
first quarter of 2002 compared to $0.14 in the first quarter of 2001.
These declines were due to the goodwill impairment charge described
above.
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 from operating activities in the first three months
ended March 31, 2002 was $122.5 million compared to $124.1 million for
the comparable period of 2001. The Company generated free cash flow
(defined by the Company as cash provided by operating activities less
capital expenditures and dividends) of $30.4 million for the first
quarter of 2002 compared to $8.3 million for the first quarter of
2001. The increase in free cash flow is primarily due to a managed
reduction in capital expenditures and an emphasis on changes in
working capital.
The Company has short-term foreign and domestic uncommitted lines of
credit with various banks, which are available for short-term
financing. Borrowings under the Company's uncommitted lines of credit
are subject to discretion of the lender. The Company's uncommitted
lines of credit do not have a material impact on the Company's
liquidity. Borrowings under the Company's uncommitted lines of credit
at March 31, 2002 totaled $29.7 million.
The Company has a revolving credit agreement of $1,300.0 million that
will terminate in August 2002. The Company intends to extend the
revolving credit agreement beyond 2002. At March 31, 2002, there were
no borrowings under the $1,300.0 million revolving credit agreement.
In lieu of borrowings under the Company's revolving credit agreement,
the Company may issue up to $1,300.0 million of commercial paper. The
Company's revolving credit agreement provides the committed backup
liquidity required to issue commercial paper. Accordingly, commercial
paper may only be issued up to the amount available for borrowing
under the Company's revolving credit agreement. At March 31, 2002,
$153.0 million (principal amount) of commercial paper was outstanding.
Because the backup revolving credit agreement expires in August 2002,
the entire $153.0 million is classified as current portion of long-
term debt. The Company plans to extend maturities by replacing a
portion of current debt with longer-term debt facilities. By
extending maturities, the Company can reduce its reliance on the
current commercial paper program.
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 the agreement. As of March 31,
2002, the Company was in compliance with this agreement.
25
The Company had outstanding at March 31, 2002 a total of $1,512.5
million (principal amount) of medium-term notes. The maturities on
these notes range from 3 to 30 years at an average interest rate of
5.5%. Of the outstanding amount of medium-term notes, $400.0 million
is classified as current portion of long-term debt and the remainder
of $1,112.5 million is classified as long-term debt. A universal shelf
registration statement became effective in July 1999. As of March 31,
2002, the Company's debt and equity securities were fully issued under
the shelf.
On March 11, 2002 the Company issued $500.0 million of Senior Notes
with five-year and 10-year maturities. The $500.0 million Senior
Notes were priced in two tranches: $250.0 million in 6.00% Senior
Notes due 2007 and $250.0 million in 6.75% Senior Notes due 2012. The
five-year notes were swapped at a floating rate of six months Libor plus
a credit spread of 75.55 basis points, resulting in an all in rate of
2.98% for the first six months. The proceeds of this issuance were
used to pay down commercial paper. This issuance is reflected in the
outstanding amount of medium-term notes noted above and the entire
amount is considered to be long-term debt.
On September 18, 2001, the Company entered into an agreement with a
financial institution creating a financing entity which is
consolidated in the Company's financial statements. Under the
agreement, the Company regularly enters into transactions with the
financing entity to sell an undivided interest in the Company's
receivables. In the quarter ended September 30, 2001, the financing
entity issued $450.0 million in preferred debt securities to a
financial institution. Those preferred debt securities must be
retired or redeemed before the Company can have access to the
financing entity's receivables. The receivables and the corresponding
$450.0 million preferred debt issued by the subsidiary to the
financial institution are recorded on the consolidated accounts of the
Company. The proceeds of this debt were used to pay down commercial
paper. Because this debt matures in 2008, the entire amount is
considered to be long-term debt. The provisions of the debt agreement
allow the entire outstanding debt to be called upon certain events
including the Company's long-term senior unsecured debt rating falling
below Baa2 (Moody's) or BBB (Standard & Poors') and certain levels of
accounts receivable write-offs. As of March 31, 2002, the Company was
in compliance with the agreement.
26
Uses:
----
The Company's primary uses of liquidity and capital resources include
acquisitions, dividend payments and capital expenditures.
Cash provided by acquisitions was $11.3 million for the first three
months of 2002. In comparison, cash used for acquisitions and
deferred payments on prior acquisitions was $15.4 million in the first
three months 2001. In the first three months of 2002, the Company
received proceeds of approximately $17.5 million related to the
Gillette transaction. In the first three months of 2001, the Company
made minor acquisitions for cash purchase prices totaling $6.6
million. All of these acquisitions were accounted for as purchases
and were paid for with proceeds obtained from the issuance of
commercial paper.
In the first three months of 2002, the Company made payments on
long-term debt, net of proceeds, of $46.0 million compared to net
additional borrowings of $0.4 million in the year ago period. The
Company's ability to pay down additional debt was due primarily to
increased focus on working capital management (primarily inventory
and accounts payable) and current year cash earnings.
Cash used for restructuring activities was $11.7 million and $5.3
million in the first three months of 2002 and 2001, respectively.
Such cash payments represent primarily employee termination benefits
and other merger expenses.
Capital expenditures were $36.0 million and $59.7 million in the first
three months of 2002 and 2001, respectively. The decrease in capital
expenditures is primarily due to a Company wide effort to effectively
manage and reduce these expenditures. Aggregate dividends paid were
$56.0 million during both the first three months of 2002 and 2001.
Retained earnings decreased in the first three months of 2002 by
$520.1 million. Retained earnings decreased in the first three months
of 2001 by $17.6 million. The difference between the first quarter of
2001 and 2002 was primarily due the goodwill impairment charge in 2002
of $514.9 million, net of tax.
Working capital at March 31, 2002 was $566.2 million compared to
$316.8 million at December 31, 2001. The current ratio at March 31,
2002 was 1.26:1 compared to 1.13:1 at December 31, 2001.
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 .42:1 at March 31, 2002
and .43:1 at December 31, 2001.
27
On April 30, 2002 the Company acquired American Tool Companies, Inc.,
a leading manufacturer of hand tools and power tool accessories, in
which Newell Rubbermaid already held a 49.5% stake. The purchase price
of $419.0 million includes cash for the majority shareholder's equity
and the assumption of 100% of American Tool's debt. With fiscal 2001
revenue of $443.6 million and manufacturing and distribution
facilities around the world, the American Tool deal marks a
significant expansion and enhancement of the company's product lines
and customer base, launching it squarely into the estimated $10
billion-plus global market for hand tools and power tool accessories.
This acquisition was paid for with proceeds obtained from the issuance
of commercial paper.
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.
Legal and Environmental Matters
-------------------------------
The Company is subject to legal proceedings and claims, including
various environmental matters, in the ordinary course of its business.
Such legal proceedings are more fully described in footnote 15 to the
Company's consolidated financial statements for the year ended
December 31, 2001. Although management of the Company cannot predict
the ultimate outcome of these legal proceedings with certainty, it
believes that the ultimate resolution of the Company's legal
proceedings, including any amounts it may have to pay in excess of
amounts reserved, will not have a material effect on the Company's
consolidated financial statements.
INTERNATIONAL OPERATIONS
The Company's business in the United States is growing at a faster
pace than its non-U.S. business. For the quarters ended March 31, 2002
and 2001, the Company's non-U.S. business accounted for approximately
26.5% and 27.9% of net sales, respectively. Growth of both U.S. and
non-U.S. businesses is shown below:
Quarter Ended March 31, 2002 2001 % Change
(In millions)
Net sales:
- U.S. $1,174.2 $1,161.1 1.1%
- Non-U.S. 422.8 449.6 (6.0)%
-------- --------
$1,597.0 $1,610.7 (0.9)%
======== ========
28
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 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:
* offsetting or netting of like foreign currency flows,
* structuring foreign subsidiary balance sheets with appropriate
levels of debt to reduce subsidiary net investments and
subsidiary cash flows subject to conversion risk,
* converting excess foreign currency deposits into U.S. dollars
or the relevant functional currency and
* 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
29
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
at March 31, 2002 as they represent hypothetical not realized losses.
March 31,
2002 Time Period Confidence Level
--------- ----------- ----------------
(In millions)
Interest rates $15.3 1 day 95%
Foreign exchange $0.2 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 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.
On January 1, 2001, another country (Greece) also adopted the Euro,
fixing the conversion rate against their legacy currency. The legacy
currencies remained legal tender through December 31, 2001. On January
1, 2002, participating countries introduced 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
completed this conversion process and believes its information
systems are Euro compliant. As a result of the Euro conversion, the
Company experienced no adverse impact to its business or financial
condition on a consolidated basis.
30
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, capital expenditures, dividends, capital structure,
free cash flow, debt to capitalization ratios, interest rates,
internal growth rates, the Euro conversion process and related risks,
impact of changes in accounting standards, legal proceedings 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 and Exhibit 99 of this Report.
31
PART I. FINANCIAL INFORMATION
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 involved in legal proceedings in the ordinary course of
its business. These proceedings include claims for damages arising
out of use of the Company's products, allegations of infringement of
intellectual property, commercial disputes and employment matters, as
well as the environmental matters described below. Some of the legal
proceedings include claims for punitive as well as compensatory
damages, and a few proceedings purport to be class actions.
As of March 31, 2002, 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
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 March 31, 2002 ranged between $12.3 million and
$16.2 million. As of March 31, 2002, the Company had a reserve equal
to $13.9 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 year) operations
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
32
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.
Although management of the Company cannot predict the ultimate outcome
of these legal proceedings with certainty, it believes that the
ultimate resolution of the Company's legal proceedings, including any
amounts it may be required to pay in excess of amounts reserved, will
not have a material effect on the Company's financial statements.
33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) 12. Statement of Computation of Ratio of Earnings to Fixed
Charges
99. Safe Harbor Statement
(b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated March 11,
2002, reporting the entering into of an Underwriting
Agreement with respect to the offering and sale of $500.0
million of unsecured and unsubordinated notes.
Registrant filed a Report on Form 8-K dated April 1,
2002 and a Report on Form 8-K/A dated April 3, 2002,
reporting a change in the Company's certifying accountant.
34
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: May 13, 2002 /s/ William T. Alldredge
----------------------------------
William T. Alldredge
President - Corporate Development
and Chief Financial Officer
Date: May 13, 2002 /s/ Brett E. Gries
----------------------------------
Brett E. Gries
Vice President - Accounting &
Audit
35
EXHIBIT 12
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NEWELL RUBBERMAID INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
Quarter Ended March 31,
2002 2001
---- ----
(In thousands, except
ratio data)
Earnings available to fixed charges:
Income before income taxes and
cumulative effect of accounting change $77,218 $60,987
Fixed charges:
Interest expense 25,060 39,321
Portion of rent determined to
be interest (1) 9,648 8,941
Minority interest in income of
subsidiary trust 6,685 6,677
Equity earnings (904) (2,306)
-------- --------
$117,707 $113,620
======== ========
Fixed charges:
Interest expense $25,060 $39,321
Portion of rent determined to
be interest (1) 9,648 8,941
Minority interest in income of
subsidiary trust 6,685 6,677
------ -----
$41,393 $54,939
======= =======
Ratio of earnings to fixed charges 2.84 2.84
==== ====
(1) A standard ratio of 33% was applied to gross rent expense to
approximate the interest portion of short-term and long-term
leases.
EXHIBIT 99
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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, 2001, as well as in its Quarterly Report
on Form 10-Q for the quarter ended March 31, 2002, 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 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 risks, impact
of changes in accounting standards, 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 2001 Form 10-K, the 1st Quarter 2002 Form
10-Q and the documents incorporated by reference therein 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
and events such as the terrorist attacks of September 11, 2001. In
recent years, the consumer products retail industry in the U.S. and,
increasingly, elsewhere has been characterized by intense competition
and consolidation among both product suppliers and retailers. Because
such competition, particularly in weak retail economies, can cause
retailers to struggle or fail, the Company must continuously monitor,
and adapt to changes in, the creditworthiness of its customers.
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 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
continue to devote substantial marketing resources to achieving these
objectives.
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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 continuously to improve our manufacturing
efficiencies and develop sources of supply on a world-wide basis.
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, especially in Europe (which is a focus of our
international growth) but also in 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.
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