SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 2002 1-9608
NEWELL RUBBERMAID INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3514169
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
Newell Center
29 East Stephenson Street
Freeport, Illinois 61032-0943
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (815) 235-4171
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1 par value New York Stock Exchange
per share, and associated Chicago Stock Exchange
Common Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
There were 274.1 million shares of the Registrant's Common Stock
outstanding (exclusive of treasury shares) as of February 28, 2003.
The aggregate market value of the shares of Common Stock (based upon
the closing price on the New York Stock Exchange on June 28, 2002)
beneficially owned by non-affiliates of the Registrant was
approximately $9,333.8 million. For purposes of the foregoing
calculation only, which is required by Form 10-K, the Registrant has
included in the shares owned by affiliates those shares owned by
directors and officers of the Registrant, and such inclusion shall not
be construed as an admission that any such person is an affiliate for
any purpose.
* * *
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its Annual
Meeting of Stockholders to be held May 7, 2003.
2
ITEM 1. BUSINESS
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"Newell" or the "Company" refers to Newell Rubbermaid Inc. alone or
with its wholly-owned subsidiaries, as the context requires.
WEBSITE ACCESS TO SECURITIES AND EXCHANGE COMMISSION REPORTS
------------------------------------------------------------
The Company's Internet website can be found at WWW.NEWELLRUBBERMAID.COM.
The Company makes available free of charge on or through its website its
annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as practicable after the Company files them with, or
furnishes them to, the Securities and Exchange Commission (except that
the Company did not make available on its website one Current Report on
Form 8-K, which reported the filing of a legal opinion with respect to
a Registration Statement on Form S-3, as soon as practicable after the
Company filed the report with the Securities and Exchange Commission).
GENERAL
-------
The Company is a global manufacturer and full-service marketer of
name-brand consumer products serving the needs of volume purchasers,
including department/specialty stores and warehouse clubs, home
centers and hardware stores, and office superstores and contract
stationers. The Company's basic business strategy is to merchandise a
multi-product offering of everyday consumer products, backed by an
obsession with customer service excellence and new product
development, in order to achieve maximum results for its stockholders.
The Company's multi-product offering consists of name-brand consumer
products in four business segments: Rubbermaid; Sharpie; Irwin and
Calphalon Home. The Company's financial objectives are to achieve
above-average sales and earnings per share growth, maintain a superior
return on investment and maintain a conservative level of debt. To
accomplish these objectives, the Company established five key measures
to measure financial performance: internal sales growth, operating
income as a percent of sales, working capital as a percent of sales,
free cash flow and return on invested capital. The Company defines
free cash flow as cash provided from operating activities less capital
expenditures and dividends.
In an effort to achieve superior performance in the five key financial
measures, the Company introduced six transformational strategic
initiatives in 2001 as follows: Productivity, Streamlining, New
Product Development, Marketing, Strategic Account Management, and
Collaboration.
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Productivity is the initiative to reduce the cost of manufacturing a
product by at least five percent per year, every year in order to
become the best cost supplier. Streamlining is the commitment to
reduce non-value added costs and cut out excess layers. New Product
Development represents the commitment to develop and introduce
cutting-edge, innovative new products to the market and develop best-
cost products to meet end-user needs. The Marketing initiative
represents the Company's commitment to transform from a "push" to
"pull" marketing organization, focusing on the end-user. The
Strategic Account Management initiative represents the Company's
program to allocate resources to those strategic retailers the Company
believes will continue to grow in the future. Collaboration is the
Company's initiative for the divisional operating units to work
together and maximize economies of scale and the use of best
practices.
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, 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, 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 or the assumptions relating to any of the
forward-looking statements. The Company cautions that forward-looking
statements are not guarantees because 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 99.1 to
this Report.
BUSINESS SEGMENTS
-----------------
RUBBERMAID
----------
The Company's Rubbermaid business is conducted by the Rubbermaid Home
Products, Rubbermaid Commercial Products, Rubbermaid Europe, Little
Tikes, and Graco divisions. Rubbermaid Home Products and Rubbermaid
Europe design, manufacture or source, package and distribute indoor
and outdoor organization, storage, and cleaning products. Rubbermaid
Commercial Products designs, manufactures or sources, packages and
distributes industrial and commercial waste and recycling containers,
cleaning equipment, food storage and serving and transport containers.
The Little Tikes and Graco businesses design, manufacture or source,
package and distribute infant and juvenile products such as toys, high
4
chairs, car seats, strollers, play yards, ride-ons and outdoor
activity play equipment.
Rubbermaid Home Products, Rubbermaid Commercial Products, and
Rubbermaid Europe sell their products under the Rubbermaid{R},
Curver{R}, Blue Ice{R}, Roughneck{R}, TakeAlongs{R}, Stain Shield{TM},
Wilhold{R}, Dorfile{R}, Lee Rowan{R}, and System Works{R} trademarks.
Little Tikes and Graco primarily sell their products under the Little
Tikes{R}, Graco{R} and Century{R} trademarks.
Rubbermaid Home Products, Rubbermaid Europe, Little Tikes, and Graco
market their products directly and through distributors to mass
merchants, warehouse clubs, grocery/drug stores and hardware
distributors, as well as regional direct sales representatives and
market-specific sales managers. Rubbermaid Commercial Products
markets its products directly and through distributors to commercial
channels and home centers using a direct sales force.
SHARPIE
-------
The Company's Sharpie business is conducted by the divisions of
Sanford North America, Sanford International, Eldon Office Products,
Goody, and Cosmolab. Sanford North America primarily designs,
manufactures or sources, packages and distributes permanent/waterbase
markers, dry erase markers, overhead projector pens, highlighters,
wood-cased pencils, ballpoint pens and inks, and other art supplies.
It also distributes other writing instruments including roller ball
pens and mechanical pencils for the retail marketplace. Sanford
International primarily designs and manufactures, packages and
distributes ballpoint pens, wood-cased pencils, roller ball pens and
art supplies for the retail and distributor markets. Eldon Office
Products primarily designs, manufactures or sources, packages and
distributes desktop accessories, computer accessories, storage
products, card files and chair mats. Goody designs, sources,
manufactures, packages and distributes hair care accessories.
Cosmolab primarily designs and manufactures, packages and distributes
private label cosmetic pencils for commercial customers.
Sharpie primarily sells its products under the trademarks Sanford{R},
Sharpie{R}, Paper Mate{R}, Parker{R}, Waterman{R}, Colorific{R},
Eberhard Faber{R}, Berol{R}, Grumbacher{R}, Reynolds{R}, rotring{R},
uni-Ball{R} (used under exclusive license from Mitsubishi Pencil Co.
Ltd. and its subsidiaries in North America), Expo{R}, Accent{R}, Vis-
a-Vis{R}, Expresso{R}, Liquid Paper{R}, and Mongol{R}. Eldon Office
Products markets its products under the Rolodex{R}, Eldon{R},
Rogers{R} and Rubbermaid{R} trademarks. Goody markets its products
primarily under the Ace{R}, and Goody{R} trademarks.
Sanford North America markets its products directly and through
distributors to mass merchants, warehouse clubs, grocery/drug stores,
5
office superstores, office supply stores, contract stationers, and
hardware distributors, using a network of company sales
representatives, regional sales managers, key account managers and
selected manufacturers' representatives. Sanford International markets
its products directly to retailers and distributors using a direct
sales force. Eldon Office Products markets its products directly and
through distributors to mass merchants, warehouse clubs, grocery/drug
stores, office superstores, office supply stores and contract
stationers, using a network of manufacturers' representatives, as well
as regional zone and market-specific key account representatives and
sales managers. Goody markets its products directly and through
distributors to mass merchants, warehouse clubs, grocery/drug stores
and hardware distributors, using a network of manufacturers'
representatives, as well as regional direct sales representatives and
market-specific sales managers.
IRWIN
-----
The Company's Irwin business is conducted by the Levolor/Kirsch, Home
Decor Europe, Amerock, Shur-Line, Swish UK, American Tool Hand Tools,
American Tool Power Tool Accessories, American Tool Europe and
American Tool Latin America divisions. Levolor/Kirsch primarily
designs, manufactures or sources, packages and distributes drapery
hardware, made-to-order and stock horizontal and vertical blinds, as
well as pleated, cellular and roller shades for the retail
marketplace. Levolor/Kirsch also produces window treatment components
for custom window treatment fabricators. Home Decor Europe primarily
designs, manufactures, packages and distributes drapery hardware and
made-to-order window treatments for the European retail marketplace.
Amerock manufactures or sources, packages and distributes cabinet
hardware for the retail and O.E.M. marketplace and window and door
hardware for window and door manufacturers. Shur-Line manufactures
and distributes manual paint applicator products. Swish UK is a
manufacturer and marketer of shelving and storage products, cabinet
hardware and functional trims. The American Tool divisions manufacture
and source, package and distribute hand tools and power tool
accessories.
Levolor/Kirsch primarily sells its products under the trademarks
Levolor{R}, Newell{R}, and Kirsch{R}. Home Decor Europe and Swish UK
primarily sell their products under the trademarks Swish{R}, Douglas
Kane{R}, Nenplas{R}, Homelux{R}, Gardinia{R}, Caroline{R} and
Kirsch{R}. Amerock primarily sells its products under the trademarks
Amerock{R}, Allison{R}, and Ashland{R}. Shur-Line primarily sells its
products under the trademarks Shur-Line{R} and Rubbermaid{R}. American
Tool divisions primarily sell their products under the trademarks
Irwin{R}, Vise-Grip{R}, Marathon{R}, Twill{R}, Hanson{R},
Speedbor{R}, Jack{R}, Quick-Grip{R}, Chesco{R}, Unibit{R}, Record{R},
Marples{R}, and Strait-Line{R}.
6
Levolor/Kirsch, Amerock, Shur-Line and the American Tool divisions
market their products directly and through distributors to mass
merchants, home centers, department/specialty stores, hardware
distributors, industrial/construction outlets, custom shops, select
contract customers and other professional customers, using a network
of manufacturers' representatives, as well as regional account and
market-specific sales managers. Home Decor Europe and Swish UK market
their products to mass merchants and buying groups using a direct
sales force.
As discussed in Footnote 16 to the Consolidated Financial Statements,
effective January 1, 2003, the Company completed its acquisition of
American Saw & Mfg. Co. ("American Saw"), a leading manufacturer of
power tool accessories and hand tools marketed under the Lenox{R}
brand.
CALPHALON HOME
--------------
The Company's Calphalon Home business is conducted by the following
divisions: Calphalon and Panex cookware and bakeware, Anchor Hocking
and Newell Europe glassware, Connoisseur/Burnes and Newell Photo
Fashion Europe.
Calphalon and Panex primarily design, manufacture, package and
distribute aluminum and steel cookware and bakeware and hard anodized
aluminum and stainless steel cookware and bakeware for the
department/specialty store marketplace for the U.S. and Central and
South America retail marketplace. In addition, Calphalon designs,
manufactures, packages and distributes various specialized aluminum
cookware and bakeware items for the food service industry and produces
aluminum contract stampings and components for other manufacturers and
makes aluminum and plastic kitchen tools and utensils. Calphalon's
manufacturing operations are highly integrated, rolling sheet stock
from aluminum ingot, and producing phenolic handles and knobs at its
own plastics molding facility. Anchor Hocking and Newell Europe
glassware primarily design, manufacture, package and distribute glass
products. These products include glass ovenware, servingware,
cookware and dinnerware products. Anchor Hocking also produces
foodservice products, glass lamp parts, lighting components, meter
covers and appliance covers for the foodservice and specialty markets.
Newell Europe also produces glass components for appliance
manufacturers, and its products are marketed primarily in Europe, the
Middle East and Africa. Connoisseur/Burnes and Newell Photo Fashion
Europe primarily design, manufacture or source, package and distribute
wood, wood composite, plasitic and metal ready-made picture frames and
photo albums.
Calphalon primarily sells its products under the trademarks
Calphalon{R}, Mirro{R}, WearEver{R}, Regal{R}, Panex{R}, Penedo{TM},
Rochedo{TM}, Clock{TM}, AirBake{R}, Cushionaire{R}, Concentric Air{R},
Channelon{R}, WearEver Air{R}, Club{R}, Royal Diamond{R} and Kitchen
7
Essentials{R}. Anchor Hocking products are sold primarily under the
trademarks Anchor{TM}, Anchor Hocking{R} and Oven Basics{R}. Newell
Europe's products are sold primarily under the trademarks Pyrex{R},
(used under exclusive license from Corning Incorporated and its
subsidiaries in Europe, the Middle East and Africa only), Pyroflam{R}
and Vitri{R}. Connoisseur/Burnes ready-made picture frames are sold
primarily under the trademarks Intercraft{R}, Decorel{R}, Burnes of
Boston{R}, Carr{R}, Rare Woods{R}, Terragrafics{R} and Connoisseur{R},
while photo albums are sold primarily under the Holson{R} trademark.
Newell Photo Fashion Europe primarily sells its products under the
trademarks Albadecor{R} and Panodia{R}.
Calphalon markets its products directly to mass merchants,
department/specialty stores, warehouse clubs, grocery/drug stores,
hardware distributors, cable TV networks and select contract
customers, using a network of manufacturers' representatives, as well
as regional zone and market-specific sales managers. Anchor Hocking
markets its products directly to mass merchants, warehouse clubs,
grocery/drug stores, department/specialty stores, hardware
distributors and select contract customers, using a network of
manufacturers' representatives, as well as regional zone and
market-specific sales managers. Anchor Hocking also markets its
products to manufacturers that supply the mass merchant and home party
channels of trade. Newell Europe markets its products to mass
merchants, industrial manufacturers and buying groups using a direct
sales force and manufacturers' representatives in some markets.
Connoisseur/Burnes markets its products directly to mass merchants,
warehouse clubs, grocery/drug stores and department/specialty stores,
using a network of manufacturers' representatives, as well as regional
zone and market-specific sales managers. Intercraft{R}, Decorel{R}
and Holson{R} products are sold primarily to mass merchants, while the
remaining U.S. brands are sold primarily to department/specialty
stores. Newell Photo Fashion Europe markets its products to mass
merchants, buying groups and the do-it-yourself market using a direct
sales force.
NET SALES BY BUSINESS SEGMENT
-----------------------------
The following table sets forth the amounts and percentages of the
Company's net sales for the three years ended December 31, (IN
MILLIONS, EXCEPT PERCENTAGES) (including sales of acquired businesses
from the time of acquisition and sales of divested businesses through
date of sale), for the Company's four business segments. Sales to
Wal*Mart Stores, Inc. and subsidiaries amounted to approximately 15%
of consolidated net sales in each of the years ended December 31,
2002, 2001 and 2000. Sales to no other customer exceeded 10% of
consolidated net sales.
8
% of % of % of
2002 total 2001 total 2000 total
---- ----- ---- ----- ---- -----
Rubbermaid $2,592.4 34.8% $2,565.6 37.1% $2,809.3 40.5%
Sharpie 1,908.7 25.6 1,799.4 26.1 1,423.5 20.5
Irwin 1,727.3 23.2 1,382.6 20.0 1,455.0 21.0
Calphalon Home 1,225.5 16.4 1,161.7 16.8 1,246.9 18.0
-------- ------ -------- ------ -------- ------
Total Company $7,453.9 100.0% $6,909.3 100.0% $6,934.7 100.0%
======== ====== ======== ====== ======== ======
Certain 2001 and 2000 amounts have been reclassified to conform to the
2002 presentation.
GROWTH STRATEGY
---------------
The Company's growth strategy emphasizes internal growth and
acquisitions.
Internal Growth
---------------
The Company has grown internally principally by introducing new
products, entering new domestic and international markets, adding new
customers, cross-selling existing product lines to current customers
and supporting its U.S.-based customers' international expansion.
Internal growth is defined by the Company as growth from its "core
businesses," which include continuing businesses owned more than one
year and minor acquisitions. The Company's goal is to achieve above-
average internal growth.
Acquisition Strategy
--------------------
The Company supplements internal growth by acquiring businesses with
prominent consumer-focused, retail brands and improving the
profitability of such businesses through the implementation of the
Company's Strategic Initiatives. Other strategic criteria for an
acquisition include the Company's ability to grow the business, its
importance to key customers, its relationship to existing product
lines, its function as a low-cost source of supply, its ability to
provide the Company with an entrance into a new market, and the extent
to which the Company can utilize the Phoenix Program in operating the
business. In addition, the Company will consider the business' actual
and potential impact on the Key Financial Measures, as well as the
operating performance of the Company's Group at issue. While the
Company evaluates alternatives continuously, its priority will be to
reduce debt rather than invest in significant acquisitions over the
next 12-18 months. See Item 6 and Footnote 2 to the Consolidated
Financial Statements for a description of recent transactions.
9
Selective Globalization
-----------------------
The Company is pursuing selective international opportunities to
further its internal growth and acquisition objectives. The rapid
growth of consumer goods economies and retail structures in several
regions outside the U.S., particularly Europe, Mexico and South
America, makes them attractive to the Company by providing selective
opportunities to acquire businesses, develop partnerships with new
foreign customers and extend relationships with the Company's domestic
customers whose businesses are growing internationally. The Company's
recent acquisitions, combined with existing sales to foreign
customers, increased its sales outside the U.S. to approximately 27%
of total sales in 2002 and 2001 from 25% in 2000.
Additional information regarding acquisitions of businesses is
included in Item 6 and Footnote 2 to the Consolidated Financial
Statements.
Key Financial Measures
----------------------
The Company established five key measures to evaluate financial
performance: internal sales growth, operating income as a percent of
sales, working capital as a percent to sales, free cash flow, and
return on invested capital.
STRATEGIC INITIATIVES
---------------------
Productivity
------------
The Company's objective is to reduce the cost of manufacturing a
product by at least five percent per year on an ongoing basis in order
to become the best-cost supplier to our customers. To achieve
productivity, the Company focuses on reducing purchasing costs,
materials handling costs, manufacturing inefficiencies, and excess
overhead costs to reduce the overall cost of manufacturing products.
Streamlining
------------
The streamlining initiative represents the Company's commitment and
focus on reducing non-value added activities and excess layers within
the organization. The Company's goal is to use the savings generated
from streamlining to fund marketing and other key initiatives, without
increasing total expenses. The Company is vigilant in creating a
leaner organization that is more flexible in its response time, both
internally and externally.
10
New Product Development
-----------------------
The Company is determined to become the leader in introducing cutting-
edge, innovative, and patented new products to the marketplace. The
Company seeks to employ the best and brightest new product engineers
in order to achieve this goal through the implementation and execution
of a world-class product development process. The Company's intention
is to become a "new product machine" that will enhance the brand image
and help secure additional store listings.
Marketing
---------
The Company's objective is to develop long-term, mutually beneficial
partnerships with its customers and become their supplier of choice.
To achieve this goal, the Company has a value-added marketing program
that offers a family of leading brand name staple products, tailored
sales programs, innovative merchandising support, in-store services
and responsive top management.
The Company's marketing skills help customers stimulate store traffic
and sales through timely advertising and innovative promotions. The
Company also assists customers in differentiating their offerings by
customizing products and packaging. Through self-selling packaging
and displays that emphasize good-better-best value relationships,
retail customers are encouraged to trade up to higher-value, best
quality products.
The Company is also committed to selective media advertising,
including national television advertising where appropriate, in order
to increase brand awareness among end-users of the product.
Customer service also involves customer contact with top-level
decision makers at the Company's divisions. As part of its
decentralized structure, the Company's division presidents are the
chief marketing officers of their product lines and communicate
directly with customers. This structure permits early recognition of
market trends and timely response to customer problems.
Phoenix Program
The marketing effort focuses largely on an extensive grass roots
marketing campaign, highlighted by our Phoenix Program, which was
introduced in 2001. 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 Strategic Account
structure, performing in-store product demonstrations, event
marketing, on-shelf merchandising, interacting with the end-user, and
maintaining an ongoing relationship with store personnel. This
initiative allows the Company to enhance product placement and
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minimize stock outages and, together with the Strategic Account
Management Program, to maximize shelf space potential. This program
continues to gain traction throughout several accounts and is expected
to translate to the Consolidated Financial Statements through the
impact of shelf space gains going forward.
Strategic Account Management
----------------------------
In 2001, the Company introduced the Strategic Account Management
Program. The Strategic Account Management Program is the Company's
sales and marketing approach that focuses growth efforts on strategic
accounts with high long-term growth potential. Separate sales
organizations have been established to more effectively manage the
relationship at the largest strategic accounts, specifically 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, understand the customer's needs and support the best
possible customer relationship.
Collaboration
-------------
Collaboration represents the Company's focus to benefit from the
sharing of best practices and the reduction of costs achieved through
economies of scale. For example, functions, such as purchasing and
distribution and transportation, have been centralized to increase
buying power across the Company.
Additionally, certain administrative functions are centralized at the
corporate level including cash management, accounting systems, capital
expenditure approvals, order processing, billing, credit, accounts
receivable, data processing operations and legal functions.
Centralization concentrates technical expertise in one location,
making it easier to observe overall business trends and manage the
Company's businesses.
OTHER INFORMATION
-----------------
Multi-Product Offering
----------------------
The Company's increasingly broad product coverage in multiple product
lines permits it to more effectively meet the needs of its customers.
With families of leading, brand name products and profitable new
products, the Company also can help volume purchasers sell a more
profitable product mix. As a potential single source for an entire
product line, the Company can use program merchandising to improve
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product presentation, optimize display space for both sales and income
and encourage impulse buying by retail customers.
Customer Service
----------------
The Company believes that one of the primary ways it distinguishes
itself from its competitors is through customer service. The Company's
ability to provide superior customer service is a result of its
information technology, marketing and merchandising programs designed
to enhance the sales and profitability of its customers and consistent
on-time delivery of its products.
On-Time Delivery
----------------
A critical element of the Company's customer service is consistent
on-time delivery of products to its customers. Retailers are pursuing
a number of strategies to deliver the highest-quality, best-cost
products to their customers. A growing trend among retailers is to
purchase on a "just-in-time" basis in order to reduce inventory costs
and increase returns on investment. As retailers shorten their lead
times for orders, manufacturers need to more closely anticipate
consumer-buying patterns. The Company supports its retail customers'
"just-in-time" inventory strategies through investments in improved
forecasting systems, more responsive manufacturing and distribution
capabilities and electronic communications. The Company manufactures
the vast majority of its products and has extensive experience in
high-volume, cost-effective manufacturing. The high-volume nature of
its manufacturing processes and the relatively consistent demand for
its products enables the Company to ship most products directly from
its factories without the need for independent warehousing and
distribution centers.
Foreign Operations
------------------
Information regarding the Company's 2002, 2001 and 2000 foreign
operations is included in Footnote 14 to the Consolidated Financial
Statements and is incorporated by reference herein.
Raw Materials
-------------
The Company has multiple foreign and domestic sources of supply for
substantially all of its material requirements. The raw materials and
various purchased components required for its products have generally
been available in sufficient quantities.
13
Backlog
-------
The dollar value of unshipped factory orders is not material.
Seasonal Variations
-------------------
The Company's product groups are only moderately affected by seasonal
trends. The Rubbermaid and Calphalon Home business segments typically
have higher sales in the second half of the year due to retail
stocking related to the holiday season; the Irwin 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 Sharpie 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 do not
fluctuate significantly, unless a significant acquisition is made.
Patents and Trademarks
----------------------
The Company has many patents, trademarks, brand names and trade names
that are, in the aggregate, increasingly important to its business.
The Company believes that no individual patent, trademark, brand name
or trade name, other than the United States registered "Rubbermaid"
trademark, is material to its consolidated operations.
Competition
-----------
The Company competes with numerous other manufacturers and
distributors of consumer products, many of which are large and
well-established. The Company's 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 a significant consolidation of the consumer
products retail industry and the formation of dominant multi-category
retailers, many of which have strong bargaining power with suppliers.
This environment significantly limits the Company's 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, in the absence of a strong
new product development effort or strong end-user brands, is for the
retailer to import generic products directly from foreign sources.
The combination of these market influences has created an intensely
competitive environment in which the Company's principal customers
continuously evaluate which product suppliers to use, resulting in
pricing pressures and the need for strong end-user brands, the ongoing
14
introduction of innovative new products and continuing improvements in
customer service.
For more than 30 years, the Company has positioned itself to respond
to the challenges of this retail environment by developing strong
relationships with large, high-volume purchasers. The Company markets
its strong multi-product offering through virtually every category of
high-volume retailer, including discount, drug, grocery and variety
chains, warehouse clubs, department, hardware and specialty stores,
home centers, office superstores, contract stationers and military
exchanges. The Company's largest customer, Wal*Mart (which includes
Sam's Club), accounted for approximately 15% of net sales in 2002.
Other top ten customers included (IN ALPHABETICAL ORDER): JC Penney,
Kmart, Lowe's, Staples, Target, The Home Depot, The Office Depot, Toys
'R Us and United Stationers.
The Company's other principal methods of meeting its competitive
challenges are high brand name recognition, superior customer service
(including industry leading information technology, innovative
"good-better-best" marketing and merchandising programs), consistent
on-time delivery, decentralized manufacturing and marketing,
centralized administration, and experienced management.
Environment
-----------
Information regarding the Company's environmental matters is included
in Management's Discussion and Analysis section of this report and in
Footnote 15 to the Consolidated Financial Statements and is
incorporated by reference herein.
Employees
---------
As of December 31, 2002, the Company had approximately 47,000
employees worldwide, of whom approximately 9,000 are covered by
collective bargaining agreements or, in certain countries, other
collective arrangements decreed by statute.
15
ITEM 2. REAL PROPERTIES
------- ---------------
The following table shows the location and general character of the
principal operating facilities owned or leased by the Company. The
properties are listed within their designated business segment:
Rubbermaid; Sharpie; Irwin; and Calphalon Home. These are the primary
manufacturing locations and in many instances also contain
administrative offices and warehouses used for distribution of our
products. The Company also maintains sales offices throughout the
United States and the world. The corporate offices are located in
Illinois in owned facilities at Freeport (approximately 91,000 square
feet) and in owned and leased space in Rockford (approximately 8,700
square feet). Most of the idle facilities, which are excluded from
the following list, are subleased while being held pending sale or
lease expiration. The Company's properties are generally in good
condition, well maintained, and are suitable and adequate to carry on
the Company's business.
BUSINESS
SEGMENT LOCATION CITY OWNED OR LEASED GENERAL CHARACTER
-------- -------- ---- --------------- -----------------
RUBBERMAID
----------
AZ Phoenix L Commercial Products
Mexico Cadereyta O Commercial Products
TN Cleveland O Commercial Products 2 facilities
Mexico Monterrey L Commercial Products
VA Winchester O/L Commercial Products 2 facilities
AZ Phoenix O Home Products
France Amiens O Home Products
France Grossiat O Home Products
France Lomme L Home Products
Germany Dreieich O Home Products
Hungary Debrecen L Home Products
IA Centerville O/L Home Products 2 facilities
Mexico Cartagena O Home Products
Mexico Tultitlan O Home Products
NC Greenville O Home Products
Netherlands Brunssum O Home Products
OH Mogadore O Home Products
OH Wooster O Home Products
Canada Mississauga O Home Products
Poland Seupsk O Home Products
Spain Zaragoza O Home Products
TX Cleburne O Home Products
TX Greenville O Home Products
TX Wills Point L Home Products
UK Corby O Home Products
Netherlands Goirle O Home Products
KS Winfield O Home Products 2 facilities
16
MO Farmington O Outdoor Play Systems
Canada Paris L Outdoor Play Systems
CA San Bernadino O Infant Products
OH Canton O Infant Products
OH Macedonia O Infant Products
PA Elverson O Infant Products
PA Exton L Infant Products
SC Greer L Infant Products
Mexico Piedras Negras L Infant Products
CA City of Industry L Juvenile Products
OH Hudson O Juvenile Products
OH Sebring O Juvenile Products
Luxembourg Niedercorn O Juvenile Products
CA Vista O Home Storage Systems
MO Jackson O Home Storage Systems
Canada Watford O Home Storage Systems
TN Maryville O Office & Storage Organizers
WI Madison O/L Office & Storage 2 facilities
Puerto Rico Moca O Office & Storage Organizers
IL Elk Grove O Office & Storage 2 facilities
SHARPIE
-------
TN Lewisburg O Cosmetic Pencils
CA Santa Monica L Writing Instruments
IL Bellwood O Writing Instruments 3 facilities
IL Bolingbrook L Writing Instruments
TN Lewisburg O Writing Instruments
TN Shelbyville O Writing Instruments 2 facilities
WI Janesville L Writing Instruments
Canada Oakville L Writing Instruments
Colombia Bogota O Writing Instruments
France St. Herblain O Writing Instruments
France Valence O Writing Instruments
Germany Hamburg O Writing Instruments
Germany Baden-Baden L Writing Instruments
Mexico Pasteje L Writing Instruments
Mexico Tijuana L Writing Instruments
Mexico Tlalnepantla O Writing Instruments
UK Newhaven O Writing Instruments
UK Kings Lynn O Writing Instruments
China Shanghai L Writing Instruments
Venezuela Maracay O Writing Instruments
GA Manchester O Hair Accessories
GA Columbus O/L Hair Accessories 2 facilities
IRWIN
-----
Mexico Ciudad Juarez L Window Treatments
Mexico Naco L Window Treatments
AZ Douglas L Window Treatments
Canada Calgary L Window Treatments
17
Canada Toronto L Window Treatments
Denmark Hornum O Window Treatments
France Feuquieres-en- O Window Treatments
Vimeu
France Tremblay-les- O Window Treatments
Villages
GA Athens O Window Treatments
Germany Borken L Window Treatments
Germany Isny O Window Treatments
IL Freeport O/L Window Treatments
Italy Como O Window Treatments
Italy Frosinone O Window Treatments
NC High Point O Window Treatments
Spain Vitoria O Window Treatments
Sweden Anderstorp O Window Treatments
Sweden Malmo O Window Treatments
UK Ashbourne O Window Treatments
UK Birmingham O/L Window Treatments
UK Tamworth O Window Treatments
UK Watford Herts L Window Treatments
UT Ogden O Window Treatments
UT Salt Lake City L Window Treatments
CA Westminster L Window Treatments
TN Johnson City O Paint Applicators
WI Milwaukee O Paint Applicators
NY Medina O Propane/Oxygen Hand Torches
NY Ogdensburg O Small Hardware
IL Rockford O Hardware
TN Memphis L Small Hardware
IN Lowell O Window Hardware
AR Lexa O Tools
NE Beatrice O Tools
NE DeWitt O Tools
NY Buffalo O Tools
ME Gorham O Tools
OH Wilmington O Tools 3 facilities
WI Cumberland O Tools
IL Vernon Hills L Tools
NE Lincoln L Tools
NC Huntersville L Tools
Australia Auburn L Tools
Australia Scoresby L Tools
Canada Cambridge L Tools
New Zealand Auckland L Tools
New Zealand Rotorua L Tools
New Zealand Wellsford O Tools
Portugal Velha L Tools
Poland Brodnica O Tools
Brazil San Paulo O Tools 2 facilities
Brazil Carlos Bobos O Tools
Denmark Asnaes O Tools
Denmark Copenhagen O Tools
18
Denmark Thisted O Tools
Holland Ijlst O Tools
UK Sheffield O Tools
UK Wigan O Tools
CALPHALON HOME
--------------
OH Perrysburg O Cookware
WI Manitowoc O Cookware & Bakeware
Brazil Sao Paulo L Cookware
Germany Muhltal O Plastic Storage Ware
UK Sunderland O Glassware & Bakeware
France Chateauroux O Glassware & Bakeware
OH Lancaster O Glassware & Bakeware
PA Monaca O Glassware & Food Service
France La Ferte Milon O Picture Frames
France Neunge Sur O/L Picture Frames
Beuvron
France St. Laurent Sur O Picture Frames
Gorre
Mexico Durango O Picture Frames
NC Statesville O/L Picture Frames
TX Laredo L Picture Frames
TX Taylor O Picture Frames
TX Austin L Picture Frames
NH Claremont O/L Picture Frames & Photo Albums
19
ITEM 3. LEGAL PROCEEDINGS
------- -----------------
Information regarding legal proceedings is included in Footnote 15 to
the Consolidated Financial Statements and is incorporated by reference
herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
There were no matters submitted to a vote of the Company's
shareholders during the fourth quarter of fiscal year 2002.
SUPPLEMENTARY ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Present Position With The Company
---- --- ---------------------------------
Joseph Galli, Jr. 44 President and Chief Executive Officer
William T. Alldredge 63 President-Corporate Development and
Chief Financial Officer
Jeffery E. Cooley 50 Group President, Calphalon Home Group
David A. Klatt 38 Group President, Rubbermaid Group
Robert S. Parker 57 Group President, Sharpie Group
James J. Roberts 44 Group President, Irwin Group
J. Patrick Robinson 47 Vice President - Controller and Chief
Accounting Officer
Timothy J. Jahnke 43 Vice President - Human Resources
Dale L. Matschullat 57 Vice President - General Counsel
Joseph Galli, Jr. has been President and Chief Executive Officer of
the Company since January 8, 2001. Prior thereto, he was President
and Chief Executive Officer of VerticalNet, Inc. (an internet
business-to-business company) from May 2000 until January 2001. From
June 1999 until May 2000, he was President and Chief Operating Officer
of Amazon.com (an internet business-to-consumer company). From 1980
until June 1999, he held a variety of positions with The Black and
Decker Corporation (a manufacturer and marketer of power tools and
accessories), culminating as President of Black and Decker's Worldwide
Power Tools and Accessories Group.
William T. Alldredge has been President - Corporate Development and
Chief Financial Officer since January 2001. Prior thereto, he was
20
President - International Business Development from December 1999
until January 2001. From August 1983 until December 1999, he was Vice
President - Finance.
Jeffery E. Cooley has been Group President of the Company's Calphalon
Home business segment since November 2000. Prior thereto, he was
President of the Company's Calphalon division from 1990 through
October 2000.
David A. Klatt has been Group President of the Company's Rubbermaid
business segment since July 2001. From April 2001 to July 2001, he
was Division President of Rubbermaid Home Products. Prior thereto, he
was Chief Operating Officer of AirClic Inc. (a web-based software and
services platform company for the mobile information market) from
March 2000 until March 2001. From September 1986 until March 2000, he
held a variety of positions with The Black and Decker Corporation (a
manufacturer and marketer of power tools and accessories), where he
most recently served as Vice President/ General Manager of the U.S.
Consumer Division.
Robert S. Parker has been Group President of the Company's Sharpie
business segment since August 1998. Prior thereto, he was President
of Sanford Corporation, both before and after the Company acquired it
in 1992, from October 1990 to August 1998.
James J. Roberts has been Group President of the Company's Irwin
business segment since April 2001. Prior thereto, he served as
President - Worldwide Hand Tools and Hardware at the Stanley Works (a
supplier of tools, door systems and related hardware) from September
2000 until March 2001. From July 1981 until September 2000, he held a
variety of positions with The Black and Decker Corporation (a
manufacturer and marketer of power tools and accessories), most
recently as President Worldwide Accessories.
J. Patrick Robinson has been Vice President - Controller and Chief
Accounting Officer since May 2001. Prior thereto, he was Chief
Financial Officer of AirClic Inc. (a web-based software and services
platform company for the mobile information market) from March 2000
until May 2001. From 1983 until March 2000, he held a variety of
financial positions with The Black and Decker Corporation (a
manufacturer and marketer of power tools and accessories), most
recently as Vice President of Finance, Worldwide Power Tools.
Timothy J. Jahnke has been Vice President - Human Resources since
February 2001. Prior thereto, he was President of the Anchor Hocking
Specialty Glass division from June 1999 until February 2001. From
1995 until June 1999, he led the human resources department of the
Company's Sanford division's worldwide operations.
Dale L. Matschullat has been Vice President - General Counsel since
January 2001. Prior thereto, he was Vice President-Finance, Chief
Financial Officer and General Counsel from January 2000 until January
21
2001. From 1989 until January 2000, he was Vice President - General
Counsel.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
------- STOCKHOLDER MATTERS
--------------------------------------------------
The Company's common stock is listed on the New York and Chicago Stock
Exchanges (symbol: NWL). As of December 31, 2002, there were 23,629
stockholders of record. The following table sets forth the high and
low sales prices of the common stock on the New York Stock Exchange
Composite Tape (as published in The Wall Street Journal) for the
calendar periods indicated:
2002 2001 2000
---- ---- ----
Quarters High Low High Low High Low
-------- ---- --- ---- --- ---- ---
First $33.52 $25.26 $29.21 $23.38 $31.25 $21.50
Second 35.76 29.33 27.34 24.00 27.56 23.81
Third 35.50 26.23 25.40 21.20 28.50 21.94
Fourth 34.32 28.08 28.13 22.87 22.88 18.69
The Company has paid regular cash dividends on its common stock since
1947. The quarterly cash dividend has been $0.21 per share since
February 1, 2000, when it was increased from the $0.20 per share that
had been paid since February 8, 1999.
Information regarding the 5.25% convertible quarterly income preferred
securities issued by a wholly owned subsidiary trust of the Company,
which are reflected as outstanding in the Company's Consolidated
Financial Statements as Company-Obligated Mandatorily Redeemable
Convertible Preferred Securities of a Subsidiary Trust, is included in
Footnote 6 to the Consolidated Financial Statements.
22
ITEM 6. SELECTED FINANCIAL DATA
------- -----------------------
The following is a summary of certain consolidated financial
information relating to the Company at December 31, (IN MILLIONS,
EXCEPT PER SHARE DATA). The summary has been derived in part from,
and should be read in conjunction with, the Consolidated Financial
Statements of the Company included elsewhere in this report and the
schedules thereto.
2002 (1) 2001 (1) 2000 (1) 1999 1998
-------- -------- -------- ---- ----
INCOME STATEMENT DATA
Net sales $7,453.9 $6,909.3 $6,934.7 $6,711.8 $6,493.2
Cost of products sold 5,394.2 5,046.6 5,108.7 4,975.4 4,670.4
-------- -------- -------- -------- --------
Gross income 2,059.7 1,862.7 1,826.0 1,736.4 1,822.8
Selling, general and administrative
expenses 1,307.3 1,168.2 899.4 1,104.5 967.9
Restructuring costs 122.7 66.7 43.0 241.6 (2) 115.1 (3)
Goodwill amortization - 56.9 51.9 46.7 59.5
-------- -------- -------- -------- --------
Operating income 629.7 570.9 831.7 343.6 680.3
Nonoperating expenses (income):
Interest expense 110.6 137.5 130.0 100.0 100.5
Other, net 50.6 17.5 16.2 12.7 (237.1) (4)
-------- -------- -------- -------- --------
Net nonoperating expenses (income) 161.2 155.0 146.2 112.7 (136.6)
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of accounting change 468.5 415.9 685.5 230.9 816.9
Income taxes 157.0 151.3 263.9 135.5 335.1
-------- -------- -------- -------- --------
Income before cumulative effect of
accounting change 311.5 264.6 421.6 95.4 481.8
Cumulative effect of accounting change,
net of tax (514.9) - - - -
-------- -------- -------- -------- --------
Net (loss)/income ($203.4) $264.6 $421.6 $95.4 $481.8
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic 267.1 266.7 268.4 281.8 280.7
Diluted 268.0 267.0 268.5 282.0 291.9
23
Earnings per share before cumulative effect
of accounting change:
Basic $1.17 $0.99 $1.57 $0.34 $1.72
Diluted $1.16 $0.99 $1.57 $0.34 $1.70
(Loss)/Earnings per share:
Basic ($0.76) $0.99 $1.57 $0.34 $1.72
Diluted ($0.76) $0.99 $1.57 $0.34 $1.70
Dividends per share $0.84 $0.84 $0.84 $0.80 $0.76
BALANCE SHEET DATA
Inventories, net $1,196.2 $1,113.8 $1,262.6 $1,034.8 $1,033.5
Working capital (5) 465.6 316.8 1,329.5 1,108.7 1,278.8
Total assets 7,388.9 7,266.1 7,261.8 6,724.1 6,289.2
Short-term debt 449.2 826.6 227.2 247.4 102.0
Long-term debt, net of current maturities 1,856.6 1,365.0 2,319.6 1,455.8 1,393.9
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust 500.0 500.0 500.0 500.0 500.0
Stockholders' equity 2,063.5 2,433.4 2,448.6 2,697.0 2,843.7
(1) Supplemental data regarding 2002, 2001 and 2000 is provided in
Item 7, Management's Discussion and Analysis of Results of
Operations and Financial Condition.
(2) The 1999 restructuring costs included $27.8 million for costs to
exit business activities at seven facilities, write-down impaired
Rubbermaid centralized software, write-off assets associated with
abandoned projects and impaired assets and for costs related to
discontinued product lines, $101.9 million relating to employee
severance and termination benefits, $72.0 million relating to
exited contractual commitments and $39.9 million for transaction
costs related primarily to investment banking, legal and
accounting costs for the Newell/Rubbermaid merger.
(3) The 1998 restructuring costs included $53.4 million for costs to
exit business activities at five facilities, $45.8 million to
write down impaired long-lived assets to their fair value and
$16.0 million relating to employee severance and termination
benefits.
(4) The 1998 other nonoperating income included a $191.5 million gain
on the sale of Black & Decker common stock and $59.8 million of
gains on the sale of the Decora, Newell Plastics and Stuart Hall
businesses.
(5) Working capital is defined as Current Assets less Current
Liabilities.
24
ACQUISITIONS OF BUSINESSES
2002, 2001 and 2000
-------------------
Information regarding businesses acquired in the last three years is
included in Footnote 2 to the Consolidated Financial Statements.
1999
----
In 1999, the Company acquired the following:
Business Acquisition Industry
Business Name Description Date Segment
-------------- ----------- ----------- --------
Ateliers 28 Drapery Hardware April 2 Irwin
Reynolds SA Writing Instruments October 18 Sharpie
McKechnie plc consumer Drapery Hardware, October 29 Irwin
product division Window Fashions,
Shelving & Hardware
Ceanothe Holding Picture Frames December 29 Calphalon Home
For these and for other minor acquisitions made in 1999, the Company
paid $397.3 million in cash and assumed $45.1 million of debt.
1998
----
In 1998, the Company acquired the following:
Business Acquisition Industry
Business Name Description Date Segment
------------- ----------- ----------- --------
Curver Consumer Products Plastic Housewares January 21 Rubbermaid
Swish Track and Pole Window Furnishings March 27 Irwin
Century Products Infant Products May 19 Rubbermaid
Panex S.A. Industria e Comercio Aluminum Cookware June 30 Calphalon Home
Gardinia Group Window Treatments August 31 Irwin
Rotring Group Writing and Drawing September 30 Sharpie
Instruments, Art
Materials and Color
Cosmetics
For these and for other minor acquisitions made in 1998, the Company
paid $615.7 million in cash and assumed $99.5 million of debt. The
finalized purchase price allocations for these acquisitions resulted
in trade names and goodwill of approximately $387.1 million.
25
QUARTERLY SUMMARIES
Summarized quarterly data for the last three years is as follows (IN
MILLIONS, EXCEPT PER SHARE DATA) (unaudited):
Calendar Year 1st 2nd 3rd 4th Year
------------- --- --- --- --- ----
2002
----
Net sales $1,597.0 $1,895.0 $1,948.3 $2,013.6 $7,453.9
Gross income 419.1 520.6 550.3 569.7 2,059.7
Earnings before cumulative effect
of accounting change 50.9 88.6 76.2 95.8 311.5
Net (loss)/income (464.0) 88.6 76.2 95.8 ($203.4)
Earnings per share before cumulative
effect of accounting change:
Basic $0.19 $0.33 $0.29 $0.36 $1.17
Diluted 0.19 0.33 60.29 0.36 1.16
(Loss)/Earnings per share:
Basic ($1.74) $0.33 $0.29 $0.36 ($0.76)
Diluted (1.73) 0.33 0.29 0.36 (0.76)
2001
----
Net sales $1,610.7 $1,724.7 $1,767.8 $1,806.1 $6,909.3
Gross income 391.8 453.5 489.6 527.8 1,862.7
Net income 38.4 72.0 83.5 70.7 264.6
Earnings per share:
Basic $0.14 $0.27 $0.31 $0.27 $0.99
Diluted 0.14 0.27 0.31 0.27 0.99
2000
----
Net sales $1,628.9 $1,787.0 $1,756.4 $1,762.4 $6,934.7
Gross income (1) 408.4 486.5 468.3 462.8 1,826.0
Net income 76.2 128.0 123.0 94.4 421.6
Earnings per share:
Basic $0.28 $0.48 $0.46 $0.35 $1.57
Diluted 0.28 0.48 0.46 0.35 1.57
(1) Quarterly gross income amounts differ from those disclosed in the
Form 10-Q for each respective quarter due to the reclassification
of restructuring charges related to discontinued product lines to
conform with the 2001 presentation. Charges reclassified from
Restructuring Costs to Cost of Products Sold in 2001 were (in
thousands): $87, $888, $485 and $4,091 for the first, second,
third and fourth quarters, respectively; the full year 2000
reclassification totaled $5,551.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
------- OPERATIONS AND FINANCIAL CONDITION
--------------------------------------------------
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of
the Company's consolidated results of operations and financial
condition. The discussion should be read in conjunction with the
Consolidated Financial Statements and footnotes thereto.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated items from
the Consolidated Statements of Operations as a percentage of net sales
for the years ended December 31,:
2002 2001 2000
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of products sold 72.4 73.0 73.7
----- ----- -----
Gross income 27.6 27.0 26.3
Selling, general and administrative expenses 17.5 16.9 13.0
Restructuring costs 1.6 1.0 0.6
Goodwill amortization - 0.8 0.7
----- ----- -----
Operating income 8.5 8.3 12.0
Nonoperating expenses:
Interest expense 1.5 2.0 1.9
Other, net 0.7 0.3 0.2
----- ----- -----
Net nonoperating expenses 2.2 2.3 2.1
Income before income taxes and cumulative
effect of accounting change 6.3 6.0 9.9
Income taxes 2.1 2.2 3.8
Income before cumulative effect of
accounting change 4.2 3.8 6.1
Cumulative effect of accounting change,
net of tax (6.9) - -
----- ----- -----
Net (loss)/income (2.7)% 3.8% 6.1%
===== ===== =====
2002 VERSUS 2001
Net sales for 2002 were $7,453.9 million, representing an increase of
$544.6 million, or 7.9%, from $6,909.3 million in 2001. The increase
primarily resulted from internal sales growth of 3.3% and sales
contribution from American Tool Companies, Inc. of $318.3 million
(acquired April 2002).
27
Gross income as a percentage of net sales in 2002 was 27.6%, or
$2,059.7 million, versus 27.0%, or $1,862.7 million, in 2001. Gross
income includes restructuring related and other charges relating to
integration costs of recent acquisitions of $13.8 million ($9.2
million after taxes) and $7.4 million ($4.7 million after taxes) in
2002 and 2001, respectively. The improvement in gross income is
primarily related to the implementation of a productivity initiative
throughout the Company and higher margins from our new products. The
Company's productivity objective is to reduce the cost of
manufacturing a product by at least five percent per year on an
ongoing basis in order to become the best-cost supplier to our
customers. To achieve productivity improvements, the Company is
focusing on reducing purchasing costs, materials handling costs,
manufacturing inefficiencies, and excess overhead costs to reduce the
overall cost of manufacturing products.
Selling, general and administrative expenses ("SG&A") in 2002 were
17.5% of net sales, or $1,307.3 million, versus 16.9%, or $1,168.2
million, in 2001. SG&A includes charges relating to integration costs
of recent acquisitions of $7.4 million ($4.9 million after taxes) and
$12.0 million ($7.7 million after taxes) in 2002 and 2001,
respectively. The increase in SG&A is a result of the American Tool
Companies, Inc. acquisition ($75.5 million) and planned investments in
marketing initiatives, including the Company's Strategic Account
Management Program, television advertising program and Phoenix
Program, supporting the Company's brand portfolio and strategic
account management strategy.
The Company continues to invest in several programs launched in 2001.
The Strategic Account Management Program is the Company's sales and
marketing approach that focuses growth efforts on strategic accounts
with high long-term growth potential. Separate sales organizations
have been established to more effectively manage the relationship at
the largest strategic accounts, specifically 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,
understand the customer's needs and support the best possible customer
relationship.
In addition to the Strategic Account Management Program, the Company
also continues to invest in 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 Strategic Account structure, performing in-store product
demonstrations, event marketing, on-shelf merchandising, 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 Strategic
Account Management Program, to maximize shelf space potential. This
program continues to gain traction throughout several accounts and is
28
expected to translate to the Consolidated Financial Statements through
the impact of shelf space gains going forward.
During 2002, the Company recorded pre-tax restructuring charges of
$122.7 million associated with the Company's strategic restructuring
plan. The restructuring plan is intended to streamline the Company's
supply chain to ensure its position as the best-cost global provider
throughout the Company's product portfolio. The plan consists of
reducing worldwide headcount over the three years beginning in 2001,
and includes consolidating duplicate manufacturing facilities. As
part of this plan, the Company incurred employee severance and
termination benefit costs for approximately 3,100 employees.
Additionally, the Company incurred facility exit costs related
primarily to the closure of 43 facilities (seven at Rubbermaid, eight
at Sharpie, fourteen at Irwin, twelve at Calphalon Home and two
corporate administrative offices). See Footnote 3 to the
Consolidated Financial Statements for a review of these charges.
Operating income in 2002 was 8.5% of net sales, or $629.7 million,
versus 8.3% of net sales, or $570.9 million, in 2001. Operating income
includes restructuring and other charges of $143.9 million ($95.8
million after taxes) and $86.1 million ($54.8 million after taxes) in
2002 and 2001, respectively. The increase in operating margins was
primarily due to improvement in gross margin and the elimination of
amortization expense associated with goodwill (see Footnote 1 to the
Consolidated Financial Statements for additional discussion) offset by
planned investment in marketing initiatives supporting the Company's
brand portfolio and strategic account management strategy and
restructuring charges to streamline the Company's supply chain.
Net nonoperating expenses in 2002 were 2.2% of net sales, or $161.2
million, versus 2.3%, or $155.0 million, in 2001. Net nonoperating
expense includes charges relating to integration costs of recent
acquisitions and costs related to the Anchor Hocking withdrawn
divestiture of $23.7 million ($15.9 million after tax) in 2002. These
costs were partially offset by lower interest rates. See Footnotes
2 and 13 to the Consolidated Financial Statements for additional
details.
The effective tax rate was 33.5% for the year ended December 31, 2002
versus 36.4% in the prior year. See Footnote 12 to the Consolidated
Financial Statements for an explanation of the effective tax rate.
Net income before cumulative effect of accounting change in 2002 was
$311.5 million, a $46.9 million, or 17.7% increase from $264.6 million
in 2001. Diluted earnings per share before cumulative effect of
accounting change was $1.16 in 2002 compared to $0.99 in 2001.
During the first quarter of 2002, the Company completed the required
impairment tests of goodwill and indefinite life intangible assets,
which resulted in an impairment charge of $514.9 million, net of tax.
See Footnote 1 to the Consolidated Financial Statements for further
29
information on the Company's adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and other Intangible
Assets."
Net loss for 2002 was $203.4 million compared to net income of $264.6
million in 2001. Basic and diluted loss/earnings per share in 2002
decreased to a loss of $0.76 versus income of $0.99 in 2001. The
decrease in net income and earnings per share in 2002 was primarily
due to the cumulative effect of accounting changes related to
goodwill, and increased restructuring charges to streamline the
Company's supply chain, partially offset by an improvement in gross
margins, the elimination of amortization expense associated with
goodwill, lower interest rates and a reduction in income tax expense.
See Footnote 1 to the Consolidated Financial Statements for additional
details related to cumulative effect of accounting change charge for
goodwill.
BUSINESS SEGMENT OPERATING RESULTS:
The Company operates in four general segments:
Net Sales by Segment were as follows for the year ended December 31,
(IN MILLIONS):
2002 2001 % Change
---- ---- --------
Rubbermaid $2,592.4 $2,565.6 1.0%
Sharpie 1,908.7 1,799.4 6.1
Irwin 1,727.3 1,382.6 24.9
Calphalon Home 1,225.5 1,161.7 5.5
-------- -------- ----
Total Net Sales $7,453.9 $6,909.3 7.9%
======== ======== ====
Operating Income by Segment were as follows for the year ended
December 31, (IN MILLIONS):
2002 2001 % Change
---- ---- --------
Rubbermaid $214.5 $200.9 6.8%
Sharpie 323.3 278.3 16.2
Irwin 136.4 126.5 7.8
Calphalon Home 119.5 120.1 (0.5)
------ ------ ----
Segment Operating Income* $793.7 $725.8 9.4%
====== ====== ====
* Segment Operating Income excludes corporate costs and Restructuring
Expense. See Footnote 14 to the Consolidated Financial Statements
for the detail of Operating Income by Segment including Corporate
and Restructuring Expense.
30
RUBBERMAID
Net sales for 2002 were $2,592.4 million, an increase of $26.8
million, or 1.0%, from $2,565.6 million in 2001. The 1.0% sales
growth was primarily due to 5.6% sales growth at the Rubbermaid Home
Products division, partially offset by an 11.5% sales decline at
Graco. The decline at Graco was primarily due to an increase in
competitive pressures. The primary reasons for the overall sales
increase were sales gains at strategic accounts and new product
introductions, such as the Rubbermaid TakeAlongs{R}, the Slim
Cooler{TM}, Stain Shield{TM}, and the Tool Tower{TM} and growth in
existing products, partially offset by product price reductions.
Operating income for 2002 was $214.5 million, an increase of $13.6
million, or 6.8%, from $200.9 million in 2001. The increase is
primarily related to productivity improvements and increased margin
for new products, partially offset by product price reductions and
continued investments in divisional growth initiatives, including
costs related to new product development and product launches,
primarily television advertising for featured items such as the Slim
Cooler{TM} and the Tool Tower{TM}.
SHARPIE
Net sales for 2002 were $1,908.7 million, an increase of $109.3
million, or 6.1%, from $1,799.4 million in 2001. The 6.1% sales
growth was fueled by 20.4% sales growth at Eldon. The primary reasons
for the increase were sales gains at strategic accounts, new product
introductions (including the Sharpie{R} Chisel Tip and Liquid Paper{R}
Backtracker{TM}), and growth in existing Paper Mate{R} pens,
Sharpie{R} permanent markers and Colorific{R} product lines.
Operating income for 2002 was $323.3 million, an increase of $45.0
million, or 16.2%, from $278.3 million in 2001. The increase is
primarily related to productivity improvements and increased margin
from new products, partially offset by continued investments in
divisional growth initiatives, primarily television advertising for
the Sharpie{R} and Paper Mate{R} brands.
IRWIN
Net sales for 2002 were $1,727.3 million, an increase of $344.7
million, or 24.9%, from $1,382.6 million in 2001. Excluding $318.3
million in sales from the American Tool acquisition, sales increased
$26.4 million, or 1.9%. Sales growth was fueled primarily by 14.0%
sales growth at the BernzOmatic division offset by a decline of 1.3%
at the Levolor/Kirsch division. The American Tool acquisition
integration continues on plan.
Operating income for 2002 was $136.4 million, an increase of $9.9
million, or 7.8%, from $126.5 million in 2001. Excluding $24.6
million in operating income from the American Tool acquisition,
31
operating income decreased $14.7 million, or 11.6%. The decrease in
operating income was primarily due to product price reductions and
continued investment in sales and marketing growth initiatives, as
well as start-up costs related to the American Tool acquisition,
partially offset by cost savings from productivity initiatives.
CALPHALON HOME
Net sales for 2002 were $1,225.5 million, an increase of $63.8
million, or 5.5%, from $1,161.7 million in 2001. Sales growth related
primarily to Calphalon and Cookware Europe divisions related to new
product introductions and existing product sales at strategic
accounts, partially offset by product price reductions.
Operating income for 2002 was $119.5 million, a decrease of $0.6
million, or 0.5%, from $120.1 million in 2001. The slight decrease in
operating income was due primarily to product price reductions and
costs related to marketing growth initiatives, offset by cost savings
from productivity initiatives and new and existing product growth.
2001 VERSUS 2000
Net sales for 2001 were $6,909.3 million, representing a decrease of
$25.4 million, or 0.4%, from $6,934.7 million, in 2000. The sales
decline was primarily due to shelf space losses at key customers and a
significant downturn in the U.S. economy, partially offset by $498.5
million of sales contributions from Paper Mate/Parker (acquired
December 2000).
Gross income as a percentage of net sales in 2001 was 27.0%, or
$1,862.7 million, versus 26.3%, or $1,826.0 million, in 2000. Gross
income includes restructuring related and other charges relating to
integration costs of recent acquisitions of $7.4 million ($4.7 million
after taxes) and $7.9 million ($4.9 million after taxes) in 2001 and
2000, respectively. The gross income improvement is primarily due to
the December 29, 2000 acquisition of the Paper Mate/Parker
business. Excluding this acquisition, gross income margins were flat.
The implementation of the productivity initiative throughout the
Company in 2001 maintained gross income margin percentages at 2000
levels despite significant increased fixed costs as production at the
Company's manufacturing facilities was slowed in an effort to reduce
inventories (net inventories decreased $148.8 million during 2001).
Selling, general and administrative expenses ("SG&A") in 2001 were
16.9% of net sales, or $1,168.2 million, versus 13.0%, or $899.4
million, in 2000. SG&A includes charges relating to integration costs
of recent acquisitions of $12.0 million ($7.7 million after taxes) and
$8.8 million ($5.4 million after taxes) in 2001 and 2000, respectively.
The increase in SG&A is a result of the Paper Mate/Parker acquisition
and planned investments in marketing initiatives, including the
32
Company's Strategic Account Management and Phoenix Programs, supporting
the Company's brand portfolio and strategic account strategy.
During 2001, the Company recorded pre-tax restructuring charges of
$66.7 million associated with the Company's strategic restructuring
plan. The restructuring plan is intended to streamline the Company's
supply chain to ensure its position as the best-cost global provider
throughout the Company's product portfolio. The plan consists of
reducing worldwide headcount over the three years beginning in 2001,
and includes consolidating duplicate manufacturing facilities. As
part of this plan, the Company incurred employee severance and
termination benefit costs for approximately 1,700 employees.
Additionally, the Company incurred facility exit costs related
primarily to the closure of 14 facilities (four at Rubbermaid, one at
Sharpie, six at Irwin and three at Calphalon Home). See Footnote 3
to the Consolidated Financial Statements for a review of these
charges.
During 2000, the Company recorded pre-tax restructuring charges of
$43.0 million related primarily to the continued Rubbermaid
integration and plant closures at Irwin. The Company incurred
employee severance and termination benefit costs related to
approximately 700 employees terminated in 2000. Such costs included
severance and government mandated settlements for facility closures at
Rubbermaid Europe, change in control payments made to former
Rubbermaid executives, employee terminations at the domestic
Rubbermaid divisions and severance at Irwin. The Company incurred
merger transaction costs related primarily to legal settlements for
Rubbermaid's 1998 sale of a former division and other merger related
contingencies resolved in 2000. Additionally, the Company incurred
facility and other exit costs related primarily to the closure of five
European Rubbermaid facilities, three window furnishings facilities as
well as the exit of various Rubbermaid product lines. See Footnote 3
to the Consolidated Financial Statements for a review of these
charges.
For the year ended December 31, 2001, goodwill amortization as a
percentage of net sales was 0.8%, or $56.9 million, versus 0.7%, or
$51.9 million, for the year ended December 31, 2000. The increase in
goodwill amortization is a result of additional goodwill associated
with the Paper Mate/Parker acquisition in December 2000.
Operating income in 2001 was 8.3% of net sales, or $570.9 million,
versus 12.0% of net sales, or $831.7 million, in 2000. Operating
income includes restructuring and other charges of $86.1 million
($54.8 million after taxes) and $59.7 million ($36.7 million after
taxes) in 2001 and 2000, respectively. The decrease in operating
margins was primarily due to planned investment in marketing
initiatives supporting the Company's brand portfolio and strategic
account strategy.
33
Net nonoperating expenses in 2001 were 2.3% of net sales, or $155.0
million, versus 2.1%, or $146.2 million, in 2000. The increased
expenses in 2001 are a result of the Company's increased average level
of debt, partially offset by lower interest rates.
The effective tax rate was 36.4% for the year ended December 31, 2001
versus 38.5% in the prior year. See Footnote 12 to the Consolidated
Financial Statements for an explanation of the effective tax rate.
Net income for 2001 was $264.6 million compared to net income of
$421.6 million in 2000. Basic and diluted earnings per share in 2001
decreased 36.9% to $0.99 from $1.57 in 2000. Net income includes pre-
tax restructuring and other charges of $86.1 million ($54.8 million
after taxes) and $59.7 million ($36.7 million after taxes) in 2001 and
2000, respectively. The decrease in net income and earnings per
share for 2001 was primarily due to internal sales declines, planned
investment in the Company's marketing initiatives and increased
restructuring charges to streamline the Company's manufacturing
network.
BUSINESS SEGMENT OPERATING RESULTS:
The Company operates in four general segments:
Net Sales by Segment were as follows for the year ended December 31,
(IN MILLIONS):
2001 2000 % Change
---- ---- --------
Rubbermaid $2,565.6 $2,809.3 (8.7)%
Sharpie 1,799.4 1,423.5 26.4
Irwin 1,382.6 1,455.0 (5.0)
Calphalon Home 1,161.7 1,246.9 (6.8)
-------- -------- ----
Total Net Sales $6,909.3 $6,934.7 (0.4)%
======== ======== ====
Operating Income by Segment were as follows for the year ended
December 31, (IN MILLIONS):
2001 2000 % Change
---- ---- --------
Rubbermaid $200.9 $326.2 (38.4)%
Sharpie 278.3 250.4 11.1
Irwin 126.5 207.2 (38.9)
Calphalon Home 120.1 172.9 (30.5)
------ ------ ----
Segment Operating Income* $725.8 $956.7 (24.1)%
====== ====== ====
* Segment Operating Income excludes Corporate costs and Restructuring
Expense. See Footnote 14 to the Consolidated Financial Statements
for the detail of Operating Income by Segment including Corporate
and Restructuring Expense.
34
RUBBERMAID
Net sales for 2001 were $2,565.6 million, a decrease of $243.7
million, or 8.7%, from $2,809.3 million in 2000. The 8.7% sales
decline was primarily due to the Little Tikes and Graco divisions.
The primary reasons for the overall sales decline were losses of shelf
space at key customers and a significant downturn in the U.S. economy.
Operating income for 2001 was $200.9 million, a decrease of $125.3
million, or 38.4%, from $326.2 million in 2000. The decrease resulted
primarily from reduced margins caused by the sales declines mentioned
above and planned investment in marketing initiatives to support the
Company's brand portfolio and Strategic Account Management Program.
SHARPIE
Net sales for 2001 were $1,799.4 million, an increase of $375.9
million, or 26.4%, from $1,423.5 million in 2000. Excluding $498.5
million in sales from the Paper Mate/Parker acquisition, sales
decreased $122.6 million, or 8.6%. The primary reasons for the
overall sales decline was softness in the commercial channel and a
significant downturn in the U.S. economy.
Operating income for 2001 was $278.3 million, an increase of $27.9
million, or 11.1%, from $250.4 million in 2000. The increase resulted
primarily from increased sales from the Paper Mate/Parker acquisition
offset by reduced margins caused by sales declines in our core
business and planned investment in marketing initiatives to support
the Company's brand portfolio and Strategic Account Management
Program.
IRWIN
Net sales for 2001 were $1,382.6 million, a decrease of $72.4 million,
or 5.0%, from $1,455.0 million in 2000. The 5.0% sales decline was
primarily due to the Levolor/Kirsch and Mainland Europe divisions.
The primary reasons for the overall sales decline was losses of shelf
space at key customers and a significant downturn in the economy.
Operating income for 2001 was $126.5 million, a decrease of $80.7
million, or 38.9%, from $207.2 million in 2000. The decrease resulted
primarily from reduced margins caused by the sales declines mentioned
above, product pricing reductions and planned investment in marketing
initiatives to support the Company's brand portfolio and Strategic
Account Management Program.
35
CALPHALON HOME
Net sales for 2001 were $1,161.7 million, a decrease of $85.2 million,
or 6.8%, from $1,246.9 million in 2000. The 6.8% sales decline was
primarily due to the Mirro/Calphalon division. The primary reasons
for the overall sales decline was losses of shelf space at key
customers and a significant downturn in the economy.
Operating income for 2001 was $120.1 million, a decrease of $52.8
million, or 30.5%, from $172.9 million in 2000. The decrease resulted
primarily from reduced margins caused by the sales declines mentioned
above and planned investment in marketing initiatives to support the
Company's brand portfolio and Strategic Account Management Program.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES
The Company's primary sources of liquidity and capital resources
include cash provided by operations and use of available borrowing
facilities.
Cash provided by operating activities in 2002 was $868.9 million
compared to $865.4 million in 2001 and $623.5 million in 2000. The
increase in operating cash flows is primarily due to improved earnings
before non-cash charges and improved working capital management,
principally in the area of accounts payable. In 2002, the Company
generated $136.0 million in positive cash flow by better management of
accounts payable. As a result, the Company generated free cash flow
(defined by the Company as cash provided by operating activities less
capital expenditures and dividends) of $392.4 million compared to
$391.6 million in 2001 and $81.8 million in 2000.
The Company has short-term foreign and domestic uncommitted lines of
credit with various banks that 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 lines of credit do not
have a material impact on the Company's liquidity. Borrowings under
the Company's lines of credit at December 31, 2002 totaled $25.2
million.
On March 14, 2002, the Company issued $500.0 million of Senior Notes
with five-year and ten-year maturities. The $500.0 million Senior
Notes consist of $250.0 million in 6.00% Senior Notes due 2007 and
$250.0 million in 6.75% Senior Notes due 2012. On December 20, 2002,
the Company issued $250.0 million of Senior Notes. The seven-year
Senior Notes were issued at 4.625% and pay interest semi-annually on
June 15 and December 15 until final maturity on December 15, 2009.
The proceeds of these issuances were used to pay down commercial
paper. These issuances are reflected in the outstanding amount of
medium-term notes and the entire amount is considered to be long-term
debt.
36
The Company completed a $1,300.0 million Syndicated Revolving Credit
Facility (the "Revolver") on June 14, 2002, replacing the existing
$1,300.0 million revolving credit agreement, which was scheduled to
terminate in August 2002. The Revolver consists of a $650.0 million
364-day credit agreement and a $650.0 million five-year credit
agreement. At December 31, 2002, there were no borrowings under the
Revolver.
In lieu of borrowings under the Revolver, the Company may issue up to
$1,300.0 million of commercial paper. The Revolver 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 Revolver. At December 31, 2002,
$140.0 million (principal amount) of commercial paper was outstanding.
Because $650.0 million of the Revolver expires in June 2007, the
entire $140.0 million is classified as long-term debt.
The Revolver permits the Company to borrow funds on a variety of
interest rate terms. The Revolver requires, among other things, that
the Company maintain certain Interest Coverage and Total Indebtedness
to Total Capital Ratio, as defined in the agreement. The agreement
also limits Subsidiary Indebtedness. As of December 31, 2002, the
Company was in compliance with this agreement.
On September 18, 2001, the Company entered into an agreement with a
financial institution creating a financing entity that 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 substantially all of the Company's
United States trade receivables to the financing entity. In the
quarter ended September 30, 2001, the financing entity issued $450.0
million in preferred debt securities to the 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 in the
consolidated accounts of the Company. The proceeds of this debt were
used to pay down commercial paper issued by the Company. 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 debt rating falling below investment grade and certain
levels of accounts receivable write-offs. As of December 31, 2002,
the Company was in compliance with the agreement. As of December 31,
2002 and 2001, the aggregate amount of outstanding receivables sold
under the agreement was $738.2 million and $689.3 million,
respectively.
In August 2002, the Company elected to terminate certain interest rate
swap agreements prior to their scheduled maturities and received cash
of $25.0 million. Of this amount, $20.8 million represents the fair
value of the swaps that were terminated and the remainder represents
37
interest receivable on the swaps. The cash received relating to the
fair value of the swaps was included as an operating activity in the
Consolidated Statement of Cash Flows. The unamortized fair value gain
on the terminated interest rate swaps is accounted for as long-term
debt. As of December 31, 2002, the unamortized gain was $18.4
million, of which $5.3 million is classified as current portion of
long-term debt. The unamortized gain will be amortized as a reduction
to interest expense over the remaining term of the underlying debt.
In August 2002, the Company entered into several new interest rate
swap agreements to replace the terminated interest rate swap
agreements. These new interest rate swaps convert certain fixed rate
debt into floating rate debt based on a notional principal amount of
$500.0 million.
A $500.0 million universal shelf registration statement became
effective in July 2002 under which debt and equity securities may be
issued. As of December 31, 2002, approximately $250.0 million in debt
securities had been issued under this shelf registration statement.
In January 2003, approximately $200.8 million in equity securities
were issued pursuant to the shelf registration. See Footnote 16 to
the Consolidated Financial Statements for further details.
USES
The Company's primary uses of liquidity and capital resources include
acquisitions, dividend payments and capital expenditures.
Cash used for acquisitions was $242.2 million, $107.5 million and
$597.8 million for the years ended December 31, 2002, 2001 and 2000,
respectively. The Company continues to invest in businesses and
product lines that present a strategic fit with the Company's existing
businesses. See Footnote 2 to the Consolidated Financial Statements
for further details.
The Company repaid $901.5 million, $819.0 million and $428.2 million
of notes payable and long-term debt for the years ended December 31,
2002, 2001 and 2000, respectively. The Company's ability to pay down
debt was due primarily to current year cash earnings and continued
focus on working capital management. Cash used for restructuring
activities was $58.0 million, $49.7 million and $32.9 million in the
years ended December 31, 2002, 2001 and 2000, respectively. Such cash
payments primarily represent employee termination benefits and
facility exit costs.
Capital expenditures were $252.1 million, $249.8 million and $316.6
million in the years ended December 31, 2002, 2001 and 2000,
respectively. The Company continues to invest in new product
development and productivity. Aggregate dividends paid were $224.4
million, $224.0 million and $225.1 million in the years ended December
31, 2002, 2001 and 2000, respectively.
38
Retained earnings decreased $428.1 million in the year ended December
31, 2002. The reduction in retained earnings is due primarily to the
$514.9 million, net of tax, non-cash goodwill impairment charge taken
in 2002 and the payment of $224.4 million in dividends, partially
offset by current year earnings.
Working capital at December 31, 2002 was $465.6 million compared to
$316.8 million at December 31, 2001. The current ratio at December
31, 2002 was 1.18:1 compared to 1.13:1 at December 31, 2001. The
increase in working capital and the current ratio is due to the
American Tool acquisition, and a reduction in the current portion of
long-term debt.
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 .47:1 at December 31,
2002 compared to .43:1 at December 31, 2001. The increase in total
debt to total capitalization is due to the American Tool acquisition,
which was funded by the issuance of commercial paper.
The Company believes that cash provided by 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.
In January 2003, the Company completed its acquisition of the American
Saw & Mfg. Co. ("American Saw"). The purchase price of $450.0 million
was funded through the issuance of commercial paper. See Footnote 16
to the Consolidated Financial Statement for further details.
MINIMUM PENSION LIABILITY
The recent dramatic decline in U.S. equity markets has reduced the
value of the Company's pension plan assets. As a result, the
Company's pension plan, which historically has had an over-funded
position, currently is under-funded. In accordance with SFAS No. 87,
"Employers' Accounting for Pensions," the Company recorded an
additional minimum pension liability adjustment at December 31, 2002.
Based on plan asset values at the measurement date, the approximate
effect of this non-cash adjustment was to increase the pension
liability by $114.5 million, with a corresponding charge to equity,
net of taxes, of $71.0 million. The direct charge to stockholders'
equity did not affect net income, but is included in other
comprehensive income. The Company remains confident that its pension
plan has the appropriate long-term investment strategy and the
Company's liquidity position is expected to remain strong.
CRITICAL ACCOUNTING POLICIES
The Company's accounting policies are more fully described in Footnote
1 to the Consolidated Financial Statements. As disclosed in Footnote
1, the preparation of financial statements in conformity with
39
generally accepted accounting principles requires management to make
estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying footnotes.
Future events and their effects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the
exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the
Consolidated Financial Statements. The following sections describe
the Company's critical accounting policies.
GOODWILL AND OTHER INDEFINITE LIFE INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets." Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives are not amortized
but remain subject to periodic impairment tests in accordance with the
statements.
The Company conducts its annual test of impairment for goodwill and
indefinite life intangible assets in the third quarter. In addition,
the Company tests for impairment periodically if events or
circumstances occur subsequent to the Company's annual impairment
tests that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. In conducting this
impairment test, the Company estimates the future cash flows of its
businesses to which the goodwill and other indefinite life intangibles
relate. These cash flows are then discounted at rates ranging from 9%
to 13%, reflecting the respective specific industry's cost of capital.
The discounted cash flows are then compared to the carrying amount of
the reporting unit to determine if an impairment exists. If, upon
review, the fair value is less than the carrying value of the
reporting unit, the carrying value is written down to estimated fair
value. Reporting units are typically operating segments or operations
one level below operating segments for which discrete financial
information is available and for which segment management regularly
reviews the operating results. Because there usually is a lack of
quoted market prices for the reporting units, the fair value usually
is based on the present values of expected future cash flows using
discount rates commensurate with the risks involved in the asset
group. The expected future cash flows used for impairment reviews and
related fair value calculations are based on judgmental assessments of
future production volumes, prices and costs, considering all available
information at the date of review.
As a result of this analysis, the Company 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).
The accounting estimate related to goodwill and other indefinite life
intangible assets is highly susceptible to change from period to
period because it requires management to make estimates of future cash
flows and changes in cost of capital related to each of its business
40
units. There is potential for economic, regulatory, or other
conditions that could adversely affect the ability of each business
unit to generate future cash flows. Should these conditions
deteriorate, there is the potential for additional impairment losses
to be incurred, and such losses could be material to the Company's
Consolidated Financial Statements.
LEGAL AND ENVIRONMENTAL RESERVES
As described in Footnote 15 to the Company's Consolidated Financial
Statements, 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.
In determining the appropriate level of legal reserves, the Company
uses outside and internal counsel to evaluate the potential exposure
on specific claims. The Company evaluates the range of estimated loss
for each specific case and determines the probable exposure based on
historical experience and the advice of counsel. While the Company
believes it is adequately reserved for legal exposures, management
cannot predict with certainty the ultimate outcome of these cases,
including any amounts it may be required to pay in excess of amounts
reserved. The ultimate outcome of these cases could exceed the
amounts recorded and such losses could be material to the Company's
Consolidated Financial Statements.
The Company is 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 December 31, 2002 ranged between $19.4 million and
$24.6 million. As of December 31, 2002, the Company had a reserve
41
equal to $22.0 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
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. The ultimate outcome of these matters may exceed the
amounts recorded by the Company and such additional losses may be
material to the Company's Consolidated Financial Statements.
PRODUCT LIABILITY RESERVES
The Company has a self-insurance program for product liability that
includes reserves for self-retained losses and certain excess and
aggregate risk transfer insurance. The Company uses historical loss
experience combined with actuarial evaluation methods, review of
significant individual files, application of risk transfer programs,
and guidance from internal and external legal counsel in determining
required product liability reserves. As a result of the most recent
analysis, the Company has estimated these reserves at $27.8 million.
While the Company believes that it has adequately reserved for these
claims, the ultimate outcome of these matters may exceed the amounts
recorded by the Company and such additional losses may be material to
the Company's Consolidated Financial Statements.
RECOVERY OF ACCOUNTS RECEIVABLE
The Company evaluates the collectibility of accounts receivable based
on a combination of factors. When aware of a specific customer's
inability to meet its financial obligations, such as in the case of
bankruptcy filings or deterioration in the customer's operating
results or financial position, the Company records a specific reserve
for bad debt to reduce the related receivable to the amount the
Company reasonably believes is collectible. The Company also records
reserves for bad debt for all other customers based on a variety of
factors, including the length of time the receivables are past due and
historical collection experience. If circumstances related to
specific customers change, the Company's estimates of the
recoverability of receivables could be further adjusted.
INVENTORY RESERVES
The Company reduces its inventory value for estimated obsolete and
slow moving inventory in an amount equal to the difference between the
cost of inventory and the estimated market value based upon
42
assumptions about future demand and market conditions. If actual
market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
REVENUE RECOGNITION
The Company recognizes revenues and freight billed to customers, net
of provisions for cash discounts, returns, volume or trade customer
discounts, co-op advertising and other sales discounts, upon shipment
to customers when all substantial risks of ownership change. In
accordance with Emerging Issues Task Force ("EITF") No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," the Company
records amounts billed to customers related to shipping and handling
as revenue and all expenses related to shipping and handling as a cost
of products sold. See Footnote 1 to the Consolidated Financial
Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Footnote 1 in the Consolidated Financial Statements for
further information regarding recent accounting pronouncements.
INTERNATIONAL OPERATIONS
The Company's non-U.S. business continues to grow at a steady pace.
This growth outside the U.S. has been fueled by recent international
acquisitions, primarily in Europe. For the years ended December 31,
2002, 2001 and 2000, the Company's non-U.S. business accounted for
approximately 27%, 27% and 25% of net sales, respectively (see
Footnote 14 to the Consolidated Financial Statements). Growth of both
U.S. and non-U.S. businesses is shown below for the years ended
December 31, (IN MILLIONS):
2002 vs. 2001 vs.
2001 % 2000 %
2002 2001 2000 Change Change
---- ---- ---- -------- --------
Net sales:
U.S. $5,454.2 $5,040.6 $5,191.5 8.2% (2.9)%
Non-U.S. 1,999.7 1,868.7 1,743.2 7.0 7.2
-------- -------- -------- --- ---
$7,453.9 $6,909.3 $6,934.7 7.9% (0.4)%
======== ======== ======== === ===
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
43
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 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 cash 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 short-term forward contracts 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. Derivative instruments are recorded on the Company's
Consolidated Balance Sheet at fair value, and any changes in fair
value of these instruments are recorded in the Consolidated Statement
of Income or other comprehensive income.
Due to the diversity of its product lines, the Company does not have
material sensitivity to any one commodity. The Company manages
commodity price exposures primarily through the duration and terms of
its vendor contracts.
The amounts shown below represent the estimated potential economic
loss that the Company could incur from adverse changes in either
interest rates or foreign exchange rates using the value-at-risk
estimation model. The value-at-risk model uses historical foreign
exchange rates and interest rates to estimate the volatility and
correlation of these rates in future periods. It estimates a loss in
fair market value using statistical modeling techniques and including
substantially all market risk exposures (specifically excluding
equity-method investments). The fair value losses shown in the table
below do not have an impact on current results of operations or
financial condition, but are shown as an illustration of the impact of
potential adverse changes in interest rates. The following table
44
indicates the calculated amounts for each of the years ended December
31, 2002 and 2001 (IN MILLIONS):
2002 December 31, 2001 December 31, Confidence
Market Risk Average 2002 Average 2001 Level
----------- ------- ------------ ------- ------------ ----------
Interest rates $18.2 $20.5 $10.7 $14.5 95%
Foreign exchange $0.3 $0.2 $1.2 $0.5 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, because 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 noncash 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 were no longer
legal tender.
All businesses in participating countries are now required to 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 has deemed its information systems to be 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.
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, information or assumptions about sales, income,
earnings per share, return on equity, return on invested capital,
45
capital expenditures, working capital, dividends, capital structure,
free cash flow, debt to capitalization ratios, interest rates,
internal growth rates, 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 or the assumptions relating to any of the
forward-looking statements. The Company cautions that forward-looking
statements are not guarantees because 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 99.1 to
this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------- ----------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in the Company's
Management's Discussion and Analysis of Results of Operations and
Financial Condition (Part II, Item 7).
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Newell Rubbermaid Inc. is responsible for the
accuracy and internal consistency of all information contained in this
annual report, including the Consolidated Financial Statements.
Management has followed those generally accepted accounting principles
that it believes to be most appropriate to the circumstances of the
Company, and has made what it believes to be reasonable and prudent
judgments and estimates where necessary.
Newell Rubbermaid Inc. operates under a system of internal accounting
controls designed to provide reasonable assurance that its financial
records are accurate, that the assets of the Company are protected and
that the financial statements fairly present the financial position
and results of operations of the Company. The internal accounting
control system is tested, monitored and revised as necessary.
Five directors of the Company, not members of management, serve as the
Audit Committee of the Board of Directors and are the principal means
through which the Board oversees the performance of the financial
reporting duties of management. The Audit Committee meets with
management and the Company's independent auditors several times a year
to review the results of the external audit of the Company and to
discuss plans for future audits. At these meetings, the Audit
Committee also meets privately with the independent auditors to assure
its free access to them.
The Company's independent auditors, Ernst and Young LLP, audited the
financial statements prepared by the management of Newell Rubbermaid
Inc. Their opinion on these statements is presented below.
The Company's prior independent accountant, Arthur Andersen LLP, was
convicted on June 15, 2002 of one count of obstruction of justice
arising from the government's investigation of Enron Corporation.
Events arising out of the conviction of Arthur Andersen LLP, as well
as the volume of civil lawsuits against it, have adversely affected
the ability of Arthur Andersen LLP to satisfy claims, if any, arising
from its providing of auditing services to the Company, including
claims that may arise out of Arthur Andersen LLP's audit of the
Company's consolidated financial statements as of December 31, 2001
and for each of the two years in the period ended December 31, 2001,
which are included in this Report. A copy of a report previously
issued by Arthur Andersen LLP in connection with the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 is presented
below. Arthur Andersen LLP has not reissued this opinion.
William T. Alldredge J. Patrick Robinson
President - Corporate Development Vice President - Controller
& Chief Financial Officer & Chief Accounting Officer
47
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Newell Rubbermaid Inc.
We have audited the accompanying consolidated balance sheet of Newell
Rubbermaid Inc. (the "Company") as of December 31, 2002, and the
related consolidated statements of operations, stockholders' equity,
and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the index at Item 15(a). These
financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit. The
financial statements and schedule of Newell Rubbermaid Inc. as of
December 31, 2001 and for each of the two years in the period ended
December 31, 2001 were audited by other auditors who have ceased
operations and whose report dated January 25, 2002 expressed an
unqualified opinion on those statements before the disclosure and
restatement adjustments described in Notes 1 and 14, respectively.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Newell Rubbermaid Inc. at December 31, 2002, and the
consolidated results of its operations and its cash flows for the year
then ended in accordance with accounting principles generally accepted
in the United States. Also, in our opinion, the related 2002 financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As described in Note 1 to the consolidated financial statements,
effective January 1, 2002, the Company changed its method of
accounting for goodwill and other intangible assets to conform with
FASB Statement No. 142.
As discussed above, the financial statements of Newell Rubbermaid Inc.
as of December 31, 2001, and for each of the two years in the period
ended December 31, 2001, were audited by other auditors who have
ceased operations. As described in Note 1, these financial statements
have been revised to include the transitional disclosures required by
Statement of Financial Accounting Standards (Statement) No. 142,
48
GOODWILL AND OTHER INTANGIBLE ASSETS, which was adopted by the Company
as of January 1, 2002. Our audit procedures with respect to the
disclosures in Note 1 with respect to 2001 and 2000 included (a)
agreeing the previously reported net income to the previously issued
financial statements and the adjustments to reported net income
representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill to the Company's
underlying records obtained from management, and (b) testing the
mathematical accuracy of the reconciliation of adjusted net income to
reported net income, and the related earnings-per-share amounts.
Also, as described in Note 14, the Company changed the composition of
its reportable segments in 2002, and the amounts in the 2001 and 2000
financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable segments. We
audited the adjustments that were applied to restate the disclosures
for reportable segments reflected in the 2001 and 2000 financial
statements. Our procedures included (a) agreeing the adjusted amounts
of segment revenues, operating income and assets to the Company's
underlying records obtained from management, and (b) testing the
mathematical accuracy of the reconciliations of segment amounts to the
consolidated financial statements. In our opinion, such adjustments
are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2001 and 2000
financial statements of the Company other than with respect to such
disclosures and adjustments and, accordingly, we do not express an
opinion or any other form of assurance on the 2001 and 2000 financial
statements taken as a whole.
/s/ Ernst & Young LLP
Chicago, Illinois
January 27, 2003
Except for Note 16, as to which the date is
March 27, 2003
49
NOTE: THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR
ANDERSEN LLP ("ANDERSEN") IN CONNECTION WITH THE NEWELL RUBBERMAID
INC. FORM 10-K FILING FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.
THE INCLUSION OF THIS PREVIOUSLY ISSUED ANDERSEN REPORT IS PURSUANT TO
THE "TEMPORARY FINAL RULE AND FINAL RULE REQUIREMENTS FOR ARTHUR
ANDERSEN LLP AUDITING CLIENTS," ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION IN MARCH 2002. NOTE THAT THIS PREVIOUSLY ISSUED ANDERSEN
REPORT INCLUDES REFERENCES TO CERTAIN FISCAL YEARS, WHICH ARE NOT
REQUIRED TO BE PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000.
THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THIS FILING ON FORM 10-K. SEE ITEM 9 FOR FURTHER
DISCUSSION.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Newell Rubbermaid Inc.:
We have audited the accompanying consolidated balance sheets of Newell
Rubbermaid Inc. (a Delaware corporation) and subsidiaries as of
December 31, 2001, 2000 and 1999 and the related consolidated
statements of income, stockholders' equity and comprehensive income
and cash flows for the years then ended. These consolidated financial
statements and the schedule referred to below are the responsibility
of Newell Rubbermaid Inc.'s management. Our responsibility is to
express an opinion on these Consolidated Financial Statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Newell
Rubbermaid Inc. and subsidiaries as of December 31, 2001, 2000 and
1999 and the results of their operations and their cash flows for the
years then ended, in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
Part IV Item 14(a)(2) of this Form 10-K is presented for the purposes
of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the
50
basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein
in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Milwaukee, Wisconsin
January 25, 2002
51
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2002 2001 2000
(IN MILLIONS, EXCEPT PER SHARE DATA) ---- ---- ----
NET SALES $7,453.9 $6,909.3 $6,934.7
Cost of products sold 5,394.2 5,046.6 5,108.7
-------- -------- --------
Gross income 2,059.7 1,862.7 1,826.0
Selling, general and administrative expenses 1,307.3 1,168.2 899.4
Restructuring costs 122.7 66.7 43.0
Goodwill amortization - 56.9 51.9
-------- -------- --------
OPERATING INCOME 629.7 570.9 831.7
Nonoperating expenses:
Interest expense 110.6 137.5 130.0
Other, net 50.6 17.5 16.2
-------- -------- --------
Net nonoperating expenses 161.2 155.0 146.2
-------- -------- --------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 468.5 415.9 685.5
Income taxes 157.0 151.3 263.9
-------- -------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 311.5 264.6 421.6
Cumulative effect of accounting change, net of
tax (514.9) - -
-------- -------- --------
NET (LOSS)/INCOME ($203.4) $264.6 $421.6
======== ======== ========
Weighted average shares outstanding:
Basic 267.1 266.7 268.4
Diluted 268.0 267.0 268.5
Earnings per share:
Basic
Before cumulative effect
of accounting change $1.17 $0.99 $1.57
Cumulative effect of accounting change (1.93) - -
-------- -------- --------
Net (loss)/income per common share ($0.76) $0.99 $1.57
======== ======== ========
52
Year Ended December 31, 2002 2001 2000
(IN MILLIONS, EXCEPT PER SHARE DATA) ---- ---- ----
Diluted
Before cumulative effect
of accounting change $1.16 $0.99 $1.57
Cumulative effect of accounting change (1.92) - -
-------- -------- --------
Net (loss)/income per common share ($0.76) $0.99 $1.57
======== ======== ========
Dividends per share $0.84 $0.84 $0.84
SEE FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
53
CONSOLIDATED BALANCE SHEETS
December 31, 2002 2001
(IN MILLIONS) ---- ----
ASSETS
Current Assets:
Cash and cash equivalents $55.1 $6.8
Accounts receivable, net 1,377.7 1,298.2
Inventories, net 1,196.2 1,113.8
Deferred income taxes 213.5 238.5
Prepaid expenses and other 237.5 193.4
-------- --------
Total Current Assets 3,080.0 2,850.7
Other Long-term Investments - 79.5
Other Assets 286.7 293.1
Property, Plant and Equipment, net 1,812.8 1,689.2
Goodwill, net 1,847.3 2,069.7
Other Intangible Assets, net 362.1 283.9
-------- --------
Total Assets $7,388.9 $7,266.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $25.2 $19.1
Accounts payable 686.6 501.3
Accrued compensation 153.5 124.7
Other accrued liabilities 1,165.4 936.1
Income taxes 159.7 145.2
Current portion of long-term debt 424.0 807.5
-------- --------
Total Current Liabilities 2,614.4 2,533.9
Long-term Debt 1,856.6 1,365.0
Other Noncurrent Liabilities 348.4 359.5
Deferred Income Taxes 4.7 73.6
Minority Interest 1.3 0.7
Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust 500.0 500.0
Stockholders' Equity:
Common stock, authorized shares,
800.0 million at $1.00 par value; 283.1 282.4
Outstanding shares:
2002 - 283.1 million
2001 - 282.4 million
Treasury stock, at cost; (409.9) (408.5)
Shares held:
2002 - 15.7 million
2001 - 15.6 million
54
December 31, 2002 2001
(IN MILLIONS) ---- ----
Additional paid-in capital 237.3 219.8
Retained earnings 2,143.2 2,571.3
Accumulated other comprehensive loss (190.2) (231.6)
-------- --------
Total Stockholders' Equity 2,063.5 2,433.4
-------- --------
Total Liabilities and Stockholders' Equity $7,388.9 $7,266.1
======== ========
SEE FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
55
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2002 2001 2000
(IN MILLIONS) ---- ---- ----
OPERATING ACTIVITIES
Net (loss)/income ($203.4) $264.6 $421.6
Adjustments to reconcile net (loss)/income to net
cash provided by operating activities:
Depreciation and amortization 280.7 328.8 292.6
Cumulative effect of change in accounting 514.9 - -
principle
Noncash restructuring charges 74.9 36.9 18.5
Deferred income taxes 48.3 25.5 59.8
Income tax savings from employee stock plans 1.1 0.4 1.0
Other 8.7 16.8 1.9
Changes in current accounts excluding the
effects of acquisitions:
Accounts receivable 2.8 (104.8) 36.3
Inventories 12.9 128.6 (100.5)
Other current assets (42.1) (6.8) 6.6
Accounts payable 136.0 149.3 (45.6)
Accrued liabilities and other 34.1 26.1 (68.7)
------ ------ --------
Net Cash Provided by Operating Activities $868.9 $865.4 $623.5
INVESTING ACTIVITIES
Acquisitions, net of cash acquired ($242.2) ($107.5) ($597.8)
Expenditures for property, plant and equipment (252.1) (249.8) (316.6)
Sale of business, net of taxes paid - 15.4 -
Sales of marketable securities, net of taxes paid - 7.8 -
Disposals of noncurrent assets and other 7.8 30.5 5.1
------ ------ --------
Net Cash Used in Investing Activities ($486.5) ($303.6) ($909.3)
FINANCING ACTIVITIES
Proceeds from issuance of debt $772.0 $464.2 $1,265.1
Payments on notes payable and long-term debt (901.5) (819.0) (428.2)
Common stock repurchases - - (403.0)
Cash dividends (224.4) (224.0) (225.1)
Proceeds from exercised stock options and other 19.0 2.9 1.3
------ ------ --------
Net Cash (Used in) Provided by Financing Activities ($334.9) ($575.9) $210.1
Exchange rate effect on cash 0.8 (1.6) (4.0)
------ ----- --------
Increase (Decrease) in Cash and Cash Equivalents 48.3 (15.7) (79.7)
Cash and Cash Equivalents at Beginning of Year 6.8 22.5 102.2
------ ------ --------
Cash and Cash Equivalents at End of Year $55.1 $6.8 $22.5
====== ====== ========
56
Year Ended December 31, 2002 2001 2000
(IN MILLIONS) ---- ---- ----
Supplemental cash flow disclosures -
cash paid during the year for:
Income taxes, net of refunds $90.0 $69.8 $152.8
Interest, net of amounts capitalized 91.4 118.3 145.5
SEE FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
57
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME/(LOSS)
Accumulated
Add'l Other Total
(IN MILLIONS, EXCEPT PER Common Treasury Paid-In Retained Comprehensive Stockholders'
SHARE DATA) Stock Stock Capital Earnings (Loss)/Income Equity
----- -------- ------- -------- ------------- ------------
Balance at December 31, 1999 $282.0 ($2.8) $213.1 $2,334.6 ($130.0) $2,696.9
Comprehensive income/(loss)
Net income - - - 421.6 - 421.6
Foreign currency translation - - - - (41.7) (41.7)
Unrealized loss on securities
available for sale, net of
($0.7) million tax - - - - (1.2) (1.2)
--------
Total comprehensive income 378.7
========
Cash dividends on common stock
($0.84 per share) - - - (225.1) - (225.1)
Exercise of stock options 0.2 (0.2) 1.5 - - 1.5
Common stock repurchases - (403.0) - - - (403.0)
Other - (1.5) 1.3 (0.2) - (0.4)
------ ------ ------ -------- ------ --------
Balance at December 31, 2000 $282.2 ($407.5) $215.9 $2,530.9 ($172.9) $2,448.6
====== ====== ====== ======== ====== ========
Comprehensive income/(loss)
Net income - - - 264.6 - 264.6
Foreign currency translation - - - - (41.3) (41.3)
Minimum pension liability
adjustment, net of ($2.8)
million tax - - - - (4.5) (4.5)
Loss on derivative
instruments, net of ($7.9)
million tax - - - - (14.0) (14.0)
Unrealized loss on securities
available for sale, net of
($1.1) million tax - - - - (2.1) (2.1)
Reclassification adjustment
for losses realized in net
income, net of $1.8 million
tax - - - - 3.2 3.2
--------
Total comprehensive income 205.9
========
58
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME/(LOSS), CONT.
Accumulated
Add'l Other Total
(IN MILLIONS, EXCEPT PER Common Treasury Paid-In Retained Comprehensive Stockholders'
SHARE DATA) Stock Stock Capital Earnings (Loss)/Income Equity
----- -------- ------- -------- ------------- ------------
Cash dividends on common stock
($0.84 per share) - - - (224.0) - (224.0)
Exercise of stock options 0.2 (0.8) 3.7 - - 3.1
Other - (0.2) 0.2 (0.2) - (0.2)
------ ------ ------ -------- ------ --------
Balance at December 31, 2001 $282.4 ($408.5) $219.8 $2,571.3 ($231.6) $2,433.4
====== ====== ====== ======== ====== ========
Comprehensive income/(loss)
Net (loss) - - - (203.4) - (203.4)
Foreign currency - - - - 98.0 98.0
translation
Minimum pension liability
adjustment, net of
($43.5) million tax - - - - (71.0) (71.0)
Gain on derivative
instruments, net of
($8.8) million tax - - - - 14.4 14.4
--------
Total comprehensive (loss) (162.0)
========
Cash dividends on common stock
($0.84 per share) - - - (224.4) - (224.4)
Exercise of stock options 0.7 (1.4) 17.1 - - 16.4
Other - - 0.4 (0.3) - 0.1
------ ------ ------ -------- ------ --------
Balance at December 31, 2002 $283.1 ($409.9) $237.3 $2,143.2 ($190.2) $2,063.5
====== ====== ====== ======== ====== ========
SEE FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
59
FOOTNOTE 1
----------
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Newell Rubbermaid Inc. (the "Company") is a
global manufacturer and full-service marketer of name-brand consumer
products serving the needs of volume purchasers, including discount
stores and warehouse clubs, home centers and hardware stores, and
office superstores and contract stationers. The Company's basic
business strategy is to merchandise a multi-product offering of
everyday consumer products, backed by an obsession with customer
service excellence and new product development, in order to achieve
maximum results for its stockholders. The Company's multi-product
offering consists of name-brand consumer products in four business
segments: Rubbermaid; Sharpie; Irwin and Calphalon Home.
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements
include the accounts of the Company and its majority owned
subsidiaries after elimination of intercompany accounts and
transactions.
USE OF ESTIMATES: The preparation of these financial statements
require the use of certain estimates by management in determining the
Company's assets, liabilities, revenue and expenses and related
disclosures. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain 2001 and 2000 amounts have been
reclassified to conform to the 2002 presentation.
REVENUE RECOGNITION: Sales of merchandise and freight billed to
customers, net of provisions for cash discounts, returns, customer
discounts (such as volume or trade discounts), co-op advertising and
other sales related discounts, are recognized upon shipment to
customers and when all substantial risks of ownership change. In
accordance with Emerging Issues Task Force ("EITF") No. 00-10,
"Accounting for Shipping and Handling Fees and Costs," the Company
records amounts billed to customers related to shipping and handling
as revenue and all expenses related to shipping and handling as a cost
of products sold.
Staff Accounting Bulletin ("SAB") No. 101 clarified the existing
accounting rules for revenue recognition and did not impact the
Company's net sales for any years presented. In conformity with SAB
No. 101, revenue is recognized when all of the following circumstances
are satisfied: pervasive evidence of an arrangement exists, the price
is fixed or determinable, collection is reasonably assured and
delivery has occurred.
In August 2001, the EITF issued EITF No. 01-09, "Accounting for
Consideration Given by Vendor to a Customer or a Reseller of Vendor's
Product" which codified and reconciled the Task Force's consensus in
60
EITF No. 00-014, "Accounting for Certain Sales Incentives," 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," and EITF No. 00-
25, "Vendor Income Statement Characterization of Consideration Paid to
a Reseller of the Vendor's Products." These EITF's 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.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's
financial instruments include cash and cash equivalents, accounts
receivable, notes payable, short and long-term debt and Company-
obligated Mandatorily Redeemable Convertible Securities of a
Subsidiary Trust. The fair value of these instruments approximates
carrying values due to their short-term duration, except as follows:
Derivative Instruments: The fair value of the Company's
derivative instruments is recorded in the Consolidated Balance
Sheets and is described in more detail in Footnote 7.
Long-term Debt: The fair value of the Company's long-term debt
issued under the medium-term note program was $1,490.3 million at
December 31, 2002, based on quoted market prices. All other
significant long-term debt is pursuant to floating rate
instruments whose carrying amounts approximate fair value.
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of a Subsidiary Trust: The fair value of the $500.0
million company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust was $452.5 million at
December 31, 2002, based on quoted market prices.
CASH AND CASH EQUIVALENTS: Cash and highly liquid short-term
investments have a maturity of three months or less.
ALLOWANCES FOR DOUBTFUL ACCOUNTS: Allowances for doubtful accounts at
December 31 totaled $75.0 million in 2002, $57.9 million in 2001 and
$36.1 million in 2000.
On a regular basis, the Company evaluates its accounts receivable and
establishes the allowance for doubtful accounts based on a combination
of specific customer circumstances as well as credit conditions and
based on a history of write-offs and collections. A receivable is
considered past due if payments have not been received within the
agreed upon invoice terms.
61
INVENTORIES: Inventories are stated at the lower of cost or market
value. Cost of certain domestic inventories (approximately 62%, 63%
and 59% of total inventories at December 31, 2002, 2001 and 2000,
respectively) was determined by the "last-in, first-out" ("LIFO")
method; for the balance, cost was determined using the "first-in,
first-out" ("FIFO") method. If the FIFO inventory valuation method had
been used exclusively, inventories would have increased by $14.2
million and $20.1 million at December 31, 2002 and 2001, respectively.
Inventory reserves (excluding LIFO reserves) at December 31 totaled
$130.3 million in 2002 and $117.3 million in 2001. The components of
net inventories were as follows as of December 31, (IN MILLIONS):
2002 2001
---- ----
Materials and supplies $308.8 $356.5
Work in process 174.9 150.5
Finished products 712.5 606.8
-------- --------
$1,196.2 $1,113.8
======== ========
OTHER LONG-TERM INVESTMENTS: The Company had a 49.5% ownership
interest in American Tool Companies, Inc., a manufacturer of hand
tools and power tool accessory products marketed primarily under the
Irwin{R}, Vise-Grip{R}, Quick-Grip{R} and Marathon{R} trademarks until
its acquisition in 2002. See Footnote 2 for further discussion. This
investment had been accounted for under the equity method with a net
investment of $79.5 million at December 31, 2001. The Company's share
of undistributed earnings of the investment included in consolidated
retained earnings was $43.9 million at December 31, 2001.
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 (20-40 years) and machinery
and equipment (3-12 years). Property, plant and equipment consisted
of the following as of December 31, (IN MILLIONS):
2002 2001
---- ----
Land $64.7 $59.5
Buildings and improvements 785.4 732.5
Machinery and equipment 2,652.9 2,546.2
-------- --------
3,503.0 3,338.2
Accumulated depreciation (1,690.2) (1,649.0)
-------- --------
$1,812.8 $1,689.2
======== ========
62
As of December 31, 2002, the Company accrued $26.1 million for
equipment received but not paid for. This amount has been excluded
from the line items: expenditures for property, plant and equipment
and the change in accounts payable in the Consolidated Statement of
Cash Flows.
TRADE NAMES AND GOODWILL: Effective January 1, 2002, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets." Under SFAS No. 142, 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.
Pursuant to the adoption of SFAS No. 142, all amortization expense on
trade names and goodwill ceased on January 1, 2002. As of January 1,
2002, the Company performed the required impairment tests of goodwill
and indefinite lived intangible assets 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). In determining this
amount of goodwill impairment, the Company measured the impairment
loss as the excess of the carrying amount of goodwill (which included
the carrying amount of trademarks) over the implied fair value of
goodwill (which excluded the fair value of identifiable trademarks).
The Company conducts its annual test of impairment for goodwill and
indefinite life intangible assets in the third quarter. In addition,
the Company will test again for impairment if events or circumstances
occur subsequent to the Company's annual impairment tests that would
more likely than not reduce the fair value of a reporting unit below
its carrying amount. There were no additional impairment charges for
2002.
Goodwill represents the excess of cost over identifiable net assets of
businesses acquired. Prior to the adoption of SFAS No. 142, trade
names acquired in business combinations were not typically 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 SFAS No. 142, certain 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.
63
A summary of changes in the Company's goodwill during the year ended
December 31, 2002 is as follows (IN MILLIONS):
Balance at December 31, 2001 $2,069.7
Acquisitions and adjustments -
American Tool Companies, Inc. 256.9
Other (minor acquisitions and foreign 58.7
exchange) --------
2,385.3
--------
Impairments -
Irwin segment (322.0)
Sharpie segment (126.9)
Calphalon Home segment (89.1)
--------
(538.0)
--------
Balance at December 31, 2002 $1,847.3
========
The results of operations on a pro forma basis for the year ended
December 31, restated as though the amortization of trade names and
goodwill had been discontinued on January 1, 2000, are as follows for
the year ended December 31 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS):
2002 2001 2000
---- ---- ----
Reported income before cumulative effect of
accounting change $311.5 $264.6 $421.6
Cumulative effect of accounting change, net of tax (514.9) - -
------ ------ ------
Reported net (loss)/income (203.4) 264.6 421.6
Add back: Goodwill and trade name amortization, net
of tax - 53.5 44.9
------ ------ ------
Adjusted net (loss)/income ($203.4) $318.1 $466.5
====== ====== ======
Reported basic net (loss)/income per share ($0.76) $0.99 $1.57
Add back: Goodwill and trade name amortization, net
of tax - 0.20 0.17
------ ------ ------
Adjusted basic net (loss)/income per share ($0.76) $1.19 $1.74
====== ====== ======
Reported diluted net (loss)/income per share ($0.76) $0.99 $1.57
Add back: Goodwill and trade name amortization, net
of tax - 0.20 0.17
------ ------ ------
Adjusted diluted net (loss)/income per share ($0.76) $1.19 $1.74
====== ====== ======
64
LONG-LIVED ASSETS: Subsequent to acquisition, the Company
periodically evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful life of long-lived assets
may warrant revision or that the remaining balance of long-lived
assets may not be recoverable. If factors indicate that long-lived
assets should be evaluated for possible impairment, the Company uses
an estimate of the relevant business' undiscounted net cash flow over
the remaining life of the long-lived assets in measuring whether the
carrying value is recoverable. An impairment loss would be measured
by reducing the carrying value to fair value, based on a discounted
cash flow analysis.
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, "Accounting for Impairment of 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
SFAS 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 was effective for fiscal years beginning after December 15,
2001. The Company adopted SFAS No. 144 on January 1, 2002, and the
standard did not have a material impact on its financial position or
results of operations.
PRODUCT WARRANTIES: In the normal course of business, the Company
offers warranties for a variety of its products. The specific terms
and conditions of the warranties vary depending upon the specific
product and markets in which it was sold. The Company accrues for
the estimated cost of product warranty at the time of sale based on
historical experience.
OTHER ACCRUED LIABILITIES: Accrued liabilities included the following
as of December 31, (IN MILLIONS):
2002 2001
---- ----
Customer accruals $289.6 $224.9
Accrued purchase accounting (1) 119.0 134.7
Accrued self-insurance liability 91.5 84.3
Accrued restructuring (2) 79.4 28.2
Other 585.9 464.0
-------- ------
Other accrued liabilities $1,165.4 $936.1
======== ======
(1) See Footnote 2 for further details.
(2) See Footnote 3 for further details.
65
Customer accruals are promotional allowances and rebates given to
customers in exchange for their selling efforts. The self-insurance
accrual is primarily casualty liabilities such as workers'
compensation, general and product liability and auto liability and is
estimated based upon historical loss experience.
FOREIGN CURRENCY TRANSLATION: Foreign currency balance sheet accounts
are translated into U.S. dollars at the rates of exchange in effect at
fiscal year end. Income and expenses are translated at the average
rates of exchange in effect during the year. The related translation
adjustments are made directly to accumulated other comprehensive
income. International subsidiaries operating in highly inflationary
economies translate nonmonetary assets at historical rates, while net
monetary assets are translated at current rates, with the resulting
translation adjustment included in net income as other nonoperating
(income) expenses. Foreign currency transaction losses were $4.2
million, $1.9 million and $1.9 million in 2002, 2001 and 2000,
respectively.
ADVERTISING COSTS: The Company expenses advertising costs as
incurred, including cooperative advertising programs with customers.
Total cooperative advertising expense was $218.6 million, $196.8
million and $209.2 million for 2002, 2001 and 2000, respectively.
Cooperative advertising is recorded in the Consolidated Financial
Statements as a reduction of sales because it is viewed as part of the
negotiated price of products. All other advertising costs are charged
to selling, general and administrative expenses and totaled $140.6
million, $100.3 million and $80.0 million in 2002, 2001 and 2000,
respectively.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs
relating to both future and present products are charged to selling,
general and administrative expenses as incurred. These costs
aggregated $87.6 million, $67.2 million and $49.4 million in 2002,
2001 and 2000, respectively.
EARNINGS PER SHARE: The calculation of basic and diluted earnings per
share for the years ended December 31, 2002, 2001 and 2000,
respectively, is shown below (IN MILLIONS, EXCEPT PER SHARE DATA):
"In the Convertible
Basic Money" Preferred Diluted
Method Stock Options (1) Securities (2) Method
------ ----------------- -------------- ------
2002
----
Net loss ($203.4) - - ($203.4)
Weighted average shares outstanding 267.1 0.9 - 268.0
Loss per share ($0.76) ($0.76)
66
"In the Convertible
Basic Money" Preferred Diluted
Method Stock Options (1) Securities (2) Method
------ ----------------- -------------- ------
2001
----
Net income $264.6 - - $264.6
Weighted average shares outstanding 266.7 0.3 - 267.0
Earnings per share $0.99 $0.99
2000
----
Net income $421.6 - - $421.6
Weighted average shares outstanding 268.4 0.1 - 268.5
Earnings per share $1.57 $1.57
(1) The weighted average shares outstanding for 2002, 2001 and 2000 exclude the dilutive effect of
approximately 4.5 million, 3.9 million and 7.6 million 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 years.
(2) The convertible preferred securities are anti-dilutive in 2002, 2001 and 2000 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 $16.6
million, $16.8 million and $16.4 million in 2002, 2001 and 2000, respectively, and weighted
average shares outstanding would have increased by 9.9 million shares in all years.
FAIR VALUE OF STOCK OPTIONS: The Company's stock option plans are
accounted for under APB Opinion No. 25. As a result, the Company
grants fixed stock options under which no compensation cost is
recognized. Had compensation cost for the plans been determined
consistent with SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the following pro forma amounts
for the year ended December 31, (IN MILLIONS, EXCEPT PER SHARE DATA):
2002 2001 2000
---- ---- ----
Net (loss)/income:
As reported ($203.4) $264.6 $421.6
Fair value option expense (16.3) (15.5) (11.1)
------ ------ ------
Pro forma ($219.7) $249.1 $410.5
====== ====== ======
Basic (loss)/earnings per share:
As reported ($0.76) $0.99 $1.57
Pro forma (0.82) 0.93 1.53
Diluted (loss)/earnings per share:
As reported ($0.76) $0.99 $1.57
Pro forma (0.82) 0.93 1.53
67
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
COMPREHENSIVE INCOME: Comprehensive income and accumulated other
comprehensive income encompass net income, foreign currency
translation adjustments, net losses on derivative instruments and net
minimum pension liability adjustments in the Consolidated Statements
of Stockholders' Equity and Comprehensive Income. The following table
displays the components of accumulated other comprehensive income or
loss (IN MILLIONS):
Foreign After-tax After-tax Accumulated
Currency Minimum Derivatives Other
Translation Pension Hedging Comprehensive
Loss Liability Gain/(Loss) Loss
----------- --------- ----------- -------------
Balance at 12/31/01 ($213.1) ($4.5) ($14.0) ($231.6)
Current year change 98.0 (71.0) 14.4 41.4
------ ----- ----- ------
Balance at 12/31/02 ($115.1) ($75.5) $0.4 ($190.2)
====== ===== ===== ======
RECENT ACCOUNTING PRONOUNCEMENTS: In June 2001, the FASB issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting. All acquisitions initiated after
June 30, 2001 by the Company have been accounted for as purchases,
thus, there was no effect on the Company's Consolidated Financial
Statements upon adoption of this standard.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities included in restructurings. This Statement
eliminates the definition and requirements for recognition of exit
costs as defined in EITF Issue 94-3, and requires that liabilities for
exit activities be recognized when incurred instead of at the exit
activity commitment date. Additionally, SFAS No. 146 requires
recognition of one-time severance benefits that require employees to
render future service beyond a minimum retention period over the
future service period. The Company will adopt the provisions of SFAS
No. 146, effective January 1, 2003. The impact of this accounting
standard is not expected to have a material effect on the Company's
earnings or financial position. The Company generally has recorded
restructuring liabilities for exit costs as incurred, however, under
certain operating leases, exit costs were recorded when management
committed to the exit plan under the guidance of EITF Issue 94-3.
With respect to severance benefits, the Company believes the majority
68
of its severance agreements require only a minimum or no retention
period or are made pursuant to pre-existing plans as defined by SFAS
No. 112, "Employers' Accounting for Postemployment Benefits."
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-
Based Compensation - Transition and Disclosure." SFAS No. 148
provides alternative methods for transition to SFAS No. 123's fair
value method of accounting for stock based compensation. It also
amends the disclosure provisions of SFAS No. 123 and APB Opinion No.
25 to require disclosure in the summary of significant accounting
policies of the effect of the entity's accounting policy with respect
to stock-based compensation on reported net income and earnings per
share. SFAS No. 148 does not amend SFAS No. 123 to require companies
to account for stock options using the fair value method, however, it
does require all companies to adopt the disclosure provisions. The
Company has adopted the disclosure provisions.
FOOTNOTE 2
----------
ACQUISITIONS OF BUSINESS
2002:
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. The Company had previously held a
49.5% stake in American Tool, which had been accounted for under the
equity method prior to acquisition. This purchase marked a
significant expansion and enhancement of the Company's product lines
and customer base, launching it squarely in the estimated $10 billion-
plus global market for hand tools and power tool accessories. The
preliminary purchase price was $467 million, which included $197
million for the majority 50.5% ownership stake, the repayment of $243
million in American Tool debt and $27 million of transaction costs.
At the time of acquisition, the Company paid off American Tool's
senior debt, senior subordinated debt and debt under their revolving
credit agreement. The Company has obtained third party valuations of
certain financial positions and allocated the purchase price to the
identifiable assets. During the third quarter, the Company recorded
nonoperating expenses of $8.7 million for transaction costs associated
with the acquisition.
The following table summarizes the preliminary purchase price
allocation of American Tool assets acquired and liabilities assumed at
the date of acquisition.
69
April 30,
2002
---------
Current assets $182.9
Property, Plant & Equipment 129.7
Trade names & goodwill 315.1
------
Total assets $627.7
======
Current liabilities $112.4
Long-term debt 195.9
Other long-term liabilities 15.1
Stockholders' equity 304.3
------
Total liabilities and stockholders' equity $627.7
======
For these and for other minor acquisitions made in 2002, the Company
paid $242.2 million in cash and assumed $195.9 million of debt.
2001:
----
The Company made only minor acquisitions in 2001, for $61.2 million in
cash and $0.1 million of assumed debt.
2000:
----
In 2000, the Company acquired the following:
Business Acquisition Industry
Business Name Description Date Segment
------------- ----------- ----------- --------
Mersch SA Picture Frames January 24 Calphalon Home
Brio Picture Frames May 24 Calphalon Home
Paper Mate/Parker Writing Instruments December 29 Sharpie
For these and for other minor acquisitions made in 2000, the Company
paid $635.2 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 were allocated on a preliminary basis to
the fair market value of the assets acquired and liabilities assumed.
The Company's integration plans 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
70
material to the Consolidated Financial Statements. The preliminary
purchase price allocations for the 2002 acquisitions and the finalized
purchase price allocations for the 2001 and 2000 acquisitions resulted
in trade names and goodwill of approximately $321.3 million.
In 2002, the Company began to formulate integration plans for American
Tool and other minor acquisitions as of their respective dates of
acquisition. The integration plans for these acquisitions resulted in
integration plan liabilities of $27.5 million for facility and other
exit costs, $17.7 million for employee severance and termination
benefits and $33.9 million for other pre-acquisition contingencies.
The purchase prices for the 2002 acquisitions have been allocated to
the fair market value of the assets acquired and liabilities assumed.
The Company's integration plans include exit costs for certain plants
and product lines, as well as employee termination costs. The final
adjustments to the purchase price allocations are not expected to be
material to the Consolidated Financial Statements. As of December 31,
2002, $39.9 million of integration plan reserves remain related to the
2001 and 2000 acquisitions.
None of the 2001 acquisitions were included in the pro forma
calculations because their effect was immaterial. The unaudited
consolidated results of operations for the years ended December 31,
2002 and 2001 on a pro forma basis, as though the 2002 acquisition of
American Tool had occurred on January 1, 2001, are as follows for the
year ended December 31, (IN MILLIONS, EXCEPT FOR PER SHARE DATA)
(unaudited):
2002 2001
---- ----
Net sales $7,594.1 $7,350.0
Net (loss)/income ($203.5) $264.5
(Loss)/Earnings per share (basic) ($0.76) $0.99
WITHDRAWN DIVESTITURE
On June 18, 2001, the Company announced an agreement for the sale of
Anchor Hocking ("Anchor"). On January 14, 2002, the Federal Trade
Commission (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
because the FTC alleged 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.
On June 10, 2002, the Company announced that it had withdrawn plans to
sell its Anchor Hocking glass business and instead will continue to
operate the business as part of its broad housewares portfolio.
Transaction costs approximating $13.6 million were recorded as
nonoperating expenses in 2002.
71
FOOTNOTE 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 for the year ended
December 31, (IN MILLIONS):
2002 2001 2000
---- ---- ----
Facility and other exit costs $36.6 $34.6 $14.0
Employee severance and termination benefits 76.3 28.5 26.8
Exited contractual commitments 1.8 1.0 -
Other 8.0 2.6 2.2
------ ----- -----
Recorded as Restructuring Costs $122.7 $66.7 $43.0
Discontinued Product Lines (in Cost of Sales) 10.2 3.8 5.6
------ ----- -----
Total Costs Related to Restructuring Plans $132.9 $70.5 $48.6
====== ===== =====
Restructuring provisions were determined based on estimates prepared
at the time the restructuring actions were approved by management. An
analysis 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
===== ===== ===== =====
12/31/01 Costs 12/31/02
Balance Provision Incurred* Balance
-------- --------- -------- --------
Facility and other exit costs $20.1 36.6 ($20.6) $36.1
Employee severance and termination benefits 6.2 76.3 (41.4) 41.1
Exited contractual commitments 1.9 1.8 (1.6) 2.1
Other - 8.0 (8.0) -
----- ------ ----- -----
Recorded as Restructuring Costs 28.2 122.7 (71.6) 79.3
----- ------ ----- -----
72
Discontinued Product Lines (in Cost of
Product Sold) - 10.2 (10.2) -
----- ------ ----- -----
$28.2 $132.9 ($81.8) $79.3
===== ====== ====== =====
* Cash paid for restructuring activities was $58.0 million, $49.7 million and $32.9 million in 2002,
2001 and 2000, respectively.
The facility and other exit cost reserves of $36.1 million at December
31, 2002 are primarily related to future minimum lease payments on
vacated facilities and closure costs related to fifty-two facilities
and administrative offices. As of December 31, 2002, severance
reserves for the employees impacted by the facility closures
approximated $41.1 million.
2002
----
During 2002, the Company recorded pre-tax restructuring charges
associated with the Company's strategic restructuring plan. The
restructuring plan is intended to streamline the Company's supply
chain to ensure its position as the best-cost global provider
throughout the Company's product portfolio. The plan consists of
reducing worldwide headcount over the three years beginning in 2001,
and includes consolidating duplicate manufacturing facilities. As
part of this plan, the Company incurred employee severance and
termination benefit costs for approximately 3,100 employees, including
manufacturing, sales and support personnel. Additionally, the Company
incurred facility exit costs related primarily to the closure of 43
facilities (seven at Rubbermaid, eight at Sharpie, fourteen at Irwin,
twelve at Calphalon Home and two corporate administrative offices).
2001
----
During 2001, the Company recorded pre-tax restructuring charges
associated with the Company's strategic restructuring plan. As part
of this plan, the Company incurred employee severance and termination
benefit costs for approximately 1,700 employees. Additionally, the
Company incurred facility exit costs related primarily to the closure
of 14 facilities (four at Rubbermaid, one at Sharpie, six at Irwin and
three at Calphalon Home).
2000
----
During 2000, the Company recorded pre-tax restructuring charges
related primarily to the continued Rubbermaid integration and plant
closures at Irwin. The Company incurred employee severance and
termination benefit costs related to approximately 700 employees
terminated in 2000. Such costs included severance and government
mandated settlements for facility closures at Rubbermaid Europe,
change in control payments made to former Rubbermaid executives,
employee terminations at the domestic Rubbermaid divisions and
73
severance at Irwin. The Company incurred merger transaction costs
related primarily to legal settlements for Rubbermaid's 1998 sale of a
former division and other merger related contingencies resolved in
2000. Additionally, the Company incurred facility and other exit
costs related primarily to the closure of five European Rubbermaid
facilities, three window furnishings facilities as well as the exit of
various Rubbermaid product lines.
FOOTNOTE 4
----------
CREDIT ARRANGEMENTS
The Company has short-term foreign and domestic uncommitted lines of
credit with various banks that 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 lines of credit do not
have a material impact on the Company's liquidity. The following is a
summary of borrowings under foreign and domestic lines of credit as of
December 31, (IN MILLIONS):
2002 2001 2000
---- ---- ----
Notes payable to banks:
Outstanding at year-end
- borrowing $25.2 $19.1 $23.5
- weighted average interest rate 5.9% 10.0% 8.6%
Average for the year
- borrowing $25.0 $24.1 $61.1
- weighted average interest rate 8.4% 12.1% 7.7%
Maximum outstanding during the year $40.9 $401.5 $178.0
The Company can also issue commercial paper (as described in Footnote
5 to the Consolidated Financial Statements), as summarized below as of
December 31, (IN MILLIONS):
2002 2001 2000
---- ---- ----
Commercial paper:
Outstanding at year-end
- borrowing $140.0 $707.5 $1,503.7
- average interest rate 1.5% 2.8% 6.6%
Average for the year
- borrowing $490.8 $1,240.3 $987.5
- average interest rate 1.9% 4.1% 6.3%
Maximum outstanding during the year $707.5 $1,603.3 $1,503.7
74
FOOTNOTE 5
----------
LONG-TERM DEBT
The following is a summary of long-term debt as of December 31, (IN
MILLIONS):
2002 2001
---- ----
Medium-term notes $1,680.9 $1,012.5
Commercial paper 140.0 707.5
Preferred debt securities 450.0 450.0
Other long-term debt 9.7 2.5
-------- --------
Total debt 2,280.6 2,172.5
Current portion of long-term debt (424.0) (807.5)
-------- --------
Long-term Debt $1,856.6 $1,365.0
======== ========
The aggregate maturities of long-term debt outstanding are as follows
as of December 31, 2002 (IN MILLIONS):
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
$424.0 $5.5 $26.4 $154.2 $390.7 $1,279.8 $2,280.6
The medium-term notes, revolving credit agreement (and related
commercial paper) and mandatorily redeemable convertible preferred
securities are all unsecured.
The Company had outstanding a total of $1,680.9 million in medium-term
notes. The original maturities on these notes range from 3 to 30
years at an average interest rate of 5.2%. Of the outstanding
principal amounts, $420.8 million is classified as current portion of
long-term debt, with the remainder classified as long-term debt.
On March 14, 2002, the Company issued $500.0 million of Senior Notes
with five-year and ten-year maturities. The $500.0 million Senior
Notes consist of $250.0 million in 6.00% Senior Notes due 2007 and
$250.0 million in 6.75% Senior Notes due 2012. On December 20, 2002,
the Company issued $250.0 million of Senior Notes. The seven-year
Senior Notes were issued at 4.625% and pay interest semi-annually on
June 15 and December 15 until final maturity on December 15, 2009.
The proceeds of these issuances were used to pay down commercial
paper. These issuances are reflected in the outstanding amount of
medium-term notes noted above and the entire amount is considered to
be long-term debt.
The Company completed a $1,300.0 million Syndicated Revolving Credit
Facility (the "Revolver") on June 14, 2002, replacing the existing
75
$1,300.0 million revolving credit agreement, which was scheduled to
terminate in August 2002. The Revolver consists of a $650.0 million
364-day credit agreement and a $650.0 million five-year credit
agreement. At December 31, 2002, there were no borrowings under the
Revolver.
In lieu of borrowings under the Revolver, the Company may issue
commercial paper. The Revolver 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 Revolver. At December 31, 2002, $140.0 million (principal
amount) of commercial paper was outstanding. Because $650.0 million
of the Revolver expires in June 2007, the entire $140.0 million is
classified as long-term debt.
The Revolver permits the Company to borrow funds on a variety of
interest rate terms. The Revolver requires, among other things, that
the Company maintain certain Interest Coverage and Total Indebtedness
to Total Capital Ratio, as defined in the agreement. The agreement
also limits Subsidiary Indebtedness. As of December 31, 2002, the
Company was in compliance with this agreement.
On September 18, 2001, the Company entered into an agreement with a
financial institution creating a financing entity that 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 substantially all of the Company's
United States trade receivables to the financing entity. In the
quarter ended September 30, 2001, the financing entity issued $450.0
million in preferred debt securities to the 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 in the
consolidated accounts of the Company. The proceeds of this debt were
used to pay down commercial paper issued by the Company. 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 debt rating falling below investment grade and certain
levels of accounts receivable write-offs. As of December 31, 2002,
the Company was in compliance with the agreement. As of December 31,
2002 and 2001, the aggregate amount of outstanding receivables sold
under the agreement was $738.2 million and $689.3 million,
respectively.
In August 2002, the Company elected to terminate certain interest rate
swap agreements prior to their scheduled maturities and received cash
of $25.0 million. Of this amount, $20.8 million represents the fair
value of the swaps that were terminated and the remainder represents
interest receivable on the swaps. The cash received relating to the
fair value of the swaps was included as an operating activity in the
76
Consolidated Statement of Cash Flows. The unamortized fair value gain
on the terminated interest rate swaps is accounted for as long-term
debt. As of December 31, 2002, the unamortized gain was $18.4
million, of which $5.3 million is classified as current portion of
long-term debt. The unamortized gain will be amortized as a reduction
to interest expense over the remaining term of the underlying debt.
In August 2002, the Company entered into several new interest rate
swap agreements to replace the terminated interest rate swap
agreements. These new interest rate swaps convert certain fixed rate
debt into floating rate debt based on a notional principal amount of
$500.0 million.
A $500.0 million universal shelf registration statement became
effective in July 2002 under which debt and equity securities may be
issued. As of December 31, 2002, $250.0 million in debt securities
had been issued under this shelf registration statement. In January
2003, approximately $200.8 million of equity securities were issued
pursuant to the shelf registration. See Footnote 16 for further
details.
FOOTNOTE 6
----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF A SUBSIDIARY TRUST
The Company fully and unconditionally guarantees 10.0 million shares
of 5.25% convertible preferred securities issued by a 100% owned
finance subsidiary of the Company, which are callable at 102.625% of
the liquidation preference, decreasing over time to 100% by December
2007. Each of these "Preferred Securities" is convertible into 0.9865
of a share of Company common stock, and is entitled to a quarterly
cash distribution at the annual rate of $2.625 per share.
The proceeds of the Preferred Securities were invested in $500.0
million of the Company 5.25% Junior Convertible Subordinated
Debentures. The Debentures are the sole assets of the subsidiary
trust, mature on December 1, 2027, bear interest at an annual rate of
5.25%, are payable quarterly and became redeemable by the Company
beginning in December 2001. The Company may defer interest payments on
the Debentures for a period of up to 20 consecutive quarters, during
which period distribution payments on the Preferred Securities are
also deferred. Under this circumstance, the Company may not declare or
pay any cash distributions with respect to its common or preferred
stock or debt securities that do not rank senior to the Debentures.
As of December 31, 2002, the Company has not elected to defer interest
payments. The $500.0 million of the Preferred Securities is
classified as Company-Obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust in the Consolidated Balance
Sheet.
77
FOOTNOTE 7
----------
DERIVATIVE FINANCIAL INSTRUMENTS
At the beginning of 2001, the Company adopted SFAS 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 SFAS
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 SFAS No. 133
did not materially impact the results of operations.
Derivative financial instruments are used only to manage certain
interest rate and foreign currency risks. These instruments include
interest rate swaps, long-term cross currency interest rate swaps, and
short-term forward exchange contracts.
At December 31, 2002, the Company had interest rate swaps designated
as cash flow hedges with an outstanding notional principal amount of
$350.0 million, with accrued interest payable of $0.9 million. At
December 31, 2002, the Company had these swaps serve as a means to
mitigate the risk of rising interest rates in future periods by
converting certain floating rate debt instruments into fixed rate
debt. Gains and losses on these instruments, to the extent that the
hedge relationship has been effective, are deferred in other
comprehensive income and recognized in interest expense over the
period in which the Company recognizes interest expense on the related
debt instrument. Any ineffectiveness on these instruments is
immediately recognized in interest expense in the period that the
ineffectiveness occurs. During 2002, the ineffectiveness related to
these instruments was insignificant. The Company expects
approximately $3.3 million of the losses, net of tax, deferred in
other comprehensive income to be recognized in earnings in 2003. At
December 31, 2002, the Company also had interest rate swaps designated
as fair value hedges with an outstanding notional principal amount of
$500.0 million, with accrued interest receivable of $2.7 million.
These fair value hedges qualify for the "shortcut method" because
these hedges are deemed to be perfectly effective. The maximum length
of time over which the Company is hedging its interest rate exposure
through the use of interest rate swap agreements is seven years.
The Company utilizes forward exchange contracts to manage foreign
exchange risk related to both known and anticipated intercompany
transactions and third-party commercial transaction exposures of
approximately one year in duration or less. The Company also utilizes
long-term cross currency interest rate swaps to hedge long-term
intercompany transactions. The maturities on these long-term cross
currency interest rate swaps range from three to five years. At
78
December 31, 2002, the Company had long-term cross currency interest
rate swaps with an outstanding notional principal amount of $319.5
million, with accrued interest receivable of $0.2 million.
Gains and losses related to qualifying forward exchange contracts,
which hedge intercompany transactions or third-party commercial
transactions, are deferred in other comprehensive income with a
corresponding asset or liability until the underlying transaction
occurs and are considered to have a cash flow hedging relationship.
The gains and losses reported in accumulated other comprehensive
income will be reclassified to earnings upon completion of the
underlying transaction being hedged. The net loss recognized in 2002
for matured cash flow forward exchange contracts was $1.5 million, net
of tax, which was recognized in the Consolidated Statement of Income.
The Company estimates that $0.1 million of gains, net of tax, deferred
in accumulated other comprehensive income will be recognized in
earnings in 2003.
Derivative instruments used to hedge intercompany loans are marked to
market with the corresponding gains or losses included in accumulated
other comprehensive income and are considered to have a fair value
hedging relationship. Any ineffectiveness associated with the fair
value hedges is classified to the income statement. The net gain
recognized in 2002 for forward exchange contracts and cross currency
interest rate swaps was $0.4 million, net of tax, which was recognized
as part of interest income on the Consolidated Statement of Income.
The following table summarizes the Company's forward exchange
contracts and long-term cross currency interest rate swaps in U.S.
dollars by major currency and contractual amount. The "buy" amounts
represent the U.S. equivalent of commitments to purchase foreign
currencies, and the "sell" amounts represent the U.S. equivalent of
commitments to sell foreign currencies according to the local needs of
the subsidiaries. The contractual amounts of significant short-term
forward exchange contracts and long-term cross currency interest rate
swaps and their fair values as of December 31, were as follows (IN
MILLIONS):
2002 2001
---- ----
Buy Sell Buy Sell
--- ---- --- ----
British Pounds $273.0 $65.6 $174.9 $178.2
Canadian Dollars 0.8 50.6 207.8 31.6
Euro 96.4 343.8 43.7 232.2
Other 35.7 18.3 23.9 9.8
------ ------ ------ ------
$405.9 $478.3 $450.3 $451.8
====== ====== ====== ======
Fair Value recorded in the
Consolidated Balance Sheet $451.5 $537.4 $440.0 $448.2
====== ====== ====== ======
79
The Company's short-term forward exchange contracts and long-term
cross currency interest rate swaps do not subject the Company to risk
due to foreign exchange rate movement, because gains and losses on
these instruments generally offset gains and losses on the assets,
liabilities, and other transactions being hedged. The Company does
not obtain collateral or other security to support derivative
financial instruments subject to credit risk, but monitors the credit
standing of the counterparties.
FOOTNOTE 8
----------
LEASES
The Company leases manufacturing and warehouse facilities, real
estate, transportation, data processing and other equipment under
leases that expire at various dates through the year 2011. Rent
expense was $123.3 million, $112.0 million and $102.9 million in 2002,
2001 and 2000, respectively.
Future minimum rental payments for operating leases with initial or
remaining terms in excess of one year are as follows as of December
31, 2002 (IN MILLIONS):
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
$68.0 $47.7 $35.7 $31.4 $16.8 $25.2 $224.8
FOOTNOTE 9
----------
EMPLOYEE BENEFIT AND RETIREMENT PLANS
As of December 31, 2002, the Company continued to maintain various
deferred compensation plans with varying terms. The total liability
associated with these plans was $56.9 million and $52.3 million as of
December 31, 2002 and 2001, respectively. These liabilities are
included in Other Noncurrent Liabilities in the Consolidated Balance
Sheet. These plans are partially funded with asset balances of $42.9
million and $41.9 million as of December 31, 2002 and 2001,
respectively. These assets are included in Other Noncurrent Assets in
the Consolidated Balance Sheet.
80
Effective January 1, 2002, the Company adopted a deferred compensation
plan pursuant to which certain management and highly compensated
employees are eligible to defer up to 50% of their regular
compensation and up to 100% of their bonuses, and nonemployee board
members are eligible to defer up to 100% of their directors
compensation. The compensation deferred under this plan along with
earnings is fully vested at all times.
The Company has a Supplemental Executive Retirement Plan ("SERP"),
which is a nonqualified defined benefit plan pursuant to which the
Company will pay supplemental pension benefits to certain key
employees upon retirement based upon the employees' years of service
and compensation. The SERP is being funded through a trust agreement
with the Northern Trust Company, as trustee, that owns life insurance
policies on key employees. At December 31, 2002 and 2001, the life
insurance contracts had a cash surrender value of $66.2 million and
$56.0 million, respectively. These assets are included in Other
Noncurrent Assets in the Consolidated Balance Sheet. The amount of
coverage is designed to provide sufficient reserves to cover all costs
of the plan. The projected benefit obligation was $68.6 million and
$59.8 million at December 31, 2002 and 2001, respectively. The SERP
liabilities are included in the pension table below; however, the
Company's investment in the life insurance contracts are excluded from
the table as they do not qualify as plan assets under SFAS No. 87,
"Employers' Accounting for Pensions."
The Company and its subsidiaries have noncontributory pension, profit
sharing and contributory 401(k) plans covering substantially all of
their foreign and domestic employees. Pension plan benefits are
generally based on years of service and/or compensation. The Company's
funding policy is to contribute not less than the minimum amounts
required by the Employee Retirement Income Security Act of 1974, as
amended, the Internal Revenue Code of 1986, as amended or local
statutes to assure that plan assets will be adequate to provide
retirement benefits. The Company's common stock comprised $67.4
million and $56.6 million of noncontributory pension plan assets at
December 31, 2002 and 2001, respectively.
The Company's matching contributions to the profit sharing plans were
$21.4 million, $15.4 million and $14.5 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
In addition, several of the Company's subsidiaries currently provide
retiree health care and life insurance benefits for certain employee
groups.
81
The following provides a reconciliation of benefit obligations, plan
assets and funded status of the Company's noncontributory pension
plans, SERP and postretirement benefit plans as of December 31, (IN
MILLIONS):
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation at January 1 $846.7 $740.9 $212.6 $166.7
Service cost 40.0 38.9 4.2 3.3
Interest cost 64.9 54.9 15.6 12.5
Amendments 5.4 (1.2) - -
Actuarial (gain) loss (17.7) (15.9) 7.2 50.8
Acquisitions and other 104.3 79.8 - -
Currency translation 25.8 (4.1) - -
Benefits paid from plan assets (78.3) (46.6) (20.6) (20.7)
------ ------ ------ ------
Benefit obligation at December 31 $991.1 $846.7 $219.0 $212.6
====== ====== ====== ======
Change in plan assets:
Fair value of plan assets at January 1 $756.5 $888.3 $ - $ -
Actual return on plan assets (65.8) (176.0) - -
Acquisitions and other 85.5 83.8 - -
Contributions 14.5 7.6 20.6 20.7
Currency translation 15.9 (0.6) - -
Benefits paid from plan assets (78.3) (46.6) (20.6) (20.7)
------ ------ ------ ------
Fair value of plan assets
at December 31 $728.3 $756.5 $ - $ -
====== ====== ====== ======
Funded Status:
Funded status at December 31 ($262.8) ($90.2) ($219.0) ($212.6)
Unrecognized net loss 307.3 142.8 21.0 13.7
Unrecognized prior service cost 5.7 2.7 - -
Unrecognized net asset 0.5 (1.1) - -
----- ----- ------ ------
Net amount recognized $50.7 $54.2 ($198.0) ($198.9)
===== ===== ======= =======
Amounts recognized in the
Consolidated Balance Sheets:
Prepaid benefit cost (1) $113.8 $142.0 $ - $ -
Accrued benefit cost (2) (198.9) (98.6) (198.0) (198.9)
Intangible asset (1) 4.1 3.5 - -
Accumulated other
comprehensive loss 131.7 7.3 - -
----- ----- ------ ------
Net amount recognized $50.7 $54.2 ($198.0) ($198.9)
===== ===== ====== ======
Discount rate 6.75% 7.25% 6.75% 7.25%
82
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Long-term rate of return on
plan assets 8.5% 10.0% N/A N/A
Long-term rate of compensation increase 4.5% 5.0% N/A N/A
Health care cost trend rate N/A N/A 6.0% 6.0%
(1) Recorded in Other Noncurrent Assets
(2) Recorded in Other Noncurrent Liabilities
Net pension expense (income) and other postretirement benefit expense
include the following components as of December 31, (IN MILLIONS):
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
Service cost-benefits earned
during the year $40.0 $33.2 $29.2 $4.2 $3.3 $3.6
Interest cost on projected
benefit obligation 64.9 53.7 49.5 15.6 12.5 12.9
Expected return on plan assets (99.2) (87.1) (82.8) - - -
Amortization of:
Transition asset - (1.4) (1.9) - (1.5) (1.1)
Prior service cost recognized (0.2) (1.1) (0.5) - - -
Curtailment, settlement cost 1.4 - - - - -
Actuarial loss (gain) 0.8 (0.3) (1.3) - - -
---- ---- ---- ----- ----- -----
Net pension expense (income) $7.7 ($3.0) ($7.8) $19.8 $14.3 $15.4
==== ==== ==== ===== ===== =====
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets are as follows as of
December 31, (IN MILLIONS):
2002 2001
---- ----
Projected benefit obligation ($712.9) ($443.0)
Accumulated benefit obligation (678.1) (404.1)
Fair value of plan assets 418.4 307.0
Assumed health care cost trends have been used in the valuation of
postretirement benefits. The trend rate is 10% (for retirees under age
65) and 12% (for retirees over age 65) in 2002, declining to 6% for
all retirees in 2009 and thereafter. In 2001, the Company increased
the medical care cost trend rate due to significant increases in
actual medical costs.
83
The health care cost trend rate significantly affects the reported
postretirement benefit costs and obligations. A one percentage point
change in the assumed rate would have the following effects (IN
MILLIONS):
1% Increase 1% Decrease
----------- -----------
Effect on total of service and
interest cost components $2.3 ($2.0)
Effect on postretirement
benefit obligations 18.1 (16.6)
FOOTNOTE 10
-----------
STOCKHOLDERS' EQUITY
On February 7, 2000, the Company announced a stock repurchase program
of up to $500.0 million of the Company's outstanding common stock.
During 2000, the Company repurchased 15.5 million shares of its common
stock at an average price of $26.00 per share, for a total cash price
of $403.0 million under the program. The repurchase program remained
in effect until December 31, 2000 and was financed through the use of
working capital and commercial paper.
Each share of common stock includes a stock purchase right (a
"Right"). Each Right will entitle the holder, until the earlier of
October 31, 2008 or the redemption of the Rights, to buy the number of
shares of common stock having a market value of two times the exercise
price of $200.00, subject to adjustment under certain circumstances.
The Rights will be exercisable only if a person or group acquires 15%
or more of voting power of the Company or announces a tender offer
after which it would hold 15% or more of the Company's voting power.
The Rights held by the 15% stockholder would not be exercisable in
this situation.
Furthermore, if, following the acquisition by a person or group of 15%
or more of the Company's voting stock, the Company was acquired in a
merger or other business combination or 50% or more of its assets were
sold, each Right (other than Rights held by the 15% stockholder) would
become exercisable for that number of shares of common stock of the
Company (or the surviving company in a business combination) having a
market value of two times the exercise price of the Right.
The Company may redeem the Rights at $0.001 per Right prior to the
occurrence of an event that causes the Rights to become exercisable
for common stock.
84
FOOTNOTE 11
-----------
STOCK OPTIONS
The Company's Amended and Restated 1993 Stock Option Plan expired by
its terms on December 31, 2002, and no further stock options can be
granted under that plan. For options previously granted under that
plan, the option exercise price equaled the common stock's closing
price on the date of grant, options vest over a five-year period and
expire ten years from the date of grant. In February 2003, the
Company's Board of Directors approved, subject to approval of Company
stockholders, a 2003 Stock Plan. The 2003 Plan will provide for
grants of up to an aggregate of 15.0 million stock options, stock
awards and performance shares (except that no more than 3.0 million of
those grants may be stock awards and performance shares). Under the
2003 Plan, the option exercise price will equal the common stock's
closing price on the date of grant. Options will vest over five years
(which may be shortened to no less than three years) and expire ten
years from the date of grant. Also under the 2003 Plan, none of the
restrictions on stock awards will lapse earlier than the third
anniversary of the date of grant.
The following summarizes the changes in the number of shares of common
stock under option, including options to acquire common stock
resulting from the conversion of options under pre-merger Rubbermaid
option plans (IN MILLIONS, EXCEPT EXERCISE PRICES):
Weighted
Weighted Weighted average fair
Average Exercisable Average value of options
Exercise at end of Exercise granted during
Shares Price year Price the year
------ ----- ---- ----- --------
Outstanding at December 31, 1999 5.8 $35
Granted 3.5 28
Exercised (0.1) 17
Canceled (1.2) 36
---- --- --- --- --
Outstanding at December 31, 2000 8.0 32 3.2 $33 $9
Granted 4.4 25
Exercised (0.2) 19
Canceled (2.3) 33
---- --- --- --- --
Outstanding at December 31, 2001 9.9 29 2.9 $33 $7
Granted 3.9 32
Exercised (0.7) 25
Canceled (1.7) 32
---- --- --- --- --
Outstanding at December 31, 2002 11.4 $30 3.4 $32 $9
==== === === === ==
85
Options outstanding at December 31, 2002 (IN MILLIONS, EXCEPT EXERCISE
PRICES):
Weighted Weighted Average
Range of Number Average Remaining
Exercise Prices Outstanding Exercise Price Contractual Life
--------------- ----------- -------------- ----------------
$16.00 - $24.99 2.6 $24 8.0
$25.00 - $34.99 5.9 29 8.1
$35.00 - $44.99 2.8 38 7.8
$45.00 - $50.00 0.1 48 5.7
---- --- ---
$16.00 - $50.00 11.4 $30 8.0
==== === ===
Options exercisable at December 31, 2002 (IN MILLIONS, EXCEPT EXERCISE
PRICES):
Weighted Weighted Average
Range of Number Average Remaining
Exercise Prices Exercisable Exercise Price Contractual Life
--------------- ----------- -------------- ----------------
$16.00 - $24.99 0.6 $23 6.8
$25.00 - $34.99 1.7 30 6.4
$35.00 - $44.99 1.0 40 5.6
$45.00 - $50.00 0.1 48 5.7
--- --- ---
$16.00 - $50.00 3.4 $32 6.2
=== === ===
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants in 2002, 2001 and 2000, respectively:
risk-free interest rate of 4.0%, 5.1% and 6.5%; expected dividend
yields of 3.0%, 3.0% and 3.0%; expected lives of 6.9, 9.0 and 9.0
years; and expected volatility of 32%, 28% and 28%.
FOOTNOTE 12
-----------
INCOME TAXES
The provision for income taxes consists of the following as of
December 31, (IN MILLIONS):
2002 2001 2000
---- ---- ----
Current:
Federal $55.0 $90.8 $154.8
State 7.7 11.6 14.9
Foreign 46.0 23.3 34.4
------ ------ ------
108.7 125.7 204.1
Deferred 48.3 25.5 59.8
------ ------ ------
$157.0 $151.2 $263.9
====== ====== ======
86
The non-U.S. component of income before income taxes was $7.0 million
in 2002, $69.9 million in 2001 and $84.7 million in 2000.
The components of the net deferred tax asset are as follows as of
December 31, (IN MILLIONS):
2002 2001
---- ----
Deferred tax assets:
Accruals not currently deductible
for tax purposes $204.2 $173.5
Postretirement liabilities 114.0 76.2
Inventory reserves 24.5 48.3
Self-insurance liability 18.1 36.1
Foreign net operating losses 150.2 109.2
Other 11.4 12.2
------ ------
$522.4 $455.5
------ -------
Deferred tax liabilities:
Accelerated depreciation ($152.9) ($135.4)
Prepaid pension asset (37.0) (42.0)
Amortizable intangibles (19.7) (9.2)
Other - (18.8)
------ ------
($209.6) ($205.4)
------ ------
Net deferred tax asset $312.8 $250.1
Valuation allowance (104.0) (85.3)
------ ------
Net deferred tax asset after
valuation allowance $208.8 $164.8
====== ======
At December 31, 2002, the Company had foreign net operating loss
("NOL") carry forwards of approximately $487.9 million that expire at
various times beginning in 2005 and some of which carry forward
without expiration. The potential tax benefits associated with those
foreign net operating losses are approximately $150.2 million. The
valuation allowance increased $18.7 million during 2002 to $104.0
million at December 31, 2002. This increase was primarily the result
of an increase of certain foreign net operating losses during the year
which management is uncertain of the ability to utilize in the future.
87
The net deferred tax asset is classified in the Consolidated Balance
Sheets as follows as of December 31, (IN MILLIONS):
2002 2001
---- ----
Current net deferred income tax asset $213.5 $238.5
Noncurrent deferred income tax liability (4.7) (73.7)
------ ------
$208.8 $164.8
====== ======
A reconciliation of the U.S. statutory rate to the effective income
tax rate is as follows as of December 31, (IN PERCENT):
2002 2001 2000
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
Add (deduct) effect of:
State income taxes, net of federal income tax effect 1.9 2.8 2.2
Nondeductible trade names and goodwill amortization - 3.4 1.3
Foreign tax credit (0.7) (3.3) (.5)
Foreign rate differential and other (2.7) (1.5) .5
----- ----- -----
Effective rate 33.5% 36.4% 38.5%
====== ===== =====
No U.S. deferred taxes have been provided on the undistributed non-
U.S. subsidiary earnings that are considered to be permanently
invested. At December 31, 2002, the estimated amount of total
unremitted non-U.S. subsidiary earnings is $139.1 million.
FOOTNOTE 13
-----------
OTHER NONOPERATING EXPENSES (INCOME)
Total other nonoperating expenses (income) consist of the following as
of December 31, (IN MILLIONS):
2002 2001 2000
---- ---- ----
Minority interest in income of subsidiary trust (1) $26.7 $26.7 $26.7
Equity earnings (2) (0.8) (7.2) (8.0)
Loss on sales of marketable equity securities 1.2 5.0 -
Gain on sale of business - (5.0) -
Interest income (4.7) (3.9) (5.5)
Currency transaction losses 4.2 1.9 1.9
Dividend income - (0.1) (0.1)
ATC transaction costs (3) 8.7 - -
Costs associated with withdrawn divestiture (4) 13.6 - -
Gain on sale of land (6.8) - -
Loss on disposal of fixed assets 4.8 - -
Other 3.7 0.1 1.2
------ ------ ------
$50.6 $17.5 $16.2
====== ====== ======
88
(1) Expense from Convertible Preferred Securities (see Footnote 6).
(2) Primarily relates to the Company's investment in American Tool
Companies, Inc., in which the Company had a 49.5% interest until
April 2002. See Footnote 2 for further information.
(3) Represents costs associated with the acquisition of American Tool
Companies, Inc. See Footnote 2 for further information.
(4) Represents transaction costs associated with the Company's
withdrawal from the planned divestiture of its Anchor Hocking
glass business. See Footnote 2 for further information.
FOOTNOTE 14
-----------
INDUSTRY SEGMENT INFORMATION
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 strategic account management 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 (prior
years' segment data has been reclassified to conform to the current
segment structure). In 2002, the Company renamed its Parker/Eldon,
Calphalon/Wearever and Levolor/Hardware segments as the Sharpie,
Calphalon Home and Irwin segments, respectively, for public reporting.
The Company's segment results are as follows as of December 31, (IN
MILLIONS):
2002 2001 2000
---- ---- ----
Net Sales (1) (2)
-----------------
Rubbermaid $2,592.4 $2,565.6 $2,809.3
Sharpie 1,908.7 1,799.4 1,423.5
Irwin 1,727.3 1,382.6 1,455.0
Calphalon Home 1,225.5 1,161.7 1,246.9
-------- -------- --------
$7,453.9 $6,909.3 $6,934.7
======== ======== ========
Operating Income (3)
--------------------
Rubbermaid $214.5 $200.9 $326.2
89
2002 2001 2000
---- ---- ----
Sharpie 323.3 278.3 250.4
Irwin 136.4 126.5 207.2
Calphalon Home 119.5 120.1 172.9
Corporate (31.1) (84.4) (76.4)
------- ------- -------
762.6 641.4 880.3
Restructuring Costs (4) (132.9) (70.5) (48.6)
------ ------ -------
$629.7 $570.9 $831.7
======= ======= =======
Identifiable Assets
-------------------
Rubbermaid $1,688.9 $1,551.3
Sharpie 1,124.1 1,216.8
Irwin 1,226.4 790.8
Calphalon Home 735.5 787.4
Corporate (5) 2,614.0 2,919.8
------- -------
$7,388.9 $7,266.1
======= =======
Capital Expenditures
--------------------
Rubbermaid $134.5 $110.5 $186.5
Sharpie 41.3 52.8 48.0
Irwin 46.0 26.6 16.0
Calphalon Home 17.2 34.7 43.9
Corporate 13.1 25.2 22.2
------- ------- -------
$252.1 $249.8 $316.6
======= ======= =======
Depreciation and Amortization
-----------------------------
Rubbermaid $116.0 $120.1 $107.5
Sharpie 54.6 59.1 38.3
Irwin 42.3 29.3 24.3
Calphalon Home 43.8 40.7 44.7
Corporate 24.0 79.6 77.8
------- ------- -------
$280.7 $328.8 $292.6
======= ======= =======
90
GEOGRAPHIC AREA INFORMATION
2002 2001 2000
---- ---- ----
Net Sales
---------
United States $5,454.2 $5,040.6 $5,191.5
Canada 312.5 299.5 308.9
------- ------- -------
North America 5,766.7 5,340.1 5,500.4
Europe 1,331.3 1,215.4 1,112.5
Central and South America 247.3 263.4 289.0
All other 108.6 90.4 32.8
------- ------- -------
$7,453.9 $6,909.3 $6,934.7
======= ======= =======
Operating Income
----------------
United States $553.1 $455.7 $643.4
Canada 43.3 39.1 54.5
------- ------- -------
North America 596.4 494.8 697.9
Europe (8.4) 47.4 77.2
Central and South America 19.5 17.9 53.2
All other 22.2 10.8 3.4
------- ------- -------
$629.7 $570.9 $831.7
======= ======= =======
Identifiable Assets (6)
-----------------------
United States $5,151.0 $5,067.8
Canada 115.7 118.0
------- -------
North America 5,266.7 5,185.8
Europe 1,802.0 1,737.0
Central and South America 224.4 295.7
All other 95.8 47.6
-------- --------
$7,388.9 $7,266.1
======== ========
(1) Sales to Wal*Mart Stores, Inc. and subsidiaries amounted to
approximately 15% of consolidated net sales in each of the years
ended December 31, 2002, 2001 and 2000. Sales to no other
customer exceeded 10% of consolidated net sales for any year.
(2) All intercompany transactions have been eliminated.
(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
91
basis. Trade names and goodwill amortization was considered a
corporate expense in 2001 and 2000 and not allocated to business
segments.
(4) Restructuring costs are recorded as both Restructuring Costs and
as part of Cost of Products Sold in the Consolidated Statements
of Operations (refer to Footnote 3 for additional detail.)
(5) Corporate assets primarily include trade names and goodwill,
equity investments and deferred tax assets.
(6) Transfers of finished goods between geographic areas are not
significant.
FOOTNOTE 15
-----------
LITIGATION AND 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 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 December 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 December 31, 2002 ranged between $19.4 million and
$24.6 million. As of December 31, 2002, the Company had a reserve
equal to $22.0 million for such environmental response costs in the
aggregate, which is included in other accrued liabilities and other
noncurrent liabilities in the Consolidated Balance Sheets. 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
92
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
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 Consolidated Financial
Statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (the Interpretation).
The Interpretation requires a guarantor to make significant new
disclosures, even when the likelihood of making any payments under the
guarantee is remote. The recognition and measurement provisions of
the Interpretation are effective for guarantees issued or modified
after December 31, 2002. The disclosure provisions of the
Interpretation are effective for financial statements with periods
ended subsequent to December 15, 2002. In the normal course of
business and as part of its acquisition and divestiture strategy, the
Company may provide certain representation and indemnifications
related to legal, environmental, product liability, tax or other types
of issues. Based on the nature of these representations and
indemnifications, it is not possible to predict the maximum potential
payments under all of these agreements due to the conditional nature
of the Company's obligations and the unique facts and circumstances
involved in each particular agreement. Historically, payments made by
the Company under these agreements did not have a material effect on
the Company's business, financial condition or results of operation.
As of December 31, 2002, the Company has identified and quantified
exposures under these representations and indemnifications of
approximately $44 million, which expires in 2006. As of December 31,
2002, no amounts have been recorded on the balance sheet related to
these indemnifications, as the risk of loss is considered remote.
93
FOOTNOTE 16
-----------
SUBSEQUENT EVENTS
Effective January 1, 2003, the Company completed its acquisition of
American Saw & Mfg. Co. ("American Saw"), a leading manufacturer of
power tool accessories and hand tools marketed under the Lenox brand.
The purchase price was approximately $450 million paid for through the
issuance of commercial paper. The transaction structure permits the
deduction of goodwill for tax purposes. We estimate the present value
of the future tax benefit to be $85 million, which effectively reduces
the purchase price to $365 million. American Saw had 2001 revenues of
approximately $185 million and will become part of the Irwin operating
segment.
In January 2003, the Company completed the sale of 6.67 million shares
of its common stock at a public offering price of $30.10 per share
pursuant to an effective shelf registration statement that was
previously filed with the Securities and Exchange Commission. The net
proceeds of $200.1 million were used to reduce the Company's
commercial paper borrowings.
On March 27, 2003, the Company sold its Cosmolab business, a division
of the Sharpie segment. In 2002, sales of the division approximated
$50 million. The Company expects to record a non-cash pre-tax loss of
approximately $20 million in the first quarter of 2003.
94
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
------- AND FINANCIAL DISCLOSURE
-----------------------------------------------------------
On March 25, 2002, the Company terminated the engagement of Arthur
Andersen LLP ("Arthur Andersen") as its independent auditor. The
decision to terminate the engagement of Arthur Andersen was
recommended by the Company's Audit Committee and approved by its Board
of Directors. Arthur Andersen's report on the consolidated financial
statements of the Company for each of the years ended December 31,
2001 and 2000, did not contain any adverse opinion or a disclaimer of
opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. During the years ended December 31,
2001 and 2000, and the interim period between December 31, 2001 and
March 25, 2002, there were no disagreements between the Company and
Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen,
would have caused it to make reference to the subject matter of the
disagreements in connection with its report. During the years ended
December 31, 2001 and 2000, and the interim period between December
31, 2001 and March 25, 2002, there were no reportable events (as
defined in Item 304(a)(1)(v) of Regulation S-K promulgated by the
Securities and Exchange Commission). A letter from Arthur Andersen
was included in the Report on Form 8-K/A filed by the Company on April
3, 2002.
The Company engaged Ernst & Young LLP as its new independent auditor
effective March 25, 2002. The engagement of Ernst & Young was
recommended by the Company's Audit Committee and approved by its Board
of Directors. During the years ended December 31, 2001 and 2000, and
the interim period between December 31, 2001 and March 25, 2002, the
Company did not consult with Ernst & Young regarding (i) the
application of accounting principles to a specified transaction,
either completed or proposed, (ii) the type of audit opinion that
might be rendered on the Company's consolidated financial statements
or (iii) any matter that was either the subject of a disagreement (as
described above) or a reportable event.
95
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------- --------------------------------------------------
Information required under this Item with respect to Directors is
contained in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held May 7, 2003 (the "Proxy Statement") under the
caption "Proposal 1 - Election of Directors," "Information Regarding
Board of Directors and Committees," and "Certain Beneficial Owners "
and is incorporated herein by reference.
Information required under this Item with respect to Executive
Officers of the Company is included as a supplemental item at the end
of Part I of this report.
Information regarding compliance with Section 16(a) of the Exchange
Act is included in the Proxy Statement under the caption "Section
16(a) Beneficial Ownership Compliance Reporting," which information is
hereby incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------
Information regarding executive compensation is included in the Proxy
Statement under the caption "Proposal 1 - Election of Directors -
Compensation of Directors," under the captions "Executive Compensation
- Summary Compensation Table; - Option Grants in 2002; - Option
Exercises in 2002; - Pension and Retirement Plans; - Employment
Security and Other Agreements," and the caption "Organizational
Development and Compensation Committee Interlocks and Insider
Participation," which information is hereby incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------- MANAGEMENT AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------
Information required under this Item is contained in the Proxy
Statement under the captions "Certain Beneficial Owners" and "Equity
Compensation Plan Information" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------- ----------------------------------------------
Not applicable.
96
ITEM 14. CONTROLS AND PROCEDURES
------- -----------------------
(a) Within 90 days prior to the date of this report, the Company
carried out an evaluation - under the supervision and with the
participation of the Company's management, including the Chief
Executive Officer and the Chief Financial Officer - of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based on that evaluation, the Company's Chief Executive
Officer and the Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could affect these controls
subsequent to the date of the evaluation described in the
preceding paragraph.
97
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
-------- FORM 10-K
------------------------------------------------------
(a)(1) The following is a list of the financial statements of
Newell Rubbermaid Inc. included in this report on Form 10-K,
which are filed herewith pursuant to Item 8:
Report of Independent Auditors
Report of Independent Public Accountants
Consolidated Statements of Operations - Years Ended
December 31, 2002, 2001 and 2000
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Cash Flows - Years Ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity and
Comprehensive Income/(Loss) - Years Ended December 31,
2002, 2001 and 2000
Footnotes to Consolidated Financial Statements - December
31, 2002, 2001 and 2000
(2) The following consolidated financial statement schedule of the
Company included in this report on Form 10-K is filed herewith
pursuant to Item 14(d) and appears immediately following the
Exhibit Index:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(3) The exhibits filed herewith are listed on the Exhibit Index
filed as part of this report on Form 10-K. Each management
contract or compensatory plan or arrangement of the Company
listed on the Exhibit Index is separately identified by an
asterisk.
(b) The following reports on Form 8-K were filed by the Registrant
during the quarter ended December 31, 2002:
Report on Form 8-K, dated November 22, 2002, that included a
press release announcing that the Company had reached a
definitive agreement to acquire American Saw & Mfg. Company.
Report on Form 8-K, dated December 18, 2002, stating that the
Company had entered into an Underwriting Agreement with
respect to the offering and sale of $250.0 million of
unsecured and unsubordinated notes.
98
Report on Form 8-K, dated December 20, 2002, that included the
filing of a legal opinion with respect to the Company's
Registration Statement on Form S-3 (No. 333-88050).
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ William T. Alldredge
---------------------------
William T. Alldredge
Date March 27, 2003
-------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 27, 2003 by the
following persons on behalf of the Registrant and in the capacities
indicated.
Signature Title
--------- -----
/s/ William P. Sovey Chairman of the Board and
---------------------------------- Director
William P. Sovey
/s/ Joseph Galli, Jr. President, Chief Executive
---------------------------------- Officer and Director
Joseph Galli, Jr.
/s/ J. Patrick Robinson Vice President - Corporate
---------------------------------- Controller and Chief Accounting
J. Patrick Robinson Officer
/s/ William T. Alldredge President - Corporate
---------------------------------- Development and Chief Financial
William T. Alldredge Officer
/s/ Thomas E. Clarke Director
----------------------------------
Thomas E. Clarke
/s/ Scott S. Cowen Director
----------------------------------
Scott S. Cowen
/s/ Alton F. Doody Director
----------------------------------
Alton F. Doody
100
/s/ Robert L. Katz Director
----------------------------------
Robert L. Katz
/s/ William D. Marohn Director
----------------------------------
William D. Marohn
/s/ Elizabeth Cuthbert Millett Director
----------------------------------
Elizabeth Cuthbert Millett
/s/ Cynthia A. Montgomery Director
----------------------------------
Cynthia A. Montgomery
/s/ Allan P. Newell Director
----------------------------------
Allan P. Newell
/s/ Gordon R. Sullivan Director
----------------------------------
Gordon R. Sullivan
/s/ Raymond G. Viault Director
----------------------------------
Raymond G. Viault
101
CERTIFICATION
I, Joseph Galli, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Newell
Rubbermaid Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
102
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ Joseph Galli, Jr.
------------------------
Joseph Galli, Jr.
Chief Executive Officer
103
CERTIFICATION
I, William T. Alldredge, certify that:
1. I have reviewed this annual report on Form 10-K of Newell
Rubbermaid Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
104
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ William T. Alldredge
------------------------
William T. Alldredge
Chief Financial Officer
105
(C) EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
Item 3. Articles of 3.1 Restated Certificate of Incorporation of Newell Rubbermaid
Incorporation and By- Inc., as amended as of April 5, 2001 (incorporated by
Laws reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31,
2001).
3.2 By-Laws of Newell Rubbermaid Inc., as amended through
January 5, 2001 (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-3, File
No. 333-103773, filed March 12, 2003.
Item 4. Instruments defining 4.1 Restated Certificate of Incorporation of Newell Rubbermaid
the rights of security Inc., as amended as of April 5, 2001, is included in Item
holders, including 3.1.
indentures
4.2 By-Laws of Newell Rubbermaid Inc., as amended through
January 5, 2001, are included in Item 3.2.
4.3 Rights Agreement dated as of August 6, 1998, between the
Company and First Chicago Trust Company of New York, as
Rights Agent (incorporated by reference to Exhibit 4 to
the Company's Current Report on Form 8-K dated August 6,
1998).
4.4 Indenture dated as of April 15, 1992, between the Company
and The Chase Manhattan Bank (now known as JPMorgan Chase
Bank), as Trustee (incorporated by reference to Exhibit
4.4 to the Company's Report on Form 8 amending the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1992 (File No. 001-09608)).
4.5 Indenture dated as of November 1, 1995, between the
Company and The Chase Manhattan Bank (now known as
JPMorgan Chase Bank), as Trustee (incorporated by
reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K dated May 3, 1996).
4.6 Junior Convertible Subordinated Indenture for the 5.25%
Convertible Subordinated Debentures, dated as of December
12, 1997, between the Company and The Chase Manhattan Bank
(now known as JPMorgan Chase Bank), as Indenture Trustee
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3, File No. 333-47261,
filed March 3, 1998 (the "1998 Form S-3").
4.7 Specimen Common Stock (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on
Form S-4, File No. 333-71747, filed February 4, 1999).
106
Exhibit
Number Description of Exhibit
------- ----------------------
4.8 Five-Year Credit Agreement dated as of June 14, 2002 by
and among Newell Rubbermaid Inc., JPMorgan Chase Bank, as
administrative agent, J.P. Morgan Securities Inc., as sole
lead arranger and sole bookrunner, Bank of America, N.A.
and Bank One, NA, as co-syndication agents, and Barclays
Bank PLC and BNP Paribas, as co-documentation agents
(incorporated by reference to Exhibit 10.1 to Amendment
No. 2 to the Company's Registration Statement on Form S-3,
File No. 333-88050, filed July 10, 2002).
4.9 364-Day Credit Agreement dated as of June 14, 2002 by and
among Newell Rubbermaid Inc., JPMorgan Chase Bank, as
administrative agent, J.P. Morgan Securities Inc., as sole
lead arranger and sole bookrunner, Bank of America, N.A.
and Bank One, NA, as co-syndication agents, and Barclays
Bank PLC and BNP Paribas, as co-documentation agents
(incorporated by reference to Exhibit 10.2 to Amendment
No. 2 to the Company's Registration Statement on Form S-3,
File No. 333-88050, filed July 10, 2002).
Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the
Company is not filing certain documents. The Company
agrees to furnish a copy of each such document upon the
request of the Commission.
Item 10. Material Contracts *10.1 Newell Co. Deferred Compensation Plan, as amended,
effective August 1, 1980, as amended and restated
effective January 1, 1997 (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998)
*10.2 Newell Rubbermaid Inc. 2002 Deferred Compensation Plan,
effective January 1, 2002 (incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2001 (the "2001 Form 10-
K")).
*10.3 Newell Rubbermaid Inc. Management Cash Bonus Plan,
effective January 1, 2002.
*10.4 Newell Operating Company's Restated Supplemental
Retirement Plan for Key Executives, effective January 1,
1982, as amended effective January 1, 1999 (incorporated
by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000
(the "2000 Form 10-K").
*10.5 Form of Employment Security Agreement with nine executive
officers (incorporated by reference to Exhibit 10.5 to the
Company's 2001 Form 10-K).
107
Exhibit
Number Description of Exhibit
------- ----------------------
*10.6 Newell Rubbermaid Inc. 1993 Stock Option Plan, effective
February 9, 1993, as amended May 26, 1999 and August 15,
2001 (incorporated by reference to Exhibit 10.12 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1999 and Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2001).
10.7 Amended and Restated Trust Agreement, dated as of December
12, 1997, among the Company, as Depositor, The Chase
Manhattan Bank (now known as JPMorgan Chase Bank), as
Property Trustee, Chase Manhattan Delaware, as Delaware
Trustee, and the Administrative Trustees (incorporated by
reference to Exhibit 4.2 to the 1998 Form S-3).
10.8 Junior Convertible Subordinated Indenture for the 5.25%
Convertible Subordinated Debentures, dated as of December
12, 1997, between the Company and The Chase Manhattan Bank
(now known as JPMorgan Chase Bank), as Indenture Trustee,
is included in Item 4.6.
*10.9 Newell Rubbermaid Medical Plan for Executives, as amended
and restated effective January 1, 2000 (incorporated by
reference to Exhibit 10.13 to the Company's 2000 Form 10-
K).
10.10 Five-Year Credit Agreement dated as of June 14, 2002 by
and among Newell Rubbermaid Inc., JPMorgan Chase Bank, as
administrative agent, J.P. Morgan Securities Inc., as sole
lead arranger and sole bookrunner, Bank of America, N.A.
and Bank One, NA, as co-syndication agents, and Barclays
Bank PLC and BNP Paribas, as co-documentation agents, is
included in Item 4.8.
10.11 364-Day Credit Agreement dated as of June 14, 2002 by and
among Newell Rubbermaid Inc., JPMorgan Chase Bank, as
administrative agent, J.P. Morgan Securities Inc., as sole
lead arranger and sole bookrunner, Bank of America, N.A.
and Bank One, NA, as co-syndication agents, and Barclays
Bank PLC and BNP Paribas, as co-documentation agents, is
included in Item 4.9.
Item 11. 11 Statement of Computation of Earnings per Share of Common
Stock.
Item 12. 12 Statement of Computation of Earnings to Fixed Charges.
Item 16. 16 Letter of Arthur Andersen LLP regarding change in
certifying accountant (incorporated by reference to
Exhibit 16.1 to the Company's Current Report on Form
8-K/A dated April 3, 2002).
108
Exhibit
Number Description of Exhibit
------- ----------------------
Item 21. Subsidiaries of the 21 Significant Subsidiaries of the Company.
Registrant
Item 23. Consent of experts and 23.1 Consent of Ernst & Young LLP.
counsel
Item 99. Additional Exhibits 99.1 Safe Harbor Statement.
99.2 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.3 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
* Management contract or compensatory plan or arrangement of the Company.
109
Schedule II
Newell Rubbermaid Inc. and subsidiaries
Valuation and Qualifying Accounts
Balance at Balance at
Beginning of Charges to Other End of
(IN MILLIONS) Period Provision Accounts (1) Write-offs Period
------------ --------- ---------------- ---------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
-------------------------------
Year ended December 31, 2002 $57.9 $34.2 $1.9 ($19.0) $75.0
Year ended December 31, 2001 36.1 39.0 1.0 (18.2) 57.9
Year ended December 31, 2000 41.9 4.8 4.9 (15.5) 36.1
(1) Represents recovery of accounts previously written off and net reserves of acquired or divested
businesses.
Balance at Balance at
Beginning End of
(IN MILLIONS) of Period Provision Write-offs Other (2) Period
---------- --------- ---------- --------- ----------
INVENTORY RESERVES:
------------------
Year ended December 31, 2002 $117.3 $71.7 ($71.9) $13.2 $130.3
Year ended December 31, 2001 114.6 64.7 (63.7) 1.7 117.3
Year ended December 31, 2000 119.4 45.3 (52.3) 2.2 114.6
(2) Represents net reserves of acquired and divested businesses, including provisions for product
line rationalization.
110
EXHIBIT 10.3
------------
NEWELL RUBBERMAID INC. MANAGEMENT CASH BONUS PLAN
-------------------------------------------------
The following is a description of the Newell Rubbermaid Inc.
Management Cash Bonus Plan ("Bonus Plan"), effective January 1, 2002.
The Bonus Plan (the principal provisions of which are attached hereto)
provides for the payment of annual cash bonuses to employees who are
considered to be management level and are selected by the Committee.
The Bonus Plan is administered by the Organizational Development
& Compensation Committee or if the Committee is not comprised of
"outside directors" as defined in Section 162(m), then by a subset of
the Committee comprised of at least two "outside directors" (the
"Committee"). The Committee has full authority to select the
employees eligible for bonus awards under the Bonus Plan, determine
when the employee's participation in the Bonus Plan will begin, and
determine the performance goals pursuant to which bonus amounts will
be determined.
The Bonus Plan provides that for a calendar year the Committee
will establish corporate performance goals and a bonus payment
schedule detailing the amount that may be paid to each participant
based upon the level of attainment of the performance goals. Bonus
payments will be made only upon the Committee's determination that the
performance goals for the calendar year were achieved. The
performance goals may be based on one or more of the following
business criteria: earnings per share; cash flow; operating income;
sales growth; common stock price; return on equity; return on assets;
return on investment; net income; and expense management. Performance
goals may be absolute in their terms or measured against or in
relationship to the performance of other companies or indices selected
by the Committee. The performance goals may be particular to one or
more subsidiaries or divisions or may be based on the performance of
the Company and its subsidiaries as a whole.
In 2002, payments to participants were based on a combination of
cash flow, operating income and earnings per share. In 2003,
payments to participants are based on a combination of sales growth,
operating income, cash flow and earnings per share.
The bonus amount payable is a percentage of salary based upon an
employee's participation category and the level of attainment of the
applicable performance goals, as reflected in the table below.
Performance below the target levels will result in lower or no bonus
payments. No award will be paid for any calendar year or portion
thereof to a participant whose employment with the Company terminates
during the year for a reason other than retirement, disability, death
or other reason approved by the Committee. In all cases, the
Committee must approve final bonus awards and can reduce a bonus
payment in its discretion. The Company retains the right to terminate
an employee's participation in the Bonus Plan at any time, in which
case no bonus may be paid.
Bonus as a Percentage of Salary if Maximum Bonus as a
Participation Category Targets Achieved at 100% Level Percentage of Salary
---------------------- ----------------------------------- --------------------
A/A* 134.0% 150.0%
A/B** 100.5% 120.6%
A/C** 80.0% 96.0%
A** 67.0% 80.4%
B/C** 50.0% 60.0%
B** 33.5% 40.2%
___________
* Applies to the Company's Chief Executive Officer of the Company
beginning 2003.
** Applies to participants as determined by the Committee. A/B
included all named executive officers in 2002 and all named
officers other than the Chief Executive Officer in 2003.
2
Newell Rubbermaid Management Cash Bonus Plan
--------------------------------------------
1. Name
----
Newell Rubbermaid Management Cash Bonus Plan
2. Effective Date of Revisions
---------------------------
January 1, 2002
3. Purpose
-------
To provide an incentive for key employees to improve Company
performance by making them participants in the financial success
of the Company.
4. Definitions
-----------
a. The term "Company" means Newell Rubbermaid and its
subsidiaries.
b. The term "Board" means the Board of Directors of Newell
Rubbermaid.
c. The term "Plan" means the arrangement described by these
specifications to be known as Newell Rubbermaid Management
Cash Bonus Plan.
d. The term "Plan Year" means a calendar year of the Company.
e. The term "Compensation" means a Participant's base annual
salary earned during a Plan Year while a participant,
exclusive of commissions and bonuses.
f. The term "Committee" means the Executive Compensation
Committee of the Board.
g. The term "Participant" means any active "regular" key
employee of the Company or any of its subsidiaries who has
been selected by the Committee as eligible to receive
incentive compensation under the Plan.
h. The term "Deferred Account" means the bookkeeping reserve
account on the books of the Company to which deferred
incentive awards under this Plan are credited.
3
5. Eligibility and Participation
-----------------------------
Employees selected by the Committee as eligbile to receive
incentive compensation under the Plan shall be Participants.
When the Committee selects an employee to become a Participant
under the Plan, it shall designate the date as of which his/her
participation shall begin.
6. Annual Incentive Awards
-----------------------
At the end of each Plan Year, the incentive compensation to be
awarded to each Participant shall be determined by multiplying
their base compensation for the Plan Year by the appropriate
Corporate or Divisional financial results percentage based on
achievement of pre-determined goals.
7. Bonus Plan Awards
-----------------
When an employee is selected to become a Participant under the
Plan, they will be eligible to receive incentive awards based on
the following: A/B (100.5%); A/C (80.0%); A (67.0%); B/C
(50.0%); and B (33.5%).
8. Plan Limitations
----------------
Notwithstanding anything herein to the contrary, for Plan
purposes, no award will be made for a Plan Year to a Participant
whose employment terminated during the year unless the
terminations was due to retirement, disability, death or any
other cause approved by the Committee.
9. Payment of Incentive Awards
---------------------------
A Participant's award for a Plan Year under the Plan shall be
paid in cash to the Participant, or his beneficiary or
beneficiaries in the event of his death, as soon as practical
after the end of the Plan year, unless he elects to have a part
or all of the award deferred as provided below.
10. Deferral of Awards
------------------
In lieu of receiving an award as provided in Item 9 above, a
participant may elect to defer all or part of his bonus in
accordance with the 2002 Newell Rubbermaid Deferred Compensation
Plan.
4
11. Management Rights
-----------------
Corporate Management reserves the right to cancel eligibility of
a bonus participant at any time and refuse bonus payment for any
reason.
12. Amendments
----------
The board may either modify or eliminate the Plan if in its
judgment such modification or elimination does not materially or
adversely affect the best interests of the Company or of the
shareholders; provided, that such modification or elimination
shall not affect the obligation of the company to pay any
contingent compensation after it has been awarded.
13. Employment Rights
-----------------
Nothing contained in the Plan shall be construed as conferring a
right upon any employee to be continued in the employment of the
Company.
5
EXHIBIT 11
----------
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
-------------------------------------------------
YEAR ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2000
------------------------------------ ---- ---- ----
BASIC (LOSS) EARNINGS PER SHARE:
Net (loss) income ($203.4) $264.6 $421.6
Weighted average shares outstanding 267.1 266.7 268.4
Basic (loss) earnings per share ($0.76) $0.99 $1.57
DILUTED (LOSS) EARNINGS PER SHARE:
Net (loss) income ($203.4) $264.6 $421.6
Minority interest in income of
subsidiary trust, net of tax (1) - - -
Net (loss) income, assuming conversion
of all applicable securities ($203.4) $264.6 $421.6
Weighted average shares outstanding 267.1 266.7 268.4
Incremental common shares applicable to
common stock options based on the average
market price during the period 0.9 0.3 0.1
Weighted average shares outstanding assuming
full dilution 268.0 267.0 268.5
Diluted (loss) earnings per share, assuming
conversion of all applicable securities ($0.76) $0.99 $1.57
(1) The convertible preferred securities are anti-dilutive in 2002,
2001 and 2000 and, therefore, have been excluded from diluted
(loss) earnings per share. Had the convertible preferred shares
been included in the diluted (loss) earnings per share
calculation, net (loss)/income would be increased by $16.6
million, $16.8 million and $16.4 million in 2002, 2001 and 2000,
respectively, and weighted average shares outstanding would have
increased by 9.9 million shares in all years.
EXHIBIT 12
----------
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
EARNINGS AVAILABLE TO FIXED CHARGES:
Income before income taxes $468.5 $415.9 $685.5 $230.9 $817.0
Fixed charges -
Interest expense 110.6 137.5 130.0 100.0 100.5
Portion of rent determined to be interest 40.7 36.9 34.0 30.3 26.3
Minority interest in income of subsidiary
trust 26.7 26.7 26.7 26.8 26.6
Equity earnings (0.8) (7.2) (8.0) (8.1) (7.1)
------ ------ ------ ------ ------
$645.7 $609.8 $868.2 $379.9 $963.3
====== ====== ====== ====== ======
FIXED CHARGES:
Interest expense $110.6 $137.5 $130.0 $100.0 $100.5
Portion of rent determined to be interest
40.7 36.9 34.0 30.3 26.3
Minority interest in income of subsidiary
trust 26.7 26.7 26.7 26.8 26.6
------ ------ ------ ------ ------
$178.0 $201.1 $190.7 $157.1 $153.4
====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 3.63 3.03 4.55 2.42 6.28
====== ====== ====== ====== ======
(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 21
----------
NEWELL RUBBERMAID INC. AND SUBSIDIARIES
SIGNIFICANT SUBSIDIARIES
---------------------------------------
STATE OF
NAME ORGANIZATION OWNERSHIP
---- ------------ ---------
Berol Corporation Delaware 72.65% of stock is owned by Newell Rubbermaid Inc.;
27.35% of stock is owned by Newell Operating Company
Newell Investments, Inc. Delaware 27.77% of stock is owned by Newell Operating Company;
12.77% of stock is owned by Newell Rubbermaid Inc.;
6.06% of stock is owned by Newell Window Furnishings,
Inc.; 5.96% of stock is owned by Intercraft Company;
41.57% of stock is owned by Rubbermaid Incorporated;
5.87% of stock is owned by Sanford L.P.
Newell Operating Company Delaware 86.08% of stock is owned by Newell Rubbermaid Inc.;
13.92% of stock is owned by Newell Holdings Delaware, Inc.
Rubbermaid Incorporated Ohio 100% of stock is owned by Newell Rubbermaid Inc.
Rubbermaid Texas Limited Texas Rubbermaid Incorporated is a general partner with a 1%
ownership interest;
Rubfinco Inc. (which is 100% owned by Rubbermaid
Incorporated) is a limited partner with a 99% ownership
interest
Sanford Investment Company Delaware 100% of stock is owned by Berol Corporation
Irwin Industrial Tool Company Delaware 100% of stock is owned by Newell Rubbermaid Inc.
Sanford, L.P. Illinois Newell Operating Company is a general partner with a 1.62%
ownership interest;
Sanford Investment Company (which is 100% owned by Berol
Corporation) is a limited partner with a 98.38% ownership
interest
EXHIBIT 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements of Newell Rubbermaid Inc. described in the following table
of our report dated January 27, 2003 (except for Note 16, as to which
the date is March 27, 2003), with respect to the 2002 consolidated
financial statements and schedule of Newell Rubbermaid Inc. included
in this Annual Report (Form 10-K) for the year ended December 31, 2002.
Registration Statement
----------------------
Form Number Purpose
---- ------ -------
S-8 33-24447 Pertaining to the registration as amended of
common stock for the Newell Co. 1984 Stock
Option Plan
S-8 33-25196 Pertaining to the registration as amended of
common stock for the Newell Long-Term Savings
and Investment Plan
S-8 33-40641 Pertaining to the registration of common stock
for the Newell Long-Term Savings and Investment
Plan
S-8 33-67632 Pertaining to the registration of common stock
for the Newell Co. 1993 Stock Option Plan
S-8 33-62047 Pertaining to the registration of common stock
for the Newell Long-Term Savings and Investment
Plan
S-8 333-38621 Pertaining to the registration of common stock
for the Newell Long-Term Savings and Investment
Plan
S-8 333-74925 Pertaining to the registration of common stock
for the Rubbermaid Retirement Plan and the
Rubbermaid Retirement Plan for Collectively
Bargained Associates.
S-8 333-71747 Pertaining to the registration as amended of
common stock for the Rubbermaid Incorporated
Amended and Restated 1989 Stock Incentive and
Option Plan.
S-3 333-74927 Pertaining to the registration as amended of
common stock for the Rubbermaid Retirement Plan
S-3 333-74929 Pertaining to the registration as amended of
common stock for the Rubbermaid Retirement Plan
for Collectively Bargained Employees.
S-3 333-88050 Pertaining to the registration as amended of debt
securities, preferred stock, common stock,
warrants, stock purchase contracts and stock
purchase units totaling $500 million
/S/ ERNST & YOUNG LLP
Chicago, Illinois
March 27, 2003
EXHIBIT 99.1
------------
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, 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, 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 because 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 2002 Form 10-K 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 price
increases. 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
2
continue to devote substantial marketing resources to achieving these
objectives.
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' best-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 worldwide basis.
Acquisitions and 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.
3
EXHIBIT 99.2
------------
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Newell Rubbermaid Inc. (the
"Company") on Form 10-K for the period ending December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Joseph Galli, Jr., Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Joseph Galli, Jr.
----------------------------
Joseph Galli, Jr.
Chief Executive Officer
March 27, 2003
EXHIBIT 99.3
------------
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Newell Rubbermaid Inc. (the
"Company") on Form 10-K for the period ending December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, William T. Alldredge, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ William T. Alldredge
-------------------------------
William T. Alldredge
Chief Financial Officer
March 27, 2003
