SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2000 Commission File Number 1-9608 NEWELL RUBBERMAID INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3514169 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 29 East Stephenson Street Freeport, Illinois 61032-0943 (Address of principal executive offices) (Zip Code) (815) 235-4171 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Number of shares of Common Stock outstanding (net of treasury shares) as of May 8, 2000: 266,531,372 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <CAPTION> NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except per share data) THREE MONTHS ENDED MARCH 31, ------------------ 2000 1999 ---- ---- <S> <C> <C> Net sales $1,550,844 $1,516,193 Cost of products sold 1,142,360 1,092,885 --------- --------- GROSS INCOME 408,484 423,308 Selling, general and administrative expenses 239,608 259,965 Restructuring costs 763 178,024 Goodwill amortization and other 13,222 12,038 -------- --------- OPERATING INCOME (LOSS) 154,891 (26,719) -------- --------- Nonoperating expenses: Interest expense 27,849 25,261 Other, net 3,107 3,042 -------- --------- Net nonoperating expenses 30,956 28,303 -------- --------- INCOME (LOSS) BEFORE INCOME TAXES 123,935 (55,022) Income taxes 47,715 23,977 -------- --------- NET INCOME (LOSS) $ 76,220 $ (78,999) ======== ========== Earnings (loss) per share: Basic $ 0.28 $(0.28) Diluted 0.28 (0.28) Dividends per share $ 0.21 $ 0.20 Weighted average shares outstanding: Basic 274,059 281,447 Diluted 274,059 281,447 See notes to consolidated financial statements. </TABLE> 2 <TABLE> <CAPTION> NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) MARCH 31, % OF DECEMBER 31, % OF 2000 TOTAL 1999 TOTAL --------- ----- ------------ ----- ASSETS <S> <C> <C> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 8,028 0.1% $ 102,164 1.5% Accounts receivable, net 1,130,110 16.9% 1,178,423 17.5% Inventories, net 1,168,486 17.5% 1,034,794 15.4% Deferred income taxes 237,449 3.6% 250,587 3.7% Prepaid expenses and other 151,284 2.3% 172,601 2.6% --------- ---- --------- ---- TOTAL CURRENT ASSETS 2,695,357 40.4% 2,738,569 40.7% MARKETABLE EQUITY SECURITIES 9,620 0.1% 10,799 0.2% OTHER LONG-TERM INVESTMENTS 68,034 1.0% 65,905 1.0% OTHER ASSETS 302,498 4.5% 335,699 5.0% PROPERTY, PLANT AND EQUIPMENT, NET 1,565,358 23.5% 1,548,191 23.0% TRADE NAMES AND GOODWILL 2,037,121 30.5% 2,024,925 30.1% --------- ---- --------- ---- TOTAL ASSETS $6,677,988 100.0% $6,724,088 100.0% ========== ====== ========== ====== See notes to consolidated financial statements. </TABLE> 3 <TABLE> <CAPTION> NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONT.) (Unaudited, in thousands) MARCH 31, % OF DECEMBER 31, % OF 2000 TOTAL 1999 TOTAL --------- ----- ------------ ----- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES <S> <C> <C> <C> <C> Notes payable $ 167,047 2.5% $ 97,291 1.4% Accounts payable 361,622 5.4% 376,596 5.6% Accrued compensation 90,270 1.3% 113,373 1.7% Other accrued liabilities 783,263 11.7% 892,481 13.3% Income taxes 5,244 0.1% - - Current portion of long-term debt 150,286 2.3% 150,142 2.2% --------- ---- ---------- ---- TOTAL CURRENT LIABILITIES 1,557,732 23.3% 1,629,883 24.2% LONG-TERM DEBT 1,877,109 28.1% 1,455,779 21.7% OTHER NONCURRENT LIABILITIES 355,255 5.3% 354,107 5.3% DEFERRED INCOME TAXES 83,948 1.3% 85,655 1.3% MINORITY INTEREST 1,114 0.0% 1,658 0.0% COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST 500,000 7.5% 500,000 7.4% STOCKHOLDERS' EQUITY Common stock - authorized shares, 800.0 million at $1 par value; 282,118 4.2% 282,026 4.2% Outstanding shares: 2000 282.1 million 1999 282.0 million Treasury Stock (405,889) (6.0)% (2,760) (0.1)% Additional paid-in capital 213,652 3.2% 213,112 3.2% Retained earnings 2,353,620 35.2% 2,334,609 34.7% Accumulated other comprehensive income (140,671) (2.1)% (129,981) (1.9)% --------- ---- ---------- ---- TOTAL STOCKHOLDERS' EQUITY 2,302,830 34.5% 2,697,006 40.1% --------- ---- ---------- ---- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,677,988 100.0% $6,724,088 100.0% ========= ===== ========== ===== See notes to consolidated financial statements. </TABLE> 4 <TABLE> <CAPTION> NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) FOR THE THREE MONTHS ENDED MARCH 31, -------------------------- 2000 1999 ---- ---- <S> <C> <C> OPERATING ACTIVITIES: Net income (loss) $ 76,220 $ (78,999) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 77,083 70,040 Deferred income taxes 12,498 16,809 Other (2,573) 35,492 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 61,623 20,834 Inventories (135,967) (40,660) Other current assets 17,837 984 Accounts payable (32,115) (50,525) Accrued liabilities and other (100,474) (70,134) ---------- ---------- NET CASH USED IN OPERATING ACTIVITIES (25,868) (96,159) ---------- ---------- INVESTING ACTIVITIES: Acquisitions, net (54,445) (727) Expenditures for property, plant and equipment (81,188) (78,119) Disposals of non-current assets and other 11,989 18,794 ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES $ (123,644) $ (60,052) ---------- ---------- 5 NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.) (Unaudited, in thousands) FOR THE THREE MONTHS ENDED MARCH 31, -------------------------- 2000 1999 ---- ---- FINANCING ACTIVITIES: Proceeds from issuance of debt $ 574,537 $ 615,401 Payments on notes payable and long-term debt (58,823) (438,522) Common stock repurchased (402,962) - Proceeds from exercised stock options and other 405 22,097 Cash dividends (57,149) (56,625) ---------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 56,008 142,351 ---------- ----------- Exchange rate effect on cash (632) (2,836) DECREASE IN CASH AND CASH EQUIVALENTS (94,136) (16,696) Cash and cash equivalents at beginning of year 102,164 86,554 ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,028 $ 69,858 ========= ========== Supplemental cash flow disclosures - Cash paid during the period for: Income taxes $ 24,738 $ 9,130 Interest $ 44,396 $ 41,795 See notes to consolidated financial statements. </TABLE> 6 NEWELL RUBBERMAID INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL INFORMATION The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments necessary to present a fair statement of the results for the periods reported, subject to normal recurring year-end adjustments, none of which is expected to be material. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. On March 24, 1999, Newell Co. ("Newell") completed a merger with Rubbermaid Incorporated ("Rubbermaid") in which Rubbermaid became a wholly-owned subsidiary of Newell. Simultaneously with the consummation of the merger, Newell changed its name to Newell Rubbermaid Inc. (the "Company"). The merger was accounted for as a pooling of interests and the financial statements were restated to retroactively combine Rubbermaid's financial statements with those of Newell as if the merger had occurred at the beginning of the earliest period presented. NOTE 2 - ACQUISITIONS AND MERGERS 2000 ---- On January 24, 2000, the Company acquired Mersch SA ("Mersch"), a manufacturer and supplier of picture frames in Europe. Mersch operates as part of Newell Frames and Albums Europe. 1999 ---- On April 2, 1999, the Company purchased Ateliers 28 ("Ateliers"), a manufacturer and marketer of decorative and functional drapery hardware in Europe. Ateliers operates as part of Newell Window Fashions Europe. On October 18, 1999, the Company purchased a controlling interest in Reynolds S.A. ("Reynolds"), a manufacturer and marketer of writing instruments in Europe. Reynolds operates as part of Sanford International. As of December 31, 1999, the Company owned 100% of Reynolds. 7 On October 29, 1999, the Company acquired the consumer products division of McKechnie plc ("McKechnie"), a manufacturer and marketer of drapery hardware and window furnishings, shelving and storage products, cabinet hardware and functional trims. The drapery hardware and window furnishings portion of McKechnie is operated as part of Newell Window Fashions Europe. The remaining portion of McKechnie operates as a separate division, Newell Hardware Europe. On December 29, 1999, the Company acquired Ceanothe Holding ("Ceanothe"), a manufacturer of picture frames and photo albums in Europe. Ceanothe operates as part of Newell Frames and Albums Europe. For these and for other minor acquisitions, the Company paid $434.4 million in cash and assumed $38.9 million of debt. The transactions were accounted for as purchases; therefore, results of operations are included in the accompanying consolidated financial statements since their respective acquisition dates. The acquisition costs were allocated on a preliminary basis to the fair market value of assets acquired and liabilities assumed and resulted in trade names and goodwill of approximately $266.2 million. The Company began to formulate an integration plan for these acquisitions as of their respective acquisition dates. These plans may include exit costs for certain plants and product lines and employee terminations associated with the integration of Ateliers into Newell Window Fashions Europe, Reynolds into Sanford International, McKechnie into Newell Window Fashions Europe and Newell Hardware Europe and Ceanothe and Mersch into Newell Frames and Albums Europe. The integration of Ateliers was finalized during the first quarter of 2000 and resulted in total integration liabilities of $4.6 million. The final adjustments to the purchase price allocations are not expected to be material to the consolidated financial statements. The unaudited consolidated results of operations for the three months ended March 31, 2000 and 1999 on a pro forma basis, as though the Mersch, Ateliers, Reynolds, McKechnie and Ceanothe businesses had been acquired on January 1, 1999, are as follows (in millions, except per share amounts): Three Months Ended March 31, ------------------ 2000 1999 ---- ---- Net sales $1,552.9 $ 1,615.2 Net income (loss) $ 76.1 $ (78.8) Basic earnings (loss) per share $ 0.28 $ (0.28) On March 24, 1999, the Company completed the Rubbermaid merger. The merger qualified as a tax-free exchange and was accounted for as a pooling of interests. Newell issued .7883 Newell Rubbermaid shares 8 for each outstanding share of Rubbermaid common stock. A total of 119.0 million shares (adjusted for fractional and dissenting shares) of the Company's common stock were issued as a result of the merger, and Rubbermaid's outstanding stock options were converted into options to purchase approximately 2.5 million Newell Rubbermaid common shares. No adjustments were made to the net assets of the combining companies to adopt conforming accounting practices or fiscal years other than adjustments to eliminate the accounting effects related to Newell's purchase of Rubbermaid's office products business ("Eldon") in 1997. Because the Newell Rubbermaid merger was accounted for as a pooling of interests, the accounting effects of Newell's purchase of Eldon were eliminated as if Newell had always owned it. NOTE 3 - RESTRUCTURING COSTS In the first quarter of 2000, the Company recorded a planned pre- tax restructuring charge of $0.8 million ($0.5 million after taxes) related primarily to costs associated with facility closures from recent non-Rubbermaid acquisitions. During 1999, the Company recorded pre-tax charges of $246.4 million ($195.7 million after tax) related primarily to the integration of the Rubbermaid businesses into Newell. The charges consisted of $39.9 million in merger transaction costs, $101.9 million in employee severance and termination benefit costs and $104.6 million in facility and product line exit costs. The merger transaction costs related primarily to investment banking, legal and accounting costs for the merger between Newell and Rubbermaid. Employee severance and termination benefit costs related to benefits for approximately 750 employees terminated during 1999. Such costs included $80.9 million in termination payments in accordance with employment agreements made to former Rubbermaid executives and $21.0 million in severance and termination costs at Rubbermaid's former headquarters ($5.5 million), Rubbermaid Home Products division ($6.9 million), Rubbermaid Europe division ($4.0 million), Little Tikes division ($2.7 million), Rubbermaid Commercial Products division ($0.7 million) and Newell divisions ($1.2 million). The facility and product line exit costs consisted of $72.0 million of impaired Rubbermaid centralized computer software costs, which were abandoned as a result of converting Rubbermaid onto existing Newell centralized computer software, and $32.6 million in exit costs relating to discontinued product lines ($4.8 million), the closure of seven Rubbermaid facilities ($10.2 million), write-off of assets associated with abandoned projects ($10.3 million), write-off of impaired assets ($5.7 million) and other miscellaneous exit costs ($1.6 million). As of March 31, 2000, $14.8 million of reserves remain for the 1999 restructuring program. These reserves consist primarily of $6.3 million for exit costs associated with the closure of four facilities, $5.9 million in contractual future maintenance costs on abandoned Rubbermaid computer software, $2.4 million for exit costs associated 9 with discontinued product lines at Little Tikes and $0.2 million for severance and termination benefits. NOTE 4 - INVENTORIES Inventories are stated at the lower of cost or market value. The components of inventories, net of the LIFO reserve, were as follows (in millions): March 31, December 31, 2000 1999 --------- ------------ Materials and supplies $ 266.5 $ 240.0 Work in process 166.5 149.5 Finished products 735.5 645.3 --------- --------- $ 1,168.5 $ 1,034.8 ========= ========= NOTE 5 - LONG-TERM MARKETABLE EQUITY SECURITIES Long-term Marketable Equity Securities classified as available for sale are carried at fair value with adjustments to fair value reported separately, net of tax, as a component of stockholders' equity (and excluded from earnings). Gains and losses on the sales of Long-term Marketable Equity Securities are based upon the average cost of the securities sold. Long-term Marketable Equity Securities are summarized as follows (in millions): March 31, December 31, 2000 1999 --------- ------------ Aggregate market value $ 9.6 $ 10.8 Aggregate cost 11.0 10.6 ---------- --------- Unrealized pre-tax gain (loss) $ (1.4) $ 0.2 ========== ========= 10 NOTE 6 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in millions): March 31, December 31, 2000 1999 --------- ------------ Land $ 62.0 $ 63.4 Buildings and improvements 705.6 691.3 Machinery and equipment 2,202.9 2,200.7 --------- --------- 2,970.5 2,955.4 Allowance for depreciation (1,405.1) (1,407.2) --------- --------- $ 1,565.4 $ 1,548.2 ========= ========= Replacements and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense. The components of depreciation are provided by annual charges to income calculated to amortize, principally on the straight-line basis, the cost of the depreciable assets over their depreciable lives. Estimated useful lives determined by the Company are: buildings and improvements (5-40 years) and machinery and equipment (2-15 years). NOTE 7 - LONG-TERM DEBT Long-term debt consisted of the following (in millions): March 31, December 31, 2000 1999 --------- ------------ Medium-term notes $ 1,159.5 $ 859.5 Commercial paper 854.0 718.5 Other long-term debt 13.9 27.9 --------- --------- 2,027.4 1,605.9 Current portion (150.3) (150.1) --------- --------- $ 1,877.1 $ 1,455.8 ========= ========= At March 31, 2000, $854.0 million (principal amount) of commercial paper was outstanding. The entire amount is classified as long-term debt because the total commercial paper is not expected to be repaid within one year. 11 NOTE 8 - EARNINGS PER SHARE The earnings per share amounts are computed based on the weighted average monthly number of shares outstanding during the year. "Basic" earnings per share is calculated by dividing net income by weighted average shares outstanding. "Diluted" earnings per share is calculated by dividing net income by weighted average shares outstanding, including the assumption of the exercise and/or conversion of all potentially dilutive securities ("in the money" stock options and company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust). A reconciliation of the difference between basic and diluted earnings per share for the first quarters of 2000 and 1999 is shown below (in millions, except per share data): <TABLE> <CAPTION> Convertible Basic "In the Money" Preferred Diluted Method Stock Options(1) Securities(1) Method(1) ------ ---------------- ------------- --------- <S> <C> <C> <C> <C> First Quarter, 2000 Net Income $ 76.2 $ N/A $ N/A $ 76.2 Weighted average shares outstanding 274.1 N/A N/A 274.1 Earnings per Share $ 0.28 N/A N/A $ 0.28 First Quarter, 1999 Net Loss $ (79.0) $ N/A $ N/A $ (79.0) Weighted average shares outstanding 281.4 N/A N/A 281.4 Loss per Share $ (0.28) N/A N/A $ (0.28) </TABLE> (1) Diluted earnings per share for the three months ended March 31, 2000 and 1999 exclude the impact of "in the money" stock options and convertible preferred securities because they are antidilutive. NOTE 9 - COMPREHENSIVE INCOME The following tables display Comprehensive Income and the components of Accumulated Other Comprehensive Income, in millions: Comprehensive Income: Three months ended March 31, 2000 1999 -------- -------- Net income (loss) $ 76.2 $ (79.0) Unrealized loss on marketable securities (1.0) (1.4) 12 Foreign currency translation (9.7) (30.4) -------- --------- Total Comprehensive Income (loss) $ 65.5 $(110.8) ======== ========= <TABLE> <CAPTION> Net Accumulated Unrealized Foreign Other Gains/(Losses) Currency Comprehensive on Securities Translation Income ------------- ----------- ------------- <S> <C> <C> <C> Balance at December 31, 1999 $ 0.1 $ (130.1) $ (130.0) Change during three months ended March 31, 2000 (1.0) (9.7) (10.7) --------- --------- ---------- Balance at March 31, 2000 $ (0.9) $ (139.8) $ (140.7) ========= ========= ========== </TABLE> NOTE 10 - INDUSTRY SEGMENT INFORMATION To take full advantage of continuing global growth opportunities, the Company is implementing a management structure responsible for maximizing procurement, manufacturing and distribution synergies on a global basis. Based on this management structure, the Company is reporting its results in six business segments: Plastic Storage & Organization; Home Decor; Office Products; Infant/Juvenile Care & Play; Food Preparation, Cooking & Serving and Hardware & Tools. The segment results were as follows, in millions: Three months Net Sales ended March 31, --------- 2000 1999 ---- ---- Plastic Storage & Organization 410.1 447.2 Home Decor 313.5 293.8 Office Products 253.7 243.5 Infant/Juvenile Care & Play 231.0 221.9 Food Preparation, Cooking & Serving 173.0 173.0 Hardware & Tools 169.5 136.8 -------- -------- $1,550.8 $1,516.2 ======== ======== 13 Three months Operating Income ended March 31, ---------------- 2000 1999 ---- ---- Plastic Storage & Organization 43.0 48.3 Home Decor 29.1 31.6 Office Products 36.8 31.1 Infant/Juvenile Care & Play 30.1 20.3 Food Preparation, Cooking & Serving 16.9 19.3 Hardware & Tools 20.6 20.4 Corporate (20.8) (19.7) -------- -------- 155.7 151.3 Restructuring costs (0.8) (178.0) -------- -------- $154.9 $(26.7) ======== ======== Identifiable Assets March 31, December 31, ------------------- 2000 1999 ---- ---- Plastic Storage & Organization 1,177.3 1,155.3 Home Decor 824.9 818.0 Office Products 696.5 720.9 Infant/Juvenile Care & Play 463.7 433.9 Food Preparation, Cooking & Serving 537.4 539.8 Hardware & Tools 387.3 376.4 Corporate 2,590.9 2,679.8 -------- -------- $6,678.0 $6,724.1 ======== ======== Operating income is net sales less cost of products sold and selling, general and administrative expenses, but is not affected either by nonoperating (income) expenses or by income taxes. Nonoperating (income) expenses consist principally of net interest expense. In calculating operating income for individual business segments, certain headquarter expenses of an operational nature are allocated to business segments primarily on a net sales basis. Trade names and goodwill amortization is considered a corporate expense and not allocated to business segments. All intercompany transactions have been eliminated and transfers of finished goods between areas are not significant. Corporate assets primarily include trade names and goodwill, equity investments and deferred tax assets. 14 NOTE 11 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Effective January 1, 2001, the Company will adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." Management believes that the adoption of this statement will not be material to the consolidated financial statements. 15 PART I Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations --------------------- The following table sets forth for the periods indicated items from the Consolidated Statements of Income as a percentage of net sales. Three Months Ended March 31, ------------------ 2000 1999 ---- ---- Net sales 100.0% 100.0% Cost of products sold 73.7% 72.1% ----- ----- GROSS INCOME 26.3% 27.9% Selling, general and administrative expenses 15.5% 17.1% Restructuring costs 0.0% 11.7% Goodwill amortization and other 0.8% 0.9% ----- ----- OPERATING INCOME (LOSS) 10.0% (1.8)% ----- ----- Nonoperating expenses: Interest expense 1.8% 1.7% Other, net 0.2% 0.1% ----- ----- Net nonoperating expenses 2.0% 1.8% ----- ----- INCOME (LOSS) BEFORE INCOME TAXES 8.0% (3.6)% Income taxes 3.1% 1.6% ----- ----- NET INCOME (LOSS) 4.9% (5.2)% ===== ===== See notes to consolidated financial statements. 16 Three Months Ended March 31, 2000 Vs. Three Months Ended March 31, 1999 ---------------------------------------------------------------------- Net sales for the first three months of 2000 were $1,550.8 million, representing an increase of $34.6 million or 2.3% from $1,516.2 million in the comparable quarter of 1999. To take full advantage of continuing global growth opportunities, the Company is implementing a management structure responsible for maximizing procurement, manufacturing and distribution synergies on a global basis. Based on this management structure, the Company is reporting its results in six business segments: Plastic Storage & Organization; Food Preparation, Cooking & Serving; Infant/Juvenile Care & Play; Home Decor; Hardware & Tools and Office Products. Their results in the first quarter are as follows: Percentage Net Sales 2000 1999 Increase/Decrease --------- ---- ---- ----------------- Plastic Storage & Organization $410.1 $447.2 (8.3)% Food Preparation, Cooking and Serving 173.0 173.0 0.0% Infant/Juvenile Care & Play 231.0 221.9 4.1% ----------------- Former Household Products Segment 814.1 842.1 (3.3)% Home Decor 313.5 293.8 6.7% Hardware & Tools 169.5 136.8 23.9% ----------------- Former Hardware & Home Furnishings Segment 483.0 430.6 12.2% Office Products 253.7 243.5 4.2% ----------------- Total $1,550.8 $1,516.2 2.3% =================== Sales for Plastic Storage & Organization were impacted by negative foreign currency translation, product line rationalization and lower than expected sales at Rubbermaid Home Products. Results for Home Decor, Hardware & Tools and Office Products include the McKechnie, Reynolds, Ceanothe and Mersch acquisitions. 17 Gross income as a percentage of net sales in the first three months of 2000 was 26.3% or $408.5 million versus 27.9% or $423.3 million in the comparable quarter of 1999. Gross margins improved due to integration cost savings at Rubbermaid Home Products, Rubbermaid Europe and Little Tikes; however, this was more than offset by negative foreign currency translation and increased raw material costs in 2000. Selling, general and administrative expenses ("SG&A") in the first three months of 2000 were 15.5% of net sales or $239.6 million versus 17.1% or $260.0 million in the comparable quarter of 1999. SG&A declined as a result of integration cost savings at Rubbermaid Home Products, Rubbermaid Europe, Little Tikes, Panex and Rotring, and tight spending control at the rest of the Company's core businesses. In the first quarter of 2000, the Company recorded a planned pre- tax restructuring charge of $0.8 million ($0.5 million after taxes) related primarily to costs associated with facility closures from recent non-Rubbermaid acquisitions. In the first quarter of 1999, the Company recorded a pre-tax restructuring charge of $178.0 million ($154.0 million after taxes). The pre-tax charge in 1999 related to the Rubbermaid acquisition, and included $33.4 million of merger costs (investment banking, legal and accounting fees), executive severance costs of $83.1 million and a $61.5 million write-off of impaired Rubbermaid capitalized computer software costs. Concurrent with the merger with Rubbermaid, the Company decided to integrate all Rubbermaid businesses into Newell's existing information systems, resulting in an impairment of Rubbermaid's capitalized software asset. Goodwill amortization and other in the first three months of 2000 were 0.8% of net sales or $13.2 million versus 0.9% or $12.0 million in the comparable quarter of 1999. Operating income in the first three months of 2000 was 10.0% of net sales or $154.9 million versus an operating loss of $26.7 million (or 1.8% of net sales) in the comparable quarter of 1999. Excluding restructuring costs, operating income in the first quarter of 2000 was 10.0% or $155.7 million versus 10.0% or $151.3 million in the first quarter of 1999. Substantial integration cost savings during the first quarter of 2000 were offset by higher raw material costs and negative foreign currency translation. Net nonoperating expenses in the first three months of 2000 were 2.0% of net sales or $31.0 million versus 1.8% of net sales or $28.3 million in the comparable quarter of 1999. Excluding restructuring costs in 2000 and 1999, the effective tax was 38.5% in the first quarter of 2000 versus 39.0% in the first quarter of 1999. Net income for the first three months of 2000 was 4.9% of net sales or $76.2 million versus a net loss of 5.2% of net sales or $79.0 18 million in the first three months of 1999. Diluted earnings (loss) per share were $0.28 in the first quarter of 2000 compared to $(0.28) in the first quarter of 1999. Excluding restructuring costs, net income was $76.7 million or $0.28 per share in the first quarter of 2000 versus $75.0 million or $0.27 in the first quarter of 1999. Liquidity and Capital Resources ------------------------------- Sources: The Company's primary sources of liquidity and capital resources include cash provided from operations and use of available borrowing facilities. Net cash used in operating activities in the first three months of 2000 was $25.9 million compared to $96.2 million for the comparable period of 1999. The decrease in net cash used in operating activities in the first quarter of 2000 versus the first quarter of 1999 is primarily due to the year over year decrease in cash restructuring costs. The Company has short-term foreign and domestic uncommitted lines of credit with various banks which are available for short-term financing. Borrowings under the Company's uncommitted lines of credit are subject to discretion of the Lender. The Company's uncommitted lines of credit do not have a material impact on the Company's liquidity. Borrowings under the Company's uncommitted lines of credit at March 31, 2000 totaled $167.0 million. During 1997, the Company amended its revolving credit agreement to increase the aggregate borrowing limit to $1.3 billion, at a floating interest rate. The revolving credit agreement will terminate in August 2002. At March 31, 2000, there were no borrowings under the revolving credit agreement. In lieu of borrowings under the Company's revolving credit agreement, the Company may issue up to $1.3 billion of commercial paper. The Company's revolving credit agreement provides the committed backup liquidity required to issue commercial paper. Accordingly, commercial paper may only be issued up to the amount available for borrowing under the Company's revolving credit agreement. At March 31, 2000, $854.0 million (principal amount) of commercial paper was outstanding. The entire amount is classified as long-term debt. On March 24, 2000, the Company issued $300.0 million (principal amount) of 3-Year Medium Term Notes pursuant to our universal shelf program. The securities mature on March 24, 2003, and bear a 3-month floating interest rate based on 3-month LIBOR +22 basis points. The initial interest rate was 6.5%. Proceeds were used to pay down 19 commercial paper. Including this financing, the Company had outstanding at March 31, 2000, a total of $1,159.5 million (principal amount) of Medium Term Notes. The maturities on these notes range from 3 to 30 years at an average interest rate of 6.3%. A universal shelf registration statement became effective in July 1999. As of March 31, 2000, $449.5 million of Company debt and equity securities may be issued under the shelf. Uses: The Company's primary uses of liquidity and capital resources include acquisitions, dividend payments and capital expenditures. Cash used in acquiring businesses was $54.4 million and $0.7 million in the first three months of 2000 and 1999, respectively. In the first quarter of 2000, the Company acquired Mersch and other minor acquisitions. This acquisition was accounted for as a purchase and was paid for with proceeds obtained from the issuance of commercial paper. Cash used for restructuring activities was $0.8 million and $116.5 million in the first three months of 2000 and 1999, respectively. Cash payments in 1999 represent primarily employee termination benefits and other merger expenses. There are no remaining cash payments to be made associated with the restructuring charges reflected in the consolidated financial statements. Capital expenditures were $81.2 million and $78.1 million in the first three months of 2000 and 1999, respectively. Aggregate dividends paid during the first three months of 2000 and 1999 were $57.1 million ($0.21 per share) and $56.6 million ($0.20 per share), respectively. During the first quarter of 2000, the Company repurchased 15.5 million shares of its common stock at an average price of $26 per share, for a total purchase price of $403.0 million. Retained earnings increased in the first three months of 2000 by $19.0 million. Retained earnings decreased in the first three months of 1999 by $135.6 million. The decrease in 1999 was primarily due to restructuring costs of $178.0 million ($154.0 million after taxes). Working capital at March 31, 2000, was $1,137.6 million compared to $1,108.7 million at December 31, 1999. The current ratio at March 31, 2000 was 1.73:1 compared to 1.68:1 at December 31, 1999. Total debt to total capitalization (total debt is net of cash and cash equivalents, and total capitalization includes total debt, 20 convertible preferred securities and stockholders' equity) was .44:1 at March 31, 2000 and .33:1 at December 31, 1999. The Company believes that cash provided from operations and available borrowing facilities will continue to provide adequate support for the cash needs of existing businesses; however, certain events, such as significant acquisitions, could require additional external financing. Market Risk ----------- The Company's market risk is impacted by changes in interest rates, foreign currency exchange rates, and certain commodity prices. Pursuant to the Company's policies, natural hedging techniques and derivative financial instruments may be utilized to reduce the impact of adverse changes in market prices. The Company does not hold or issue derivative instruments for trading purposes, and has no material sensitivity to changes in market rates and prices on its derivative financial instrument positions. The Company's primary market risk is interest rate exposure, primarily in the United States. The Company manages interest rate exposure through its conservative debt ratio target and its mix of fixed and floating rate debt. Interest rate exposure was reduced significantly in 1997 from the issuance of $500 million 5.25% Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust, the proceeds of which reduced commercial paper. Interest rate swaps may be used to adjust interest rate exposures when appropriate based on market conditions, and, for qualifying hedges, the interest differential of swaps is included in interest expense. The Company's foreign exchange risk management policy emphasizes hedging anticipated intercompany and third-party commercial transaction exposures of one year duration or less. The Company focuses on natural hedging techniques of the following form: 1) offsetting or netting of like foreign currency flows, 2) structuring foreign subsidiary balance sheets with appropriate levels of debt to reduce subsidiary net investments and subsidiary cash flows subject to conversion risk, 3) converting excess foreign currency deposits into U.S. dollars or the relevant functional currency and 4) avoidance of risk by denominating contracts in the appropriate functional currency. In addition, the Company utilizes forward contracts and purchased options to hedge commercial and intercompany transactions. Gains and losses related to qualifying hedges of commercial transactions are deferred and included in the basis of the underlying transactions. Derivatives used to hedge intercompany transactions are marked to market with the corresponding gains or losses included in the consolidated statements of income. 21 Due to the diversity of its product lines, the Company does not have material sensitivity to any one commodity. The Company manages commodity price exposures primarily through the duration and terms of its vendor contracts. The amounts shown below represent the estimated potential economic loss that the Company could incur from adverse changes in either interest rates or foreign exchange rates using the value-at-risk estimation model. The value-at-risk model uses historical foreign exchange rates and interest rates to estimate the volatility and correlation of these rates in future periods. It estimates a loss in fair market value using statistical modeling techniques and including substantially all market risk exposures (specifically excluding equity-method investments). The fair value losses shown in the table below have no impact on results of operations or financial condition as they represent economic not financial losses. Time Confidence March 31, 2000 Period Level -------------- ------ --------- (In millions) Interest rates $7.1 1 day 95% Foreign exchange $1.9 1 day 95% The 95% confidence interval signifies the Company's degree of confidence that actual losses would not exceed the estimated losses shown above. The amounts shown here disregard the possibility that interest rates and foreign currency exchange rates could move in the Company's favor. The value-at-risk model assumes that all movements in these rates will be adverse. Actual experience has shown that gains and losses tend to offset each other over time, and it is highly unlikely that the Company could experience losses such as these over an extended period of time. These amounts should not be considered projections of future losses, since actual results may differ significantly depending upon activity in the global financial markets. EURO CURRENCY CONVERSION On January 1, 1999, the "Euro" became the common legal currency for 11 of the 15 member countries of the European Union. On that date, the participating countries fixed conversion rates between their existing sovereign currencies ("legacy currencies") and the Euro. On January 4, 1999, the Euro began trading on currency exchanges and became available for non-cash transactions, if the parties elect to use it. The legacy currencies will remain legal tender through December 31, 2001. Beginning January 1, 2002, participating countries will introduce Euro-denominated bills and coins, and effective July 1, 2002, legacy currencies will no longer be legal tender. 22 After the dual currency phase, all businesses in participating countries must conduct all transactions in the Euro and must convert their financial records and reports to be Euro-based. The Company has commenced an internal analysis of the Euro conversion process to prepare its information technology systems for the conversion and analyze related risks and issues, such as the benefit of the decreased exchange rate risk in cross-border transactions involving participating countries and the impact of increased price transparency on cross-border competition in these countries. The Company believes that the Euro conversion process will not have a material impact on the Company's businesses or financial condition on a consolidated basis. FORWARD LOOKING STATEMENTS Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to, but are not limited to, such matters as sales, income, earnings per share, return on equity, capital expenditures, dividends, capital structure, free cash flow, debt to capitalization ratios, interest rates, internal growth rates, Euro conversion plans and related risks, pending legal proceeding 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 information. The Company cautions that forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and that 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 the Company's Annual Report on Form 10-K, the documents incorporated by reference therein and on Exhibit 99 in thereto. 23 PART I. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated herein by reference to the section entitled "Market Risk" in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition (Part I, Item 2). 24 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to certain legal proceedings and claims, including the environmental matters described below, that have arisen in the ordinary conduct of its business or have been assumed by the Company when it purchased certain businesses. As of March 31, 2000, 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. Based on information available to it, the Company's estimate of environmental response costs associated with these matters as of March 31, 2000 ranged between $18.4 million and $22.6 million. As of March 31, 2000, the Company had a reserve equal to $21.3 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. Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility of additional sites as a result of businesses acquired, actual costs to be incurred by the Company may vary from the Company's estimates. Subject to difficulties in estimating future environmental response costs, the Company does not expect that any amount it may have to pay in connection with environmental matters in excess of amounts reserved will have a material adverse effect on its consolidated financial statements. 25 The Company is involved in a legal proceeding relating to the importation and distribution of vinyl mini-blinds made with plastic containing lead stabilizers. In 1996, the Consumer Product Safety Commission found that such stabilizers deteriorate over time from exposure to sunlight and heat, causing lead dust to form on mini-blind surfaces and presenting a health risk to children under six years of age. In December 1998, 13 companies, including a subsidiary of the Company, were named as defendants in a case involving the importation and distribution of vinyl mini-blinds containing lead. The case, filed as a Massachusetts class action in the Superior Court, alleges misrepresentation, breaches of express and implied warranties, negligence, loss of consortium and violation of Massachusetts consumer protection laws. The plaintiffs seek injunctive relief, unspecified damages, compensatory damages for personal injury and court costs. As of March 31, 2000, eight complaints were filed against the Company and certain of its officers and directors in the U.S. District Court for the Northern District of Illinois on behalf of a purported class consisting of persons who purchased common stock of the Company, Newell Co. or Rubbermaid Incorporated during the period from October 21, 1998 through September 3, 1999 or exchanged shares of Rubbermaid common stock for the Company's common stock as part of the Newell Rubbermaid merger. The complaints allege that during the relevant time period the defendants violated Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act as a result of, among other allegations, issuing false and misleading statements concerning the Company's financial condition and results of operations. Subsequent to March 31, 2000, the eight cases were consolidated before a single judge in the United States District Court for the Northern District of Illinois, Eastern Division. The court has appointed lead plaintiffs, has approved counsel for the lead plaintiffs, has set a date for the filing of an amended and consolidated complaint and has set a briefing schedule on defendants' anticipated motion to dismiss that complaint when it is filed. The Company believes that these claims are without merit and intends to vigorously defend these lawsuits. Although management of the Company cannot predict the ultimate outcome of these matters with certainty, it believes that their ultimate resolution, including any amounts it may have to pay in excess of amounts reserved, will not have a material effect on the Company's consolidated financial statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3.2 Amendment to By-laws and Amended By-Laws of Newell Rubbermaid Inc., as amended through May 11, 2000 26 11. Computation of Earnings per Share of Common Stock 12. Statement of Computation of Ratio of Earnings to Fixed Charges 27. Financial Data Schedule (b) Reports on Form 8-K: Registrant filed a Report on Form 8-K dated March 1, 2000, filing the Company's Consolidated Financial Statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations of Newell Rubbermaid Inc. for the fiscal year ended December 31, 1999. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEWELL RUBBERMAID INC. Registrant Date: May 15, 2000 /s/ Dale L. Matschullat ----------------------- Dale L. Matschullat Vice President - Finance Date: May 15, 2000 /s/ Brett E. Gries ------------------------- Brett E. Gries Vice President - Accounting & Audit 28