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, 2001 Commission File Number 1-9608 NEWELL RUBBERMAID INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3514169 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 29 East Stephenson Street Freeport, Illinois 61032-0943 (Address of principal executive offices) (Zip Code) (815) 235-4171 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Number of shares of Common Stock outstanding (net of treasury shares) as of May 2, 2001: 266,646,855 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, --------- 2001 2000 ---- ---- <S> <C> <C> Net sales $1,610,736 $1,628,979 Cost of products sold 1,218,960 1,220,495 ---------- ---------- GROSS INCOME 391,776 408,484 Selling, general and administrative expenses 264,607 239,608 Restructuring costs 9,979 763 Goodwill amortization and other 14,073 13,222 ---------- ---------- OPERATING INCOME 103,117 154,891 Nonoperating expenses: Interest expense 39,321 27,849 Other, net 2,809 3,107 ----------- ---------- Net nonoperating expenses 42,130 30,956 ----------- ---------- INCOME BEFORE INCOME TAXES 60,987 123,935 Income taxes 22,566 47,715 ----------- ---------- NET INCOME $ 38,421 $ 76,220 =========== ========== Weighted average shares outstanding: Basic 266,618 274,059 Diluted 266,618 284,016 Earnings per share: Basic $ 0.14 $ 0.28 Diluted 0.14 0.28 Dividends per share $ 0.21 $ 0.21 See notes to consolidated financial statements. </TABLE> -2- <TABLE> <CAPTION> NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) March 31, December 31, 2001 2000 ---- ---- <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 19,873 $ 22,525 Accounts receivable, net 1,131,531 1,183,363 Inventories, net 1,309,991 1,262,551 Deferred income taxes 221,979 231,875 Prepaid expenses and other 189,469 196,338 ---------- ---------- TOTAL CURRENT ASSETS 2,872,843 2,896,652 MARKETABLE EQUITY SECURITIES 7,920 9,215 OTHER LONG-TERM INVESTMENTS 74,937 72,763 OTHER ASSETS 342,832 336,344 PROPERTY, PLANT AND EQUIPMENT, NET 1,719,462 1,756,903 TRADE NAMES AND GOODWILL 2,150,125 2,189,948 ---------- ---------- TOTAL ASSETS $7,168,119 $7,261,825 ========== ========== </TABLE> -3- <TABLE> <CAPTION> NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONT.) (Unaudited, in thousands) March 31, December 31, 2001 2000 ---- ---- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 13,844 $ 23,492 Accounts payable 366,475 342,406 Accrued compensation 79,945 126,970 Other accrued liabilities 758,658 781,122 Income taxes 113,073 73,122 Current portion of long-term debt 214,294 203,714 ---------- ---------- TOTAL CURRENT LIABILITIES 1,546,289 1,550,826 LONG-TERM DEBT 2,318,273 2,319,552 OTHER NON-CURRENT LIABILITIES 355,070 347,855 DEFERRED INCOME TAXES 103,092 93,165 MINORITY INTEREST 1,026 1,788 COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST 499,998 499,998 STOCKHOLDERS' EQUITY Common stock - authorized shares, 800.0 million at $1 par value 282,268 282,174 Outstanding shares: 2001 282.3 million 2000 282.2 million Treasury stock, at cost (408,459) (407,456) Shares held: 2001 15.6 million 2000 15.6 million Additional paid-in capital 217,619 215,911 Retained earnings 2,513,229 2,530,864 Accumulated other comprehensive loss (260,286) (172,852) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 2,344,371 2,448,641 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,168,119 $7,261,825 ========== ========== 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, --------- 2001 2000 ---- ---- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 38,421 $ 76,220 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 87,551 77,083 Deferred income taxes 11,183 12,498 Non-cash restructuring charges 6,691 - Other 1,735 (2,573) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 45,893 61,623 Inventories (56,123) (135,967) Other current assets 7,677 17,837 Accounts payable 24,516 (32,115) Accrued liabilities and other (43,480) (100,474) ---------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 124,064 (25,868) ---------- --------- INVESTING ACTIVITIES: Acquisitions, net (15,367) (54,445) Expenditures for property, plant and equipment (59,744) (81,188) Disposals of non-current assets and other 4,672 11,989 ---------- --------- NET CASH USED IN INVESTING ACTIVITIES (70,439) (123,644) ---------- --------- FINANCING ACTIVITIES: Proceeds from issuance of debt 19,122 574,537 Payments on notes payable and long-term debt (18,659) (58,823) Common stock repurchase - (402,962) Cash dividends (55,994) (57,149) Proceeds from exercised stock options and other 737 405 ---------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (54,794) 56,008 ---------- --------- Exchange rate effect on cash (1,483) (632) DECREASE IN CASH AND CASH EQUIVALENTS (2,652) (94,136) Cash and cash equivalents at beginning of year 22,525 102,164 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,873 $ 8,028 ========== ========= Supplemental cash flow disclosures - Cash paid during the period for: Income taxes, net of refunds $ (40,819) $ 3,723 Interest $ 52,529 $ 44,396 See notes to consolidated financial statements. </TABLE> -5- NEWELL RUBBERMAID INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL INFORMATION The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments necessary to present a fair statement of the results for the periods reported, subject to normal recurring year-end adjustments, none of which is expected to be material. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. NOTE 2 - ACQUISITIONS The Company acquired Mersch SA on January 24, 2000 and Brio on May 24, 2000. Both are manufacturers and suppliers of picture frames in Europe, and now operate as part of Newell Photo Fashions Europe. The Company acquired the stationery products business of The Gillette Company ("Paper Mate/Parker") on December 29, 2000. The U.S. and Canadian operations were merged into Sanford North America, while all other operations were consolidated into Sanford International. For these and for other minor acquisitions, the Company paid $600.6 million in cash and assumed $15.0 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 the assets acquired and liabilities assumed and resulted in trade names and goodwill of approximately $253.6 million. The unaudited consolidated results of operations for the three months ended March 31, 2001 and 2000 on a pro forma basis, as though the Mersch, Brio and Paper Mate/Parker businesses had been acquired on January 1, 2000, are as follows (in millions, except per share amounts): Three Months Ended March 31, ---------------------------- 2001 2000 ---- ---- Net sales $ 1,610.7 $ 1,767.4 Net income $ 38.4 $ 68.1 Basic earnings per share $ 0.14 $ 0.26 -6- NOTE 3 - RESTRUCTURING COSTS Certain expenses incurred in the reorganization of the Company's operations are considered to be restructuring expenses. Pre-tax restructuring costs consisted of the following (in millions): Three Months Ended March 31, ---------------------------- 2001 2000 ---- ---- Employee severance and termination benefits $ 5.9 $ 0.3 Facility and product line exit costs 1.1 0.5 Other merger transaction costs 3.0 - ------ ------ $ 10.0 $ 0.8 ====== ====== Reserves that remained for restructuring costs consisted of the following (in millions): March 31, December 31, 2001 2000 ---- ---- Facility and product line exit costs $ 9.7 $ 11.4 Employee severance and termination benefits 6.4 3.3 Contractual future maintenance costs 4.0 4.6 Other merger transaction costs 5.2 2.6 ------ ------ $ 25.3 $ 21.9 ====== ====== NOTE 4 - INVENTORIES Inventories are stated at the lower of cost or market value. The components of inventories, net of LIFO reserve, were as follows (in millions): March 31, December 31, 2001 2000 ---- ---- Materials and supplies $ 171.3 $ 244.8 Work in process 180.9 165.3 Finished products 957.8 852.5 --------- --------- $ 1,310.0 $ 1,262.6 ========= ========= -7- NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in millions): March 31, December 31, 2001 2000 ---- ---- Land $ 59.8 $ 60.7 Buildings and improvements 727.7 736.1 Machinery and equipment 2,441.7 2,421.6 --------- --------- $ 3,229.2 $ 3,218.4 Allowance for depreciation (1,509.7) (1,461.5) ---------- --------- $ 1,719.5 $ 1,756.9 ========= ========= Replacements and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense. The components of depreciation are provided by annual charges to income calculated to amortize, principally on the straight-line basis, the cost of the depreciable assets over their depreciable lives. Estimated useful lives determined by the Company are: buildings and improvements (5-40 years) and machinery and equipment (2-15 years). NOTE 6 - LONG-TERM DEBT Long-term debt consisted of the following (in millions): March 31, December 31, 2001 2000 ---- ---- Medium-term notes $ 1,012.5 $ 1,012.5 Commercial paper 1,514.3 1,503.7 Other long-term debt 5.8 7.1 --------- --------- $ 2,532.6 $ 2,523.3 Current portion (214.3) (203.7) --------- --------- $ 2,318.3 $ 2,319.6 ========= ========= At March 31, 2001, $1,514.3 million (principal amount) of commercial paper was outstanding. Of this amount, $1,300.0 million is classified as long-term debt because it is supported by a long-term $1,300.0 million revolving credit agreement, and the remainder of $214.3 million is classified as current portion of long-term debt. -8- NOTE 7 - 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 three months of 2001 and 2000 is shown below (in millions, except per share data): <TABLE> <CAPTION> Convertible Basic "In the money" Preferred Diluted Method stock options Securities Method ------ ------------- ---------- ------- <S> <C> <C> <C> <C> Three months ended March 31, 2001 (1): Net Income $ 38.4 - - $ 38.4 Weighted average shares outstanding 266.6 - - 266.6 Earnings per Share $ 0.14 - - $ 0.14 Three months ended March 31, 2000: Net Income $ 76.2 - $ 4.1 $ 80.3 Weighted average shares outstanding 274.1 - 9.9 284.0 Earnings per Share $ 0.28 - - $ 0.28 (1) Diluted earnings per share for this period exclude the impact of "in the money" stock options and convertible preferred securities because they are antidilutive. </TABLE> -9- NOTE 8 - COMPREHENSIVE INCOME (LOSS) The following tables display Comprehensive Income (Loss) and the components of Accumulated Other Comprehensive Income (Loss) (in millions): <TABLE> <CAPTION> Three months ended March 31, ---------------------------- 2001 2000 ---- ---- <S> <C> <C> Comprehensive (Loss) Income: Net income $ 38.4 $ 76.2 Unrealized loss on marketable securities (0.8) (1.0) Derivatives hedging loss (17.1) - Foreign currency translation loss (69.5) (9.7) -------- -------- Total Comprehensive (Loss) Income $ (49.0) $ 65.5 ======== ======== </TABLE> <TABLE> <CAPTION> Net Foreign Accumulated Unrealized Currency Derivatives Other Loss Translation Hedging Comprehensive on Securities Loss Loss Loss ------------- ---- ---- ---- <S> <C> <C> <C> <C> Accumulated Other Comprehensive Loss: Balance at December 31, 2000 $ (1.1) $ (171.8) $ - $ (172.9) Change during three months ended March 31, 2001 (0.8) (69.5) (17.1) (87.4) ------- --------- --------- --------- Balance at March 31, 2001 $ (1.9) $ (241.3) $ (17.1) $ (260.3) ======= ========= ========= ========= </TABLE> -10- NOTE 9 - INDUSTRY SEGMENT INFORMATION On April 2, 2001, the Company announced the realignment of its operating segment structure. This realignment reflects the Company's focus on building large consumer brands, promoting organizational integration and operating efficiencies and aligning the businesses with the Company's key account strategy. The five new segments have been named for leading worldwide brands in the Company's product portfolio. The realignment streamlines what had been six operating segments. Based on this management structure, the Company is reporting its results as follows (in millions): For the three months ended March 31, ------------------------------------ Net Sales 2001 2000 ---- ---- Rubbermaid $ 432.0 $ 479.6 Parker/Eldon 334.5 263.7 Levolor/Hardware 331.0 354.9 Calphalon/WearEver 276.3 283.0 Little Tikes/Graco 236.9 247.8 --------- --------- $ 1,610.7 $ 1,629.0 ========= ========= For the three months ended March 31, ------------------------------------ Operating Income 2001 2000 ---- ---- Rubbermaid $ 44.6 $ 45.0 Parker/Eldon 32.4 36.8 Levolor/Hardware 22.3 35.1 Calphalon/WearEver 22.1 29.0 Little Tikes/Graco 13.2 30.6 Corporate (21.5) (20.8) -------- ------- 113.1 155.7 Restructuring costs (10.0) (0.8) -------- ------- $ 103.1 $ 154.9 ======== ======= March 31, December 31, Identifiable Assets 2001 2000 ---- ---- Rubbermaid $ 1,133.8 $1,185.2 Parker/Eldon 1,080.8 1,050.9 Levolor/Hardware 770.5 775.9 Calphalon/WearEver 806.4 849.3 Little Tikes/Graco 557.7 537.5 Corporate 2,818.9 2,863.0 --------- -------- $ 7,168.1 $7,261.8 ========= ======== -11- Operating income is net sales less cost of products sold and selling, general and administrative expenses. Certain headquarters expenses of an operational nature are allocated to business segments primarily on a net sales basis. Trade names and goodwill amortization is considered a corporate expense and not allocated to business segments. All intercompany transactions have been eliminated and transfers of finished goods between areas are not significant. Corporate assets primarily include trade names and goodwill, equity investments and deferred tax assets. -12- NOTE 10 - ACCOUNTING PRONOUNCEMENTS Since June 1998, the Financial Accounting Standards Board ("FASB") has issued SFAS Nos. 133, 137 and 138 related to "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133, as amended" or "Statements"). These Statements establish accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. The Statements require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met, in which case the gains or losses would offset the related results of the hedged item. These Statements require that, as of the date of initial adoption, the impact of adoption be recorded as a cumulative effect of a change in accounting principle. To the extent that these amounts are recorded in other comprehensive income, they will be reversed into earnings in the period in which the hedged transaction occurs. The impact of adopting these Statements on January 1, 2001 resulted in a cumulative after-tax gain of approximately $13.0 million recorded in accumulated other comprehensive income and had no material impact on net income. The adoption resulted in an increase in assets and liabilities of approximately $99.0 million and $86.0 million, respectively. In May 2000, the EITF issued EITF No. 00-14 "Accounting for Certain Sales Incentives." The EITF subsequently amended the transition provisions of this issue in November 2000. EITF No. 00-14 prescribes guidance regarding timing of recognition and income statement classification of costs incurred for certain sales incentive programs. This guidance requires certain coupons, rebate offers and free products offered concurrently with a single exchange transaction to be recognized when incurred and reported as a reduction of revenue. In January 2001, the EITF issued EITF No. 00-22 "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers and Offers for Free Products or Services to be Delivered in the Future." EITF No. 00-22 prescribes guidance regarding timing of recognition and income statement classification of costs incurred in connection with offers of "free" products or services that are exercisable by an end consumer as a result of a single exchange transaction with the retailer which will not be delivered by the vendor until a future date. This guidance requires certain rebate offers and free products that are delivered subsequent to a single exchange transaction to be recognized when incurred and reported as a reduction of revenue. The effective dates of EITF No. 00-14 and EITF No. 00-22 are March 31, 2001 and June 30, 2001, respectively. The Company's adoption of EITF No. 00-14 and EITF No. 00-22 on December 31, 2000 did not impact the results of operations because the Company's past and current accounting policy is to report such costs as reductions in revenue. -13- PART I. FINANCIAL INFORMATION 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, ---------------------------- 2001 2000 ---- ---- Net sales 100.0% 100.0% Cost of products sold 75.7 74.9 ----- ----- GROSS INCOME 24.3 25.1 Selling, general and administrative expenses 16.4 14.7 Restructuring costs 0.6 0.1 Trade names and goodwill amortization and other 0.9 0.8 ----- ----- OPERATING INCOME 6.4 9.5 ----- ----- Nonoperating expenses: Interest expense 2.4 1.6 Other, net 0.2 0.3 ----- ----- Net nonoperating expenses 2.6 1.9 ----- ----- INCOME BEFORE INCOME TAXES 3.8 7.6 Income taxes 1.4 2.9 ----- ----- NET INCOME 2.4% 4.7% ===== ===== See notes to consolidated financial statements. -14- THREE MONTHS ENDED MARCH 31, 2001 VS. THREE MONTHS ENDED MARCH 31, 2000 ----------------------------------------------------------------------- Net sales for the three months ended March 31, 2001 ("first quarter") were $1,610.7 million, representing a decrease of $18.3 million or 1.1% from $1,629.0 million in the comparable quarter of 2000. The decrease in net sales is primarily due to internal declines of 6.8% due to slowness in the economy offset by contributions from Paper Mate/Parker (acquired in December 2000). The Company announced the realignment of its operating segment structure to reflect the Company's focus on building large consumer brands, promoting organizational integration and operating efficiencies and aligning the businesses with the Company's key account strategy. The five new segments have been named for leading worldwide brands in the Company's product portfolio and streamlines what had been six operating segments. Based on this management structure, the Company is reporting its results as follows (in millions): Percentage Increase/ 2001 2000 Decrease ---- ---- -------- Rubbermaid $ 432.0 $ 479.6 (9.9)%(1) Parker/Eldon 334.5 263.7 26.8 (2) Levolor/Hardware 331.0 354.9 (6.7) (1) Calphalon/WearEver 276.3 283.0 (2.4) Little Tikes/Graco 236.9 247.8 (4.4) -------- -------- Total $1,610.7 $1,629.0 (1.1)% ======== ======== (1) Internal sales decline due to slowness in the economy. (2) Internal sales decline of 4.4% plus sales from the Paper Mate/Parker acquisition. Gross income as a percentage of net sales in the first quarter of 2001 was 24.3% or $391.8 million versus 25.1% or $408.5 million in the comparable quarter of 2000. Excluding charges of $3.1 million ($2.0 million after taxes) related to recent acquisitions, gross income in the first quarter of 2001 was $394.9 million or 24.5% of net sales. Excluding charges, gross income declined as a result of decreased sales volume. Selling, general and administrative expenses ("SG&A") in the first quarter of 2001 were 16.4% of net sales or $264.6 million versus 14.7% or $239.6 million in the comparable quarter of 1999. Excluding charges of $1.1 million ($0.7 million after taxes) relating to recent acquisitions, SG&A in the first quarter of 2001 were $263.5 million or 16.4% of net sales. Excluding charges, SG&A increased as a result of the Paper Mate/Parker acquisition. -15- In the first quarter of 2001, the Company recorded a pre-tax restructuring charge of $10.0 million ($6.3 million after taxes). The pre-tax charge included $5.9 million of severance costs, $1.1 million of facility exit costs and $3.0 million of other transaction costs. In the first quarter of 2000, the Company recorded a pre-tax restructuring charge of $0.8 million ($0.5 million after taxes). The pre-tax charge related primarily to costs associated with facility closures from non-Rubbermaid acquisitions. Trade names and goodwill amortization and other in the first quarter of 2001 were 0.9% of net sales or $14.1 million versus 0.8% or $13.2 million in the comparable quarter of 2000. The increases are primarily related to an increase in goodwill associated with the recent Paper Mate/Parker acquisition. Operating income in the first quarter of 2001 was 6.4% of net sales or $103.1 million versus operating income of 9.5% or $154.9 million in the comparable quarter of 2000. Excluding restructuring costs and other charges in 2001 and 2000, operating income in the first quarter of 2001 was 7.3% or $117.3 million versus 9.6% or $155.7 million in the first quarter of 2000. The decrease in operating income was primarily due to lower than expected sales volume and the Paper Mate/Parker acquisition. Net nonoperating expenses in the first quarter of 2001 were 2.6% of net sales or $42.1 million versus net nonoperating income of 1.9% or $31.0 million in the comparable quarter of 2000. The increase in net non-operating expenses is primarily due to $11.5 million of increased interest expense as a result of higher debt levels. The effective tax rate was 37.0% in the first quarter of 2001 versus 38.5% in the first quarter of 2000. Net income for the first quarter of 2001 was $38.4 million, compared to net income of $76.2 million in the first quarter of 2000. Basic earnings per share were $0.14 in the first quarter of 2001 compared to $0.28 in the first quarter of 2000. Excluding 2001 restructuring costs of $10.0 million ($6.3 million after taxes) and other 2001 pre-tax charges of $4.2 million ($2.7 million after taxes) and 2000 restructuring costs of $0.8 million ($0.5 million after taxes), net income decreased $29.3 million or 38.3% to $47.4 million in the first quarter of 2001 from $76.7 million in 2000. Earnings per share, calculated on the same basis, decreased 36.5% to $0.18 in the first quarter of 2001 from $0.28 in the first quarter of 2000. The decrease in net income was primarily due to internal sales declines and increased interest expense resulting from higher debt levels. -16- LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Sources: The Company's primary sources of liquidity and capital resources include cash provided from operations and use of available borrowing facilities. Net cash provided by operating activities in the first three months of 2001 was $124.1 million, representing an increase of $150.0 million from $25.9 million of cash used for the comparable period of 2000. The increase in cash provided from operating activities was primarily due to improved working capital management throughout the Company. The Company has short-term foreign and domestic committed and 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 lines of credit do not have a material impact on the Company's liquidity. Borrowings under the Company's lines of credit at March 31, 2001 totaled $13.8 million. The Company has a revolving credit agreement of $1,300.0 million that will terminate in August 2002. During 2000, the Company entered into a new 364-day revolving credit agreement in the amount of $700.0 million. This revolving credit agreement will terminate in October 2001. At March 31, 2001, there were no borrowings under these revolving credit agreements. In lieu of borrowings under the Company's revolving credit agreements, the Company may issue up to $2,000.0 million of commercial paper. The Company's revolving credit agreements provide the committed backup liquidity required to issue commercial paper. Accordingly, commercial paper may only be issued up to the amount available for borrowing under the Company's revolving credit agreements. At March 31, 2001, $1,514.3 million (principal amount) of commercial paper was outstanding. Of this amount, $1,300.0 million is classified as long-term debt and the remaining $214.3 million is classified as current portion of long-term debt. The revolving credit agreements permit the Company to borrow funds on a variety of interest rate terms. These agreements require, among other things, that the Company maintain a certain Total Indebtedness to Total Capital Ratio, as defined in the agreements. As of March 31, 2001, the Company was in compliance with these agreements. The Company had outstanding at March 31, 2001 a total of $1,012.5 million (principal amount) of medium-term notes. The maturities on these notes range from 3 to 30 years at an average interest rate of 6.34%. -17- A universal shelf registration statement became effective in July 1999. As of March 31, 2001, $449.5 million of Company debt and equity securities may be issued under the shelf. Uses: Cash used in acquiring businesses was $15.4 million and $54.4 million in the first three months of 2001 and 2000, respectively. In the first quarter of 2001, the Company made minor acquisitions for cash purchase prices totaling $6.6 million; in the first quarter of 2000, the Company acquired Mersch SA and made other minor acquisitions for cash purchase prices totaling $31.3 million. All of these acquisitions were accounted for as purchases and were paid for with proceeds obtained from the issuance of commercial paper. Cash used for restructuring activities was $3.3 million and $0.8 million in the first three months of 2001 and 2000, respectively. Such cash payments represent primarily employee termination benefits and other merger expenses. Capital expenditures were $59.7 million and $81.2 million in the first three months of 2001 and 2000, respectively. Aggregate dividends paid during the first three months of 2001 and 2000 were $56.0 million ($0.21 per share) and $57.1 million ($0.21 per share), respectively. During the first three months of 2000, the Company repurchased 15.5 million shares of its common stock at an average price of $26 per share, for a total cash price of $403.0 million under the Company's stock repurchase program. Retained earnings decreased in the first three months of 2001 by $17.6 million. Retained earnings increased in the first three months of 2000 by $19.0 million. The difference between 2001 and 2000 was due to weaker operating results in 2001 versus 2000 and restructuring costs in 2001 of $10.0 million ($6.3 million after taxes) and other pre-tax charges of $4.1 million ($2.7 million after taxes). Working capital at March 31, 2001 was $1,326.6 million compared to $1,345.9 million at December 31, 2000. The current ratio at March 31, 2001 was 1.86:1 compared to 1.87:1 at December 31, 2000. Total debt to total capitalization (total debt is net of cash and cash equivalents, and total capitalization includes total debt, convertible preferred securities and stockholders equity) was .47:1 at March 31, 2001 and .46:1 at December 31, 2000. The Company believes that cash provided from operations and available borrowing facilities will continue to provide adequate support for the cash needs of existing businesses; however, certain events, such as significant acquisitions, could require additional external financing. -18- MARKET RISK ----------- The Company's market risk is impacted by changes in interest rates, foreign currency exchange rates, and certain commodity prices. Pursuant to the Company's policies, natural hedging techniques and derivative financial instruments may be utilized to reduce the impact of adverse changes in market prices. The Company does not hold or issue derivative instruments for trading purposes. The Company's primary market risk is interest rate exposure, primarily in the United States. The Company manages interest rate exposure through its conservative debt ratio target and its mix of fixed and floating rate debt. Interest rate exposure was reduced significantly in 1997 from the issuance of $500.0 million 5.25% Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust, the proceeds of which reduced commercial paper. Interest rate swaps may be used to adjust interest rate exposures when appropriate based on market conditions, and, for qualifying hedges, the interest differential of swaps is included in interest expense. The Company's foreign exchange risk management policy emphasizes hedging anticipated intercompany and third-party commercial transaction exposures of one year duration or less. The Company focuses on natural hedging techniques of the following form: 1) offsetting or netting of like foreign currency flows, 2) structuring foreign subsidiary balance sheets with appropriate levels of debt to reduce subsidiary net investments and subsidiary cash flows subject to conversion risk, 3) converting excess foreign currency deposits into U.S. dollars or the relevant functional currency and 4) avoidance of risk by denominating contracts in the appropriate functional currency. In addition, the Company utilizes forward contracts and purchased options to hedge commercial and intercompany transactions. Gains and losses related to qualifying hedges of commercial and intercompany transactions are deferred and included in the basis of the underlying transactions. Derivatives used to hedge intercompany loans are marked to market with the corresponding gains or losses included in the consolidated statements of income. Due to the diversity of its product lines, the Company does not have material sensitivity to any one commodity. The Company manages commodity price exposures primarily through the duration and terms of its vendor contracts. The amounts shown below represent the estimated potential economic loss that the Company could incur from adverse changes in either interest rates or foreign exchange rates using the value-at- risk estimation model. The value-at-risk model uses historical 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 -19- the table below have no impact on results of operations or financial condition as they represent economic, not financial, losses. March 31, Time Confidence 2001 Period Level ---- ------ ---------- (In millions) Interest rates $8.7 1 day 95% Foreign exchange $2.4 1 day 95% The 95% confidence interval signifies the Company's degree of confidence that actual losses would not exceed the estimated losses shown above. The amounts shown here disregard the possibility that interest rates and foreign currency exchange rates could move in the Company's favor. The value-at-risk model assumes that all movements in these rates will be adverse. Actual experience has shown that gains and losses tend to offset each other over time, and it is highly unlikely that the Company could experience losses such as these over an extended period of time. These amounts should not be considered projections of future losses, since actual results may differ significantly depending upon activity in the global financial markets. EURO CURRENCY CONVERSION ------------------------ On January 1, 1999, the "Euro" became the common legal currency for 11 of the 15 member countries of the European Union. On that date, the participating countries fixed conversion rates between their existing sovereign currencies ("legacy currencies") and the Euro. On January 4, 1999, the Euro began trading on currency exchanges and became available for non-cash transactions, if the parties elected to use it. The legacy currencies will remain legal tender through December 31, 2001. Beginning January 1, 2002, participating countries will introduce Euro-denominated bills and coins, and effective July 1, 2002, legacy currencies will no longer be legal tender. After the dual currency phase, all businesses in participating countries must conduct all transactions in the Euro and must convert their financial records and reports to be Euro-based. The Company has commenced an internal analysis of the Euro conversion process to prepare its information technology systems for the conversion and analyze related risks and issues, such as the benefit of the decreased exchange rate risk in cross-border transactions involving participating countries and the impact of increased price transparency on cross-border competition in these countries. The Company believes that the Euro conversion process will not have a material impact on the Company's businesses or financial condition on a consolidated basis. -20- FORWARD LOOKING STATEMENTS -------------------------- Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to, but are not limited to, such matters as sales, income, earnings per share, return on equity, return on invested capital, capital expenditures, working capital, dividends, capital structure, free cash flow, debt to capitalization ratios, interest rates, internal growth rates, Euro conversion plans and related risks, pending legal proceedings and claims (including environmental matters), future economic performance, operating income improvements, synergies, management's plans, goals and objectives for future operations and growth or the assumptions relating to any of the forward-looking statements. The Company cautions that forward-looking statements are not guarantees since there are inherent difficulties in predicting future results. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, those matters set forth in this Report and Exhibit 99 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. -21- PART I. FINANCIAL INFORMATION Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information required by this item is incorporated herein by reference to the section entitled "Market Risk" in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition (Part I, Item 2). PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS ----------------- The Company is 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. 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 be required to pay in excess of amounts reserved, will not have a material effect on the Company's consolidated financial statements. As of March 31, 2001, the Company was involved in various matters concerning federal and state environmental laws and regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency and certain state environmental agencies as a potentially responsible party ("PRP") at contaminated sites under the Federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and equivalent state laws. In assessing its environmental response costs, the Company has considered several factors, including: the extent of the Company's 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, 2001 ranged between $15.7 million and $21.6 million. As of March 31, 2001, the Company had a reserve equal to $19.3 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, except with respect to two -22- long term (30 years) operation and maintenance CERCLA matters which are estimated at present value. Because of the uncertainties associated with environmental investigations and response activities, the possibility that the Company could be identified as a PRP at sites identified in the future that require the incurrence of environmental response costs and the possibility of additional sites as a result of businesses acquired, actual costs to be incurred by the Company may vary from the Company's estimates. Subject to difficulties in estimating future environmental response costs, the Company does not expect that any amount it may be required to pay in connection with environmental matters in excess of amounts reserved will have a material adverse effect on its consolidated financial statements. Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits: 3.1 Restated Certificate of Incorporation of Newell Rubbermaid Inc., as amended as of April 5, 2001. 10. Confidential Separation Agreement and General Release dated as of March 20, 2001, between Daniel DalleMolle and the Company. 12. Statement of Computation of Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K: Registrant filed a Report on Form 8-K dated March 12, 2001, filing the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations of Newell Rubbermaid Inc. for the fiscal year ended December 31, 2000. -23- 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 11, 2001 /s/ William T. Alldredge -------------------------------- William T. Alldredge Chief Financial Officer Date: May 11, 2001 /s/ Brett E. Gries -------------------------------- Brett E. Gries Vice President - Accounting & Audit -24-