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 September 30, 2001 Commission File Number 1-9608 NEWELL RUBBERMAID INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3514169 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 29 East Stephenson Street Freeport, Illinois 61032-0943 (Address of principal executive offices) (Zip Code) (815) 235-4171 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Number of shares of Common Stock outstanding (net of treasury shares) as of October 24, 2001: 266,670,700 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- <s> <c> <c> <c> <c> Net sales $1,767,818 $1,756,372 $5,103,207 $5,172,376 Cost of products sold 1,278,243 1,287,619 3,768,321 3,807,663 --------- --------- --------- --------- GROSS INCOME 489,575 468,753 1,334,886 1,364,713 Selling, general and administrative expenses 296,440 214,509 839,506 675,706 Restructuring costs 11,323 4,243 28,997 12,780 Goodwill amortization and other 14,222 13,378 42,477 39,096 --------- --------- --------- --------- OPERATING INCOME 167,590 236,623 423,906 637,131 Nonoperating expenses: Interest expense 32,274 33,184 107,191 95,021 Other, net 5,095 3,440 11,210 10,022 ---------- --------- --------- --------- Net nonoperating expenses 37,369 36,624 118,401 105,043 ---------- --------- --------- --------- INCOME BEFORE INCOME TAXES 130,221 199,999 305,505 532,088 Income taxes 46,751 77,000 111,607 204,854 ---------- --------- --------- NET INCOME $ 83,470 $ 122,999 $ 193,898 $ 327,234 ========== ========== ========== ========== Weighted average shares outstanding: Basic 266,662 266,567 266,643 269,056 Diluted 266,662 276,500 266,643 278,987 Earnings per share: Basic $ 0.31 $ 0.46 $ 0.73 $ 1.22 Diluted 0.31 0.46 0.73 1.22 Dividends per share $ 0.21 $ 0.21 $ 0.63 $ 0.63 See notes to consolidated financial statements. </TABLE> 2 NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) September 30, December 31, 2001 2000 ------------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,257 $ 22,525 Accounts receivable, net 1,316,139 1,183,363 Inventories, net 1,185,450 1,262,551 Deferred income taxes 241,671 231,875 Prepaid expenses and other 180,873 180,053 ---------- ---------- TOTAL CURRENT ASSETS 2,933,390 2,880,367 MARKETABLE EQUITY SECURITIES 7,125 9,215 OTHER LONG-TERM INVESTMENTS 77,738 72,763 OTHER ASSETS 344,149 352,629 PROPERTY, PLANT AND EQUIPMENT, NET 1,692,916 1,756,903 TRADE NAMES AND GOODWILL 2,171,227 2,189,948 ---------- ---------- TOTAL ASSETS $7,226,545 $7,261,825 ========== ========== 3 NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONT.) (Unaudited, dollars in thousands) September 30, December 31, 2001 2000 -------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 23,901 $ 23,492 Accounts payable 446,279 342,406 Accrued compensation 110,458 126,970 Other accrued liabilities 804,020 781,122 Income taxes 185,870 73,122 Current portion of long-term debt 915,437 203,714 ---------- ---------- TOTAL CURRENT LIABILITIES 2,485,965 1,550,826 LONG-TERM DEBT 1,365,040 2,319,552 OTHER NON-CURRENT LIABILITIES 352,388 347,855 DEFERRED INCOME TAXES 105,318 93,165 MINORITY INTEREST 654 1,788 COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST 499,998 499,998 STOCKHOLDERS' EQUITY Common stock - authorized shares, 282,291 282,174 800.0 million at $1 par value; Outstanding shares: 2001 282.3 million 2000 282.2 million Treasury stock - at cost; (408,458) (407,456) Shares held: 2001 15.6 million 2000 15.6 million Additional paid-in capital 218,082 215,911 Retained earnings 2,556,585 2,530,864 Accumulated other comprehensive loss (231,318) (172,852) ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 2,417,182 2,448,641 ---------- ----------- TOTAL LIABILITIES AND $7,226,545 $7,261,825 STOCKHOLDERS' EQUITY ========== ========== See notes to consolidated financial statements. 4 NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Nine Months Ended September 30, --------------------- 2001 2000 ---- ---- OPERATING ACTIVITIES: Net income $ 193,898 $ 327,234 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 254,663 221,837 Deferred income taxes 13,983 (32,992) Non-cash restructuring charges 12,588 - Other 397 (6,813) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (133,216) (53,870) Inventories 58,691 (145,570) Other current assets 1,870 1,164 Accounts payable 102,910 (31,025) Accrued liabilities and other 71,055 4,873 --------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 576,839 $ 284,838 --------- --------- INVESTING ACTIVITIES: Acquisitions, net $ (21,961) $ (70,790) Expenditures for property, plant and equipment (184,668) (240,501) Disposals of non-current assets and other 27,012 15,504 --------- --------- NET CASH USED IN INVESTING ACTIVITIES $(179,617) $(295,787) --------- --------- 5 NEWELL RUBBERMAID INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.) (Unaudited, in thousands) Nine Months Ended September 30, --------------------- 2001 2000 ---- ---- FINANCING ACTIVITIES: Proceeds from issuance of debt $ 462,944 $ 831,945 Payments of notes payable and long-term debt (704,909) (324,939) Proceeds from exercised stock options and other 1,097 (147) Common stock repurchase - (402,962) Cash dividends (167,990) (169,102) --------- --------- NET CASH USED IN FINANCING ACTIVITIES $(408,858) $(65,205) --------- --------- Exchange rate effect on cash (1,632) (4,571) DECREASE IN CASH AND CASH EQUIVALENTS $ (13,268) $ (80,725) Cash and cash equivalents at beginning of year 22,525 102,164 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,257 $ 21,439 ========= ========= Supplemental cash flow disclosures Cash paid during the period for: Income taxes, net of refunds $ (23,768) $ 121,315 Interest, net of amounts capitalized $ 119,577 $ 133,768 See notes to consolidated financial statements. 6 NEWELL RUBBERMAID INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL INFORMATION The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments necessary to present a fair statement of the results for the periods reported, subject to normal recurring year-end adjustments, none of which is expected to be material. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. NOTE 2 - ACQUISITIONS The Company made only minor acquisitions in 2001, for $6.5 million in cash and $0.1 million of assumed debt. In 2000, the Company acquired the following: <TABLE> <CAPTION> <s> <c> <c> <c> BUSINESS BUSINESS DESCRIPTION ACQUISITION DATE INDUSTRY SEGMENT Mersch SA Picture Frames January 24, 2000 Levolor/Hardware Brio Picture Frames May 24, 2000 Levolor/Hardware Paper Mate/Parker Writing Instruments December 29, 2000 Parker/Eldon </TABLE> For these and for other minor acquisitions made in 2000, the Company paid $600.7 million in cash and assumed $15.0 million of debt. The transactions summarized above were accounted for as purchases; therefore, results of operations are included in the accompanying consolidated financial statements since their respective acquisition dates. The acquisition costs for the 2001 acquisitions were allocated on a preliminary basis to the fair market value of the assets acquired and liabilities assumed. The Company's finalized integration plans may include exit costs for certain plants and product lines and employee termination costs. The final adjustments to the purchase price allocations are not expected to be material to the consolidated financial statements. The preliminary purchase price allocations for the 2001 acquisitions and the finalized purchase price allocations for the 2000 acquisitions resulted in trade names and goodwill of approximately $295.8 million. The unaudited consolidated results of operations for the nine months ended September 30, 2001 and 2000 on a pro forma basis, as 7 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): Nine Months Ended September 30, ------------------------------- 2001 2000 ---- ---- Net sales $ 5,103.2 $ 5,592.0 Net income $ 193.9 $ 302.5 Basic earnings per share $ 0.73 $ 1.12 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): Nine Months Ended September 30, ------------------------------- 2001 2000 ---- ---- Employee severance and termination benefits $ 17.6 $ 4.8 Facility and product line exit costs 7.3 6.3 Contractual future maintenance costs - 1.7 Other transaction costs 4.1 ------ ----- $ 29.0 $ 12.8 ====== ====== Restructuring provisions were determined based on estimates prepared at the time the restructuring actions were approved by management. Reserves that remained for restructuring provisions consisted of the following (in millions): September 30, December 31, 2001 2000 ------------- ------------ Employee severance and termination benefits $ 9.7 $ 3.3 Facility and product line exit costs 7.6 11.4 Contractual future maintenance costs 2.2 4.6 Other transaction costs 4.8 2.6 ------ ----- $ 24.3 $ 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): 8 September 30, December 31, 2001 2000 ------------- ------------ Materials and supplies $ 237.5 $ 244.8 Work in process 182.1 165.3 Finished products 765.9 852.5 ------ --------- $ 1,185.5 $ 1,262.6 ========= ========= NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in millions): September 30, December 31, 2001 2000 ------------- ------------ Land $ 60.5 $ 60.7 Buildings and improvements 735.8 736.1 Machinery and equipment 2,528.6 2,421.6 --------- ---------- $ 3,324.9 $ 3,218.4 Allowance for depreciation (1,632.0) (1,461.5) --------- ---------- $ 1,692.9 $ 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): September 30, December 31, 2001 2000 ------------- ------------ Medium-term notes $ 1,012.5 $ 1,012.5 Commercial paper 815.4 1,503.7 Other long-term debt 452.5 7.1 --------- ---------- $ 2,280.4 $ 2,523.3 Current portion (915.4) (203.7) --------- ---------- $ 1,365.0 $ 2,319.6 ========= ========== 9 At September 30, 2001, $815.4 million (principal amount) of commercial paper was outstanding. Of this amount, the entire $815.4 million is classified as current portion of long-term debt. NOTE 7 - EARNINGS PER SHARE Basic and diluted earnings per share for the third quarter and first nine months of 2001 and 2000 are calculated as follows (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 September 30, 2001: Net Income $ 83.5 $ $ 83.5 Weighted average shares outstanding 266.7 266.7 Earnings per Share (1) $ 0.31 $ 0.31 Three months ended September 30, 2000: Net Income $ 123.0 4.1 $ 127.1 Weighted average shares outstanding 266.6 0.0 9.9 276.5 Earnings per Share $ 0.46 $ 0.46 Nine months ended September 30, 2001: Net Income $ 193.9 $ 193.9 Weighted average shares outstanding 266.6 266.6 Earnings per Share (1) $ 0.73 $ 0.73 Nine months ended September 30, 2000: Net Income $ 327.2 12.3 $ 339.5 Weighted average shares outstanding 269.1 0.0 9.9 279.0 Earnings per Share $ 1.22 $ 1.22 </TABLE> (1) Diluted earnings per share for these periods exclude the impact of "in the money" stock options and convertible preferred securities because they are antidilutive. NOTE 8 - COMPREHENSIVE INCOME (LOSS) The following tables display Comprehensive Income and the components of Accumulated Other Comprehensive Loss, in millions: 10 <TABLE> <CAPTION> Nine months ended September 30, 2001 2000 ---- ---- <s> <c> <c> Comprehensive Income: Net income $ 193.9 $ 327.2 Foreign currency translation loss (43.8) (71.5) Derivatives hedging loss (13.3) Unrealized loss on marketable securities (1.3) (2.6) ------- ------- Total Comprehensive Income $ 135.3 $ 253.1 ======= ======= </TABLE> <TABLE> <CAPTION> After-tax Foreign Accumulated Unrealized Currency Derivatives Other Loss on Translation Hedging Comprehensive 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 nine months ended September 30, 2001 (1.3) (43.8) (13.3) (58.4) ------- --------- -------- --------- Balance at September 30, 2001 $ (2.4) $ (215.6) $ (13.3) $ (231.3) ======= ========= ======== ========= </TABLE> NOTE 9 - INDUSTRY SEGMENTS On April 2, 2001, the Company announced the realignment of its operating segment structure. This realignment reflects the Company's focus on building large consumer brands, promoting organizational integration and operating efficiencies and aligning 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. Based on this management structure, the Company's segment results are as follows (in millions): <TABLE> <CAPTION> Three Months Ended September 30 Nine Months Ended September 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 ---- ---- ---- ----- <s> <c> <c> <c> <c> Net Sales --------- Rubbermaid $ 462.1 $ 481.3 $ 1,370.0 $ 1,467.9 Parker/Eldon 433.2 339.7 1,237.2 981.4 Levolor/Hardware 353.0 369.3 1,033.4 1,113.2 Calphalon/WearEver 291.3 313.9 809.3 866.2 Little Tikes/Graco 228.2 252.2 653.3 743.7 --------- --------- --------- --------- $ 1,767.8 $ 1,756.4 $ 5,103.2 $ 5,172.4 ========= ========= ========= ========= 11 Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Operating Income ---------------- Rubbermaid $ 39.5 $ 59.4 $ 129.0 $ 157.8 Parker/Eldon 73.8 62.3 198.8 195.5 Levolor/Hardware 41.2 57.6 98.8 155.3 Calphalon/WearEver 32.4 49.3 63.5 107.6 Little Tikes/Graco 12.1 30.9 26.6 92.4 Corporate (20.1) (18.6) (63.8) (58.7) --------- --------- --------- -------- $ 178.9 $ 240.9 $ 452.9 $ 649.9 Restructuring costs (11.3) (4.3) (29.0) (12.8) --------- --------- --------- -------- $ 167.6 $ 236.6 $ 423.9 $ 637.1 ========= ========= ========= ======== </TABLE> September 30, December 31, 2001 2000 ------------ ----------- Identifiable Assets ------------------- Rubbermaid $ 1,078.9 $ 1,185.2 Parker/Eldon 1,132.8 1,050.9 Levolor/Hardware 811.8 775.9 Calphalon/WearEver 827.2 849.3 Little Tikes/Graco 540.7 537.5 Corporate 2,835.1 2,863.0 --------- ------- $ 7,226.5 $ 7,261.8 ========= ========= Operating income is net sales less cost of products sold and selling, general and administrative expenses. Certain headquarters expenses of an operational nature are allocated to business segments primarily on a net sales basis. Trade names and goodwill amortization is considered a corporate expense and not allocated to business segments. All intercompany transactions have been eliminated and transfers of finished goods between areas are not significant. Corporate assets primarily include trade names and goodwill, equity investments and deferred tax assets. NOTE 10 - ACCOUNTING PRONOUNCEMENTS At the beginning of the year, the Company adopted Financial Accounting Standard ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Any changes in fair value of these instruments are recorded in the income statement or other 12 comprehensive income. The impact of adopting FAS No. 133 on January 1, 2001 resulted in a cumulative after-tax gain of approximately $13.0 million, recorded in accumulated other comprehensive income. The cumulative effect of adopting FAS No. 133 had no material impact on the results of operations. In the years 2001 and 2000, the Emerging Issues Task Force ("EITF") discussed a number of topics related to product merchandising expenses that the Company reports as a reduction of gross sales. Ultimately, the EITF issued EITF No. 00-14 "Accounting for Certain Sales Incentives" and EITF No. 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products," and reached a consensus on an element of EITF No. 00-22 "Accounting for Points and Certain Other Time-Based Sales Incentives or Volume-Based Sales Incentive Offers, and Offers of Free Products or Services to Be Delivered in the Future." These EITF's prescribe guidance regarding the timing of recognition and income statement classification of costs incurred for certain sales incentive programs to retailers and end consumers. These EITF's had no impact on the Company as it currently recognizes these costs and classifies them as reductions of gross sales in accordance with the prescribed rules. EITF Nos. 00-14 and 00-25 are effective for the first quarter beginning after December 15, 2001 and EITF No. 00-22 was effective for the first quarter ended after February 15, 2001. In June 2001, the Financial Accounting Standard Board ("FASB") issued FAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 31, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to periodic impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The statement also requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Effective January 1, 2002, all amortization expense on goodwill and intangible assets with indefinite lives will stop. The Company anticipates that the application of the nonamortization provisions will increase annual net income by approximately $40.0 million or $0.15 per share. During fiscal 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. In August 2001, the FASB issued FAS 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 FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be 13 Disposed Of" and amends the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 related to the disposal of a segment of a business. The statement is effective for fiscal years beginning after December 15, 2001. The Company has not yet determined the effect that the adoption of the standard will have on its financial position and results of operations. 14 PART I Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth for the periods indicated items from the Consolidated Statements of Income as a percentage of net sales. <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2001 2000 2001 2000 ---- ---- ---- ---- <s> <c> <c> <c> <c> Net sales 100.0% 100.0% 100.0% 100.0% Cost of products sold 72.3% 73.3% 73.8% 73.6% ----- ----- ----- ----- GROSS INCOME 27.7% 26.7% 26.2% 26.4% Selling, general and administrative expenses 16.8% 12.2% 16.5% 13.1% Restructuring costs 0.6% 0.2% 0.6% 0.2% Trade names and goodwill amortization and other 0.8% 0.8% 0.8% 0.8% ----- ----- ----- ----- OPERATING INCOME 9.5% 13.5% 8.3% 12.3% ----- ----- ----- ----- Nonoperating expenses: Interest expense 1.8% 1.9% 2.1% 1.8% Other, net 0.3% 0.2% 0.2% 0.2% ----- ----- ----- ----- Net nonoperating expenses 2.1% 2.1% 2.3% 2.0% ----- ----- ----- ----- INCOME BEFORE INCOME TAXES 7.4% 11.4% 6.0% 10.3% Income taxes 2.7% 4.4% 2.2% 4.0% ----- ----- ----- ----- NET INCOME 4.7% 7.0% 3.8% 6.3% ===== ===== ===== ===== </TABLE> See notes to consolidated financial statements. THREE MONTHS ENDED SEPTEMBER 30, 2001 VS. THREE MONTHS ENDED SEPTEMBER 30, 2000 Net sales for the three months ended September 30, 2001 ("third quarter") were $1,767.8 million, representing an increase of $11.4 million or 0.7% from $1,756.4 million in the comparable quarter of 2000. The increase in net sales is primarily due to $119.5 million of contributions from PaperMate/Parker (acquired in December 2000) and internal sales declines of 6.2% resulting from slowness in the economy 15 and competitive pressures. Sales by business segment for the third quarter were as follows, in millions: Percentage Increase/ 2001 2000 Decrease ---- ---- ---------- Rubbermaid $ 462.1 $ 481.3 (4.0)%(1) Parker/Eldon 433.2 339.7 27.5 (2) Levolor/Hardware 353.0 369.3 (4.4) (1) Calphalon/WearEver 291.3 313.9 (7.2) (1) Little Tikes/Graco 228.2 252.2 (9.5) (1) -------- -------- Total $1,767.8 $1,756.4 0.7% ======== ======== (1) Internal sales decline. (2) Sales from the PaperMate/Parker acquisition, offset by internal sales decline of 7.7%. Gross income as a percentage of net sales in the third quarter of 2001 was 27.7% or $489.6 million versus 26.7% or $468.8 million in the comparable quarter of 2000. Excluding charges of $0.5 million ($0.3 million after taxes) relating to recent acquisitions, gross income for the third quarter of 2001 was $490.1 million or 27.7% of net sales. The improvement in gross income is due to the implementation of a productivity initiative throughout the Company and contributions from the PaperMate/Parker acquisition. Selling, general and administrative expenses ("SG&A") in the third quarter of 2001 were 16.8% of net sales or $296.5 million versus 12.2% or $214.5 million in the comparable quarter of 2000. Excluding charges of $0.8 million ($0.5 million after taxes) relating to recent acquisitions, SG&A in the third quarter of 2001 was $295.7 million or 16.7% of net sales. SG&A increased as a result of the PaperMate/Parker acquisition and planned marketing initiatives supporting the Company's brand portfolio and key account strategy. In the third quarter of 2001, the Company recorded a pre-tax restructuring charge of $11.3 million ($7.3 million after taxes). This charge included $7.8 million of severance costs, $4.0 million of facility exit costs and $(0.5) million of other transaction costs. In the third quarter of 2000, the Company recorded a pre-tax restructuring charge of $4.2 million ($2.6 million after taxes). This charge included $1.5 million of facility exit costs, $1.4 million of severance costs and $1.3 million of other transaction costs. Goodwill amortization and other in the third quarter of 2001 were 0.8% of net sales or $14.2 million versus 0.8% or $13.4 million in the comparable quarter of 2000. 16 Operating income in the third quarter of 2001 was 9.5% of net sales or $167.6 million versus operating income of 13.5% or $236.6 million in the comparable quarter of 2000. Excluding restructuring costs and other charges in 2000 and 2001, operating income in the third quarter of 2001 was 10.2% or $180.2 million versus 13.7% or $240.9 million in the third quarter of 2000. The decrease in operating margins was primarily due to planned investment in marketing initiatives supporting the Company's brand portfolio and key account strategy. Net nonoperating expenses in the third quarter of 2001 were 2.1% of net sales or $37.4 million versus net nonoperating income of 2.1% or $36.6 million in the comparable quarter of 2000. The effective tax rate was 35.9% in the third quarter of 2001 versus 38.5% in the third quarter of 2000. Net income for the third quarter of 2001 was $83.5 million, compared to net income of $123.0 million in the third quarter of 2000. Diluted earnings per share were $0.31 in the third quarter of 2001 compared to $0.46 in the third quarter of 2000. Excluding 2001 restructuring and other pre-tax charges of $12.6 million ($8.1 million after taxes) and 2000 restructuring and other pre-tax charges of $4.2 million ($2.6 million after taxes), net income decreased $34.0 million or 27.1% to $91.6 million in the third quarter of 2001 from $125.6 million in 2000. Diluted earnings per share, calculated on the same basis, decreased 27.7% to $0.34 in the third quarter of 2001 from $0.47 in the third quarter of 2000. The decrease in net income and earnings per share was primarily due to internal sales declines and planned investment in the Company's marketing initiatives. NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. NINE MONTHS ENDED SEPTEMBER 30, 2000 Net sales for the first nine months of 2001 were $5,103.2 million, representing a decrease of $69.2 million or 1.3% from $5,172.4 million in the comparable period of 2000. The decrease in sales is primarily due to lower than expected sales volume partially offset by $341.8 million of contributions from PaperMate/Parker (acquired December 2000). Net sales for each of the Company's segments (and the primary reasons for the increase or decrease) were as follows in millions: 17 Percentage Increase/ 2001 2000 Decrease ---- ---- ---------- Rubbermaid $ 1,370.0 $ 1,467.9 (6.7)%(1) Parker/Eldon 1,237.2 981.4 26.1 (2) Levolor/Hardware 1,033.4 1,113.2 (7.2) (1) Calphalon/WearEver 809.3 866.2 (6.6) (1) Little Tikes/Graco 653.3 743.7 (12.2) (1) -------- -------- Total $5,103.2 $5,172.4 (1.3)% ======== ======== (1) Internal sales decline. (2) Sales from the PaperMate/Parker acquisition, offset by internal sales decline of 8.8%. Gross income as a percentage of net sales in the first nine months of 2001 was 26.2% or $1,334.9 million versus 26.4% or $1,364.7 million in the comparable period of 2000. Excluding charges of $3.6 million ($2.3 million after taxes), gross income for the first nine months of 2001 was $1,338.5 million or 26.2% of net sales. Excluding 2000 charges of $3.1 million ($1.9 million after taxes) relating to acquisitions, gross income for the nine months ended September 30, 2000 was $1,367.8 million or 26.4% of net sales. The decrease in gross income is primarily due to decreased sales volume. Selling, general and administrative expenses ("SG&A") in the first nine months of 2001 were 16.5% of net sales or $839.5 million versus 13.1% or $675.7 million in the comparable period of 2000. Excluding charges of $2.4 million ($1.5 million after taxes) relating to recent acquisitions, SG&A in the first nine months of 2001 was $837.1 million or 16.4% of net sales. Excluding 2000 charges of $5.9 million ($3.6 million after taxes) relating to recent acquisitions, SG&A for the nine months ended September 30, 2000 were $669.8 million or 12.9% of net sales. SG&A increased as a result of the PaperMate/Parker acquisition and planned investments in marketing initiatives supporting the Company's brand portfolio and key account strategy. In the first nine months of 2001, the Company recorded a pre-tax restructuring charge of $29.0 million ($18.4 million after taxes). The pre-tax charge included $17.6 million of severance costs, $7.3 million of facility exit costs and $4.1 million of other transaction costs. In the first nine months of 2000, the Company recorded a pre-tax restructuring charge of $12.8 million ($7.9 million after taxes). The pre-tax charge included $6.3 million of facility exit costs, $4.8 million of severance costs and $1.7 million of costs to exit contractual commitments and discontinue product lines primarily related to the Rubbermaid acquisition. 18 Goodwill amortization and other in the first nine months of 2001 were 0.8% of net sales or $42.5 million versus 0.8% or $39.1 million in the first nine months of 2000. Operating income in the first nine months of 2001 was 8.3% of net sales or $423.9 million versus 12.3% or $637.1 million in the comparable period of 2000. Excluding restructuring costs and other charges in 2000 and 2001, operating income in the first nine months of 2001 was 9.0% or $458.9 million versus 12.7% or $658.9 million in the first nine months of 2000. The decrease in operating margins was primarily due to planned investment in marketing initiatives supporting the Company's brand portfolio and key account strategy. Net nonoperating expenses in the first nine months of 2001 were 2.3% of net sales or $118.4 million versus 2.0% of net sales or $105.0 million in the comparable period of 2000. Net nonoperating expenses increased due to $12.2 million higher interest expense as a result of the Company's increased level of debt. The effective tax rate was 36.5% in the first nine months of 2001 versus 38.5% in the first nine months of 2000. Net income for the first nine months of 2001 was $193.9 million, compared to $327.2 million in the first nine months of 2000. Diluted earnings per share were $0.73 in the first nine months of 2001 compared to $1.22 in the first nine months of 2000. Excluding 2001 restructuring costs of $29.0 million ($18.4 million after taxes), other 2001 pre-tax charges of $6.0 million ($3.8 million after taxes), 2000 restructuring costs of $12.8 million ($7.9 million after taxes), and other 2000 pre-tax charges of $9.0 million ($5.5 million after taxes), net income decreased $124.5 million or 36.5% to $216.1 million the first nine months of 2001 versus $340.6 million in 2000. Diluted earnings per share, calculated on the same basis, decreased 36.2% to $0.81 in the first nine months of 2001 versus $1.27 in the first nine months of 2000. The decrease in net income and earnings per share was primarily due to internal sales declines and planned investment in the Company's marketing initiatives. LIQUIDITY AND CAPITAL RESOURCES Sources: The Company's primary sources of liquidity and capital resources include cash provided from operations and use of available borrowing facilities. Cash provided from operating activities in the first nine months ended September 30, 2001 was $576.8 million compared to $284.8 million for the comparable period of 2000. The increase in operating cash flows is primarily due to improved working capital management, primarily in the areas of inventory and accounts payable. 19 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 September 30, 2001 totaled $23.9 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 September 30, 2001, there were no borrowings under the revolving credit agreements. In lieu of borrowings under the Company's revolving credit agree- ments, 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 September 30, 2001, $815.4 million (principal amount) of commercial paper was outstanding. Because the backup revolving credit agreement expires in August 2002, the entire $815.4 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 September 30, 2001, the Company was in compliance with these agreements. The Company had outstanding at September 30, 2001 a total of $1,012.5 million (principal amount) of medium-term notes. The maturities on these notes range from 3 to 30 years at an average interest rate of 6.34%. The Company periodically sells trade receivables to a special purpose accounts receivable and financing entity ("SPE"), which is exclusively engaged in purchasing trade receivables from, and making loans to, the Company. During the quarter ended September 30, 2001, the SPE, which is consolidated by the Company, issued $450 million in preferred debt securities to parties not affiliated with the Company. The proceeds of this debt were used to pay down commerical paper. Because this debt matures in 2008, the entire amount is considered long-term debt. Those preferred debt securities must be retired or redeemed before the Company can have access to the SPE's receivables. A universal shelf registration statement became effective in July 1999. As of September 30, 2001, $449.5 million of Company debt and equity securities may be issued under the shelf. Uses: The Company's primary uses of liquidity and capital resources include acquisitions, dividend payments and capital expenditures. Cash used in acquiring businesses was $22.0 million and $70.8 million in the first nine months of 2001 and 2000, respectively. In the first nine months of 2001, the Company made other acquisitions for 20 cash purchase prices totaling $6.5 million. In the first nine months of 2000, the Company acquired Mersch and Brio and made other minor acquisitions for cash purchase prices totaling $50.8 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 $16.4 million and $15.4 million in the first nine months of 2001 and 2000, respectively. Such cash payments represent primarily employee termination benefits and other merger expenses. Capital expenditures were $184.7 million and $240.5 million in the first nine months of 2001 and 2000, respectively. Aggregate dividends paid during the first nine months of 2001 and 2000 were $168.0 million ($0.63 per share) and $169.1 million ($0.63 per share), respectively. During the first nine months of 2000, the Company repurchased 15.5 million shares of its common stock at an average price of $26 per share, for a total cash price of $403.0 million. Retained earnings increased in the first nine months of 2001 by $25.7 million. Retained earnings increased in the first nine months of 2000 by $158.0 million. The difference between 2000 and 2001 was primarily due to lower than expected sales volume and planned investment in marketing initiatives supporting the Company's brand portfolio and key account strategy. Working capital at September 30, 2001 was $447.4 million compared to $1,329.6 million at December 31, 2000. The current ratio at September 30, 2001 was 1.18:1 compared to 1.86:1 at December 31, 2000. The improvement is due to the Company's increased working capital management, primarily in inventory and accounts payable. 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 .44:1 at September 30, 2000 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. 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 21 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. 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. 22 September 30, Time Confidence 2001 Period Level ------------ ------ --------- (In millions) Interest rates $10.5 1 day 95% Foreign exchange $ 0.7 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. 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, 23 but are not limited to, such matters as sales, income, earnings per share, return on equity, return on invested capital, capital expenditures, working capital, dividends, capital structure, free cash flow, debt to capitalization ratios, interest rates, internal growth rates, Euro conversion plans and related risks, pending legal proceedings and claims (including environmental matters), future economic performance, operating income improvements, synergies, management's plans, goals and objectives for future operations and growth or the assumptions relating to any of the forward-looking statements. The Company cautions that forward-looking statements are not guarantees since there are inherent difficulties in predicting future results. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, those matters set forth in this Report and Exhibit 99 to this Report. 24 PART I. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is incorporated herein by reference to the section entitled "Market Risk" in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition (Part I, Item 2). PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to certain legal proceedings and claims, including the environmental matters described below, that have arisen in the ordinary conduct of its business or have been assumed by the Company when it purchased certain businesses. Although management of the Company cannot predict the ultimate outcome of these legal proceedings and claims with certainty, it believes that their ultimate resolution, including any amounts it may be required to pay in excess of amounts reserved, will not have a material effect on the Company's consolidated financial statements. As of September 30, 2001, the Company was involved in various matters concerning federal and state environmental laws and regulations, including matters in which the Company has been identified by the U.S. Environmental Protection Agency and certain state environmental agencies as a potentially responsible party ("PRP") at contaminated sites under the Federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and equivalent state laws. In assessing its environmental response costs, the Company has considered several factors, including: the extent of the Company's 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 September 30, 2001 ranged between $15.5 million and $19.5 million. As of September 30, 2001, the Company had a reserve equal to $17.0 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 25 present value purposes, except with respect to two long-term (30 years) 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. 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. 26 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10. Addendums to the Company's 1993 Stock Option Plan, effective February 9, 1993, as amended May 26, 1999 (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), for employees in France, Germany and United Kingdom. 12. Statement of Computation of Ratio of Earnings to Fixed Charges 99. Safe Harbor Statement (b) Reports on Form 8-K: None. 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: November 14, 2001 /s/ William T. Alldredge ------------------------------------ William T. Alldredge Chief Financial Officer Date: November 14, 2001 /s/ Brett E. Gries ------------------------------------ Brett E. Gries Vice President - Accounting & Audit 28