10-K 1 0001.txt WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER DECEMBER 31, 2000 1-9608 NEWELL RUBBERMAID INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-3514169 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) Newell Center 29 East Stephenson Street Freeport, Illinois 61032-0943 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code:(815) 235-4171 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ---------------------- Common Stock, $1 par value New York Stock Exchange per share, and associated Chicago Stock Exchange Common Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] There were 282.2 million shares of the Registrant's Common Stock outstanding as of December 31, 2000. The aggregate market value of the shares of Common Stock (based upon the closing price on the New York Stock Exchange on that date) beneficially owned by non-affiliates of the Registrant was approximately $6,420 million. For purposes of the foregoing calculation only, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and officers of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose. DOCUMENTS INCORPORATED BY REFERENCE PART III Portions of the Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders to be held May 9, 2001. 2 ITEM 1. BUSINESS "Newell" or the "Company" refers to Newell Rubbermaid Inc. alone or with its wholly-owned subsidiaries, as the context requires. GENERAL ------- The Company is a global manufacturer and full-service marketer of name-brand consumer products serving the needs of volume purchasers, including discount stores and warehouse clubs, home centers and hardware stores, and office superstores and contract stationers. The Company's basic business strategy is to merchandise a multi-product offering of everyday consumer products, backed by an obsession with customer service excellence and new product development, in order to achieve maximum results for its stockholders. The Company's multi- product offering consists of name-brand consumer products in six business segments: Storage, Organization & Cleaning; Home Decor; Office Products; Infant/Juvenile Care & Play; Food Preparation, Cooking & Serving and Hardware & Tools. The Company's financial objectives are to achieve above-average sales and earnings per share growth, maintain a superior return on investment, increase its dividend consistent with earnings growth and maintain a conservative level of debt. Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to, but are not limited to, information or assumptions about sales, income, earnings per share, return on equity, return on invested capital, capital expenditures, working capital, dividends, capital structure, free cash flow, debt to capitalization ratios, interest rates, internal growth rates, 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; 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 this Report, the documents incorporated by reference herein and Exhibit 99 to this Report. 3 BUSINESS SEGMENTS ----------------- STORAGE, ORGANIZATION & CLEANING -------------------------------- The Company's Storage, Organization & Cleaning business is conducted by the Rubbermaid Home Products, Rubbermaid Commercial Products, Curver (Europe) and Goody divisions. Rubbermaid Home Products and Curver design, manufacture or source, package and distribute indoor and outdoor organization, storage, and cleaning products. Rubbermaid Commercial Products designs, manufactures or sources, packages and distributes industrial and commercial waste and recycling containers, cleaning equipment, food storage, serving and transport containers, outdoor play systems and home health care products. Goody designs, sources, manufactures, packages and distributes hair care accessories. Rubbermaid Home Products, Rubbermaid Commercial Products, Curver and Goody primarily sell their products under the Rubbermaid{R}, Curver{R}, Carex{R}, Ace{R}, Wilhold{R} and Goody{R} trademarks. Rubbermaid Home Products, Curver and Goody market their products directly and through distributors to mass merchants, warehouse clubs, grocery/drug stores and hardware distributors, using a network of manufacturers' representatives, as well as regional direct sales representatives and market-specific sales managers. Rubbermaid Commercial Products markets its products directly and through distributors to commercial channels and home centers using a direct sales force. HOME DECOR ---------- The Company's Home Decor business is conducted by the Levolor Home Fashions, Newell Window Furnishings, Newell Window Fashions Europe, Intercraft/Burnes and Newell Photo Fashion Europe divisions. Levolor Home Fashions and Newell Window Furnishings primarily design, manufacture or source, package and distribute drapery hardware, made-to-order and stock horizontal and vertical blinds, as well as pleated, cellular and roller shades for the retail marketplace. Levolor Home Fashions also produces window treatment components for custom window treatment fabricators. Newell Window Fashions Europe primarily designs, manufactures, packages and distributes drapery hardware and made-to-order window treatments for the European retail marketplace. Intercraft/Burnes and Newell Photo Fashion Europe primarily design, manufacture or source, package and distribute wood, wood composite and metal ready-made picture frames and photo albums. Levolor Home Fashions, Newell Window Furnishings and Newell Window Fashions Europe primarily sell their products under the trademarks Levolor{R}, Newell{R}, LouverDrape{R}, Del Mar{R}, Kirsch{R}, Acrimo{R}, Swish{R}, Gardinia{R}, Harrison Drape{R}, 4 Spectrim{R}, MagicFit{R}, Riviera{R}, Levolor Cordless{TM} and Connoisseur{R}. Intercraft/Burnes primarily sells its ready-made picture frames under the trademarks Intercraft{R}, Decorel{R}, Burnes of Boston{R}, Carr{R}, Rare Woods{R} and Terragrafics{R}, while photo albums are sold primarily under the Holson{R} trademark. Newell Photo Fashion Europe primarily sells its products under the trademarks Albadecor{R} and Panodia{R}. Levolor Home Fashions, Newell Window Furnishings and Intercraft/ Burnes market their products directly and through distributors to mass merchants, home centers, department/specialty stores, hardware distributors, custom shops and select contract customers, using a network of manufacturers' representatives, as well as regional account and market-specific sales managers. Newell Window Fashions Europe and Newell Photo Fashion Europe market their products to mass merchants and buying groups using a direct sales force. Intercraft/Burnes markets its products directly to mass merchants, warehouse clubs, grocery/drug stores and department/specialty stores, using a network of manufacturers' representatives, as well as regional zone and market-specific sales managers. Intercraft{R}, Decorel{R} and Holson{R} products are sold primarily to mass merchants, while the remaining U.S. brands are sold primarily to department/specialty stores. Newell Photo Fashion Europe markets its products to mass merchants, buying groups and the do-it- yourself market using a direct sales force. OFFICE PRODUCTS --------------- The Company's Office Products business is conducted by the Sanford North America, Sanford International, Newell Office Products and Cosmolab divisions. Sanford North America primarily designs, manufactures or sources, packages and distributes permanent/waterbase markers, dry erase markers, overhead projector pens, highlighters, wood-cased pencils, ballpoint pens and inks, and other art supplies. It also distributes other writing instruments including roller ball pens and mechanical pencils for the retail marketplace. Sanford International primarily designs and manufactures, packages and distributes ball point pens, wood-cased pencils, roller ball pens and other art supplies for the retail and distributor markets. Newell Office Products primarily designs, manufactures or sources, packages and distributes desktop accessories, computer accessories, storage products, card files and chair mats. Cosmolab primarily designs and manufactures, packages and distributes private label cosmetic pencils for commercial customers. Sanford primarily sells its products under the trademarks Sanford{R}, Sharpie{R}, Paper Mate{R}, Parker{R}, Waterman{R}, Eberhard Faber{R}, Berol{R}, Grumbacher{R}, Reynolds{R}, Rotring{R}, Uni-Ball{R} (used under exclusive license from Mitsubishi Pencil Co. Ltd. and its subsidiaries in North America), Expo{R}, Accent{R}, 5 Vis-a-Vis{R}, Expresso{R}, Liquid Paper{R}, and Mongol{R}. Newell Office Products markets its products under the Rolodex{R}, Eldon{R}, Rogers{R} and Rubbermaid{R} trademarks. Sanford North America markets its products directly and through distributors to mass merchants, warehouse clubs, grocery/drug stores, office superstores, office supply stores, contract stationers, and hardware distributors, using a network of company sales representatives, regional sales managers, key account managers and selected manufacturers' representatives. Sanford International markets its products directly to retailers and distributors using a direct sales force. Newell Office Products markets its products directly and through distributors to mass merchants, warehouse clubs, grocery/drug stores, office superstores, office supply stores and contract stationers, using a network of manufacturers' representatives, as well as regional zone and market-specific key account representatives and sales managers. INFANT/JUVENILE CARE & PLAY --------------------------- The Company's Infant/Juvenile Care & Play business is conducted by the Little Tikes and Graco/Century divisions. These businesses design, manufacture or source, package and distribute infant and juvenile products such as toys, high chairs, infant seats, strollers, play yards, ride-ons and outdoor activity play equipment. Little Tikes and Graco/Century primarily sell their products under the Little Tikes{R}, Graco{R} and Century{R} trademarks. Little Tikes and Graco/Century market their products directly and through distributors to mass merchants, warehouse clubs, grocery/drug stores and hardware distributors, using a network of manufacturers' representatives, as well as regional direct sales representatives and market-specific sales managers. FOOD PREPARATION, COOKING & SERVING ------------------------------------- The Company's Food Preparation, Cooking & Serving business is conducted by the Mirro, Panex and Calphalon cookware and bakeware divisions and the Anchor Hocking and Newell Europe glassware divisions. Mirro and Panex primarily design, manufacture, package and distribute aluminum and steel cookware and bakeware for the U.S. and Central and South America retail marketplace. In addition, Mirro designs, manufactures, packages and distributes various specialized aluminum cookware and bakeware items for the food service industry. It also produces aluminum contract stampings and components for other manufacturers and makes aluminum and plastic kitchen tools and utensils. Mirro's manufacturing operations are highly integrated, rolling sheet stock from aluminum ingot, and producing phenolic handles and knobs at its own plastics molding facility. Calphalon 6 primarily designs, manufactures or sources, packages and distributes hard anodized aluminum and stainless steel cookware and bakeware for the department/specialty store marketplace. Anchor Hocking and Newell Europe primarily design, manufacture, package and distribute glass products. These products include glass ovenware, servingware, cookware and dinnerware products. Anchor Hocking also produces foodservice products, glass lamp parts, lighting components, meter covers and appliance covers for the foodservice and specialty markets. Newell Europe also produces glass components for appliance manufacturers, and its products are marketed primarily in Europe, the Middle East and Africa. Mirro and Calphalon primarily sell their products under the trademarks Mirro{R}, WearEver{R}, Calphalon{R}, Regal{R}, Panex{R}, Penedo{TM}, Rochedo{TM}, Clock{TM}, AirBake{R}, Cushionaire{R}, Concentric Air{R}, Channelon{R}, WearEver Air{R}, Club{R}, Royal Diamond{R} and Kitchen Essentials{R}. Anchor Hocking primarily sells its products under the trademarks Anchor{TM}, Anchor Hocking{R} and Oven Basics{R}. Newell Europe primarily sells its products under the trademarks of Pyrex{R}, Vision{TM} and Visions{R} (each used under exclusive license from Corning Incorporated and its subsidiaries in Europe, the Middle East and Africa only), Pyroflam{R} and Vitri{R}. Mirro markets its products directly to mass merchants, warehouse clubs, grocery/drug stores, department/specialty stores, hardware distributors, cable TV networks and select contract customers, using a network of manufacturers' representatives, as well as regional zone and market-specific sales managers. Calphalon primarily markets its products directly to department/specialty stores. Anchor Hocking markets its products directly to mass merchants, warehouse clubs, grocery/drug stores, department/specialty stores, hardware distributors and select contract customers, using a network of manufacturers' representatives, as well as regional zone and market-specific sales managers. Anchor Hocking also markets its products to manufacturers which supply the mass merchant and home party channels of trade. Newell Europe markets its products to mass merchants, industrial manufacturers and buying groups using a direct sales force and manufacturers' representatives in some markets. HARDWARE & TOOLS ---------------- The Company's Hardware & Tools business is conducted by the Amerock Cabinet and Window Hardware Systems, EZ Paintr, Bernz O matic, Lee Rowan and Newell Hardware Europe divisions. Amerock Cabinet and Window Hardware Systems manufacture or source, package and distribute cabinet hardware for the retail and O.E.M. marketplace and window hardware for window manufacturers. EZ Paintr manufactures and distributes manual paint applicator products. Bernz O matic manufactures and distributes propane/oxygen hand torches. Lee Rowan primarily designs, manufactures or sources, packages and distributes wire storage and laminate products and ready-to-assemble closet 7 organization and work shop cabinets and distributes hardware, which includes bolts, screws and mechanical fasteners. Newell Hardware Europe is a manufacturer and marketer of shelving and storage products, cabinet hardware and functional trims. Amerock, EZ Paintr, Bernz O matic, Lee Rowan and Newell Hardware Europe primarily sell their products under the trademarks Amerock{R}, Allison{R}, EZ Paintr{R}, Bernz O matic{R}, Dorfile{R}, Lee/Rowan{R}, System Works{R}, Douglas Kane{R}, Spur{R}, Nenplas{R}, Homelux{R}and Ashland{R}. Amerock, EZ Paintr, Bernz O matic and Lee Rowan market their products directly and through distributors to mass merchants, home centers, hardware distributors, cabinet shops and window manufacturers, using a network of manufacturers' representatives, as well as regional zone and market-specific sales managers. NET SALES BY BUSINESS SEGMENT ----------------------------- The following table sets forth the amounts and percentages of the Company's net sales for the three years ended December 31 (including sales of acquired businesses from the time of acquisition and sales of divested businesses through date of sale), for the Company's six business segments. Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 15% of consolidated net sales in 2000 and 1999, and 14% in 1998. Sales to no other customer exceeded 10% of consolidated net sales. [CAPTION] % of % of % of 2000 total 1999 total 1998 total ---- ----- ---- ----- ---- ----- (In millions, except percentages) Storage, Organization & Cleaning $1,833.0 26% $1,899.5 28% $2,047.0 32% Home Decor 1392.4 20 1370.4 21 1242.9 19 Office Products 1288.0 19 1218.0 18 1078.6 17 Infant/Juvenile Care & Play 921.0 13 834.7 12 751.3 11 Food Prep., Cooking & Serving 774.4 11 782.2 12 790.0 12 Hardware & Tools 725.9 11 607.0 9 583.4 9 -------- ----- ------- ----- ----- --- Total Company $6,934.7 100% $6,711.8 100% $6,493.2 100% ======== ==== ======= ==== ======== ====
8 Certain 1999 and 1998 amounts have been reclassified to conform with the 2000 presentation. EXPORT SALES ------------ The Company's export sales business, defined as sales of products made in the U.S. and sold abroad, is conducted primarily through its Newell International division. For purposes of the table immediately above, sales attributable to the Newell International division are allocated to the business segment that manufactured the products. GROWTH STRATEGY --------------- The Company's growth strategy emphasizes internal growth and acquisitions. The Company has grown internally principally by introducing new products, entering new domestic and international markets, adding new customers, cross-selling existing product lines to current customers and supporting its U.S.-based customers' international expansion. The Company has supplemented internal growth, both domestically and internationally, by acquiring businesses with brand name product lines and improving the profitability of such businesses through an integration process referred to as "Newellization." Since 1990, the Company has completed more than 20 major acquisitions (excluding Rubbermaid) representing more than $3 billion in additional sales. Internal Growth --------------- An important element of the Company's growth strategy is internal growth. Internal growth is accomplished through introducing new products, entering new domestic and international markets, adding new customers, cross-selling existing product lines to current customers and supporting its U.S.-based customers' international expansion. Internal growth is defined by the Company as growth from its "core businesses," which include continuing businesses owned more than two years and minor acquisitions. The Company's goal is to achieve above- average internal growth. ACQUISITIONS AND INTEGRATION ---------------------------- ACQUISITION STRATEGY -------------------- The Company supplements internal growth by acquiring businesses and product lines with a strategic fit with the Company's existing businesses. It also seeks to acquire product lines with a number one or two position in the markets in which they compete, [USER BRANDS], a low technology level, a long product life cycle and the potential to 9 reach the Company's standard of profitability. In addition to adding entirely new product lines, the Company uses acquisitions to round out existing businesses and fill gaps in its product offering, add new customers and distribution channels, expand shelf space for the Company's products with existing customers, and improve operational efficiency through shared resources. The Company intends to continue to pursue acquisition opportunities to complement internal growth. NEWELLIZATION ------------- "Newellization" is the Company's well-established profit improvement and productivity enhancement process that is applied to integrate newly acquired product lines. The Newellization process includes establishing a more focused business strategy, improving customer service, reducing corporate overhead through centralization of administrative functions and tightening financial controls. In integrating acquired businesses, the Company typically centralizes accounting systems, capital expenditure approval, cash management, order processing, billing, credit, accounts receivable and data processing operations. To enhance efficiency, Newellization also focuses on improving manufacturing processes, eliminating non-productive lines, reducing inventories, increasing accounts receivable turnover, extending accounts payable terms and trimming excess costs. The Newellization process usually takes approximately two to three years to complete. Selective Globalization ----------------------- The Company is pursuing selective international opportunities to further its internal growth and acquisition objectives. The rapid growth of consumer goods economies and retail structures in several regions outside the U.S., particularly Europe, Mexico and South America, makes them attractive to the Company by providing selective opportunities to acquire businesses, develop partnerships with new foreign customers and extend relationships with the Company's domestic customers whose businesses are growing internationally. The Company's recent acquisitions, combined with existing sales to foreign customers, increased its sales outside the U.S. to approximately 25% of total sales in 2000 from 23% in 1999 and 22% in 1998. Additional information regarding acquisitions of businesses is included in Item 6 and Note 2 to the consolidated financial statements. 10 MARKETING AND DISTRIBUTION -------------------------- CUSTOMER SERVICE ---------------- The Company believes that one of the primary ways it distinguishes itself from its competitors is through customer service. The Company's ability to provide superior customer service is a result of its information technology, marketing and merchandising programs designed to enhance the sales and profitability of its customers and consistent on-time delivery of its products. Information Technology ---------------------- The Company is an industry leader in the application of Electronic Data Interchange ("EDI") technology, an electronic link between the Company and many of its retail customers and invests in advanced computer systems. The Company uses EDI to receive and transmit purchase orders, invoices and payments. With the replacement of paper-based processing with computer-to-computer business transactions, EDI has cut days off the order/shipping cycle. Building upon its EDI expertise, the Company has established "Quick Response" programs with several major customers. These programs allow the Company to implement customized features such as vendor-managed inventories in which the Company manages certain or all aspects of inventory of several product categories at customer locations. The Company's experience is that its customers benefit from such programs by increased inventory turnover and reduced customer waiting periods for out-of-stock product. On-Time Delivery ---------------- A critical element of the Company's customer service is consistent on-time delivery of products to its customers. Retailers are pursuing a number of strategies to deliver the highest-quality, lowest-cost products to their customers. A growing trend among retailers is to purchase on a "just-in-time" basis in order to reduce inventory costs and increase returns on investment. As retailers shorten their lead times for orders, manufacturers need to more closely anticipate consumer buying patterns. The Company supports its retail customers' "just-in-time" inventory strategies through investments in improved forecasting systems, more responsive manufacturing and distribution capabilities and electronic communications. The Company manufactures the vast majority of its products and has extensive experience in high-volume, cost-effective manufacturing. The high-volume nature of its manufacturing processes and the relatively consistent demand for its products enables the Company to ship most products directly from its factories without the 11 need for independent warehousing and distribution centers. For 2000, approximately 98% of the items ordered by customers were shipped on time, typically within two to three days of the customer's order. Marketing --------- The Company's objective is to develop long-term, mutually beneficial partnerships with its customers and become their supplier of choice. To achieve this goal, the Company has a value-added marketing program that offers a family of leading brand name staple products, tailored sales programs, innovative merchandising support, in-store services and responsive top management. The Company's marketing skills help customers stimulate store traffic and sales through timely advertising and innovative promotions. The Company also assists customers in differentiating their offerings by customizing products and packaging. Through self-selling packaging and displays that emphasize good-better-best value relationships, retail customers are encouraged to trade up to higher-value, best quality products. Customer service also involves customer contact with top-level decision makers at the Company's divisions. As part of its decentralized structure, the Company's division presidents are the chief marketing officers of their product lines and communicate directly with customers. This structure permits early recognition of market trends and timely response to customer problems. Multi-Product Offering ---------------------- The Company's increasingly broad product coverage in multiple product lines permits it to more effectively meet the needs of its customers. With families of leading, brand name products and profitable new products, the Company also can help volume purchasers sell a more profitable product mix. As a potential single source for an entire product line, the Company can use program merchandising to improve product presentation, optimize display space for both sales and income and encourage impulse buying by retail customers. Corporate Structure ------------------- By decentralizing its manufacturing and marketing efforts while centralizing key administrative functions, the Company seeks to foster a responsive entrepreneurial culture. The Company's divisions concentrate on designing, manufacturing, marketing, selling their products and servicing their customers, which facilitates product development and responsiveness to customers. Administrative functions that are centralized at the corporate level include cash management, accounting systems, capital expenditure approvals, order processing, 12 billing, credit, accounts receivable, data processing operations and legal functions. Centralization concentrates technical expertise in one location, making it easier to observe overall business trends and manage the Company's businesses. Backlog ------- The dollar value of unshipped factory orders is not material. Seasonal Variations ------------------- The Company's product groups are only moderately affected by seasonal trends. The Storage, Organization & Cleaning, Infant/Juvenile Care & Play and Food Preparation, Cooking & Serving business segments typically have higher sales in the second half of the year due to retail stocking related to the holiday season; the Home Decor and Hardware & Tools business segments have higher sales in the second and third quarters due to an increased level of do-it-yourself projects completed in the summer months; and the Office Product business segment has higher sales in the second and third quarters due to the back-to-school season. Because these seasonal trends are moderate, the Company's consolidated quarterly sales do not fluctuate significantly, unless a significant acquisition is made. Foreign Operations ------------------ Information regarding the Company's 2000, 1999 and 1998 foreign operations is included in Note 14 to the consolidated financial statements and is incorporated by reference herein. Raw Materials ------------- The Company has multiple foreign and domestic sources of supply for substantially all of its material requirements. The raw materials and various purchased components required for its products have generally been available in sufficient quantities. Patents and Trademarks ---------------------- The Company has many patents, trademarks, brand names and trade names, none of which is considered material to the consolidated operations. Competition ----------- The Company competes with numerous other manufacturers and distributors of consumer products, many of which are large and 13 well-established. The Company's principal customers are large mass merchandisers, such as discount stores, home centers, warehouse clubs and office superstores. The rapid growth of these large mass merchandisers, together with changes in consumer shopping patterns, have contributed to a significant consolidation of the consumer products retail industry and the formation of dominant multi-category retailers, many of which have strong bargaining power with suppliers. This environment significantly limits the Company's ability to recover cost increases through selling prices. Other trends among retailers are to foster high levels of competition among suppliers, to demand that manufacturers supply innovative new products and to require suppliers to maintain or reduce product prices and deliver products with shorter lead times. Another trend, in the absence of a strong new product development effort or strong end-user brands, is for the retailer to import generic products directly from foreign sources. The combination of these market influences has created an intensely competitive environment in which the Company's principal customers continuously evaluate which product suppliers to use, resulting in pricing pressures and the need for strong end-user brands, the ongoing introduction of innovative new products and continuing improvements in customer service. For more than 30 years, the Company has positioned itself to respond to the challenges of this retail environment by developing strong relationships with large, high-volume purchasers. The Company markets its strong multi-product offering through virtually every category of high-volume retailer, including discount, drug, grocery and variety chains, warehouse clubs, department, hardware and specialty stores, home centers, office superstores, contract stationers and military exchanges. The Company's largest customer, Wal-Mart (including Sam's Club), accounted for approximately 15% of net sales in 2000. Other top ten customers included Toys 'R Us, The Home Depot, Kmart, Target, Lowe's, The Office Depot, JCPenney, United Stationers, and Sears. The Company's other principal methods of meeting its competitive challenges are high brand name recognition, superior customer service (including industry leading information technology, innovative "good-better-best" marketing and merchandising programs), consistent on-time delivery, decentralized manufacturing and marketing, centralized administration, and experienced management. ENVIRONMENT ----------- Information regarding the Company's environmental matters is included in the Management's Discussion and Analysis section of this report and in Note 15 to the consolidated financial statements and is incorporated by reference herein. 14 EMPLOYEES --------- The Company has approximately 48,800 employees worldwide, of whom 5,884 are covered by collective bargaining agreements or, in certain countries, other collective arrangements decreed by statute. ITEM 2. PROPERTIES ------------------ The following table shows the location and general character of the principal operating facilities owned or leased by the Company. The properties are listed within their designated business segment: Storage, Organization & Cleaning; Home Decor; Office Products; Infant/Juvenile Care & Play; Food Preparation, Cooking & Serving; and Hardware & Tools. These are the primary manufacturing locations and in many instances also contain administrative offices and warehouses used for distribution of our products. The Company also maintains sales offices throughout the United States and the world. The executive offices are located in Beloit, Wisconsin, which is an owned facility occupying approximately 9,000 square feet. The corporate offices are located in Illinois in owned facilities at Freeport (approximately 91,000 square feet) and in owned and leased space in Rockford (approximately 8,700 square feet). Most of the idle facilities, which are excluded from the following list, are subleased while being held pending sale or lease expiration. The Company's properties are generally in good condition, well-maintained, and are suitable and adequate to carry on the Company's business.
OWNED OR BUSINESS LEASED SEGMENT LOCATION CITY GENERAL CHARACTER Storage, Organization & Cleaning AZ Phoenix L Commercial Products Mexico Cadereyta O Commercial Products TN Cleveland O Commercial Products -- 2 facilities Mexico Monterrey L Commercial Products VA Winchester O/L Commercial Products -- 2 facilities AZ Phoenix O Home Products France Amiens O Home Products France Grossiat O Home Products France Lomme L Home Products Germany Dreieich O Home Products Hungary Debrecen L Home Products IA Centerville O/L Home Products -- 2 facilities Mexico Cartagena O Home Products Mexico Tultitlan O Home Products NC Greenville O Home Products Netherlands Brunssum O Home Products OH Mogadore O Home Products 15 OWNED OR BUSINESS LEASED SEGMENT LOCATION CITY GENERAL CHARACTER OH Wooster O Home Products Canada Mississauga O Home Products Poland Seupsk O Home Products Spain Zaragoza O Home Products TX Cleburne O Home Products TX Greenville O Home Products TX Wills Point L Home Products UK Corby O Home Products Netherlands Goirle O Home Products KS Winfield O Home Products -- 2 facilities MO Farmington O Outdoor Play Systems Canada Paris L Outdoor Play Systems GA Manchester O Hair Accessories GA Columbus O/L Hair Accessories -- 2 facilities HOME DECOR Canada Toronto O Picture Frames France La Ferte Milon O Picture Frames France Neunge Sur Beuvron O Picture Frames France St. Laurent Sur Gorre O Picture Frames Mexico Durango O Picture Frames Mexico Tijuana L Picture Frames NC Statesville O/L Picture Frames TX Laredo L Picture Frames TX Taylor O Picture Frames NH Claremont O/L Picture Frames & Photo Albums Mexico Ciudad Juarez L Window Treatments AZ Bisbee L Window Treatments Canada Calgary L Window Treatments Canada Toronto L Window Treatments Denmark Hornum O Window Treatments France Feuquieres-en-Vimeu O Window Treatments France Tremblay-les-Villages O Window Treatments GA Athens O Window Treatments Germany Borken L Window Treatments Germany Isny O Window Treatments IL Freeport O/L Window Treatments IL South Holland L Window Treatments Italy Como O Window Treatments Italy Frosinone O Window Treatments MI Sturgis O Window Treatments NC High Point O Window Treatments NJ Rockaway L Window Treatments PA Shamokin O Window Treatments Spain Vitoria O Window Treatments Sweden Anderstorp O Window Treatments Sweden Malmo O Window Treatments TX Waco O Window Treatments UK Ashbourne O Window Treatments 16 OWNED OR BUSINESS LEASED SEGMENT LOCATION CITY GENERAL CHARACTER UK Birmingham O/L Window Treatments UK Tamworth O Window Treatments UK Watford Herts L Window Treatments UT Ogden O Window Treatments UT Salt Lake City L Window Treatments CA Westminster L Window Treatments -- 3 facilities OFFICE PRODUCTS TN Lewisburg O Cosmetic Pencils TN Maryville O Office & Storage Organizers WI Madison O/L Office & Storage 4 facilities Puerto Rico Moca O Office & Storage Organizers CA Santa Monica L Writing Instruments IL Bellwood O Writing Instruments 3 facilities IL Bolingbrook L Writing Instruments TN Lewisburg O Writing Instruments TN Shelbyville O Writing Instruments -- 2 facilities WI Janesville L Writing Instruments Canada Oakville L Writing Instruments Colombia Bogota O Writing Instruments France St. Herblain O Writing Instruments France Valence O Writing Instruments Germany Hamburg O Writing Instruments Germany Baden-Baden L Writing Instruments Mexico Pasteje L Writing Instruments Mexico Tijuana L Writing Instruments Mexico Tlalnepantla O Writing Instruments UK Newhaven O Writing Instruments UK Kings Lynn O Writing Instruments Venezuela Maracay O Writing Instruments INFANT/JUVENILE CARE & PLAY CA San Bernadino O Infant Products OH Canton O Infant Products OH Macedonia O Infant Products PA Elverson O Infant Products SC Greer L Infant Products CA City of Industry L Juvenile Products OH Hudson O Juvenile Products OH Sebring O Juvenile Products Luxembourg Niedercorn O Juvenile Products FOOD PREPARATION, COOKING & SERVING OH Perrysburg O Cookware WI Manitowoc O Cookware & Bakeware -- 5 facilities WI Chilton O Cookware Components Brazil Sao Paulo L Cookware Germany Muhltal O Plastic Storage Ware UK Sunderland O Glassware & Bakeware 17 OWNED OR BUSINESS LEASED SEGMENT LOCATION CITY GENERAL CHARACTER France Chateauroux O Glassware & Bakeware OH Lancaster O Glassware & Bakeware PA Monaca O Glassware & Food Service HARDWARE & TOOLS Canada Woodbridge L Cabinet & Window Hardware IL Rockford O Cabinet & Window Hardware SD Bismarck L Cabinet & Window Hardware CA Vista O Home Storage Systems MO Jackson O Home Storage Systems Canada Watford O Home Storage Systems NY Buffalo O Paint Applicators TN Johnson City O Paint Applicators WI Milwaukee O Paint Applicators NY Medina O Propane/Oxygen Hand Torches AZ Phoenix L Small Hardware NY Ogdensburg O Small Hardware IN Lowell O Window Hardware
ITEM 3. LEGAL PROCEEDINGS ----------------- Information regarding legal proceedings is included in Note 15 to the consolidated financial statements and is incorporated by reference herein. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- There were no matters submitted to a vote of the Company's shareholders during the fourth quarter of fiscal year 2000. SUPPLEMENTARY ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT. NAME AGE PRESENT POSITION WITH THE COMPANY ---- --- --------------------------------- Joseph Galli, Jr. 42 President and Chief Executive Officer William T. Alldredge 61 President-Corporate Development and Chief Financial Officer Jeffery E. Cooley 48 Group President Peter J. Martin 45 Group President Robert S. Parker 55 Group President 18 Joseph M. Ramos 59 Group President Brian T. Schnabel 48 Group President Jeffrey J. Burbach 43 Vice President-Controller Tim Jahnke 41 Vice President-Human Resources Dale L. Matschullat 55 Vice President-General Counsel Joseph Galli, Jr. has been Vice Chairman and Chief Executive Officer of the Company since January 8, 2001. Prior thereto, he was President and Chief Executive Officer of VerticalNet, Inc. from May 2000 until January 2001. From June 1999 until May 2000, he was President and Chief Operating Officer of Amazon.com. From 1980 until June 1999, he held a variety of positions with The Black and Decker Corporation, culminating as President of Black and Decker's Worldwide Power Tools and Accessories. William T. Alldredge has been President - Corporate Development and Chief Financial Officer since January 2001. Prior thereto, he was President - International Business Development from December 1999 until January 2001. From August 1983 until December 1999, he was Vice President - Finance. Jeffery E. Cooley has been Group President of the Company's Food Preparation, Cooking & Serving business segment since November 2000. Prior thereto, he was President of the Company's Calphalon division from 1990 through October 2000. Peter J. Martin has been Group President of the Company's Home Decor business segment from November 2000. Prior thereto, he was President of Newell Window Fashions Europe from December 1997 through October 2000. From May 1994 until December 1997 he was Vice President - Group Controller of the Company. Robert S. Parker has been Group President of the Company's Office Products business segment since August 1998. Prior thereto, he was President of Sanford Corporation, both before and after the Company acquired it in 1992, from October 1990 to August 1998. Joseph M. Ramos has been Group President of the Company's Storage, Organization & Cleaning business segment since November 2000. Prior thereto, he was President of Rubbermaid Commercial Products from 1992 through October 2000. Brian T. Schnabel has been Group President of the Company's Infant/Juvenile Care & Play business segment since March 5, 2001. Prior thereto, he was Chief Operating Officer of TruServ Corporation (a cooperative for True Value and other retailers) from March 2000 until March 2001. From October 1998 until becoming Chief Operating 19 Officer, he was Executive Vice President, Business Development of TruServ. From 1995 until 1998, he was President and Chief Operating Officer of Elmer's Products, Inc. From 1978 until 1995, he progressed through a series of high-level positions at the Huffy Corporation. Jeffrey J. Burbach has been Vice President-Controller since June 1999. Prior thereto, he was President of the Company's EZ Paintr division from December 1994 to June 1999. From September 1992 to December 1994, he was President of the Company's Bernz O matic division. Tim Jahnke has been Vice President-Human Resources since February 2001. Prior thereto, he was President of the Anchor Hocking Specialty Glass division from June 1999 until February 2001. From 1995 until June 1999, he led the human resources department of the Company's Sanford division's worldwide operations. Dale L. Matschullat has been Vice President-General Counsel since January 2001. Prior thereto, he was Vice President-Finance, Chief Financial Officer and General Counsel from January 2000 until January 2001. From 1989 until January 2000, he was Vice President-General Counsel. 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------------------------------------- The Company's Common Stock is listed on the New York and Chicago Stock Exchanges (symbol: NWL). As of December 31, 2000, there were 26,704 stockholders of record. The following table sets forth the high and low sales prices of the Common Stock on the New York Stock Exchange Composite Tape (as published in the Wall Street Journal) for the calendar periods indicated. 2000 1999 1998 ---- ---- ---- High Low High Low High Low ---- --- ---- --- ---- --- Quarters: First $31.25 $21.50 $50.00 $36.38 $50.19 $40.88 Second 27.56 23.81 52.00 40.13 49.19 45.44 Third 28.50 21.94 47.69 27.19 54.44 43.19 Fourth 22.88 18.69 36.50 26.25 49.06 37.19 The Company has paid regular cash dividends on its Common Stock since 1947. On February 1, 2000, the quarterly cash dividend was increased to $0.21 per share from the $0.20 per share that had been paid since February 8, 1999. Prior to this date, the quarterly cash dividend paid was $0.18 per share since February 10, 1998. Information about the 5.25% convertible quarterly income preferred securities issued by a wholly owned subsidiary trust of the Company, which are reflected as outstanding in the Company's consolidated financial statements as Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust, is included in Note 6 to the consolidated financial statements and is incorporated by reference herein. 21 ITEM 6. SELECTED FINANCIAL DATA ----------------------- The following is a summary of certain consolidated financial information relating to the Company at December 31. The summary has been derived in part from, and should be read in conjunction with, the consolidated financial statements of the Company included elsewhere in this report and the schedules thereto.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Net sales $6,934,747 $6,711,768 $6,493,172 $5,910,717 $5,480,951 Cost of products sold 5,103,152 4,970,569 4,670,358 4,275,234 3,916,580 ---------- ---------- ---------- ---------- ---------- Gross Income 1,831,595 1,741,199 1,822,814 1,635,483 1,564,371 Selling, general and administrative expenses 899,424 1,104,491 967,916 838,877 798,877 Restructuring costs 48,561 246,381 115,154 37,200 - Goodwill amortization and other 51,930 46,722 59,405 119,743 30,487 ---------- ---------- ---------- ---------- ---------- Operating Income 831,680 343,605 680,339 639,663 735,007 Nonoperating expenses (income): Interest Expense 130,033 100,021 100,514 114,357 84,822 Other, net 16,160 12,645 (237,148) (19,284) (23,127) ---------- ---------- ---------- ---------- --------- - Net 146,193 112,666 (136,634) 95,073 61,695 ---------- ---------- ---------- ---------- ---------- Income Before Income Taxes 685,487 230,939 816,973 544,590 673,312 Income taxes 263,912 135,502 335,139 222,973 261,872 ---------- ---------- ---------- ---------- ---------- Net Income $421,575 $95,437 $481,834 $321,617 $411,440 ========== ========== ========== ========== ========== Earnings per share: Basic $ 1.57 $ 0.34 $ 1.72 $ 1.15 $ 1.46 Diluted $ 1.57 $ 0.34 $ 1.70 $ 1.14 $ 1.46 Weighted average shares outstanding: Basic 268,437 281,806 280,731 280,300 280,894 Diluted 278,365 281,806 291,883 281,653 281,482 Dividends per share $ 0.84 $ 0.80 $ 0.76 $ 0.70 $ 0.63 22 BALANCE SHEET DATA Inventories $1,262,551 $1,034,794 $1,033,488 $ 902,978 $ 801,255 Working capital 1,345,826 1,108,686 1,278,768 1,006,624 953,890 Total assets 7,261,825 6,724,088 6,289,155 5,775,248 5,112,410 Short-term debt 227,206 247,433 101,968 258,201 154,555 Long-term debt, net of current maturities 2,314,774 1,455,779 1,393,865 989,694 1,197,486 Stockholders' equity 2,448,641 2,697,006 2,843,732 2,661,417 2,513,722
ACQUISITIONS OF BUSINESSES 2000, 1999 and 1998 ------------------- Information regarding businesses acquired in the last three years is included in Note 2 to the consolidated financial statements. 1997 ---- On March 5, 1997, the Company purchased the Rolodex business, a marketer of office products such as card files, personal organizers and paper punches, from Insilco Corporation. Rolodex was integrated into Newell Office Products. On May 30, 1997, the Company acquired the Kirsch business, a manufacturer and distributor of drapery hardware and custom window coverings, from Cooper Industries Incorporated. The Kirsch North American operations were combined with Newell Window Furnishings and Levolor Home Fashions; the Kirsch European portion operates as part of Newell Window Fashions Europe. 1996 ---- On January 19, 1996, the Company acquired the Holson Burnes Group, Inc., a manufacturer and marketer of photo albums and picture frames. Holson Burnes was combined with Intercraft, creating the Intercraft/ Burnes division. 23 QUARTERLY SUMMARIES Summarized quarterly data for the last three years is as follows (unaudited):
Calendar Year 1st 2nd 3rd 4th Year ------------- --- --- --- --- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 ---- Net sales $1,628,979 $1,787,025 $1,756,372 $1,762,371 $6,934,747 Gross income 408,484 487,476 468,753 466,882 1,831,595 Net income 76,220 128,015 122,999 94,341 421,575 Earnings per share: Basic 0.28 0.48 0.46 0.35 1.57 Diluted 0.28 0.48 0.46 0.35 1.57 1999 ---- Net sales $1,589,776 $1,671,635 $1,683,344 $1,767,013 $6,711,768 Gross income 423,308 420,806 444,570 452,515 1,741,199 Net (loss) income (78,999) 30,054 72,737 71,645 95,437 (Loss) Earnings per share: Basic (0.28) 0.11 0.26 0.25 0.34 Diluted (0.28) 0.11 0.26 0.25 0.34 1998 ---- Net sales $1,475,798 $1,636,258 $1,638,694 $1,742,422 $6,493,172 Gross income 396,223 487,028 477,849 461,714 1,822,814 Net income 158,493 141,915 117,502 63,924 481,834 Earnings per share: Basic 0.57 0.51 0.42 0.22 1.72 Diluted 0.56 0.50 0.42 0.22 1.70
24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. RESULTS OF OPERATIONS The following table sets forth for the period indicated items from the Consolidated Statements of Income as a percentage of net sales: Year Ended December 31, 2000 1999 1998 ----------------------- ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of products sold 73.6 74.1 71.9 ----- ----- ----- GROSS INCOME 26.4 25.9 28.1 Selling, general and administrative expenses 13.0 16.4 14.9 Restructuring costs 0.7 3.7 1.8 Goodwill amortization and other 0.7 0.7 0.9 ----- ----- ----- OPERATING INCOME 12.0 5.1 10.5 Nonoperating expenses (income): Interest expense 1.9 1.5 1.5 Other, net 0.2 0.2 (3.6) ----- ----- ----- NET NONOPERATING EXPENSES (INCOME) 2.1 1.7 (2.1) ----- ----- ----- INCOME BEFORE INCOME TAXES 9.9 3.4 12.6 Income taxes 3.8 2.0 5.2 ----- ----- ----- NET INCOME 6.1% 1.4% 7.4% ===== ===== ===== 2000 vs. 1999 ------------- Net sales for 2000 were $6,934.7 million, representing an increase of $222.9 million or 3.3% from $6,711.8 million in 1999. Net sales for each of the Company's segments (and the primary reasons for the year-to-year changes) were as follows, in millions: 25 YEAR ENDED DECEMBER 31, 2000 1999 % Change ----------------------- ---- ---- -------- Storage, Organization & Cleaning $1,833.0 $1,899.5 (3.5)% Home Decor 1,392.4 1,370.4 1.6% Office Products<1> 1,288.0 1,218.0 5.7% Infant/Juvenile Care & Play<2> 921.0 834.7 10.3% Food Preparation, Cooking & Serving 774.4 782.2 (0.1)% Hardware & Tools<3> 725.9 607.0 19.6% ------- ------- $6,934.7 $6,711.8 3.3% ======= ======= PRIMARY REASONS FOR CHANGES: <1> 4% internal growth* plus sales from the Reynolds acquisition+ (October 1999). <2> Internal growth. <3> 6% internal growth plus sales from the McKechnie acquisition (October 1999). * Internal growth is defined by the Company as growth from its core businesses, which include continuing businesses owned more than two years and minor acquisitions. + Acquisitions and divestitures are described in note 2 to the consolidated financial statements. Gross income as a percent of net sales in 2000 was 26.4% or $1,831.6 million versus 25.9% or $1,741.2 million in 1999. Excluding costs associated with the Rubbermaid merger and certain realignment and other charges of $2.4 million and $106.2 million in 2000 and 1999, respectively, gross income as a percent of net sales was 26.4% in 2000 versus 27.5% in 1999. This decrease in gross margins in 2000 was primarily attributable to lower than anticipated sales volume and higher than expected material costs. Selling, general and administrative expenses ("SG&A") in 2000 were 13.0% of net sales or $899.4 million versus 16.4% or $1,104.5 in 1999. Excluding costs associated with the Rubbermaid merger and certain realignment and other charges of $8.7 million and $178.8 million in 2000 and 1999, respectively, SG&A as a percent of net sales was 12.8% or $890.7 million in 2000 versus 13.8% or $925.6 million in 1999. The decrease in SG&A expenses is primarily the result of integration cost savings at Rubbermaid Home Products, Rubbermaid Europe and Little Tikes and tight spending control throughout the rest of the Company's core businesses. 26 The Company recorded restructuring charges of $48.6 million in 2000 and $246.4 million in 1999. See note 3 to the consolidated financial statements for a review of the charges. Goodwill amortization and other as a percentage of net sales was 0.7% in 2000 and 1999. Operating income in 2000 was 12.0% of net sales or $831.7 million versus 5.1% of net sales or $343.6 million in 1999. Excluding restructuring and other charges of $59.7 million in 2000 and $531.4 million in 1999, operating income was $891.4 or 12.9% of net sales in 2000 versus $875.0 million or 13.0% of net sales in 1999. Other nonoperating expenses in 2000 were 2.1% of net sales or $146.2 million versus 1.7% or $112.7 million in 1999. The increased expenses in 2000 are a result of the Company's increased level of debt and higher interest rates. For 2000 and 1999 the effective tax rates were 38.5% and 58.7%, respectively. The higher rate in 1999 was primarily due to nondeductible transaction costs associated with the Rubbermaid merger. See note 12 to the consolidated financial statements for an explanation of the effective tax rate. Net income for 2000 was $421.6 million, representing an increase of $326.2 million from 1999. Basic and diluted earnings per share in 2000 increased to $1.57 versus $0.34 in 1999. Excluding 2000 pre-tax charges of $59.7 million ($36.7 million after taxes) as discussed above, net income in 2000 was $458.3 million. Excluding 1999 pre-tax charges of $531.4 million ($369.6 million after taxes), net income in 1999 was $465.0 million. Diluted earnings per share, calculated on the same basis, increased 3.6% to $1.71 in 2000 versus $1.65 in 1999. The decrease in net income for 2000 was primarily due to increased raw material costs and softer than expected sales volume, offset partially by Rubbermaid integration cost savings, tight spending control at other core businesses and internal growth. Diluted earnings per share increased in 2000 versus 1999 as a result of the lower share base due to the stock repurchase program. 1999 vs. 1998 ------------- Net sales for 1999 were $6,711.8 million, representing an increase of $218.6 million or 3.4% from $6,493.2 million in 1998. Net sales for each of the Company's segments (and the primary reasons for the year-to-year changes) were as follows, in millions: 27 YEAR ENDED DECEMBER 31, 1999 1998 % Change ----------------------- ---- ---- -------- Storage, Organization & Cleaning<1> $1,899.5 $2,047.0 (7.2)% Home Decor<2> 1,370.4 1,242.9 10.3% Office Products<3> 1,218.0 1,078.6 12.9% Infant/Juvenile Care & Play<4> 834.7 751.3 11.1% Food Preparation, Cooking & Serving 782.2 790.0 (1.0)% Hardware & Tools 607.0 583.4 4.0% -------- -------- $6,711.8 $6,493.2 3.4% PRIMARY REASONS FOR CHANGES: <1> 1998 Decora (April 1998) and Newell Plastics (September 1998) divestitures and weak sales performance at Rubbermaid Home Products, offset partially by strong sales at Rubbermaid Commercial Products. <2> Swish (March 1998), Gardinia (August 1998) and Ateliers (April 1999) acquisitions. <3> 7% Internal growth and Rotring (September 1998) and Reynolds (October 1999) acquisitions offset partially by Stuart Hall (August 1998) divestiture. <4> Century (May 1998) acquisition. Gross income as a percent of net sales in 1999 was 25.9% or $1,741.2 million versus 28.1% or $1,822.8 million in 1998. Excluding costs associated with the Rubbermaid and Calphalon mergers and certain realignment and other charges of $106.2 million and $27.9 million in 1999 and 1998, respectively, gross income as a percent of net sales was 27.5% in 1999 versus 28.5% in 1998. This decrease in gross margins in 1999 was primarily attributable to promotional commitments made prior to the Rubbermaid merger, which affected first half 1999 results at Rubbermaid Home Products, higher than expected resin and other material costs, which affected second half 1999 results, and operating inefficiencies at certain glassware and window treatments facilities. Selling, general and administrative expenses ("SG&A") in 1999 were 16.4% of net sales or $1,104.5 million versus 14.9% or $967.9 million in 1998. Excluding costs associated with the Rubbermaid and Calphalon mergers and certain realignment and other charges of $178.8 million and $23.6 million in 1999 and 1998, respectively, SG&A as a percent of net sales was 13.8% or $925.7 million versus 14.5% or $944.3 million in 1998. This decrease in SG&A expenses is primarily due to SG&A savings as a result of integrating Rubbermaid into Newell. The Company recorded restructuring charges of $246.4 million in 1999 and $115.2 million in 1998. See note 3 to the consolidated financial statements for a review of the charges. Goodwill amortization and other as a percentage of net sales was 0.7% in 1999 and 0.9% in 1998. Excluding charges of $15.0 million in 28 1998 (which included write-offs of intangible assets), goodwill amortization and other was 0.7% of net sales. Operating income in 1999 was 5.1% of net sales or $343.6 million versus 10.5% or $680.3 million in 1998. Excluding charges as discussed above of $531.4 million in 1999 and $181.7 million 1998, operating income was $875.0 million or 13.0% in 1999 versus $862.0 million or 13.3% in 1998. Other nonoperating expenses in 1999 were 1.7% of net sales or $112.7 million versus other nonoperating income of 2.1% or $136.6 million in 1998. The $249.3 million difference was due primarily to a 1998 net pre-tax gain of $191.5 million on the sale of the Company's stake in The Black & Decker Corporation and 1998 net pre-tax gains of $59.8 million on the divestitures of Stuart Hall, Newell Plastics and Decora. This was offset partially by $3.7 million of Rubbermaid merger transaction costs in 1998. For 1999 and 1998, the effective tax rates were 58.7% and 41.0%, respectively. The increase in 1999 was primarily due to nondeductible transaction costs related to the Rubbermaid merger. See note 12 to the consolidated financial statements for an explanation of the effective tax rate. Net income for 1999 was $95.4 million, representing a decrease of $386.4 million or 80.2% from 1998. Basic earnings per share in 1999 decreased 80.2% to $0.34 versus $1.72 in 1998; diluted earnings per share in 1999 decreased 80.0% to $0.34 versus $1.70 in 1998. Excluding 1999 pre-tax charges of $531.4 million ($369.6 million after taxes) as discussed above, net income in 1999 was $465.0 million. Excluding 1998 pre-tax charges of $185.4 million ($119.4 million after taxes), the net pre-tax gain on the sale of Black & Decker Common Stock of $191.5 million ($116.8 million after taxes) and net pre-tax gains of $59.8 million ($15.1 million after taxes) on the sales of businesses as discussed above, net income in 1998 was $469.3 million. 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 by operating activities in 2000 was $623.5 million, representing an increase of $69.5 million from $554.0 million for 1999. The Company has short-term foreign and domestic committed and uncommitted lines of credit with various banks which are available for 29 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 December 31, 2000 totaled $23.5 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 December 31, 2000, 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 December 31, 2000, $1,503.7 million (principal amount) of commercial paper was outstanding. Of this amount, $1,300.0 million is classified as long-term debt and the remaining $203.7 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 December 31, 2000, the Company was in compliance with these agreements. The Company had outstanding at December 31, 2000 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%. A universal shelf registration statement became effective in July 1999. As of December 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. In 2000, the Company acquired Mersch, Brio and Paper Mate/Parker and made other minor acquisitions for cash purchase prices totaling $582.7 million. In 1999, the Company acquired Ateliers, Reynolds, McKechnie, Ceanothe and made other minor acquisitions for cash purchase prices totaling $400.1 million. In 1998, the Company acquired 30 Curver, Swish, Century, Panex, Gardinia and Rotring and made other minor acquisitions for cash purchase prices totaling $615.7 million. Capital expenditures were $316.6 million, $200.1 million and $318.7 million in 2000, 1999 and 1998, respectively. Aggregate dividends paid during 2000, 1999 and 1998 were $225.1 million, $225.8 million and $212.5 million, respectively. On February 7, 2000, the Company announced a stock repurchase program of up to $500.0 million of the Company's outstanding Common Stock. During 2000, the Company repurchased 15.5 million shares of its Common Stock at an average price of $26 per share, for a total cash price of $403.0 million under the program. The repurchase program remained in effect until December 31, 2000 and was financed through the use of working capital and commercial paper. Retained earnings increased in 2000 by $196.3 million and decreased in 1999 by $130.5 million. The difference between 2000 and 1999 was primarily due to restructuring costs and other pre-tax charges relating to recent acquisitions of $59.7 million ($36.7 million after tax) in 2000 versus $531.4 million ($369.6 million after tax) in 1999. The dividend payout ratio to common stockholders in 2000, 1999 and 1998 was 54%, 235%, and 45%, respectively (represents the percentage of diluted earnings per share paid in cash to stockholders). Working capital at December 31, 2000 was $1,345.8 million compared to $1,108.7 million at December 31, 1999 and $1,278.8 million at December 31, 1998. The current ratio at December 31, 2000 was 1.87:1 compared to 1.68:1 at December 31, 1999 and 2.09:1 at December 31, 1998. Total debt to total capitalization (total debt is net of cash and cash equivalents, and total capitalization includes total debt, company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust and stockholders' equity) was .46:1 at December 31, 2000, .33:1 at December 31, 1999 and .30:1 at December 31, 1998. The Company believes that cash provided from operations and available borrowing facilities will continue to provide adequate support for the cash needs of existing businesses; however, certain events, such as significant acquisitions, could require additional external financing. LEGAL AND ENVIRONMENTAL MATTERS The Company is subject to certain legal proceedings and claims, including various environmental matters, that have arisen in the ordinary conduct of its business or have been assumed by the Company when it purchased certain businesses. Such matters are more fully described in note 15 to the Company's consolidated financial 31 statements. 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. INTERNATIONAL OPERATIONS The Company's non-U.S. business is growing at a faster pace than its business in the United States. This growth outside the U.S. has been fueled by recent international acquisitions, primarily in Europe. For the year ended December 31, 2000, the Company's non-U. S. business accounted for approximately 25% of net sales (see note 14 to the consolidated financial statements). Growth of both U.S. and non-U.S. businesses is shown below: YEAR ENDED DECEMBER 31, 2000 1999 % Change ----------------------- ---- ---- -------- (In millions) Net sales: - U.S. $5,191.5 $5,135.4 1.1% - Non-U.S. 1,743.2 1,576.4 10.6 ------- ------- $6,934.7 $6,711.8 3.3% ======= ======= YEAR ENDED DECEMBER 31, 1999 1998 % Change ---------------------- ---- ---- -------- (In millions) Net sales: - U.S. $5,135.4 $5,081.5 1.1% - Non-U.S. 1,576.4 1,411.7 11.7 ------- ------- $6,711.8 $6,493.2 3.4% ======= ======= MARKET RISK The Company's market risk is impacted by changes in interest rates, foreign currency exchange rates and certain commodity prices. Pursuant to the Company's policies, natural hedging techniques and derivative financial instruments may be utilized to reduce the impact of adverse 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 32 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: * offsetting or netting of like foreign currency cash flows, * structuring foreign subsidiary balance sheets with appropriate levels of debt to reduce subsidiary net investments and subsidiary cash flows subject to conversion risk, * converting excess foreign currency deposits into U.S. dollars or the relevant functional currency and * avoidance of risk by denominating contracts in the appropriate functional currency. In addition, the Company utilizes 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 the table below have no impact on results of operations or financial condition as they represent economic not financial losses. 33 Time Confidence Amount Period Level ------ ------ ---------- (In millions) Interest rates $7.4 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 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. 34 FORWARD-LOOKING STATEMENTS Forward-looking statements in this Report are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to, but are not limited to, such matters as sales, income, earnings per share, return on equity, capital expenditures, dividends, capital structure, free cash flow, debt to capitalization ratios, interest rates, internal growth rates, the Euro conversion plan and related risks, legal proceedings and claims (including environmental matters), future economic performance, management's plans, goals and objectives for future operations and growth or the assumptions relating to any of the forward-looking information. The Company cautions that forward-looking statements are not guarantees since there are inherent difficulties in predicting future results. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, those matters set forth in this Report and Exhibit 99 to this Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information required by this item is incorporated herein by reference to the section entitled "Market Risk" in the Company's Management's Discussion and Analysis of Results of Operations and Financial Condition (Part II, Item 7). ITEM 8. FINANCIAL AND SUPPLEMENTARY DATA -------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Newell Rubbermaid Inc.: We have audited the accompanying consolidated balance sheets of Newell Rubbermaid Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000, 1999 and 1998 and the related consolidated statements of income, stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2000. We did not audit the financial statements of Rubbermaid Incorporated for the year and period ended December 31, 1998. Rubbermaid was acquired on March 24, 1999 in a transaction accounted for as a pooling of interests, as discussed in note 1 to the consolidated financial statements. Such statements are included in the consolidated financial statements of Newell Rubbermaid Inc. and subsidiaries and reflect total assets and total revenues of 34 percent and 40 percent, respectively, in 1998 of the related consolidated totals. These statements were audited by other auditors whose report 35 has been furnished to us and our opinion, insofar as it relates to the amounts included for Rubbermaid Incorporated, is based solely upon the report of the other auditors. These consolidated financial statements are the responsibility of Newell Rubbermaid Inc.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Newell Rubbermaid Inc. and subsidiaries as of December 31, 2000, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Part IV Item 14(a)(2) of this Form 10-K is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin January 25, 2001 INDEPENDENT AUDITORS' REPORT Shareholders and Board of Directors Rubbermaid Incorporated: We have audited the consolidated balance sheets of Rubbermaid Incorporated and subsidiaries (the Company) as of January 1, 1999, and the related consolidated statements of earnings, shareholders' equity 36 and comprehensive income, and cash flows for the year then ended (the consolidated financial statements are not included herein). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rubbermaid Incorporated and subsidiaries as of January 1, 1999, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Cleveland, Ohio February 5, 1999, except as to note 15, which is as of March 24, 1999 37 NEWELL RUBBERMAID INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2000 1999 1998 ---------------------- ---- ---- ---- (In thousands, except per share data) Net sales $6,934,747 $6,711,768 $6,493,172 Cost of products sold 5,103,152 4,970,569 4,670,358 --------- --------- --------- Gross Income 1,831,595 1,741,199 1,822,814 Selling, general and administrative expenses 899,424 1,104,491 967,916 Restructuring costs 48,561 246,381 115,154 Goodwill amortization and other 51,930 46,722 59,405 --------- --------- --------- Operating Income 831,680 343,605 680,339 Nonoperating expenses (income): Interest expense 130,033 100,021 100,514 Other, net 16,160 12,645 (237,148) --------- --------- --------- Net Nonoperating Expenses (Income) 146,193 112,666 (136,634) --------- --------- --------- Income Before Income Taxes 685,487 230,939 816,973 Income taxes 263,912 135,502 335,139 --------- --------- --------- Net Income $421,575 $95,437 $481,834 ========= ========= ========= Earnings per share: Basic $1.57 $0.34 $1.72 Diluted $1.57 $0.34 $1.70 Weighted average shares outstanding: Basic 268,437 281,806 280,731 Diluted 278,365 281,806 291,883 See notes to consolidated financial statements.
38 NEWELL RUBBERMAID INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In thousands) OPERATING ACTIVITIES Net income $421,575 $95,437 $481,834 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 292,576 271,731 263,804 Deferred income taxes 59,800 (9,600) 81,734 Income tax savings from employee stock plans 997 2,269 1,377 Net (gains) losses on: Marketable equity securities - 700 (116,800) Sales of businesses - - (24,529) Non-cash restructuring charges 18,452 100,924 45,800 Write-off of assets - - 4,288 Other 1,947 51,748 24,075 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 36,301 (16,137) 39,619 Inventories (100,495) 52,662 (37,142) Other current assets 6,598 (41,793) (29,906) Accounts payable (45,606) 14,617 (72,020) Accrued liabilities and other (68,658) 31,393 (183,367) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 623,487 553,951 478,767 INVESTING ACTIVITIES Acquisitions, net (597,847) (345,934) (654,591) Expenditures for property, plant and equipment (316,564) (200,066) (318,731) Purchase of marketable equity securities - - (26,056) Sales of businesses, net of taxes paid - - 224,487 Sales of marketable securities, net of taxes paid - 14,328 303,869 Disposals of non-current assets and other 5,119 720 9,773 -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (909,292) (530,952) (461,249) FINANCING ACTIVITIES Proceeds from issuance of debt 1,265,051 803,298 676,759 Payments on notes payable and long-term debt (428,211) (608,573) (546,603) Common stock repurchase (402,962) - - Cash dividends (225,083) (225,774) (212,486) Proceeds from exercised stock options and other 1,263 27,411 2,712 -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 210,058 (3,638) (79,618) Exchange rate effect on cash (3,892) (3,751) (1,477) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (79,639) 15,610 (63,577) Cash and cash equivalents at beginning of year 102,164 86,554 150,131 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $22,525 $102,164 $86,554 ======== ======== ======== Supplemental cash flow disclosures - Cash paid during the year for: Income taxes $152,787 $194,351 $272,239 Interest 145,455 98,536 103,831 See notes to consolidated financial statements.
39 NEWELL RUBBERMAID INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In thousands) ASSETS Current Assets Cash and cash equivalents $22,525 $102,164 $86,554 Accounts receivable, net 1,183,363 1,178,423 1,078,530 Inventories, net 1,262,551 1,034,794 1,033,488 Deferred income taxes 231,875 250,587 108,192 Prepaid expenses and other 196,338 172,601 143,885 --------- ---------- ---------- TOTAL CURRENT ASSETS 2,896,652 2,738,569 2,450,649 Marketable Equity Securities 9,215 10,799 19,317 Other Long-Term Investments 72,763 65,905 57,967 Other Assets 336,344 335,699 267,073 Property, Plant and Equipment, Net 1,756,903 1,548,191 1,627,090 Trade Names and Goodwill, Net 2,189,948 2,024,925 1,867,059 ---------- ---------- ---------- TOTAL ASSETS $7,261,825 $6,724,088 $6,289,155 ========== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable $23,492 $97,291 $94,634 Accounts payable 342,406 376,596 322,080 Accrued compensation 126,970 113,373 110,471 Other accrued liabilities 781,122 892,481 610,618 Income taxes 73,122 - 26,744 Current portion of long-term debt 203,714 150,142 7,334 ---------- ---------- ---------- TOTAL CURRENT LIABILITIES 1,550,826 1,629,883 1,171,881 Long-Term Debt 2,314,774 1,455,779 1,393,865 Other Non-Current Liabilities 352,633 354,107 374,293 Deferred Income Taxes 93,165 85,655 4,527 Minority Interest 1,788 1,658 857 Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust 499,998 500,000 500,000 Stockholders' Equity Common Stock, $1 per share par value, with authorized shares of 800.0 million in 2000 and 1999; 400.0 million in 1998 282,174 282,026 281,747 Outstanding shares: 2000 - 282.2 million 1999 - 282.0 million 1998 - 281.7 million 40 Treasury Stock, at cost (407,456) (2,760) (21,607) Shares held: 2000 - 15.6 million 1999 - 0.1 million 1998 - 0.6 million Additional paid-in capital 215,911 213,112 204,709 Retained earnings 2,530,864 2,334,609 2,465,064 Accumulated other comprehensive loss (172,852) (129,981) (86,181) ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 2,448,641 2,697,006 2,843,732 ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,261,825 $6,724,088 $6,289,155 ========== ========= ========= See notes to consolidated financial statements.
41
NEWELL RUBBERMAID INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME ACCUMULATED CURRENT OTHER YEAR ADDITIONAL COMPRE- COMPRE- COMMON TREASURY PAID-IN RETAINED HENSIVE HENSIVE STOCK STOCK CAPITAL EARNINGS INCOME INCOME ------ -------- ---------- -------- ---------- ------- (In thousands, except per share data) BALANCE AT DECEMBER 31, 1997 $281,338 $(34,667) $199,509 $2,195,716 $19,521 Net income 481,834 $481,834 Other comprehensive income: Unrealized gain on securities available for sale, net of $23.5 million tax 33,850 33,850 Reclassification adjustment for gains realized in net income, net of $74.7 million tax (116,800) (116,800) Foreign currency translation adjustments (22,752) (22,752) -------- Total comprehensive income $376,132 ======== Cash dividends: Common Stock $0.76 per share (212,486) Exercise of stock options 409 13,013 9,877 Other 47 (4,677) ------- ------- ------- --------- ------- BALANCE AT DECEMBER 31, 1998 281,747 (21,607) 204,709 2,465,064 (86,181) Net income 95,437 $95,437 Other comprehensive income: Unrealized gain on securities available for sale, net of $2.3 million tax 3,545 3,545 Reclassification adjustment for losses realized in net income, net of $0.4 million tax 700 700 Foreign currency translation adjustments (48,045) (48,045) ------- Total comprehensive income $51,637 ======= Cash dividends: Common Stock $0.80 per share (225,774) Exercise of stock options 279 16,316 7,699 Other 2,531 704 (118) ------- ------- ------- --------- ------- BALANCE AT DECEMBER 31, 1999 282,026 (2,760) 213,112 2,334,609 (129,981) Net income 421,575 $421,575 Other comprehensive income: Unrealized loss on securities available for sale, net of $(0.7) million tax (1,201) (1,201) 42 Foreign currency translation adjustments (41,670) (41,670) ------- Total comprehensive income $378,704 ======= Cash dividends: Common Stock $0.84 per share (225,083) Exercise of stock options 148 (190) 1,495 Common Stock repurchase (402,962) Other (1,544) 1,304 (237) ------- ------- ------- ------- ------- BALANCE AT DECEMBER 31, 2000 $282,174 $(407,456) $215,911 $2,530,864 $(172,852) ======== ======== ======== ========= =========
43 NEWELL RUBBERMAID INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999, 1998 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Newell Rubbermaid Inc. and its majority owned subsidiaries (the "Company") after elimination of intercompany accounts and transactions. 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 merger was accounted for as a pooling of interests and the financial statements have been restated to combine retroactively Rubbermaid's financial statements with those of Newell as if the merger had occurred at the beginning of the earliest period presented. USE OF ESTIMATES: The preparation of these financial statements required the use of certain estimates by management in determining the Company's assets, liabilities, revenue and expenses and related disclosures. Actual results could differ from those estimates. RECLASSIFICATIONS: Certain 1999 and 1998 amounts have been reclassified to conform with the 2000 presentation. REVENUE RECOGNITION: Sales of merchandise are recognized upon shipment to customers and when all substantial risks of ownership change. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, which clarified the existing accounting rules for revenue recognition. SAB No. 101 (as modified by SAB No. 101 A and B) was adopted by the Company in the first quarter of 2000. The Company's revenue recognition policy did not change with the adoption of SAB No. 101. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: LONG-TERM DEBT: The fair value of the Company's long-term debt issued under the medium-term note program is estimated based on quoted market prices which approximate cost. All other significant long-term debt is pursuant to floating rate instruments whose carrying amounts approximate fair value. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST: The fair value of the $500.0 million company-obligated mandatorily redeemable convertible 44 preferred securities of a subsidiary trust was $328.1 million at December 31, 2000 based on quoted market prices. CASH AND CASH EQUIVALENTS: Cash and highly liquid short-term investments having a maturity of three months or less. ALLOWANCES FOR DOUBTFUL ACCOUNTS: Allowances for doubtful accounts at December 31 totaled $36.1 million in 2000, $41.9 million in 1999 and $34.2 million in 1998. INVENTORIES: Inventories are stated at the lower of cost or market value. Cost of certain domestic inventories (approximately 64%, 72% and 72% of total inventories at December 31, 2000, 1999 and 1998, respectively) was determined by the "last-in, first-out" ("LIFO") method; for the balance, cost was determined using the "first-in, first-out" ("FIFO") method. If the FIFO inventory valuation method had been used exclusively, inventories would have increased by $15.9 million, $11.4 million and $14.2 million at December 31, 2000, 1999 and 1998, respectively. Inventory reserves (excluding LIFO reserves) at December 31 totaled $114.6 million in 2000, $119.4 million in 1999 and $113.8 million in 1998. The components of inventories, net of the LIFO reserve, were as follows: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Materials and supplies $244.8 $240.0 $223.8 Work in process 165.3 149.5 137.2 Finished products 852.5 645.3 672.5 -------- -------- -------- $1,262.6 $1,034.8 $1,033.5 ======== ======== ======== OTHER LONG-TERM INVESTMENTS: The Company has a 49% ownership interest in American Tool Companies, Inc., a manufacturer of hand tools and power tool accessory products marketed primarily under the Vise-Grip{R} and Irwin{R} trademarks. This investment is accounted for on the equity method with a net investment of $72.8 million at December 31, 2000. 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 accumulated other comprehensive income (and excluded from earnings). Gains and losses on the sales of long-term marketable equity securities are based upon the average cost of securities sold. On March 8, 1998, the Company sold 7,862,300 shares it held in The Black & Decker Corporation. The Black & Decker transaction resulted in net proceeds of approximately $378.3 million and a net pre-tax gain, after fees and expenses, of approximately $191.5 million. Long-term marketable equity securities are summarized as follows: 45 DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Aggregate market value $9.2 $10.8 $19.3 Aggregate cost 11.0 10.6 26.0 ----- ----- ----- Unrealized pre-tax (loss) gain $(1.8) $0.2 $(6.7) ===== ===== ===== PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consisted of the following: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Land $ 60.7 $ 63.4 $ 62.1 Buildings and improvements 736.1 691.3 721.9 Machinery and equipment 2,421.6 2,200.7 2,166.9 ------- ------- ------- 3,218.4 2,955.4 2,950.9 Accumulated depreciation (1,461.5) (1,407.2) (1,323.8) ------- ------- ------- $1,756.9 $1,548.2 $1,627.1 ======= ======= ======= 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). TRADE NAMES AND GOODWILL: The cost of trade names and goodwill represents the excess of cost over identifiable net assets of businesses acquired. The Company does not allocate such excess cost to trade names separate from goodwill. In addition, the Company may allocate excess cost to other identifiable intangible assets and record such intangible assets in Other Assets (long-term). Trade names and goodwill are amortized over 40 years and other identifiable intangible assets are amortized over 5 to 40 years. Trade names and goodwill and other identifiable intangible assets, respectively, consisted of the following: 46 NET TRADE NAMES AND GOODWILL DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Cost $2,485.8 $2,270.5 $2,068.7 Accumulated amortization (295.9) (245.6) (201.6) ------- ------- ------- $2,189.9 $2,024.9 $1,867.1 ======= ======= ======= NET OTHER IDENTIFIABLE INTANGIBLE ASSETS<1> December 31 2000 1999 1998 ----------- ---- ---- ---- (In millions) Cost $96.1 $93.0 $131.2 Accumulated amortization (34.7) (34.3) (37.6) ------ ------ ------ $61.4 $58.7 $93.6 ====== ====== ====== <1> Recorded in Other Assets LONG-LIVED ASSETS: Subsequent to an acquisition, the Company periodically evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of long- lived assets may warrant revision or that the remaining balance of long-lived assets may not be recoverable. If factors indicate that long-lived assets should be evaluated for possible impairment, the Company would use an estimate of the relevant business' undiscounted net cash flow over the remaining life of the long-lived assets in measuring whether the carrying value is recoverable. An impairment loss would be measured by reducing the carrying value to fair value, based on a discounted cash flow analysis. ACCRUED LIABILITIES: Accrued liabilities included the following: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Customer accruals $240.7 $296.6 $190.2 Accrued self-insurance liability 99.9 92.0 80.2 Customer accruals are promotional allowances and rebates given to customers in exchange for their selling efforts. The self-insurance accrual is primarily for workers' compensation and product liability and is estimated based upon historical claim experience. 47 FOREIGN CURRENCY TRANSLATION: Foreign currency balance sheet accounts are translated into U.S. dollars at the rates of exchange in effect at fiscal year end. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to accumulated other comprehensive income. International subsidiaries operating in highly inflationary economies translate non-monetary assets at historical rates, while net monetary assets are translated at current rates, with the resulting translation adjustment included in net income as other nonoperating (income) expenses. Foreign currency transaction gains and losses were immaterial in 2000, 1999 and 1998. ADVERTISING COSTS: The company expenses advertising costs as incurred, including cooperative advertising programs with customers. Total advertising expense was $289.2 million, $285.3 million and $281.5 million for 2000, 1999 and 1998, respectively. Cooperative advertising is recorded in the financial statements as a reduction of sales because it is viewed as part of the negotiated price of products. All other advertising costs are charged to selling, general and administrative expenses. RESEARCH AND DEVELOPMENT COSTS: Research and development costs relating to both future and present products are charged to selling, general and administrative expenses as incurred. These costs aggregated $49.4 million, $49.9 million and $44.5 million in 2000, 1999 and 1998, respectively. 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 years ended December 31, 2000, 1999 and 1998, respectively, is shown below (in millions, except per share data):
"IN THE CONVERTIBLE BASIC MONEY" PREFERRED DILUTED 2000 METHOD STOCK OPTIONS SECURITIES METHOD ---- ------ ------------- ----------- ------- Net income $421.6 - $16.4 $438.0 Weighted average shares outstanding 268.4 0.1 9.9 278.4 Earnings per share $1.57 $1.57 48 "IN THE CONVERTIBLE BASIC MONEY" PREFERRED DILUTED 1999<1> METHOD STOCK OPTIONS SECURITIES METHOD ---- ------ ------------- ---------- ------- Net income $95.4 - - $95.4 Weighted average shares outstanding 281.8 - - 281.8 Earnings per share $0.34 $0.34 "IN THE CONVERTIBLE BASIC MONEY" PREFERRED DILUTED 1998 METHOD STOCK OPTIONS SECURITIES METHOD ---- ------ ------------- ---------- ------- Net income $481.8 - $15.7 $497.5 Weighted average shares outstanding 280.7 1.3 9.9 291.9 Earnings per share $1.72 $1.70
<1> Diluted earnings per share for 1999 exclude the impact of "in the money" stock options and convertible preferred securities because they are antidilutive. COMPREHENSIVE INCOME: Comprehensive income and accumulated other comprehensive income encompass net income, net after-tax unrealized gains on securities available for sale and foreign currency transla- tion adjustments in the Consolidated Statements of Stockholders' Equity and Comprehensive Income. The following table displays the components of accumulated other comprehensive income: AFTER-TAX ACCUMULATED UNREALIZED FOREIGN OTHER GAINS/(LOSSES) CURRENCY COMPREHENSIVE ON SECURITIES TRANSLATION INCOME/(LOSSES) -------------- ----------- --------------- (In millions) Balance at Dec. 31, 1997 $78.8 $(59.3) $19.5 Current year change (82.9) (22.8) (105.7) ----- ----- ----- Balance at Dec. 31, 1998 (4.1) (82.1) (86.2) Current year change 4.2 (48.0) (43.8) ----- ----- ----- 49 Balance at Dec. 31, 1999 0.1 (130.1) (130.0) Current year change (1.2) (41.7) (42.9) ----- ----- ----- Balance at Dec. 31, 2000 $(1.1) $(171.8) $(172.9) ===== ======= ======= 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 Emerging Issues Task Force ("EITF"), a subcommittee of the FASB, issued EITF No. 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10 requires that amounts billed to customers related to shipping and handling costs be classified as revenue and all expenses related to shipping and handling be classified as a cost of products sold. Historically, these revenues and costs have been netted together and deducted from gross sales to arrive at net sales. The net sales and cost of products sold have been restated for this change. The impact of this change increased net sales and costs of products sold by $286.1 million, $298.7 million and $309.5 million for the years ended December 2000, 1999 and 1998, respectively. There is no impact on gross income resulting from this change. Also 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. 50 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 both 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. 2. ACQUISITIONS OF BUSINESSES 2000 ---- 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 Fashion 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 $582.7 million in cash and assumed $15.5 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 $241.3 million. The Company's finalized integration plans may include exit costs for certain plants and product lines and employee terminations associated with the integration of Mersch and Brio into Newell Photo Fashion Europe and Paper Mate/Parker into Sanford North America and Sanford International. The final adjustments to the purchase price allocations are not expected to be material to the consolidated financial statements. 51 The unaudited consolidated results of operations for the years ended December 31, 2000 and 1999 on a pro forma basis, as though the Mersch, Brio and Paper Mate/Parker businesses (as well as the 1999 acquisitions of Ateliers, Reynolds, McKechnie and Ceanothe) had been acquired on January 1, 1999, are as follows (unaudited): YEAR ENDED DECEMBER 31, 2000 1999 ----------------------- ---- ---- (In millions, except per share amounts) Net sales $7,489.7 $7,688.8 Net income 390.2 83.3 Earnings per share (basic) $1.45 $0.30 1999 ---- On April 2, 1999, the Company purchased Ateliers 28, 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., a manufacturer and marketer of writing instruments in Europe. Reynolds operates as part of Sanford International. By December 31, 1999, the Company owned 100% of Reynolds. On October 29, 1999, the Company acquired the consumer products division of McKechnie plc, 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 operates as part of Newell Window Fashions Europe; the remaining portion of McKechnie operates as Newell Hardware Europe. On December 29, 1999, the Company acquired Ceanothe Holding, a manufacturer of picture frames and photo albums in Europe. Ceanothe operates as part of Newell Photo Fashion Europe. For these and for other minor acquisitions, the Company paid $400.1 million in cash and assumed $45.1 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 dates of acquisition. 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 $296.7 million. The Company began to formulate integration plans for these acquisitions as of their respective acquisition dates. The integration plans for these acquisitions were finalized during 2000 and resulted 52 in total integration liabilities of $37.6 million for exit costs and employee terminations. As of December 31, 2000, $9.7 million of reserves remain for the restructuring charges recorded in 1999. 1998 ---- On January 21, 1998, the Company acquired Curver Consumer Products. Curver is a manufacturer and marketer of plastic housewares products in Europe and operates as part of Rubbermaid Europe. On March 27, 1998, the Company acquired Swish Track and Pole from Newmond plc. Swish is a manufacturer and marketer of decorative and functional window furnishings in Europe and operates as part of Newell Window Fashions Europe. On May 19, 1998, the Company acquired certain assets of Century Products. Century is a manufacturer and marketer of infant products such as car seats, strollers and infant carriers and operates as part of the Graco/Century division. On June 30, 1998, the Company purchased Panex S.A. Industria e Comercio, a manufacturer and marketer of aluminum cookware products based in Brazil. Panex operates as part of the Mirro division. On August 31, 1998, the Company purchased the Gardinia Group, a manufacturer and supplier of window treatments based in Germany. Gardinia operates as part of Newell Window Fashions Europe. On September 30, 1998, the Company purchased the Rotring Group, a manufacturer and supplier of writing instruments, drawing instruments, art materials and color cosmetic products based in Germany. The writing and drawing instruments portion of Rotring operates as part of Sanford International. The art materials portion of Rotring operates as part of Sanford North America. The color cosmetic products portion of Rotring operates as a separate U.S. division, Cosmolab. For these and for other minor acquisitions, the Company paid $615.7 million in cash and assumed $99.5 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 dates of acquisition. 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 $387.1 million. The Company began to formulate integration plans for these and other minor acquisitions as of their respective acquisition dates. The integration plans for these acquisitions were finalized during 1999 and resulted in total integration liabilities of $84.7 million for exit costs and employee terminations. As of December 31, 2000, no reserves remain for the restructuring charges recorded in 1998. 53 MERGERS On May 7, 1998, a subsidiary of the Company merged with Calphalon Corporation, a manufacturer and marketer of gourmet cookware. The Company issued approximately 3.1 million shares of Common Stock for all of the Common Stock of Calphalon. This transaction was accounted for as a pooling of interests; therefore, prior financial statements were restated to reflect this merger. Calphalon now operates as a separate division of the Company. 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 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 have been eliminated as if Newell had always owned it. The following table presents a reconciliation of net sales and net income (loss) for Newell, Rubbermaid and Calphalon individually to those presented in the accompanying consolidated financial statements: YEAR ENDED DECEMBER 31, 1999 1998 ----------------------- ---- ---- (In millions) Net sales: Newell $4,022.2 $3,747.5 Rubbermaid 2,565.0 2,637.4 Calphalon 124.6 108.3 -------- -------- $6,711.8 $6,493.2 ======== ======== Net income (loss): Newell $273.1 $405.9 Rubbermaid (189.8) 82.9 Calphalon 12.1 (7.0) -------- -------- $95.4 $481.8 ======== ======== 54 DIVESTITURES On April 29, 1998, the Company sold its Decora decorative coverings product line. On August 21, 1998, the Company sold its Stuart Hall school supplies and stationery business. On September 9, 1998, the Company sold its Newell Plastics plastic storage and serveware business. The pre-tax net gain on the sales of these businesses was $59.8 million, which was primarily offset by nondeductible goodwill, resulting in a net after-tax gain of $15.1 million. Sales for these businesses prior to their divestitures were approximately $136 million in 1998. 3. RESTRUCTURING COSTS 2000 ---- During 2000, the Company recorded pre-tax restructuring charges of $48.6 million ($29.9 million after taxes) related primarily to the continued Rubbermaid integration and plant closures in the Home Decor segment. The Company incurred employee severance and termination benefit costs of $26.8 million related to approximately 700 employees terminated in 2000. Such costs included $10.2 million of severance and government mandated settlements for facility closures at Rubbermaid Europe, $6.7 million of change in control payments made to former Rubbermaid executives, $6.3 million for employee terminations at the domestic Rubbermaid divisions and $3.6 million in severance at the Home Decor segment. The Company incurred merger transaction costs of $11.2 million related primarily to legal settlements for Rubbermaid's 1998 sale of a former division and other merger related contingencies resolved in 2000. Additionally, the Company incurred facility and product line exit costs of $10.6 million related primarily to the closure of five European Rubbermaid facilities, three window furnishings facilities and the exit of various Rubbermaid product lines. As of December 31, 2000, $21.9 million of reserves remain for restructuring charges recorded during 2000, 1999 and 1998. These reserves consist of $11.4 million for facility and product line exit costs, $4.6 million in contractual future maintenance costs on abandoned Rubbermaid computer software, $3.3 million for employee severance and termination benefits, and $2.6 million in other merger transaction costs. 1999 ---- During 1999, the Company recorded pre-tax restructuring charges of $246.4 million ($195.7 million after tax) related primarily to the integration of the Rubbermaid businesses into Newell. Merger transaction costs of $39.9 million related primarily to investment 55 banking, legal and accounting costs for the Newell/Rubbermaid merger. Employee severance and termination benefits of $101.9 million related to approximately 750 employees terminated in 1999. Such costs include $80.9 million of change in control payments 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). Facility and product line exit costs totaled $104.6 million, representing $72.0 million of impaired Rubbermaid centralized computer software (abandoned as a result of converting Rubbermaid onto existing Newell centralized computer software) and $32.6 million in costs related 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) and impaired assets ($5.7 million) and other exit costs ($1.6 million). 1998 ---- During January 1998, Rubbermaid announced a series of restructuring initiatives to establish a central global procurement organization and to consolidate, automate and/or relocate its worldwide manufacturing and distribution operations. During 1998, Rubbermaid recorded pre-tax charges of $115.2 million ($74.9 million after tax). The 1998 restructuring charge included $16.0 million relating to employee severance and termination benefits for approximately 600 sales and administrative employees, $53.4 million for costs to exit business activities at five facilities and $45.8 million to write-down impaired long-lived assets to their fair value. The $53.4 million charge for costs to exit business activities related to exit plans for the closure of a plastics houseware molding and warehouse operation in the State of New York, the closure of a commercial play systems warehouse and manufacturing facility in Australia, the closure of a cleaning products manufacturing operation in North Carolina, the elimination of Rubbermaid's Asia Pacific regional headquarters and the related joint venture in Japan and the closure of a distribution facility in France. The exiting of the operations described above necessitated a revaluation of cash flows related to those operations, resulting in a $45.8 million charge to write-down $26.0 million of fixed assets and $19.8 million of goodwill to fair value. Rubbermaid determined that the future cash flows on an undiscounted basis (before taxes and interest) were not sufficient to cover the carrying value of the long-lived assets affected by those decisions. Management determined the fair value of these assets using discounted cash flows. 56 4. CREDIT ARRANGEMENTS 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 the discretion of the lender. The Company's lines of credit do not have a material impact on the Company's liquidity. Borrowings under these lines of credit at December 31, 2000 totaled $23.5 million. The following is a summary of borrowings under foreign and domestic lines of credit: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- --- (In millions) Notes payable to banks: Outstanding at year-end - borrowing $23.5 $97.3 $94.6 - weighted average interest rate 8.6% 6.8% 5.8% Average for the year - borrowing $61.1 $59.1 $144.7 - weighted average interest rate 7.7% 9.9% 6.1% Maximum outstanding during the year $178.0 $97.3 $205.1 The Company can also issue commercial paper (as described in note 5 to the consolidated financial statements), as summarized below: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Commercial paper: Outstanding at year-end - borrowing $1,503.7 $718.5 $500.2 - average interest rate 6.6% 5.9% 5.5% Average for the year - borrowing $987.5 $534.9 $620.4 - average interest rate 6.3% 5.2% 5.5% Maximum outstanding during the year $1,503.7 $807.0 $1,028.8 57 5. LONG-TERM DEBT The following is a summary of long-term debt: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Medium-term notes $1,012.5 $859.5 $883.5 Commercial paper 1,503.7 718.5 500.2 Other long-term debt 2.3 27.9 17.5 -------- -------- -------- 2,518.5 1,605.9 1,401.2 Current portion (203.7) (150.1) (7.3) -------- -------- -------- $2,314.8 $1,455.8 $1,393.9 ======== ======== ======== 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 December 31, 2000, 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 December 31, 2000, $1,503.7 million (principal amount) of commercial paper was outstanding. Of this amount, $1,300.0 million is classified as long- term debt and the remainder of $203.7 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 December 31, 2000, the Company was in compliance with these agreements. The Company had outstanding at December 31, 2000 a total of $1,012.5 million (principal amount) of medium-term notes. The maturities on the Company's medium-term notes range from 3 to 30 years at an average interest rate of 6.34%. A universal shelf registration statement became effective in July 1999. As of December 31, 2000, $449.5 million of Company debt and equity securities may be issued under the shelf. 58 The aggregate maturities of long-term debt outstanding are as follows: DECEMBER 31, Aggregate Maturities ------------ -------------------- (In millions) 2001 $203.7 2002 1,400.0 2003 415.5 2004 - 2005 22.0 Thereafter 477.3 -------- $2,518.5 ======== 6. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST In 1997, a wholly owned trust of the Company issued 10.0 million of 5.25% convertible quarterly income preferred securities ("Preferred Securities") to certain institutional buyers. Each of the Preferred Securities represents an undivided beneficial interest in the assets of the trust, is convertible at the option of the holder into shares of the Company's Common Stock at the rate of 0.9865 shares of Common Stock (equivalent to the approximate conversion price of $50.685 per share of Common Stock), subject to adjustment in certain circumstances, has a $50 liquidation preference and is entitled to a quarterly cash distribution at the annual rate of $2.625 per share. The Preferred Securities are guaranteed by the Company and are callable initially at 103.15% of the liquidation preference beginning in December 2001 and decreasing over time to 100% in December 2007. The trust invested the proceeds of the Preferred Securities in $500.0 million Company 5.25% Junior Convertible Subordinated Debentures due 2027 ("Debentures"). The Debentures are the sole assets of the trust, mature on December 1, 2027, bear interest at the annual rate of 5.25%, payable quarterly, and are redeemable by the Company beginning in December 2001. The Company may defer interest payments on the Debentures, but has no current intention to, for a period of up to 20 consecutive quarters during which distribution payments on the Preferred Securities are also deferred. Under this circumstance, the Company may not declare or pay any cash distributions with respect to its capital stock or debt securities that do not rank senior to the Debentures. 59 7. DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage certain interest rate and foreign currency risks. The Company has entered into several interest rate swap agreements as a means of converting certain floating rate debt instruments into fixed rate debt. Cash flows related to these interest rate swap agreements are included in interest expense over the terms of the agreements, which range from three to seven years in maturity. At December 31, 2000, the Company had an outstanding notional principal amount of $912.6 million, with a net accrued interest receivable of $3.4 million. The termination value of these contracts is not included in the consolidated financial statements since these contracts represent the hedging of long-term activities to be amortized in future reporting periods. The Company utilizes forward exchange contracts to manage foreign exchange risk related to both known and anticipated intercompany and third-party commercial transaction exposures of one year duration or less. The Company also utilizes cross-currency swaps to hedge long-term intercompany transactions. The maturities on these cross-currency swaps range from three to five years. The following table summarizes the Company's forward exchange contracts, foreign currency swaps and long-term cross-currency swaps in U.S. dollars by major currency and contractual amount. The "buy" amounts represent the U.S. equivalent of commitments to purchase foreign currencies, and the "sell" amounts represent the U.S. equivalent of commitments to sell foreign currencies according to local needs in foreign subsidiaries. The contractual amounts of significant forward exchange contracts, foreign currency swaps and long-term cross-currency swaps and their fair value were as follows: 60 DECEMBER 31, 2000 1999 ------------ ---------- ---------- (In millions) BUY SELL BUY SELL --- ---- --- ---- Australian dollars $ - $ 8.6 $ - $ - British pounds 1.6 165.2 1.1 172.8 Canadian dollars 149.4 24.0 71.1 - Euro 0.2 350.2 4.9 490.8 Japanese yen - - - 4.1 Swedish krona - - - 12.5 Swiss francs - - 8.0 - ------ ------ ------ ------ $151.2 $548.0 $ 85.1 $680.2 ====== ====== ====== ====== Fair Value $146.9 $508.4 $ 84.5 $665.7 ====== ====== ====== ====== The Company's forward exchange contracts, foreign currency swaps and long-term cross-currency swaps do not subject the Company to risk due to foreign exchange rate movement, since gains and losses on these contracts generally offset losses and gains on the assets, liabilities and other transactions being hedged. The Company does not obtain collateral or other security to support derivative financial instruments subject to credit risk but monitors the credit standing of the counterparties. 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. 8. LEASES The Company leases manufacturing and warehouse facilities, real estate, transportation, data processing and other equipment under leases which expire at various dates through the year 2018. Rent expense was $102.9 million, $91.9 million and $79.7 million in 2000, 1999 and 1998, respectively. Future minimum rental payments for operating leases with initial or remaining terms in excess of one year are as follows: 61 YEAR ENDING DECEMBER 31, Minimum Payments ------------------------ ---------------- (In millions) 2001 $51.9 2002 35.6 2003 25.0 2004 14.4 2005 10.0 Thereafter 12.0 ----- $148.9 ====== 9. EMPLOYEE BENEFIT RETIREMENT PLANS The Company and its subsidiaries have noncontributory pension and profit sharing plans covering substantially all of their foreign and domestic employees. Pension plan benefits are generally based on years of service and/or compensation. The Company's funding policy is to contribute not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974 or local statutes to assure that plan assets will be adequate to provide retirement benefits. The Company's Common Stock comprised $46.7 million, $48.7 million and $69.3 million of pension plan assets at December 31, 2000, 1999 and 1998, respectively. Total expense under all profit sharing plans was $14.5 million, $12.3 million and $25.0 million for the years ended December 31, 2000, 1999 and 1998, respectively. ^G63 In addition to the Company's pension and profit sharing plans, several of the Company's subsidiaries currently provide retiree health care benefits for certain employee groups. The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans within the guidelines of SFAS No. 132: 62
Pension Benefits Other Postretirement Benefits -------------------------------- -------------------------------- DECEMBER 31, 2000 1999 1998 2000 1999 1998 ------------ ---- ---- ---- ---- ---- ---- (In millions) CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $709.1 $691.1 $578.0 $196.3 $184.0 $175.2 Service cost 29.0 25.4 20.2 3.6 3.5 3.2 Interest cost 48.9 50.1 43.9 12.9 12.6 12.8 Amendments 3.8 6.5 2.2 - (0.5) - Actuarial (gain)/loss (0.7) (59.6) 34.3 (31.4) 11.9 7.8 Acquisitions - 50.4 51.3 - 1.7 - Currency exchange (2.2) (5.0) (0.3) - - - Benefits paid from plan assets (47.0) (49.8) (38.5) (14.7) (16.9) (15.0) ------ ------ ------ ------ ------ ------ Benefit obligation at December 31 $740.9 $709.1 $691.1 $166.7 $196.3 $184.0 ====== ====== ====== ====== ====== ====== CHANGE IN PLAN ASSETS Fair value of plan assets at January 1 $858.6 $713.8 $738.4 $- $ - $ - Actual return on plan assets 76.4 119.5 (5.9) - - - Acquisitions - 62.3 14.1 - - - Contributions 3.1 11.6 6.5 14.7 16.9 15.0 Currency exchange (2.8) 1.2 (0.8) - - - Benefits paid from plan assets (47.0) (49.8) (38.5) (14.7) (16.9) (15.0) ------ ------ ------ ------ ------ ------ Fair value of plan assets at December 31 $888.3 $858.6 $713.8 $ - $ - $ - ====== ====== ====== ==== ====== ====== Pension Benefits Other Postretirement Benefits -------------------------------- ------------------------------- DECEMBER 31, 2000 1999 1998 2000 1999 1998 ---- ---- ----- ---- ---- ---- (In millions ) FUNDED STATUS Funded status at December 31 $147.4 $149.5 $22.7 $(166.7) $(196.3) $(184.0) Unrecognized net gain (110.7) (118.9) (7.9) (38.6) (8.0) (20.2) Unrecognized prior service cost 3.4 (0.9) (2.0) - (0.2) 0.2 Unrecognized net asset (2.2) (3.3) (5.0) - - - ------ ------ ------ ------ ------ ------- Net amount recognized $37.9 $26.4 $7.8 $(205.3) $(204.5) $(204.0) ====== ====== ====== ====== ====== ====== 63 AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS Prepaid benefit cost <1> $110.0 $102.9 $71.8 $- $- $- Accrued benefit cost <2> (78.2) (80.9) (67.9) (205.3) (204.5) (204.0) Intangible asset <1> 6.1 4.4 3.9 - - - ------ ------ ------ ------ ------ ------ Net amount recognized $37.9 $26.4 $7.8 $(205.3) $(204.5) $(204.0) ====== ====== ====== ====== ====== ====== ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.5% 7.5% 7.0% 7.5% 7.5% 6.8-7.0% Long-term rate of return on plan assets 10.0% 10.0% 10.0% - - - Long-term rate of compensation increase 5.0% 5.0% 5.0% - - - Health care cost trend rate - - - 6.0% 7.0-9.0% 7.0-8.0% <1> Recorded in Other Non-current Assets <2> Recorded in Other Non-current Liabilities
Net pension (income) expenses and other postretirement benefit expenses include the following components:
Pension Benefits Other Postretirement Benefits ----------------------------- ----------------------------- YEAR ENDED DECEMBER 31, 2000 1999 1998 2000 1999 1998 ----------------------- ---- ---- ---- ---- ---- ---- (In millions) Service cost-benefits earned during the year $29.2 $30.9 $19.3 $3.6 $3.5 $3.3 Interest cost on projected benefit obligation 49.5 50.9 46.6 12.9 12.6 12.9 Expected return on plan assets (82.8) (76.7) (59.0) - - - Amortization of: Transition asset (1.9) (1.2) (1.1) (1.1) (0.2) (0.5) Prior service cost recognized (0.5) (0.4) (0.3) - - (0.4) Actuarial (gain)/loss (1.3) 0.8 (1.8) - - - ----- ----- ----- ----- ----- ----- Net pension (income) expense $(7.8) $4.3 $3.7 $15.4 $15.9 $15.3 ===== ===== ===== ===== ===== =====
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets are as follows: 64 DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Projected benefit obligation $103.7 $145.2 $147.1 Accumulated benefit obligation 85.3 131.0 127.5 Fair value of plan assets - 50.8 52.1 The health care cost trend rate significantly affects the reported postretirement benefit costs and obligations. A one percentage point change in the assumed rate would have the following effects: 1% Increase 1% Decrease ----------- ----------- (In millions) Effect on total of service and interest cost components $1.8 $(1.6) Effect on postretirement benefit obligations 11.9 (11.0) 10. STOCKHOLDERS' EQUITY At December 31, 2000, the Company's Common Stock consists of 800.0 million authorized shares with a par value of $1 per share. On February 7, 2000, the Company announced a stock repurchase program of up to $500.0 million of the Company's outstanding Common Stock. During 2000, the Company repurchased 15.5 million shares of its Common Stock at an average price of $26 per share, for a total cash price of $403.0 million under the program. The repurchase program remained in effect until December 31, 2000 and was financed through the use of working capital and commercial paper. Each share of Common Stock includes a stock purchase right (a "Right"). Each Right will entitle the holder, until the earlier of October 31, 2008 or the redemption of the Rights, to buy the number of shares of Common Stock having a market value of two times the exercise price of $200, subject to adjustment under certain circumstances. The Rights will be exercisable only if a person or group acquires 15% or more of voting power of the Company or announces a tender offer after which it would hold 15% or more of the Company's voting power. The Rights held by the 15% stockholder would not be exercisable in this situation. Furthermore, if, following the acquisition by a person or group of 15% or more of the Company's voting stock, the Company was acquired in a merger or other business combination or 50% or more of its assets were sold, each Right (other than Rights held by the 15% stockholder) would become exercisable for that number of shares of Common Stock of the Company (or the surviving company in a business combination) having a market value of two times the exercise price of the Right. 65 The Company may redeem the Rights at $0.001 per Right prior to the occurrence of an event that causes the Rights to become exercisable for Common Stock. 11. STOCK OPTIONS The Company's stock option plans are accounted for under Accounting Principles Board Opinion No. 25. As a result, the Company grants fixed stock options under which no compensation cost is recognized. Had compensation cost for the plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts: YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions, except per share data) Net income: As reported $421.6 $95.4 $481.8 Pro forma 410.5 88.2 477.5 Diluted earnings per share: As reported $1.57 $0.34 $1.70 Pro forma 1.53 0.31 1.69 Because the FASB Statement No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The Company has authorized 16.3 million shares of Common Stock to be issued under various stock option plans. Under the Company's primary plan (1993 Stock Option Plan) the Company may grant options for up to 14.1 million shares, of which the Company has granted 7.7 million options, and canceled 1.1 million options through December 31, 2000. Under this plan, the option exercise price equals the Common Stock's closing price on the date of the grant, and options vest over a five-year period and expire after ten years. The following summarizes the changes in the number of shares of Common Stock under option, including options to acquire Common Stock resulting from the conversion of options under pre-merger Rubbermaid option plans: 66 Weighted Average 2000 Shares Exercise Price ---- ------ -------------- Outstanding at beginning of year 5,819,824 $35 Granted 3,485,263 28 Exercised (97,005) 17 Canceled (1,162,583) 36 ---------- Outstanding at end of year 8,045,499 32 Exercisable at end of year 3,215,464 33 ========== Weighted average fair value of options granted during the year $ 9 ========== OPTIONS OUTSTANDING AT DECEMBER 31, 2000 Weighted Range of Number Weighted Average Exercise Outstanding at Average Remaining Prices December 31, 2000 Exercise Price Contractual Life -------- ----------------- -------------- ---------------- $13-25 614,579 $20 3 26-35 5,209,505 30 8 36-45 2,062,615 42 8 46-50 158,800 48 8 --------- $13-50 8,045,499 32 8 ========= OPTIONS EXERCISABLE AT DECEMBER 31, 2000 Range of Number Weighted Exercise Exercisable at Average Prices December 31, 2000 Exercise Price -------- ----------------- -------------- $13-25 539,579 $20 26-35 1,708,291 32 36-45 910,074 41 46-50 57,520 48 --------- $13-50 3,215,464 33 ========= 67 Weighted Average 1999 Exercise ---- Shares Price ------ -------- Outstanding at beginning of year 4,353,147 $32 Granted 2,498,980 39 Exercised (842,288) 30 Canceled (190,015) 35 --------- Outstanding at end of year 5,819,824 35 ========= Exercisable at end of year 2,622,352 30 ========= Weighted average fair value of options granted during the year $ 15 ========= 1998 ---- Weighted Average Exercise Shares Price ------ --------- Outstanding at beginning of year 3,720,301 $28 Granted 1,576,467 38 Exercised (753,261) 23 Canceled (190,360) 30 --------- Outstanding at end of year 4,353,147 32 ========= Exercisable at end of year 3,189,309 30 ========= Weighted average fair value of options granted during the year $ 13 ========= The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2000, 1999 and 1998, respectively: risk-free interest rate of 6.5%, 6.6% and 4.1-6.4%; expected dividend yields of 3.0%, 2.0%, and 1.6-2.0%; expected lives of 9.0, 9.0 and 5.0-9.9 years; and expected volatility of 28%, 25% and 20-34%. 12. INCOME TAXES The provision for income taxes consists of the following: 68 YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) Current: Federal $154.8 $120.6 $217.1 State 14.9 6.3 26.0 Foreign 34.4 18.2 10.3 ----- ----- ----- 204.1 145.1 253.4 Deferred 59.8 (9.6) 81.7 ----- ----- ----- $263.9 $135.5 $335.1 ===== ===== ===== The non-U.S. component of income before income taxes was $84.7 million in 2000, $56.3 million in 1999 and $19.1 million in 1998. The components of the net deferred tax asset are as follows: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Deferred tax assets: Accruals not currently deductible for tax purposes $158.7 $198.0 $132.9 Postretirement liabilities 81.8 80.5 78.5 Inventory reserves 42.2 28.4 25.3 Self-insurance liability 32.1 29.5 44.1 Amortizable intangibles 9.6 27.2 13.6 Other 9.7 8.7 2.9 ----- ----- ----- 334.1 372.3 297.3 Deferred tax liabilities: Accelerated depreciation (139.6) (157.5) (152.1) Prepaid pension asset (38.8) (33.7) (27.1) Other (17.0) (16.2) (14.4) ----- ----- ----- (195.4) (207.4) (193.6) ----- ----- ----- Net deferred tax asset $138.7 $164.9 $103.7 ===== ===== ===== 69 The net deferred tax asset is classified in the consolidated balance sheets as follows: DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Current net deferred income tax asset $231.9 $250.6 $108.2 Non-current deferred income tax liability (93.2) (85.7) (4.5) ------ ------ ------ $138.7 $164.9 $103.7 ====== ====== ====== A reconciliation of the U.S. statutory rate to the effective income tax rate is as follows: 70 YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In percent) Statutory rate 35.0% 35.0% 35.0% Add (deduct) effect of: State income taxes, net of federal income tax effect 2.2 2.7 3.2 Nondeductible trade names and goodwill amortization 1.3 4.2 1.3 Nondeductible transaction costs - 19.7 - Tax basis differential on sales of businesses - - 2.7 Other - (2.9) (1.2) ---- ---- ---- Effective rate 38.5% 58.7% 41.0% ==== ==== ==== No U.S. deferred taxes have been provided on the undistributed non-U.S. subsidiary earnings which are considered to be permanently invested. At December 31, 2000, the estimated amount of total unremitted non-U.S. subsidiary earnings is $18.9 million. 13. OTHER NONOPERATING EXPENSES (INCOME) Total other nonoperating expenses (income) consist of the following: Year Ended December 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) Equity earnings <1> $(8.0) $(8.1) $(7.1) Interest income (5.5) (9.9) (14.8) Dividend income (0.1) (0.3) (0.1) (Gain)/loss on sale of marketable equity securities - 1.1 (191.5) Gain on sales of businesses - - (59.8) Minority interest in income of subsidiary trust<2> 26.7 26.8 26.7 Currency translation loss 1.9 1.1 6.0 Other 1.2 1.9 3.5 ----- ----- ------ $16.2 $12.6 $(237.1) ===== ===== ======= <1> Primarily relates to the Company's investment in American Tool Companies, Inc., in which the Company has a 49% interest. <2> Expense from Convertible Preferred Securities (see note 6). 71 14. OTHER OPERATING INFORMATION BUSINESS SEGMENT INFORMATION The Company operates in six reportable business segments: Storage, Organization & Cleaning; Home Decor; Office Products; Infant/Juvenile Care & Play; Food Preparation, Cooking & Serving and Hardware & Tools. NET SALES <1> <2> YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) Storage, Organization & Cleaning $1,833.0 $1,899.5 $2,047.0 Home Decor 1,392.4 1,370.4 1,242.9 Office Products 1,288.0 1,218.0 1,078.6 Infant/Juvenile Care & Play 921.0 834.7 751.3 Food Preparation, Cooking & Serving 774.4 782.2 790.0 Hardware & Tools 725.9 607.0 583.4 -------- -------- -------- $6,934.7 $6,711.8 $6,493.2 ======== ======== ======== <1> Sales to Wal-Mart Stores, Inc. and subsidiaries amounted to approximately 15% of consolidated net sales in 2000 and 1999, and 14% in 1998. Sales to no other customer exceeded 10% of consolidated net sales. <2> All intercompany transactions have been eliminated. OPERATING INCOME <3> Year Ended December 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) Storage, Organization & Cleaning $202.9 $63.3 $208.6 Home Decor 168.2 193.7 191.8 Office Products 249.3 218.3 212.3 Infant/Juvenile Care & Play 104.2 16.2 70.2 Food Preparation, Cooking & Serving 112.0 128.3 97.9 Hardware & Tools 120.2 103.7 98.4 Corporate (76.5) (133.5) (83.7) ------ ------ ------ $880.3 $590.0 $795.5 Restructuring Costs (48.6) (246.4) (115.2) ------ ------ ------ $831.7 $343.6 $680.3 ====== ====== ====== <3> Operating income is net sales less cost of products sold and SG&A expenses. Certain headquarters expenses of an operational nature are allocated to business segments and geographic areas primarily on a net sales basis. Trade names and goodwill amortization is 72 considered a corporate expense and not allocated to business segments. IDENTIFIABLE ASSETS DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) Storage, Organization & Cleaning $1,145.4 $1,155.3 $956.7 Home Decor 815.4 818.0 727.3 Office Products 1,050.9 720.8 643.0 Infant/Juvenile Care & Play 497.1 433.9 758.8 Food Preparation, Cooking & Serving 524.4 539.8 550.0 Hardware & Tools 366.9 376.5 268.5 Corporate<4> 2,861.7 2,679.8 2,384.9 ------- ------- ------- $7,261.8 $6,724.1 $6,289.2 ======= ======= ======= <4> Corporate assets primarily include trade names and goodwill, equity investments and deferred tax assets. CAPITAL EXPENDITURES Year Ended December 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) Storage, Organization & Cleaning $144.4 $90.8 $126.5 Home Decor 17.4 21.1 26.5 Office Products 42.2 24.9 24.9 Infant/Juvenile Care & Play 45.0 9.5 39.3 Food Preparation, Cooking & Serving 36.0 38.0 47.7 Hardware & Tools 9.4 10.9 12.6 Corporate 22.2 4.9 41.2 ------ ------ ------ $316.6 $200.1 $318.7 ====== ====== ====== DEPRECIATION AND AMORTIZATION YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) Storage, Organization & Cleaning $78.9 $89.8 $81.9 Home Decor 17.8 18.2 18.0 Office Products 33.9 35.7 28.7 Infant/Juvenile Care & Play 27.7 26.5 33.6 Food Preparation, Cooking & Serving 36.5 32.3 35.0 Hardware & Tools 20.0 12.3 13.2 Corporate 77.8 56.9 53.4 ------ ------ ------ $292.6 $271.7 $263.8 ====== ====== ====== 73 GEOGRAPHIC AREA INFORMATION NET SALES Year Ended December 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) United States $5,191.5 $5,135.4 $5,081.5 Canada 308.9 275.6 279.7 ------- ------- ------- North America 5,500.4 5,411.0 5,361.2 Europe 1,112.5 1,015.3 894.0 Central and South America <5> 289.0 253.8 208.2 All other 32.8 31.7 29.8 ------- ------- ------- $6,934.7 $6,711.8 $6,493.2 ======= ======= ======= <5> Includes Argentina, Brazil, Colombia, Mexico and Venezuela. OPERATING INCOME YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- ---- ---- ---- (In millions) United States $643.4 $276.6 $617.0 Canada 54.5 22.6 16.6 ------ ------ ------ North America 697.9 299.2 633.6 Europe 77.2 4.5 24.0 Central and South America 53.2 43.6 41.2 All other 3.4 (3.7) (18.5) ------ ------ ------ $831.7 $343.6 $680.3 ====== ====== ====== 74 IDENTIFIABLE ASSETS <6> DECEMBER 31, 2000 1999 1998 ------------ ---- ---- ---- (In millions) United States $5,048.8 $4,813.3 $4,648.2 Canada 139.9 157.1 207.0 ------- ------- ------- North America 5,188.7 4,970.4 4,855.2 Europe 1,746.4 1,459.8 1,135.2 Central and South America 290.2 273.2 276.7 All other 36.5 20.7 22.1 ------- ------- ------- $7,261.8 $6,724.1 $6,289.2 ======= ======= ======= <6> Transfers of finished goods between geographic areas are not significant. 15. LITIGATION 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 December 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. 75 Based on information available to it, the Company's estimate of environmental response costs associated with these matters as of December 31, 2000 ranged between $15.7 million and $21.6 million. As of December 31, 2000, the Company had a reserve equal to $20.0 million for such environmental response costs in the aggregate. No insurance recovery was taken into account in determining the Company's cost estimates or reserve, nor do the Company's cost estimates or reserve reflect any discounting for present value purposes, except with respect to two long term (30 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. 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 alleged that during this time period the defendants violated federal securities laws by issuing false and misleading statements concerning the Company's financial condition and results of operations. After the cases were consolidated before a single judge, the court appointed lead plaintiffs for the uncertified class. Plaintiffs then filed a consolidated amended class action complaint consisting of six counts asserting claims under Sections 11, 12(a)(2) and 15 of the Securities Act and Sections 10(b) and 20(a) of the Securities Exchange Act. All defendants moved to dismiss that amended complaint. On October 2, 2000, the court dismissed the amended complaint for failure to state a claim upon which relief may be granted and on November 14, 2000 rejected the plaintiffs' motion for reconsideration of the prior dismissal. The court dismissed the action, and the time for filing an appeal expired with no appeal having been filed. The case is therefore terminated in favor of the Company and the other defendants. 76 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 77 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- Information regarding executive officers of the Company is included as a Supplementary Item at the end of Part I of this Form 10-K. Information regarding directors of the Company is included in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 9, 2001 ("Proxy Statement") under the caption "Proposal 1 - Election of Directors," which information is hereby incorporated by reference herein. Information regarding compliance with Section 16(a) of the Exchange Act is included in the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Compliance Reporting," which information is hereby incorporated by reference herein. Item 11. EXECUTIVE COMPENSATION Information regarding executive compensation is included in the Proxy Statement under the caption "Proposal 1 - Election of Directors - Information Regarding Board of Directors and Committees," under the captions "Executive Compensation - Summary Compensation Table; - Option Grants in 2000; - Option Exercises in 2000; - Pension and Retirement Plans; - Employment Security and Other Agreements," and the caption "Executive Compensation Committee Interlocks and Insider Participation," which information is hereby incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --------------------------------------------------- Information regarding security ownership is included in the Proxy Statement under the caption "Certain Beneficial Owners," which information is hereby incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- Not applicable. 78 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following is a list of the financial statements of Newell Rubbermaid Inc. included in this report on Form 10-K which are filed herewith pursuant to Item 8: Report of Independent Public Accountants Consolidated Statements of Income - Years Ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheets - December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows - Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements - December 31, 2000, 1999 and 1998 (2) The following consolidated financial statement schedule of the Company included in this report on Form 10-K is filed herewith pursuant to Item 14(d) and appears immediately preceding the Exhibit Index: SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ------------------------------------------------ (3) The exhibits filed herewith are listed on the Exhibit Index filed as part of this report on Form 10-K. Each management contract or compensatory plan or arrangement of the Company listed on the Exhibit Index is separately identified by an asterisk. (b) Reports on Form 8-K: None. 79 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEWELL RUBBERMAID INC. Registrant By /s/ William T. Alldredge -------------------------- Date March 26, 2001 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 26, 2001 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title --------- ----- /s/ William P. Sovey Chairman of the Board and ---------------------------- Director William P. Sovey /s/ Joseph Galli, Jr. President and Chief ---------------------------- Executive Officer Joseph Galli, Jr. (Principal Executive Officer) /s/ Jeffrey J. Burbach Vice President-Controller --------------------------- (Principal Accounting Jeffrey J. Burbach Officer) /s/ William T. Alldredge Chief Financial Officer --------------------------- (Principal Financial William T. Alldredge Officer) /s/ Alton F. Doody Director --------------------------- Alton F. Doody 80 /s/ Scott S. Cowen Director --------------------------- Scott S. Cowen /s/ Daniel C. Ferguson Director ------------------------------ Daniel C. Ferguson /s/ Robert L. Katz Director ------------------------------ Robert L. Katz /s/ Elizabeth Cuthbert Millett Director ------------------------------ Elizabeth Cuthbert Millett /s/ Cynthia A. Montgomery Director ------------------------------ Cynthia A. Montgomery /s/ Allan P. Newell Director ------------------------------ Allan P. Newell /s/ Gordon R. Sullivan Director ------------------------------ Gordon R. Sullivan /s/ William D. Marohn Director ------------------------------ William D. Marohn 81 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS -----------------------------------------------
Charges to Balance at Other Balance at Allowance for Beginning Accounts End of Doubtful Accounts of Period Provision (A) Write-offs Period ----------------- --------- ---------- ---------- ----------- ---------- (in thousands) Year ended December 31, 2000 $41,870 $4,821 $4,861 ($15,454) $36,098 Year ended December 31, 1999 34,157 17,928 1,922 (12,137) 41,870 Year ended December 31, 1998 30,075 5,488 14,028 (15,434) 34,157
NOTE A - REPRESENTS RECOVERY OF ACCOUNTS PREVIOUSLY WRITTEN OFF AND NET RESERVES OF ACQUIRED OR DIVESTED BUSINESSES.
Balance at Balance at Beginning End of Inventory Reserves of Period Provision Write-offs Other(B) Period ------------------ ---------- --------- ---------- -------- ---------- (in thousands) Year ended December 31, 2000 $119,389 $45,319 ($52,294) $2,187 $114,601 Year ended December 31, 1999 113,775 75,660 (72,768) 2,722 119,389 Year ended December 31, 1998 119,179 13,338 (29,293) 10,551 113,775
NOTE B - REPRESENTS NET RESERVES OF ACQUIRED AND DIVESTED BUSINESSES, INCLUDING PROVISIONS FOR PRODUCT LINE RATIONALIZATION.
Balance at Balance at Beginning Charges to End of Restructuring Reserves of Period Provision Reserves (C) Other Period ---------------------- --------- --------- ------------ ----- ---------- (in thousands) Year ended December 31, 2000 $17,930 $48,561 ($44,624) - $21,867 Year ended December 31, 1999 1,559 246,381 (230,010) - 17,930 Year ended December 31, 1998 1,529 115,154 (115,124) - 1,559
NOTE C - REPRESENTS COSTS CHARGED TO RESTRUCTURING RESERVES IN ACCORDANCE WITH THE RESTRUCTURING PLAN. 82 (C) EXHIBIT INDEX
Exhibit Number Description of Exhibit ------- ----------------------- Item 3. Articles of 3.1 Restated Certificate of Incorporation of Newell Rubbermaid Incorporation and Inc., as amended as of March 24, 1999 (incorporated by By-Laws reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated March 24, 1999). 3.2 By-Laws of Newell Rubbermaid Inc., as amended through January 5, 2001. Item 4. Instruments 4.1 Restated Certificate of Incorporation of Newell Rubbermaid defining the Inc., as amended as of March 24, 1999, is included in Item rights of 3.1. security holders, including inden- tures 4.2 By-Laws of Newell Rubbermaid Inc., as amended through January 5, 2001, are included in Item 3.2. 4.3 Rights Agreement dated as of August 6, 1998, between the Company and First Chicago Trust Company of New York, as Rights Agent (incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated August 6, 1998). 4.4 Indenture dated as of April 15, 1992, between the Company and The Chase Manhattan Bank (National Association), as Trustee (incorporated by reference to Exhibit 4.4 to the Company's Report on Form 8 amending the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1992). 4.5 Indenture dated as of November 1, 1995, between the Company and The Chase Manhattan Bank (National Association), as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated May 3, 1996). 4.6 Credit Agreement dated as of June 12, 1995 and amended and restated as of August 5, 1997, among the Company, certain of its affiliates, The Chase Manhattan Bank (National Association), as Agent, and the banks whose names appear on the signature pages thereto (incorporated by reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997). 4.7 Junior Convertible Subordinated Indenture for the 5.25% Convertible Subordinated Debentures, dated as of December 12, 1997, among the Company and The Chase Manhattan Bank, as Indenture Trustee (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3, File No. 333-47261, filed March 3, 1998 (the "1998 Form S-3"). 4.8 Specimen Common Stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4, File No. 333-71747, filed February 4, 1999). 83 Exhibit Number Description of Exhibit ------- ----------------------- 4.9 $700,000,000 364-Day Credit Agreement dated as of October 23, 2000, among the Company, The Chase Manhattan Bank, as Agent, and the banks whose names appear on the signature pages thereto. Pursuant to item 601(b)(4)(iii)(A) of Regulation S-K, the Company is not filing certain documents. The Company agrees to furnish a copy of each such document upon the request of the Commission. Item 10. Material *10.1 The Newell Long-Term Savings and Investment Plan, as amended Contracts and restated effective May 1, 1993 and amended through December 29, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K")). *10.2 Newell Co. Deferred Compensation Plan, as amended, effective August 1, 1980, as amended and restated effective January 1, 1997 (incorporated by reference to Exhibit 10.3 to the 1998 Form 10-K). *10.3 Newell Operating Company's ROA Cash Bonus Plan, effective January 1, 1977, as amended (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-14, Reg. No. 002-71121, filed March 4, 1981). *10.4 Newell Operating Company's ROI Cash Bonus Plan, effective January 1, 1986 (incorporated by reference to Exhibit 10.5 to the 1998 Form 10-K). *10.5 Newell Operating Company's Restated Supplemental Retirement Plan for Key Executives, effective January 1, 1982, as amended effective January 1, 1999. *10.6 Form of Employment Security Agreement with 10 executive officers (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 10.7 Credit Agreement dated as of June 12, 1995 and amended and restated as of August 5, 1997, among the Company, certain of its affiliates, The Chase Manhattan Bank (National Association), as Agent, and the banks whose names appear on the signature pages thereto, is included in Item 4.6. 10.8 Shareholder's Agreement and Irrevocable Proxy dated as of June 21, 1985, among American Tool Companies, Inc., the Company, Allen D. Petersen, Kenneth L. Cheloha, Robert W. Brady, William L. Kiburz, Flemming Andresen and Ane C. Patterson (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 84 Exhibit Number Description of Exhibit ------- ----------------------- *10.9 Newell Rubbermaid Inc. Amended 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). 10.10 Amended and Restated Trust Agreement, dated as of December 12, 1997, among the Company, as Depositor, The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Delaware, as Delaware Trustee, and the Administrative Trustees (incorporated by reference to Exhibit 4.2 to the 1998 Form S-3). 10.11 Junior Convertible Subordinated Indenture for the 5.25% Convertible Subordinated Debentures, dated as of December 12, 1997, between the Company and The Chase Manhattan Bank, as Indenture Trustee, is included in Item 4.7. 10.12 $700,000,000 364-Day Credit Agreement dated as of October 23, 2000, between the Company and The Chase Manhattan Bank, as agent, and certain other financial institutions, is included in Item 4.9. *10.13 Newell Rubbermaid Medical Plan for Executives, as amended and restated effective January 1, 2000. *10.14 Confidential Separation Agreement and General Release dated as of October 25, 2000, between Thomas A Ferguson and the Company. *10.15 Confidential Separation Agreement and General Release dated as of November 29, 2000, between John J. McDonough and the Company. Item 11. 11 Statement of Computation of Earnings per Share of Common Stock. Item 12. 12 Statement of Computation of Earnings to Fixed Charges. Item 21. Subsidiaries of 21 Significant Subsidiaries of the Company. the Registrant Item 23. Consent of 23.1 Consent of Arthur Andersen LLP. experts and counsel 23.2 Consent of KPMG LLP Item 99. Additional 99 Safe Harbor Statement. Exhibits
* Management contract or compensatory plan or arrangement of the Company. 85