NWL

Business Context and Reporting Period

Company: Newell Rubbermaid Inc. (now Newell Brands Inc.)
Filing Type: Form 10-K Annual Report
Period Ended: December 31, 2001
Business Overview: A global manufacturer and marketer of name-brand consumer products operating in five segments: Rubbermaid, Parker/Eldon, Levolor/Hardware, Calphalon/WearEver, and Little Tikes/Graco. The company serves volume purchasers including discount stores, warehouse clubs, and home centers. Wal-Mart accounted for approximately 15% of consolidated net sales in 2001.

Key Financial Metrics

Note: Free cash flow is defined by the company as cash provided by operating activities less capital expenditures and dividends.

Material Changes vs. Prior Period

• Revenue: Net sales decreased 0.4% to $6,909.3 million. The decline was driven by shelf space losses at key customers and a downturn in the U.S. economy, partially offset by $498.5 million in sales from the Paper Mate/Parker acquisition (closed Dec 2000).
• Profitability: Operating income dropped significantly from $831.7 million to $570.9 million. This was primarily due to increased Selling, General, and Administrative (SG&A) expenses (16.9% of sales vs. 13.0% in 2000) related to marketing initiatives (Key Account and Phoenix programs) and restructuring costs of $66.7 million.
• Segment Performance:
  • Parker/Eldon: Sales increased 29.9% due to the Paper Mate/Parker acquisition.
  • Little Tikes/Graco: Sales declined 12.6% due to internal sales weakness.
  • Rubbermaid: Sales declined 6.5% due to shelf space losses and economic downturn.
• Liquidity: Working capital decreased sharply to $316.8 million from $1.33 billion in 2000. This was largely due to the reclassification of $707.5 million in commercial paper from long-term to current debt as the backup credit facility matured in August 2002.

Guidance, Outlook, and Risks

• Strategic Initiatives: The company is executing six transformational initiatives: Productivity (targeting 5% annual cost reduction), New Product Development, Marketing, Key Accounts, Streamlining, and Collaboration.
• Acquisitions: On March 3, 2002, the company agreed to acquire the remaining 50.5% of American Tool Companies, Inc. for approximately $419 million, subject to regulatory approval.
• Divestitures: The company announced the sale of the Anchor Hocking business. An amended agreement was signed in January 2002 to divest the business excluding the foodservice segment for $277.5 million, following an FTC challenge to the original sale.
• Accounting Changes & Risks:
  • Goodwill Impairment: Upon adopting FAS No. 142 in 2002, the company expects to record a pre-tax goodwill impairment charge of $500.0 million to $550.0 million in the first quarter of 2002.
  • Customer Concentration: Wal-Mart represents 15% of sales; the company faces pricing pressure and shelf space competition from large mass merchandisers.
  • Bankruptcy Risk: On January 22, 2002, one of the company's largest customers filed for Chapter 11 bankruptcy, leading to increased bad debt provisions.

Investor Verification Checklist

• Goodwill Impairment Charge: Verify the final amount of the expected $500M-$550M goodwill impairment charge in Q1 2002 filings.
• Anchor Hocking Sale: Monitor the status of the FTC challenge and the closing of the amended $277.5 million divestiture.
• Customer Bankruptcy Impact: Assess the actual financial impact of the January 2002 bankruptcy filing of a major customer on bad debt reserves and future sales.
• Debt Maturity: Confirm the refinancing of the $707.5 million commercial paper maturing in August 2002 to avoid liquidity strain.
• Internal Growth: Evaluate whether the company can achieve its target of 5% internal growth by 2004 given the 2001 internal sales decline.