0000940180-01-500406.txt : 20011026 0000940180-01-500406.hdr.sgml : 20011026 ACCESSION NUMBER: 0000940180-01-500406 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011018 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHIRLPOOL CORP /DE/ CENTRAL INDEX KEY: 0000106640 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD APPLIANCES [3630] IRS NUMBER: 381490038 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03932 FILM NUMBER: 1761635 BUSINESS ADDRESS: STREET 1: WHIRLPOOL CNTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 BUSINESS PHONE: 6169235000 MAIL ADDRESS: STREET 1: WHIRLPOOL CTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 FORMER COMPANY: FORMER CONFORMED NAME: WHIRLPOOL SEEGER CORP DATE OF NAME CHANGE: 19710824 10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001. Commission file number 1-3932 WHIRLPOOL CORPORATION (Exact name of registrant as specified in its charter) Delaware 38-1490038 (State of incorporation) (I.R.S. Employer Identification No.) 2000 M-63 Benton Harbor, Michigan 49022-2692 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 616/923-5000 The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ ---- Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class of common stock Shares outstanding at September 30, 2001 --------------------- ---------------------------------------- Common stock, par value $1 per share 66,920,471 PAGE 1 OF 22 QUARTERLY REPORT ON FORM 10-Q ----------------------------- WHIRLPOOL CORPORATION --------------------- Quarter Ended September 30, 2001 INDEX OF INFORMATION INCLUDED IN REPORT Page ---- PART I - FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Earnings 3 Consolidated Condensed Balance Sheets 4 Consolidated Condensed Statements of Changes in Equity 5 Consolidated Condensed Statements of Cash Flows 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K 20 2 CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) WHIRLPOOL CORPORATION FOR THE PERIOD ENDED SEPTEMBER 30 (millions of dollars except share and dividend data)
Three Months Ended Nine Months Ended ------------------- ------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Net sales $ 2,594 $ 2,570 $ 7,695 $ 7,746 EXPENSES: Cost of products sold 1,988 1,973 5,936 5,873 Selling and administrative 392 417 1,203 1,211 Intangible amortization 7 7 20 22 Restructuring costs 5 - 67 - Product recall costs 300 - 300 - ------- ------- ------- ------- 2,692 2,397 7,526 7,106 ------- ------- ------- ------- OPERATING PROFIT (LOSS) (98) 173 169 640 OTHER INCOME (EXPENSE): Interest and sundry income (expense) (15) (11) (26) (24) Interest expense (41) (49) (128) (132) ------- ------- ------- ------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (BENEFIT) AND OTHER ITEMS (154) 113 15 484 Income taxes (benefit) (64) 41 (3) 177 ------- ------- ------- ------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS (90) 72 18 307 Equity in earnings of affiliated companies (1) (3) 2 3 Minority interests (3) (2) (7) (9) ------- ------- ------- ------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (94) 67 13 301 Loss from discontinued operations, net of tax - - (21) - Cumulative effect of change in accounting principle, net of tax - - 8 - ------- ------- ------- ------- NET EARNINGS (LOSS) $ (94) $ 67 $ - $ 301 ======= ======= ======= ======= Per share of common stock: Basic earnings (loss) from continuing operations $ (1.40) $ .98 $ .20 $ 4.21 Loss from discontinued operations, net of tax - - (0.32) - Cumulative effect of change in accounting principle, net of tax - - 0.12 - ------- ------- ------- ------- Basic net earnings (loss) $ (1.40) $ .98 $ - $ 4.21 ======= ======= ======= ======= Diluted earnings (loss) from continuing operations $ (1.40) $ .98 $ .20 $ 4.18 Loss from discontinued operations, net of tax - - (0.32) - Cumulative effect of change in accounting principle, net of tax - - 0.12 - ------- ------- ------- ------- Diluted net earnings (loss) $ (1.40) $ .98 $ - $ 4.18 ======= ======= ======= ======= Dividends declared $ .34 $ .34 $ 1.02 $ 1.02 ======= ======= ======= ======= Weighted-average shares outstanding (millions): Basic 67.0 68.7 66.6 71.4 Fully diluted 67.0 69.0 67.8 71.9
See notes to consolidated condensed financial statements 3 CONSOLIDATED CONDENSED BALANCE SHEETS WHIRLPOOL CORPORATION (millions of dollars) (Unaudited) September 30 December 31 2001 2000 ------------ ----------- ASSETS Current Assets -------------- Cash and equivalents $ 157 $ 114 Trade receivables, less allowances of (2001: $93 ;2000: $103) 1,700 1,748 Inventories 1,081 1,119 Prepaid expenses and other 236 206 Deferred income taxes 144 50 ------------ ----------- Total Current Assets 3,318 3,237 Other Assets ------------ Investment in affiliated companies 125 113 Intangibles, net 729 762 Deferred income taxes 226 253 Derivative financial instruments 215 - Other 398 403 ------------ ----------- 1,693 1,531 Property, Plant and Equipment ----------------------------- Land 58 64 Buildings 798 838 Machinery and equipment 4,253 4,374 Accumulated depreciation (3,199) (3,142) ------------ ----------- 1,910 2,134 ------------ ----------- Total Assets $ 6,921 $ 6,902 ============ =========== (Unaudited) September 30 December 31 2001 2000 ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities ------------------- Notes payable $ 378 $ 961 Accounts payable 1,276 1,257 Employee compensation 256 256 Accrued expenses 915 795 Product recall liability 300 - Restructuring costs 15 5 Current maturities of long-term debt 17 29 ------------ ----------- Total Current Liabilities 3,157 3,303 Other Liabilities ----------------- Deferred income taxes 157 175 Postemployment benefits 641 630 Other liabilities 123 168 Long-term debt 1,270 795 ------------ ----------- 2,191 1,768 Minority Interests 130 147 Stockholders' Equity -------------------- Common stock 85 84 Paid-in capital 467 393 Retained earnings 2,471 2,539 Unearned restricted stock - (11) Accumulated other comprehensive income (698) (495) Treasury stock - at cost (882) (826) ------------ ----------- Total Stockholders' Equity 1,443 1,684 ------------ ----------- Total Liabilities and Stockholders' Equity $ 6,921 $ 6,902 ============ =========== See notes to consolidated condensed financial statements. 4 CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY WHIRLPOOL CORPORATION FOR THE PERIOD ENDED SEPTEMBER 30 (millions of dollars)
Third Quarter ------------------------------------------------------------- Accumulated Other Retained Comprehensive Common Treasury Stock/ Total Earnings Income Stock Paid-in-Capital ------- -------- ------------ ------ --------------- Beginning balance, 2000 $ 1,853 $ 2,451 $ (437) $ 84 $ (245) Comprehensive income Net income 67 67 Foreign currency items, net of tax (33) (33) ------- Comprehensive income 34 ------- Common stock issued, net of treasury shares (200) (200) Dividends declared on common stock (23) (23) ------- -------- ------------ ------ --------------- Ending balance, September 30, 2000 $ 1,664 $ 2,495 $ (470) $ 84 $ (445) ======= ======== ============ ====== =============== Beginning balance, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420) Comprehensive income Net loss (94) (94) Cumulative effect of change in accounting principle - - Net gain (loss) on derivative instruments, net of tax 5 5 Foreign currency items, net of tax (19) (19) ------- Comprehensive income (108) ------- Common stock issued, net of treasury shares 6 1 5 Dividends declared on common stock (23) (23) ------- -------- ------------ ------ --------------- Ending balance, September 30, 2001 $ 1,443 $ 2,471 $ (698) $ 85 $ (415) ======= ======== ============ ====== =============== Year-to-Date ------------------------------------------------------------- Accumulated Other Retained Comprehensive Common Treasury Stock/ Total Earnings Income Stock Paid-in-Capital ------- -------- ------------ ------ --------------- Beginning balance, 2000 $ 1,867 $ 2,268 $ (443) $ 84 $ (42) Comprehensive income Net income Foreign currency items, net of tax 301 301 Comprehensive income (27) (27) ------- 274 ------- Common stock issued, net of treasury shares (403) (403) Dividends declared on common stock (74) (74) ------- -------- ------------ ------ --------------- Ending balance, September 30, 2000 $ 1,664 $ 2,495 $ (470) $ 84 $ (445) ======= ======== ============ ====== =============== Beginning balance, 2001 $ 1,664 $ 2,539 $ (495) $ 84 $ (444) Comprehensive income Net loss - - Cumulative effect of change in accounting principle (11) (11) Net gain (loss) on derivative instruments, net of tax (1) (1) Foreign currency items, net of tax (191) (191) ------- Comprehensive income (203) ------- Common stock issued, net of treasury shares 30 1 29 Dividends declared on common stock (68) (68) ------- -------- ------------ ------ --------------- Ending balance, September 30, 2001 $ 1,443 $ 2,471 $ (698) $ 85 $ (415) ======= ======== ============ ====== ===============
See notes to consolidated condensed financial statements. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) WHIRLPOOL CORPORATION FOR NINE MONTHS ENDED SEPTEMBER 30 (millions of dollars) 2001 2000 --------- --------- OPERATING ACTIVITIES Net earnings $ - $ 301 Depreciation 277 291 Amortization of goodwill 20 22 Provision for doubtful accounts 15 13 Equity in net earnings of affiliated companies, less dividends received (2) (3) Loss on discontinued operations 21 - Provision for product recall 300 - Restructuring charges, net of cash paid 13 (35) Minority interests 7 9 Deferred income taxes (123) 33 Change in working capital: Trade receivables (39) (210) Inventories 3 (135) Accounts payable 77 27 Changes in other assets and liabilities: Employee compensation 9 (43) Current taxes payable 83 3 Other - net (14) (38) --------- --------- CASH PROVIDED BY OPERATING ACTIVITIES $ 647 $ 235 --------- --------- INVESTING ACTIVITIES Net additions to properties $ (196) $ (231) Acquisitions of businesses, less cash acquired - (283) --------- --------- CASH USED IN INVESTING ACTIVITIES $ (196) $ (514) --------- --------- FINANCING ACTIVITIES Proceeds of short-term borrowings $ 25,242 $ 21,450 Repayments of short-term borrowings (25,800) (20,623) Proceeds of long-term debt 279 336 Repayments of long-term debt (42) (406) Dividends (90) (74) Purchase of treasury stock (43) (416) Other 46 17 --------- --------- CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ (408) $ 284 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS $ 43 $ 5 Cash and equivalents at beginning of year 114 261 --------- --------- CASH AND EQUIVALENTS AT END OF PERIOD $ 157 $ 266 ========= ========= See notes to consolidated condensed financial statements. 6 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL ACCOUNTING POLICIES The accompanying unaudited consolidated condensed financial statements present information in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by generally accepted accounting principles for complete financial statements. Management believes the financial statements include all normal recurring accrual adjustments necessary for a fair presentation. Operating results for the nine months ended September 30, 2001 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the company's annual report for the year ended December 31, 2000. Diluted net earnings per share of common stock includes the dilutive effect of stock and put options, except during the three-month period ended September 30, 2001, where their impact would be anti-dilutive. The third quarter's earnings per share calculation excluded the dilutive impact of 1.7 million common stock equivalents. Also during the quarter, the put options outstanding at June 30, 2001 expired. NOTE B--NEW ACCOUNTING STANDARDS SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" In July, 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill and indefinite lived intangible assets will no longer be amortized but will be reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The non-amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the company will apply the new accounting rules beginning January 1, 2002. The company is currently assessing the financial impact that SFAS No. 141 and No. 142 will have on the consolidated financial statements. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" On January 1, 2001, the company adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, and recorded the impact as a change in accounting principle. The transition adjustment to adopt SFAS 133 resulted in $8 million of income, net of tax, from the cumulative effect of a change in 7 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) accounting principle, and an $11 million decrease, net of tax, in stockholders' equity in the company's financial statements for the quarter ended March 31, 2001. NOTE C--BUSINESS ACQUISITIONS & DISPOSITIONS On January 7, 2000, the company completed its tender offer for the outstanding publicly traded shares in Brazil of its subsidiaries Brasmotor S.A. (Brasmotor) and Multibras S.A. Eletrodomesticos (Multibras). In completing the offer, the company purchased additional shares of Brasmotor and Multibras for $283 million. With this additional investment, the company's equity interest in its Brazilian subsidiaries increased from approximately 55% to approximately 87%. NOTE D--DISCONTINUED OPERATIONS During the second quarter of 2001, the company wrote off its investment in a securitized aircraft lease portfolio which was owned by the company's previously discontinued finance company, Whirlpool Financial Corporation. The write-off, due primarily to the softening aircraft leasing industry, resulted in a pre-tax loss from discontinued operations of $35 million ($21 million after-tax). NOTE E--INVENTORIES Inventories consist of the following:
September 30 December 31 2001 2000 ------------ ----------- (millions of dollars) Finished products $ 941 $ 956 Raw materials and work in process 284 314 ------------ ----------- Total FIFO cost 1,225 1,270 Less excess of FIFO cost over LIFO cost 144 151 ------------ ----------- $ 1,081 $ 1,119 ============ ===========
8 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE F--RESTRUCTURING AND OTHER SPECIAL CHARGES Restructuring In December, 2000, the company announced a global restructuring plan. Through September 30, 2001, the company has approved and begun implementation of various phases of the restructuring activity that have resulted in pre-tax restructuring charges of $67 million, which have been identified as a separate component of operating profit. The restructuring charges included $56 million in termination benefits and $11 million in non-employee exit costs related primarily to the closing of a refrigeration plant in the company's Latin American region, a parts packing facility in the North American region and a plastic components facility in the Asian region. The majority of employees terminated to date represent hourly personnel at the identified facilities. The company expects to eliminate approximately 3,600 employees of which 2,200 have left the company through September 30, 2001. Other Special Charges As a result of the company's restructuring activity to date, $38 million pre-tax, of restructuring related charges have also been recorded primarily within cost of products sold. Included in this total is $12 million in write-downs of various fixed assets, primarily buildings that are no longer used in the company's business activities in its Latin American region. The company also wrote off $19 million in various assets in its North American, European and Asian regions which was primarily made up of equipment no longer used in its business activities as well as $7 million of excess inventory due to the parts distribution consolidation in North America. Details of the year-to-date restructuring and related charges are as follows:
Nine Months Beginning Charge Accrual at Ended September 30, 2001 Balance to Earnings Cash Paid Non-cash Translation 9/30/01 Remaining ------------------------------------------------------------------------------------------------------------------------------ (millions of dollars) Restructuring Termination costs $ 5 $ 56 $ (47) $ -- $ (14) Non-employee exit costs 11 (7) -- (4) Translation impact $ (3) (3) Asset Write-offs Miscellaneous buildings 12 -- (12) -- Inventory 7 -- (7) -- Miscellaneous equipment 19 -- (19) -- -------- --------- --------- -------- --------- --------- Total $ 5 $ 105 $ (54) $ (38) $ (3) $ 15 ======== ========= ========= ======== ========= =========
9 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE G--PRODUCT RECALL On October 16, 2001, in cooperation with the Consumer Products Safety Commission (CPSC), the company announced a voluntary recall of 1.8 million microwave hood combination units sold under the Whirlpool, KitchenAid, and Sears Kenmore brands. During the third quarter, the company identified and investigated a potential safety issue relating to the units and on September 24, 2001 notified the CPSC of the issue based on the company's initial investigation. The company and the CPSC have been working since September 24, 2001 to develop the announced recall program. The company recognized an estimated product recall pre-tax charge of $300 million ($184 million after-tax) during the quarter and recorded this charge as a separate component of operating profit. Management believes this represents a reasonable current estimate of the cost of the recall; however, due to the various factors involved, actual results could differ from this estimate. The projected $184 million after-tax cash cost of the recall is expected to be realized over the next several quarters. NOTE H--CONTINGENCIES The company is involved in various legal actions arising in the normal course of business. Management, after taking into consideration legal counsel's evaluation of such actions, is of the opinion that the outcome of these matters will not have a material adverse effect on the company's financial position. The company is a party to certain financial instruments with off-balance-sheet risk which are entered into in the normal course of business. These instruments consist of financial guarantees, repurchase agreements and letters of credit. The company's exposure to credit loss in the event of nonperformance by the debtors varies amongst these agreements. The company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Collateral or other security is generally required to support financial instruments with off-balance-sheet risk. At September 30, 2001, the company had $89 million in guarantees of customer lines of credit at commercial banks versus $106 million at December 31, 2000. 10 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE I--GEOGRAPHIC SEGMENTS The company identifies operating segments based upon geographical regions of operations because each operating segment manufactures home appliances and related components, but serves strategically different markets. The company's chief operating decision maker reviews each operating segment's performance based upon operating profit excluding one-time charges such as restructuring and related charges. These charges are included in operating profit on a consolidated basis and included in the Other and (Eliminations) column in the tables below. For the quarter and year-to-date amounts through September 30, 2001, the operating segments recorded total restructuring and related charges as follows; North America $6 and $21 million, Europe $4 and $21 million, Latin America $4 and $51 million, Asia $0 and $9 million and Corporate $0 and $3 million. Also included in the Other and (Eliminations) column is the $300 million product recall charge recorded in the third quarter. Refer to Notes F and G for discussions of these charges. (millions of dollars)
Three Months North Latin Other and Ended September 30 America Europe America Asia (Eliminations) Consolidated -------------------------------------------------------------------------------------------------------------------- Sales 2001 $ 1,712 $ 508 $ 336 $ 83 $ (45) $ 2,594 2000 $ 1,569 $ 538 $ 414 $ 81 $ (32) $ 2,570 Intangible amortization 2001 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7 2000 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7 Depreciation 2001 $ 44 $ 17 $ 22 $ 4 $ 5 $ 92 2000 $ 38 $ 18 $ 26 $ 5 $ 1 $ 88 Operating profit (loss) 2001 $ 195 $ 15 $ 32 $ 4 $ (344) $ (98) 2000 $ 143 $ 31 $ 25 $ 5 $ (31) $ 173 Capital expenditures 2001 $ 39 $ 12 $ 19 $ 2 $ 6 $ 78 2000 $ 30 $ 14 $ 22 $ 1 $ 2 $ 69 Total assets September 30, 2001 $ 2,600 $ 2,033 $ 1,269 $ 684 $ 335 $ 6,921 December 31, 2000 $ 2,624 $ 1,948 $ 1,600 $ 704 $ 26 $ 6,902
11 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (millions of dollars)
Nine Months North Latin Other and Ended September 30 America Europe America Asia (Eliminations) Consolidated ------------------------------------------------------------------------------------------------------------------- Sales 2001 $ 4,910 $ 1,504 $ 1,126 $ 277 $ (122) $ 7,695 2000 $ 4,714 $ 1,631 $ 1,231 $ 285 $ (115) $ 7,746 Intangible amortization 2001 $ 2 $ 10 $ 2 $ 4 $ 2 $ 20 2000 $ 2 $ 10 $ 2 $ 4 $ 4 $ 22 Depreciation 2001 $ 138 $ 50 $ 69 $ 11 $ 9 $ 277 2000 $ 125 $ 57 $ 81 $ 13 $ 15 $ 291 Operating profit (loss) 2001 $ 541 $ 24 $ 95 $ 14 $ (505) $ 169 2000 $ 542 $ 108 $ 77 $ 14 $ (101) $ 640 Capital expenditures 2001 $ 95 $ 38 $ 50 $ 6 $ 7 $ 196 2000 $ 109 $ 45 $ 61 $ 5 $ 11 $ 231 Total assets September 30, 2001 $ 2,600 $ 2,033 $ 1,269 $ 684 $ 335 $ 6,921 December 31, 2000 $ 2,624 $ 1,948 $ 1,600 $ 704 $ 26 $ 6,902
NOTE J--RELATED PARTY TRANSACTIONS The company repurchased 600 thousand shares of its own stock during the quarter from the company's U.S. pension plan at a total cost of $41 million. The shares repurchased from the pension plan were at an average cost of $67.78 per share, which was based upon an average of the high and low market prices on the date of purchase. NOTE K--SUBSEQUENT EVENTS On October 5, 2001, the company sold its position in a portfolio of cross currency interest rate swaps resulting in the receipt of $209 million. The company had previously held these contracts as hedges of the net investment in its European operations. In May 2000, the company undesignated these contracts as net investment hedges and entered into offsetting Euro denominated currency swaps, effectively locking in its cash position. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The statements of earnings summarize operating results for the three and nine month periods ended September 30, 2001 and 2000. This section of Management's Discussion highlights the main factors affecting the changes in operating results. Net Sales --------- The total number of units sold increased 2% and 1% for the quarter and year-to-date comparisons. Consolidated net sales were up 1% versus the year ago quarter and down 1% versus the comparable year-to-date period. Excluding the impact of currency fluctuations around the world, net sales would have increased 4% and 3% over the comparable periods. The table below provides a breakdown of sales by region.
3rd Quarter Year-to-date ------------------------- ------------------------- (millions of dollars) 2001 2000 Change 2001 2000 Change ------------ ----------- -------- ----------- ------------ -------- Net Sales: North America $ 1,712 $ 1,569 9.1%' $ 4,910 $ 4,714 4.2%' Europe 508 538 (5.6) 1,504 1,631 (7.8) Latin America 336 414 (18.8) 1,126 1,231 (8.5) Asia 83 81 2.5 277 285 (2.8) Other/eliminations (45) (32) - (122) (115) - ----------- ----------- ---------- ----------- Consolidated $ 2,594 $ 2,570 0.9% $ 7,695 $ 7,746 (0.7)% =========== =========== ====== ========== =========== ========
Regional trends were as follows: - North American unit sales increased 8% for the quarter in an industry that was up approximately 6%. Year-to-date unit shipments were up 3% while the industry declined approximately 3%. The increased net sales reflect increased volume and an improved product mix over 2000 for both the quarter and year-to-date periods. North American industry shipments are currently expected to be down 3% for the full year. - European unit volumes were down 4% and 2% for the quarter and year-to-date periods versus last year as the appliance industry continues to slow in Europe. The decline in net sales is due to lower volumes and the impact of currency fluctuations. Excluding the impact of currency fluctuations, net sales were down 4% and 3% versus the comparable 2000 periods. European industry shipments are currently expected to be down 1% to 2% for the full year. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - Latin American unit volumes were down 8% for the quarter and level year-to-date versus the 2000 periods. Net sales were lower for the comparable periods primarily due to the impact of currency fluctuations. Excluding the impact of currency fluctuations, net sales decreased 1% for the quarter and increased 5% for the year-to-date period. Latin American industry shipments are currently expected to be down approximately 3% for the full year. - Asia's unit volumes increased 12% and 6% for the quarter and year-to-date periods with the largest increases in the India and China markets. Asia net sales increased 3% for the quarter and decreased 3% year-to-date, however, reflecting currency impact and price competition. Excluding the impact of currency fluctuations, net sales would have increased 7% and 3% for the quarter and year-to-date comparison. Gross Margin ------------ Gross margin percentage increased 0.5 percentage points for the quarter and declined 0.9 percentage points for the year-to-date comparisons, excluding the impact of $9 million and $35 million for the quarter and year-to-date periods, for special charges related to the company's restructuring program which were classified in cost of products sold. Company-wide productivity gains and an improved product mix in Latin America offset global pricing pressures. Selling and Administrative -------------------------- Selling and administrative expenses as a percent of net sales decreased 1.1 percentage points for the quarter and were level year-to-date. The North American ratios improved 2.2 percentage points quarter-over-quarter and 0.9 percentage points year-over-year as benefits from cost containment efforts continued to outpace increased spending for new product launches. The European ratios increased for the quarter 1.8 percentage points and 1.6 percentage points year-to-date as lower sales more than offset cost containment efforts. The Latin American ratios were up 1.6 percentage points for the quarter comparison and 1.7 percentage points year-to-date due to investments in growth initiatives and increased of bad debt provisions. Other Income and Expense ------------------------ Interest and sundry income (expense) was $4 million unfavorable quarter-over-quarter due to higher miscellaneous costs. Interest and sundry income was $2 million unfavorable for the year-to-date comparison as lower interest income offset lower miscellaneous costs. The lower interest income year-to-date was due to reduced short-term investments primarily in Latin America. Interest expense decreased $8 million for the quarter and $4 million for the year-to-date comparisons due to lower overall average balances, primarily in short-term borrowings, and declining interest rates. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Income Taxes ------------ The consolidated effective income tax rate for the quarter was 42%, driven up from the prior year by a 39% tax rate on the product recall charge versus a lower effective tax rate excluding that charge. This also caused a $3 million tax benefit on the year-to-date positive pre-tax earnings. The effective rates for the 2000 quarter and year-to-date periods were both 37%. Earnings -------- Core earnings for third quarter, which excluded restructuring and related charges of $11 million, after-tax and minority interests (refer to Note F to the accompanying consolidated condensed financial statements for a discussion of restructuring and other special charges) and a $184 million, after-tax, estimated product recall charge (refer to Note G), were $101 million or $1.46 per diluted share versus $67 million or $0.98 per diluted share in 2000. Reported third quarter net losses were $94 million or $1.40 per share. Core earnings for the year-to-date period, which excluded restructuring and related charges of $65 million, after-tax and minority interests, a $184 million, after-tax, estimated product recall charge, a $21 million loss, after-tax, on discontinued operations (refer to Note D), and a one-time gain related to the implementation of SFAS No. 133 of $8 million, after-tax (refer to Note B), were $262 million or $3.87 per diluted share versus $301 million or $4.18 per diluted share in 2000. Reported year-to-date net losses totaled $18 thousand. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CASH FLOWS The statements of cash flows reflect the changes in cash and equivalents for the nine months ended September 30, 2001 and 2000 by classifying transactions into three major categories: operating, investing and financing activities. Operating Activities -------------------- The company's main source of liquidity is cash from operating activities consisting of net earnings from operations adjusted for non-cash operating items such as depreciation and changes in operating assets and liabilities such as receivables, inventories and payables. Cash provided by operating activities in the first nine months of 2001 was $647 million compared to $235 million in 2000. The improvement over the prior year was due primarily to changes in inventories and accounts receivable. Investing Activities -------------------- The principal recurring investing activities are property additions. Net property additions for the first nine months were $196 million in 2001 down from $231 million in the 2000 period. These expenditures are primarily for equipment and tooling related to product improvements, more efficient production methods and replacement for normal wear and tear. Refer to Note C to the accompanying consolidated financial statements for a discussion of business dispositions and acquisitions. Financing Activities -------------------- Dividends paid to shareholders totaled $90 million for the first nine months of 2001 versus $74 million in 2000. The increase was due to the timing of funding for the fourth quarter 2000 payment more than offsetting a reduction in outstanding shares due to the repurchase program. The company's borrowings, adjusted for currency fluctuations, decreased $321 million from year end as cash provided by operating activities was used to reduce short term notes payable. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the September 30, 2001 balance sheet. The company's total assets are $6.9 billion and stockholders' equity is $1.4 billion versus the September 30, 2000 totals of $6.9 billion and $1.7 billion, respectively. The decrease in stockholders' equity versus a year ago was due primarily to $216 million foreign currency translation impact and $90 million in dividends declared. The company's total assets and stockholders' equity at December 31, 2000 were $6.9 billion and $1.7 billion, respectively. The lower equity from year-end was due primarily to $191 million of foreign currency translation and $68 million in dividends declared. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION On February 15, 2000, the company announced that its Board of Directors approved an extension of the company's stock repurchase program to $1 billion. The additional $750 million share repurchase authorization extended the previously authorized $250 million repurchase program which was announced March 1, 1999. The shares are purchased in the open market and through privately negotiated sales as the company deems appropriate. The company has purchased 12.0 million shares at a cost of $637 million under the program. The company repurchased 650 thousand shares during the quarter at a cost of $43 million, of which, 600 thousand were purchased from the company's U.S. pension plan at a total cost of $41 million. The shares repurchased from the pension plan were at an average cost of $67.78 per share, which was based upon an average of the high and low market prices on the date of purchase. On June 1, 2001, the company entered into a five-year $800 million committed long-term credit facility and a 364-day $400 million committed short-term credit facility which provide backup liquidity. Available revolving committed credit facilities as of September 30, 2001 were $1.2 billion. On July 3, 2001, the company completed the issuance of 300 million euro denominated 5.875% Notes due 2006. The notes are general obligations of the company and the proceeds were used for general corporate purposes, including but not limited to refinancing outstanding debt. The overall debt to invested capital ratio of 51.4 percent at September 30, 2001 was down from 52.0 percent at September 30, 2000 and up from 49.4 percent at December 31, 2000. The increase from year-end is due primarily to lower stockholders' equity as described above and the increase in long-term debt from the reclassification of a $221 million positive cash position on previously held net investment hedges, from a contra debt account to other long-term assets on the balance sheet. The long-term debt adjustment was in accordance with the adoption on January 1, 2001 of Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." Excluding the impact from this accounting change, total debt declined $341 million from December 31, 2001. The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's, and Fitch IBCA. The company has external sources of capital available and believes it has adequate financial resources and liquidity to meet anticipated business needs and to fund future growth opportunities. In December 1996, Multibras and Empresa Brasileira de Compressores S.A. (Embraco), Brazilian subsidiaries, obtained a favorable decision with respect to additional export incentives in connection with the Brazilian government's export incentive program (Befiex). These incentives were worth approximately $420 million as of December 31, 2000. The company recognized $52 million (Whirlpool's share after minority interest was $49 million) in Befiex credits in 2000 as a reduction of current excise taxes payable and therefore an increase in net sales. The company recognized $10 million and $39 million for the quarter and year-to-date periods of 2001, respectively. Whirlpool's share after minority interests were $9 million and $37 million. Due to the company's U.S. pension plan funding policy and higher than expected returns on plan assets in recent years, the company has recorded pension credits in its operating profit during 2000 and 2001. These credits have approximated $15 million per quarter for all of 2000 and 2001. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION EURO CURRENCY CONVERSION On January 1, 1999, eleven member nations of the European Union began the conversion to a common currency, the "euro." The company has significant manufacturing operations and sales in these countries. The introduction of the euro has eliminated transaction gains and losses within participating countries and there currently has not been any significant impact on operating results from the change to the euro. Internal computer system and business processes are being changed to accommodate the new currency and the company established a cross-functional team, guided by an executive-level steering committee, to address these issues. The company estimates that all of the euro countries will be converted in various steps to the euro currency by the end of 2001. The total cost of the euro conversion program will be approximately $3 million. FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Management's Discussion and Analysis and other sections of this report may contain forward-looking statements that reflect our current views with respect to future events and financial performance. Certain statements contained in this annual report and other written and oral statements made from time to time by the company do not relate strictly to historical or current facts. As such, they are considered "forward-looking statements" which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "could," "possible," "plan," "project," "will," "forecast," and similar words or expressions. The company's forward-looking statements generally relate to its growth strategies, financial results, product development, and sales efforts. These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. Many factors could cause actual results to differ materially from the company's forward-looking statements. Among these factors are: (1) competitive pressure to reduce prices; (2) the ability to gain or maintain market share in an intensely competitive global market; (3) the success of our global strategy to develop brand differentiation and brand loyalty; (4) our ability to control operating and selling costs and to maintain profit margins during industry downturns; (5) the success of our Brazilian businesses operating in a volatile environment currently facing energy shortages; (6) continuation of our strong relationship with Sears, Roebuck and Co. in North America which accounted for approximately 20% of our consolidated net sales of $10.3 billion in 2000; (7) currency exchange rate fluctuations in Latin America, Europe, and Asia that could affect our consolidated balance sheet and income statement; (8) social, economic, and political volatility in developing markets; (9) continuing uncertainty in the North American, Latin American and 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION European economies; (10) changes in North America's consumer preferences regarding how appliances are purchased; (11) the effectiveness of the series of restructuring actions the company anticipates taking through 2002; (12) the impact of the company's microwave-hood combination product recall on consumer preferences; and the possibility of continued terrorist activity throughout the world and its impact on the global economy. The company undertakes no obligation to update every forward-looking statement, and investors are advised to review disclosures by the company in our filings with the Securities and Exchange Commission. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ. 19 PART II. OTHER INFORMATION -------------------------- WHIRLPOOL CORPORATION AND SUBSIDIARIES Quarter Ended September 30, 2001 Item 6. Exhibits and Reports on Form 8-K ---------------------------------------- a. The following are included herein: (99) Computation of the ratios of earnings to fixed charges b. The registrant filed the following Current Reports on Form 8-K for the quarterly period ended September 30, 2001. A Current Report on Form 8-K dated July 17, 2001 pursuant to Item 5, "Other Events," to announce the Company's earnings for the second quarter 2001. 20 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WHIRLPOOL CORPORATION (Registrant) By /s/ Mark E. Brown ------------------ Mark E. Brown Executive Vice President and Chief Financial Officer (Principal Financial Officer) October 18, 2001 21
EX-99 3 dex99.txt RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 99 RATIOS OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES (dollars in millions) Nine Months Ended September 30, 2001 -------------------- Pretax earnings $ 17.7 Portion of rents representative of the interest factor 12.9 Interest on indebtedness 127.9 Amortization of debt expense and premium .6 WFC preferred stock dividend 2.9 ------------------ Adjusted income $ 162.0 ================== Fixed charges Portion of rents representative of the interest factor $ 12.9 Interest on indebtedness 127.9 Amortization of debt expense and premium 0.6 WFC preferred stock dividend 2.9 ------------------ $ 144.3 ================== Ratio of earnings to fixed charges 1.12 ================== Ratio of earnings to fixed charges at September 30, 2000 4.25 ================== 22