EX-13 4 dex13.txt MANAGEMENT'S DISCUSSION AND ANALYSIS Exhibit 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The consolidated statements of earnings summarize operating results for the last three years. This section of Management's Discussion and Analysis highlights the main factors affecting changes in operating results during the three-year period. Earnings -------- Core earnings decreased 10% in 2000 while 1999 core earnings increased 31% over 1998. The term "core earnings" refers to earnings from continuing operations excluding the effects of the first quarter 1999 Brazilian currency devaluation. Earnings and earnings per share were as follows:
(millions of dollars, except per share data) 2000 1999 1998 -------------- ---------------- ------------- Core earnings $ 367 $ 407 $ 310 Diluted core earnings per share 5.20 5.35 4.06 Earnings from continuing operations 367 347 310 Diluted earnings per share from continuing operations 5.20 4.56 4.06 Net earnings 367 347 325 Diluted net earnings per share 5.20 4.56 4.25
Core earnings for 2000 were affected by the impact of a slowing industry and intense pricing pressures in the company's two largest markets, North America and Europe. Increased research and development, advertising and product launch costs in support of the company's brand strategy were offset by $59 million in pension gains, after-tax, or $0.84 per diluted share. Core earnings for 2000, 1999 and 1998 included $49 million, $20 million and $15 million, after-tax and minority interests, of Brazilian tax credits. These credits accounted for $0.69, $0.26 and $0.20 per diluted share for 2000, 1999 and 1998, respectively. Earnings from continuing operations and net earnings for 1999 were reduced $60 million after-taxes and minority interests, or $0.79 per diluted share, by the first quarter's Brazilian currency devaluation. During 1998, the company recorded an after-tax gain from discontinued operations of $15 million or $0.19 per diluted share related to the sale of consumer financing and European inventory financing assets to Transamerica Distribution Finance Corporation, concluding a series of transactions to dispose of portions of its financing business. Net Sales --------- 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The total number of units sold in 2000 increased 4% over 1999. Consolidated net sales decreased 2%, however, as currency fluctuations around the world and pricing pressures combined to offset the increased units. Excluding currency fluctuations, sales would have increased 1% over 1999. Excluding the impact of currency fluctuations, net sales were up 11% in 1999 over 1998. The tables below provide the breakdown of units and sales by region.
(in thousands) 2000 Change 1999 Change 1998 ---------------- --------------- ---------------- ----------- ----------------- Units Sold: North America 20,634 3.9% 19,862 11.9% 17,810 Europe 10,876 3.9 10,469 7.1 9,774 Latin America 4,918 2.3 4,809 (0.2) 4,817 Asia 1,958 5.4 1,858 13.0 1,644 Other/elimination (31) - (49) - (13) -------------- -------------- --------------- Consolidated 38,355 3.8% 36,949 8.6% 34,032 ============== ============ ============== ========= =============== (millions of dollars) 2000 Change 1999 Change 1998 ---------------- --------------- ----------------- ---------- --------------- Net Sales: North America $ 6,223 1.0% $ 6,159 10.0% $ 5,599 Europe 2,156 (12.1) 2,452 0.5 2,439 Latin America 1,706 2.3 1,668 (20.2) 2,090 Asia 390 4.0 375 19.8 313 Other/eliminations (150) - (143) - (118) -------------- -------------- --------------- Consolidated $ 10,325 (1.8)% $ 10,511 1.8% $ 10,323 ============== ============ ============== ========= ===============
Significant regional trends were as follows: - North American unit volumes increased despite an overall slowdown in industry demand. Major appliance shipments growth exceeded the 2% industry-wide growth. Shipments are currently expected to be flat for 2001. Net sales increased slower than unit volumes as competitive pricing pressures reduced average sales values. The 1999 increase versus 1998 in units and net sales were both attributable to strong industry growth and market share gains. - European unit volumes increased in line with industry growth. Net sales decreased however, as currency fluctuations and pricing pressures offset the higher volume. Excluding the impact of currency fluctuations, net sales would have been level with 1999. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Unit shipments are currently expected to increase 2% in 2001. Unit volumes and net sales increased 7% and 1%, respectively, in the 1999 versus 1998 comparison also reflecting the impact of currency fluctuations. - Unit shipments and net sales increased in Latin America over 1999 reflecting positive economic trends. Price increases implemented during the year contributed to the increased revenue. Unit shipments are currently expected o increase between 5% and 8% in 2001. In the 1999 versus 1998 comparison, net sales absent currency fluctuations would have increased 16%. - Asia continued a positive trend as both units and revenue increased year- over-year. Unit shipments are currently expected to increase between 5% and 8% in 2001. Gross Margin ------------ The consolidated gross margin percentage in 2000 declined 1.2 percentage points versus 1999 due primarily to global pricing pressures and higher material costs partially offset by the favorable impact of productivity improvements and pension gains. The gross margin percentage improved by nearly one percentage point in 1999 versus 1998, due primarily to benefits resulting from the restructuring started in 1997 and ongoing productivity improvements from the company's Operational Excellence Program. The table below outlines the gross margin percentages by region.
2000 Change 1999 Change 1998 -------- ---------- --------- ---------- ---------- Gross Margin North America 24.3% (1.1) pts 25.4% 0.6 pts 24.8% Europe 23.3 (2.6) 25.9 1.2 24.7 Latin America 22.9 (0.2) 23.1 1.1 22.0 Asia 26.1 1.0 25.1 4.3 20.8 -------- -------- ---------- Consolidated 24.1% (1.2) pts 25.3% 0.9 pts 24.4% ======== ========= ======== ======== ==========
Significant regional trends were as follows: - North American gross margin declined due to industry-wide price deterioration, unfavorable product and channel mix and increased engineering and product launch expenses. These factors were partially offset by volume increases, ongoing productivity improvements and pension credits. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - European gross margin decreased due to intensified price competition, rising material costs and slowing demand. In the 1999 versus 1998 comparison, the gross margin improved due to manufacturing efficiencies and lower material costs. - Latin American gross margin remained level with 1999 as higher material costs were offset by sales tax credits. The gross margin, however, improved throughout the year due to the implementation of price increases and raw material price reductions. Selling, General and Administrative ----------------------------------- Consolidated selling, general and administrative expenses as a percent of net sales decreased from 1999 due primarily to pension gains in North America and cost containment efforts in Europe and Brazil offsetting additional spending related to brand strategies. Consolidated selling, general and administrative expenses as a percent of net sales decreased in 1999 versus 1998 due to improvements related to restructuring and a sales allowance reclassification in North America. These improvements were partially offset by $36 million in pre- tax provisions in Brazil related to credit risk. The table below outlines the selling, general and administrative expenses as a percentage of sales by region.
As a % As a % As a % (millions of dollars) 2000 of Sales 1999 of Sales 1998 of Sales ------------- ----------- ------------- ---------- ------------- ------------ Selling, General & Administrative Expenses North America $ 825 13.3% $ 838 13.6% $ 757 13.5% Europe 386 17.9 443 18.1 465 19.1 Latin America 263 15.4 263 15.8 334 16.0 Asia 76 19.4 76 20.3 78 24.8 Corporate/Other 101 - 133 - 157 - ---------- --------- -------- Consolidated $ 1,651 16.0% $ 1,753 16.7% $ 1,791 17.3% ========== ======= ========= ====== ======== ========
Other Income and Expense ------------------------ Interest income and sundry income (expense) was $145 million favorable in 2000 versus 1999 due primarily to the impact of the Brazilian currency devaluation in 1999. This was partially offset by lower interest income in 2000 as the company reduced short term investments. The devaluation of the Brazilian real in the first quarter of 1999 resulted in a $158 million pre-tax charge to earnings (Whirlpool's share after-tax and minority interest was $60 million). For the full year 1999, foreign exchange losses related to Brazil totalled $192 million pre-tax (Whirlpool's share after-tax and minority interest was $76 million). Interest income and sundry income (expense) for 1999 was unfavorable compared to 1998 primarily due to the Brazilian currency devaluation discussed above and lower interest income in 1999 as the company restructured its Brazilian balance sheet to reduce its exposure to exchange rate fluctuations. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Interest expense increased $14 million over 1999 due primarily to higher interest rates and higher average debt balances outstanding in 2000. Interest expense decreased $94 million from 1998 to 1999 due to the restructuring of the Brazilian balance sheet in 1999 in order to reduce the company's exposure to exchange rate fluctuations. Income Taxes ------------ The effective income tax rate was 35% in 2000 versus 37% in 1999 (adjusted for the effect of the Brazilian currency devaluation), and 37% in 1998. The lower effect tax rate for 2000 versus 1999 was primarily due to Brazilian export incentive tax credits utilized during 2000 (discussed under "Financial Conditions and Other Matters"), which are nontaxable. Excluding the impact of these credits, the effective income tax rate in 2000 would have been 38%. Including the Brazilian currency devaluation, the effective income tax rate for 1999 was 38%. CASH FLOWS The statements of cash flows reflect the changes in cash and equivalents for the last three years 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 totalled $445 million in 2000 versus $801 million in 1999. Cash provided by operations was $763 million in 1998. The decrease in 2000 versus 1999 was due primarily to an increase in accounts receivable and prepaid pension costs, partially offset by an increase in accounts payable. Investing Activities -------------------- The principal recurring investing activities are property additions. Net property additions were $375 million, $437 million and $523 million in 2000, 1999 and 1998. The higher spending in 1998 compared with the 2000 and 1999 levels, was primarily due to significant expenditures in Brazil for product renewals and more efficient production methods. On January 7, 2000, the company completed its tender offer for the outstanding publicly traded shares in Brazil of its subsidiaries Brasmotor and Multibras S.A. Eletrodomesticos (Multibras). In completing the offer, the company purchased additional shares of Brasmotor and Multibras for $283 million, bringing its equity interest in these companies to approximately 94%. With this additional investment, the company's equity interest in all its Brazilian subsidiaries increased from approximately 55% to approximately 87%. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Refer to Note 2 to the accompanying consolidated financial statements for discussion of business dispositions and acquisitions during the last three years. Financing Activities -------------------- Dividends paid to stockholders totaled $70 million, $103 million and $102 million in 2000, 1999 and 1998. The reduction in 2000 was due primarily to the timing of funding for the fourth quarter payment and the reduction in outstanding shares due to the share repurchase program. 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 which was announced on March 1, 1999. The shares are to be purchased on the open market and through privately negotiated sales as the company deems appropriate. Through December 31, 2000, the company had repurchased 11.3 million shares at a cost of $594 million, of which 8.7 million shares or $427 million occurred during 2000. The company's net borrowings increased by $546 million in 2000, excluding the effect of currency fluctuations. The primary increase was in shorter term notes payable. The company's net borrowings decreased by $324 million in 1999 versus 1998, excluding the effect of currency fluctuations. The reduction was in shorter term notes payable and funded through cash generated from operations and existing cash balances in Brazil. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the December 31, 2000 balance sheet. The company's total assets were $6.9 billion and stockholders' equity was $1.7 billion at the end of 2000 versus $6.8 billion and $1.9 billion respectively at the end of 1999. The decrease in stockholders' equity in 2000 versus 1999 was due primarily to $427 million of treasury stock purchases (discussed above) offsetting $271 million of net earnings retention. The overall debt to invested capital ratio (debt ratio) of 49.4% in 2000 was up from 37.7% in 1999 due primarily to increased short term borrowings combined with a lower stockholders' equity balance. The company's debt continues to be rated investment grade by Moody's Investors Service Inc. (Baa1), Standard and Poor's (BBB+) and Fitch IBCA (A-). 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. On May 5, 2000, the company issued $325 million of 8.6% debentures maturing in 2010, which was partially offset by the maturity on June 15, 2000 of $200 million in 9.5% debentures. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In December, 2000, the company announced a global restructuring plan that when fully implemented is currently expected to result in pre-tax charges of between $300 and $350 million and an annualized savings of between $225 and $250 million. The plan is expected to eliminate approximately 6,000 positions worldwide and will be announced in phases over the next four quarters. The company expects the first phase of this restructuring will include the elimination of more than 2,000 positions worldwide and result in a charge against first quarter 2001 earnings of approximately $75 million. The company expects this phase of the restructuring to result in 2001 savings of approximately $35 million. 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. During 1999, the company recorded $58 million pre-tax (Whirlpool's share after-tax and minority interest was $20 million) of recovered Brazilian sales taxes paid in prior years under a Brazilian law which was successfully challenged in the courts. The company recorded $42 million pre-tax (Whirlpool's share after-tax and minority interests was $15 million) of Befiex credits in 1998. Market Risk ----------- The company is exposed to market risk from changes in foreign currency exchange rates, domestic and foreign interest rates, and commodity prices, which can impact its operating results and overall financial condition. The company manages its exposure to these market risks through its operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading purposes. Derivative financial instruments are entered into with a diversified group of investment grade counterparties to reduce the company's exposure to nonperformance on such instruments. The company's sensitivity analysis reflects the effects of changes in market risk but does not factor in potential business risks. The company manages a portfolio of domestic and cross currency interest rate swaps that effectively convert U.S. Dollar (USD) denominated debt into that of various European currencies. Through May 15, 2000, such local currency denominated debt served as an effective hedge against the company's European cash flows and net assets. On May 15, 2000, the company undesignated these contracts as hedges of the net investment in its European operations and entered into offsetting Euro denominated currency swaps, effectively locking in an approximate $221 million positive position on the previously referenced cross currency interest rate swaps. This positive cash position will be realized as the contracts mature in 2002 and 2004. (Refer to Notes 1 and 6 for the accounting treatment for, and a detailed description of, these instruments.) 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Cross currency interest rate swaps are generally sensitive to changes in foreign currency exchange rates and interest rates. However, the company entered into offsetting forward currency contracts to effectively eliminate any material gain or loss on the swaps due to changes in European currencies. As of December 31, 2000, a ten percent shift in interest rates alone to each swap would have resulted in an incremental unrealized gain or loss of $4 million. In September 2000, the company entered into additional domestic interest rate swaps which effectively neutralized any potential interest rate impact from the existing portfolio of domestic interest rate swaps. The company uses foreign currency forward contracts and options from time to time to hedge the price risk associated with firmly committed and forecasted cross-border payments and receipts related to its ongoing business and operational financing activities. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 2000, a ten percent unfavorable exchange rate movement in the company's portfolio of foreign currency forward contracts would have resulted in an incremental unrealized loss of $66 million, while a ten percent favorable shift would have resulted in an incremental unrealized gain of $63 million. Consistent with the use of these contracts, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions. The company uses commodity swap contracts to hedge the price risk associated with firmly committed and forecasted commodities purchases which are not hedged by contractual means directly with suppliers. As of December 31, 2000, a ten percent shift in commodity prices would have resulted in an incremental $2 million gain or loss related to these contracts. During the first quarter of 2000, the company sold put options, which give the purchaser the right to sell shares of the company's stock to the company at a specified price. The put option contracts allow the company to determine the method of settlement. The company's objective in selling put options is to reduce the average price of repurchased shares. During 2000, the company received $4 million of premiums from the sale of put options. As of December 31, 2000, there were 702,800 put options outstanding with an average strike price of $52.16 per share all of which expire in 2001. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, which establishes new accounting and reporting standards for derivative instruments. These rules require that all derivative instruments be reported in the consolidated financial statements at fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction, and on the type of hedge transaction. Gains or losses on derivative instruments reported in other comprehensive income must be reclassified as earnings in the period in which earnings are affected by the underlying hedged item, and the ineffective portion of all hedges must be recognized in earnings in the current period. These new standards may result in additional volatility in reported earnings, other comprehensive income and accumulated other comprehensive income. These rules became effective for the company on January 1, 2001. The company will record the effect of the transition to these new accounting requirements as a change in accounting 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION in the first quarter of 2001. The transition adjustment to adopt SFAS 133 will result in $8 million of income, net of tax, from the cumulative effect of a change in accounting principle, and an $11 million decrease, net of tax, in stockholders' equity in the company's financial statements for the quarter ending March 31, 2001. 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 over 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 challenging and volatile environment; (6) 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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) worsening of the economic downturn in North America; (10) changes in North America's consumer preferences regarding how appliances are purchased; and (11) the effectiveness of the series of restructuring actions the company anticipates taking through 2002. 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. 10 WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Year Ended December 31 (millions of dollars except per share data)
2000 1999 1998 ------------- ------------- ------------ Net sales $ 10,325 $ 10,511 $ 10,323 EXPENSES Cost of products sold 7,838 7,852 7,805 Selling and administrative 1,651 1,753 1,791 Intangible amortization 29 31 39 ------------- ------------- ------------ 9,518 9,636 9,635 ------------- ------------- ------------ OPERATING PROFIT 807 875 688 OTHER INCOME (EXPENSE) Interest and sundry (50) (195) 136 Interest expense (180) (166) (260) ------------- ------------- ------------ EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 577 514 564 Income taxes 200 197 209 ------------- ------------- ------------ EARNINGS FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 377 317 355 Equity in affiliated companies 3 (4) 1 Minority interests (13) 34 (46) ------------- ------------- ------------ EARNINGS FROM CONTINUING OPERATIONS 367 347 310 Gain on disposal from discontinued operations (less applicable taxes) - - 15 ------------- ------------- ------------ NET EARNINGS $ 367 $ 347 $ 325 ============= ============= ============ Per share of common stock: Basic Earnings from continuing operations $ 5.24 $ 4.61 $ 4.09 Basic Net earnings $ 5.24 $ 4.61 $ 4.29 Diluted Earnings from continuing operations $ 5.20 $ 4.56 $ 4.06 Diluted Net earnings $ 5.20 $ 4.56 $ 4.25 Dividends $ 1.36 $ 1.36 $ 1.36 Weighted-average shares outstanding: (millions) Basic 70.2 75.2 75.8 Diluted 70.6 76.0 76.5
See notes to consolidated financial statements CONSOLIDATED BALANCE SHEETS
December 31 (millions of dollars) 2000 1999 ------------------ ------------------ ASSETS CURRENT ASSETS Cash and equivalents $ 114 $ 261 Trade receivables, less allowances of (2000: $103; 1999: $124 ) 1,748 1,477 Inventories 1,119 1,065 Prepaid expenses and other 54 39 Deferred income taxes 50 88 Other current assets 152 247 ------------------ ------------------ Total Current Assets 3,237 3,177 OTHER ASSETS Investment in affiliated companies 113 112 Intangibles, net 762 795 Deferred income taxes 253 247 Prepaid pension costs 141 45 Other 262 272 ------------------ ------------------ 1,531 1,471 PROPERTY, PLANT AND EQUIPMENT Land 64 70 Buildings 838 863 Machinery and equipment 4,374 4,249 Allowance for Depreciation (3,142) (3,004) ------------------ ------------------ 2,134 2,178 ------------------ ------------------ Total Assets $ 6,902 $ 6,826 ================== ================== 2000 1999 ------------------ ------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 961 $ 444 Accounts payable 1,257 1,081 Employee compensation 256 300 Deferred income taxes 103 60 Accrued expenses 590 594 Restructuring costs 5 39 Other current liabilities 102 149 Current maturities of long-term debt 29 225 ------------------ ------------------ Total Current Liabilities 3,303 2,892 OTHER LIABILITIES Deferred income taxes 175 157 Postemployment benefits 630 612 Product warranty 48 43 Other liabilities 49 60 Deferred income 71 65 Long-term debt 795 714 ------------------ ------------------ 1,768 1,651 MINORITY INTERESTS 147 416 STOCKHOLDERS' EQUITY Common stock, $1 par value: 250 million shares authorized 84 84 Paid-in capital 393 374 Retained earnings 2,539 2,268 Unearned restricted stock (11) (6) Cumulative translation adjustments (495) (443) Treasury stock -18 and 9 million shares at cost in 2000 and 1999 (826) (410) ------------------ ------------------ Total Stockholders' Equity 1,684 1,867 ------------------ ------------------ Total Liabilities and Stockholders' Equity $ 6,902 $ 6,826 ================== ==================
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (millions of dollars) 2000 1999 1997 ------------------------------------------ OPERATING ACTIVITIES Net earnings (loss) $ 367 $ 347 $ 325 Depreciation 371 386 399 Deferred income taxes 74 29 26 Equity in net earnings (loss) of affiliated companies, less dividends received (3) 4 (1) Gain on business dispositions - - (25) Provision for doubtful accounts 13 37 29 Amortization of goodwill 29 31 39 Restructuring charges, net of cash paid (43) (73) (99) Minority interests 13 (34) 46 Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables (348) (41) (184) Inventories (80) (52) 73 Accounts payable 221 106 89 Prepaid pension costs (96) (8) (1) Other - net (73) 69 47 ---------- ---------- --------- Cash Provided by Operating Activities $ 445 $ 801 $ 763 ---------- ---------- ---------
2000 1999 1998 ------------------------------------------- INVESTING ACTIVITIES Net additions to properties $ (375) $ (437) $ (523) Acquisitions of businesses, less cash acquired (283) - (121) Business dispositions - - 587 ----------- ----------- ---------- Cash (Used for) Investing Activities $ (658) (437) (57) ----------- ----------- ---------- FINANCING ACTIVITIES Proceeds of short-term borrowings $ 29,506 15,479 19,141 Repayments of short-term borrowings (28,878) (15,841) (19,519) Proceeds of long-term debt 326 152 290 Repayments of long-term debt (408) (175) (306) Repayments of non-recourse debt - - - Dividends (70) (103) (102) Purchase of treasury stock (427) (167) - Redemption of preferred stock - - (40) Other 27 59 (83) ----------- ----------- ---------- Cash Provided by (Used for) Financing Activities $ 76 (596) (619) ----------- ----------- ---------- Effect of Exchange Rate Changes on Cash and Equivalents $ (10) (143) (29) ----------- ----------- ---------- Increase (Decrease) in Cash and Equivalents $ (147) (375) 58 Cash and Equivalents at Beginning of Year 261 636 578 ----------- ----------- ---------- Cash and Equivalents at End of Year $ 114 $ 261 $ 636 ----------- ----------- ----------
Consolidated Statements of Changes in Stockholders' Equity Treasury Accumulated Stock/ Other Common Paid-in Comprehensive Related (millions of dollars) Stock Capital Income Earnings Total ----- ------- ------------- -------- ----- Balances, January 1, 1998 $ 82 $ 37 $ (149) $ 1,801 $ 1,771 Comprehensive income Net income 325 325 Foreign currency items, net of tax (benefit) of $(18) (34) (34) ------- Comprehensive income 291 ------- Common stock issued 1 40 41 Dividends declared on common stock (102) (102) ----- ------ ------------- -------- ------- Balances, December 31, 1998 $ 83 $ 77 $ (183) $ 2,024 $ 2,001 Comprehensive income (loss) Net income (loss) 347 347 Foreign currency items, net of tax of $41 (260) (260) ------- Comprehensive income (loss) 87 ------- Common stock repurchased (167) (167) Common stock issued 1 48 49 Dividends declared on common stock (103) (103) ----- ------ ------------- -------- ------- Balances, December 31, 1999 $ 84 $ (42) $ (443) $ 2,268 $ 1,867 Comprehensive income Net income 367 367 Foreign currency items, net of tax of $18 (52) (52) ------- Comprehensive income 315 ------- Common stock repurchased (427) (427) Common stock issued - 25 25 Dividends declared on common stock (96) (96) ----- ------ ------------- -------- ------- BALANCES, DECEMBER 31, 2000 $ 84 $ (444) $ (495) $ 2,539 $ 1,684 ===== ====== ============= ======== =======
See notes to consolidated financial statements. WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES Nature of Operations: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. The company manufactures in 13 countries under 11 major brand names and markets products to distributors and retailers in more than 170 countries. Principles of Consolidation: The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliated companies, consisting principally of a 49% direct voting interest in a Mexican company (Vitromatic, S.A. de C.V.) and direct voting interests ranging from 20% to 40% in several other international companies, principally engaged in the manufacture and sale of major home appliances or related component parts, are accounted for by the equity method. All intercompany transactions have been eliminated upon consolidation. Use of Estimates: Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition: Sales are recorded when product is shipped and title passes to distributors or directly to retailers. Freight and Warehousing Costs: Freight-out and warehousing costs are included in selling, general and administrative expenses in the statements of earnings and were $470 million, $430 million and $402 million in 2000, 1999 and 1998. Cash and Equivalents: All highly liquid debt instruments purchased with a maturity of three months or less are considered cash equivalents. Inventories: Inventories are stated at first-in, first-out (FIFO) cost, except U.S. production inventories which are stated at last-in, first-out (LIFO) cost and Brazilian inventories which are stated at average cost. Costs do not exceed realizable values. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation of plant and equipment is computed using the straight-line method based on the estimated useful lives of the assets. Intangibles: The cost of business acquisitions in excess of net tangible assets acquired is amortized on a straight-line basis principally over 40 years. Non- compete agreements are amortized on a straight-line basis over the terms of the agreements. Accumulated amortization totaled $295 million and $266 million at December 31, 2000 and 1999. Should circumstances indicate the potential impairment of goodwill, the company would compare the carrying amount against related estimated undiscounted future cash flows to determine if a write-down to market value or discounted cash flow value is required. Research and Development Costs: Research and development costs are charged to expense as incurred. Such costs were $254 million, $210 million and $209 million in 2000, 1999 and 1998. Advertising Costs: Advertising costs are charged to expense as incurred. Such costs from continuing operations were $191 million, $164 million and $179 million in 2000, 1999 and 1998. Foreign Currency Translation: The functional currency for the company's international subsidiaries and affiliates is the local currency. Derivative Financial Instruments: The company uses derivative financial instruments to manage the economic impact of fluctuations in interest rates, foreign currency exchange rates and -7- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS commodity prices. To achieve this, the company enters into interest rate and cross currency interest rate swaps, foreign currency forward contracts and options, and commodity swaps. The company has used interest rate and cross currency interest rate swaps to effectively convert a portion of the company's U.S. dollar denominated debt into various European currencies. The company's investment in Europe and the foreign currency portion of these cross currency interest rate swaps were revalued in dollar terms each period to reflect current foreign currency exchange rates with gains and losses recorded in the equity section of the balance sheet. To the extent that the notional amounts of these contracts exceeded the company's investment in Europe, the related mark-to-market gains and losses were reflected in earnings. The amounts receivable from or payable to counterparties to the swaps, offsetting gains and losses recorded in equity or earnings, are recorded in long term debt. The company also uses domestic interest rate swaps to manage the duration and interest rate characteristics of its outstanding debt. The interest component of the swaps, which overlay a portion of the company's interest payments on outstanding debt, is not carried at fair value in the financial statements. The interest differential paid or received is recognized as an adjustment to interest expense. Gains and losses on the interest component of terminated swaps are deferred in noncurrent liabilities and amortized as an adjustment to interest expense over the remaining term of the original swap. In the event of early extinguishment of debt, any realized or unrealized gains or losses from related swaps would be recognized in income concurrent with the extinguishment. The company also uses foreign currency forward contracts to hedge payments due on cross currency interest rate swaps and intercompany loans and, along with foreign currency options, to hedge material purchases, intercompany shipments and other commitments. In addition, the company hedges a portion of its contractual requirements of certain commodities with commodity swaps. These contracts are not carried at fair value in the financial statements as the related gains and losses are recognized in the same period and classified in the same manner as the underlying transactions. Any gains and losses on terminated contracts are deferred in current liabilities until the underlying transactions occur. The company deals only with investment-grade counterparties to these contracts and monitors its overall credit risk and exposure to individual counterparties. The company does not anticipate nonperformance by any counterparties. The amount of the exposure is generally the unrealized gains in such contracts. The company does not require, nor does it post, collateral or security on such contracts. The net transaction losses recognized in other income, including gains and losses from those contracts not qualifying as hedges, was $17 million in 2000, $201 million in 1999 due primarily to the Brazilian currency devaluation and $12 million in 1998. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, which establishes new accounting and reporting standards for derivative instruments. These rules require that all derivative instruments be reported in the consolidated financial statements at fair value. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive income, depending on whether the derivative is designated and is effective as part of a hedged transaction, and on the type of hedge transaction. Gains or losses on derivative instruments reported in other comprehensive income must be reclassified as earnings in the period in which earnings are affected by the underlying hedged item, and the ineffective portion of all hedges must be recognized in earnings in the current period. These new standards may result in additional volatility in reported earnings, other comprehensive income and accumulated other comprehensive income. These rules became effective for the company on January 1, 2001. The company will record the effect of the transition to these new accounting requirements as a change in accounting principle in the first quarter of 2001. The transition adjustment to adopt SFAS 133 will result in $8 -8- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS million of income, net of tax, from the cumulative effect of a change in accounting principle, and an $11 million decrease, net of tax, in stockholders' equity in the company's financial statements for the quarter ending March 31, 2001. Net Earnings Per Common Share Diluted net earnings per share of common stock includes the dilutive effect of stock and put options. Reclassifications Certain amounts in the prior years' financial statements have been reclassified to conform to the current year presentation. (2) BUSINESS ACQUISITIONS AND 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 bringing its equity interest in these companies to approximately 94%. Including Embraco, the company's equity interest in its Brazilian subsidiaries increased from approximately 55% to approximately 87%. During 1998, the company increased its ownership stake in its Brazilian subsidiaries by purchasing $43 million of additional shares. In September 1998, the company completed a transaction to sell 75% of its majority-owned air conditioning joint venture in Shenzhen, China, for $13 million, to Electra Consumer Products Ltd., a leading European manufacturer of air conditioners. Shenzhen Whirlpool Raybo Air-Conditioner Industrial Co. Ltd. is a joint venture that was formed in 1995. After completion of the sale, the company holds 20% of the joint venture. The joint venture continues to sell products under the Whirlpool brand in China until 2001 while it introduces the Electra brand. No significant gain or loss was recognized from this transaction. In July 1998, the company purchased the remaining 35% ownership in Shunde SMC Microwave Products Co., Ltd. (SMC), a Chinese manufacturer and marketer of microwave ovens, for about $60 million in cash. In March 1998, the company increased its majority ownership interest to 80% in Whirlpool Narcissus Co., its Chinese joint venture that manufactures washing machines, for approximately $12 million in cash. The above acquisitions have been accounted for as purchases and their operating results have been consolidated with the company's results since the dates of acquisition. The proforma consolidated net earnings for 2000, 1999 and 1998, had the 2000 Brazil purchases been made on January 1, 1998, would have been $367 million, $311 million and $352 million, respectively. The proforma impact would have been reflected through a lower minority interests share. (3) DISCONTINUED OPERATIONS In 1997, the company discontinued its financing operations and reached an agreement to sell the majority of the assets of Whirlpool Financial Corporation (WFC) in a series of transactions, most of which were completed during 1997. Sales of the following WFC assets were completed in 1998: international factoring assets, consumer financing receivable assets, certain aerospace financing assets and the European inventory financing assets. These transactions resulted in the company recording a pretax gain -8- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of $25 million ($15 million after-tax) in discontinued operations. The consolidated financial statements reflect this business as a discontinued operation. (4) INVENTORIES December 31 (millions of dollars) 2000 1999 ---------------------------- Finished products $ 956 $ 932 Work in process 57 48 Raw materials 257 253 --------- ---------- 1,270 1,233 Less excess of FIFO cost over LIFO cost 151 168 --------- ---------- Total inventories $1,119 $1,065 ========= ========== LIFO inventories represent approximately 33% and 28% of total inventories at December 31, 2000 and 1999. (5) FINANCING ARRANGEMENTS The company utilizes uncommitted credit lines from banks and commercial paper in the normal course of funding of its short-term needs. At December 31, 2000, the company had committed bank credit lines of $1.1 billion that were undrawn at year-end and had maturities ranging from four to thirteen months. The banks are compensated for their credit lines by fees. These committed credit lines are available to ensure the company has access to adequate and competitive funding under unusual market conditions. Short term debt and notes payable consist of the following: December 31 (millions of dollars) 2000 1999 --------------------------- Payable to banks $ 414 $ 353 Commercial paper 526 80 Other 21 11 -------- -------- Total notes payable $ 961 $ 444 ======== ======== The weighted average interest rate on notes payable was 8.10% and 6.86% at December 31, 2000 and 1999. -8- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Although most of its assets have been divested, WFC remains a legal entity with assets consisting primarily of leveraged leases and other financing assets. WFC also has preferred stock outstanding which is included within minority interests in the consolidated balance sheet, as follows: Mandatory Number Face Annual Redemption Date of of Shares Value Dividend Date Issuance --------- ----- -------- ---- -------- Series B 350,000 $100 $6.55 9/1/2008 8/31/1993 Series C 250,000 $100 $6.09 2/1/2002 12/27/1996 The preferred stockholders are entitled to vote together on a share-for-share basis with WFC's common stockholder. Preferred stock dividends are payable quarterly. At its option, WFC may redeem the Series B at any time on or after September 1, 2003 or at any earlier date for Series C. The redemption price for each series is $100 per share plus any accrued unpaid dividends and the applicable redemption premium if redeemed early. Commencing September 1, 2003, WFC must pay $1,750,000 per year to a sinking fund for the benefit of the Series B preferred stockholders, with a final payment of $26,250,000 due on or before September 1, 2008. There is no sinking fund requirement for the Series C preferred stock. The company and WFC are parties to a support agreement. Pursuant to the agreement, if at the close of any quarter WFC's net earnings available for fixed charges (as defined) for the preceding twelve months is less than a stipulated amount, the company is required to make a cash payment to WFC equal to the insufficiency within 60 days of the end of the quarter. The support agreement may be terminated by either WFC or the company upon 30 days notice provided that certain conditions are met. The company has also agreed to maintain ownership of at least 70% of WFC's voting stock. Long-term debt consists of the following:
Interest December 31 (millions of dollars) Maturity Rate 2000 1999 ----------------- ------------- --------------------------------- Debentures 2008 and 2016 7.8 and 9.1% $ 368 $ 368 Senior notes 2003 and 2010 8.6 and 9.0 525 400 Medium-term notes 2001 to 2006 8.9 to 9.1 21 21 Mortgage notes 2001 to 2012 6.3 to 6.6 59 62 Brazilian bank note 2001 to 2004 12.1 - 92 Other 72 137 ------------ ----------- 1,045 1,080 Less cross currency interest rate swap adjustments 221 141 Less current maturities 29 225 ------------ ----------- Total long-term debt, net $ 795 $ 714 ============ ===========
-9- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Annual maturities of long-term debt in the next five years, are $29 million, $40 million, $219 million, $20 million and $8 million. The company paid interest, including a portion recorded as discontinued operations in 1998, on short-term and long-term debt totaling $181 million, $151 million and $290 million in 2000, 1999 and 1998. (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used in estimating fair values of financial instruments: Cash and Equivalents and Notes Payable: The carrying amounts approximate fair values. Long-term Debt and WFC Preferred Stock: The fair values are estimated using discounted cash flow analyses based on incremental borrowing or dividend yield rates for similar types of borrowing or equity arrangements. The WFC preferred stock carrying amount approximates fair value. Derivative Financial Instruments: The fair values of interest rate swaps, cross currency interest rate swaps, foreign currency forward contracts and commodity swaps are estimated by discounting future cash flows based on market rates. The carrying amounts and fair values of financial instruments for which the fair value does not approximate the liability carrying amount are as follow:
2000 1999 --------------------------------- --------------------------------- Carrying Fair Carrying Fair December 31 (millions of dollars) Amount Value Amount Value -------------- ------------- -------------- ------------- Long-term debt (including current portion) $1,045 $1,108 $1,080 $1,098 Derivative financial instruments (notional amounts indicated): Interest rate and cross currency interest rate swaps ($1,194 million in 2000; $1,026 million in 1999) (221) (211) (141) (101) Domestic interest rate swaps ($200 million in 2000; $120 million in 1999) - - - (1) Transaction hedges: Foreign currency forward and option contracts ($645 million in 2000; $751 million in 1999) 2 1 - 12 Commodity swaps ($20 million in 2000; $14 million in 1999) - - - (2) -------------- ------------- -------------- -------------
The company manages a portfolio of cross currency interest rate swaps that serve to effectively convert U.S. Dollar (USD) denominated debt into that of various European currencies. Through May 15, 2000, such local currency denominated debt served as an effective hedge against the European cash flows and net assets that existed. In May, 2000, the company undesignated these contracts as hedges of the net investment in its -10- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS European operations and entered into offsetting Euro denominated currency swaps, effectively locking in an approximate $221 million positive position on the previously referenced cross currency interest rate swaps. The positive cash position will be realized as the contracts mature in 2002 and 2004. In September 2000, the company's domestic swap portfolio was effectively neutralized when the company entered into new interest rate swaps that exactly offset the original contracts. All of the company's interest rate swaps mature within the next twelve months. Foreign currency forward contracts mature within one day to two years and involve principally European, Brazilian and North American currencies. Copper and aluminum commodity swaps mature within two years. -11- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) STOCKHOLDERS' EQUITY 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 extends the previously authorized $250 million repurchase program which was announced March 1, 1999. The shares are to be purchased in the open market and through privately negotiated sales as the company deems appropriate. The company has purchased 11.3 million shares at a cost of $594 million through December 31, 2000, of which 8.7 million shares or $427 million occurred during 2000. During the first quarter of 2000, the company sold put options, which give the purchaser the right to sell shares of the company's stock to the company at a specified price. The put option contracts allow the company to determine the method of settlement. The company's objective in selling put options is to reduce the average price of repurchased shares. During 2000, the company received $4 million of premiums from the sale of put options which is included as a component of paid-in-capital on the Statement of Changes in Stockholders' Equity. As of December 31, 2000, there were 702,800 put options outstanding with an average strike price of $52.16 per share, all of which expire in 2001. In addition to its common stock, the company has 10 million authorized shares of preferred stock (par value $1 per share), none of which is outstanding. Consolidated retained earnings at December 31, 2000 included $20 million of equity in undistributed net earnings of affiliated companies. The cumulative translation component of stockholders' equity represents the effect of translating net assets of the company's international subsidiaries offset by related hedging activity, net of tax, and is included as a component of other comprehensive income on the Statement of Changes in Stockholders' Equity. Stock option transactions, restricted stock grants and put options account for the changes in paid-in capital. Preferred Stock Purchase Rights One Preferred Stock Purchase Right (Rights) is outstanding for each share of common stock. The Rights, which expire May 22, 2008, will become exercisable 10 days after a person or group (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding common stock (the Trigger Date) or 10 business days after the commencement, or public disclosure of an intention to commence, a tender offer or exchange offer by a person that could result in beneficial ownership of 15% or more of the outstanding common stock. Each Right entitles the holder to purchase from the company one one-thousandth of a share of a Junior Participating Preferred Stock, Series B, par value $1.00 per share, of the company at a price of $300 per one one-thousandth of a Preferred Share subject to adjustment. If a person becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights that are or were beneficially owned by the Acquiring Person (which will thereafter be void), shall thereafter have the right to receive upon exercise of such Right that number of shares of common stock (or other securities) having at the time of such transaction a market value of two times the exercise price of the Right. If a person becomes an Acquiring Person and the company is involved in a merger or other business combination transaction where the company is not the surviving corporation or where common stock is changed or exchange or in a transaction or transactions in which 50% or more of its consolidated assets or earning power are sold, proper provision shall be made so that each holder of a Right (other than such Acquiring Person) shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the -12- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS acquiring company which at the time of such transaction would have a market value of two times the exercise price of the Right. In addition, if an Acquiring Person, does not have beneficial ownership of 50% or more of the common stock, the company's Board of Directors has the option of exchanging all or part of the Rights for an equal number of shares of common stock in the manner described in the Rights Agreement. Prior to the Trigger Date, the Board of Directors of the company may redeem the Rights in whole, but not in part, at a price of $.01 per Right, payable in cash, shares of common stock or any other consideration deemed appropriate by the Board of Directors. Immediately upon action of the Board of Directors ordering redemption of the Rights, the ability of holders to exercise the Rights will terminate and such holders will only be able to receive the redemption price. Until such time as the Rights become exercisable, the Rights have no voting or dividend privileges and are attached to, and do not trade separately from, the common stock. The company covenants and agrees that it will cause to be reserved and kept available at all times a sufficient number of shares of Preferred Stock (and following the occurrence of a Triggering Event, shares of common stock and/or other securities) to permit the exercise in full of all Rights from time to time outstanding. -13- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) STOCK OPTION AND INCENTIVE PLANS Stock option and incentive plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Generally, no compensation expense is recognized for stock options with exercise prices equal to the market value of the underlying shares of stock at the date of grant. Compensation expense is recognized for ESAP, RSVP, SIRP and CSP awards based on the market value of the underlying shares of stock when the number of shares is determinable. The company's stock option and incentive plans permit the grant of stock options and other stock awards covering up to 11.5 million shares to key employees of the company and its subsidiaries, of which 4.0 million shares are available for grant at December 31, 2000. The plans authorize the grant of both incentive and nonqualified stock options and, further, authorize the grant of stock appreciation rights and related supplemental cash payments independently of or with respect to options granted or outstanding, as well as restricted or phantom shares. Stock options generally have 10 year terms, and vest and become fully exercisable over a two to three year period after date of grant. An Executive Stock Appreciation and Performance Program (ESAP), a Restricted Stock Value Program (RSVP), a Career Stock Program (CSP) a Key Employee Retention Program (KERP) and a Special Incentive and Retention Plan (SIRP) have been established under the plans. Performance awards under ESAP, RSVP and KERP are generally earned over multi-year time periods upon the achievement of certain performance objectives or upon a change in control of the company. CSP and SIRP awards are earned at specified dates during a participant's career with the company or upon change in control of the company. ESAP awards are payable in cash, common stock, or a combination thereof when earned. RSVP, KERP and SIRP grant restricted shares, which may not be sold, transferred or encumbered until the restrictions lapse. CSP grants phantom stock awards which are redeemable for shares of the company's common stock upon the recipient's retirement after attaining age 60 and are subject to certain noncompetition provisions. Outstanding restricted and phantom shares totaled 770,000 with a weighted-average grant-date fair value of $50.35 per share at December 31, 2000 and 847,000 with a weighted-average grant- date fair value of $51.12 per share at December 31, 1999. Expenses under the plan were $1 million, $8 million and $17 million in 2000, 1999 and 1998. Under the Nonemployee Director Stock Ownership Plan, each nonemployee director is automatically granted 400 shares of common stock annually and is eligible for a stock option grant of 600 shares if the company's earnings meet a prescribed earnings formula. In addition, each nonemployee director is awarded annually deferred compensation in the form of 400 shares of phantom stock, which is converted into common stock on a one-for-one basis and paid when the director leaves the Board. This plan provides for the grant of up to 300,000 shares as either stock or stock options, of which 174,000 shares are available for grant at December 31, 2000. The stock options vest and become exercisable six months after date of grant. There were no significant expenses under this plan for 2000, 1999 or 1998. The company maintains an employee stock option plan (PartnerShare) that may grant substantially all full-time U.S. employees a fixed number of stock options that vest over a three year period and may be exercised over a 10 year period. PartnerShare authorizes the grant of up to 2.5 million shares of which 470,000 shares are available for grant at December 31, 2000. -14- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Had the company elected to adopt the recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," under which stock options are accounted for at estimated fair value, proforma net earnings and diluted net earnings per share would be as follows:
December 31 (millions of dollars) 2000 1999 1998 ---------------------------------------------------- Net earnings: As reported $ 367 $ 347 $ 325 Proforma 355 338 318 Diluted net earnings per share: As reported $5.20 $4.56 $4.25 Proforma 5.03 4.44 4.16
The fair value of stock options used to compute proforma net earnings and diluted net earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following assumptions for 2000, 1999 and 1998: expected volatility factor of .286, .255 and .216; dividend yield of 2.7%, 2.2% and 2.4%; risk-free interest rate of 5.1%, 6.4% and 4.5% and a weighted-average expected option life of 5 years for all three years. -15- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of stock option information follows:
2000 1999 1998 ------------------------------------------------------------------------------------------------ Weighted- Weighted- Weighted- December 31 Average Average Average (thousands of shares, Number Exercise Number Exercise Number Exercise except per share data) of Shares Price of Shares Price of Shares Price ------------ ------------- ------------ ------------ ----------- ----------- Outstanding at January 1 4,605 $52.21 4,120 $50.59 4,230 $47.06 Granted 2,222 47.59 1,629 53.19 919 61.83 Exercised (190) 42.23 (960) 46.35 (770) 44.88 Canceled or expired (200) 53.83 (184) 55.30 (259) 49.81 ------------ ------------ ----------- Outstanding at December 31 6,437 $50.86 4,605 $52.21 4,120 $50.59 ============ ============= ============ ============ =========== =========== Exercisable at December 31 3,545 $52.44 2,611 $50.14 2,534 $47.65 ============ ============= ============ ============ =========== =========== Fair value of options granted during the year $12.23 $14.59 $12.67 ============= ============ ===========
Of the outstanding options at December 31, 2000, 1,616,000 options, of which 843,000 are exercisable at a weighted-average price of $42.78, have exercise prices ranging from $34.94 to $49.09 and a weighted-average remaining life of 7.1 years. The remaining 4,821,000 outstanding options, of which 2,702,000 are exercisable at a weighted-average price of $55.45, have exercise prices ranging from $50.44 to $72.34 and a weighted-average remaining life of 7.5 years. -16- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) INCOME TAXES Income tax provisions from continuing operations are as follows:
Year ended December 31 (millions of dollars) 2000 1999 1998 ------------------------------------------------ Current: Federal $ 149 $ 148 $ 132 State and local 14 25 22 Foreign 34 52 40 ------------ ------------ ------------ 197 225 194 Deferred: Federal 26 (2) 10 State and local 3 - 6 Foreign (26) (26) (1) ------------ ------------ ------------ 3 (28) 15 ------------ ------------ ------------ Total income tax provision $ 200 $ 197 $ 209 ============ ============ ============
Domestic and foreign earnings (loss) before income taxes and other items from continuing operations are as follows:
Year ended December 31 (millions of dollars) 2000 1999 1998 ------------------------------------- Domestic $ 479 $ 524 $ 407 Foreign 98 (10) 157 --------- --------- --------- Total earnings before taxes and other items $ 577 $ 514 $ 564 ========= ========= =========
Earnings before income taxes and other items, including discontinued operations (refer to Note 3), were $577 million, $514 million and $589 million for 2000, 1999 and 1998, respectively. -17- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reconciliations between the U.S. federal statutory income tax rate and the consolidated effective income tax (benefit) rate for earnings before income taxes and other items for continuing operations are as follows: Year ended December 31 2000 1999 1998 ---------------------------------- U.S. federal statutory rate 35.0 % 35.0 % 35.0 % State and local taxes, net of federal tax benefit 2.7 5.5 5.3 Nondeductible goodwill amortization 1.0 1.6 1.5 Excess foreign taxes (benefits) (1.5) (1.1) (1.0) Unrecognized prior year foreign deferred tax assets and carryforwards (0.6) (1.7) (1.9) Foreign dividends and subpart F income 2.3 2.8 2.2 Foreign government tax incentive (3.7) (0.2) (4.0) Foreign tax credits (1.7) (1.0) - Unbenefited operating losses 0.9 2.1 3.3 Permanent differences 0.5 (6.3) 0.8 Other items (0.2) 1.5 (4.1) ------------- ------- ------ Effective income tax (benefit) rate 34.7 % 38.2 % 37.1 % ============= ======= ====== Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. -18- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant components of the company's deferred tax liabilities and assets are as follows: December 31 (millions of dollars) 2000 1999 ------- ------- Deferred tax liabilities: Property, plant and equipment $ 92 $ 109 Financial services leveraged leases 122 124 Pensions 67 20 Software costs 26 28 Contested liabilities 23 34 Other 116 108 ------- ------- Total deferred tax liabilities 446 423 Deferred tax assets: Postretirement obligation 184 176 Restructuring costs 11 24 Product warranty accrual 25 26 Receivable and inventory allowances 62 81 Loss carryforwards 139 152 Employee compensation 45 45 Other 31 55 ------- ------- Total deferred tax assets 497 559 Valuation allowances for deferred tax assets (26) (18) ------- ------- Deferred tax assets, net of valuation allowances 471 541 ------- ------- Net deferred tax assets $ 25 $ 118 ======= ======= The company has recorded valuation allowances to reflect the estimated amount of net operating loss carryforwards, restructuring costs and other deferred tax assets which may not be realized. The company provides deferred taxes on the undistributed earnings of foreign subsidiaries and affiliates to the extent such earnings are expected to be remitted. Generally, earnings have been remitted only when no significant net tax liability would have been incurred. No provision has been made for U.S. or foreign taxes that may result from future remittances of the undistributed earnings ($493 million at December 31, 2000) of foreign subsidiaries and affiliates expected to be reinvested indefinitely. Determination of the deferred income tax liability on these unremitted earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs. The company paid income taxes of $262 million in 2000, $235 million in 1999 and $239 million in 1998. At December 31, 2000, the company has foreign net operating loss carryforwards of $270 million, which are primarily nonexpiring. -19- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) PENSION AND POSTRETIREMENT MEDICAL BENEFITS PLANS The company maintains both contributory and noncontributory defined benefit pension plans covering substantially all North American and Brazilian employees and certain European employees. Benefits are based primarily on compensation during a specified period before retirement or specified amounts for each year of service. The company's present funding policy is to generally make the minimum annual contribution required by applicable regulations. Assets held by the plans consist primarily of listed common stocks and bonds, government securities, investments in trust funds, bank deposits and other investments In 2000, the company recognized settlement gains, net of termination benefit costs, of $39 million. These gains related to the company's Voluntary Retirement Program implemented in North America during the fourth quarter of 2000. Although the company's pension plans are overfunded on a combined basis by $658 million as of December 31, 2000 due to the company's US funding policy and higher than expected returns on plan assets in recent years, several of the plans do not hold or have minimal assets, resulting in an underfunded position. 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 were $83 million, $73 million and $6 million, respectively, as of December 31, 2000, $80 million, $71 million and $5 million, respectively, as of December 31, 1999, and $86 million, $67 million and $6 million, respectively, as of December 31, 1998. -20- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(millions of dollars) Pension Benefits ------------------------------------ (millions of dollars) 2000 1999 1998 ------ ------ ------ Change in benefit obligation: Benefit obligationat as of January 1 $1,242 $1,344 $1,255 Service cost 48 50 49 Interest cost 101 98 91 Plan participants' contributions 0 1 1 Amendments 11 7 30 Actuarial (gain) loss 38 (114) 28 Benefits paid (175) (93) (86) Curtailments 0 0 (14) Special termination benefits 32 (2) (2) Foreign currency exchange rate changes (14) (49) (8) ------ ------ ------ Benefit obligation as of December 31 $1,283 $1,242 $1,344 ====== ====== ====== Change in plan assets: Fair value of plan assets as of January 1 $2,201 $1,672 $1,452 Actual return on plan assets (57) 644 292 Employer contributions 3 12 17 Plan participants' contributions 0 1 1 401 (h) transfer (20) 0 0 Benefits paid (175) (93) (86) Foreign currency exchange rate changes (11) (35) (4) ------ ------ ------ Fair value of plan assets as of December 31 $1,941 $2,201 $1,672 ====== ====== ======
-21- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Benefits ----------------------------------------------- (millions of dollars) 2000 1999 1998 ---------- ---------- ---------- Reconciliation of prepaid (accrued) cost and total amount recognized: Funded status as of December 31 $ 658 $ 959 $ 328 Unrecognized actuarial (gain) (702) (1,087) (471) Unrecognized prior service cost 80 73 71 Unrecognized transition asset 11 11 22 ---------- ---------- ---------- Prepaid (accrued) cost as of December 31 $ 47 $ (44) $ (50) ========== ========== ========== Prepaid cost at December 31 $ 160 $ 85 $ 114 Accrued benefit liability at December 31 (123) (138) (173) Intangible asset 1 2 2 Other 9 7 7 ---------- ---------- ---------- Total recognized as of December 31 $ 47 $ (44) $ (50) ========== ========== ========== Assumptions as of December 31; Discount rate 5.0%-11.3% 5.0%-11.3% 5.5%-9.0% Expected return on assets 6.0%-11.3% 6.0%-11.3% 6.0%-9.5% Rate of compensation increase 1.0%-8.0% 2.5%-8.0% 2.0%-8.0% Components of net periodic benefit cost: Service cost $ 48 $ 50 $ 49 Interest cost 101 98 91 Expected return on plan assets (178) (127) (112) Recognized actuarial (gain) (39) (7) (8) Amortization of prior service cost 10 9 9 Amortization of transition asset (1) (1) - ---------- ---------- ---------- Net periodic benefit cost (59) 22 29 Curtailments - - (7) Special termination benefits 32 (1) 2 Settlements (71) - (3) ---------- ---------- ---------- Total cost $ (98) $ 21 $ 21 ========== ========== ==========
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The company also currently sponsors a defined benefit health-care plan that provides postretirement medical benefits to full time U.S. employees who have worked 10 years and attained age 55 while in service with the company. The Plan is currently noncontributory and contains cost-sharing features such as deductibles, coinsurance and a lifetime maximum. The company does not fund the plan. No significant postretirement medical benefits are provided by the company to non-U.S. employees.
Postretirement Medical Benefits ---------------------------------------------------------------- (millions of dollars) 2000 1999 1998 ------------------ ------------------ ------------------ Change in benefit obligation: Benefit obligation as of January 1 $ 414 $ 428 $ 388 Service cost 9 10 10 Interest cost 32 30 29 Actuarial (gain) loss 6 (34) 22 Benefits paid (22) (20) (21) ------------------ ------------------ ------------------ Benefit obligation as of December 31 $ 439 $ 414 $ 428 ================== ================== ================== Change in plan assets: Fair value of plan assets as of January 1 $ - $ - $ - Contributions 22 20 21 Benefits paid (22) (20) (21) ------------------ ------------------ ------------------ Fair value of plan assets as of December 31 $ - $ - $ - ================== ================== ================== Reconciliation of prepaid (accrued) cost and total amount recognized: Funded status as of December 31 $ (439) $ (414) $ (428) Unrecognized actuarial (gain) loss (21) (27) 8 ------------------ ------------------ ------------------ Prepaid (accrued) cost as of December 31 $ (460) $ (441) $ (420) ================== ================== ================== Prepaid cost at December 31 - - - Accrued benefit liability at December 31 (460) (441) (420) ------------------ ------------------ ------------------ Total recognized as of December 31 $ (460) $ (441) $ (420) ================== ================== ================== Weighted average assumptions as of December 31: Discount rate 8.00% 8.00% 7.25% Medical costs trend rate: For year ending December 31 6.00% 7.00% 7.00% Components of net periodic benefit cost: Service cost $ 9 $ 10 $ 10 Interest cost 32 30 29 ------------------ ------------------ ------------------ Net periodic benefit cost $ 41 $ 40 $ 39 ------------------ ------------------ ------------------ Total cost $ 41 $ 40 $ 39 ================== ================== ==================
-23- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The medical cost trend significantly affects the reported postretirement benefit cost and benefit obligations. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
One-percentage- One-percentage- (millions of dollars) point increase point decrease ----------------- ----------------- Effect on total service cost and interest cost components $ 3 $ (3) Effect on postretirement benefit obligation 30 (28)
The U.S. pension plans provide that in the event of a plan termination within five years following a change in control of the company, any assets held by the plans in excess of the amounts needed to fund accrued benefits would be used to provide additional benefits to plan participants. A change in control generally means one not approved by the incumbent board of directors, including an acquisition of 25% or more of the voting power of the company's outstanding stock or a change in a majority of the incumbent board. The company maintains a 401(k) defined contribution plan covering substantially all U.S. employees. Company matching contributions for domestic hourly and certain other employees under the plan, based on the company's annual operating results and the level of individual participant's contributions, amounted to $12 million, $9 million and $7 million in 2000, 1999 and 1998. -24- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) 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 is the contractual amount of the financial instruments. 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 credit risk. At December 31, 2000, the company had approximately $400 million in receivables subject to repurchase provisions and $106 million in guarantees of customer lines of credit at commercial banks. At December 31, 2000, the company had noncancelable operating lease commitments totaling $251 million. The annual future minimum lease payments are detailed in the table below. Annual (millions of dollars) Expense --------- 2001 $ 57 2002 51 2003 37 2004 30 2005 28 Thereafter 48 ---------- Total noncancellable operating lease commitments $ 251 ========== The company's rent expense was $93 million, $87 million and $81 million for the years 2000, 1999 and 1998, respectively. -25- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) BUSINESS SEGMENT INFORMATION Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The company identifies such segments based upon geographical regions of operations because each operating segment manufactures home appliances and related components, but serves strategically different markets. The chief operating decision maker evaluates performance based upon each segment's operating income, which is defined as income before interest income or interest expense, taxes and minority interests. Intersegment sales and transfers are generally at current market prices, as if the sales or transfers were to third parties. The "Other" segment primarily includes corporate expenses and eliminations. The company generally evaluates business segments based on net sales, not including intersegment appliance sales. Intersegment sales are included in Other/Eliminations. Total assets are those assets directly associated with the respective operating activities. Other assets consist principally of assets related to corporate activities. Substantially all of the company's trade receivables are from distributors and retailers. Sales activity with Sears, Roebuck and Co., a North American major home appliance retailer, represented 20%, 18% and 17% of consolidated net sales in 2000, 1999 and 1998. Related receivables were 22%, 22% and 16% of consolidated trade receivables for December 31, 2000, 1999 and 1998. The company conducts business in two countries which individually comprised over ten percent of consolidated net sales and total assets within the last three years. The United States represented 55%, 54% and 50% of net sales for 2000, 1999 and 1998, respectively, while Brazil totalled 15%, 15% and 19% for 2000, 1999 and 1998. As a percentage of total assets, the United States accounted for 74%, 65% and 57% at the end of 2000, 1999 and 1998. Brazil accounted for 23%, 24% and 31% of total assets at the end of 2000, 1999 and 1998, respectively. -26- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
North Latin Other/ Total (millions of dollars) America Europe America Asia Eliminations Whirlpool ---------------- ------------ ------------- ---------- -------------- ------------ GEOGRAPHIC SEGMENTS Net sales 2000 $6,223 $2,156 $1,706 $390 $(150) $10,325 1999 $6,159 $2,452 $1,668 $375 $(143) $10,511 1998 $5,599 $2,439 $2,090 $313 $(118) $10,323 Intangible amortization 2000 $ 3 $ 13 $ 3 $ 5 $ 5 $ 29 1999 $ 3 $ 16 $ 2 $ 5 $ 5 $ 31 1998 $ 3 $ 16 $ 6 $ 4 $ 10 $ 39 Depreciation 2000 $ 157 $ 74 $ 106 $ 17 $ 17 $ 371 1999 $ 151 $ 88 $ 95 $ 21 $ 31 $ 386 1998 $ 143 $ 94 $ 126 $ 15 $ 21 $ 399 Operating profit(loss) 2000 $ 682 $ 102 $ 125 $ 21 $(123) $ 807 1999 $ 725 $ 177 $ 120 $ 13 $(160) $ 875 1998 $ 630 $ 122 $ 120 $(17) $(167) $ 688 Total assets 2000 $2,624 $1,948 $1,600 $704 $ 26 $ 6,902 1999 $2,254 $1,921 $1,653 $719 $ 279 $ 6,826 1998 $2,091 $2,298 $2,499 $722 $ 325 $ 7,935 Capital expenditures 2000 $ 175 $ 94 $ 86 $ 10 $ 10 $ 375 1999 $ 227 $ 77 $ 110 $ 9 $ 14 $ 437 1998 $ 188 $ 59 $ 239 $ 25 $ 12 $ 523
-27- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Three Months Ended ---------------------------------------------------------------------------- (millions of dollars, except per share data) December 31 September 30 June 30 March 31 --------------- ---------------- ------------- ---------------- 2000: Net sales $ 2,579 $ 2,570 $ 2,586 $ 2,590 Cost of products sold $ 1,966 $ 1,973 $ 1,958 $ 1,942 Earnings from continuing operations $ 67 $ 67 $ 121 $ 112 Net earnings $ 67 $ 67 $ 121 $ 112 Per share of common stock: Basic earnings from continuing operations $ 1.01 $ .98 $ 1.68 $ 1.53 Basic net earnings $ 1.01 $ .98 $ 1.68 $ 1.53 Diluted earnings from continuing operations $ 1.00 $ .98 $ 1.66 $ 1.52 Diluted net earnings $ 1.00 $ .98 $ 1.66 $ 1.52 Dividends $ .34 $ .34 $ .34 $ .34
The fourth quarter earnings and earnings per share were increased by $23 million after taxes, or $0.35 per share, from the settlement gain on the company's Voluntary Retirement Program in North America, partly offset by one-time product introduction costs of $9 million after taxes, or $0.13 per share and expenses to increase sales allowances of $8 million after taxes or $0.11 per share.
Three Months Ended ------------------------------------------------------------------------------ (millions of dollars, except per share data) December 31 September 30 June 30 March 31 -------------- ------------------ ------------ ----------------- 1999: Net sales $ 2,689 $ 2,719 $ 2,617 $ 2,486 Cost of products sold $ 1,983 $ 2,036 $ 1,967 $ 1,866 Earnings from continuing operations $ 113 $ 107 $ 99 $ 28 Net earnings $ 113 $ 107 $ 99 $ 28 Per share of common stock: Basic earnings from continuing operations $ 1.52 $ 1.42 $ 1.32 $ .37 Basic net earnings $ 1.52 $ 1.42 $ 1.32 $ .37 Diluted earnings from continuing operations $ 1.51 $ 1.40 $ 1.30 $ .36 Diluted net earnings $ 1.51 $ 1.40 $ 1.30 $ .36 Dividends $ .34 $ .34 $ .34 $ .34
The first quarter earnings and earnings per share were reduced $60 million after-taxes and minority interest, or $0.79 per share, by the Brazilian currency devaluation. -28- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited the accompanying consolidated balance sheets of Whirlpool Corporation as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1998 financial statements of Brasmotor S.A. and its consolidated subsidiaries, whose statements reflect net earnings of $58 million for the year ended December 31, 1998. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for Brasmotor S.A. and its consolidated subsidiaries, is based on the reports of the other auditors. 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 our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 2000 and 1999, and the consolidated results of its operations and its 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. Chicago, Illinois January 19, 2001 -30- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Report by Management on the Consolidated Financial Statements The management of Whirlpool Corporation has prepared the accompanying financial statements. The financial statements have been audited by Ernst & Young, independent auditors, whose report, based upon their audits and the reports of other independent auditors, expresses the opinion that these financial statements present fairly the consolidated financial position, results of operations and cash flows of Whirlpool and its subsidiaries in accordance with accounting principles generally accepted in the United States. Their audits are conducted in conformity with auditing standards generally accepted in the United States. The financial statements were prepared from the company's accounting records, books and accounts which, in reasonable detail, accurately and fairly reflect all material transactions. The company maintains a system of internal controls designed to provide reasonable assurance that the company's accounting records, books and accounts are accurate and that transactions are properly recorded in the company's books and records, and the company's assets are maintained and accounted for, in accordance with management's authorizations. The company's accounting records, policies and internal controls are regularly reviewed by an internal audit staff. The audit committee of the board of directors of the company, which is composed of five directors who are not employed by the company, considers and makes recommendations to the board of directors as to accounting and auditing matters concerning the company, including recommending for appointment by the board the firm of independent auditors engaged on an annual basis to audit the financial statements of Whirlpool and its majority-owned subsidiaries. The audit committee meets with the independent auditors at least three times each year to review the scope of the audit, the results of the audit and such recommendations as may be made by said auditors with respect to the company's accounting methods and system of internal controls. Mark E. Brown Executive Vice President and Chief Financial Officer -31- CONSOLIDATED STATISTICAL REVIEW
(millions of dollars except share and employee data) CONSOLIDATED OPERATIONS 2000 1999 1998 1997 1996 1995 ----------------------- ---- ---- ---- ---- ---- ---- Net sales $ 10,325 $ 10,511 $ 10,323 $ 8,617 $ 8,523 $ 8,163 ----------------------------------------------------------------------------------------------------------------------------- Operating profit (1) $ 807 $ 875 $ 688 $ 11 $ 278 $ 366 Earnings (loss) from continuing operations before income taxes and other items $ 577 $ 514 $ 564 $ (171) $ 100 $ 214 Earnings (loss) from continuing operations $ 367 $ 347 $ 310 $ (46) $ 141 $ 195 Earnings (loss) from discontinued operations(2) $ 0 $ 0 $ 15 $ 31 $ 15 $ 14 Net earnings (loss) (3) $ 367 $ 347 $ 325 $ (15) $ 156 $ 209 ----------------------------------------------------------------------------------------------------------------------------- Net capital expenditures $ 375 $ 437 $ 523 $ 378 $ 336 $ 483 Depreciation $ 371 $ 386 $ 399 $ 322 $ 318 $ 282 Dividends paid $ 70 $ 103 $ 102 $ 102 $ 101 $ 100 ----------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL POSITION ------------------------------- Current assets $ 3,237 $ 3,177 $ 3,882 $ 4,281 $ 3,812 $ 3,541 Current liabilities $ 3,303 $ 2,892 $ 3,267 $ 3,676 $ 4,022 $ 3,829 Current assets minus current liabilities $ (66) $ 285 $ 615 $ 605 $ (210) $ (288) Property, plant and equipment-net $ 2,134 $ 2,178 $ 2,418 $ 2,375 $ 1,798 $ 1,779 Total assets $ 6,902 $ 6,826 $ 7,935 $ 8,270 $ 8,015 $ 7,800 Long-term debt $ 795 $ 714 $ 1,087 $ 1,074 $ 955 $ 983 Stockholders' equity $ 1,684 $ 1,867 $ 2,001 $ 1,771 $ 1,926 $ 1,877 ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA -------------- Basic earnings (loss) from continuing $ 5.24 $ 4.61 $ 4.09 $ (0.62) $ 1.90 $ 2.64 operation Diluted earnings (loss) from continuing operation $ 5.20 $ 4.56 $ 4.06 $ (0.62) $ 1.88 $ 2.60 Diluted net earnings (loss) (3) $ 5.20 $ 4.56 $ 4.25 $ (0.20) $ 2.08 $ 2.78 Dividends $ 1.36 $ 1.36 $ 1.36 $ 1.36 $ 1.36 $ 1.36 Book value $ 23.84 $ 24.55 $ 26.16 $ 23.71 $ 25.93 $ 25.40 Closing Stock Price - NYSE $ 47 11/16 $ 65 1/16 $ 55 3/6 $ 55 $ 46 5/8 $ 53 1/4 ----------------------------------------------------------------------------------------------------------------------------- KEY RATIOS (4) ---------- Operating profit margin 7.8% 8.3% 6.7% 0.1% 3.3% 4.5% Pre-tax margin (5) 5.6% 4.9% 5.5% (2.0)% 1.2% 2.6% Net margin (6) 3.6% 3.3% 3.0% (0.5)% 1.7% 2.4% Return on average stockholders' equity (7) 20.7% 17.9% 17.2% (0.8)% 8.2% 11.6% Return on average total assets (8) 5.5% 4.2% 4.6% (0.7)% 1.8% 3.0% Current assets to current liabilities 1.0 1.1 1.2 1.2 0.9 0.9 Total debt-appliance business as a percent of invested capital (9) 49.4% 37.7% 43.5% 46.1% 44.2% 45.2% Price earnings ratio 9.2 14.3 13.0 -- 22.4 19.2 Interest coverage (10) 4.2 4.1 3.2 0.0 1.6 2.7 ----------------------------------------------------------------------------------------------------------------------------- OTHER DATA ---------- Number of common shares outstanding (in thousands): Average - on a diluted basis 70,637 76,044 76,507 74,697 77,178 76,812 Year-end 66,265 74,463 76,089 75,262 74,415 74,081 Number of stockholders (year-end) 11,780 12,531 13,584 10,171 11,033 11,686 Number of employees (year-end) 60,695 61,066 58,630 61,370 48,163 45,435 Total return to shareholders (five year annualized) (11) 0.3% 7.9% -1.2% 6.8% 6.3% 20.8% CONSOLIDATED OPERATIONS 1994 1993 1992 1991 1990 ----------------------- ---- ---- ---- ---- ---- Net sales $ 7,949 $ 7,368 $7,097 $6,550 $6,424 ---------------------------------------------------------------------------------------------------------- Operating profit (1) $ 370 $ 504 $ 447 $ 353 $ 300 Earnings (loss) from continuing operations before income taxes and other items $ 269 $ 418 $ 334 $ 256 $ 177 Earnings (loss) from continuing operations $ 147 $ 257 $ 179 $ 139 $ 45 Earnings (loss) from discontinued operations(2) $ 11 $ (28) $ 26 $ 31 $ 27 Net earnings (loss) (3) $ 158 $ 51 $ 205 $ 170 $ 72 ---------------------------------------------------------------------------------------------------------- Net capital expenditures $ 418 $ 309 $ 288 $ 287 $ 265 Depreciation $ 246 $ 241 $ 275 $ 233 $ 247 Dividends paid $ 90 $ 85 $ 77 $ 76 $ 76 ---------------------------------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL POSITION ------------------------------- Current assets $ 3,078 $ 2,708 $2,740 $2,920 $2,900 Current liabilities $ 2,988 $ 2,763 $2,887 $2,931 $2,651 Current assets minus current liabilities $ 90 $ (55) $ (147) $ (11) $ 249 Property, plant and equipment-net $ 1,440 $ 1,319 $1,325 $1,400 $1,349 Total assets $ 6,655 $ 6,047 $6,118 $6,445 $5,614 Long-term debt $ 885 $ 840 $1,215 $1,528 $ 874 Stockholders' equity $ 1,723 $ 1,648 $1,600 $1,515 $1,424 ---------------------------------------------------------------------------------------------------------- PER SHARE DATA -------------- Basic earnings (loss) from continuing $ 1.98 $ 3.60 $ 2.55 $ 2.00 $ 0.65 operation Diluted earnings (loss) from continuing operation $ 1.95 $ 3.47 $ 2.46 $ 1.98 $ 0.65 Diluted net earnings (loss) (3) $ 2.10 $ 0.71 $ 2.81 $ 2.41 $ 1.04 Dividends $ 1.22 $ 1.19 $ 1.10 $ 1.10 $ 1.10 Book value $ 23.21 $ 23.17 $22.91 $21.78 $20.51 Closing Stock Price - NYSE $ 50 1/4 $ 66 1/2 $ 44 5/8 $ 38 7/8 $ 23 ---------------------------------------------------------------------------------------------------------- KEY RATIOS (4) ---------- Operating profit margin 4.7% 6.8% 6.3% 5.4% 4.7% Pre-tax margin (5) 3.4% 5.7% 4.7% 3.9% 2.8% Net margin (6) 1.8% 3.5% 2.5% 2.1% 0.7% Return on average stockholders' equity (7) 9.4% 14.2% 13.1% 11.6% 5.1% Return on average total assets (8) 2.8% 4.0% 3.3% 2.9% 1.4% Current assets to current liabilities 1.0 1.0 0.9 1.0 1.1 Total debt-appliance business as a percent of invested capital (9) 35.6% 33.8% 42.8% 46.7% 39.1% Price earnings ratio 23.9 21.2 15.9 16.1 22.6 Interest coverage (10) 3.6 5.0 3.5 3.0 2.3 ---------------------------------------------------------------------------------------------------------- OTHER DATA ---------- Number of common shares outstanding (in thousands): Average - on a diluted basis 77,588 76,013 75,661 72,581 69,595 Year-end 73,845 73,068 70,027 69,640 69,465 Number of stockholders (year-end) 11,821 11,438 11,724 12,032 12,542 Number of employees (year-end) 39,016 39,590 38,520 37,886 36,157 Total return to shareholders (five year annualized) (11) 12.0% 25.8% 17.0% 6.7% 2.8%
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