-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F1vGqF+ATNg1LmQ4rqbSD8PRew7eHsRNef+h9uDZdQwPyQBcEvUmDLt2n37XoeYh ocSX+dt3zUbcabOxUaD+rw== 0000950131-98-004837.txt : 19980817 0000950131-98-004837.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950131-98-004837 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHIRLPOOL CORP /DE/ CENTRAL INDEX KEY: 0000106640 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD APPLIANCES [3630] IRS NUMBER: 381490038 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03932 FILM NUMBER: 98688100 BUSINESS ADDRESS: STREET 1: WHIRLPOOL CNTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 BUSINESS PHONE: 6169235000 MAIL ADDRESS: STREET 1: WHIRLPOOL CTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 FORMER COMPANY: FORMER CONFORMED NAME: WHIRLPOOL SEEGER CORP DATE OF NAME CHANGE: 19710824 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998. Commission file number 1-3932 WHIRLPOOL CORPORATION (Exact name of registrant as specified in its charter) Delaware 38-1490038 (State of incorporation) (I.R.S. Employer Identification No.) 2000 M-63 Benton Harbor, Michigan 49022-2692 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 616/923-5000 The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class of common stock Shares outstanding at June 30, 1998 --------------------- ----------------------------------- Common stock, par value $1 per share 75,992,728 PAGE 1 OF 20 QUARTERLY REPORT ON FORM 10-Q ----------------------------- WHIRLPOOL CORPORATION --------------------- Quarter Ended June 30, 1998 INDEX OF INFORMATION INCLUDED IN REPORT
Page ---- PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Earnings 3 Consolidated Condensed Balance Sheets 4 Consolidated Condensed Statements of Changes in Equity 5 Consolidated Condensed Statements of Cash Flows 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION - --------------------------- Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 19
2 CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) WHIRLPOOL CORPORATION AND SUBSIDIARIES FOR THE PERIOD ENDED JUNE 30 (millions of dollars except share and dividend data)
Second Quarter First Half ------------------ ------------------ 1998 1997 1998 1997 ------ ------ ------ ------ Net sales $2,585 $2,074 $5,049 $4,064 EXPENSES: Cost of products sold 1,962 1,588 3,831 3,124 Selling and administrative 456 381 872 754 Intangible amortization 9 9 19 17 ------ ------ ------ ------ 2,427 1,978 4,722 3,895 ------ ------ ------ ------ OPERATING PROFIT 158 96 327 169 OTHER INCOME (EXPENSE): Interest and sundry income (expense) 42 2 81 (3) Interest expense (65) (38) (127) (73) ------ ------ ------ ------ EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 135 60 281 93 Income taxes 49 29 105 45 ------ ------ ------ ------ EARNINGS FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 86 31 176 48 Equity in affiliated companies 2 24 2 46 Minority interests (7) 7 (29) 10 ------ ------ ------ ------ EARNINGS FROM CONTINUING OPERATIONS 81 62 149 104 Discontinued operations less applicable taxes 3 3 15 7 ------ ------ ------ ------ NET EARNINGS $ 84 $ 65 $ 164 $ 111 ====== ====== ====== ====== Per share of common stock: Basic earnings from continuing operations $ 1.07 $ .82 $ 1.97 $ 1.39 Basic net earnings $ 1.11 $ .87 $ 2.17 $ 1.49 Diluted earnings from continuing operations $ 1.05 $ .81 $ 1.95 $ 1.38 Diluted net earnings $ 1.10 $ .86 $ 2.14 $ 1.48 Cash dividends $ .34 $ .34 $ .68 $ .68 ====== ====== ====== ======
See notes to consolidated condensed financial statements. 3
CONSOLIDATED CONDENSED BALANCE SHEETS WHIRLPOOL CORPORATION AND SUBSIDIARIES (millions of dollars) June 30 December 31 1998 1997 (Unaudited) (Audited) ----------- ----------- ASSETS Current Assets - -------------- Cash and equivalents $ 606 $ 578 Trade receivables, less allowances of (1998: $116 ; 1997: $156 ) 1,831 1,565 Inventories 1,224 1,170 Prepaid expenses and other 256 191 Deferred income taxes 221 215 Net assets of discontinued operations - 562 ----------- ----------- Total Current Assets 4,138 4,281 Other Assets - ------------ Investment in affiliated companies 107 100 Intangibles, net 916 916 Deferred income taxes 231 220 Other 337 378 ----------- ----------- 1,591 1,614 Property, Plant and Equipment - ----------------------------- Land 94 92 Buildings 905 969 Machinery and equipment 4,368 4,201 Accumulated depreciation (3,024) (2,887) ----------- ----------- 2,343 2,375 ----------- ----------- Total Assets $ 8,072 $ 8,270 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - ------------------- Notes payable $ 1,051 $ 1,332 Accounts payable 970 987 Employee compensation 242 265 Accrued expenses 828 858 Restructuring costs 158 212 Current maturities of long-term debt 10 22 ----------- ----------- Total Current Liabilities 3,259 3,676 Other Liabilities - ----------------- Deferred income taxes 192 190 Postemployment benefits 620 598 Other liabilities 192 188 Long-term debt 1,152 1,074 ----------- ----------- 2,156 2,050 Minority Interests 762 773 Stockholders' Equity - -------------------- Common stock 83 82 Paid-in capital 314 280 Retained earnings 1,913 1,801 Unearned restricted stock (3) (6) Cumulative translation adjustments (172) (149) Treasury stock - at cost (240) (237) ----------- ----------- Total Stockholders' Equity 1,895 1,771 ----------- ----------- Total Liabilities and Stockholders' Equity $ 8,072 $ 8,270 =========== ===========
See notes to consolidated condensed financial statements. 4
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY WHIRLPOOL CORPORATION AND SUBSIDIARIES FOR THE PERIOD ENDED JUNE 30 (millions of dollars) Second Quarter ------------------------------------------------------------------------ Accumulated Other Retained Comprehensive Common Treasury Stock/ Total Earnings Income Stock Paid-in-Capital --------- --------- ------------- ------ --------------- Beginning balance, 1997 $ 1,912 $ 1,939 $ (112) $ 81 $ 4 Comprehensive income Net income 65 65 Other comprehensive income, net of tax Foreign currency translation adjustments (18) Hedge adjustment 9 --------- Other comprehensive income, net of tax (9) (9) --------- Comprehensive income, net of tax 56 ========= Common stock issued 5 5 Dividends declared on common stock (26) (26) --------- --------- ------- ------ ------- Ending balance, June 30, 1997 $ 1,947 $ 1,978 $ (121) $ 81 $ 9 ========= ========= ======= ====== ======= Beginning balance, 1998 $ 1,828 $ 1,855 $ (159) $ 82 $ 50 Comprehensive income Net income 84 84 Other comprehensive income, net of tax Foreign currency translation adjustments (3) Hedge adjustment (5) Other (5) --------- Other comprehensive income, net of tax (13) (13) --------- Comprehensive income, net of tax 71 ========= Common stock issued 22 1 21 Dividends declared on common stock (26) (26) --------- --------- ------- ------ ------- Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71 ========= ========= ======= ====== ======= First Half ------------------------------------------------------------------------ Accumulated Other Retained Comprehensive Common Treasury Stock/ Total Earnings Income Stock Paid-in-Capital --------- --------- ------------- ------ --------------- Beginning balance, 1997 $ 1,926 $ 1,918 $ (76) $ 81 $ 3 Comprehensive income Net income 111 111 Other comprehensive income, net of tax Foreign currency translation adjustments (95) Hedge adjustment 50 --------- Other comprehensive income, net of tax (45) (45) --------- Comprehensive income, net of tax 66 ========= Common stock issued 6 6 Dividends declared on common stock (51) (51) --------- --------- ------- ------ ------- Ending balance, June 30, 1997 $ 1,947 $ 1,978 $ (121) $ 81 $ 9 ========= ========= ======= ====== ======= Beginning balance, 1998 $ 1,771 $ 1,801 $ (149) $ 82 $ 37 Comprehensive income Net income 164 164 Other comprehensive income, net of tax Foreign currency translation adjustments (25) Hedge adjustment 7 Other (5) --------- Other comprehensive income, net of tax (23) (23) --------- Comprehensive income, net of tax 141 ========= Common stock issued 35 1 34 Dividends declared on common stock (51) (52) --------- --------- ------- ------ ------- Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71 ========= ========= ======= ====== =======
See notes to consolidated condensed financial statements. 5 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) WHIRLPOOL CORPORATION AND SUBSIDIARIES FOR SIX MONTHS ENDED JUNE 30 (millions of dollars)
1998 1997 -------- -------- OPERATING ACTIVITIES Net earnings $ 164 $ 111 Equity in net earnings of affiliated companies, less dividends received (2) (38) Gain on dispositions (25) - Depreciation and amortization 230 181 Provision for doubtful accounts 22 22 Restructuring spending (50) (11) Change in receivables (312) (178) Change in inventories (85) (88) Change in payables (3) (71) Other operating activities (15) 8 -------- -------- CASH USED FOR OPERATING ACTIVITIES (76) (64) INVESTING ACTIVITIES Net additions to properties (218) (105) Financing receivables originated and leasing assets purchased - (2,042) Principal payments received on financing receivables and leases - 2,100 Acquisition of businesses, less cash acquired (18) - Business dispositions 587 - Other investing activities - 3 -------- -------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 351 (44) FINANCING ACTIVITIES Proceeds of short-term borrowings 10,680 21,053 Repayments of short-term borrowings (10,931) (20,773) Proceeds of long-term debt 202 62 Repayments of long-term debt (118) (140) Repayments of non-recourse debt - (6) Dividends (51) (51) Other financing activities (29) 6 -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (247) 151 -------- -------- INCREASE IN CASH AND EQUIVALENTS 28 43 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 578 129 -------- -------- CASH AND EQUIVALENTS AT END OF PERIOD $ 606 $ 172 ======== ========
See notes to consolidated condensed financial statements. 6 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL ACCOUNTING POLICIES The accompanying unaudited consolidated condensed financial statements present information in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by generally accepted accounting principles for complete financial statements. Management believes the financial statements include all normal recurring accrual adjustments necessary for a fair presentation. Operating results for the six months ended June 30, 1998 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the company's annual report for the year ended December 31, 1997. In 1997 and prior years, the company's Brazilian subsidiaries had used the U.S. dollar as their functional currency due to the high level of inflation in the Brazilian economy. Because the inflation rate has declined significantly over a number of years, the Brazilian economy has ceased to be considered highly inflationary and the functional currency for all of the Brazilian operations was changed to the local currency as of January 1, 1998. 7 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The following table provides the computation of basic and diluted earnings (loss) per share: Six Months Ended (millions of dollars except earnings per share) June 30 ------------------------ 1998 1997 -------- -------- Basic: Average Shares Outstanding 75.5 74.5 Earnings: Continuing Operations $ 148.9 $ 103.7 Discontinued Operations 14.8 7.3 -------- -------- Net Earnings $ 163.7 $ 111.0 ======== ======== Earnings Per Share from Continuing Operations $ 1.97 $ 1.39 Net Earnings Per Share $ 2.17 $ 1.49 ======== ======== Diluted: Average Shares Outstanding 75.5 74.5 Treasury Stock Method (a): Stock Options 1.0 0.5 -------- -------- Diluted Average Shares Outstanding 76.5 75.0 ======== ======== Diluted Earnings: Continuing Operations $ 148.9 $ 103.7 Discontinued Operations 14.8 7.3 -------- -------- Diluted Net Earnings $ 163.7 $ 111.0 ======== ======== Diluted Earnings Per Share from Continuing Operations $ 1.95 $ 1.38 Diluted Net Earnings Per Share $ 2.14 $ 1.48 ======== ========
(a) Using the average market price per share of stock for the period. NOTE B--BUSINESS ACQUISITIONS & DISPOSITIONS 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. The company now owns 100% of SMC. In March 1998, the company increased its majority ownership interest in Whirlpool Narcissus Co., its Chinese joint venture that manufactures washing machines, for about $12 million in cash. In November 1997, the company completed the purchase of approximately 33% of the voting shares, as well as preferred, or non-voting shares of the company's 8 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Brazilian affiliate, Brasmotor S.A., for $217 million. The shares, combined with the existing holdings, give the company a controlling interest of approximately 66% of the voting shares of Brasmotor. Brasmotor is the parent company of Multibras S.A. Eletrodomesticos (Multibras), an approximately $1.6 billion appliance company with the leading market share position in Latin America, and Empresa Brasileira de Compresorres S.A. (Embraco), the world's second largest hermetic compressor manufacturer with annual sales of approximately $790 million. In September 1997, the company reached a definitive agreement to sell the inventory, consumer, and international financing businesses of Whirlpool Financial Corporation ("WFC") to Transamerica Distribution Finance Corporation ("TDF"). Refer to Note C for further explanation. In August 1997, the company sold its majority interest in its Argentine business to Multibras, in a share for share exchange of Whirlpool Argentina shares for additional shares in Multibras, slightly increasing the company's ownership stake in Multibras. No gain or loss was recognized by the company on this transaction. Whirlpool Argentina's annual sales and earnings are not significant to the company's consolidated results of operations. NOTE C--DISCONTINUED OPERATIONS In the second quarter of 1998, the company sold to Transamerica Distribution Finance Corporation ("TDF") the European inventory financing assets previously held by WFC, recording a gain of $5 million pretax ($3 million after-tax). This concluded the series of sales transactions with TDF. Also during the first half of 1998, the company completed the sale of certain aerospace financing assets for $156 million; no gain or loss related to these sales was recorded. In January 1998, the company sold to TDF additional international assets and consumer financing receivable assets for approximately $370 million, recording a pretax gain of $20 million ($11 million after-tax). During the third quarter of 1997, the company discontinued its financing operations and reached an agreement to sell the majority of WFC's assets in a series of transactions to TDF. During the fourth quarter of 1997, the company completed the sale of certain inventory floor planning financing assets and international factoring assets to TDF for approximately $927 million. Under an ongoing strategic partnership, TDF will continue to provide financing services to the company's trade partners and customers. In separate transactions during the fourth quarter of 1997, the company sold certain consumer financing receivables for $98 million and entered into an agreement to sell a portion of WFC's aerospace financing business for $168 million. The company recorded a pretax gain of $70 million ($42 million after-tax) related to these transactions in the fourth quarter of 1997. A $36 million operating charge ($22 million 9 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) after-tax) was recorded in the third quarter of 1997 to provide an additional reserve for certain retained WFC aerospace assets. Income taxes related to discontinued operations - Expense / (Income):
Three Months Six Months Ended June 30 Ended June 30 --------------------- --------------------- (millions of dollars) (millions of dollars) 1998 $ 2 $ 10 1997 $ 3 $ 7
NOTE D--INVENTORIES Inventories consist of the following: June 30 December 31 1998 1997 ------- ----------- (millions of dollars) Finished products $1,108 $1,015 Raw materials and work in process 331 373 ------ ------ Total FIFO cost 1,439 1,388 Less excess of FIFO cost over Lifo cost 215 218 ------ ------ $1,224 $1,170 ====== ======
NOTE E--AFFILIATED COMPANIES Equity in the net earnings of affiliated companies is as follows: Six Months Ended June 30 1998 1997 ------------------------ (millions of dollars) Brazilian affiliates $ - $ 45 Mexican affiliate 1 - Other 1 1 ------ ------ $ 2 $ 46 ====== ======
10 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) In November 1997, the company increased its voting ownership in its Brazilian affiliate, Brasmotor S.A., from 33% to 66% (Refer to Note B -- Business Acquisitions and Dispositions). As a result, the Brazilian operations are consolidated as of November 1, 1997. Prior to that date, the Brazilian operations were accounted for on an equity basis. NOTE F--GEOGRAPHIC SEGMENTS
(millions of dollars) Three Months North Latin Other and Total Ended June 30 America Europe America Asia (Eliminations) Whirlpool - ----------------------------------------------------------------------------------------------------------------- Sales 1998 $1,462 $ 595 $ 508 $ 115 $ (95) $2,585 1997 $1,366 $ 596 $ 63 $ 119 $ (70) $2,074 Operating Profit 1998 $ 117 $ 27 $ 17 $ (4) $ 1 $ 158 1997 $ 107 $ 6 $ 3 $ (18) $ (2) $ 96 Six Months North Latin Other and Total Ended June 30 America Europe America Asia (Eliminations) Whirlpool - ----------------------------------------------------------------------------------------------------------------- Sales 1998 $2,804 $1,145 $1,064 $ 198 $ (162) $5,049 1997 $2,655 $1,178 $ 123 $ 240 $ (132) $4,064 Operating Profit 1998 $ 224 $ 48 $ 64 $ (10) $ 1 $ 327 1997 $ 193 $ 8 $ 4 $ (32) $ (4) $ 169
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The statements of earnings summarize operating results for the three and six months ended June 30, 1998 and 1997. Unless otherwise noted, all comparisons are to the same period for 1997. This section of Management's Discussion highlights the main factors affecting the changes in operating results. The accompanying financial statements include the company's investment in Whirlpool Financial Corporation ("WFC") on a discontinued basis and the company's investment in its Brazilian subsidiary, Brasmotor S.A., on a consolidated basis for 1998 and the last two months of 1997. Net Sales - --------- Net sales were $2.6 billion for the second quarter and $5.0 billion for the first half of 1998, increases of 25% and 24%, respectively. Excluding the impact of consolidating Brasmotor and currency fluctuations, revenues were up 5% for the quarter and 3% for the first half. North American unit volumes were up 14% in the second quarter and 13% in the first half in an industry that was reported to be up 9%. North American sales were 10% higher in the second quarter and 8% higher in the first half, reflecting continuing competitive pricing pressures. North American industry shipments are expected to be up about 6% for the full year. European sales in U.S. dollars were up 2% in the second quarter and down 1% in the first half. Excluding currency fluctuations, European first half sales were up 6% due to higher volumes and improved product and brand mix that is driving higher average sales value. European industry shipments are expected to be up 5% for the full year. Expenses - -------- Gross margin percentage on products sold to net sales improved by .7 percentage point for the second quarter and 1.0 percentage point for the first half. This improvement was due to the benefits of the restructuring started in 1997 plus manufacturing efficiencies and reduced material costs in both North America and Europe, partially offset by pricing deterioration in North America. Appliance selling and administrative expenses as a percent of net sales decreased by .8 percentage point for the second quarter and 1.3 percentage points for the first half due to cost reduction initiatives and the consolidation of Brasmotor, which has a lower level of these expenses relative to sales. The second quarter included provisions totaling $20 million in Brazil related to increased credit risk as a number of retailers sought protection from creditors under the Brazilian equivalent of Chapter 11. North American expenses as a percent of net sales decreased in the first half on higher sales. European expenses as a percent of net sales improved by more than 2 percentage points due to reduced costs mainly from restructuring and advertising spending. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Other Income and Expense - ------------------------ Interest and sundry income (expense) was $40 million favorable in the second quarter and $84 million favorable in the first half compared to 1997 due to the inclusion of interest income from the company's Brazilian operations, which typically hold larger balances of cash equivalents relative to the size of the business. Partly offsetting this was the $27 million increase in interest expense in the second quarter, $54 million in the first half, which was also driven by the consolidation of the company's Brazilian operations. Income Taxes - ------------ The consolidated effective income tax rate was 38% in the first half, compared to 49% for the comparable period in 1997 and a (5)% annual 1997 rate. The reduction from the prior year's rate reflects the consolidation of Brasmotor and improved profitability in Europe. The (5)% annual 1997 rate was caused by the restructuring and other non-recurring charges in 1997, for which the related tax benefits were at an average rate lower than the U.S. statutory tax rate. Equity in Affiliated Companies - ------------------------------ Equity earnings in affiliated companies were $2 million in the first half of 1998 compared to $46 million in 1997 due to the consolidation of Brasmotor starting in the last two months of 1997. Discontinued Operations - ----------------------- The company recorded a gain of $5 million pretax, $3 million after-tax, in the second quarter related to the sale of European inventory financing assets to Transamerica Distribution Finance Corporation ("TDF"), concluding a series of transactions with TDF initiated in the fourth quarter of 1997. Total first half gains from these transactions totaled $25 million pretax, $15 million after-tax. Refer to Note C to the accompanying consolidated financial statements for a discussion of discontinued operations. Net Earnings - ------------ Second quarter earnings from continuing operations were $81 million or $1.05 per diluted share compared to $62 million or 81 cents per diluted share in 1997. Second quarter net earnings were $84 million or $1.10 per diluted share compared to $65 million or 86 cents per diluted share in 1997. First half earnings from continuing operations were $149 million or $1.95 per diluted share compared to $104 million or $1.38 per diluted share in 1997. Second quarter net earnings were $164 million or $2.14 per diluted share compared to $111 million or $1.48 per diluted share in 1997. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION CASH FLOWS The statements of cash flows reflect the changes in cash and equivalents for the six months ended June 30, 1998 and 1997 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 used by operating activities in the first six months of 1998 was $76 million compared to $64 million used in 1997. The company generally uses significant cash flow in the first half of the year largely due to seasonal working capital needs of the appliance business. The current year increase in cash usage compared to the prior year reflects higher working capital needs, partially offset by higher earnings. Investing Activities The principal recurring investing activities are property additions. Net property additions for the first half were $218 million in 1998 increased from $105 million in 1997 primarily due to the consolidation of Brasmotor. These expenditures are primarily for equipment and tooling related to product improvements, more efficient production methods and replacement for normal wear and tear. Refer to Note B to the accompanying consolidated financial statements for a discussion of business dispositions and acquisitions. Financing Activities Dividends to shareholders totaled $51 million for the first half of 1998 and 1997. The company's borrowings decreased by $167 million during the first half of 1998, excluding the effect of currency fluctuations, resulting primarily from proceeds related to the WFC asset sales. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the June 30, 1998 balance sheet. The company's total assets are $8.1 billion and stockholders' equity is $1.9 billion. The overall debt to invested capital ratio of 37.7% at June 30, 1998 was down from 42.1% at December 31, 1997 due to the ongoing disposition of assets related to the discontinued financing 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION operations. The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's and Duff & Phelps. Various European currency swaps and forward contracts serve as a hedge of net foreign currency cash flows and also hedge a portion of the company's European net assets. Changes in the value of the swaps and forward contracts due to movements in exchange rates are included in the currency translation component of stockholders' equity if they relate to the European net hedge or otherwise in other income (expense). 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 such as new products, acquisitions and joint ventures. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS UNIT NET SALES AND OPERATING PROFIT The following data is presented as supplemental information (in millions): Net Sales by Business Unit were as follows:
Better/ Better/ Second Quarter (Worse) Six Months (Worse) ----------------- ------------ ----------------- ------------ 1998 1997 $ % 1998 1997 $ % ------ ------ ---- ---- ------ ------ ---- ---- North America $1,464 $1,335 $129 10% $2,801 $2,595 $206 8% Europe 575 565 10 2 1,115 1,125 (10) (1) Latin America 493 63 430 683 1,039 123 916 745 Asia 87 111 (24) (22) 154 224 (70) (31) Other (34) 0 (34) N/M (60) (3) (57) N/M ------ ------ ---- ---- ------ ------ ---- ---- Total Appliance Business $2,585 $2,074 $511 25% $5,049 $4,064 $985 24% ====== ====== ==== ==== ====== ====== ==== ====
Operating Profit by Business Unit was as follows:
Better/ Better/ Second Quarter (Worse) Six Months (Worse) ----------------- ------------ ----------------- ------------ 1998 1997 $ % 1998 1997 $ % ------ ------ ---- ---- ------ ------ ---- ----- North America $ 166 $ 144 $ 22 15% $ 313 $ 272 $ 41 15% Europe 28 6 22 367 50 10 40 400 Latin America 15 3 12 400 62 4 58 1,450 Asia (3) (20) 17 85 (10) (35) 25 71 Other (48) (37) (11) (30) (88) (82) (6) (7) ------ ------ ---- --- ------ ------ ---- ----- Total Appliance Business $ 158 $ 96 $ 62 65% $ 327 $ 169 $158 93% ====== ====== ==== === ====== ====== ==== =====
For commentary regarding performance in North America and Europe, refer to "Results of Operations." Other consists of corporate expenses and eliminations. Latin America sales and operating profits reflect the consolidation of Brasmotor beginning in November 1997. Prior to that date, the company's Brazilian operations were accounted for as equity affiliates. First half appliance shipments in Brazil were down 26% from 1997, consistent with the significant downturn in the Brazilian appliance industry and overall economy. The company's after-tax share of the benefits from a Brazilian government export incentive program (Befiex) was about $7 million in the second quarter and $14 million in the first half of 1998. This program is scheduled to end in July 1998. In December 1996, a favorable decision was obtained by Multibras S.A. Eletrodomesticos (Multibras) and Empresa Brasileira de Compresorres S.A. (Embraco) with respect to additional export incentives in connection with the Befiex program. In April 1997, Multibras and Embraco submitted tax-credit claims for about 447 million reais (equivalent to US$440 million as of December 1996) relating to the favorable decision for exports from July 1988 through December 1996. The Brazilian court must render a final decision on the amount, timing and payment method of any final award. The company has not recognized any income relating to the claims involving sales prior to 1997 because the timing and payment amount of such claims is uncertain. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Asia had lower unit volumes and sales compared to the prior year due to the closure of two factories in 1997 and worse economic conditions in the region. The second quarter operating loss in the region was lower than 1997 due to the restructuring plan implemented in late 1997. 17 PART II. OTHER INFORMATION -------------------------- WHIRLPOOL CORPORATION AND SUBSIDIARIES Quarter Ended June 30, 1998 Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- a. The annual Meeting of Stockholders was held on April 28, 1998 with Messrs. Robert A. Burnett, Herman Cain, Allan D. Gilmour, David R. Whitwam, and Ms. Janice D. Stoney each elected to a term to expire on 2001 pursuant to a stockholder vote.
Nominee For Against Abstentions ------- --- ------- ----------- Robert A. Burnett 64,309,821 0 1,006,453 Herman Cain 64,332,906 0 983,368 Allan D. Gilmour 64,324,700 0 991,574 Janice D. Stoney 64,324,050 0 992,224 David R. Whitwam 64,271,206 0 1,045,068
Messrs. DiCamillo, Langbo, Smith, Etchenique, Marohn, Marsh and Stern and Ms. Hempel each have terms of office as directors that continued after the 1998 Annual Meeting. Item 5. Other Information - -------------------------- Advance Notice of Stockholder Proposals: Under Article II, Section 12 of the registrant's by-laws, a shareholder proposal submitted outside the processes of Rule 14a-8 of the Proxy Solicitation Rules (17 C.F.R. 240.14a-8) is considered untimely unless written notice of the stockholder's intent to make such a proposal is given, either by personal delivery or by registered or certified United States mail postage prepaid, to the Secretary of the Corporation. This notice must be received by the Secretary not later than (i) ninety (90) days in advance of an annual meeting of stockholders to be held on the third Tuesday in April; and (ii) with respect to an annual meeting to be held on a day other than the third Tuesday in April, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. A stockholder's notice to the Secretary must include (a) a description of the proposal to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other 18 stockholders known by such stockholder to be supporting such proposal; (c) the class and number of shares of the Corporation's stock that are beneficially owned by the stockholder on the date of such notice; and (d) any financial interest of the stockholder in such proposal. The chairman of the meeting shall determine whether the requirements of the registrant's by-laws have been met with respect to any stockholder proposal. If the chairman of the meeting determines that a stockholder proposal was not made in accordance with the terms of the registrant's by-laws the chairman shall so declare at the meeting, and any such proposal shall not be acted upon at the meeting. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a. The following are included herein: (27) Financial Data Schedule (99) Computation of the ratios of earnings to fixed charges b. The registrant filed the following Current Reports on Form 8-K for the quarterly period ended June 30, 1998. A Current Report on Form 8-K dated April 21, 1998 pursuant to Item 5, "Other Events," to adopt a replacement Shareholders Rights Plan. 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Second Quarter 10-Q for Whirlpool Corporation and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1997 JAN-01-1998 JUN-30-1998 606 0 1831 116 1224 4138 5367 3024 8072 3259 1152 0 0 83 1812 8072 5049 5049 3831 4703 19 0 (127) 281 105 149 15 0 0 164 2.17 2.14
EX-99 3 RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 99 RATIOS OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES (dollars in millions)
Six Months Ended June 30, 1998 ---------------- Pretax earnings $ 281.1 Portion of rents representative of the interest factor 9.1 Interest on indebtedness 127.6 Amortization of debt expense and premium .3 WFC preferred stock dividend 3.2 ----------- Adjusted income $ 421.3 =========== Fixed charges Portion of rents representative of the interest factor $ 9.1 Interest on indebtedness 127.6 Amortization of debt expense and premium 0.3 WFC preferred stock dividend 3.2 ----------- $ 140.2 =========== Ratio of earnings to fixed charges 3.00 =========== Appliance Business ratio of earnings to fixed charges at June 30, 1998 2.15 ===========
-----END PRIVACY-ENHANCED MESSAGE-----