-----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, LNNr5Dp32uvu+gLO40YcRP03zyYNqpKLsQnKpSq2Ew/gX1iW9ck+3K8HhthoxpAt i8T4gfi0N+CyVHj5u+cd2g== 0000950131-99-001612.txt : 19990323 0000950131-99-001612.hdr.sgml : 19990323 ACCESSION NUMBER: 0000950131-99-001612 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 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-K405 SEC ACT: SEC FILE NUMBER: 001-03932 FILM NUMBER: 99569576 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-K405 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K.--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ 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 North M-63, Benton Harbor, Michigan 49022-2692 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (616) 923-5000 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- --------------------- Common stock, par value $1.00 per share Chicago Stock Exchange New York Stock Exchange 7 3/4% Debentures due 2016 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock of the registrant held by stockholders not including voting stock held by directors and elected officers of the registrant and certain employee plans of the registrant (the exclusion of such shares shall not be deemed an admission by the registrant that any such person is an affiliate of the registrant) on March 1, 1999, was $3,042,333,004. On March 1, 1999, the registrant had 76,494,003 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated herein by reference into the Part of the Form 10-K indicated:
Part of Form 10-K into which Document incorporated -------- ------------------ The Company's Annual Report to Stockholders for the year ended December 31, 1998 Parts I, II and IV The Company's proxy statement for the 1999 annual meeting of stockholders (SEC File No. 1-3932) Part III
Exhibit Index on page: ** Total number of pages: *** - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. Business. General Whirlpool Corporation, the leading worldwide manufacturer and marketer of major home appliances, was incorporated in 1955 under the laws of Delaware as the successor to a business that traces its origin to 1898. As used herein, and except where the context otherwise requires, the term "Company" includes Whirlpool Corporation and its consolidated subsidiaries. All currency figures are in U.S. dollars. Recent Developments 1) On March 1, 1999, the Company announced that it intends to repurchase up to $250 million of the Company's outstanding shares of common stock. The Company anticipates that purchases will be made from time to time both on the open market and in private sales over the next 18 months. 2) On January 26, 1999, the Company announced that it anticipated an adverse effect on its first-quarter 1999 net earnings due to the devaluation of the Brazilian currency against the U.S. dollar. At that time the Company announced that it expected for every one percent of devaluation in the Brazilian currency, its first-quarter 1999 net earnings could potentially be affected negatively by approximately one and one-half cents per diluted share. On March 1, 1999, the Company announced that it plans to make a series of adjustments to its Brazilian balance sheet over the next 30 days in order to mitigate the exposure to fluctuations in the Brazilian currency to one-half of the previous levels, thereby reducing future volatility and the potential for negative impact on its earnings resulting from the currency devaluation. The Company also said that it is unable to predict the extent of the Brazilian currency devaluation and its impact on net earnings for the full year. For additional information see the Management's Discussion and Analysis of Results of Operations and Financial Condition section (the "Management's Discussion and Analysis") of the Company's Annual Report to Stockholders for the year ended December 31, 1998 (the "Annual Report"), which is incorporated herein by reference. 3) On May 15, 1998, Whirlpool and its subsidiary, Brasmotor S.A., announced that they were exploring a full array of strategic options (including possible alliances, sale, partnerships, or other alternatives) involving Empressa Brasileira de Compressores S.A. (Embraco), their hermetic compressor manufacturing subsidiary. On March 1, 1999, the Company announced that it had elected to retain Embraco. Financial Information Relating to Operating Segments, Foreign and Domestic Operations and Export Sales The Company operates predominantly in the business segment classified as Major Home Appliances. Prior to the sale of WFC assets, which was completed in 1998, the Company also operated in the Financial Services business segment. During 1998 the Company's U.S. operations sold product into Canada, Mexico, Latin America, the Carribean, Asia, Europe, Africa, and the Middle East. However, export sales by the Company's U.S. operations were less than 10 percent of gross revenues. For certain other financial information concerning the Company's business segments and foreign and domestic operations, see Notes 1 and 14 of the Notes to Consolidated Financial Statements in the Annual Report. 1 Products and Services The Company manufactures and markets a full line of major home appliances and related products, primarily for home use. The Company's principal products are: home laundry appliances, home refrigeration and room air conditioning equipment, home cooking appliances, home dishwashers, and mixers and other small household appliances. Less than 10% of the Company's unit sales volume is purchased from other manufacturers for resale by the Company. The Company also produces hermetic compressors and plastic components, primarily for the home appliance and electronics industries. The following table sets forth information regarding the total revenue contributed by each class of similar products which accounted for 10 percent or more of the Company's consolidated revenue in 1998, 1997, and 1996:
Year ended December 31 (millions of dollars) Percent 1998 1997 1996 - -------------------------------------------- ------- ------- ------ ------ Home Laundry Appliances.......................... 28% $ 2,932 $2,704 $2,699 Home Refrigeration and Room Air Conditioning Equipment....................................... 35% $ 3,622 $2,913 $3,078 Home Cooking Appliances.......................... 16% $ 1,625 $1,434 $1,379 Other............................................ 21% $ 2,144 $1,566 $1,367 --- ------- ------ ------ Net Sales...................................... 100% $10,323 $8,617 $8,523 === ======= ====== ======
The Company has been the principal supplier of home laundry appliances to Sears, Roebuck and Co. ("Sears") for over 80 years. The Company is also the principal supplier to Sears of residential trash compactors and microwave hood combinations and a major supplier to Sears of dishwashers, free-standing ranges, and home refrigeration equipment. The Company also supplies Sears with certain other products for which the Company is not currently a major supplier. Sales of such other products to Sears are not significant to the Company's business. The Company supplies products to Sears for sale under Sears' Kenmore and Sears brand names. Sears has also been a major outlet for the Company's Whirlpool and KitchenAid brand products since 1989. Major home appliances are marketed and distributed in the United States under the Whirlpool, KitchenAid, Roper, Estate, and Coolerator brand names through Company-owned sales branches primarily to retailers, buying groups, and builders. KitchenAid portable appliances are sold to retailers either directly or through an independent representative organization. The Company sells product to the builder trade both directly and through contract distributors. Major home appliances are manufactured and/or distributed in Canada under the Inglis, Admiral, Speed Queen, Whirlpool, Estate, Roper, and KitchenAid brand names. In Mexico the Company's affiliate, Vitromatic S.A., manufactures and markets major home appliances for sale under the Whirlpool, Acros, and Supermatic brand names. Refrigerator-freezers, laundry products, room air conditioners, residential trash compactors, residential and component ice makers, cooking products, dishwashers, and other products are sold in limited quantities by the Company to other manufacturers and retailers for resale in North America under their respective brand names. In Europe Whirlpool markets and distributes, through wholly owned sales entities, its major home appliances under the Whirlpool, Bauknecht, Ignis, Algor, and Laden brand names and its portable appliances under the KitchenAid brand name. In addition to its extensive operations in western Europe, the Company has sales subsidiaries in Hungary, Poland, the Czech Republic, Slovakia, Greece, Romania, Bulgaria, Latvia, Estonia, Lithuania, and Morocco and a representative office in Russia. In certain Eastern European countries and ex-Soviet states, products bearing the Whirlpool and Ignis brand names are sold through independent distributors. The Company owns a subsidiary in South Africa which manufactures refrigerators and freezers and through which it markets a full line of products under the Whirlpool and KIC brand names. Whirlpool's European operations also sell products carrying the Whirlpool, Bauknecht, Ignis, Algor, and Fides brand names to the Company's wholly-owned sales companies in Asia and majority-owned sales companies in Latin America and to independent distributors and dealers in Africa and the Middle East. In Asia the Company markets and distributes its major home appliances through three operating regions: the South Asia Sales region based in Delhi, which includes India and surrounding markets; the Asia Pacific Sales 2 region, which includes the ASEAN countries, Korea, Japan, Australia, New Zealand, Hong Kong, and Taiwan; and the China Sales region through Whirlpool Narcissus and SMC. With the exception of the Narcissus and Taiwan joint ventures, all of these entities are wholly-owned by Whirlpool. The Company markets and sells its products in Asia under the Whirlpool, KitchenAid, Ignis, Bauknecht, and SMC brand names, as well as under the Narcissus brand name (owned by its joint venture partner and used under license). In Latin America the Company markets and distributes its major home appliances through regional networks under the Whirlpool, Brastemp, Consul, and Eslabon de Lujo brand names. Appliance sales and distribution in Brazil, Argentina, Bolivia, Chile, Paraguay, and Peru are managed through subsidiaries owned by Multibras S.A. Eletrodomesticos ("Multibras"), the Company's Brazilian subsidiary, and through independent distributors. Appliance sales and distribution in Central American countries, the Caribbean, Venezuela, and Ecuador are managed through Whirlpool sales subsidiaries which are part of Whirlpool's North America Region and through independent distributors. In Colombia the Company operates a sales branch which sells and distributes products for the Colombian market. Competition The major home appliance business is highly competitive. The Company believes that, in terms of units sold annually, it is the largest United States manufacturer of home laundry appliances and one of the largest United States manufacturers of home refrigeration and room air conditioning equipment, dishwashers, and cooking products. The Company estimates that during 1998 with respect to U.S. manufacturers, there were approximately five manufacturers of home laundry appliances, ten manufacturers of room air conditioning equipment, five manufacturers of home refrigeration equipment, five manufacturers of dishwashers, and five manufacturers of cooking products. Competition in the North American major home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. The Company believes that in Europe it is, in terms of units sold annually, one of the three largest manufacturers and marketers of major home appliance products. The Company estimates that during 1998 there were approximately 35 European manufacturers of major home appliances, the majority of which manufacture a limited range of products for a specific geographic region. In recent years there has been significant merger and acquisition activity as manufacturers seek to broaden product lines and expand geographic markets, and the Company believes this trend will continue. The Company believes it is in a favorable position in Europe relative to its competitors because it has an experienced European sales network, balanced sales throughout the European market under well-recognized brand names, manufacturing facilities located in different countries, and the ability to customize its products to meet the specific needs of diverse consumer groups. Competition in the European major home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. With respect to microwave ovens, Western European manufacturers face competition from manufacturers in Asia, primarily China, South Korea, and Japan. In Asia the major domestic appliance market is characterized by rapid growth and is dominated primarily by Asian diversified industrial manufacturers whose significant size and scope of operations enable them to achieve economies of scale. The Company estimates that during 1998 there were approximately 50 manufacturers of major home appliances competing in the Asian market. Competition in the Asian home appliance business is based on a wide variety of factors including principally local production capabilities, product features, price, product quality, and performance. The Company believes that it is well-positioned in the Latin American appliance market due to its ability to offer a broad range of products under well-recognized brand names such as Whirlpool, Brastemp, Consul, and Eslabon de Lujo to meet the specific requirements of consumers in the region. The Company estimates that during 1998 there were approximately 20 manufacturers of home appliances in the region. Competition in the 3 Latin American home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. In Latin America there are trends toward privatization of government-owned businesses and a liberalization of investment and trade restrictions. As a result of its global expansion, the Company believes it has a competitive advantage by reason of its ability to leverage engineering capabilities across regions, transfer best practices, and economically purchase raw materials and component parts in large volumes. Employees The Company and its consolidated subsidiaries had approximately 59,000 employees as of December 31, 1998. Other Information The Company has a controlling equity interest in Brasmotor S.A., the Company's long-time partner in Latin America and the parent company of certain Latin American manufacturers of major home appliances and components (Multibras and Embraco). The Company has a minority equity interest in a Mexican manufacturer of home appliances and components. In China the Company has a majority interest in a joint venture company that manufactures automatic washing machines for sale and distribution in China and for export, and a minority interest in a joint venture company that manufactures air conditioners. The Company also has a minority equity interest in China in a compressor manufacturing joint venture between its Brazilian subsidiary and a company in China that manufactures refrigeration products. In India the Company has a majority interest in a company that produces refrigeration products and washing machines for the Indian market and for export to the rest of Asia. The Company also has a minority equity interest in a Taiwanese marketer and distributor of home appliances. The company has a significant minority equity interest in a major manufacturer of kitchen furniture in Germany that is also a major trade customer of the Company. In addition, the Company furnishes engineering, manufacturing, and marketing assistance to certain foreign manufacturers of home laundry and refrigeration equipment and other major home appliances for negotiated fees. On January 1, 1999, eleven member nations of the European Union began the conversion to a common currency, the "euro." The effects on the Company's business operations resulting from the introduction of the euro are discussed in the Management's Discussion and Analysis section of the Annual Report. The Company's interests outside the United States and Western Europe are subject to risks which may be greater than or in addition to those risks which are currently present in the United States and Western Europe. Such risks may include: currency exchange rate fluctuations; high inflation; the need for governmental approval of and restrictions on certain financial and other corporate transactions and new or continued business operations; the convertibility of local currencies; government price controls; restrictions on the remittance of dividends, interest, royalties, and other payments; restrictions on imports and exports; duties; political and economic developments and instability; the possibility of expropriation; uncertainty as to the enforceability of commercial rights and trademarks; and various types of local participation in ownership. In Brazil the Company's subsidiaries were profitable in 1998 despite a declining home appliances market depressed by record unemployment levels, high interest rates and declining consumer income. These results are due in part to successful new product launches, line extensions, and cost reductions from restructuring. Nonetheless, high interest rates and contractionary fiscal policy adopted by the government may lead to a severe recession in the first half of 1999, indicating another challenging year for the appliance industry, a trend that began in 1997. For additional information see the Management's Discussion and Analysis section of the Annual Report. 4 The Company is generally not dependent upon any one source for raw materials or purchased components essential to its business. In those areas where a single supplier is used, alternative sources are generally available and can be developed within the normal manufacturing environment, although some unanticipated costs may be incurred in transitioning to a new supplier where a prior single supplier is abruptly terminated. While there are pricing pressures on some materials and significant demand for certain components, the Company believes such raw materials and components will be available in adequate quantities to meet anticipated production schedules. Patents presently owned by the Company are considered, in the aggregate, to be important to the conduct of the Company's business. The Company is licensed under a number of patents, none of which individually is considered material to its business. The Company is the owner of a number of trademarks and the U.S. and foreign registrations thereof. The most important for its North American operations are the trademarks Whirlpool, KitchenAid, the KitchenAid Mixer Shape, Roper, and Inglis. In Europe Whirlpool, through its subsidiaries, is also the owner of a number of trademarks and the foreign registrations thereof. The most important trademarks owned by the Company in Europe are Bauknecht, Ignis, and Laden. The most important trademark for the Company's European, Asian, and Latin American operations is Whirlpool. Pursuant to the agreement whereby the Company purchased most of its European business from Philips, except for certain limited exceptions and subject to certain phase- out provisions, neither Philips nor any subsidiary of Philips was able to engage directly or indirectly in the major domestic appliance business anywhere in the world until after July 31, 1998. The Company believes that its business, in the aggregate, is not seasonal. Certain of its products, however, sell more heavily in some seasons than in others. For example, air conditioners typically sell more heavily during summer months. Where appropriate, the Company manages its regional manufacturing operations and product inventories to address seasonal variations in demand. Backlogs of the Company's products are filled and renewed relatively frequently in each year and are not significant in relation to the Company's annual sales. However, with respect to Asia, marked seasonality of certain product sales, combined with less efficient modes of distribution in that region, can result in significant inventory backlogs. Expenditures for Company-sponsored research and engineering activities relating to the development of new products and the improvement of existing products are included in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. Customer-sponsored research activities relating to the development of new products, services or techniques, or the improvement of existing products, services, or techniques are not material. The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect or enhance the environment, many of which require federal, state, or other governmental licenses and permits with regard to wastewater discharges, air emissions, and hazardous waste management. These laws are continually changing and, as a general matter, are becoming more restrictive. The Company's policy is to seek to comply with all such laws and regulations. The Company believes that it is in compliance in all material respects with all presently applicable federal, state, local, and other governmental provisions relating to environmental protection in the countries in which it has manufacturing operations. Capital expenditures and expenses, for manufacturing operations and product related activities combined, attributable to compliance with such provisions worldwide amounted to approximately $58 million in 1995, $50 million in 1996, and $48 million in 1997. In 1998 such capital expenditures and expenses related to manufacturing operations were $30 million, and capital expenditures and expenses for product related environmental activities were not material. It is estimated that in 1999 environmental capital expenditures and expenses for manufacturing operations will be $26 million, and that such expenses for product related environmental activities will again not be material. Much of the decrease from 1995 to 1996 and later years is attributable to the phase-out of chloroflourocarbons (CFCs) and is associated with the elimination of taxes on CFCs (CFCs were eliminated from the Company's products in the United States prior to 5 December 31, 1995). The anticipated decrease from 1998 to 1999 is attributable to the completion of air and water pollution control capital improvement projects in 1998, as well as benefits from previous pollution prevention projects. The entire United States home appliance industry, including the Company, must contend with the adoption of stricter governmental energy and environmental standards to be phased in over the next several years. These include the general phase-out of CFCs used in refrigeration and energy standards rulemakings for other selected major appliances produced by the Company. Compliance with these various standards as they become effective will require some product redesign. As in the United States, Whirlpool's European and Latin American operations are also dealing with anticipated regulations and rules regarding improved efficiency and energy usage for its products. The Company believes it is well positioned to field products that comply with these anticipated regulations. In most Asian countries the Company has until 2010 to eliminate CFCs from its products. Whirlpool's Asian operations are also well positioned to meet anticipated efficiency and energy usage regulations. The Company has been notified by state and federal environmental protection agencies of its possible involvement in a number of so-called "Superfund" sites in the United States. However, the Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising out of the resolution of these matters or the resolution of any other known governmental proceeding regarding environmental protection matters. The Company has completed environmental assessments of its European facilities acquired as a result of the Company's purchase of the Major Domestic Appliance division of Philips in 1989. The Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising out of the resolution of these matters. The Company has also evaluated its facilities in China and India. The Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition from the environmental condition of these facilities. The Company does not anticipate any material adverse effect on its operations or performance as a result of the Year 2000 computer software issue. For more information on Year 2000, see the Management's Discussion and Analysis section of the Annual Report. In an effort to enhance productivity and business systems performance, the Company is implementing an integrated business software package to replace and consolidate many of its existing stand-alone systems. The new system was implemented in Austria, Brazil, Canada, Germany, and Switzerland in 1998. The project is expected to be completed within the next two to three years. 6 The following table sets forth the names of the Company's executive officers at December 31, 1998, the positions and offices with the Company held by them at such date, the year they first became officers, and their ages at December 31, 1998:
First Became Name Office an Officer Age ---- ------ ------------ --- David R. Director, Chairman of the Board and 1983 56 Whitwam Chief Executive Officer William D. Marohn Director and Vice Chairman of the Board 1984 58 Ralph F. Senior Executive Vice President and 1988 49 Hake Chief Financial Officer Jeff M. Executive Vice President and 1993 41 Fettig President, Whirlpool Europe and Asia Daniel F. Senior Vice President, Corporate Affairs and 1989 51 Hopp General Counsel Ronald L. Executive Vice President and 1991 55 Kerber Chief Technology Officer Greg A. Lee Senior Vice President, Human Resources 1998 49 Paulo F.M. Periquito Executive Vice President, Latin American Region 1997 52 Michael D. Thieneman Executive Vice President, North American Region 1997 50
Each of the executive officers named above was elected to serve in the office indicated until the first meeting of the Board of Directors following the annual meeting of stockholders in 1999 and until his successor is chosen and qualified or until his earlier resignation or removal. William D. Marohn retired from the Company effective January 1, 1999. Each of the executive officers of the Company has held the position set forth in the table above or has served the Company in various executive or administrative capacities for at least the past five years, except for:
Name Company/Position Period ---- ---------------- ------ Greg A. St. Paul Companies December 1992 through May 1998 Lee Senior Vice President, Human Resources Paulo March 1996 through present F.M. Multibras S.A. Periquito Chief Executive Officer ALCOA Latin America 1981 through March 1996 Executive Vice President and Chief Operating Officer (last title held)
ITEM 2. Properties. The principal executive offices of Whirlpool Corporation are located in Benton Harbor, Michigan. At December 31, 1998, the principal manufacturing and service operations of the Company were carried on at 44 locations worldwide, 34 of which are located in 12 countries outside the United States. The Company occupied a total of approximately 41.3 million square feet devoted to manufacturing, service, administrative offices, warehouse, distribution, and sales space. Over 12 million square feet of such space is occupied under lease. In general, all facilities are well maintained, suitably equipped, and in good operating condition. ITEM 3. Legal Proceedings. As of, and during the quarter ended, December 31, 1998, there were no material pending legal proceedings to which the Company or any of its subsidiaries was a party or to which any of their property was subject. 7 ITEM 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders in the fourth quarter of 1998. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange. As of March 1, 1999, the number of holders of record of the Company's common stock was approximately 13,371. High and low sales prices (as reported on the New York Stock Exchange composite tape) and cash dividends declared and paid for the Company's common stock for each quarter during the years 1997 and 1998 are set forth in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report. ITEM 6. Selected Financial Data. The selected financial data for the five years ended December 31, 1998 with respect to the following line items are shown under the "Eleven Year Consolidated Statistical Review" in the Annual Report: Total revenues, earnings from continuing operations before accounting change, earnings from continuing operations before accounting change per share of common stock, dividends paid per share of common stock, total assets, and long-term debt. See the material incorporated herein by reference in response to Item 7 of this report for a discussion of the effects on such data of business combinations and other acquisitions, disposition and restructuring activity, restructuring costs, accounting changes, and earnings of foreign affiliates. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. See the Management's Discussion and Analysis section of the Annual Report. ITEM 8. Financial Statements and Supplementary Data. The consolidated financial statements of the Company are contained in the Annual Report. Supplementary financial information regarding quarterly results of operations (unaudited) for the years ended December 31, 1998 and 1997 is set forth in Note 15 of the Notes to Consolidated Financial Statements. For a list of financial statements and schedules filed as part of this report, see the "Index to Financial Statements and Financial Statement Schedule(s)" beginning on page F-1. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. The Board of Directors of the Company's subsidiary, Multibras, announced on February 8, 1999, the engagement of Ernst & Young LLP as its independent auditors for the fiscal year ending December 31, 1999 to replace the firm of PricewaterhouseCoopers Auditores Independentes, Brazil, who were dismissed as auditors of Multibras effective February 8, 1999. Multibras does not have an audit or similar committee of the Board of Directors. The reports of PricewaterhouseCoopers Auditores Independentes, Brazil, on the financial statements of Multibras for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audits of the financial statements of Multibras for each of the two fiscal years ended December 31, 1998 and through February 8, 1999, there were no disagreements with PricewaterhouseCoopers 8 Auditores Independentes, Brazil, on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures that, if not resolved to the satisfaction of PricewaterhouseCoopers Auditores Independentes, Brazil, would have caused PricewaterhouseCoopers Auditores Independentes, Brazil, to make reference to the matter in their report. For additional information see the Company's Current Report on Form 8-K filed February 8, 1999, as amended on February 25, 1999. PART III ITEM 10. Directors and Executive Officers of the Registrant. Information with respect to directors of the Company can be found under the captions "Directors and Nominees for Election as Directors" in the Company's proxy statement for the 1999 annual meeting of stockholders (SEC File No.1- 3932) (the "Proxy Statement"), which is incorporated herein by reference. Information with respect to executive officers of the Company is set forth in Part I of this report. ITEM 11. Executive Compensation. Information with respect to compensation of executive officers and directors of the Company can be found under the captions "Executive Compensation" and "Compensation of Directors" in the Proxy Statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management. Information with respect to security ownership by the only person(s) known to the Company to beneficially own more than 5 percent of the Company's stock and by each director of the Company and all directors and elected officers of the Company as a group can be found under the caption "Security Ownership" in the Proxy Statement. ITEM 13. Certain Relationships and Related Transactions. Information with respect to certain transactions with executive officers and directors of the Company and others can be found under the caption "Certain Transactions" in the Proxy Statement. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as a part of this report: 1. The financial statements listed in the "Index to Financial Statements and Financial Statement Schedules." 2. The financial statement schedule listed in the "Index to Financial Statements and Financial Statement Schedules." 3. The exhibits listed in the "Exhibit Index." (b) No reports on Form 8-K were filed during the fourth quarter of 1998. (c) Exhibits. See attached "Exhibit Index." (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Whirlpool Corporation (Registrant) /s/ Ralph F. Hake By: _________________________________ Ralph F. Hake (Principal Financial Officer) Senior Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- David R. Whitwam* Director, Chairman of the ____________________________________ Board and Chief Executive David R. Whitwam Officer (Principal Executive Officer) Ralph F. Hake* Senior Executive Vice ____________________________________ President Ralph F. Hake and Chief Financial Officer (Principal Financial Officer) Mark E. Brown* Vice President and ____________________________________ Controller (Principal Mark E. Brown Accounting Officer) Robert A. Burnett* Director ____________________________________ Robert A. Burnett Herman Cain* Director March 22, 1999 ____________________________________ Herman Cain Gary T. DiCamillo* Director ____________________________________ Gary T. DiCamillo Allan D. Gilmour* Director ____________________________________ Allan D. Gilmour Kathleen J. Hempel* Director ____________________________________ Kathleen J. Hempel
10
Signature Title Date --------- ----- ---- Arnold G. Langbo* Director ____________________________________ Arnold G. Langbo Miles L. Marsh* Director ____________________________________ Miles L. Marsh Philip L. Smith* Director March 22, 1999 ____________________________________ Philip L. Smith Paul G. Stern* Director ____________________________________ Paul G. Stern Janice D. Stoney* Director ____________________________________ Janice D. Stoney
/s/ Daniel F. Hopp *By: __________________________ Daniel F. Hopp Attorney-in-Fact 11 ANNUAL REPORT ON FORM 10-K ITEMS 14(a) (1) AND (2) AND 14(d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1998 WHIRLPOOL CORPORATION AND CONSOLIDATED SUBSIDIARIES The following consolidated financial statements of the registrant and its consolidated subsidiaries, set forth in the Annual Report, are incorporated herein by reference in Item 8: Consolidated balance sheets--December 31, 1998 and 1997 Consolidated statements of earnings--Three years ended December 31, 1998 Consolidated statements of changes in stockholders' equity--Three years ended December 31, 1998 Consolidated statements of cash flows--Three years ended December 31, 1998 Notes to consolidated financial statements The following reports of independent auditors and consolidated financial statement schedules of the registrant and its consolidated subsidiaries are submitted herewith in response to Items 14(a) (2) and 14(d):
Page ---- Report of Ernst & Young, Independent Auditors......................... F-2 Reports of Price Waterhouse, Independent Auditors..................... F-3 Schedule II--Valuation and qualifying account......................... F-9 The following exhibits are included herein: Exhibit 11--Statement Re: Computation of Earnings Per Share........... F-10 Exhibit 12--Ratio of Earnings to Fixed Charge......................... F-11
Individual financial statements of the registrant's affiliated foreign companies, accounted for by the equity method, have been omitted since no such company individually constitutes a significant subsidiary. Summarized financial information relating to the affiliated companies is set forth in Note 5 of the Notes to Consolidated Financial Statements incorporated by reference herein. Certain schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 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, 1998 and 1997, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 financial statements of Brasmotor S.A. and its consolidated subsidiaries, whose statements reflect total assets of $2,500 million and $2,200 million as of December 31, 1998 and 1997, respectively and net earnings of $58 million, $41 million and $120 million for the years ended December 31, 1998, 1997 and 1996, respectively. 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 generally accepted auditing standards. 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 auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Chicago, Illinois January 21, 1999 F-2 [PRICEWATERHOUSECOOPERS LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Brasmotor S.A. We have audited the accompanying consolidated balance sheets of Brasmotor S.A. and its subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars (not presented herein). Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 18, 1999. 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 financial statements of Whirlpool Argentina S.A. and Sociedade Financeira de Grandes Aparatos Domesticos S.A., which statements reflect total assets of US$149,457 thousand and US$119,549 thousand as of December 31, 1998 and 1997, respectively, and net earnings of US$6,037 thousand and US$9,487 thousand for the years ended December 31, 1998 and 1997, respectively. 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 Whirlpool Argentina S.A. and Sociedade Financeira de Grandes Aparatos Domesticos S.A., is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Brasmotor S.A. and its subsidiaries to be included in Whirlpool's consolidated financial statements. Up to December 31, 1997, Brazil had a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Brasmotor S.A. and its Brazilian subsidiaries as of December 31, 1997, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, on the bases stated in Note 1. As from January 1, 1998, the functional currency, for the purpose of the translation of the financial statements into U.S. dollars, has been changed from the U.S. dollar to the local currency (reais). F-3 [PRICEWATERHOUSECOOPERS LETTERHEAD] Brasmotor S.A. Page 2 In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. [PRICEWATERHOUSECOOPERS SIGNATURE] PricewaterhouseCoopers Auditores Independentes Sao Paulo, Brazil January 18, 1999 F-4 [PRICEWATERHOUSECOOPERS LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Empresa Brasileira de Compressores S.A.--EMBRACO We have audited the accompanying consolidated balance sheets of Empresa Brasileira de Compressores S.A.--EMBRACO and its subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars (not presented herein). Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 18, 1999. 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 conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Empresa Brasileira de Compressores S.A.--EMBRACO and its subsidiaries to be included in Whirlpool's consolidated financial statements. Up to December 31, 1997, Brazil had a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Empresa Brasileira de Compressores S.A.--EMBRACO and its Brazilian subsidiaries as of December 31, 1997, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, on the bases stated in Note 1. As from January 1, 1998, the functional currency, for the purpose of the translation of the financial statements into U.S. dollars, has been changed from U.S. dollar to the local currency (reais). F-5 [PRICEWATERHOUSECOOPERS LETTERHEAD] Empresa Brasileira de Compressores S.A.--EMBRACO Page 2 In our opinion, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. [PRICEWATERHOUSECOOPERS SIGNATURE] PricewaterhouseCoopers Auditores Independentes Sao Paulo, Brazil January 18, 1999 F-6 [PRICEWATERHOUSECOOPERS LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Multibras S.A. Eletrodomesticos We have audited the accompanying consolidated balance sheets of Multibras S.A. Eletrodomesticos and its subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars (not presented herein). Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 18, 1999. 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 financial statements of Whirlpool Argentina S.A. and Sociedade Financeira de Grandes Aparatos Domesticos S.A., which statements reflect total assets of US$ 149,457 thousand and US$ 119,549 thousand as of December 31, 1998 and 1997, respectively, and net earnings of US$ 6,037 thousand and US$ 9,487 thousand for the years ended December 31, 1998 and 1997, respectively. Those statements were audited by other auditors whose reports hves been furnished to us, and our opinion, insofar as it relates to data included for Whirlpool Argentina S.A. and Sociedade Financeira de Grandes Aparatos Domesticos S.A., is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Multibras S.A. Eletrodomesticos and its subsidiaries to be included in Whirlpool's consolidated financial statements. Up to December 31, 1997, Brazil had a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Multibras S.A. Eletrodomesticos and its Brazilian subsidiaries as of December 31, 1997, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, on the bases stated in Note 1. As from January 1, 1998, the functional currency, for the purpose of the translation of the financial statements into U.S. dollars, has been changed from the U.S. dollar to the local currency (reais). F-7 [PRICEWATERHOUSECOOPERS LETTERHEAD] Multibras S.A. Eletrodomesticos Page 2 In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. [PRICEWATERHOUSECOOPERS SIGNATURE] PricewaterhouseCoopers Auditores Independentes Sao Paulo, Brazil January 18, 1999 F-8 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS WHIRLPOOL CORPORATION AND SUBSIDIARIES Years Ended December 31, 1998, 1997, and 1996 (millions of dollars)
Col. A Col. B Col. C Col. D Col. E ------ ---------- ------------------ ------------ --------- Additions ------------------ (1) (2) Charged Charged Balance at to Costs to Other Balance Beginning and Accounts/ Deductions-- at End of Description of Period Expenses Other Describe Period ----------- ---------- -------- --------- ------------ --------- Year Ended December 31, 1998: Allowances for doubtful accounts--trade receivables............ $134 $ 45 $ 63(B) $116 ==== ==== ==== ==== Allowances for doubtful accounts--financing receivables and leases. $ 90 $ 0 $ 19(C) $ 71 ==== ==== ==== ==== Accrued expenses-- restructuring costs.... $212 $-- $ 95(E) $117 ==== ==== ==== ==== Year Ended December 31, 1997: Allowances for doubtful accounts--trade receivables............ $ 45 $ 34 $55(A) $ 0(B) $134 ==== ==== === ==== ==== Allowances for doubtful accounts--financing receivables and leases. $ 50 $125 $ 0 $ 85(C) $ 90 ==== ==== === ==== ==== Accrued expenses-- restructuring costs.... $ 32 $343 $ 5(D) $168(E) $212 ==== ==== === ==== ==== Year Ended December 31, 1996: Allowances for doubtful accounts--trade receivables............ $ 39 $ 15 $ 9(B) $ 45 ==== ==== ==== ==== Allowances for doubtful accounts--financing receivables and leases. $ 42 $ 48 $ 40(C) $ 50 ==== ==== ==== ==== Accrued expenses-- restructuring costs.... $ 70 $ 30 $ 68(E) $ 32 ==== ==== ==== ====
- -------- Note A--The amount represents the allowance for doubtful accounts balance on the balance sheet of Brasmotor S.A. at the time of consolidation in 1997. Note B--The amounts represent accounts charged off, less recoveries of $5 in 1998, $15 in 1997, and $7 in 1996, and translation adjustments and transfers. Note C--The amount for 1998 represents a transfer to the trade receivable allowance while the amounts for 1997 and 1996 represent accounts charged off, less recoveries of $4 and $3, respectively. Note D--The amount represents the restructuring provision on the balance sheet of Brasmotor S.A. at the time of consolidation in 1997. Note E--Includes cash payments for employee severance and related costs, lease terminations, facility dispositions and other cash costs; write-down of facilities, equipment and other assets; and translation adjustments. F-9 EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE WHIRLPOOL CORPORATION AND SUBSIDIARIES (all amounts in millions except earnings per share)
1998 1997 1996 ------ ------- ------ Basic: Average Shares Outstanding ........................... 75.8 74.7 74.3 Earnings (Loss): Continuing Operations .............................. $310.3 $ (46.4) $140.9 Discontinued Operations ............................ 14.8 31.6 14.9 ------ ------- ------ Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8 ====== ======= ====== Earnings (Loss) Per Share from Continuing Operations . $ 4.09 $ (0.62) $ 1.90 Net Earnings (Loss) Per Share ........................ $ 4.29 $ (0.20) $ 2.10 ====== ======= ====== Diluted: Average Shares Outstanding ........................... 75.8 74.7 74.3 Treasury Stock Method (a): Stock Options ...................................... 0.7 -- 0.7 Assumed Conversion of Debt ........................... -- -- 2.2 ------ ------- ------ Average Shares Outstanding ............................. 76.5 74.7 77.2 ====== ======= ====== Earnings (Loss) from Continuing Operations ........... $310.3 $ (46.4) $140.9 Interest Expense, net of tax ......................... -- -- 4.5 ------ ------- ------ Diluted Earnings (Loss) from Continuing Operations ... $310.3 $ (46.4) $145.4 ====== ======= ====== Diluted Earnings (Loss) Per Share from Continuing Operations........................................... $ 4.06 $ (0.62) $ 1.88 ====== ======= ====== Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8 Interest Expense, net of tax ......................... -- -- 4.5 ------ ------- ------ Diluted Net Earnings (Loss) .......................... $325.1 $ (14.8) $160.3 ====== ======= ====== Diluted Net Earnings (Loss) Per Share ................ $ 4.25 $ (0.20) $ 2.08 ====== ======= ======
- -------- (a) Using the average market price per share of stock for the period; effect of stock options precipitates an anti-dilutive calculation in 1997, and therefore not included; convertible debt retired in 1997. F-10 EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
Year Ended December 31 ---------- 1998 1997 ---- ----- Pretax earnings.................................................... $564 $(178) Portion of rents representative of the interest factor............. 20 21 Interest on indebtedness........................................... 260 244 Amortization of debt expense and premium .......................... 1 1 WFC preferred stock dividend....................................... 5 6 ---- ----- Adjusted income................................................ $851 $ 94 ==== ===== Fixed charges - ------------- Portion of rents representative of the interest factor........... $ 20 $ 21 Interest on indebtedness......................................... 260 244 Amortization of debt expense and premium......................... 1 1 WFC preferred stock dividend..................................... 5 6 ---- ----- $287 $ 272 ==== ===== Ratio of earnings to fixed charges................................. 3.0 0.3 ==== =====
F-11 ANNUAL REPORT ON FORM 10-K ITEMS 14(a)(3) and 14(c) EXHIBIT INDEX YEAR ENDED DECEMBER 31, 1998 The following exhibits are submitted herewith or incorporated herein by reference in response to Items 14(a)(3) and 14(c):
Number and escriptionD Sequential of Page Exhibit Numbers* - ----------- ---------- 3(i) Restated Certificate of Incorporation of the Company [Incorporated by reference from Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932] 3(ii) Amended and Restated By-laws of the Company as amended February 17, 1998 [Incorporated by reference from Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997] [File No. 1-3932] 4(i) The registrant hereby agrees to furnish to the Securities and Exchange Commission, upon request, the instruments defining the rights of holders of each issue of long-term debt of the registrant and its subsidiaries. 4(ii) Rights Agreement, dated April 21, 1998, between Whirlpool Corporation and First Chicago Trust Company of New York, with exhibits [Incorporated by reference from Exhibit 4 to the Company's Form 8-K, dated April 22, 1998] [File No. 1-3932] 10(iii) (a) Whirlpool Retirement Benefits Restoration Plan (as amended January 1, 1992) [Incorporated by reference from Exhibit 10(iii)(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932] 10(iii) (b) 1979 Stock Option Plan (as amended April 28, 1987) [Incorporated by reference from Exhibit 10(iii)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1- 3932] 10(iii) (c) Whirlpool Supplemental Executive Retirement Plan (as amended and restated effective December 31, 1993) [Incorporated by reference from Exhibit 10(iii)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932] 10(iii) (d) Resolution adopted on December 12, 1989 by the Board of Directors of the Company adopting a compensation schedule, life insurance program and retirement benefit program for eligible Directors. [Incorporated by reference from Exhibit 10(iii)(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No.1-3932] 10(iii) (e) Resolution adopted on December 8, 1992 by the Board of Directors of the Company adopting a Flexible Compensation Program for the Corporation's nonemployee directors. [Incorporated by reference from Exhibit 10(iii)(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932] 10(iii) (f) Whirlpool Corporation Deferred Compensation Plan for Directors (as amended effective January 1, 1992 and April 20, 1993) [Incorporated by reference from Exhibit 10(iii)(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932]
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Number and escriptionD Sequential of Page Exhibit Numbers* - ----------- ---------- 10(iii) (g) Form of Agreement providing for severance benefits for certain executive officers [Incorporated by reference from Exhibit 10(iii)(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932] 10(iii) (h) Whirlpool Corporation 1989 Omnibus Stock and Incentive Plan (as amended June 20, 1995) [Incorporated by reference from Exhibit 10(iii)(r) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995] [File No. 1- 3932] 10(iii) (i) Whirlpool Corporation Restricted Stock Value Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File 1-3932] 10(iii) (j) Whirlpool Executive Stock Appreciation and Performance Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1- 3932] 10(iii) (k) Whirlpool Corporation Nonemployee Director Stock Ownership Plan (as amended February 20, 1996, effective April 16, 1996) [Incorporated by reference from Exhibit B to the Company's proxy statement for the 1996 annual meeting of stockholders] [File No. 1-3932] 10(iii) (l) Whirlpool 401(k) Plan (as amended and restated April 1, 1993) [Incorporated by reference from Exhibit 10(iii)(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1-3932] 10(iii) (m) Whirlpool Performance Excellence Plan (as amended January 1, 1992 and February 15, 1994) [Incorporated by reference from Exhibit 10(iii)(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1- 3932] 10(iii) (n) Whirlpool Corporation Executive Deferred Savings Plan (as amended effective January 1, 1992) [Incorporated by reference from Exhibit 10(iii)(n) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] [File No. 1- 3932] 10(iii) (o) Whirlpool Corporation Executive Officer Bonus Plan (Effective as of January 1, 1994) [Incorporated by reference from Exhibit 10(iii)(o) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994] [File No. 1-3932] 10(iii) (p) Whirlpool Corporation Charitable Award Contribution and Additional Life Insurance Plan for Directors (Effective April 20, 1993) [Incorporated by reference from Exhibit 10(iii)(p) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994] [File No. 1-3932] 10(iii) (q) Whirlpool Corporation Career Stock Grant Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(q) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995] [File No. 1-3932] 10(iii) (r) Whirlpool Corporation 1996 Omnibus Stock and Incentive Plan (Effective April 25, 1996) [Incorporated by reference from Exhibit A to the Company's proxy statement for the 1996 annual meeting of stockholders] [File No. 1-3932] 10(iii) (s) Whirlpool Corporation 1998 Omnibus Stock and Incentive Plan (Effective April 28, 1998) [Incorporated by reference From Exhibit A to the Company's proxy statement for the 1998 annual meeting of stockholders] [File No. 1-3932] 11 Statement Re: Computation of Earnings per share
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Number and Dscriptione Sequential of Page Exhibit Numbers* - ----------- ---------- 12 Statement Re: Computation of the Ratios of Earnings to Fixed Charges 13 Management's Discussion and Analysis and Consolidated Financial Statements contained in Annual Report to Stockholders for the year ended December 31, 1998 21 List of Subsidiaries 23(ii) (a) Consent of Ernst & Young LLP 23(ii) (b) Consent of PricewaterhouseCoopers 24 Powers of Attorney 27 Financial Data Schedules
- -------- *This information appears only in the manually signed originals of the Form 10-K and conformed copies with exhibits. E-3 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE WHIRLPOOL CORPORATION AND SUBSIDIARIES (all amounts in millions except earnings per share)
1998 1997 1996 ------ ------- ------ Basic: Average Shares Outstanding ........................... 75.8 74.7 74.3 Earnings (Loss): Continuing Operations .............................. $310.3 $ (46.4) $140.9 Discontinued Operations ............................ 14.8 31.6 14.9 ------ ------- ------ Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8 ====== ======= ====== Earnings (Loss) Per Share from Continuing Operations . $ 4.09 $ (0.62) $ 1.90 Net Earnings (Loss) Per Share ........................ $ 4.29 $ (0.20) $ 2.10 ====== ======= ====== Diluted: Average Shares Outstanding ........................... 75.8 74.7 74.3 Treasury Stock Method (a): Stock Options ...................................... 0.7 -- 0.7 Assumed Conversion of Debt ........................... -- -- 2.2 ------ ------- ------ Average Shares Outstanding ............................. 76.5 74.7 77.2 ====== ======= ====== Earnings (Loss) from Continuing Operations ........... $310.3 $ (46.4) $140.9 Interest Expense, net of tax ......................... -- -- 4.5 ------ ------- ------ Diluted Earnings (Loss) from Continuing Operations ... $310.3 $ (46.4) $145.4 ====== ======= ====== Diluted Earnings (Loss) Per Share from Continuing Operations........................................... $ 4.06 $ (0.62) $ 1.88 ====== ======= ====== Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8 Interest Expense, net of tax ......................... -- -- 4.5 ------ ------- ------ Diluted Net Earnings (Loss) .......................... $325.1 $ (14.8) $160.3 ====== ======= ====== Diluted Net Earnings (Loss) Per Share ................ $ 4.25 $ (0.20) $ 2.08 ====== ======= ======
- -------- (a) Using the average market price per share of stock for the period; effect of stock options precipitates an anti-dilutive calculation in 1997, and therefore not included; convertible debt retired in 1997. EX-12 3 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
Year Ended December 31 ---------- 1998 1997 ---- ----- Pretax earnings.................................................... $564 $(178) Portion of rents representative of the interest factor............. 20 21 Interest on indebtedness........................................... 260 244 Amortization of debt expense and premium .......................... 1 1 WFC preferred stock dividend....................................... 5 6 ---- ----- Adjusted income................................................ $851 $ 94 ==== ===== Fixed charges - ------------- Portion of rents representative of the interest factor........... $ 20 $ 21 Interest on indebtedness......................................... 260 244 Amortization of debt expense and premium......................... 1 1 WFC preferred stock dividend..................................... 5 6 ---- ----- $287 $ 272 ==== ===== Ratio of earnings to fixed charges................................. 3.0 0.3 ==== =====
EX-13 4 MANAGEMENT'S DISCUSSION AND ANALYSIS 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. Unless otherwise noted, all comparisons are to 1997 and 1996 excluding discontinued operations, restructuring and other non-recurring items [see "Discontinued Operations, Non-Recurring Items and Net Earnings/(Loss)"]. The company's investment in its Brazilian subsidiary, Brasmotor S.A., is accounted for on a consolidated basis for the full year 1998 and the last two months of 1997. Prior to the consolidation, the Brazilian operations were accounted for on an equity basis. Prior to the fourth quarter of 1997, the company's Brazilian operations were reported on a one-month lag. In the fourth quarter of 1997, this one-month reporting lag was eliminated and the Brazilian results for the year ended December 31, 1997 included activity for 13 months. The effect of eliminating the one-month lag increased 1997 net earnings $5 million. Net Sales - --------- Net sales were $10.3 billion in 1998, an increase of 20% over 1997. Excluding the impact of consolidating Brasmotor and currency fluctuations, net sales were up 4%. North American unit volumes were up 10%, in an industry that was up nearly 9%. North American sales were up 6% due to increased volume, partially offset by competitive price pressures and mix. North American industry shipments are expected to be flat in 1999. European unit volumes were up 7% over 1997 while the industry was up 4%. European sales in U.S. dollars were up 4%. Excluding the effect of currency fluctuations, sales were up nearly 8% year-over-year 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 2% in 1999. Net sales were $8.6 billion in 1997, including two months of sales related to consolidating Brasmotor, an increase of 1% over 1996. Excluding currency fluctuations and the consolidation of Brasmotor, net sales were down 1%. North American unit volumes were up 1% over 1996, in an industry that was up less than 1%. North American sales were down 1%, due to competitive pricing partially offset by increased volume and favorable product mix. European unit volumes were up 4%, which was in line with the industry growth. European sales in U.S. dollars were down 6% compared to 1996; however, excluding the effect of currency fluctuations, sales were up more than 8% year-over-year. Sales growth in Europe, in local currency, reflected stabilization of the declining price realization that affected the industry in 1996. Expenses - -------- Gross margin percentage improved by nearly one percentage point in 1998. North American gross margin percentage improved due to increased volume, productivity improvements and reduced 1 material costs, partially offset by price deterioration. European gross margin improved due to the benefits of restructuring plus manufacturing efficiencies and reduced material costs. Gross margin percentage improved over one percentage point in 1997. North American gross margin percentage improved principally due to manufacturing efficiencies, effective cost control management and reduced material costs, partially offset by price deterioration. Price realization combined with improved product mix, effective cost control management and reduced material costs improved the European gross margin percentage nearly three percentage points in 1997. Selling and administrative expenses as a percent of net sales improved by over one percentage point in 1998 versus 1997 due to restructuring savings and other cost reduction initiatives, partially offset by pretax provisions totaling $28 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 percentage of net sales improved on higher sales and cost reduction efforts. European expenses as a percent of net sales improved by nearly two percentage points due to higher sales and reduced costs mainly from restructuring and further efficiency savings. Selling and administrative expenses as a percent of net sales were flat in 1997 compared to 1996. The North American and European percentages were both essentially flat with the prior year. Other Income and Expense - ------------------------ Interest and sundry income (expense) for 1998 was favorable to 1997 primarily 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 an increase in interest expense from 1997, which was also primarily driven by the consolidation of the company's Brazilian operations. Interest and sundry income (expense) for 1997 was favorable compared to 1996, but was almost fully offset by the increase in interest expense. Income Taxes - ------------ The effective tax rate for continuing operations was 37% in 1998 compared to 44% in 1997 and 62% in 1996. The lower tax rate in 1998 compared to 1997 is due to the impact of consolidating Brasmotor, the recognition of certain tax benefits in Europe and Brazil, and the lower impact of permanent tax differences resulting from higher earnings. The lower effective tax rate in 1997 compared to 1996 is due to the diminished impact of permanent items resulting from higher pretax earnings, the impact of consolidating Brasmotor as well as certain tax loss benefits. Including restructuring charges and non-recurring charges, the effective tax (benefit) rates for 1997 and 1996 were (5)% and 70%, respectively. 2 Equity in Affiliated Companies - ------------------------------ Equity earnings were $1 million, $72 million and $93 million in 1998, 1997 and 1996. The decrease in 1998 is due primarily to the consolidation of Brasmotor starting in the last two months of 1997. The 1997 decline primarily reflected a slowdown in the previously robust growth in the Brazilian appliance industry partially offset by Befiex, a Brazilian government export incentive program, and other tax benefits. Earnings from Continuing Operations - ------------------------------------ Excluding non-recurring items, earnings from continuing operations for 1998, 1997 and 1996 were as follows:
1998 1997 1996 - --------------------------------------------------------------------------------------------------- Earnings from Continuing Operations $310 million $226 million $160 million - --------------------------------------------------------------------------------------------------- Diluted Earnings per Share $4.06 $2.99 $2.13 - --------------------------------------------------------------------------------------------------- Basic Earnings per Share $4.09 $3.02 $2.15 - ---------------------------------------------------------------------------------------------------
Discontinued Operations, Non-Recurring Items and Net Earnings/(Loss) - -------------------------------------------------------------------- During 1998, the company recorded an after-tax gain of $15 million or $.19 per diluted share related to the sale of consumer financing and European inventory financing assets to Transamerica Distribution Finance Corporation ("TDF"), concluding a series of transactions to dispose of its financing business initiated in the fourth quarter of 1997. Over the two years 1998 and 1997, the company recorded total after-tax gains of $57 million or $.74 per diluted share related to these transactions. In 1997, an after-tax and minority interests restructuring charge of $232 million or $3.07 per diluted share and an after-tax and minority interests special operating charge of $40 million or $.54 per diluted share were incurred to better align the company's cost structure within the global home-appliance marketplace. A discontinued operations after-tax charge of $22 million or $.29 per diluted share, an after-tax gain on business dispositions of $42 million or $.55 per diluted share and discontinued earnings of $12 million or $.16 per diluted share were also recorded. Refer to Notes 3 and 10 to the accompanying consolidated financial statements. In 1996, an after-tax restructuring charge of $19 million or $.25 per diluted share was incurred to improve the company's long-term cost competitiveness and profitability in the North American refrigeration market and in Asia. Discontinued earnings of $15 million or $.19 per diluted share were also recorded. Including discontinued operations and non-recurring items, net earnings/(loss) for 1998, 1997 and 1996 were as follows:
1998 1997 1996 - ---------------------------------------------------------------------------------------------------- Net Earnings/(Loss) $325 million $(15) million $156 million - ---------------------------------------------------------------------------------------------------- Diluted Earnings/(Loss) per Share $4.25 $(.20) $2.08 - ---------------------------------------------------------------------------------------------------- Basic Earnings/(Loss) per Share $4.29 $(.20) $2.10 - ----------------------------------------------------------------------------------------------------
3 CASH FLOWS The statements of cash flows from continuing operations 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 was $763 million, $593 million and $545 million in 1998, 1997 and 1996. The increase in 1998 from 1997 is primarily due to higher earnings, adjusted for depreciation and minority interests, partially offset by spending for restructuring. The increase in 1997 from 1996 is primarily due to favorable performance in inventory, accounts payable, income tax payable and other operating accounts. Investing Activities - -------------------- The principal recurring investing activities are property additions. Net property additions for continuing operations were $523 million, $378 million and $336 million in 1998, 1997 and 1996. The increase in 1998 from 1997 principally resulted from the consolidation of Brasmotor. These expenditures were primarily for equipment and tooling related to product improvements, more efficient production methods and equipment replacement for normal wear and tear. In 1997, the company began construction of a new $86 million facility in Pune, India to manufacture no-frost refrigerators for the South Asia appliance market. The facility began commercial production in the first quarter of 1998. 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 to shareholders totaled $102 million, $102 million and $101 million in 1998, 1997 and 1996. The company's net borrowings decreased by $423 million in 1998, excluding the effect of currency fluctuations, resulting primarily from proceeds related to the WFC asset sales. Also during 1998, the company redeemed $40 million of WFC preferred stock. 4 The company's net borrowings decreased by $1,069 million in 1997, excluding currency translation and $132 million of borrowings net of cash assumed in acquisitions, resulting primarily from proceeds related to the WFC asset sales. The 1997 borrowing activities for continuing operations included the first quarter repayment of $113 million of outstanding subordinated zero-coupon convertible notes, financed through the issuance of additional commercial paper. The company's net borrowings increased by $171 million in 1996, excluding currency translation and $25 million of borrowings assumed in acquisitions, primarily to fund property additions and origination of financing receivables. The increase included a $244 million issuance of 7 3/4% debentures maturing in 2016. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the December 31, 1998 balance sheet. The company's total assets are $7.9 billion and stockholders' equity is $2.0 billion. The overall debt, net of cash, to invested capital ratio (debt ratio) of 34.6% was down from 42.1% in 1997 due primarily to the proceeds related to the WFC asset sales used to repay debt and improved cash flows. The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's and Duff & Phelps. 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 manages a portfolio of domestic and cross currency interest rate swaps that serve to effectively convert U.S. Dollar (USD) denominated debt into that of various European currencies. Such local currency denominated debt serves as an effective hedge against the European cash flows and net assets that exist today and that are expected to be generated by the European business over time. (Refer to Notes 1 and 7 for the accounting treatment for, and a detailed description of, these instruments.) Domestic and cross currency interest rate swaps in this portfolio are sensitive to changes in foreign currency exchange rates and interest rates. As of December 31, 1998, a ten percent appreciation of the USD versus the European currencies alone would have resulted in an incremental unrealized gain on these contracts of $57 million. The converse event would have resulted in an incremental unrealized loss on these contracts of $100 million. As of December 31, 1998, ten percent favorable shifts in interest rates alone to each swap 5 would have resulted in an incremental unrealized gain of $13 million. The converse events would have resulted in an incremental unrealized loss of $10 million. 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. The value of these contracts moves in a direction opposite to that of the transaction being hedged, thus eliminating the price risk associated with changes in market prices. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 1998, ten percent unfavorable exchange rate movements in the company's portfolio of foreign currency forward contracts would have resulted in an incremental unrealized loss of $43 million while ten percent favorable shifts would have resulted in an incremental unrealized gain of $43 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 had no foreign currency options outstanding at December 31, 1998. The company manages a portfolio of domestic interest rate swap contracts that serve to effectively convert long-term, fixed rate USD-denominated debt into floating rate LIBOR-based debt. The company also 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, 1998, a ten percent increase or decrease in interest rates would not have resulted in a material gain or loss. Ten percent favorable shifts in copper and zinc prices would have resulted in an incremental $4 million gain and $4 million loss, respectively. Brasmotor's long-term debt carries a floating interest rate that periodically reprices driving the carrying value to approximate the fair value. As of December 31, 1998, a ten percent increase or decrease in interest rates would not have resulted in a material gain or loss. The company's USD-denominated debt is sensitive to currency exchange rates. Refer to the Latin America section below. The company's sensitivity analysis reflects the effects of changes in market risk but does not factor in potential business risks. 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. Latin America - -------------- In January 1999, the company's Brazilian operations faced significant financial and operational difficulties due to high interest rates and the devaluation of Brazil's currency, the real. The company's financial strategy is to minimize the long-term cost of capital within Latin America by borrowing primarily in USD, and believes that short-run exchange rate fluctuations on USD-denominated debt are acceptable risks compared to the long-term cost of funding in local currencies. 6 Consistent with the above strategy, the company's Brazilian subsidiary currently maintains a significant level of cash that is invested in local currency. The primary reason for holding cash in Brazil is the desire to hold a reasonable safety stock of cash in case of an economic downturn and the resultant difficult credit markets. The secondary reason is that the company has significant historical earnings in Brazil that cannot be economically repatriated due to minority shareholder positions and tax costs. On January 26, 1999, the company announced that the foreign currency loss in the first quarter 1999 could be approximately $0.015 per diluted share for each 1% in devaluation from the exchange rate in effect immediately prior to the devaluation of the real and the change in the Brazilian government's foreign exchange policy in January 1999. The company also announced at that time that it expected the full year 1999 devaluation of the Brazilian currency to be approximately 30%. The company's after-tax share of the benefits of a Brazilian government export incentive program (Befiex) was $15 million in 1998. In 1997, the company recorded $34 million in Befiex and other tax benefits. The Befiex program ended in mid July 1998. On May 15, 1998, the company announced it was exploring a full array of strategic business options involving Empresa Brasileira de Compresorres S.A. (Embraco), a hermetic compressor manufacturing subsidiary with approximately $800 million in sales for 1998. The review, which is still ongoing, includes the possible sale of Embraco. In December 1996, a favorable decision was obtained by Multibras S.A. Eletrodomesticos (Multibras) and 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. This amount is impacted by exchange rate fluctuations, offset by accrued interest. 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. Year 2000 - --------- An issue affecting the company and most other companies is whether computer systems and applications will properly process dates beyond the Year 2000. In 1996, the company began assessing the effect of this issue on its operations and has since utilized the services of outside consultants in this effort. In 1998, the company appointed a new Chief Information Officer, who has as one of his key responsibilities the global coordination of the company's efforts to assess the Year 2000 problem and implement the necessary changes. The company currently does not anticipate any material adverse effect on its computer software systems as a result of the Year 2000 problem. Key internal computer systems have been evaluated 7 for Year 2000 compliance and regional remediation plans have been developed. Work is underway to replace or upgrade key internal systems to ensure they remain operational up to and beyond December 31, 1999. All critical computer systems are expected to be Year 2000 compliant by the second quarter of 1999. The company anticipates that Year 2000 remediation projects will be successfully completed according to plan and that the costs of such projects will not be material to the company. The cumulative cost of projects dedicated solely to Year 2000 remediation is approximately $19 million and is currently expected to reach close to $32 million by December 31, 1999. These costs do not include the cost of upgrading systems for other business reasons; such upgrades will usually provide the additional benefit of making the systems Year 2000 compliant. The company also has completed an assessment of its products and does not anticipate that any significant problems will be experienced with the appliances it manufactures due to the Year 2000 issue. Appliances produced by the company generally do not have calendar date systems and therefore are not likely to experience failures caused by the millennium date change. The company has surveyed its key suppliers to understand their plans to address the Year 2000 problem. The company will continue monitoring its suppliers to determine the availability of components and raw materials as the millennium approaches; however, suppliers could have significant Year 2000 problems that could adversely affect the company. The company is also in the process of creating business teams in each of its regions around the world to consider the contingency plans that may be necessary for this issue, particularly with regard to delays that may occur with supplier orders. Additionally, building and equipment infrastructure compliance is still being assessed. Although the company believes that it can address Year 2000 readiness issues related to its operations, there still may be disruptions that are unforeseen. These issues create risks for the entire business community with a wide range of opinions on the effect of the Year 2000 issue on the overall global economy. The effect of the problem on transportation systems and government agencies, among others, are risks that cannot be adequately assessed or addressed to eliminate the risk of the Year 2000 issue for the company. As a result, while it is difficult for the company to appraise the likelihood, or the impact on its business, of the risks of the Year 2000 problem, the company does not believe its risks are greater than or different from other companies with similar operations. Over the past several months, the company has taken further steps to increase the global coordination of its Year 2000 compliance program and has appointed a global project manager to oversee the Year 2000 compliance efforts of the company's operations in each region. As part of this global coordination, an outside consultant has completed a review of the internal Year 2000 programs of the company's operations in each of its regions around the world. The review indicated that the company's major business units in its key markets of Europe, North America and Latin America are following reasonable plans to address the Year 2000 issue. The outside consultant's review also indicated that the company's business units in India and China will need more attention compared to the other regions in order to implement the company's Year 2000 program, and the company intends to increase its Year 2000 efforts in these two business units 8 over the next several months. However, due to the low level of automation in the company's India and China operations and the operations of the supply base in these countries, the Year 2000 issue will not be as significant a problem in these countries as in other parts of the world. The above section, even if incorporated by reference into other documents or disclosures, is a Year 2000 Readiness Disclosure as defined under the Year 2000 Information and Readiness Disclosure Act of 1998. 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 may have the following effects on the company's business operations. The competitive structure of the industry may change as the single currency eliminates short-term cost advantages or disadvantages due solely to currency fluctuation. The euro will eliminate transaction gains and losses on accounts receivable and payable with third parties located within the participating countries. Because the company operates and sells throughout the affected countries, it believes these impacts will tend to offset each other and not have a material impact on overall results. Prices to customers may converge throughout the affected countries, although the company believes that in recent years competitive pressures have to some extent eliminated price differences solely caused by the lack of price transparency. Internal computer system and business processes will need to be changed to accommodate the new currency. The company has established a cross-functional team, guided by an executive-level steering committee, to address these issues. It currently plans to make changes in two phases. In the first phase, from 1999 to 2001, the company will have the capability to bill customers and pay suppliers in euro, but will continue to maintain its accounts in the national currencies. In 2002, all remaining operational and financial systems will be converted to the euro. The cost of the first phase is not material; the cost of the second phase has not been estimated at this time. Operating efficiencies should ultimately result from reduction of the complexity of doing business in multiple currencies. No estimate of these efficiencies has been made. 9
CONSOLIDATED STATEMENTS OF EARNINGS Year ended December 31 (millions of dollars, except per share data) 1998 1997 1996 -------- --------- -------- Net sales .......................................................... $ 10,323 $ 8,617 $ 8,523 EXPENSES Cost of products sold .............................................. 7,805 6,604 6,623 Selling and administrative ......................................... 1,791 1,625 1,557 Intangible amortization ............................................ 39 34 35 Restructuring costs ................................................ -- 343 30 -------- -------- -------- 9,635 8,606 8,245 -------- -------- -------- OPERATING PROFIT ............................................... 688 11 278 OTHER INCOME (EXPENSE) Interest and sundry ................................................ 136 (14) (23) Interest expense ................................................... (260) (168) (155) -------- -------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES AND OTHER ITEMS .............................................. 564 (171) 100 Income taxes (benefit) ............................................. 209 (9) 70 -------- -------- -------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS ................ 355 (162) 30 Equity in affiliated companies ..................................... 1 67 93 Minority interests ................................................. (46) 49 18 -------- -------- -------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS ..................... 310 (46) 141 Earnings (loss) from discontinued operations (less applicable taxes) -- (11) 15 Gain on disposal of discontinued operations (less applicable taxes) 15 42 -- -------- -------- -------- NET EARNINGS (LOSS) ............................................ $ 325 $ (15) $ 156 ======== ======== ======== Per share of common stock: Basic Earnings (loss) from continuing operations ................. $ 4.09 $ (0.62) $ 1.90 Basic Net earnings (loss) ........................................ $ 4.29 $ (0.20) $ 2.10 ======== ======== ======== Diluted Earnings (loss) from continuing operations ............... $ 4.06 $ (0.62) $ 1.88 Diluted Net earnings (loss) ...................................... $ 4.25 $ (0.20) $ 2.08 ======== ======== ======== Cash dividends ................................................... $ 1.36 $ 1.36 $ 1.36 ======== ======== ========
See notes to consolidated financial statements 10
CONSOLIDATED BALANCE SHEETS December 31 (millions of dollars) 1905 1905 ------- ------- ASSETS Current Assets - -------------- Cash and equivalents ..................... $ 636 $ 578 Trade receivables, less allowances of (1998: $116; 1997: $156) .............. 1,711 1,565 Inventories .............................. 1,100 1,170 Prepaid expenses and other ............... 268 191 Deferred income taxes .................... 167 215 Net assets of discontinued operations .... -- 562 ------- ------- Total Current Assets ..................... 3,882 4,281 Other Assets - ------------ Investment in affiliated companies ....... 108 100 Intangibles, net ......................... 936 916 Deferred income taxes .................... 262 220 Other .................................... 329 378 ------- ------- 1,635 1,614 Property, Plant and Equipment - ----------------------------- Land ..................................... 77 92 Buildings ................................ 900 969 Machinery and equipment .................. 4,534 4,201 Allowance for Depreciation ............... (3,093) (2,887) ------- ------- 2,418 2,375 ------- ------- Total Assets ............................. $ 7,935 $ 8,270 ======= ======= December 31 December 31 1998 1997 (Unaudited) (Unaudited) ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - ------------------- Notes payable ............................ $ 905 $ 1,332 Accounts payable ......................... 1,079 987 Employee compensation .................... 271 265 Accrued expenses ......................... 870 858 Restructuring costs ...................... 117 212 Current maturities of long-term debt ..... 25 22 ------- ------- Total Current Liabilities ................ 3,267 3,676 Other Liabilities - ----------------- Deferred income taxes .................... 152 190 Postemployment benefits .................. 622 598 Other liabilities ........................ 192 188 Long-term debt ........................... 1,087 1,074 ------- ------- 2,053 2,050 Minority Interests ....................... 614 773 Stockholders' Equity - -------------------- Common stock ............................. 83 82 Paid-in capital .......................... 321 280 Retained earnings ........................ 2,024 1,801 Unearned restricted stock ................ (3) (6) Cumulative translation adjustments ....... (183) (149) Treasury stock - at cost ................. (241) (237) ------- ------- Total Stockholders' Equity ............... 2,001 1,771 ------- ------- Total Liabilities and Stockholders' Equity $ 7,935 $ 8,270 ======= =======
See notes to consolidated financial statements. 11
CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31 (millions of dollars) 1998 1997 1996 ------ ------ ------- OPERATING ACTIVITIES Net earnings (loss) ................... $ 325 $ (15) $ 156 Depreciation .......................... 399 322 318 Deferred income taxes ................. 26 (208) (32) Equity in net earnings of affiliated companies, less dividends received .. (1) (51) (84) Gain on business dispositions ......... (25) (70) -- Provision for doubtful accounts ....... 29 89 52 Amortization of goodwill .............. 39 34 35 Restructuring charges, net of cash paid (99) 267 (42) Minority interests .................... 46 (49) (18) Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables ................. (184) (145) 58 Inventories ....................... 73 177 (7) Accounts payable .................. 89 20 (21) Other - net ....................... 46 222 130 ----- ----- ----- CASH PROVIDED BY OPERATING ACTIVITIES .............. $ 763 $ 593 $ 545
1998 1997 1996 --------- ---------- ---------- INVESTING ACTIVITIES Net additions to properties .................. $ (523) $ (378) $ (336) Net change in financing receivables and leases -- 706 (265) Net assets of discontinued operations ........ -- (562) -- Acquisitions of businesses, less cash acquired ......................... (121) 179 (27) Net increase (decrease) in investment in and advances to affiliated companies ....... -- 13 15 Business dispositions ........................ 587 1,038 -- Other ........................................ -- (8) (32) -------- -------- -------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES ..................... (57) 988 (645) FINANCING ACTIVITIES Proceeds of short-term borrowings ............ 19,112 31,479 24,911 Repayments of short-term borrowings .......... (19,519) (32,439) (24,847) Proceeds of long-term debt ................... 290 102 316 Repayments of long-term debt ................. (306) (211) (209) Repayments of non-recourse debt .............. -- (8) (13) Dividends .................................... (102) (102) (101) Redemption of preferred stock ................ (40) -- 25 Other ........................................ (83) 47 (2) -------- -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ..................... (648) (1,132) 80 -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS ..................... 58 449 (20) Cash and equivalents at beginning of year .. 578 129 149 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR ........ $ 636 $ 578 $ 129 ======== ======== ========
See notes to consolidated financial statements 12 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Treasury Accumulated Stock/ Other Paid-in- Comprehensive Retained (millions of dollars) Common Stock Capital Income Earnings Total ------------- ------------ -------------- ---------- --------- Balances, January 1, 1996 .................................. $ 81 $ (6) $ (61) $1,863 $1,877 Comprehensive income Net income .......................................... 156 156 Foreign currency items, net of tax of $28 ........... (15) (15) ------ Comprehensive income ....................................... 141 ------ Common stock issued ........................................ -- 9 9 Dividends declared on common stock ......................... (101) (101) ------ ------ ------ ------ ------ Balances, December 31, 1996 ................................ $ 81 $ 3 $ (76) $1,918 $1,926 Comprehensive income (loss) Net income (loss) ................................... (15) (15) Foreign currency items, net of tax (benefit) of ($36) (73) (73) ------ Comprehensive income (loss) ................................ (88) ------ Common stock issued ........................................ 1 34 35 Dividends declared on common stock ......................... (102) (102) ------ ------ ------ ------ ------ Balances, December 31, 1997 ................................ $ 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 ====== ====== ====== ====== ======
See notes to consolidated financial statements 13 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 are accounted for by the equity method. All intercompany transactions have been eliminated upon consolidation. In 1997, the company increased its voting ownership to a majority interest in its Brazilian affiliate, Brasmotor S.A. 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. Discontinued Operations: In 1997, the company discontinued its financial services business; as a result, the statement of earnings, balance sheet and cash flow reflect this business as a discontinued operation. 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 to distributors or directly to retailers. 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 $258 million and $211 million at December 31, 1998 and 1997. 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 $209 million, $181 million and $197 million in 1998, 1997 and 1996. Advertising Costs: Advertising costs are charged to expense as incurred. Such costs from continuing operations were $179 million, $155 million and $142 million in 1998, 1997 and 1996. Foreign Currency Translation: The functional currency for the company's international subsidiaries and affiliates is the local currency. Prior to January 1, 1998, Brazil was considered hyperinflationary and its results were remeasured into U.S. dollars. 14 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In January 1999, the company's Brazilian operations faced significant financial and operational difficulties due to high interest rates and the devaluation of Brazil's currency, the real. The company's financial strategy is to minimize the long-term cost of capital within Latin America by borrowing primarily in USD, and believes that short-run exchange rate fluctuations on USD-denominated debt are acceptable risks compared to the long-term cost of funding in local currencies. Consistent with the above strategy, the company's Brazilian subsidiary currently maintains a significant level of cash that is invested in local currency. The primary reason for holding cash in Brazil is the desire to hold a reasonable safety stock of cash in case of an economic downturn and the resultant difficult credit markets. The secondary reason is that the company has significant historical earnings in Brazil that cannot be economically repatriated due to minority shareholder positions and tax costs. On January 26, 1999, the company announced that the foreign currency loss in the first quarter 1999 could be approximately $0.015 per diluted share for each 1% in devaluation from the exchange rate in effect immediately prior to the devaluation of the real and the change in the Brazilian government's foreign exchange policy in January 1999 15 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES--CONTINUED Derivative Financial Instruments: The company uses derivative financial instruments to manage the economic impact of fluctuations in interest rates, foreign currency exchange rates and 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's hedging strategy for the foreign currency exchange risk associated with its investment in Europe is based on projected foreign currency cash flows over periods up to ten years. The company uses 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 are 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 exceed the company's investment in Europe, the related mark-to-market gains and losses are reflected currently in earnings. The net translation loss recognized in other income, including the gains and losses from those contracts not qualifying as hedges, was $12 million, $8 million and $14 million in 1998, 1997 and 1996. The amounts receivable from or payable to counterparties to the swaps, offsetting the 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. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement requires recording all derivative instruments as assets or liabilities, measured at fair value. This standard is effective for all companies for fiscal years beginning after June 15, 1999. The Company is in the process of evaluating this Statement and does not currently believe it will have a material impact on the company's financial position. 16 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES--CONTINUED Net Earnings Per Common Share: Earnings per share amounts, for all periods, have been presented to conform to Financial Accounting Standards Board Statement No. 128, "Earnings Per Share," requirements. The following table provides the computation of basic and diluted earnings (loss) per share:
December 31 (millions of dollars, except per share data) 1998 1997 1996 ------------------------------- Numerator Net earnings (loss): Continuing operations .......................... $ 310 $ (46) $ 141 Discontinued operations ........................ 15 31 15 ------- ------ ------- Numerator for basic earnings (loss) per share .... 325 (15) 156 Effect of dilutive securities: Convertible debt ............................... -- -- 4 ------- ------ ------- Numerator for diluted earnings (loss) per share .. $ 325 $ (15) $ 160 ======= ====== ======= Denominator For basic earnings (loss) per share- weighted-average shares outstanding ............ 75.8 74.7 74.3 Effect of dilutive securities: Employee stock options ......................... 0.7 -- 0.7 Convertible debt ............................... -- -- 2.2 ------- ------ ------- Dilutive potential common shares ................. 0.7 -- 2.9 Denominator for diluted earnings (loss) per share 76.5 74.7 77.2 ======= ====== ======= Basic earnings (loss) from continuing operations . $ 4.09 $ (.62) $ 1.90 Basic earnings (loss) ............................ 4.29 (.20) 2.10 ======= ====== ======= Diluted earnings (loss) from continuing operations 4.06 (.62) 1.88 Diluted earnings (loss) .......................... 4.25 (.20) 2.08 ======= ====== =======
17 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) BUSINESS ACQUISITIONS AND DISPOSITIONS 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. was a joint venture formed in 1995. After completion of the sale, the company will continue to hold 20% of the joint venture. The joint venture will continue to sell products under the Whirlpool brand in China for a period of three years while it introduces the Electra brand. No significant gain or loss was recognized from this transaction. During 1998, the company increased its ownership stake in its Brazilian subsidiaries by purchasing $43 million of additional shares. 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 to 80% in Whirlpool Narcissus Co., its Chinese joint venture that manufactures washing machines, for approximately $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 Brazilian affiliate, Brasmotor S.A., for $217 million. The shares, combined with the existing holdings, gave 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), which has the leading market share position in Latin America, and Empresa Brasileira de Compressores S.A. (Embraco), the world's second largest hermetic compressor manufacturer. In September 1997, the company reached a definitive agreement to sell the inventory, consumer, and international financing businesses of Whirlpool Financial Corporation (WFC). (refer to Note 3). In September 1996, the company acquired 100% of Gentech Trading (Pty.) Ltd., a South African company, for about $27 million - $2 million of cash and $25 million of assumed debt. Renamed Whirlpool South Africa, the company manufactures refrigerators and markets manufactured and imported appliances under the Whirlpool and local KIC brand names. In May 1996, two of the company's majority-owned subsidiaries in India, Kelvinator of India (KOI) and Whirlpool Washing Machines Limited (WWML), were merged and renamed Whirlpool of India (WOI). As part of the merger plan, the company purchased an additional interest in WWML for $12 million in April 1996. In 1998, the company merged Whirlpool Financial India Ltd. into WOI thereby increasing its ownership percentage in WOI to 82%. 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 operating results reflecting these acquisitions for the full year would not have been materially different from reported amounts. 18 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) DISCONTINUED OPERATIONS In 1997, the company discontinued its financing operations and reached an agreement to sell the majority of WFC's assets in a series of transactions. The company completed the following sales in 1997: certain inventory floor planning financing assets, international factoring assets and certain consumer financing receivables. The company recorded a discontinued pretax gain of $70 million ($42 million after-tax) related to these transactions. A $36 million pretax operating charge ($22 million after-tax) was also recorded in 1997 to provide an additional reserve for certain retained WFC aerospace assets. During 1998, the company also sold the following assets which were previously held by WFC: 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 discontinued pretax gain of $25 million ($15 million after-tax), and concluded the series of sales transactions. Over the two years 1997 and 1998, the company recorded total after-tax gains of $57 million or $.74 per diluted share related to these sale transactions. 19 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) INVENTORIES
December 31 (millions of dollars) 1998 1997 ----------------- Finished products ..................... $ 960 $1,015 Work in process ....................... 54 69 Raw materials ......................... 279 304 ------ ------ 1,293 1,388 Less excess of FIFO cost over LIFO cost 193 218 ------ ------ $1,100 $1,170 ====== ======
LIFO inventories represent approximately 23% and 24% of total inventories at December 31, 1998 and 1997. 20 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) AFFILIATED COMPANIES The company has 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. Prior to consolidation of the company's Brazilian subsidiary for the last two months of 1997 (refer to Note 1), its results were reflected as equity earnings of affiliated companies. Equity in the net earnings (loss) of affiliated companies, net of related taxes, is as follows:
(millions of dollars) 1998 1997 1996 ----------------------- Brazilian affiliates $ (1) $ 60 $ 92 Mexican affiliate ... 1 5 (3) Other ............... 1 2 4 ---- ---- ---- Total equity earnings $ 1 $ 67 $ 93 ==== ==== ====
21 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) FINANCING ARRANGEMENTS The company enters into and utilizes numerous uncommitted credit lines from banks and other financial institutions in the normal course of funding of its operations. To ensure that the company has access to adequate and competitive financing under unusual market conditions, the company also enters into committed credit lines backed by formal agreements with counterparties deemed to be reliable. At December 31, 1998, the company had committed credit lines of approximately $1.2 billion, of which $960 million was available, in place with maturities ranging from one month to four years. Generally, the banks are compensated for their credit lines by a fee and do not require formal compensating balances. Notes payable consist of the following:
December 31 (millions of dollars) 1998 1997 ---------------------- Payable to banks ................ $ 732 $ 558 Commercial paper ................ 153 752 Other ........................... 20 22 ------ ------ $ 905 $1,332 ====== ======
The weighted average interest rate on notes payable was 7.60% and 7.37% at December 31, 1998 and 1997. Although its operating assets have been divested, WFC remains a legal entity with preferred stock arrangements, 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. In September 1998, WFC paid $40,555,000, consisting of $40,000,000 face value plus $555,000 accrued but unpaid dividends, to redeem its entire Series A preferred stock. The redemption payment was financed with existing WFC cash balances. 22 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) FINANCING ARRANGEMENTS--CONTINUED 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 1998 1997 -------------- ------------- ----------------------------- Debentures 2008 and 2016 7.8 and 9.1% $ 368 $ 368 Senior notes 2000 and 2003 9.0 and 9.5 400 400 Medium term notes 1999 to 2006 8.9 to 9.1 25 25 Mortgage notes 1999 to 2012 6.3 to 6.6 64 65 Brazilian bank note 2000 to 2004 12.1 131 33 Other 124 205 ------------- ------------- 1,112 1,096 Less current maturities 25 22 ------------- ------------- $ 1,087 $ 1,074 ============= =============
Annual maturities of long-term debt in the next five years are $25 million, $293 million, $83 million, $35 million and $33 million. The company paid interest, including a portion recorded as discontinued operations, on short-term and long-term debt totaling $290 million, $242 million and $228 million in 1998, 1997 and 1996. 23 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) 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 option collars and commodity swaps are based on quoted market prices. 24 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED The carrying amounts and fair values of financial instruments for which the fair value does not approximate the liability carrying amount are as follow:
1998 1997 ------------------------------ ------------------------------ Carrying Fair Carrying Fair December 31 (millions of dollars) Amount Value Amount Value -------------- ------------ ------------------------------ Long-term debt (including current portion) ......... $ 1,152 $ 1,257 $ 1,174 $ 1,280 Derivative financial instruments (notional amounts indicated): Hedges of net investment in Europe including converted debt: Interest rate and cross currency interest rate swaps ($1,182 million in 1998; $1,390 million in 1997) .................... (40) (7) (78) (42) Foreign currency forward contracts ($19 million in 1998; $7 million in 1997) .. -- (1) -- -- Domestic interest rate swaps ($120 million in 1998; $240 million in 1997).... -- (2) -- (4) Transaction hedges: Foreign currency forward contracts ($424 million in 1998; $736 million in 1997) . -- (9) -- (2) Hedges with commodity swaps ($23 million in 1998; $19 million in 1997) ... -- (2) -- 1 WFC interest rate and cross currency swaps ($- million in 1998; $30 million in 1997) ...... -- -- -- -- ------- ------- ------- ------- Total long-term debt ............................... $ 1,112 $ 1,236 $ 1,096 $ 1,233 ======= ======= ======= =======
25 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED At December 31, 1998, interest rate and cross currency interest rate swaps effectively convert $662 million of U.S. dollar denominated debt into European currency denominations ($329 million - German marks, $300 million - French francs, $33 million - Swiss francs). About 39% of this converted debt has floating rates and 61% has fixed rates. Floating rates received range from LIBOR less .08% to LIBOR, and floating rates paid range from local currency LIBOR to local currency LIBOR plus 3.09%. Fixed rates received range from 5.93% to 7.20%, and fixed rates paid range from 5.13% to 7.98%. The swaps mature within eight years. At December 31, 1998, one domestic interest rate swap effectively converts $120 million of fixed rate debt into floating rate debt. Fixed rates received are 6.99%. Floating rates paid are LIBOR. The domestic interest rate swap matures within four years. Foreign currency forward contracts mature within one day to two years and involve principally European and North American currencies. Copper and zinc commodity swaps mature within two years. 26 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) SHAREHOLDERS' EQUITY 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, 1998 included $21 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. Conversion of notes, stock option transactions and restricted stock grants account for the changes in paid- in capital. 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, of 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 tat the then current exercise price of the Right, that number of shares of common stock of the 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 is attached to, and does 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, 27 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS shares of common stock and/or other securities) to permit the exercise in full of all Rights from time to time outstanding. 28 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND INCENTIVE PLANS The company's stock option and incentive plan permits the grant of stock options and other stock awards covering up to 13.4 million shares to key employees of the company and its subsidiaries, of which 5.5 million shares are available for grant at December 31, 1998. The plan authorizes the grant of both incentive and nonqualified stock options and, further, authorizes the grant of stock appreciation rights and related supplemental cash payments independently of or with respect to options granted or outstanding. 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) and a Key Employee Retention Program (KERP) have been established under the plan. Performance awards under ESAP, RSVP and KERP are generally earned over multiyear time periods upon the achievement of certain performance objectives or upon a change in control of the company. CSP 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 and KERP 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 731,000 with a weighted-average grant-date fair value of $48.06 per share at December 31, 1998 and 882,400 with a weighted-average grant- date fair value of $46.07 per share at December 31, 1997. Expenses under the plan were $17 million, $21 million and $3 million in 1998, 1997 and 1996. 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. This plan provides for the grant of up to 200,000 shares as either stock or stock options, of which 133,000 shares are available for grant at December 31, 1998. The stock options vest and become exercisable six months after date of grant. There were no significant expenses under this plan for 1998, 1997 or 1996. 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 500,000 shares are available for grant at December 31, 1998. 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 and CSP awards based on the market value of the underlying shares of stock when the number of shares is determinable. 29 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND INCENTIVE PLANS--CONTINUED Had the company elected to adopt 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 (loss) and diluted net earnings (loss) per share would be as follows:
December 31 (millions of dollars) 1998 1997 1996 ---------------------------------------------- Net earnings (loss) As reported ....................... $ 325 $ (15) $ 156 Proforma .......................... 318 (21) 153 Diluted net earnings (loss) per share As reported ....................... $ 4.25 $ (.20) $ 2.08 Proforma .......................... 4.16 (.28) 2.04
The fair value of stock options used to compute proforma net earnings (loss) and earnings (loss) per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following assumptions for 1998, 1997 and 1996: expected volatility factor of .216, .183 and .183; dividend yield of 2.4% for all three years; risk-free interest rate of 4.5%, 5.5% and 5.5% and a weighted-average expected option life of 5 years for all three years. 30 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND INCENTIVE PLANS--CONTINUED A summary of stock option information follows:
1998 1997 1996 -------------------------------------------------------------------------------------- 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 . 4,230 $47.06 4,127 $ 46.31 3,397 $43.99 Granted .................. 919 61.83 1,360 45.78 1,282 50.62 Exercised ................ (770) 44.88 (842) 39.83 (331) 34.06 Canceled or expired ...... (259) 49.81 (415) 50.12 (221) 53.99 ------ ------ ----- -------- ------ ------ Outstanding at December 31 4,120 $50.59 4,230 $ 47.06 4,127 $46.31 ====== ====== ===== ======== ====== ====== Exercisable at December 31 2,534 $47.65 2,308 $ 46.43 2,438 $42.43 ====== ====== ===== ======== ====== ====== Fair value of options granted during the year $12.67 $ 9.26 $10.24 ====== ======== ======
Of the outstanding options at December 31, 1998, 578,000 shares granted prior to 1993 (all of which are exercisable at a weighted-average exercise price of $34.54) have exercise prices ranging from $24.75 to $37.50 and a weighted- average remaining contractual life of 2.8 years, while 3,542,000 shares granted subsequent to 1992 (of which 1,956,000 shares are currently exercisable at a weighted-average exercise price of $51.53) have exercise prices ranging from $45.75 to $63.13 and a weighted-average remaining contractual life of 7.8 years. 31 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) RESTRUCTURING AND OTHER SPECIAL CHARGES During 1997, the company incurred restructuring costs of $343 million ($244 million cash costs and $99 million noncash costs) to better align the company's cost structure within the global home-appliance marketplace. Pretax restructuring charges of $172 million, $101 million, $35 million, $25 million and $10 million relate to the company's European, Asian, Latin American, corporate and North American operations, respectively. More than 60% of the cash costs have been paid to date, with the remainder to be paid in 1999. The restructuring charge includes the elimination of 7,900 global positions of which more than 6,000 positions have eliminated to date. The impact of 1997 restructuring costs after-tax and minority interest was $232 million or $3.07 per diluted share. In 1997, the company also recognized special charges of $62 million ($53 million of which affected operating profit), principally due to the adjustment of the carrying value of receivables and inventory, primarily in Europe and Asia. The impact of 1997 special operating charges on continuing operations after-tax and minority interest was $40 million or $.54 per diluted share. In addition, discontinued operations results included a pretax charge of $36 million, after- tax charge of $22 million or $.29 per diluted share to provide a reserve for certain WFC aerospace assets. In 1996, the company incurred restructuring costs of $30 million ($18 million noncash costs and $12 million cash costs) related to streamlining a North American refrigerator manufacturing operation, transferring Asian research and engineering to the manufacturing locations and relocating the Whirlpool Asian headquarters. About 50% of the cash costs were paid in 1996 and the remainder paid in 1997. The restructuring charge included the elimination of 850 positions of which 100% have been eliminated. Total 1996 after-tax charges were $19 million or $.25 per diluted share. 32 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) INCOME TAXES Income tax provisions from continuing operations are as follows:
Year ended December 31 (millions of dollars) 1998 1997 1996 --------------------------------------- Current: Federal ........... $ 132 $ 78 $ 72 State and local.... 22 20 17 Foreign ........... 40 26 7 ----- ----- ----- 194 124 96 Deferred: Federal ........... 10 (27) (7) State and local.... 6 (3) 1 Foreign ........... (1) (103) (20) ----- ----- ----- 15 (133) (26) ----- ----- ----- $ 209 $ (9) $ 70 ===== ===== =====
Domestic and foreign earnings (loss) before income taxes and other items from continuing operations are as follows:
Year ended December 31 (millions of dollars) 1998 1997 1996 ---------------------------------------------- Domestic ............ $ 407 $ 288 $ 288 Foreign ............. 157 (459) (188) ----- ----- ----- $ 564 $(171) $ 100 ===== ===== =====
Earnings (loss) before income taxes and other items, including discontinued operations (refer to Note 3), were $589 million, $(178) million and $130 million for 1998, 1997 and 1996, respectively. 33 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) INCOME TAXES--CONTINUED 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 1998 1997 1996 ------------------------------------- U.S. federal statutory rate ............ 35.0 % (35.0)% 35.0 % Impact of restructuring charge ......... -- 18.2 (0.5) State and local taxes, net of federal tax benefit .................. 5.3 8.8 12.4 Nondeductible goodwill amortization .... 1.1 2.3 9.9 Excess foreign taxes (benefits) ........ (1.0) (4.0) (5.8) Unrecognized prior year foreign deferred tax assets and carryforwards ......... (1.9) (5.1) (6.2) Foreign dividends and subpart F income . 2.2 (5.9) 10.1 Foreign government tax incentive ....... (4.0) -- -- Unbenefited operating losses ........... 3.3 10.9 23.2 Nondeductible interest ................. -- -- 4.3 Research tax credits ................... (0.2) (0.6) (9.0) Other items ............................ (2.7) 5.4 (3.3) ----- ------ ------ Effective income tax (benefit) rate .... 37.1 % (5.0)% 70.1 % ===== ====== ======
Inclusive of discontinued operations, the effective income tax (benefit) rate was 37.3%, (6.9)% and 61.9% for 1998, 1997 and 1996, respectively. 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. 34 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) INCOME TAXES --CONTINUED Significant components of the company's deferred tax liabilities and assets are as follows:
December 31 (millions of dollars) 1998 1997 ---------------------- Deferred tax liabilities: Property, plant and equipment .................. $ 158 $ 166 Financial services leveraged leases ............ 125 126 Software costs ................................. 15 -- Other .......................................... 37 23 ----- ----- Total deferred tax liabilities ............... 335 315 Deferred tax assets: Postretirement obligation ...................... 170 161 Reserves ....................................... 18 17 Restructuring costs ............................ 58 68 Product warranty accrual ....................... 33 20 Receivable and inventory allowances ............ 33 97 Prepaid expenses ............................... 19 11 Loss carryforwards ............................. 148 125 Employee compensation .......................... 39 35 Other .......................................... 45 24 ----- ----- Total deferred tax assets .................... 563 558 Valuation allowances for deferred tax assets (19) (25) ----- ----- Deferred tax assets, net of valuation allowances 544 533 ----- ----- Net deferred tax assets ........................ $ 209 $ 218 ===== =====
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 ($498 million at December 31, 1998) 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 $239 million in 1998, $23 million in 1997 and $102 million in 1996. The increase in 1998 is due to increased earnings as 1997 included $343 million in pretax restructuring charges. 35 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1998, the company has foreign net operating loss carryforwards of $367 million, which are primarily nonexpiring. 36 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) 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 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. 37 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Benefits Postretirement Medical Benefits ----------------------------------- ---------------------------------- 1998 1997 1996 1998 1997 1996 ------- ------ ------- ------ ------- -------- Change in benefit obligation Benefit obligation at as of January 1, ....... $ 1,255 1,057 1,091 388 382 378 Service cost ................................ 49 41 40 10 10 11 Interest cost ............................... 91 84 80 29 29 28 Plan participants' contributions ............ 1 1 1 -- -- -- Amendments .................................. 30 35 14 -- -- -- Business combinations ....................... -- 160 -- -- -- -- Actuarial (gain) loss ....................... 28 36 (46) 22 (15) (20) Benefits paid ............................... (86) (152) (113) (21) (18) (15) Curtailments ................................ (14) (14) (4) -- -- -- Special termination benefits ................ (2) 17 6 -- -- -- Foreign currency exchange rate changes ...... (8) (10) (12) -- -- -- ------- ------- ------- ------- ------- ------- Benefit obligation as of December 31, ....... $ 1,344 1,255 1,057 428 388 382 ======= ======= ======= ======= ======= ======= Change in plan assets Fair value of plan assets as of January 1, .. $ 1,452 1,322 1,246 -- -- -- Actual return on plan assets ................ 292 207 187 -- -- -- Business combinations ....................... -- 72 -- -- -- -- Employer contribution ....................... 17 7 6 21 18 15 Plan participants' contributions ............ 1 1 1 -- -- -- Benefits paid ............................... (86) (152) (113) (21) (18) (15) Foreign currency exchange rate changes ...... (4) (5) (5) -- -- -- ------- ------- ------- ------- ------- ------- Fair value of plan assets as of December 31, $ 1,672 1,452 1,322 -- -- -- ======= ======= ======= ======= ======= =======
38 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(millions of dollars) Pension Benefits Postretirement Medical Benefits ---------------------------------- -------------------------------- 1998 1997 1996 1998 1997 1996 -------- ------- ------- ------- ------- ------ Reconciliation of Prepaid (Accrued) Cost and Total Amount Recognized Funded status as of December 31, ........ $ 328 197 265 (428) (388) (382) Unrecognized actuarial (gain) loss ...... (471) (365) (338) 8 (14) 1 Unrecognized prior service cost ......... 71 83 54 -- -- -- Unrecognized transition asset ........... 22 33 (21) -- -- -- ----- ----- ----- ----- ----- ----- Prepaid (accrued) cost as of December 31, $ (50) (52) (40) (420) (402) (381) ===== ===== ===== ===== ===== ===== Prepaid cost at December 31, ............ $ 114 98 72 -- -- -- Accrued benefit liability at December 31, (173) (159) (116) (420) (402) (381) Intangible asset ........................ 2 3 1 -- -- -- Other ................................... 7 6 3 -- -- -- ----- ----- ----- ----- ----- ----- Total recognized as of December 31, ..... $ (50) (52) (40) (420) (402) (381) ===== ===== ===== ===== ===== ===== Weighted Average Assumptions as of December 31 Discount rate ........................... 5.5%-9.0% 6.0%-9.0% 6.5%-9.0% 7.25% 7.75% 8.00% Expected return on assets ............... 6.0%-9.5% 4.5%-9.5% 6.5%-9.5% -- -- -- Rate of compensation increases .......... 2.0%-8.0% 2.5%-9.0% 2.5%-6.0% -- -- -- Medical costs trend rate: - --For year ending, 12/31 ................ -- -- -- 7.00% 8.00% 8.00% - --Ultimate (year 2000) .................. -- -- -- 6.00% 6.00% 6.00%
39 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(millions of dollars) Pension Benefits Postretirement Medical Benefits --------------------------------------- -------------------------------------- 1998 1997 1996 1998 1997 1996 ------- ----- ----- ------ ------ ------ Components of Net Periodic Benefit Cost Service cost ..................... $ 49 41 40 10 10 11 Interest cost .................... 91 84 80 29 29 28 Expected return on plan assets ... (112) (103) (103) -- -- -- Recognized actuarial (gain) loss . (8) (7) (7) -- -- -- Amortization of prior service cost 9 8 7 -- -- -- Amortization of transition asset . -- (3) (4) -- -- -- ----- ----- ----- ----- ----- ----- Net periodic benefit cost ........ $ 29 20 13 39 39 39 ----- ----- ----- ----- ----- ----- Curtailments ..................... $ (7) (13) (4) -- -- -- Special termination benefits ..... 2 17 6 -- -- -- Settlements ...................... (3) (29) (7) -- -- -- ----- ----- ----- ----- ----- ----- Total Cost ....................... $ 21 (5) 8 39 39 39 ===== ===== ===== ===== ===== =====
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 $86 million, $67 million and $6 million, respectively, as of December 31, 1998, $312 million, $221 million and $140 million, respectively, as of December 31, 1997, and $144 million, $101 million and $63 million, respectively, as of December 31, 1996. 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. Certain European subsidiaries maintain termination indemnity and special severance plans. The cost of these plans, determined in accordance with local government specifications, was $15 million in 1996. The costs in 1997 and 1998 before restructuring charges were immaterial due to a lower termination rate than prior years. 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 $7 million, $6 million and $7 million in 1998, 1997 and 1996. 40 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Medical cost trend rate significantly affects the reported postretirement benefit cost and benefit obligations. A one-percentage-point change in the assumed health care 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 .................. $31 (29)
(13) 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, 1998 the company had $219 million in recourse obligations of finance receivables related to the discontinued operations of WFC (Refer to Note 3) and $155 million in guarantees of customer lines of credit at commercial banks. 41 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1998, the company had noncancelable operating lease commitments totaling $237 million. The annual future minimum lease payments are detailed in the table below.
Annual (dollars in millions) Expense - --------------------- ------- 1999 ......................... $ 61 2000 ......................... 50 2001 ......................... 35 2002 ......................... 28 2003 ......................... 24 Thereafter ................... 39 ---- $237 ====
The company's rent expense was $81 million, $82 million and $74 million for the years 1998, 1997 and 1996, respectively. 42 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) BUSINESS SEGMENT INFORMATION The company adopted the Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," during the fourth quarter of 1998. Statement No. 131 established standards for reporting information about operating segments in annual financial statements and in interim financial reports issued to stockholders. 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. Latin America consists of the company's Brazilian sumbsidiaries in 1997 and 1998. Total assets are those assets directly associated with the respective operating activities. Other assets consist principally of assets related to corporate activities, including the equity investment in Brazil in 1996 and the assets of discontinued operations held for sale in 1997. 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 17%, 20% and 21% of consolidated net sales in 1998, 1997 and 1996. Related receivables were 16%, 17% and 24% of consolidated trade receivables for December 31, 1998, 1997 and 1996. 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 50%, 57% and 58% of net sales for 1998, 1997 and 1996, respectively, while Brazil totalled 20% for 1998. As a percentage of total assets, the United States accounted for 53%, 64% and 79% at the end of 1998, 1997 and 1996. Brazil accounted for 24% and 28% of total assets at the end of 1998 and 1997, respectively. The company's Brazilian affiliates were consolidated in November of 1997 and therefore not included in both 1996 calculations and only in the total asset calculation for 1997. 43 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) BUSINESS SEGMENT INFORMATION--CONTINUED
North Latin Other/ Total America Europe America Asia Eliminations Whirlpool ----------- ------------ ------------- ------------ -------------- ------------ Net sales: 1998 5,599 2,439 2,090 313 (118) 10,323 1997 5,263 2,343 447 400 164 8,617 1996 5,310 2,494 -- 461 258 8,523 Intangible amortization: 1998 3 16 6 4 10 39 1997 3 16 1 4 10 34 1996 -- 19 -- 4 12 35 Depreciation: 1998 143 94 126 15 21 399 1997 145 110 3 13 51 322 1996 145 107 -- 13 53 318 Restucturing costs and operating charges: 1998 -- -- -- -- -- -- 1997 -- -- -- -- 396 396 1996 -- -- -- -- 30 30 Operating profit(loss): 1998 630 122 120 (17) (167) 688 1997 546 54 22 (62) (549) 11 1996 545 (15) -- (70) (182) 278 Total assets: 1998 2,091 2,298 2,499 722 325 7,935 1997 2,046 1,999 2,403 672 1,150 8,270 1996 2,020 2,501 -- 722 2,772 8,015 Capital expenditures: 1998 188 78 239 25 12 542 1997 128 84 49 100 17 375 1996 148 103 -- 63 22 336
44 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Three Months Ended ------------------------------------------------------- (millions of dollars, except per share data) December 31 September 30 June 30 March 31 ----------- ------------ -------- --------- 1998 Net sales ................................... $ 2,735 $ 2,539 $ 2,585 $ 2,464 Cost of products sold ....................... $ 2,045 $ 1,929 $ 1,962 $ 1,870 Earnings from continuing operations ......... $ 83 $ 78 $ 81 $ 68 Net earnings ................................ $ 83 $ 78 $ 84 $ 80 Per share of common stock: Basic earnings from continuing operations . $ 1.10 $ 1.03 $ 1.07 $ .91 Basic net earnings .................... $ 1.10 $ 1.03 $ 1.11 $ 1.06 Diluted earnings from continuing operations $ 1.09 $ 1.02 $ 1.05 $ .90 Diluted net earnings .................. $ 1.09 $ 1.02 $ 1.10 $ 1.05 Dividends paid ............................ $ .34 $ .34 $ .34 $ .34 Stock price: High ...................................... $ 59-1/2 $ 69-15/16 $ 75-1/4 $ 70 Low ....................................... $ 43-11/16 $ 45 $ 62-7/16 $ 50-3/8 Close ..................................... $ 55-3/8 $ 47 $ 68-3/4 $ 68-11/16
45 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) *--CONTINUED
Three Months Ended ------------------------------------------------------------------ (millions of dollars, except per share data) December 31 September 30 June 30 March 31 ----------- ------------ ----------- ------------ 1997 Net sales .......................................... $ 2,510 $ 2,043 $ 2,074 $ 1,990 Cost of products sold .............................. $ 1,887 $ 1,593 $ 1,588 $ 1,536 Earnings (loss) from continuing operations ......... $ 50 $ (200) $ 61 $ 43 Net earnings (loss) ................................ $ 92 $ (218) $ 65 $ 46 Per share of common stock: Basic earnings (loss) from continuing operations . $ .67 $ (2.68) $ .82 $ .57 Basic net earnings (loss) .................... $ 1.24 $ (2.93) $ .87 $ .62 Diluted earnings (loss) from continuing operations $ .66 $ (2.68) $ .81 $ .57 Diluted net earnings (loss) .................. $ 1.22 $ (2.93) $ .86 $ .62 Dividends paid ................................... $ .34 $ .34 $ .34 $ .34 Stock price: High ............................................. $ 66-15/16 $ 69-1/2 $ 55-1/4 $ 52-1/2 Low .............................................. $ 51-7/8 $ 48 $ 45-1/4 $ 46 Close ............................................ $ 55 $ 66-5/16 $ 54-9/16 $ 47-5/8
Restructuring and other special charges described in Note 10 reduced third and fourth quarter 1997 earnings from continuing operations by $258 million and $14 million, respectively. Discontinued operations include a third quarter after- tax charge of $22 million to provide a reserve for certain WFC assets and a $42 million after-tax gain in the fourth quarter for the sale of WFC assets (refer to Note 3). Fourth quarter 1997 included two months of consolidated Brazilian results, $5 million related to the elimination of the Brazil one month lag in reported equity earnings and $8 million related to a pension settlement gain. * The first three quarters of 1997 earnings per share amounts have been restated to reflect WFC as a discontinued operation and to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." As a result of the company's 1997 full year net loss, diluted earnings per share on a year-to- date basis does not equal the sum of the individual quarters' diluted earnings per share. 46 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, 1998 and 1997, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 financial statements of Brasmotor S.A. and its consolidated subsidiaries, whose statements reflect total assets of $2,500 million and $2,200 million as of December 31, 1998 and 1997, respectively and net earnings of $58 million, $41 million and $120 million for the years ended December 31, 1998, 1997 and 1996, respectively. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material missstatement. 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Chicago, Illinois January 21, 1999 47 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 generally accepted accounting principles. Their audits are conducted in conformity with generally accepted auditing standards. 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. Ralph F. Hake Senior Executive Vice President and Chief Financial Officer February 12, 1999 48
(millions of dollars except share and employee data) CONSOLIDATED OPERATIONS 1998 1997 1996 1995 1994 --------- ---------- ---------- ---------- --------- Net sales $ 10,323 $ 8,617 $ 8,523 $ 8,163 $ 7,949 - ------------------------------------------------------------------------------------------------------------------------------ Operating profit (1) $ 688 $ 11 $ 278 $ 366 $ 370 Earnings (loss) from continuing operations before income taxes and other items $ 564 $ (171) $ 100 $ 214 $ 269 Earnings (loss) from continuing operations $ 310 $ (46) $ 141 $ 195 $ 147 Earnings (loss) from discontinued operations (2) $ 15 $ 31 $ 15 $ 14 $ 11 Net earnings (loss) (3) $ 325 $ (15) $ 156 $ 209 $ 158 - ------------------------------------------------------------------------------------------------------------------------------ Net capital expenditures $ 542 $ 378 $ 336 $ 483 $ 418 Depreciation $ 399 $ 322 $ 318 $ 282 $ 246 Dividends $ 102 $ 102 $ 101 $ 100 $ 90 - ------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED FINANCIAL POSITION Current assets $ 3,882 $ 4,281 $ 3,812 $ 3,541 $ 3,078 Current liabilities $ 3,267 $ 3,676 $ 4,022 $ 3,829 $ 2,988 Working capital $ 615 $ 605 $ (210) $ (288) $ 90 Property, plant and equipment-net $ 2,418 $ 2,375 $ 1,798 $ 1,779 $ 1,440 Total assets $ 7,935 $ 8,270 $ 8,015 $ 7,800 $ 6,655 Long-term debt $ 1,087 $ 1,074 $ 955 $ 983 $ 885 Stockholders' equity $ 2,001 $ 1,771 $ 1,926 $ 1,877 $ 1,723 - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA Basic earnings (loss) from continuing operations before accounting change $ 4.09 $ (0.62) $ 1.90 $ 2.64 $ 1.98 Diluted earnings (loss) from continuing operations before accounting change $ 4.06 $ (0.62) $ 1.88 $ 2.60 $ 1.95 Diluted net earnings (loss) (3) $ 4.25 $ (0.20) $ 2.08 $ 2.78 $ 2.10 Dividends $ 1.36 $ 1.36 $ 1.36 $ 1.36 $ 1.22 Book value $ 26.16 $ 23.71 $ 25.93 $ 25.40 $ 23.21 Closing Stock Price - NYSE $ 55-3/8 $ 55 $ 46-5/8 $ 53-1/4 $ 50-1/4 - ------------------------------------------------------------------------------------------------------------------------------ KEY RATIOS (4) Operating profit margin 6.7% 0.1% 3.3% 4.5% 4.7% Pre-tax margin (5) 5.5% (2.0)% 1.2% 2.6% 3.4% Net margin (6) 3.0% (0.5)% 1.7% 2.4% 1.8% Return on average stockholders' equity (7) 17.2% (0.8)% 8.2% 11.6% 9.4% Return on average total assets (8) 4.6% (0.7)% 1.8% 3.0% 2.8% Current assets to current liabilities 1.2 1.2 0.9 0.9 1.0 Total debt-appliance business as a percent of invested capital (9) 34.6% 38.5% 42.6% 43.3% 34.4% Price earnings ratio 13.0 -- 22.4 19.2 23.9 Interest coverage (10) 3.0 0.7 2.4 3.1 4.0 - ------------------------------------------------------------------------------------------------------------------------------ OTHER DATA Number of common shares outstanding (in thousands): Average - on a diluted basis 76,507 74,697 77,178 76,812 77,588 Year-end 76,089 75,262 74,415 74,081 73,845 Number of stockholders (year-end) 13,584 10,171 11,033 11,686 11,821 Number of employees (year-end) 58,630 61,370 48,163 45,435 39,016 Total return to shareholders (five year annualized) (11) (1.2)% 6.8% 6.3% 20.8% 12.0% CONSOLIDATED OPERATIONS 1993 1992 1991 1990 1989 --------- ---------- ---------- ---------- ---------- Net sales $ 7,368 $ 7,097 $ 6,550 $ 6,424 $ 6,138 - ----------------------------------------------------------------------------------------------------------------------------- Operating profit (1) $ 504 $ 447 $ 353 $ 300 $ 377 Earnings (loss) from continuing operations before income taxes and other items $ 418 $ 334 $ 256 $ 177 $ 281 Earnings (loss) from continuing operations $ 257 $ 179 $ 139 $ 45 $ 169 Earnings (loss) from discontinued operations (2) $ (28) $ 26 $ 31 $ 27 $ 18 Net earnings (loss) (3) $ 51 $ 205 $ 170 $ 72 $ 187 - ----------------------------------------------------------------------------------------------------------------------------- Net capital expenditures $ 309 $ 288 $ 287 $ 265 $ 208 Depreciation $ 241 $ 275 $ 233 $ 247 $ 222 Dividends $ 85 $ 77 $ 76 $ 76 $ 76 - ----------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL POSITION Current assets $ 2,708 $ 2,740 $ 2,920 $ 2,900 $ 2,889 Current liabilities $ 2,763 $ 2,887 $ 2,931 $ 2,651 $ 2,251 Working capital $ (55) $ (147) $ (11) $ 249 $ 638 Property, plant and equipment-net $ 1,319 $ 1,325 $ 1,400 $ 1,349 $ 1,288 Total assets $ 6,047 $ 6,118 $ 6,445 $ 5,614 $ 5,354 Long-term debt $ 840 $ 1,215 $ 1,528 $ 874 $ 982 Stockholders' equity $ 1,648 $ 1,600 $ 1,515 $ 1,424 $ 1,421 - ----------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Basic earnings (loss) from continuing operations before accounting change $ 3.60 $ 2.55 $ 2.00 $ 0.65 $ 2.44 Diluted earnings (loss) from continuing operations before accounting change $ 3.47 $ 2.46 $ 1.98 $ 0.65 $ 2.44 Diluted net earnings (loss) (3) $ 0.71 $ 2.81 $ 2.41 $ 1.04 $ 2.70 Dividends $ 1.19 $ 1.10 $ 1.10 $ 1.10 $ 1.10 Book value $ 23.17 $ 22.91 $ 21.78 $ 20.51 $ 20.49 Closing Stock Price - NYSE $ 66-1/2 $ 44-5/8 $ 38-7/8 $ 23-1/2 $ 33 - ----------------------------------------------------------------------------------------------------------------------------- KEY RATIOS (4) Operating profit margin 6.8% 6.3% 5.4% 4.7% 6.1% Pre-tax margin (5) 5.7% 4.7% 3.9% 2.8% 4.6% Net margin (6) 3.5% 2.5% 2.1% 0.7% 2.8% Return on average stockholders' equity (7) 14.2% 13.1% 11.6% 5.1% 13.7% Return on average total assets (8) 4.0% 3.3% 2.9% 1.4% 4.9% Current assets to current liabilities 1.0 0.9 1.0 1.1 1.3 Total debt-appliance business as a percent of invested capital (9) 31.6% 41.7% 46.1% 37.6% 39.2% Price earnings ratio 21.2 15.9 16.1 22.6 12.2 Interest coverage (10) 5.0 3.4 2.9 2.0 3.6 - ----------------------------------------------------------------------------------------------------------------------------- OTHER DATA Number of common shares outstanding (in thousands): Average - on a diluted basis 76,013 75,661 72,581 69,595 69,461 Year-end 73,068 70,027 69,640 69,465 69,382 Number of stockholders (year-end) 11,438 11,724 12,032 12,542 12,454 Number of employees (year-end) 39,590 38,520 37,886 36,157 39,411 Total return to shareholders (five year annualized) (11) 25.8% 17.0% 6.7% 2.8% 11.3% CONSOLIDATED OPERATIONS 1988 ---------- Net sales $ 4,306 - ----------------------------------------------------------------- Operating profit (1) $ 227 Earnings (loss) from continuing operations before income taxes and other items $ 210 Earnings (loss) from continuing operations $ 146 Earnings (loss) from discontinued operations (2) $ (52) Net earnings (loss) (3) $ 94 - ----------------------------------------------------------------- Net capital expenditures $ 166 Depreciation $ 143 Dividends $ 76 - ----------------------------------------------------------------- CONSOLIDATED FINANCIAL POSITION Current assets $ 1,827 Current liabilities $ 1,374 Working capital $ 453 Property, plant and equipment-net $ 820 Total assets $ 3,410 Long-term debt $ 474 Stockholders' equity $ 1,321 - ----------------------------------------------------------------- PER SHARE DATA Basic earnings (loss) from continuing operations before accounting change $ 2.11 Diluted earnings (loss) from continuing operations before accounting change $ 2.10 Diluted net earnings (loss) (3) $ 1.36 Dividends $ 1.10 Book value $ 19.06 Closing Stock Price - NYSE $ 24-3/4 - ----------------------------------------------------------------- KEY RATIOS (4) Operating profit margin 5.3% Pre-tax margin (5) 4.9% Net margin (6) 3.4% Return on average stockholders' equity (7) 7.2% Return on average total assets (8) 2.9% Current assets to current liabilities 1.3 Total debt-appliance business as a percent of invested capital (9) 20.5% Price earnings ratio 18.2 Interest coverage (10) 6.2 - ----------------------------------------------------------------- OTHER DATA Number of common shares outstanding (in thousands): Average - on a diluted basis 69,435 Year-end 69,289 Number of stockholders (year-end) 12,521 Number of employees (year-end) 29,110 Total return to shareholders (five year annualized) (11) 4.4%
(1) Restructuring and special operating charges were $405 million in 1997, $30 million in 1996, and $250 million in 1994. See Note 10. (2) The Company's financial services business was discontinued in 1997 and the kitchen cabinet business was discontinued in 1988. (3) Includes cumulative effect of accounting changes: 1993-Accounting for postretirement benefits other than pensions of ($180) million or ($2.42) per diluted share. (4) Excluding gain from discontinued operations in 1998, return on average stockholders' equity was 16.5%, and return on average total assets was 4.3%. Excluding non-recurring items, selected 1997 Key Ratios would be as follows: a) Operating profit margin 4.7%, b) Pre-tax margin 2.7%, c) Net margin 2.6%, d) Return on average stockholders' equity 12.0%, e) Return on average total assets 2.7%, and f) Interest coverage 3.0%. (5) Earnings from continuing operations before income taxes and other items, as a percent of sales. (6) Earnings from continuing operations before accounting change, as a percent of sales. (7) Net earnings before accounting change divided by average stockholders' equity. (8) Net earnings before accounting change, plus minority interest divided by average total assets. (9) Debt less cash and equivalents divided by debt, stockholders' equity and minority interests less cash and equivalents. (10) Ratio of earnings from continuing operations (before income taxes, accounting change and interest expense) to interest expense. (11) Stock appreciation plus reinvested dividends. 49 EX-21 5 LIST OF SUBSIDIARIES Subsidiaries ------------ Subsidiary and Name Jurisdiction In Under Which It Does Business Which Organized - ---------------------------- --------------- Whirlpool Europe B.V. The Netherlands Whirlpool Properties, Inc. Michigan Whirlpool Financial Corporation Delaware Brasmotor S.A. Brazil The names of the Company's other subsidiaries are omitted because, considered in the aggregate as a single subsidiary, such subsidiaries would not constitute a significant subsidiary as of December 31, 1998. EX-23.(II)(A) 6 CONSENT OF ERNST & YOUNG CONSENT OF ERNST & YOUNG LLP We consent to the incorporation by reference in Registration Statement Nos. 33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33-40249, 33-43823, 333-02827, 333-02825 and 333-66211 of Whirlpool Corporation and Registration Statement Nos. 33-26680, 33-53196 and 333-66163 of Whirlpool Corporation pertaining to the Whirlpool Savings Plan of our report dated January 21, 1999, with respect to the consolidated financial statements and schedule of Whirlpool Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 1998. March 16, 1999 EX-23.(II)(B) 7 CONSENT OF PRICEWATERHOUSECOOPERS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement nos. 33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33- 40249, 33-43823, 333-02827, 333-02825 and 333-66211 of Whirlpool Corporation and Registration Statement nos. 33-26680, 333-66163 and 33-53196 of Whirlpool Corporation pertaining to the Whirlpool Savings Plan of our reports dated January 18, 1999 with respect to the consolidated financial statements of Brasmotor S.A. and its subsidiaries, Multibras S.A. Eletrodomesticos and its subsidiaries and Empresa Brasileira de Compressores S.A.--EMBRACO and its subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 1998. PricewaterhouseCoopers Auditores Independentes Sao Paulo, Brazil March 17, 1999 EX-24 8 POWERS OF ATTORNEY POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of WHIRLPOOL CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), does hereby constitute and appoint DAVID R. WHITWAM, RALPH F. HAKE, and DANIEL F. HOPP, with full power to each of them to act alone, as the true and lawful attorneys and agents of the undersigned, with full power of substitution and resubstitution to each of said attorneys, to execute, file or deliver any and all instruments and to do all acts and things which said attorneys and agents, or any of them, deem advisable to enable the Corporation to comply with the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under said Securities Exchange Act of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998, including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his or her name as a director or officer, or both, of the Corporation, as indicated below opposite his or her signature, to the Annual Report on Form 10-K, or any amendment, post-effective amendment, or papers supplemental thereto to be filed in respect of said Annual Report on Form 10-K; and each of the undersigned does hereby fully ratify and confirm all that said attorneys and agents, of any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents, as of the 16th day of February, 1999. Name Title /s/ David R. Whitwam Director, Chairman of the Board and - ---------------------- Chief Executive Officer David R. Whitwam (Principal Executive Officer) /s/ Ralph F. Hake Senior Executive Vice President - ---------------------- and Chief Financial Officer Ralph F. Hake (Principal Financial Officer) /s/ Mark E. Brown Vice President and Controller - ---------------------- (Principal Accounting Officer) Mark E. Brown /s/ Robert A. Burnett Director - ---------------------- Robert A. Burnett /s/ Herman Cain Director - ---------------------- Herman Cain /s/ Gary T. DiCamillo Director - ---------------------- Gary T. DiCamillo Director - ---------------------- H. Miguel Etchenique /s/ Alan D. Gilmour Director - ---------------------- Alan D. Gilmour /s/ Kathleen J. Hempel Director - ---------------------- Kathleen J. Hempel /s/ Arnold G. Langbo Director - ---------------------- Arnold G. Langbo /s/ Miles L. Marsh Director - ---------------------- Miles L. Marsh /s/ Philip L. Smith Director - ---------------------- Philip L. Smith /s/ Paul G. Stern Director - ---------------------- Paul G. Stern /s/ Janice D. Stoney Director - ---------------------- Janice D. Stoney EX-27.1 9 FINANCIAL DATA SCHEDULE - 1998
5 1,000,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 636 0 1,711 116 1,100 3,882 5,511 3,093 7,935 3,267 1,087 0 0 83 1,918 7,935 10,323 10,323 7,805 9,596 39 45 260 564 209 310 15 0 0 325 4.09 4.06
EX-27.2 10 FINANCIAL DATA SCHEDULE - 1997
5 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 578 0 1,565 156 1,170 4,281 5,262 2,887 8,270 3,676 1,074 0 0 82 1,689 8,270 8,617 8,617 6,604 8,229 377 160 168 (171) (9) (46) 31 0 0 (15) (0.20) (0.20)
EX-27.3 11 FINANCIAL DATA SCHEDULE - 1996
5 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 129 0 2,366 58 1,034 3,812 3,839 2,041 8,015 4,022 955 0 0 81 1,845 8,015 8,523 8,523 6,623 8,180 65 63 155 100 70 141 15 0 0 156 2.10 2.08
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