-----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, MZLEgvfx54xE1t7PhWCdHwVistWAEWGUUGyktXHfBX9wvGKQIU4stUm7DrGHRgd0 SVwr6kVQyC/+gQNdTe+MSQ== 0000950131-99-004849.txt : 19990813 0000950131-99-004849.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950131-99-004849 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHIRLPOOL CORP /DE/ CENTRAL INDEX KEY: 0000106640 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD APPLIANCES [3630] IRS NUMBER: 381490038 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03932 FILM NUMBER: 99685452 BUSINESS ADDRESS: STREET 1: WHIRLPOOL CNTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 BUSINESS PHONE: 6169235000 MAIL ADDRESS: STREET 1: WHIRLPOOL CTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 FORMER COMPANY: FORMER CONFORMED NAME: WHIRLPOOL SEEGER CORP DATE OF NAME CHANGE: 19710824 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999. Commission file number 1-3932 WHIRLPOOL CORPORATION (Exact name of registrant as specified in its charter) Delaware 38-1490038 (State of incorporation) (I.R.S. Employer Identification No.) 2000 M-63 Benton Harbor, Michigan 49022-2692 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 616/923-5000 The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class of common stock Shares outstanding at June 30, 1999 --------------------- ----------------------------------- Common stock, par value $1 per share 75,406,540 PAGE 1 OF 24 QUARTERLY REPORT ON FORM 10-Q ----------------------------- WHIRLPOOL CORPORATION --------------------- Quarter Ended June 30, 1999 INDEX OF INFORMATION INCLUDED IN REPORT Page ---- PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Earnings 3 Consolidated Condensed Balance Sheets 4 Consolidated Condensed Statements of Changes in Equity 5 Consolidated Condensed Statements of Cash Flows 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION - --------------------------- Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 21 2 CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) WHIRLPOOL CORPORATION AND SUBSIDIARIES FOR THE PERIOD ENDED JUNE 30 (millions of dollars except share and dividend data)
Three Months Ended Year-to-Date ------------------------ ------------------------ 1999 1998 1999 1998 -------- -------- -------- ------- Net sales $ 2,617 $ 2,585 $ 5,102 $ 5,049 EXPENSES: Cost of products sold 1,967 1,962 3,833 3,831 Selling and administrative 437 456 858 872 Intangible amortization 8 9 16 19 -------- -------- -------- ------- 2,412 2,427 4,707 4,722 -------- -------- -------- ------- OPERATING PROFIT 205 158 395 327 OTHER INCOME (EXPENSE): Interest and sundry income (expense) 5 42 (148) 81 Interest expense (44) (65) (85) (127) -------- -------- -------- ------- EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 166 135 162 281 Income taxes 62 49 70 105 -------- -------- -------- ------- EARNINGS FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 104 86 92 176 Equity in affiliated companies 1 2 (2) 2 Minority interests (6) (7) 37 (29) -------- -------- -------- ------- EARNINGS FROM CONTINUING OPERATIONS 99 81 127 149 Discontinued operations less applicable - 3 - 15 -------- -------- -------- ------- NET EARNINGS $ 99 $ 84 $ 127 $ 164 ======== ======== ======== ======= Per share of common stock: Basic earnings from continuing operations $ 1.32 $ 1.07 $ 1.68 $ 1.97 Basic net earnings $ 1.32 $ 1.11 $ 1.68 $ 2.17 Diluted earnings from continuing operations $ 1.30 $ 1.05 $ 1.66 $ 1.95 Diluted net earnings $ 1.30 $ 1.10 $ 1.66 $ 2.14 Cash dividends $ .34 $ .34 $ .68 $ .68 ======= ======== ======== =======
See notes to consolidated condensed financial statements. 3 CONSOLIDATED CONDENSED BALANCE SHEETS WHIRLPOOL CORPORATION (millions of dollars)
June 30 December 31 1999 1998 (Unaudited) (Audited) ----------- ----------- ASSETS Current Assets - -------------- Cash and equivalents $ 265 $ 636 Trade receivables, less allowances of (1999: $114 ;1998: $116 ) Inventories 1,710 1,711 Prepaid expenses and other 1,172 1,100 Deferred income taxes 201 268 Total Current Assets 166 167 ----------- ----------- 3,514 3,882 Other Assets - ------------ Investment in affiliated companies 115 108 Intangibles, net 811 936 Defferred income taxes 229 262 Other 302 329 ----------- ----------- 1,457 1,635 Property, Plant and Equipment - ----------------------------- Land 71 77 Buildings 852 900 Machinery and equipment 4,199 4,534 Accumulated depreciation (3,001) (3,093) ----------- ----------- 2,121 2,418 ----------- ----------- Total Assets $ 7,092 $ 7,935 =========== =========== June 30 December 31 1999 1998 (Unaudited) (Audited) ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - ------------------- Notes payable $ 861 $ 905 Accounts payable 994 1,079 Employee compensation 238 271 Accrued expenses 808 870 Restructuring costs 73 117 Current maturities of long-term debt 216 25 ----------- ----------- Total Current 3,190 3,267 Liabilities Other Liabilities - ----------------- Deferred income taxes 155 152 Postemployment benefits 606 622 Other liabilities 173 192 Long-term debt 765 1,087 ----------- ----------- 1,699 2,053 Minority Interests 419 614 Stockholders' Equity - -------------------- Common stock 83 83 Paid-in capital 350 321 Retained earnimgs 2,098 2,024 Unearned restricted stock (6) (3) Accumulated other comprehensive income (433) (183) Treasury stock - at cost (308) (241) ----------- ----------- Total Stockholders' Equity 1,784 2,001 ----------- ----------- Total Liabilities and Stockholders' Equity $ 7,092 $ 7,935 =========== ===========
See notes to consolidated condensed financial statements. CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY WHIRLPOOL CORPORATION FOR THE PERIOD ENDED JUNE 30 (millions of dollars)
Second Quarter ----------------------------------------------------------------------------------- Accumulated Other Treasury Total Retained Comprehensive Common Stock/Paid- Earnings Income Stock in-Capital -------- -------- ------------- ------ ---------- Beginning balance, 1998 $ 1,828 $ 1,855 $ (159) $ 82 $ 50 Comprehensive income Net income 84 84 Foreign currency items, net of tax (13) (13) -------- Comprehensive income 71 ======== Common stock issued 22 1 21 Dividends declared on common stock (26) (26) -------- -------- ------------- ------ ---------- Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71 ======== ======== ============= ====== ========== Beginning balance, 1999 $ 1,762 $ 2,025 $ (386) $ 83 $ 40 Comprehensive income Net income 99 99 Foreign currency items, net of tax (47) (47) -------- Comprehensive income 52 ======== Common stock issued (4) - (4) Dividends declared on common stock (26) (26) -------- -------- ------------- ------ ---------- Ending balance, June 30, 1999 $ 1,784 $ 2,098 $ (433) $ 83 $ 36 ======== ======== ============= ====== ========== Year-to-Date ----------------------------------------------------------------------------------- Accumulated Other Treasury Total Retained Comprehensive Common Stock/Paid- Earnings Income Stock in-Capital -------- -------- ------------- ------ ---------- Beginning balance, 1998 $ 1,771 $ 1,801 $ (149) $ 82 $ 37 Comprehensive income Net income 164 164 Foreign currency items, net of tax (23) (23) -------- Comprehensive income 141 ======== Common stock issued 35 1 34 Dividends declared on common stock (52) (52) -------- -------- ------------- ------ ---------- Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71 ======== ======== ============= ====== ========== Beginning balance, 1999 $ 2,001 $ 2,024 $ (183) $ 83 $ 77 Comprehensive income Net income 127 127 Foreign currency items, net of tax (250) (250) -------- Comprehensive income (123) ======== Common stock issued (41) - (41) Dividends declared on common stock (53) (53) -------- -------- ------------- ------ ---------- Ending balance, June 30, 1999 $ 1,784 $ 2,098 $ (433) $ 83 $ 36 ======== ======== ============= ====== ==========
5 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) WHIRLPOOL CORPORATION FOR SIX MONTHS ENDED JUNE 30 (millions of dollars)
1999 1998 ---------------- ----------------- OPERATING ACTIVITIES Net earnings (loss) $ 127 $ 164 Depreciation 203 211 Deferred income taxes (31) (19) Equity in net earnings of affiliated companies, less dividends received 2 (2) Gain on business dispositions - (25) Provision for doubtful accounts 15 22 Amortization of goodwill 16 19 Restructuring charges, net of cash paid (37) (50) Minority interests (37) 29 Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables (222) (312) Inventories (160) (85) Accounts payable 8 (3) Other - net 1 (25) ---------------- ----------------- CASH USED FOR OPERATING ACTIVITIES $ (115) $ (76)
1999 1998 --------------- -------------- INVESTING ACTIVITIES Net additions to properties $ (172) $ (218) Acquisitions of businesses, less cash acquired - (18) Business dispositions - 587 Other - - --------------- -------------- CASH PROVIDED BY / (USED FOR) INVESTING ACTIVITIES (172) 351 FINANCING ACTIVITIES Proceeds of short-term borrowings 8,644 10,680 Repayments of short-term borrowings (8,614) (10,931) Proceeds of long-term debt 61 202 Repayments of long-term debt (75) (118) Dividends (53) (51) Purchase of treasury stock (67) - Other 20 (29) --------------- -------------- CASH PROVIDED USED FOR FINANCING ACTIVITIES (84) (247) --------------- -------------- INCREASE / (DECREASE) IN CASH AND EQUIVALENTS (371) 28 Cash and equivalents at beginning of year 636 578 --------------- ------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 265 $ 606 =============== =============
See notes to consolidated financial statements. 6 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL ACCOUNTING POLICIES The accompanying unaudited consolidated condensed financial statements present information in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by generally accepted accounting principles for complete financial statements. Management believes the financial statements include all normal recurring accrual adjustments necessary for a fair presentation. Operating results for the three and six months ended June 30, 1999 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the company's annual report for the year ended December 31, 1998. 7 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following table provides the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended June 30 June 30 ---------------------------------- ------------------------------------ 1999 1998 1999 1998 ------------- ------------- -------------- -------------- (in millions except earnings per share) Basic: Average Shares Outstanding 75.5 75.5 75.7 75.5 Earnings: Continuing Operations $ 99.3 $ 80.5 $ 127.1 $ 148.9 Discontinued Operations - 3.4 - 14.8 ------------- ------------- -------------- -------------- Net Earnings $ 99.3 $ 83.9 $ 127.1 $ 163.7 ============= ============= ============== ============== Earnings Per Share from Continuing Operations $ 1.32 $ 1.07 $ 1.68 $ 1.97 Net Earnings Per Share $ 1.32 $ 1.11 $ 1.68 $ 2.17 ============= ============= ============== ============== Diluted: Average Shares Outstanding 75.5 75.5 75.7 75.5 Treasury Stock Method: Stock Options 1.0 1.0 0.7 1.0 ------------- ------------- -------------- -------------- Diluted Average Shares Outstanding 76.5 76.5 76.4 76.5 ============= ============= ============== ============== Diluted Earnings: Continuing Operations $ 99.3 $ 80.5 $ 127.1 $ 148.9 Discontinued Operations - 3.4 - $ 14.8 ------------- ------------- -------------- -------------- Diluted Net Earnings $ 99.3 $ 83.9 $ 127.1 $ 163.7 ============= ============= ============== ============== Diluted Earnings Per Share from Continuing Operations $ 1.30 $ 1.05 $ 1.66 $ 1.95 Diluted Net Earnings Per Share $ 1.30 $ 1.10 $ 1.66 $ 2.14 ============= ============= ============== ==============
NOTE B--BUSINESS ACQUISITIONS & 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 holds 20% of the joint venture. The joint venture continues to sell products under the Whirlpool brand in China for a period of 8 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) three years while it introduces the Electra brand. No significant gain or loss was recognized from this transaction. During the third and fourth quarters of 1998, the company increased its ownership stake in its Brazilian subsidiaries to approximately 55% 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. NOTE C--DISCONTINUED OPERATIONS During the third quarter of 1997, the company discontinued its financing operations and reached an agreement to sell the majority of Whirlpool Financial Corporation's ("WFC") assets in a series of transactions. During the first six months of 1998, the company sold additional international assets and consumer financing receivables under this agreement which resulted in the company recording a discontinued pretax gain of $25 million ($15 million after-tax). NOTE D--INVENTORIES Inventories consist of the following:
June 30 December 31 1999 1998 ----------- ------------- (millions of dollars) Finished products $ 1,085 $ 960 Raw materials and work in process 273 333 ------------- ------------ Total FIFO cost 1,358 1,293 Less excess of FIFO cost over LIFO cost 186 193 ------------- ------------ $ 1,172 $ 1,100 ============= ============
9 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE E -- RESTRUCTURING 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 75% of the cash costs have been paid to date, with the remainder to be paid over the next twelve months. The restructuring charge included the elimination of approximately 7,900 global positions, of which more than 6,600 positions have been eliminated to date. NOTE F -- BRAZILIAN CURRENCY DEVALUATION The Brazilian real declined from 1.21 to 1.75 per USD from mid-January, when the Brazilian government changed its foreign exchange policy to a floating exchange rate, to June 30, 1999. Because the Brazilian operations maintain significant USD denominated debt on their books, the currency devaluation resulted in a $146 million pre-tax charge to earnings (Whirlpool's share after-tax and minority interest was $53 million) in the first quarter. Also included in other income and expense during the first quarter was a $12 million pre-tax mark-to-market charge ($7 million after-tax) related to short term forward contracts purchased to hedge movement in Brazil's currency. Year-to-date, foreign exchange losses within the Brazilian operations have totaled $152 million pre-tax (Whirlpool's share after-tax and minority interest was $55 million) and charges related to short term forward contracts totalled $16 million pre-tax ($10 million after-tax). NOTE G -- 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 risk. At June 30, 1999, the company had $220 million in receivables subject to recourse provisions and $62 million in guarantees of customer lines of credit at commercial banks. 10 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE H--GEOGRAPHIC SEGMENTS The company identifies operating segments based upon geographical regions of operations because each operating segment manufactures home appliances and related components, but serves strategically different markets. (millions of dollars)
Three Months North Latin Other and Total Ended June 30 America Europe America Asia (Eliminations) Whirlpool - -------------------------------------------------------------------------------------------------------------------------- Sales 1999 $ 1,581 $ 582 $ 408 $ 99 $ (53) $ 2,617 1998 $ 1,464 $ 575 $ 493 $ 87 $ (34) $ 2,585 Intangible amortization 1999 $ 1 $ 4 $ - $ 1 $ 1 $ 7 1998 $ 1 $ 4 $ 2 $ 1 $ 1 $ 9 Depreciation 1999 $ 40 $ 23 $ 26 $ 5 $ 9 $ 103 1998 $ 39 $ 24 $ 32 $ 5 $ 6 $ 106 Operating profit (loss) 1999 $ 182 $ 42 $ 23 $ 3 $ (45) $ 205 1998 $ 163 $ 28 $ 15 $ (2) $ (46) $ 158 Total assets 1999 $ 2,220 $ 1,983 $ 1,872 $ 711 $ 306 $ 7,092 1998 $ 2,214 $ 2,109 $ 2,543 $ 662 $ 544 $ 8,072 Capital expenditures 1999 $ 56 $ 25 $ 18 $ 1 $ 7 $ 107 1998 $ 56 $ 21 $ 119 $ 17 $ (89) $ 124
11 WHIRLPOOL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (millions of dollars)
Six Months North Latin Other and Total Ended June 30 America Europe America Asia (Eliminations) Whirlpool - ------------------------------------------------------------------------------------------------------------------------------------ Sales 1999 $ 3,018 $ 1,193 $ 782 $ 182 $ (73) $ 5,102 1998 $ 2,801 $ 1,115 $ 1,039 $ 154 $ (60) $ 5,049 Intangible amortization 1999 $ 2 $ 8 $ 1 $ 3 $ 2 $ 16 1998 $ 2 $ 8 $ 3 $ 2 $ 4 $ 19 Depreciation 1999 $ 80 $ 46 $ 51 $ 11 $ 15 $ 203 1998 $ 78 $ 45 $ 68 $ 8 $ 12 $ 211 Operating profit (loss) 1999 $ 352 $ 79 $ 43 $ 4 $ (83) $ 395 1998 $ 313 $ 50 $ 62 $ (10) $ (88) $ 327 Total assets 1999 $ 2,220 $ 1,983 $ 1,872 $ 711 $ 306 $ 7,092 1998 $ 2,214 $ 2,109 $ 2,543 $ 662 $ 544 $ 8,072 Capital expenditures 1999 $ 82 $ 39 $ 44 $ 1 $ 6 $ 172 1998 $ 56 $ 21 $ 119 $ 17 $ 5 $ 218
12 RESULTS OF OPERATIONS The statements of earnings summarize operating results for the three and six month periods ended June 30, 1999 and 1998. This section of Management's Discussion highlights the main factors affecting the changes in operating results. Net Sales - --------- Net sales were $2.6 billion for the second quarter and $5.1 billion for the first half of 1999, both representing one percent increases over the comparable 1998 periods. Excluding the impact of currency fluctuations around the world, sales would have increased ten percent and nine percent over the prior year's quarter and year-to-date periods, respectively. North American unit volumes were up 11% in the second quarter and 10% in the first half of the year over 1998. North American sales were 8% higher for both the second quarter and year-to-date periods, reflecting product mix impact. Whirlpool North American unit shipments are currently expected to exceed the anticipated 8% growth within the industry for the full year. European sales in U.S. dollars were up 1% in the second quarter and 7% in the first half, due to increases of 6% and 9% in units sold for the quarter and year-to-date comparisons. Whirlpool European unit shipments are currently expected to exceed the industry growth expectations of 1% to 2% for the full year. Weak economic conditions over the first six months of the year in Latin America and the currency devaluation in Brazil resulted in a decrease for the quarter in net sales of 17% and offset a 2% increase in units shipped. For the year-to-date comparison, Latin American unit shipments decreased 11% and net sales decreased 25%. The current year quarter and year-to-date net sales included a $13.2 million recovery of Brazilian taxes paid in prior years. The comparable periods for 1998 included $22.4 million and $39.6 million in Brazilian tax incentives, respectively. Asia's unit volumes increased 7% and 13% and net sales increased 14% and 18% for the quarter and year-to-date comparisons, respectively, due to improving economic conditions in the region. Gross Margin - ------------ Gross margin percentage on products sold to net sales improved by 0.7 percentage points for the second quarter comparison with 1998 and 0.8 percentage points for the year-to-date comparison. This improvement was due to the benefits resulting from the restructuring started in 1997 and ongoing productivity from our Operational Excellence program, partially offset by a reclassification in the second quarter within North America of certain sales allowances from selling, general and administrative expenses into net sales, to be consistent with the treatment of similar sales program costs in other areas of the company. The reclassification reduced the quarter's gross margin by 0.3 percentage points and the year-to-date gross margin by 0.2 percentage points. Selling, General and Administrative - ----------------------------------- Appliance selling and administrative expenses as a percent of net sales decreased by 0.9 percentage points for the second quarter comparison with 1998 and 0.5 percentage points for the 13 year-to-date comparison. Quarter-over-quarter improvements in Europe, Brazil and Asia and a 0.4 percentage points impact from the reclassification of sales allowances within North America contributed to the improved cost performance ratio. The improvement for the quarter in Brazil is due in part to a $6.7 million reduction in bad debt expense versus the year ago quarter. The year-to- date improvement provided by Europe and Asia along with the reclassification within North America, which accounted for an approximate 0.2 percentage points improvement, offset declines in North America and Brazil. The North American results included additional advertising costs and costs to implement Enterprise Resource Planning, which is a SAP based enterprise-wide business software. Other Income and Expense - ------------------------ Interest and sundry income (expense) in the second quarter was $16 million unfavorable to the second quarter of 1998 due to foreign exchange losses on the Brazilian currency and the costs associated with forward contracts put into place to hedge Brazil's currency and a $5 million increase in interest expense, net of interest income. The increase in net interest expense was due to lower interest income in 1999 partially offset by a $7 million recovery of Brazilian taxes paid in prior years. Year-to-date, interest and sundry income (expense) was $187 million unfavorable, also due primarily to the Brazilian real devaluation. The Brazilian real declined from 1.21 to 1.75 per US Dollars from mid-January, when the Brazilian government changed its foreign exchange policy to a floating exchange rate, to June 30, 1999. Due to the timing of the change in foreign exchange policy by the Brazilian government, the main impact from the devaluation occurred in the first quarter and resulted in a $146 million pre-tax charge to earnings (Whirlpool's share after-tax and minority interest was $53 million). Also included in this category was a $12 million pre-tax mark-to- market charge ($7 million after-tax) related to short term forward contracts purchased to hedge movement in Brazil's currency. Year-to-date, foreign exchange losses within the Brazilian operations have totalled $152 million pre- tax (Whirlpool's share after-tax and minority interest was $55 million) and charges related to short term forward contracts totaled $16 million pre-tax ($10 million after-tax). Income Taxes - ------------ The consolidated effective income tax rate was 37% for the quarter and 43% year- to-date versus rates of 37% and 38%, respectively, for the year ago periods. The losses within the Brazilian operations, which resulted in tax benefits at an average lower rate than the U.S. statutory tax rate, impacted the quarter and year-to-date effective tax rates. 14 Discontinued Operations - ----------------------- The company recorded a gain of $5 million pre-tax, $3 million after-tax, in the second quarter of 1998 related to the sale of certain consumer financing and European inventory financing assets. For the first half of 1998, the total gain recorded for similar transactions was $25 million pre-tax and $15 million after tax. The transactions completed during the second quarter concluded a series of sales resulting from the company's decision in the third quarter of 1997 to discontinue its financing operations. Refer to Note C to the accompanying consolidated financial statements for a discussion of discontinued operations. Net Earnings - ------------ Second quarter earnings from continuing operations were $99 million or $1.30 per diluted share compared to $81 million or $1.05 per diluted share in 1998. Year- to-date earnings from continuing operations were $127 million, or $1.66 per diluted share versus earnings of $149 million, or $1.95 per diluted share in the first half of 1998. Excluding the first quarter impact of the Brazilian currency devaluation, year-to-date earnings from continuing operations were $187 million, or $2.45 per diluted share. Including discontinued operations, 1998 net earnings were $84 million, or $1.10 per diluted share in the second quarter and $164 million, or $2.14 per diluted share year-to-date. CASH FLOWS The statements of cash flows reflect the changes in cash and equivalents for the six months ended June 30, 1999 and 1998 by classifying transactions into three major categories: operating, investing and financing activities. Operating Activities - -------------------- The company's main source of liquidity is cash from operating activities consisting of net earnings from operations adjusted for non-cash operating items such as depreciation and changes in operating assets and liabilities such as receivables, inventories and payables. Cash used by operating activities in the first six months of 1999 was $115 million compared to $76 million used in 1998, reflecting the $98 million first quarter impact of the currency devaluation flowing through net earnings and minority interest and a build up of inventories over the first six months of the year due to the business slowdown in Brazil. Investing Activities - -------------------- The principal recurring investing activities are property additions. Net property additions for the first half were $172 million in 1999 down from $218 million in the 1998 period. These 15 expenditures are primarily for equipment and tooling related to product improvements, more efficient production methods and replacement for normal wear and tear. Refer to Note B to the accompanying consolidated financial statements for a discussion of business dispositions and acquisitions. Financing Activities - -------------------- Dividends to shareholders totaled $53 million for the first half of 1998 versus $52 million in 1998 and the company's borrowings increased by $16 million during the first half of 1999. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the June 30, 1999 balance sheet. The company's total assets were $7.1 billion and stockholders' equity totalled $1.8 billion. The balances at December 31, 1998 were total assets of $7.9 billion and stockholders' equity of $2.0 billion. The decrease in assets is due primarily to the currency devaluation in Brazil while the decrease in equity is due to currency translation adjustments, primarily in Brazil, and $67 million related to share buybacks referred to below, offsetting net earnings retention of $74 million. On March 1, 1999, the company announced that its Board of Directors approved the repurchase of up to $250 million of the company's outstanding shares of common stock. The shares are to be purchased in the open market and through privately negotiated sales as the company deems appropriate. Through June 30, 1999, the company had repurchased a total of 1.3 million shares at a cost of $67 million. The overall debt to invested capital ratio of 45.5% at June 30, 1999 was level with the year ago ratio, but down from 48.1% at March 31, 1999 due to the pay down of debt during the second quarter. The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's, and Duff & Phelps. Various European currency swaps and forward contracts serve as a hedge against net foreign currency cash flows and also hedge a portion of the company's European net assets. Changes in the value of the swaps and forward contracts due to movements in exchange rates are included in the currency translation component of stockholders' equity if they relate to the European net asset hedge or otherwise are included in other income (expense) in the income statement. In December 1996, a favorable decision was obtained by Multibras S.A. Eletrodomesticos (Multibras) and Empresa Brasileira de Compresorres S.A. (Embraco) with respect to additional export incentives in connection with the Befiex program. In April 1997, Multibras and Embraco submitted tax-credit claims for about 447 million reais (equivalent to US$440 million as of December 1996) relating to the favorable decision for exports from July 1988 through December 1996. This amount is impacted by exchange rate fluctuations, offset by accrued interest. The Brazilian government has filed an appeal to this ruling on which the courts must render a decision, and then the Brazilian court must render a final decision on the amount, timing and payment 16 method of any final award, which will also be subject to appeal. 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. 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. 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 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 end of the third 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 $27 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 has established business teams in each of its regions around the world to refine contingency plans that may be necessary for this issue, particularly with regard to delays that may occur with supplier orders and the corresponding need to recommend possible increases in inventories of raw materials, parts, and finished product. Additionally, building and equipment infrastructure compliance is still being assessed. 17 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, public utilities, 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. 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 reviews of the internal Year 2000 programs of the company's operations in each of its regions around the world. The reviews 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 company's increased focus on business units in India and China has resulted in significant process over the past several months and these units are nearing alignment with the other regional programs. Outside consultant reviews have confirmed this progress. 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 has eliminated transaction gains and losses within participating countries and there currently has not been any significant impact on operating results from the change over to the euro. Internal computer system and business processes 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. 18 Operating efficiencies should ultimately result from reduction of the complexity of doing business in multiple currencies. No estimate of these efficiencies has been made. FORWARD LOOKING STATEMENTS - -------------------------- The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the company. Management's Discussion and Analysis and other sections of this report may contain forward- looking statements that reflect our current views with respect to future events and financial performance. Certain statements contained in this Quarterly Report on Form 10-Q and other written and oral statements made from time to time by the company do not relate strictly to historical or current facts. As such, they are considered "forward- looking statements" which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "could," "possible," "plan," "project," "will," "forecast," and similar words or expressions. The company's forward-looking statements generally relate to its growth strategies, financial results, product development, and sales efforts. These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. Many factors could cause actual results to differ materially from the company's forward-looking statements. Among these factors are: (1) competitive pressure to reduce prices; (2) the ability to gain or maintain market share in an intensely competitive global market; (3) the success of our global strategy to develop brand differentiation and brand loyalty; (4) our ability to control operating and selling costs and to maintain profit margins during industry downturns; (5) the success of our Brazilian businesses operating in a challenging and volatile environment; (6) continuation of our strong relationship with Sears, Roebuck and Co. in North America which accounted for approximately 17% of our consolidated net sales of $10.3 billion in 1998; (7) currency exchange rate fluctuations in Latin America, Europe, and Asia that could affect our consolidated balance sheet and income statement; (8) social, economic, and political volatility in developing markets; and (9) our company's ability and our customers' and suppliers' ability to replace, modify, or upgrade computer programs in ways that adequately address the Year 2000 issue. The company undertakes no obligation to update every forward-looking statement, and investors are advised to review disclosures by the company in our filings with the Securities and Exchange Commission. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ. 19 PART II. OTHER INFORMATION -------------------------- WHIRLPOOL CORPORATION AND SUBSIDIARIES Quarter Ended June 30, 1999 Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- The Annual Meeting of Stockholders was held on April 20, 1999. At the meeting, the following items were voted on by shareholders: a. Messrs. James M. Kilts, Miles L. Marsh, and Paul G. Stern were each elected to a term to expire in 2002. Nominee For Against Abstentions ------- --- ------- ----------- James M. Kilts 63,234,368 0 3,803,118 Miles L. Marsh 52,056,912 0 14,980,574 Paul G. Stern 63,224,496 0 3,812,990 Messrs. Burnett, Cain, DiCamillo, Gilmour, Langbo, Smith and Whitwam and Ms. Hempel and Ms. Stoney each have terms of office as directors that continued after the 1999 Annual Meeting. b. Amendments to the registrant's Nonemployee Director Stock Ownership Plan and Performance Excellence Plan were approved. Plan For Against Abstentions ---- --- ------- ----------- Nonemployee Director Stock Ownership Plan 61,859,060 4,831,158 347,268 Performance Excellence Plan 59,065,116 7,658,153 314,217 c. A stockholder proposal proposing the sale of the company to the highest bidder was rejected by the shareholders. For Against Abstentions --- ------- ----------- 1,245,744 58,096,063 643,866 20 Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a. The following are included herein: (27) Financial Data Schedule (99) Computation of the ratios of earnings to fixed charges a. The registrant filed the following Current Reports on Forms 8-K for the quarterly period ended June 30, 1999. A Current Report on Form 8-K dated June 24, 1999 pursuant to Item 4, "Changes in Registrant's Certifying Accountants," to announce the engagement of Ernst & Young LLP as the independent auditors for the Registrant's subsidiary, Brasmotor S.A. A Current Report on Form 8-K dated June 4, 1999 pursuant to Item 5, "Other Events," to announce the election of Jeff M. Fettig to the position of president and chief operating officer and election to the company's board of directors. The board also selected Bengt G. Engstrom to succeed Fettig as executive vice president and head of Whirlpool Europe. Mark E. Brown was promoted to the position of executive vice president and chief financial officer succeeding Ralph F. Hake who resigned from the company. A Current Report on Form 8-K dated May 10, 1999 pursuant to Item 5, "Other Events," to announce the registrant's disapproval of the $581 million Alabama state court verdict against Whirlpool Financial National Bank, a former subsidiary of the registrant's subsidiary Whirlpool Financial Corporation. A Current Report on Form 8-K dated April 15, 1999 pursuant to Item 5, "Other Events," to announce the Company's earnings for the first quarter of 1999. 21 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WHIRLPOOL CORPORATION (Registrant) By /s/ Mark Brown ----------------------------- Mark Brown Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) August 11, 1999 22 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2ND QTR 10Q FOR WHIRLPOOL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1998 JAN-01-1999 JUN-30-1999 265 0 1,710 114 1,172 3,514 5,122 3,001 7,092 3,190 765 83 0 0 1,701 7,092 5,102 5,102 3,833 4,691 16 0 (85) 162 70 127 0 0 0 127 1.68 1.66
EX-99 3 COMPUTATION OF RATIOS EXHIBIT 99 RATIOS OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES (dollars in millions)
Six Months Ended June 30, 1999 ---------------- Pretax earnings $ 161.7 Portion of rents representative of the interest factor 9.8 Interest on indebtedness 85.2 Amortization of debt expense and premium .3 WFC preferred stock dividend 1.9 ---------------- Adjusted income $ 258.9 ================ Fixed charges Portion of rents representative of the interest factor $ 9.8 Interest on indebtedness 85.2 Amortization of debt expense and premium 0.3 WFC preferred stock dividend 1.9 ---------------- $ 97.2 ================ Ratio of earnings to fixed charges 2.66 ================ Ratio of earnings to fixed charges at June 30, 1998 3.00 ================
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