[LOGO OF WHIRLPOOL]
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Whirlpool Corporation
Building unmatched loyalty one customer at a time.
2002 Annual Report
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• customerIda & Jamal Simington • locationBourbonnais, Illinois, USA • occupationsIda, Facilities Manager; Jamal, State Trooper
“Polara puts me ahead of the game,” says Ida Simington. “I run out of work at five, pick my son up and go to the Y. In the meantime, my dinner is cooking. And if we don’t get home on time, I don’t have to worry about food burning or drying out.” In her home, theWhirlpool Polara refrigerated range is the star. “It’s the first thing everyone wants to see when they come over,” says Ida. |
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Whirlpool Polara refrigerated range •
Combining cooking with the convenience of refrigeration, theWhirlpool Polararefrigerated range keeps meals refrigerated when you are away, starting the cooking process when you want. If dinner is delayed, thePolararange automatically shifts to “warm” mode and then back to “refrigeration” to keep and protect the food.Polararefrigerated ranges meet the needs of families on the go.
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•Whirlpool frost-free refrigerator
TheWhirlpoolfrost-free refrigerator offers far more than sleek design. The refrigerator offers a fast chilling capability and humidity controls that keep vegetables fresh longer. TheFast Forward Icefeature gives customers the ability to make ice quickly and store it for long periods of time, a unique and welcome feature in hot climates.
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“When you see it for the first time, you don’t want anything else,” says Madhumita Mazumder about her newWhirlpoolfrost-free refrigerator. “It has sleek features and great looks compared to others. And because it is aWhirlpool,I knew it would be good.” Parag Mazumder likes the refrigerator’s humidity control and fast chilling capabilities. “Whirlpoolis the best product on the market,” he says.
• customerParag & Madhumita Mazumder • locationNew Delhi, India • occupationsParag, Sales Manager; Madhumita, Business Executive
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For Rob and Diane Ahle, the garage has always been Rob’s workshop and the catch-all storage space for the home. “My wife used to be horrified when people saw it,” says Rob. “Now, since we had theGladiatorGarageWorks system installed, she tells me I have to bring guests through.” “This year,” says Diane, “I had a Christmas party, and everyone left through the garage.”
• customerRob & Diane Ahle • locationBrookfield, Connecticut, USA • occupationsRob, Professional Chef; Diane, Sales Assistant
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Gladiator GarageWorks •
Designed specifically for the garage,GladiatorGarageWorks offers modular garage accessories, theGearWallstorage system and garage appliances, including extreme-temperature-proof refrigerators and a garage trash compactor.GladiatorGarageWorks turn the garage into a stylish showplace as it fulfills the family’s practical needs for an organized storage and work area. Its garage-tough construction and mobile modular units let customers turn their “junk drawer of the house” into the “best garage on the block.”
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•Brastemp bottom freezer refrigerator
TheBrastempbottom freezer refrigerator offers a fast freezing function to ensure high quality food storage. The bottom freezer’s large drawers and internal lighting make food access easy. The frost-free system provides efficient distribution of cold air, keeping food fresh longer.
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Elizabeth Branco has a new career. She is enrolled in culinary school, where she’s pursuing her lifelong passion for cooking. At home, Elizabeth’s kitchen is filled with products that she trusts – Whirlpool’sBrastempbrand. “My grandmother boughtBrastempproducts and so did my mother,” says Elizabeth, who recently purchased a newBrastempbottom freezer refrigerator. “It’s difficult to find products with the same quality features asBrastempbrand. They are the vanguard.”
• customerElizabeth Branco •locationSâo Paulo, Brazil • occupationRetired Medical Office Administrator
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“When we built our home, one of our goals was to have the ability to entertain large groups of people,” says Tammy McClintick. That’s why the McClinticks decided to install aKitchenAid brivain-sink dishwasher in their second kitchen, which is at the hub of gatherings when guests, friends and neighbors drop by. The McClinticks’ passion for entertaining also is reflected in their main kitchen, where all their appliances carry theKitchenAidbrand.
• customerTammy & Jeff McClintick • locationBrownsburg, Indiana, USA • occupationTammy, Homemaker; Jeff, Business Executive
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briva in-sink dishwasher •
TheKitchenAid brivain-sink dishwasher is a perfect companion to a full-size dishwasher or the ideal primary dishwasher for people who have limited kitchen space. ThebrivaQuick Wash feature cleans up to three times faster than a full-size dishwasher. When not in use, the wash basket is easily removed to provide a fully functional sink. Thebrivain-sink dishwasher also includes a cutting board that fits over the stainless steel cover.
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• Whirlpool Dreamspace clothes washer
TheWhirlpool Dreamspaceclothes washer offers a capacity 60 percent larger than standard front-load washers. TheDreamspacewasher reduces the number of laundry loads, and conserves water and energy. TheWhirlpool 6th Sensesensor system distinguishes differing fabrics and adjusts the cycles for perfect cleaning. TheDreamspacewasher is Europe’s version of the popularWhirlpool Duetwasher, which was successfully introduced in 2002 throughout the United States.
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“My boys play rugby, and every weekend I used to spend hours scrubbing rugby kits to get the mud out before washing them,” says Mary McCurran. “Now, I just put the kits in all muddy, and they come out clean. On a normal machine, I would do five or six loads a day. With aDreamspace, I might get away with two or three loads a day. It has made a huge difference in my life.”
• customerMary McCurran • locationPurley, England • occupationSecretary and Mother
•Inspired by our bold innovations and designs, customers around the globe trust Whirlpool to make their lives easier. More than ever before, our brands are connecting with customers in ways that will last a lifetime.
Chairman’s Letter | 14 | |
Financial Highlights | 17 | |
President’s Message | 18 | |
North America Operating Review | 20 | |
Europe Operating Review | 24 | |
Latin America Operating Review | 26 | |
Asia Operating Review | 28 |
Whirlpool Corporation is the world’s leading manufacturer and marketer of major home appliances, with annual sales of over $11 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers around the globe. The company marketsWhirlpool, KitchenAid, Brastemp, Bauknecht, Consuland other major brand names to consumers in more than 170 countries. Additional information about the company can be found on the Internet at www.whirlpoolcorp.com.
2002 Annual Report 13
Chairman’s Letter
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•David R. Whitwam
Chairman of the Board and Chief Executive Officer
TO OUR SHAREHOLDERS –Whirlpool faced many challenges last year, and we responded appropriately and aggressively to the changing dynamics of world economies and the markets in which we participate. As a result, 2002 was an important year of milestones and accomplishments that reflect the strength of our operations and the company’s ability to deliver consistent, ongoing improvements in operating and revenue performance. For example:
•Net revenues exceeded $11 billion, a record for the company.
•Excluding one-time charges, full-year core earnings of $6.07 per diluted share marked a record level of performance for our operations.
•Through our strategic focus of building unmatched levels of customer loyalty for our brands globally, we extended our brand leadership position worldwide.
•Our brands set a record for the most product innovations ever introduced by the company in a single year, reinforcing Whirlpool’s standing as the innovation leader within the appliance industry. Examples of these innovations are highlighted throughout this report.
•We successfully integrated two strategically important acquisitions during the year, and, in doing so, strengthened our manufacturing and brand positions in North America and Europe.
•We identified the activities and finalized the charges of our most significant and important restructuring effort in the company’s history. When fully implemented, the restructuring will reduce ongoing structural costs by more than $200 million a year. Changes to date have already strengthened our global platform and improved our manufacturing cost position.
•Improvements in global procurement, technology, product development and manufacturing helped drive record levels of productivity savings.
14 Chairman’s Letter
| •Our | operations generated $290 million of free cash flow as company-wide efforts resulted in record low levels of working capital. |
| RECORD | REVENUES |
Revenue growth across most regions during the year led to record net sales of more than $11 billion and solidified Whirlpool’s position as the world’s top major appliance manufacturer and marketer. Contributing to the sales improvement was the continued growth of theWhirlpoolbrand – the No. 1 selling appliance brand in the world. Whirlpool Corporation is strongly positioned as the market leader in the United States, Canada, Latin America, Central Europe and India. The company also holds the No. 2 market position in Mexico, and the No. 3 spot in Western and Central Europe. Whirlpool also continues to build a strong and growing presence in China.
Throughout the year, our operations leveraged Whirlpool’s global capabilities and regional market positions to deliver the record revenue growth and extend our brand leadership.
| RESTRUCTURING |
We recorded final charges for the company’s global restructuring effort that we announced in December of 2000. Since then, the initiative has resulted in restructuring and related charges totaling $373 million, and the elimination of more than 7,000 positions worldwide. Much of the restructuring initiative focused on Whirlpool’s European operation. The initiative has created a more cost-effective global structure that is better aligned to support the company’s value creation strategies. When fully implemented, the corporate restructuring effort is expected to result in annualized savings of more than $200 million.
| NET | AND OPERATING RESULTS |
A number of one-time charges contributed to a net loss of $5.68 per diluted share in 2002. The most significant of these charges related to the company’s adoption of the change in accounting principle pertaining to goodwill (Statement of Financial Accounting Standards No. 142), final costs for the company’s global restructuring initiative and the write-off of aircraft-lease assets following the bankruptcy of UAL Corp.
Excluding these one-time charges, our operations delivered full-year record core operating earnings of $6.07 per diluted share, an 11-percent improvement from comparable earnings in 2001, which was a solid achievement that met our growth expectations. These results were driven by the combination of record sales, unprecedented levels of product innovation, significant cost savings from productivity improvements and the benefits from restructuring.
Details about the charges, their effect on 2002 net earnings, and the reconciliation of net earnings to non-GAAP core earnings are discussed in the Management’s Discussion and Analysis section of this report.
REGIONAL GROWTH THROUGH ACQUISITION
Whirlpool bolstered its global position during the year through the acquisition of two strategic businesses in key markets. In Mexico, we completed the purchase of Vitromatic S.A. de C.V., which had been a joint venture between Whirlpool and Vitro S.A. since 1987. Vitromatic, now called Whirlpool Mexico, is a leading appliance manufacturer that gives us direct access to the fast-growing Mexican market. The acquisition extends our North American manufacturing base and provides additional export opportunities to countries in the Caribbean, Central America and northern parts of South America, as well as to the United States. In Central Europe, Whirlpool acquired Polar S.A., a leading appliance manufacturer with the No. 1 brand name in Poland. The acquisition of Polar improves our brand presence in Central Europe and provides Whirlpool Europe with a low-cost manufacturing source to serve the entire region.
RECORD PACE OF INNOVATION
Our brands introduced a record number of product innovations to consumers worldwide in 2002. The introductions contributed to our record sales results and helped drive higher levels of customer loyalty to our brands. Over the last three years, we have built and embedded within our global enterprise the skills and capabilities required to discover, develop and rapidly bring to market true innovation. These innovations are giving our brands a sustainable competitive advantage in the marketplace and creating value for our customers, trade partners and shareholders.
2002 Annual Report 15
BUILDING CUSTOMER LOYALTY
Whirlpool’s growth strategy – “Building unmatched customer loyalty”– is unlike any other within the appliance industry. The strategy focuses on winning the hearts and minds of our customers. We know that loyal customers are recommending our brands to others; that they are requesting and repurchasing our brands over those of competitors; and that they are beginning to upgrade their appliances because they trust the innovation and value that our brands deliver. Initiatives that lead to higher levels of customer loyalty, such as our innovation process, result in improved revenue growth, margin expansion and trade support for our brands.
Because innovation is such an important driver of customer loyalty, we are expanding our efforts to transfer innovation capabilities and skills to employees everywhere. Approximately 600 innovation mentors and consultants assisted and trained employees involved in development projects last year, and the number will grow as our innovation efforts continue in 2003.
Another key aspect of customer loyalty involves the experiences that touch customers before, during and long after the initial purchase. Each of our brands is putting in place a complete set of experiences – including brand advertising, the in-store purchase, call center interactions and ongoing customer communications – that will help forge lifelong relationships with our customers.
Within our operations, every person and function has a role to play in building customer loyalty. For example, each operation is taking the company’s Six-Sigma quality improvement process to a higher level by first placing the needs of the customer at the center of every function – such as manufacturing, technology, marketing and administrative support – and then driving down all unnecessary costs. Resources that become available through this enterprise-wide effort are reinvested in new initiatives that are focused squarely on improving the brand experiences of our customers.
Ultimately, the success of the customer loyalty strategy depends on the leadership capabilities of our global management team, as well as the skills and involvement of our employees. We have instituted a process to assess and develop our leaders around a simple global leadership model that will help prepare them to lead in today’s complex and challenging environments.
DIVERSE CUSTOMERS, EMPLOYEES AND IDEAS
Much of our customer loyalty strategy is built upon the same foundation that supports the company’s approach to diversity and inclusion. For example, understanding and embracing differences and ideas of customers and coworkers are essential first steps in our innovation process. Diversity within Whirlpool creates the originality and relevancy of ideas needed to solve unique problems. And because diverse employees reflect our global customer base, Whirlpool gains a keen understanding of our customers’ needs.
CORPORATE GOVERNANCE
Embedded in our company, as well as our Board of Directors, is the deeply held value that continues to guide us: “There is no right way to do a wrong thing.” This basic code of conduct underlies the company’s long tradition of strong and independent corporate governance. For example, of Whirlpool’s 12-member board, ten are independent directors who are highly regarded business professionals with significant and relevant management experience. The Whirlpool board’s principles and processes – which include internal annual reviews of board practices, the board selection process and the company’s code of ethics – have been in place for many years.
Whirlpool fully supports the steps that have been taken by business and government to make sure that companies have the necessary values and governing principles that will assure trust from all stakeholders.
OUTLOOK
We enter 2003 with continuing economic uncertainty in most of the global markets we serve. We have taken the appropriate cost and productivity actions to deal with that uncertainty. We believe that Whirlpool’s global leadership position, the company’s unique global platform, and innovation activities focused on building customer loyalty will drive continued performance improvement in 2003 and beyond.
/s/ David R. Whitwam
David R. Whitwam
Chairman of the Board and
Chief Executive Officer
February 27, 2003
16 Chairman’s Letter
Financial Highlights | ||||||||||||
millions of dollars, except per share data | 2002 | 2001 | % change | |||||||||
Net sales | $ | 11,016 |
| $ | 10,343 |
|
| 6.5 | % | |||
Core earnings, which excludes non-recurring items |
| 420 |
|
| 371 |
|
| 13.2 | % | |||
Per share on a diluted basis |
| 6.07 |
|
| 5.45 |
| ||||||
Earnings from continuing operations |
| 262 |
|
| 34 |
|
| 670.6 | % | |||
Per share on a diluted basis |
| 3.78 |
|
| 0.50 |
| ||||||
Net earnings (loss) |
| (394 | ) |
| 21 |
| ||||||
Per share on a diluted basis |
| (5.68 | ) |
| 0.31 |
| ||||||
Stockholders’ equity |
| 739 |
|
| 1,458 |
|
| (49.3 | )% | |||
Total assets |
| 6,631 |
|
| 6,967 |
|
| (4.8 | )% | |||
Return on equity * |
| 14.8 | % |
| 1.3 | % | ||||||
Return on equity excluding non-recurring items |
| 27.4 | % |
| 22.2 | % | ||||||
Return on assets * |
| 3.4 | % |
| 0.4 | % | ||||||
Return on assets excluding non-recurring items |
| 6.1 | % |
| 5.6 | % | ||||||
Book value per share | $ | 10.67 |
| $ | 21.44 |
| $ | (50.2 | )% | |||
Dividends per share |
| 1.36 |
|
| 1.36 |
| ||||||
Average dividend yield |
| 2.2 | % |
| 2.4 | % | ||||||
Share Price | ||||||||||||
High | $ | 79.80 |
|
| 74.20 |
| ||||||
Low |
| 39.23 |
|
| 45.88 |
| ||||||
Close |
| 52.22 |
|
| 73.33 |
|
| (28.8 | )% | |||
Total return to shareholders (five year annualized) |
| 1.4 | % |
| 12.2 | % | ||||||
Shares outstanding (in 000’s) |
| 68,226 |
|
| 67,215 |
| ||||||
Number of stockholders |
| 8,556 |
|
| 8,840 |
| ||||||
Number of employees |
| 68,272 |
|
| 61,923 |
| ||||||
Non-recurring items include cumulative effects of changes in accounting principle, discontinued operations, restructuring and related charges and product recall charges in 2002 and 2001 as well the write-off of asset impairments in 2002.
| * | Refer to Eleven-Year Consolidated Statistical Review (pages 72-73) for more information about return on equity and asset calculations. |
2002 Annual Report 17
President’s Message
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•Jeff Fettig
President and Chief Operating Officer
TO OUR SHAREHOLDERS –Whirlpool’s regional operations used the leverage of our global platform to help drive record sales and a solid operating performance for the company. In addition to top-line growth generated by our brands through Whirlpool’s ongoing introduction of consumer-relevant innovation to the marketplace, our operations contributed savings from productivity and restructuring initiatives that helped improve the company’s operating performance.
In North America, our operations turned in an outstanding performance, highlighted by record sales and operating profit. Whirlpool’s operations in Europe showed solid improvement as well, as did Whirlpool Asia. And in context of the significant economic and industry challenges within Latin America last year, our operations there turned in a very strong performance.
To sustain the productivity savings that are being achieved by our operations, we have embedded our Operational Excellence process – based on Six-Sigma and lean manufacturing skills and capabilities – within each of our worldwide manufacturing facilities. Based on these capabilities, our operations turned in a record improvement in total cost productivity in 2002. A parallel process is being instituted across the entire enterprise in an effort to eliminate additional costs and to create as many resources as possible to invest in innovation that builds customer loyalty to our brands.
During the year, the company’s acquisitions in Mexico and Poland, as well as restructuring activities worldwide, strengthened the manufacturing and cost positions of our operations. Rationalization of manufacturing in each region coupled with the migration of certain global products to low-cost countries – such as China, India, Slovakia and Brazil – enabled our operations to compete effectively against emerging global competitors.
18 President’s Message
Increasingly, we are leveraging resources from our global platform to expand our portfolio of innovative products for global export. For example, Whirlpool’s top-rated microwave hood combination ovens are designed at our technology facilities in Sweden, produced at our manufacturing facilities in China, and marketed and sold in the United States. Our operations in Brazil manufacture refrigerators with innovative features and designs that appeal to consumers worldwide. In 2002, the region exported these popular refrigerators to Europe, and, through the capabilities of our global product development process, transferred the platform to Whirlpool India. The enthusiastic consumer response to the 2002 introduction helped Whirlpool India claim the No. 1 refrigeration position in the country.
Whirlpool’s global platform provides our operations with resources and capabilities no other manufacturer can match. Whirlpool’s global procurement, product development and information technology organizations help our operations reduce costs, improve efficiencies and introduce a continuous stream of relevant innovation to consumers.
Our global procurement organization leverages the volume purchasing power of our worldwide operations to eliminate costs and redundancies across regions. Cross-regional teams of product development engineers collaborate on innovation initiatives for regional and global distribution. And our information technology organization provides Internet tools that cut the complexity and costs of doing business for Whirlpool and its trade partners.
We also use the global platform to transfer key innovations and processes across regions and brands. Perhaps the best example to date is the success of Whirlpool’s laundry innovations. In 2002, theWhirlpool Duethigh-efficiency clothes washer and dryer pair was rolled out across the United States with consumer and trade partner response significantly outpacing capacity.
The popularDuetpair emerged from Whirlpool’s global product development process, and involved teams of employees representing technology, manufacturing and brand marketing from our U.S. and Europe operations. Encouraged by the popularity of theDuetwasher with U.S. consumers, Whirlpool Europe introduced branded versions of its own late last year.
In the U.S., consumer demand for theDuetwasher and dryer, as well as for earlier laundry innovations such as theWhirlpool Calypsoclothes washer, helped create and expand the industry’s high-efficiency laundry segment. Whirlpool grew its share position in this premium end of the laundry segment by more than 70 percent in 2002.
We expect Whirlpool’s ongoing introductions of relevant laundry innovation, such as theWhirlpoolFamily Studio, will continue to capture the interest of consumers and generate profitable growth for the company and its shareholders. Whirlpool’s innovation process will continue to drive growth across all our product categories.
Part of the success of our brands and innovations is based on the ability of our global operations to execute the company’s global value-added trade and distribution strategies. In North America, for example, Whirlpool holds the No. 1 appliance position with the top national appliance retailers and buying groups. Our trade partners know the level of value and consumer appeal that is tied to Whirlpool’s innovation, as well as the importance of having trained salespeople who can effectively demonstrate that value to customers. Whirlpool innovation delivered to customers through value-added retail and distribution formats is a winning formula for Whirlpool and our trade partners.
As our operations work to align and leverage the resources of our global platform to meet the needs of our customers, Whirlpool’s brands will continue to introduce meaningful and relevant innovations and create new services in ways that create value. Throughout the regional business summaries that follow, you will see highlights of innovations and accomplishments from each of our regional operations in 2002. Achievements such as these are helping our operations to capture the attention of consumers worldwide, increase the support from our trade partners and create the unique customer experiences that are building unmatched levels of customer loyalty to our brands.
/s/ Jeff Fettig
Jeff Fettig
President and Chief Operating Officer
February 27, 2003
2002 Annual Report 19
North America Operating Review
| •United States, Canada and Mexico |
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| •KitchenAid stand mixer |
An American culinary icon, theKitchenAidstand mixer, year in and year out, retains its position as one of the most recognizable kitchen appliances – and does so with colorful pizzazz, such as this 2002 tangerine favorite.
| •Whirlpool Satina look |
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Giving the stainless steel look without the hassles of stainless steel, theWhirlpool Satinafinish refrigerator is a breeze to clean, hides fingerprints and keeps the family message board alive by attracting magnets.
KEY STATISTICS
| •No. | 1 position in the industry |
| •$7.3 | billion in 2002 sales |
| •$830 | million in 2002 operating profit |
| •Approximately 32,000 employees |
BRANDS
United StatesKitchenAid, Whirlpool, Roper by Whirlpool Corporation, Estate, Gladiator
CanadaInglis,Whirlpool, KitchenAid
MexicoWhirlpool, Acros, Supermatic, Crolls
PRINCIPAL PRODUCTS
Air Purifiers, Automatic Dryers, Automatic Washers, Built-in Ovens, Countertop Appliances, Dehumidifiers, Dishwashers, Freezers, Hot Water Heaters, Ice Makers, Microwave Ovens, Ranges, Refrigerators, Room Air Conditioners, Trash Compactors
HEADQUARTERS
Benton Harbor, MI
MANUFACTURING LOCATIONS
United StatesLaVergne, TN; Findlay, OH; Marion, OH; Greenville, OH; Clyde, OH; Benton Harbor, MI; Evansville, IN; Fort Smith, AR; Tulsa, OK; Oxford, MS
CanadaMontmagny, QU
MexicoMonterrey, Reynosa, Celaya, Puebla
NEW PRODUCTS INTRODUCED IN 2002
•Whirlpool – Polararefrigerated range; Family Studio concept of appliances and cabinetry;Duetfabric-care system;Satinarefrigerator;Personal Valetclothes vitalizing system; microwave hood combination withAccuWavetechnology
•KitchenAid – brivain-sink dishwasher; stand mixers in tangerine, lavender and other colors; a blade coffee grinder; kitchen textiles; a new line of toasters; a self-designed dishwasher; a 36-inch built-in oven; counter-depth, bottom-mount refrigerator
•Gladiator –GarageWorks appliances and organizing components for the garage
20 North America Operating Review
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•David L. SwiftExecutive Vice President, North American Region
In the United States, record-low interest rates and the resulting consumer spending powered the economy – as well as the appliance industry – throughout the year. Growth in the U.S. major home appliance industry outpaced the record level set in 2001 by nearly 7 percent.
Whirlpool’s North American operations led the industry with a remarkable performance in 2002, bettering the previous year’s all-time records for sales and operating profit. For the year, total revenue of $7.3 billion increased 11 percent. Much of the improvement was based on the success of new product introductions and cost savings from productivity improvements and restructuring.
Another significant achievement in 2002 was Whirlpool’s successful integration of Mexico-based Vitromatic S.A. de C.V. – now called Whirlpool Mexico – which the company acquired last year. The acquisition has given Whirlpool greater access to the fast-growing market in Mexico, and enhanced our export and supply positions throughout the hemisphere. During the fourth quarter of the year, Whirlpool Mexico delivered brand-share growth and record sales.
Whirlpool Canada also delivered an exceptional year of strong revenue and operating performance.
Particularly satisfying in 2002 was the continued acceptance by consumers of our leading brands, especiallyWhirlpoolandKitchenAid,both of which recorded strong revenue growth.
Through our strong consumer brands, Whirlpool North America introduced a number of innovative products and services to our customers in 2002. The introductions, as well as other new developments in non-product areas of customer relationships, helped drive a recordWhirlpoolbrand share.KitchenAidbrand also made strong strides in further positioning itself as one of North America’s leading top-of-the-line brands for both major and portable appliances.
The innovations are part of Whirlpool’s strategy of building customer loyalty by applying a deeper, fundamental understanding of our customers’ needs, desires and lifestyles. A prime example is theWhirlpool Duetclothes washer and dryer pair (HE3tunder Sears, Roebuck and Co.’sKenmore Elitebrand), which was launched nationwide in 2002. TheDuetwasher blends European front-load technology with a striking design that appeals to U.S. consumers interested in large-load wash capacity, excellent energy efficiency and cost savings, and the best overall fabric-care performance.
Other new and exciting innovations for 2002 included theWhirlpool Polararange, the world’s first refrigerated range, and theKitchenAid brivadishwasher, a unique in-sink dishwasher. ThePolararange received wide attention for offering a genuine solution to busy parents who want to enjoy sit-down dining with their families, but have little time in their schedules to prepare the meals. Thebrivain-sink dishwasher complements the culinary enthusiasts who need quick and easy cleaning solutions without having to run their much larger conventional dishwashers.
Dozens of other new-to-market products and solutions were introduced during the year. Among the highlights wereWhirlpool GladiatorGarageWorks, a total organizing and appliance system for the garage, andWhirlpoolFamily Studio, a suite of cabinetry and fabric care innovations that transform the traditional laundry space into a center for family gathering and activity.
Whirlpoolalso introduced the newSatinastainless-look refrigerator, which delivers the aesthetic appeal of stainless steel without its drawbacks. TheSatinafinish is easy to clean, masks irksome fingerprints and holds magnets that keep messages in place.
2002 Annual Report 21
North America Operating Review (continued)
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ŸWhirlpoolFamily Studio
TheWhirlpool Family Studio is a center of home activity that also serves as an efficient, functional fabric-care space. Customers make use of breakthrough fabric-care products, such as theWhirlpool Personal Valet clothes vitalizer, which are smartly integrated within attractive cabinetry. Family Studio gives home builders, designers and remodelers the innovative products and design flexibility to meet the unique space requirements of their customers.
| A | ŸTheWhirlpool ImPressironing station features an easy-to-access, adjustable board, storage for an iron while it cools, and automatic shut-off controls. |
| B | ŸTheWhirlpool SinkSpajetted sink gently cleans delicate garments and other hand-washables with specially designed water jets. |
| C | ŸTheWhirlpool DryAiredrying cabinet shaves hours off the air-drying process for heavy woolens and bulky garments, while gently drying delicates. |
| D | ŸTheWhirlpool Duetwasher and dryer pair delivers stylish design, unbeatable water and energy efficiency, and time-saving washing capacity. |
| 22 | North America Operating Review |
To effectively display and explain this type of new innovation to consumers, Whirlpool and an increasing number of its North American trade partners and contract-home builders present these products in unique store and model-home formats that enhance the purchase experience. These displays break away from traditional “sea of white” retail formats and invite consumers to become more engaged in buying and understanding how Whirlpool appliances can benefit their lives. Consumer demand for Whirlpool innovation has helped the company build and strengthen its leading position with the region’s top value-added distribution partners.
Taking customer involvement even further, Whirlpool opened theInsperiencestudio in Atlanta, a 6,000-sq.-ft. facility that has working kitchen and laundry displays, and features the latest products fromWhirlpoolandKitchenAid. TheInsperiencestudio gives customers, builders, architects, designers and trade partners a hands-on appliance experience, while giving Whirlpool employees more insight into customer needs and desires.
Insperiencestudio expands upon the company’s hands-on approach to interacting with customers. TheKitchenAid Experiencestore in Greenville, Ohio, also provides customers with an interactive environment that featuresKitchenAidmajor and portable appliances. Visitors can discover the history of theKitchenAidbrand, participate in cooking classes, and shop forKitchenAidportable appliances and cooking accessories.
Additionally, Whirlpool sponsors the House of Innoventions at Innoventions at Epcot®, the ever-changing theme park of discovery at the Walt Disney World®Resort in Lake Buena Vista, Florida. Millions of guests each year tour the popular attraction that showcases the latest in home innovation, including a prototype Internet-ready refrigerator fromKitchenAid.
In addition, the company has been using design and style as a strategic tool to create appealing visual connections with consumers on the retail floor. The design community is taking note as well. The Smithsonian Institution’s Cooper-Hewitt National Design Museum presented Whirlpool with the 2002 National Design Award for Corporate Achievement – one of many prestigious design awards that the company received during the year.
The company continues to offer consumers a full range of energy-efficient products that reduce home energy costs. Whirlpool’s ENERGY STAR®qualified appliances, such as theWhirlpool Duetwasher and dryer andConquestrefrigerator, provide exceptional levels of energy efficiency that meet or exceed government guidelines.
An ongoing fundraising partnership between KitchenAid and the Susan G. Komen Breast Cancer Foundation generated more than half a million dollars in 2002 for the fight against breast cancer. Each sale of a pinkKitchenAidstand mixer generates an additional $50 donation to the Komen Foundation. Since 2001, KitchenAid has raised more than $1 million through the sale of the mixer.
Whirlpool continued its partnership with Habitat for Humanity in 2002 by donating approximately 11,000 appliances to Habitat homes built in North America. Whirlpool donates an ENERGY STAR®qualified refrigerator and free-standing range to every Habitat home built in North America. Through Habitat, Whirlpool has helped improve the lives of more than 15,000 families.
2002 Annual Report 23
Europe Operating Review
ŸEurope, Middle East and Africa
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
ŸWhirlpool and Bauknechtbuilt-in ovens
The newest line of built-in ovens fromWhirlpoolandBauknechttakes elegance and practicality to the next level. The ovens use select materials, such as stainless steel, formed into a variety of stylish designs that are easy to use and clean.
ŸMax! Advancemicrowave oven
A prime example of the innovations that can be gleaned from consumer insight, the award-winningWhirlpool Max! Advancemicrowave oven incorporates a rounded, space-saving shape, along with an on-door control panel and rear ventilation system.
KEY STATISTICS
ŸNo.3 position in Western and Central Europe
Ÿ$2.2 billion in 2002 sales
Ÿ$81 million in 2002 operating profit
ŸApproximately 14,000 employees
BRANDS
Whirlpool, Bauknecht, Ignis, Polar, Laden in France,KIC in South Africa
PRINCIPAL PRODUCTS
Automatic Dryers, Automatic Washers, Built-in Hobs, Built-in Ovens, Compressors, Dishwashers, Free-standing Cookers, Freezers, Microwave Ovens, Ranges, Refrigerators
OPERATIONS CENTER
Comerio, Italy
MANUFACTURING LOCATIONS
FranceAmiens
GermanyNeunkirchen, Schorndorf
Italy Naples, Siena, Cassinetta, Trento
PolandWroclaw
SlovakiaPoprad
South AfricaIsithebe
SwedenNorrköping
NEW PRODUCTS INTRODUCED IN 2002
ŸWhirlpool – Max! Advancemicrowave oven,Axentmicrowave oven, a new line of built-in ovens,Dreamspacewashing machine,Conquestside-by-side refrigerator
ŸBauknecht – bigwashing machine, free-standing LCD washing machine,Glidetelescopic, decorative hood
24 Europe Operating Review
[PHOTO APPEARS HERE]
ŸMichael A. Todman Executive Vice President and President, Whirlpool Europe
Whirlpool Europe’s operations continued to make solid improvement in challenging economic and market environments throughout the region. Revenue of $2.2 billion was up 7 percent from 2001. Operating profit improved significantly.
The increasing consumer demand for theWhirlpoolbrand – the No. 1 appliance brand throughout the region – and cost savings from restructuring changes and productivity improvements contributed to the improvement. Better working capital and asset utilization by the operations led to strong, positive cash flow for the full year.
Over the last 12 months, Whirlpool Europe has been responding to economic and market conditions within the region by reshaping both its business and operating footprint. The effort has resulted in a more competitive operating position, additional resources for investments in innovation, and continued growth of our leading brands and market positions.
With the 2002 acquisition of Polar S.A., Whirlpool Europe gained a strategic, low-cost manufacturing position in Poland that will serve the entire region. The company expects its manufacturing strategy, combined with annual savings from the restructuring initiative, to result in improved contributions and productivity on an ongoing basis.
Also in 2002, the operation continued to advance its brand strategy.Whirlpoolbrand is the No. 1 brand in Europe, representing 70 percent of total revenues. Whirlpool now has the leading position in France, Ireland, Portugal, the Benelux region and Central Europe.
Among the new product innovations in 2002 were versions of the popularWhirlpool Duetwasher that is sold in the United States. Launched under theWhirlpoolandBauknechtbrands asDreamspaceandbig, respectively, the European versions of theDuetwasher provide the same benefits and high level of performance with designs and features that appeal to European consumers.
Another innovation is the European version of theWhirlpool Conquestside-by-side refrigerator. TheConquestrefrigerator was specially designed and manufactured to meet the needs of European consumers, including energy savings, size and design aesthetics.
WhirlpoolandBauknechtbrands introduced a new range of built-in ovens, which combine elegance and advanced technology with special design features that simplify their use and cleaning.Whirlpoolbrand also introduced theMax! Advancemicrowave oven, which was launched in the second half of the year shortly after capturing France’s prestigious Janus award for outstanding design.
At Hometech 2002, the major international home appliance fair, Whirlpool Europe showcased new products and presented Whirlpool-sponsored research analyzing emerging domestic trends in Europe and consumer interaction with home appliance technology.
Whirlpool Europe’s design team continued to win critical design acclaim for its futuristic appliance concept work. Coming off its earlier “Macrowave: New Frontiers for the Modern Microwave,” the company unveiled “Project F,” visionary concepts for future fabric-care products. The company uses these and other concept projects to gain consumer insights for ongoing innovation and product development efforts.
2002 Annual Report 25
Latin America Operating Review
ŸBrazil, Argentina, Chile, Other markets of the Southern Cone
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
ŸConsul air conditioner
Among the most economic in Latin America,Consulair conditioners also are among the quietest, with easy-to-install designs, easy-to-change filters and a quick-cooling system that uniformly cools entire rooms.
ŸBrastemp Quality range
Making cleaning even easier, the newBrastemp Qualitygas range offers a glassy, scratch-resistant finish that helps customers with one of their most disliked tasks – cleaning the range after meal preparation.
KEY STATISTICS
ŸNo. 1 market position in the industry
Ÿ$1.27 billion in 2002 sales
Ÿ$107 million in 2002 operating profit
ŸApproximately 17,000 employees
BRANDS
Whirlpool, Brastemp, Consul, Embraco, Eslabón de Lujo
PRINCIPAL PRODUCTS
Refrigerators, Automatic Washers, Compressors, Dishwashers, Freezers, Microwave Ovens, Ranges, Room Air Conditioners, Countertop Appliances
HEADQUARTERS
São Paulo, Brazil; Buenos Aires, Argentina; Santiago, Chile
MANUFACTURING LOCATIONS
BrazilManaus, Rio Claro, Joinville, São Paulo
International (Embraco)Riva di Chieri, Italy;
Spisska Nova Ves, Slovakia; Beijing, China
NEW PRODUCTS INTRODUCED IN 2002
ŸBrastemp –Advantech Wash automatic washer; Hot WaterAdvantech Wash automatic washer; Stain RemovingAdvantech Wash automatic washer;De Ville Grill ranges;Quality Grill andQuality Top Cleanranges;Maison Tri ChamaandMaison Tri Chama Inoxranges; Bottom Freezer refrigerator
ŸConsul – Performer, Ideale, Pratice, andFacility ranges; 7,500 BTUTimer Classe A, Electronic, Digital and Split air conditioners; Tabletop Dishwasher; Hooded Oven
26 Latin America Operating Review
[PHOTO APPEARS HERE]
• Paulo F. M. PeriquitoExecutive Vice President and President, Latin America
In Latin America, the economic crisis in Argentina and the political uncertainties in Brazil and other countries within the region led to a dramatic slowdown in consumer spending. Given this environment, revenue of $1.3 billion declined 15 percent from 2001, or down 4 percent excluding currency translations.
Despite the decline, operating profit as a percentage of sales was only slightly lower than the previous year. During the year, Whirlpool’s operations quickly responded to the changing market dynamics by adjusting production rates and inventory levels. The action – combined with significant export growth and cost savings from productivity and restructuring efforts – contributed to the operating margin performance.
Whirlpool’s Brazil-based compressor business, Embraco, remained a strong performer for the company. The unit, which also has manufacturing operations in Italy, Slovakia and China, continued to advance its technological and global leadership position. In 2002, exports from the regional operations –which include compressors and major appliances – reached a record high, rising more than 50 percent. The company expects exports from the region will be an increasingly positive factor in the operation’s ongoing performance.
Throughout the year, Whirlpool Latin America launched a number of new and innovative products, all of which addressed consumer needs. For instance,Brastempbrand reinforced its innovative and trend-setting image through the introduction of a bottom-freezer configuration for refrigerators, which received strong customer praise for its ergonomic design and other features.
Brastempbrand also launched a new line of premium cooking products, such as cook-tops and clothes washer models, which broadened the brand’s full-range of product offerings.
Consulbrand updated its entire line of products in 2002. Among the highlights were an array of innovative air conditioners, including an attractive, space-saving split-line model; a convenient six-service dishwasher; and the brand’s first push into the frost-free refrigeration market.
BrastempandConsulbrands also partnered with leading Brazilian companies in implementing brand image-building actions through architectural, decorating and cooking events. Such efforts help maintain the brands’ outstanding recognition among consumers, particularlyBrastemp,which again placed fourth as Brazil’s most recognized brand.
Consulbrand gained significant recognition for its social responsibility initiative, WomanCONSULate. The effort is targeted at improving the lives of disadvantaged women. Since its launch in early 2002,CONSULatehas recruited more than 350 volunteers and assisted over 20,000 women.
Whirlpool’s subsidiary companies in the region – Multibras and Embraco – were cited by a leading Brazilian business magazine for being among the top 100 companies in the country and among the best to work for. Multibras and Embraco are among only seven of the top 100 named to the list for six consecutive years.
Retailers and customers widely commend the company for its outstanding service, especially through its innovative assistance channels, such as Retailers Service Hotline and Urgent Customer Hotline. In addition, through an Internet contact center, customers can arrange for technical-assistance visits, register suggestions and clarify any concerns they may have about the company’s products.
2002 Annual Report 27
Asia Operating Review
•India, China, Asia /Pacific
[PHOTO APPEARS HERE]
[PHOTO APPEARS HERE]
•Whirlpool Jupiter washer
Among the first widely distributed clothes washers in Asia that use warm water, theWhirlpool Jupiterstain-removal washer eliminates most stains, including those from bicycles and cooking oil, and is gentle on woolen garments.
•Whirlpoolmicrowave
With ease of use and consumer safety in mind,Whirlpoolmicrowave ovens are designed for preparing traditional Indian cuisine and come with a new, unique crisping function to evenly brown breads and other dishes.
KEY STATISTICS
•Leader among Western companies, with No. 1 market position in India
•$391 million in 2002 sales
•$14 million in 2002 operating profit
•Approximately 5,000 employees
BRANDS
Whirlpool
PRINCIPAL PRODUCTS
Washers, Refrigerators, Microwave Ovens,
Air Conditioners, Compressors
HEADQUARTERS
Hong Kong, PRC
MANUFACTURING LOCATIONS
IndiaFaridabad, Pune, Pondicherry
ChinaShanghai, Shunde
NEW PRODUCTS INTRODUCED IN 2002
•Whirlpool –semi-automaticWhitemagicwasher, front-loadWhitemagicwasher,Icemagicrefrigerator withFast Forward Icefeature,Jupiterfront-load and top-load washers,MagiCoolair conditioners withQuick Cooltechnology
28 Asia Operating Review
[PHOTO APPEARS HERE]
•Garrick D’SilvaRegional Vice President, Whirlpool Asia
Whirlpool Asia continued to make rapid strides in India and China, the company’s largest markets in the region. In particular, theWhirlpoolbrand further increased its market share throughout Asia and especially in India, where the brand is No. 1 in the laundry and refrigeration categories.
For the year, revenue of $391 million increased 5 percent.
Whirlpool Asia’s performance was noteworthy, given the economic uncertainties that prevailed in much of the region throughout the year in this highly competitive marketplace. The company continues to build upon its solid operating foundation in the world’s largest and fastest growing home appliance market.
The company’s consumer-focused strategy continued to make deeper inroads throughout the region and largely was responsible for Whirlpool Asia’s 11-percent unit growth, one of the strongest industry performances in the region.
Dozens of new products were launched during the year, 25 alone in India. Among them was a new line ofWhirlpool Icemagicrefrigerators, with a uniqueFast Forward Icefeature that makes ice quicker than ever before. A button on the refrigerators’ exterior control panel activates the quick-ice system.
OtherWhirlpoolbrand introductions in 2002 included a line ofMagiCoolair conditioners, with theirQuick Cooltechnology to chill rooms fast, and theMagiCookmicrowave ovens. FollowingQuick Cool’ssuccessful launch, the product quickly established a solid position for theWhirlpoolbrand within the air-conditioning segment of the market.
Among the significant introductions in Whirlpool China was the launch of a newWhirlpool 6th Senseclothes washer, with sensor washing technology suited to the China market. In addition, we acquired the remaining 20 percent of the shares from our former partner in a washing machine joint venture in Shanghai.
The company also achieved an environmental milestone when Australia’s Sustainable Energy Development Association recognized Whirlpool as a responsible manufacturer of energy efficient products, becoming the first appliance maker to receive the endorsement.
During the year, the company continued its steady penetration into China’s interior provinces from the country’s coastal region, where Whirlpool enjoys an increasingly strong market presence. The company is overcoming the country’s structural challenges to product distribution by engaging with strategic trade partners. These trade partnerships will help Whirlpool continue to expand its distribution network and take part in the rapidly growing prosperity of China’s domestic market.
Both China and India continued to offer excellent export opportunities for the company. Whirlpool China, for example, manufactures the bulk of the company’s global microwave products. In 2002, Whirlpool India began to manufacture and export newKitchenAidportable appliances to the United States and elsewhere. Early success with blade coffee grinders led to plans to expand the manufacturing line ofKitchenAidportables with coffee makers and compact ovens. Whirlpool India continued to maintain its leadership as the country’s top exporter of white goods, shipping to more than 40 countries throughout Asia, the Pacific Rim, the Middle East, Africa, Latin America and the Caribbean.
In addition, India and China are emerging as key technology centers in Whirlpool’s global technology organization. Besides manufacturing the bulk of the company’s microwave products, Whirlpool China also is taking on much of the company’s microwave technology development. In India, Whirlpool’s Pune plant is focusing on refrigeration and air-conditioning technology, while the Pondicherry facility supports the development of the company’s clothes-washing technology.
2002 Annual Report 29
Financial Contents
31 | Management’ s Discussion and Analysis | |
41 | Consolidated Statements of Operations | |
42 | Consolidated Balance Sheets | |
44 | Consolidated Statements of Cash Flows | |
45 | Consolidated Statements of Changes in Stockholders’ Equity | |
46 | Notes to Consolidated Financial Statements | |
70 | Reports of Independent Auditors and Management | |
72 | Eleven-Year Consolidated Statistical Review | |
74 | Shareholders’ and Other Information | |
75 | Directors & Executive Committee | |
76 | Senior Officers & Company Addresses | |
30 Financial Contents
Management’s Discussion and Analysis
RESULTS OF OPERATIONS
The consolidated statements of operations summarize operating results for the last three years. This section of Management’s Discussion and Analysis highlights the main factors affecting changes in operating results during the three-year period.
EARNINGS
Earnings from continuing operations were $262 million in 2002 versus $34 million and $367 million in 2001 and 2000. The significant increase in 2002 relates primarily to the $181 million in after-tax product recall charges recorded in 2001, slightly lower restructuring expenses in 2002 and improved operating performance over 2001. The significant decrease in 2001 versus 2000 is due to the product recall and restructuring expenses recognized in 2001. Charges relating to the cumulative effect of changes in accounting principle and discontinued operations are excluded from earnings from continuing operations but included in net earnings (loss).
Millions of dollars, except per share data | 2002 | 2001 | 2000 | |||||||
Earnings from continuing operations | $ | 262 |
| $ | 34 | $ | 367 | |||
Diluted earnings per share from continuing operations |
| 3.78 |
|
| 0.50 |
| 5.20 | |||
Net earnings (loss) |
| (394 | ) |
| 21 |
| 367 | |||
Diluted net earnings (loss) per share |
| (5.68 | ) |
| 0.31 |
| 5.20 | |||
Core earnings from operations |
| 420 |
|
| 371 |
| 367 | |||
Diluted core earnings per share |
| 6.07 |
|
| 5.45 |
| 5.20 | |||
Whirlpool provides core earnings analysis as a view of the underlying strength of our operations. The term “core earnings” refers to net earnings excluding the cumulative effects of the adoption of new accounting standards, discontinued operations, restructuring and related charges, write-off of asset impairments, and product recall related charges.
Core earnings improved for 2002 due to a strong performance in our North American operations, which achieved strong growth in both sales and earnings, along with a significant improvement in earnings in our European operations and the benefits of our restructuring and ongoing productivity efforts. These combined to offset the effects of economic and political instability in Latin American markets accompanied by severe currency fluctuations for the region.
2002 Annual Report 31
The table below reconciles 2002, 2001 and 2000 net earnings (loss) to core earnings from operations. The adjustments to arrive at core earnings from operations are presented in the table on an after-tax and minority interests basis and reference the related notes to the accompanying consolidated financial statements:
Millions of dollars | 2002 | 2001 | 2000 | ||||||||
Net earnings (loss) – U.S. GAAP | $ | (394 | ) | $ | 21 |
| $ | 367 | |||
Cumulative effect of changes in accounting principle (Notes 1 and 3) |
| 613 |
|
| (8 | ) |
| — | |||
Discontinued operations (Note 5) |
| 43 |
|
| 21 |
|
| — | |||
Earnings from continuing operations |
| 262 |
|
| 34 |
|
| 367 | |||
Restructuring and related charges (Note 13) |
| 121 |
|
| 156 |
|
| — | |||
Write-off of equity interest and advances (Note 7) |
| 22 |
|
| — |
|
| — | |||
Goodwill impairment (Note 3) |
| 9 |
|
| — |
|
| — | |||
Product recall related charges (Note 14) |
| 6 |
|
| 181 |
|
| — | |||
Core earnings from operations | $ | 420 |
| $ | 371 |
| $ | 367 | |||
We expect that the company will continue to face challenging economic conditions worldwide during 2003. Despite this, we expect to see moderate growth during 2003, reflecting an accelerated pace of innovation and continued strengthening of Whirlpool brands throughout the world. We will also recognize additional benefits from the recently completed restructuring initiative and other productivity efforts. As a result, we expect to see improved earnings over 2002 levels.
NET SALES
The total number of units sold in 2002 increased 7.8% over 2001. Consolidated net sales increased 6.5% over 2001, which includes a negative impact from currency fluctuations. Excluding currency impact, net sales increased 7.3%. Excluding the acquisitions of Vitromatic (Whirlpool Mexico) and Polar, as described in Note 4 to the Consolidated Financial Statements, the total number of units and dollars sold increased 4.6% and 4.2%, respectively. Net sales in 2001 were up 3% over 2000 after excluding the impact of currency. The tables below provide the breakdown of units and sales by region.
In thousands | 2002 | Change | 2001 | Change | 2000 | ||||||||||
Units Sold: | |||||||||||||||
North America | 24,324 |
| 13.6 | % | 21,404 |
| 3.7 | % | 20,634 |
| |||||
Europe | 11,024 |
| 2.0 |
| 10,803 |
| (0.7 | ) | 10,876 |
| |||||
Latin America | 4,386 |
| (7.4 | ) | 4,738 |
| (3.7 | ) | 4,918 |
| |||||
Asia | 2,279 |
| 11.2 |
| 2,050 |
| 4.7 |
| 1,958 |
| |||||
Other/eliminations | (31 | ) | — |
| (36 | ) | — |
| (31 | ) | |||||
Consolidated | 41,982 |
| 7.8 | % | 38,959 |
| 1.6 | % | 38,355 |
| |||||
In thousands | 2002 | Change | 2001 | Change | 2000 | |||||||||||||
Net Sales: | ||||||||||||||||||
North America | $ | 7,306 |
| 11.0 | % | $ | 6,581 |
| 5.8 | % | $ | 6,223 |
| |||||
Europe |
| 2,199 |
| 6.9 |
|
| 2,058 |
| (4.5 | ) |
| 2,156 |
| |||||
Latin America |
| 1,266 |
| (14.9 | ) |
| 1,487 |
| (12.8 | ) |
| 1,706 |
| |||||
Asia |
| 391 |
| 4.8 |
|
| 373 |
| (4.4 | ) |
| 390 |
| |||||
Other/eliminations |
| (146 | ) | — |
|
| (156 | ) | — |
|
| (150 | ) | |||||
Consolidated | $ | 11,016 |
| 6.5 | % | $ | 10,343 |
| 0.2 | % | $ | 10,325 |
| |||||
32 Management’s Discussion and Analysis
| Significant | regional trends were as follows: |
•In 2002, North American unit volumes increased 13.6%. Approximately one-third of the volume increase resulted from the inclusion of Whirlpool Mexico in the company’s consolidated results since July 2002, when the remaining 51% ownership interest was acquired. While the North American industry was up, our market share in the region fell slightly in 2002 from its record levels achieved during 2001. In 2002, net sales increased by slightly less than unit volumes as the current year’s acquisition combined with competitive pricing pressures reduced average sales values.
•European unit volumes increased 2.0% versus 2001 in an industry that was down slightly. The increase is due to the inclusion of sales from Polar, which we acquired in the second quarter of 2002 as described in Note 4 to the Consolidated Financial Statements. Net sales increased by a larger percentage due primarily to positive currency fluctuations. Excluding currency impact, net sales increased 1.7%. European unit volumes were down in 2001 versus 2000 and net sales decreased by a larger percentage due to currency fluctuations and continued pricing pressures.
•Unit shipments in Latin America decreased 7.4% versus 2001 due primarily to political instability and economic volatility in the region. The region’s sales, which were down 14.9% compared to 2001, were also heavily affected by currency fluctuations, including a currency devaluation in Brazil of approximately 35%. Excluding the impact of currency fluctuations, net sales decreased 3.9%, which was less than the decrease in units shipped due to some improvements in product mix and pricing. Net sales were also lower in 2001 versus 2000 due to an economic slowdown in the region, an energy crisis in Brazil and Argentina, and currency fluctuations.
•Asia’s unit sales increased 11.2% over 2001, while net sales increased by 4.8% as product mix and pricing pressures combined to reduce the benefit of higher volumes. Excluding currency fluctuations, net sales increased 5.2%. The region continues to experience increased shipments in both the India and China markets. During 2001, Asia also posted growth in units shipped, but net sales were hurt by currency and product mix issues.
In 2003, we believe appliance industry shipments will increase slightly in North America and Asia, remain flat in Latin America, and decrease slightly in Europe.
| GROSS | MARGIN |
•The consolidated gross margin percentage in 2002 decreased slightly versus 2001 due primarily to continued global pricing pressures offsetting productivity improvements. The consolidated gross margin percentage declined in 2001 versus 2000 due primarily to the impact of restructuring and related charges. The table below outlines the gross margin percentages by region, excluding the impact of the 2002 and 2001 restructuring related charges of $43 million and $53 million from the regional percentages. The 2002 and 2001 restructuring related charges are included in the consolidated percentages.
2002 | Change | 2001 | Change | 2000 | |||||||||||
Gross Margin | |||||||||||||||
North America | 23.6 | % | 0.1pts |
| 23.5 | % | (0.8 | )pts | 24.3 | % | |||||
Europe | 22.2 |
| 0.9 |
| 21.3 |
| (2.0 | ) | 23.3 |
| |||||
Latin America | 23.4 |
| (2.6 | ) | 26.0 |
| 3.1 |
| 22.9 |
| |||||
Asia | 23.7 |
| (2.5 | ) | 26.2 |
| 0.1 |
| 26.1 |
| |||||
Consolidated | 23.2 | % | (0.2 | )pts | 23.4 | % | (0.7 | )pts | 24.1 | % | |||||
Significant regional trends were as follows:
•North American gross margin increased slightly versus 2001 due to productivity improvements partially offset by lower pension credits and increased warranty costs. This increase came on sharply higher sales resulting in improved operating profit for the region. The decline in 2001 versus 2000 was due to unfavorable product and channel mix, lower pension credits and increased warranty costs offsetting productivity improvements.
2002 Annual Report 33
•The European gross margin increased versus 2001 due to productivity improvements and savings from the ongoing restructuring efforts in Europe. In 2001, the gross margin decreased from 2000 levels due to higher material costs, an inventory write-down and continued pricing pressures.
•Latin American gross margin declined versus 2001 due to lower sales levels and higher material prices. The 2001 gross margin improved over 2000 as improved product mix, lower pension costs, productivity gains and restructuring benefits offset material price increases and pricing pressures.
•The Asian gross margin declined versus 2001 due to unfavorable product mix and pricing pressures. Asian gross margin increased slightly in 2001 versus 2000 as productivity improvements and product mix offset pricing pressures due to weakening economies included in this region.
| SELLING, | GENERAL AND ADMINISTRATIVE |
Consolidated selling, general and administrative expenses as a percent of net sales remained unchanged versus 2001. While selling, general and administrative expenses for the North American region increased over 2001 levels, the region’s increase in expense as a percentage of sales relates to the acquisition of the remaining 51% of Whirlpool Mexico and lower pension credits. Consolidated selling, general and administrative expenses as a percent of net sales for 2001 decreased versus 2000 as cost controls implemented in North America and global restructuring benefits more than offset increased bad debt expense, increased stock compensation costs, new product introduction costs, restructuring related charges and lower pension credits. The table below outlines the selling, general and administrative expenses as a percentage of sales by region, excluding the impact of the 2002 and 2001 restructuring related charges of $17 million and $9 million from the regional amounts. The 2002 and 2001 restructuring related charges are included in the “Corporate/Other” line.
Millions of dollars | 2002 | As a % of Sales | 2001 | As a % of Sales | 2000 | As a % of Sales | ||||||||||||
Selling, general & administrative expenses | ||||||||||||||||||
North America | $ | 894 | 12.2 | % | $ | 788 | 12.0 | % | $ | 825 | 13.3 | % | ||||||
Europe |
| 407 | 18.5 |
|
| 386 | 18.8 |
|
| 386 | 17.9 |
| ||||||
Latin America |
| 189 | 15.0 |
|
| 250 | 16.8 |
|
| 263 | 15.4 |
| ||||||
Asia |
| 70 | 17.8 |
|
| 74 | 19.9 |
|
| 76 | 19.4 |
| ||||||
Corporate/Other |
| 176 | — |
|
| 141 | — |
|
| 101 | — |
| ||||||
Consolidated | $ | 1,736 | 15.8 | % | $ | 1,639 | 15.8 | % | $ | 1,651 | 16.0 | % | ||||||
PRODUCT RECALLS
During 2001, we recognized a total of $295 million of pre-tax charges ($181 million after-tax) related to two separate product recalls. These charges were recorded as a separate component of operating profit. During 2002, we recognized additional recall related pre-tax charges of approximately $9 million for one of these recalls. See Note 14 to the Consolidated Financial Statements for a more detailed description of these charges.
RESTRUCTURING AND RELATED CHARGES
During the fourth quarter of 2002, we recognized the remaining charges for the global restructuring plan that was originally announced in December of 2000. The plan, which had a total restructuring and related pre-tax cost of $373 million, is expected to result in more than $200 million in annualized savings once fully implemented. At December 31, 2002, a liability of $122 million remains for actions yet to be implemented under the plan. Actions under the plan include the elimination of over 7,000 positions worldwide, of which approximately 5,000 had been eliminated as of December 31, 2002.
34 Management’s Discussion and Analysis
Our various restructuring initiatives resulted in pre-tax restructuring charges of $101 million and $150 million in 2002 and 2001. These amounts have been identified as a separate component of operating profit. As a result of our restructuring activity, we also recognized $60 million and $62 million in pre-tax restructuring related charges during 2002 and 2001, which were recorded primarily within cost of products sold. See Note 13 to the Consolidated Financial Statements for a more detailed description of these charges and the company’s restructuring program.
OTHER INCOME AND EXPENSE
Interest income and sundry expense, which includes foreign currency gains and losses, financial service fees in Latin America and miscellaneous asset dispositions, increased slightly in expense as compared to 2001, due primarily to lower interest income, and was essentially flat in 2001 versus 2000 levels.
Interest expense decreased $19 million versus 2001, which was $18 million lower than 2000. Both decreases were due to the declining interest rate environment, and the 2002 decrease was further driven by lower average debt levels.
INCOME TAXES
The effective income tax rate from continuing operations was 35% in 2002 (excluding the impact of the restructuring and related charges, the write-off of equity interest and advances, the goodwill impairment and the product recall related charges), 35% in 2001 (excluding the impact of the product recall and restructuring and related charges) and 35% in 2000. Including the impact of the 2002 and 2001 charges mentioned above, the effective tax rate was 39% and 46%, respectively. See the income tax rate reconciliation included in Note 15 to the Consolidated Financial Statements for a description of the significant items impacting our consolidated effective income tax rate. We expect the 2003 effective tax rate from continuing operations to be approximately 36%.
EQUITY IN EARNINGS (LOSS) OF AFFILIATED COMPANIES
The 2002 results were reduced by a $22 million after-tax impairment charge related to the company’s minority investments in and advances to a European business. The company acquired its initial investment in this entity with its purchase of the appliance operations of Philips Electronics N.V. in 1989. Continued deterioration in the German marketplace led to overcapacity in the wood cabinet industry, which resulted in the business revising its estimated future cash flows. These circumstances prompted the company to conduct an impairment review, resulting in the above charge, which is reflected in equity earnings (loss) in the consolidated statement of operations.
DISCONTINUED OPERATIONS
As a result of the United Airlines (“UAL”) bankruptcy filing in December 2002, we wrote off our related investment in leveraged aircraft leases during the fourth quarter of 2002. The write-off resulted in a non-cash charge to discontinued operations of approximately $68 million, or $43 million after tax. Also, as a result of the UAL bankruptcy filing, we reclassified the related $49 million deferred tax liability on the leveraged leases to current taxes payable as of December 31, 2002. These leveraged lease assets were part of our previously discontinued finance company, Whirlpool Financial Corporation.
During the second quarter of 2001, we wrote off an investment in a securitized aircraft portfolio that was also owned by Whirlpool Financial Corporation. The write-off, due primarily to the softening aircraft leasing industry, resulted in a loss from discontinued operations of $35 million, or $21 million after-tax.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE
The company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. As a result of this adoption, the company recorded a non-cash, after-tax charge of $613 million.
2002 Annual Report 35
The company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended on January 1, 2001. The adoption of Statement No. 133 resulted in $8 million of income, net of tax, in the company’s statement of operations and a $11 million decrease, net of tax, in stockholders’ equity.
See Notes 1 and 3 to the Consolidated Financial Statements for a more detailed description of these changes in accounting principles.
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the last three years by classifying transactions into three major categories: operating, investing and financing activities.
OPERATING ACTIVITIES
Our main source of cash flow is from operating activities consisting of net earnings adjusted for changes in operating assets and liabilities, such as receivables, inventories and payables, and for non-cash operating items, such as depreciation.
Cash provided by operating activities totaled $812 million in 2002, $1,024 million in 2001 and $445 million in 2000. The decrease in 2002 relates primarily to the $239 million in product recall payments made during the year and to changes in deferred and current taxes. The increase in 2001 versus 2000 includes a $527 million improvement in working capital cash flows versus 2000, of which $464 million was in accounts receivable.
INVESTING ACTIVITIES
The principal recurring investing activities are capital expenditures, which were $430 million, $378 million and $375 million in 2002, 2001 and 2000, respectively.
On November 18, 2002, we acquired the remaining 20% interest in Whirlpool Narcissus Shanghai Company Limited (“Narcissus”) for $9 million. In accordance with the purchase agreement, 40% of the purchase price was paid during 2002, with the remaining 60% to be paid during 2003.
On July 3, 2002, we acquired the remaining 51% ownership in Vitromatic S.A. de C.V. (Whirlpool Mexico), an appliance manufacturer and distributor in Mexico. The aggregate purchase price was $151 million in cash plus assumption of outstanding debt at the time of acquisition, which totaled $143 million.
On June 5, 2002, we acquired 95% of the shares of Polar S.A. (Polar), a leading major home appliance manufacturer in Poland. The aggregate purchase price was $27 million in cash plus outstanding debt at the time of acquisition, which totaled $19 million.
On October 5, 2001, we closed our position in a portfolio of cross currency interest rate swaps resulting in the receipt of $209 million.
On January 7, 2000, we completed our tender offer for the outstanding publicly traded shares in Brazil of our subsidiaries Brasmotor and Multibras S.A. Eletrodomesticos (Multibras). In completing the offer, we purchased additional shares of Brasmotor and Multibras for $283 million, bringing our equity interest in these companies to approximately 94%. With this additional investment, our combined equity interest in all Brazilian subsidiaries increased from approximately 55% to approximately 87%.
FINANCING ACTIVITIES
Total borrowings (repayments) of short-term and long-term debt were $(152) million, $(569) million and $546 million in 2002, 2001 and 2000, respectively, excluding the effect of currency fluctuations and acquired debt.
On July 3, 2001, we issued 300 million euro denominated 5.875% Notes, due 2006. The notes are general obligations of the company, and the proceeds were used for general corporate purposes.
36 Management’s Discussion and Analysis
Dividends paid to stockholders totaled $91 million, $113 million and $70 million in 2002, 2001 and 2000, respectively. The large payment in 2001 was affected by the timing of funding for the fourth quarter 2000 payment, which was paid on January 2, 2001.
Under our stock repurchase program, we purchased 0.7 million shares ($46 million) in 2002, 0.7 million shares ($43 million) in 2001 and 8.7 million shares ($427 million) in 2000. See Note 11 to the Consolidated Financial Statements for additional detail on the company’s stock repurchase program.
FINANCIAL CONDITION AND LIQUIDITY
Our financial position remains strong. At December 31, 2002, our total assets were $6.6 billion versus $7.0 billion at the end of 2001. Stockholders’ equity declined from $1.5 billion at the end of 2001 to $0.7 billion at the end of 2002. The decreases were primarily the result of a $613 million charge relating to the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” a $151 million charge to equity to recognize a minimum liability on defined benefit pension plans and $148 million in foreign currency translation adjustments.
During 2002, long-term debt of $162 million was assumed through our acquisitions of Whirlpool Mexico and Polar. Excluding this assumed debt, total debt for the company decreased by $100 million, as strong cash flows funded the acquisition costs and were used to reduce indebtedness.
In May 2002, we renewed our existing $400 million committed 364-day credit facility for another 364 days. We also have a $800 million committed credit facility that was entered into on June 1, 2001, and matures in 2006. These committed facilities support our commercial paper programs and other operating needs. There were no borrowings under these facilities during 2002 or 2001. We were in full compliance with our bank covenants throughout both 2002 and 2001. None of our material debt agreements requires accelerated repayment in the event of a decrease in credit ratings. Our debt continues to be rated investment grade by Moody’s (Baa1), Standard & Poor’s (BBB+) and Fitch (A-).
We guarantee the indebtedness of a European affiliate and certain customers of a Brazilian subsidiary as discussed in Note 9 to the Consolidated Financial Statements. We do not expect these guarantees to have a material effect on our financial condition or liquidity.
We believe that our capital resources and liquidity position at December 31, 2002, are adequate to meet anticipated business needs and to fund future growth opportunities. Currently, we have access to capital markets in the U.S. and internationally. See Note 8 to the Consolidated Financial Statements for additional details on our committed credit facilities and debt obligations.
OTHER MATTERS
In December 1996, Multibras and Empresa Brasileira de Compressores S.A. (Embraco), Brazilian subsidiaries, were granted additional export incentives in connection with the Brazilian government’s export incentive program (Befiex). These incentives allowed the use of credits as an offset against current Brazilian federal excise tax on domestic sales. We recognized credits of $42 million, $53 million and $52 million in 2002, 2001 and 2000, respectively, as a reduction of current excise taxes payable and, therefore, an increase in net sales. The company’s remaining credits are approximately $207 million at December 31, 2002. However, we do not expect to recognize additional Befiex credits beyond the first quarter of 2003 until the calculation of the credit, which is currently under review, is confirmed by the Brazilian courts.
At December 31, 2002, our defined benefit pension plans were underfunded on a combined basis. Poor equity market performance reduced the value of pension assets, while extremely low interest rates reduced the discount rate, which increased the present value of liabilities. As a result, we recorded a $151 million, after-tax, non-cash charge to equity during the fourth quarter of 2002 to recognize a minimum liability as required under SFAS No. 87, “Employers’ Accounting for Pensions.” We recognized consolidated pre-tax pension credits of $24 million, $70 million and $98 million in 2002, 2001 and 2000. The assumptions used in determining our obligation under our U.S. pension plans at
2002 Annual Report 37
the end of 2002 included an expected return on assets of 8.75% versus 10.00% at the end of 2001, and a discount rate of 6.75% versus 7.50% at the end of 2001. Our expected return on assets of 8.75% is based on historical market returns between 1926 and 2002 applied to our allocation of plan assets. We currently expect that U.S. pension expense for 2003 will be approximately $63 million, based on the lower asset return rate and discount rate assumptions. Consolidated expense is anticipated to be approximately $76 million.
Although most of its assets have been divested, Whirlpool Financial Corporation remains a legal entity with assets consisting primarily of a leveraged lease portfolio. The portfolio includes investments in aircraft leveraged leases and is affected by the economic conditions of the aviation industry. See Note 5 to the Consolidated Financial Statements. The company continues to monitor its arrangements with the lessees and the value of the underlying assets.
CRITICAL ACCOUNTING POLICIES
Management has evaluated the accounting policies used in the preparation of the accompanying financial statements and related notes, and believes those policies to be reasonable and appropriate. Our accounting policies are described in Note 1 to the Consolidated Financial Statements. Certain of these accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our critical accounting policies include the following:
Pension and Other Postretirement Benefits
Accounting for pensions and other postretirement benefits involves estimating the costs of future benefits and attributing the cost over the employee’s expected period of employment with the company. The determination of our obligation and expense for these costs requires the use of certain assumptions. Those assumptions are included in Note 16 to the Consolidated Financial Statements and include, among others, the discount rate, expected long-term rate of return on plan assets, and rates of increase in compensation and healthcare costs. In accordance with generally accepted accounting principles, actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense and recorded obligation in such future periods. While we believe that our assumptions are appropriate given current economic conditions and our actual experience, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement obligations and related future expense.
Income Taxes
As part of the process of preparing our consolidated financial statements, we estimate our income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing expenses, for tax and accounting purposes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” These differences may result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards and temporary differences that are expected to be deductible in future years, will be recoverable. If recovery is not likely, we provide a valuation allowance based on our estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable. If future taxable income was lower than expected or if tax planning strategies were not available as anticipated, we may record additional valuation allowances through income tax expense in the period such determination is made. Likewise, if we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amounts, an adjustment to the deferred tax asset would increase income in the period such determination is made. As of December 31, 2002, we had total deferred tax assets of $698 million, net of valuation allowances of $65 million (see Note 15 to the Consolidated Financial Statements).
38 Management’s Discussion and Analysis
In addition, we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In our opinion, adequate provisions for income taxes have been made for all years.
Befiex Credits
As discussed above, our Brazilian subsidiaries have been recognizing benefits under the Brazilian government’s export incentive program (Befiex) as an offset against current Brazilian federal excise tax on domestic sales. Since the initial granting of these credits in 1996, it has been our policy to recognize these credits as they have been monetized. There have been, however, ongoing legal proceedings relating to this program, and it is presently under review within the Brazilian court system. We have chosen not to recognize any of our remaining credits of $207 million under the program beyond the first quarter of 2003 until the Brazilian courts have confirmed the method used to calculate those remaining credits.
Product Recall
The establishment of a liability for product recall expenses is occasionally required and is impacted by several factors, such as customer response rate, consumer options, field repair costs, inventory repair costs, extended warranty costs, communication structure, and other miscellaneous costs, such as legal, logistics and consulting. The customer response rate, which represents an estimate of the total number of units to be serviced as a percentage of the total number of units impacted by the recall, is the most significant factor in estimating the total cost of each recall. These rates are impacted by several factors, including the type of product, the year manufactured, age of the product sold, and current and past experience factors. Significant differences between our assumptions and our actual experience or significant changes in our assumptions could have a material impact on our product recall reserves, if any.
MARKET RISK
We are exposed to market risk from changes in foreign currency exchange rates, domestic and foreign interest rates, and commodity prices, which can affect our operating results and overall financial condition. We manage our exposure to these market risks through our 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 our exposure to nonperformance on such instruments. Our sensitivity analysis reflects the effects of changes in market risk but does not factor in potential business risks of the counterparties or appropriate use of instruments.
We use foreign currency forward contracts to hedge the price risk associated with firmly committed and forecasted cross-border payments and receipts related to our ongoing business and operational financing activities. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 2002, a 10% unfavorable exchange rate movement in our portfolio of foreign currency forward contracts would have resulted in an incremental unrealized loss of $65 million, while a 10% favorable shift would have resulted in an incremental unrealized gain of $72 million. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying exposures.
We use commodity swap contracts to hedge the price risk associated with firmly committed and forecasted commodities purchases that are not fixed directly through supply contracts. As of December 31, 2002, a 10% unfavorable shift in commodity prices would have resulted in an incremental loss of $3 million, while a 10% favorable shift would have resulted in an incremental gain of $3 million.
We utilize interest rate swaps to hedge our interest rate risk. As of December 31, 2002, a 10% shift in interest rates would have resulted in an incremental $1 million gain or loss related to these contracts.
2002 Annual Report 39
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the company. Management’s Discussion and Analysis and other sections of this report may contain forward-looking statements that reflect our current views with respect to future events and financial performance.
Certain statements contained in this annual report and other written and oral statements made from time to time by the company do not relate strictly to historical or current facts. As such, they are considered “forward-looking statements” which provide current expectations or forecasts of future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “will,” “forecast,” and similar words or expressions. Our forward-looking statements generally relate to our 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 intensely competitive global markets; (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 Latin American businesses operating in
challenging and volatile environments; (6) continuation of our strong relationship with Sears, Roebuck and Co. in North America, which accounted for approximately 21% of our consolidated net sales of $11 billion in 2002; (7) currency exchange rate fluctuations; (8) social, economic and political volatility in developing markets; (9) continuing uncertainty in the North American, Latin American, Asian and European economies; (10) changes in North America’s consumer preferences regarding how appliances are purchased; (11) the effectiveness of the series of restructuring actions the company has announced and/or completed through 2002; and (12) the threat of terrorist activities or the possibility of war.
We undertake no obligation to update every forward-looking statement, and investors are advised to review disclosures 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.
40 Management’s Discussion and Analysis
Consolidated Statements of Operations
Year Ended December 31 – Millions of dollars except per share data | 2002 | 2001 | 2000 | |||||||||
Net sales | $ | 11,016 |
| $ | 10,343 |
| $ | 10,325 |
| |||
Expenses | ||||||||||||
Cost of products sold |
| 8,464 |
|
| 7,925 |
|
| 7,838 |
| |||
Selling, general and administrative |
| 1,736 |
|
| 1,639 |
|
| 1,651 |
| |||
Intangible amortization |
| 14 |
|
| 28 |
|
| 29 |
| |||
Product recall costs |
| 9 |
|
| 295 |
|
| — |
| |||
Restructuring costs |
| 101 |
|
| 150 |
|
| — |
| |||
Operating Profit |
| 692 |
|
| 306 |
|
| 807 |
| |||
Other income (expense) | ||||||||||||
Interest income and sundry |
| (54 | ) |
| (51 | ) |
| (50 | ) | |||
Interest expense |
| (143 | ) |
| (162 | ) |
| (180 | ) | |||
Earnings from continuing operations before income taxes and other items |
| 495 |
|
| 93 |
|
| 577 |
| |||
Income taxes |
| 193 |
|
| 43 |
|
| 200 |
| |||
Earnings from continuing operations | ||||||||||||
before equity earnings and minority interests |
| 302 |
|
| 50 |
|
| 377 |
| |||
Equity in earnings (loss) of affiliated companies |
| (27 | ) |
| (4 | ) |
| 3 |
| |||
Minority interests |
| (13 | ) |
| (12 | ) |
| (13 | ) | |||
Earnings from continuing operations |
| 262 |
|
| 34 |
|
| 367 |
| |||
Discontinued operations, net of tax |
| (43 | ) |
| (21 | ) |
| — |
| |||
Cumulative effect of change in accounting principle, net of tax |
| (613 | ) |
| 8 |
|
| — |
| |||
Net earnings (loss) | $ | (394 | ) | $ | 21 |
| $ | 367 |
| |||
Per share of common stock | ||||||||||||
Basic earnings from continuing operations | $ | 3.86 |
| $ | 0.51 |
| $ | 5.24 |
| |||
Discontinued operations, net of tax |
| (0.62 | ) |
| (0.32 | ) |
| — |
| |||
Cumulative effect of change in accounting principle, net of tax |
| (9.03 | ) |
| 0.12 |
|
| — |
| |||
Basic net earnings (loss) | $ | (5.79 | ) | $ | 0.31 |
| $ | 5.24 |
| |||
Diluted earnings from continuing operations | $ | 3.78 |
| $ | 0.50 |
| $ | 5.20 |
| |||
Discontinued operations, net of tax |
| (0.62 | ) |
| (0.31 | ) |
| — |
| |||
Cumulative effect of change in accounting principle, net of tax |
| (8.84 | ) |
| 0.12 |
|
| — |
| |||
Diluted net earnings (loss) | $ | (5.68 | ) | $ | 0.31 |
| $ | 5.20 |
| |||
Dividends | $ | 1.36 |
| $ | 1.36 |
| $ | 1.36 |
| |||
Weighted-average shares outstanding: (millions) | ||||||||||||
Basic |
| 67.9 |
|
| 66.7 |
|
| 70.2 |
| |||
Diluted |
| 69.3 |
|
| 68.0 |
|
| 70.6 |
| |||
See notes to consolidated financial statements
2002 Annual Report 41
Consolidated Balance Sheets
December 31 – Millions of dollars | 2002 | 2001 | ||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and equivalents | $ | 192 |
| $ | 316 |
| ||
Trade receivables, less allowances (2002: $94; 2001: $93) |
| 1,781 |
|
| 1,515 |
| ||
Inventories |
| 1,089 |
|
| 1,110 |
| ||
Prepaid expenses and other |
| 64 |
|
| 59 |
| ||
Deferred income taxes |
| 83 |
|
| 176 |
| ||
Other current assets |
| 118 |
|
| 135 |
| ||
Total Current Assets |
| 3,327 |
|
| 3,311 |
| ||
Other assets | ||||||||
Investment in affiliated companies |
| 7 |
|
| 117 |
| ||
Goodwill, net |
| 161 |
|
| 685 |
| ||
Other intangibles, net |
| 182 |
|
| 23 |
| ||
Deferred income taxes |
| 437 |
|
| 354 |
| ||
Prepaid pension costs |
| 43 |
|
| 208 |
| ||
Other assets |
| 136 |
|
| 217 |
| ||
| 966 |
|
| 1,604 |
| |||
Property, plant and equipment | ||||||||
Land |
| 87 |
|
| 56 |
| ||
Buildings |
| 954 |
|
| 886 |
| ||
Machinery and equipment |
| 4,793 |
|
| 4,372 |
| ||
Accumulated depreciation |
| (3,496 | ) |
| (3,262 | ) | ||
| 2,338 |
|
| 2,052 |
| |||
Total Assets | $ | 6,631 |
| $ | 6,967 |
| ||
42 Consolidated Balance Sheets
December 31 –Millions of dollars |
| 2002 |
|
| 2001 |
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Notes payable | $ | 221 |
| $ | 148 |
| ||
Accounts payable |
| 1,631 |
|
| 1,427 |
| ||
Employee compensation |
| 273 |
|
| 252 |
| ||
Deferred income taxes |
| 100 |
|
| 102 |
| ||
Accrued expenses |
| 664 |
|
| 623 |
| ||
Restructuring costs |
| 122 |
|
| 77 |
| ||
Accrued product recalls |
| — |
|
| 239 |
| ||
Other current liabilities |
| 283 |
|
| 195 |
| ||
Current maturities of long-term debt |
| 211 |
|
| 19 |
| ||
Total Current Liabilities |
| 3,505 |
|
| 3,082 |
| ||
Other liabilities | ||||||||
Deferred income taxes |
| 117 |
|
| 177 |
| ||
Pension benefits |
| 358 |
|
| 143 |
| ||
Postemployment benefits |
| 487 |
|
| 480 |
| ||
Product warranty |
| 57 |
|
| 45 |
| ||
Other liabilities |
| 198 |
|
| 160 |
| ||
Long-term debt |
| 1,092 |
|
| 1,295 |
| ||
| 2,309 |
|
| 2,300 |
| |||
Minority interests |
| 78 |
|
| 127 |
| ||
Stockholders’ equity | ||||||||
Common stock, $1 par value: |
| 87 |
|
| 86 |
| ||
Authorized – 250 million shares | ||||||||
Issued – 87 million shares (2002); 85 million shares (2001) | ||||||||
Outstanding – 68 million shares (2002); 67 million shares (2001) | ||||||||
Paid-in capital |
| 582 |
|
| 480 |
| ||
Retained earnings |
| 1,985 |
|
| 2,470 |
| ||
Accumulated other comprehensive income (loss) |
| (999 | ) |
| (697 | ) | ||
Treasury stock – 19 million shares (2002); 18 million shares (2001) |
| (916 | ) |
| (881 | ) | ||
Total Stockholders’ Equity |
| 739 |
|
| 1,458 |
| ||
Total Liabilities and Stockholders’ Equity | $ | 6,631 |
| $ | 6,967 |
| ||
See notes to consolidated financial statements
2002 Annual Report 43
Consolidated Statements of Cash Flows
Year ended December 31 – Millions of dollars | 2002 | 2001 | 2000 | |||||||||
Operating activities | ||||||||||||
Net earnings (loss) | $ | (394 | ) | $ | 21 |
| $ | 367 |
| |||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||
Cumulative effect of a change in accounting principle |
| 613 |
|
| (8 | ) |
| — |
| |||
Equity in earnings (losses) of affiliated companies, less dividends received |
| 27 |
| �� | 4 |
|
| (3 | ) | |||
Loss on disposition of assets |
| 32 |
|
| 33 |
|
| 15 |
| |||
Loss on discontinued operations |
| 43 |
|
| 21 |
|
| – |
| |||
Depreciation and amortization |
| 405 |
|
| 396 |
|
| 400 |
| |||
Changes in assets and liabilities, net of business acquisitions: | ||||||||||||
Trade receivables |
| (67 | ) |
| 116 |
|
| (348 | ) | |||
Inventories |
| 101 |
|
| (26 | ) |
| (80 | ) | |||
Accounts payable |
| 63 |
|
| 230 |
|
| 221 |
| |||
Product recalls |
| (239 | ) |
| 239 |
|
| — |
| |||
Restructuring charges, net of cash paid |
| 33 |
|
| 74 |
|
| (43 | ) | |||
Taxes deferred and payable, net |
| 157 |
|
| (129 | ) |
| 11 |
| |||
Tax paid on cross currency interest rate swap gain |
| (86 | ) |
| — |
|
| — |
| |||
Other – net |
| 124 |
|
| 53 |
|
| (95 | ) | |||
Cash Provided by Operating Activities | $ | 812 |
| $ | 1,024 |
| $ | 445 |
| |||
Investing activities | ||||||||||||
Capital expenditures | $ | (430 | ) | $ | (378 | ) | $ | (375 | ) | |||
Acquisitions of businesses, less cash acquired |
| (179 | ) |
| — |
|
| (283 | ) | |||
Proceeds of cross-currency interest rate swaps |
| — |
|
| 209 |
|
| — |
| |||
Cash Used for Investing Activities | $ | (609 | ) | $ | (169 | ) | $ | (658 | ) | |||
Financing activities | ||||||||||||
Net proceeds (repayments) of short-term borrowings | $ | (165 | ) | $ | (790 | ) | $ | 628 |
| |||
Proceeds of long-term debt |
| 6 |
|
| 301 |
|
| 326 |
| |||
Repayments of long-term debt |
| (30 | ) |
| (80 | ) |
| (408 | ) | |||
Dividends paid |
| (91 | ) |
| (113 | ) |
| (70 | ) | |||
Purchase of treasury stock |
| (46 | ) |
| (43 | ) |
| (427 | ) | |||
Other – net |
| 3 |
|
| 72 |
|
| 27 |
| |||
Cash Provided by (used for) Financing Activities | $ | (323 | ) | $ | (653 | ) | $ | 76 |
| |||
Effect of Exchange Rate Changes on Cash and Equivalents | $ | (4 | ) | $ | — |
| $ | (10 | ) | |||
Increase (Decrease) in Cash and Equivalents | $ | (124 | ) | $ | 202 |
| $ | (147 | ) | |||
Cash and Equivalents at Beginning of Year |
| 316 |
|
| 114 |
|
| 261 |
| |||
Cash and Equivalents at End of Year | $ | 192 |
| $ | 316 |
| $ | 114 |
| |||
See notes to consolidated financial statements
44 Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Millions of dollars | Common Stock | Treasury Stock/ Paid-in Capital | Accumulated Other Comprehensive Income | Retained Earnings | Total | ||||||||||||||
Balances, January 1, 2000 | $ | 84 | $ | (42 | ) | $ | (443 | ) | $ | 2,268 |
| $ | 1,867 |
| |||||
Comprehensive income | |||||||||||||||||||
Net earnings |
| 367 |
|
| 367 |
| |||||||||||||
Minimum pension liability adjustments, net of tax of $4 |
| (5 | ) |
| (5 | ) | |||||||||||||
Foreign currency items, net of tax of $15 |
| (47 | ) |
| (47 | ) | |||||||||||||
Comprehensive income |
| 315 |
| ||||||||||||||||
Common stock repurchased |
| (427 | ) |
| (427 | ) | |||||||||||||
Common stock issued |
| 25 |
|
| 25 |
| |||||||||||||
Dividends declared on common stock |
| (96 | ) |
| (96 | ) | |||||||||||||
Balances, December 31, 2000 | $ | 84 | $ | (444 | ) | $ | (495 | ) | $ | 2,539 |
| $ | 1,684 |
| |||||
Comprehensive loss | |||||||||||||||||||
Net earnings |
| 21 |
|
| 21 |
| |||||||||||||
Cumulative effect of change in accounting principle, net of tax of $7 |
| (11 | ) |
| (11 | ) | |||||||||||||
Unrealized loss on derivative financial instruments, net of tax of $2 |
| (6 | ) |
| (6 | ) | |||||||||||||
Minimum pension liability adjustments, net of tax of $4 |
| (7 | ) |
| (7 | ) | |||||||||||||
Foreign currency items, net of tax of $3 |
| (178 | ) |
| (178 | ) | |||||||||||||
Comprehensive loss |
| (181 | ) | ||||||||||||||||
Common stock repurchased |
| (43 | ) |
| (43 | ) | |||||||||||||
Common stock issued |
| 2 |
| 86 |
|
| 88 |
| |||||||||||
Dividends declared on common stock |
| (90 | ) |
| (90 | ) | |||||||||||||
Balances, December 31, 2001 | $ | 86 | $ | (401 | ) | $ | (697 | ) | $ | 2,470 |
| $ | 1,458 |
| |||||
Comprehensive loss | �� | ||||||||||||||||||
Net loss |
| (394 | ) |
| (394 | ) | |||||||||||||
Unrealized loss on derivative financial instruments |
| (3 | ) |
| (3 | ) | |||||||||||||
Minimum pension liability adjustments, net of tax of $100 |
| (151 | ) |
| (151 | ) | |||||||||||||
Foreign currency items |
| (148 | ) |
| (148 | ) | |||||||||||||
Comprehensive loss |
| (696 | ) | ||||||||||||||||
Common stock repurchased, net of reissuances |
| (35 | ) |
| (35 | ) | |||||||||||||
Common stock issued |
| 1 |
| 102 |
|
| 103 |
| |||||||||||
Dividends declared on common stock |
| (91 | ) |
| (91 | ) | |||||||||||||
Balances, December 31, 2002 | $ | 87 | $ | (334 | ) | $ | (999 | ) | $ | 1,985 |
| $ | 739 |
| |||||
See notes to consolidated financial statements
2002 Annual Report 45
Notes to Consolidated Financial Statements
• 01 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 nine countries under nine major brand names and markets products to distributors and retailers in more than 170 countries.
Principles of Consolidation
The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliated companies, consisting principally of direct voting interests of 40% and 49% in two other international companies principally engaged in the manufacture and sale of major home appliances or related component parts, are accounted for by the equity method. All intercompany transactions have been eliminated upon consolidation.
Use of Estimates
Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Sales are recorded when title passes to the customer. The point at which title passes is determined by the shipping terms, which generally designate a transfer of title to the customer as soon as the product is shipped. Allowances for estimated returns are made on sales of certain products based on historical return rates for the products involved.
Accounts Receivable and Allowance for Doubtful Accounts
The company carries its accounts receivable at their face amounts less an allowance for doubtful accounts. On a periodic basis, the company evaluates its accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions and based on a history of write-offs and collections. The company’s policy is to generally not charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments have not been received within agreed upon invoice terms.
Freight and Warehousing Costs
Freight-out and warehousing costs included in selling, general and administrative expenses in the statements of operations were $520 million, $497 million and $470 million in 2002, 2001 and 2000, respectively.
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. Useful lives for buildings range from 25 to 40 years, and machinery and equipment range from three to 10 years. Assets recorded under capital leases are included in property, plant and equipment.
46 Notes to Consolidated Financial Statements
Research and Development Costs
Research and development costs are charged to expense as incurred. Such costs were $282 million, $231 million and $254 million in 2002, 2001 and 2000, respectively.
Advertising Costs
Advertising costs are charged to expense as incurred. Such costs were $176 million, $177 million and $191 million in 2002, 2001 and 2000, respectively.
Foreign Currency Translation
The functional currency for the company’s international subsidiaries and affiliates is typically the local currency. Certain international subsidiaries utilize the U.S. dollar as the functional currency.
Derivative Financial Instruments
On January 1, 2001, the company adopted Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. The adoption of SFAS No. 133 resulted in a cumulative effect of an accounting change of $8 million of income, net of tax, in the company’s statement of operations and a $11 million decrease, net of tax, in stockholders’ equity. As a result of the adoption of SFAS No. 133, the company recognizes all of its derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the company must designate the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, fair value hedge, or a hedge of a net investment in a foreign operation.
Cash flow hedges are hedges that use derivatives to offset the variability of expected future cash flows. The effective portion of the unrealized gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same line item associated with the hedged transaction in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the unrealized gain or loss on the derivative instrument, if any, is recognized in other income (expense) in current earnings during the period of change.
Fair value hedges are hedges that eliminate the risk of changes in the fair values of assets, liabilities and certain types of firm commitments. The gain or loss on a derivative instrument designated as a fair value hedge and the offsetting loss or gain on the hedged item are recognized in the same line item associated with the hedged item in current earnings during the period of the change in fair values.
Net investment hedge designation refers to the use of derivative contracts or cash instruments to hedge the foreign currency exposure of a net investment in a foreign operation. For those derivatives that qualify as net investment hedges, the effective portion of any unrealized gain or loss is reported in accumulated other comprehensive income as part of the cumulative translation adjustment. Any ineffective portion of net investment hedges is recognized in other income (expense) in current earnings during the period of change.
For derivative instruments not designated as hedging instruments, the unrealized gain or loss is recognized in other income (expense) in current earnings during the period of change.
2002 Annual Report 47
Stock-Based Employee Compensation
Stock option and incentive plans are accounted for under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” but has not adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended. Had the company elected to adopt the recognition provisions of SFAS No. 123, pro forma net earnings (loss) and diluted net earnings (loss) per share would be as follows:
Year ended December 31 – Millions of dollars, except per share data | 2002 | 2001 | 2000 | |||||||
Compensation cost included in earnings as reported (net of tax benefits) | $ | 12 |
| $ | 16 | $ | 1 | |||
Pro forma total fair value compensation cost (net of tax benefits) | $ | 25 |
| $ | 29 | $ | 13 | |||
Net earnings (loss) | ||||||||||
As reported | $ | (394 | ) | $ | 21 | $ | 367 | |||
Pro forma |
| (407 | ) |
| 8 |
| 355 | |||
Basic net earnings (loss) per share | ||||||||||
As reported | $ | (5.79 | ) | $ | 0.31 | $ | 5.24 | |||
Pro forma |
| (5.99 | ) |
| 0.12 |
| 5.06 | |||
Diluted net earnings (loss) per share | ||||||||||
As reported | $ | (5.68 | ) | $ | 0.31 | $ | 5.20 | |||
Pro forma |
| (5.87 | ) |
| 0.12 |
| 5.03 | |||
Net Earnings Per Common Share (in thousands)
Diluted net earnings per share of common stock includes the dilutive effect of stock options and stock based compensation plans. For the year ended December 31, 2002, 2001 and 2000, a total of 1,885 options, 619 options, and 4,820 options, respectively, were excluded from the calculation of diluted earnings per share because their exercise prices would render them anti-dilutive.
Reclassifications
Certain reclassifications have been made to prior year data to conform to the current year presentation which had no effect on net income reported for any period.
• 02 NEW ACCOUNTING STANDARDS
In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The Interpretation includes additional disclosure provisions as well as recognition and measurement provisions which require a liability to be recorded for certain guarantees at fair value. The disclosure requirements of this interpretation have been adopted by the company at December 31, 2002. The recognition and measurement provisions became effective for the company on January 1, 2003, and are not expected to have a material effect on the company.
• 03 GOODWILL AND OTHER INTANGIBLES
Goodwill
The company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002.
48 Notes to Consolidated Financial Statements
The following table provides comparative net earnings (loss) and net earnings (loss) per share had the non-amortization provisions of SFAS No. 142 been adopted for all periods presented:
Millions of dollars, except per share data | 2002 | 2001 | 2000 | |||||||
Reported net earnings (loss) | $ | (394 | ) | $ | 21 | $ | 367 | |||
Goodwill amortization |
| — |
|
| 27 |
| 27 | |||
Adjusted net earnings (loss) | $ | (394 | ) | $ | 48 | $ | 394 | |||
Basic earnings per share | ||||||||||
Reported net earnings (loss) | $ | (5.79 | ) | $ | .31 | $ | 5.24 | |||
Goodwill amortization |
| — |
|
| .40 |
| .38 | |||
Adjusted net earnings (loss) | $ | (5.79 | ) | $ | .71 | $ | 5.62 | |||
Diluted earnings per share | ||||||||||
Reported net earnings (loss) | $ | (5.68 | ) | $ | .31 | $ | 5.20 | |||
Goodwill amortization |
| — |
|
| .40 |
| .38 | |||
Adjusted net earnings (loss) | $ | (5.68 | ) | $ | .71 | $ | 5.58 | |||
The company completed the transitional goodwill impairment review of its reporting units and recorded a non-cash after-tax charge of $613 million, or $8.84 per diluted share, as a cumulative effect of a change in accounting principle in 2002. An additional impairment of $9 million, after tax, was recognized as a charge to operations during the fourth quarter of 2002 relating to goodwill acquired in Asia (see Note 4).
The following table summarizes the impairment charges by reporting unit as well as the changes in the carrying amount of goodwill for the year ended December 31, 2002:
Reporting Unit – Millions of dollars | Beginning of Year | Impairment Charges | Acquisitions | End of Year | |||||||||
North America | $ | 68 | $ | — |
| $ | 89 | $ | 157 | ||||
Europe |
| 367 |
| (367 | ) |
| — |
| — | ||||
Latin America |
| 64 |
| (60 | ) |
| — |
| 4 | ||||
Asia |
| 186 |
| (195 | ) |
| 9 |
| — | ||||
Total | $ | 685 | $ | (622 | ) | $ | 98 | $ | 161 | ||||
The goodwill in Europe was related primarily to the company’s acquisition in 1989 (53%) and 1991 (47%) of the major appliance business of Philips Electronics N.V. The Latin American goodwill was mainly generated by the company’s majority ownership expansion in 1997 of its Brazilian affiliates. Within the Asian business segment, the majority of goodwill arose in 1995 due to the acquisition of a majority interest in Kelvinator of India, Ltd., and expansion into China.
The company determined the fair value of each reporting unit using a discounted cash flow approach taking into consideration projections based on the individual characteristics of the reporting units, historical trends and market multiples for comparable businesses. The resulting impairment was primarily attributable to a change in the evaluation criteria for goodwill utilized under previous accounting guidance to the fair value approach stipulated in SFAS No. 142. External factors such as increased regional competition and global economic conditions also negatively impacted the value of these acquisitions.
2002 Annual Report 49
Other Intangible Assets
Other intangibles are comprised of the following:
December 31 – Millions of dollars | 2002 | 2001 | ||||
Trademarks (indefinite-lived) | $ | 49 | $ | 13 | ||
Patents and non-compete agreements |
| 5 |
| 10 | ||
Pension related |
| 128 |
| — | ||
Total other intangible assets, net | $ | 182 | $ | 23 | ||
The balance at December 31, 2002, includes trademarks acquired as part of the Whirlpool Mexico and Polar acquisitions (see Note 4), and intangible assets related to minimum pension liabilities (see Note 16). Accumulated amortization totaled $21 million and $16 million at December 31, 2002 and 2001.
• 04 BUSINESS ACQUISITIONS
Whirlpool Mexico
On July 3, 2002, the company acquired the remaining 51% ownership in Vitromatic S.A. de C.V. (now called Whirlpool Mexico), an appliance manufacturer and distributor in Mexico. Prior to that date, the company’s 49% ownership in Whirlpool Mexico was accounted for as an equity investment. Whirlpool Mexico has been included in the consolidated financial statements within the North American operating segment since the acquisition date. The aggregate purchase price was $151 million in cash plus outstanding debt at the time of acquisition, which totaled $143 million. The transaction resulted in goodwill of $89 million, and is expected to result in additional synergies and operational benefits. The transaction also generated approximately $15 million in indefinite-lived intangible assets related to trademarks owned by Whirlpool Mexico.
The Whirlpool Mexico opening balance sheet is summarized (in millions of dollars) as follows:
ASSETS | |||
Current assets | |||
Trade receivables, net | $ | 130 | |
Inventories |
| 60 | |
Other current assets |
| 15 | |
Total Current Assets |
| 205 | |
Other assets | |||
Property, plant and equipment |
| 245 | |
Goodwill |
| 89 | |
Other intangibles |
| 15 | |
Total Assets | $ | 554 | |
50 Notes to Consolidated Financial Statements
LIABILITIES AND STOCKHOLDER’ S EQUITY | |||
Current liabilities | |||
Accounts payable | $ | 112 | |
Notes payable |
| 132 | |
Total Current Liabilities |
| 244 | |
Other liabilities | |||
Other liabilities |
| 80 | |
Total Other Liabilities |
| 80 | |
Total Stockholder’s Equity |
| 230 | |
Total Liabilities and Stockholder’s Equity | $ | 554 | |
Polar
On June 5, 2002, the company acquired 95% of the shares of Polar S.A. (Polar), a leading major home appliance manufacturer in Poland. The results of Polar’s operations have been included in the consolidated financial statements since that date. The aggregate purchase price was $27 million in cash plus outstanding debt at the time of acquisition, which totaled $19 million. The transaction also generated $17 million in indefinite-lived intangible assets related to trademarks owned by Polar. The operations of Polar have been included in the company’s European operating segment.
Other
On November 18, 2002, the company acquired the remaining 20% interest in Whirlpool Narcissus Shanghai Company Limited (“Narcissus”) for $9 million. Narcissus is a home appliance manufacturing company located in Shanghai, China. The transaction was largely necessitated by the exercise of a put option by the minority partner arising out of an amendment to the joint venture contract agreed to in February 1998. The purchase resulted in $9 million of goodwill, which was subsequently written off as impaired goodwill under the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets.” The entity is now a wholly owned subsidiary of the company.
On January 7, 2000, the company completed its tender offer for the outstanding publicly traded shares in Brazil of its subsidiaries Brasmotor S.A. (Brasmotor) and Multibras S.A. Eletrodomesticos (Multibras). In completing the offer, the company purchased additional shares of Brasmotor and Multibras for $283 million, bringing its equity interest in these companies to approximately 94%. Including Embraco, the company’s equity interest in its Brazilian subsidiaries increased from approximately 55% to approximately 87%.
• 05 DISCONTINUED OPERATIONS
In 1997, the company discontinued its financing operations, Whirlpool Financial Corporation (WFC), and sold the majority of its assets. The remaining assets consist primarily of an investment in a portfolio of leveraged leases, which are recorded in other non-current assets in the balance sheets and totaled $44 million and $123 million, net of related reserves, at December 31, 2002 and 2001, respectively.
During the fourth quarter of 2002, the company wrote off WFC’s investment in leveraged aircraft leases relating to United Airlines (UAL) as a result of UAL’s filing for bankruptcy protection. The write-off resulted in a non-cash charge of $68 million, or $43 million after tax. The company also reclassified $49 million in related long-term deferred tax liabilities to current taxes payable, which is included in other current liabilities on the company’s Consolidated Balance Sheet.
2002 Annual Report 51
During the second quarter of 2001, the company wrote off a portion of WFC’s investment in securitized aircraft leases. The write-off, due primarily to the softening aircraft leasing industry, resulted in a loss from discontinued operations of $35 million, or $21 million after-tax.
• 06 INVENTORIES
December 31 – Millions of dollars | 2002 | 2001 | ||||||
Finished products | $ | 928 |
| $ | 949 |
| ||
Work in process |
| 71 |
|
| 58 |
| ||
Raw materials |
| 226 |
|
| 239 |
| ||
| 1,225 |
|
| 1,246 |
| |||
Less excess of FIFO cost over LIFO cost |
| (136 | ) |
| (136 | ) | ||
Total inventories | $ | 1,089 |
| $ | 1,110 |
| ||
LIFO inventories represent approximately 33% and 39% of total inventories at December 31, 2002 and 2001, respectively.
• 07 ASSET IMPAIRMENT
The company recorded a $22 million after-tax impairment charge in the second quarter of 2002 related to its minority investments in and advances to a European business. The company acquired its initial investment in this entity with its purchase of the appliance operations of Philips Electronics N.V. in 1989. Continued deterioration in the marketplace led to overcapacity in the wood cabinet industry, which resulted in the business revising its estimated future cash flows. These circumstances prompted the company to conduct an impairment review, resulting in the above charge, which is reflected in equity earnings (loss) in the consolidated statement of operations.
• 08 FINANCING ARRANGEMENTS
Notes Payable and Debt
At December 31, 2002, the company had committed unsecured revolving lines of credit available from banks totaling $1.2 billion. The lines of credit are comprised of a committed $800 million credit agreement, which expires in June 2006, and a committed $400 million 364-day credit agreement maturing in May 2003. These committed lines support the company’s commercial paper programs and other liquidity needs. The interest rate for borrowing under the credit agreements is generally based on the London Interbank Offered Rate plus a spread that reflects the company’s debt rating. The credit agreements require that the company maintain a maximum debt to EBITDA ratio and a minimum interest coverage ratio. At December 31, 2002, the company was in compliance with its financial covenants. The credit agreements provide the company with access to adequate and competitive funding under unusual market conditions. During 2002, there were no borrowings outstanding under the credit agreements.
Notes payable consist of the following:
December 31 – Millions of dollars | 2002 | 2001 | ||||
Payable to banks | $ | 208 | $ | 139 | ||
Commercial paper |
| 13 |
| 9 | ||
Total notes payable | $ | 221 | $ | 148 | ||
52 Notes to Consolidated Financial Statements
The fair value of the company’s notes payable approximates the carrying amount due to the short maturity of these obligations. The weighted average interest rate on notes payable was 5.7% and 7.6% at December 31, 2002 and 2001.
Long-term debt consists of the following:
December 31 – Millions of dollars | 2002 | 2001 | ||||
Debentures – 9% due 2003 | $ | 200 | $ | 200 | ||
Eurobonds (EUR 300 million) – 5.875% due 2006 |
| 310 |
| 264 | ||
Debentures – 9.1% due 2008 |
| 125 |
| 125 | ||
Notes – 8.6% due 2010 |
| 325 |
| 325 | ||
Debentures – 7.75% due 2016 |
| 243 |
| 243 | ||
Other (various interest rates with maturities of 2002-2012) |
| 100 |
| 157 | ||
$ | 1,303 | $ | 1,314 | |||
Less current maturities |
| 211 |
| 19 | ||
Total long-term debt, net of current maturities | $ | 1,092 | $ | 1,295 | ||
Annual maturities of long-term debt in the next five years are $211 million, $15 million, $5 million, $318 million and $8 million.
The company paid interest on short-term and long-term debt totaling $141 million, $151 million and $181 million in 2002, 2001 and 2000, respectively.
The fair value of long-term debt (including current maturities) was $1,457 million and $1,348 million as of December 31, 2002 and 2001, and was estimated using discounted cash flow analyses based on incremental borrowing rates for similar types of borrowing arrangements.
Preferred Stock
Although most of its assets have been divested, WFC remains a legal entity with assets consisting primarily of leveraged leases (see Note 5). WFC also has 349,300 shares of Series B preferred stock outstanding as of December 31, 2002, with a face value of $100 per share, an annual dividend of $6.55 per share and a mandatory redemption date of September 1, 2008. As of December 31, 2001, WFC had the above listed Series B preferred stock outstanding as well as 250,000 shares of Series C preferred stock outstanding with a face value of $100 per share, an annual dividend of $6.09 per share and a mandatory redemption date of February 1, 2002. The Series C preferred stock was redeemed on the mandatory redemption date. The preferred stock amounts are included within minority interests in the consolidated balance sheets, and the carrying amounts approximate fair value.
The preferred stockholders are entitled to vote together on a share-for-share basis with WFC’s common stockholder, Whirlpool Corporation. Preferred stock dividends are payable quarterly. At its option, WFC may redeem the Series B at any time on or after September 1, 2003. The redemption price 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.
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 12 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 company was not required to make any payments under this agreement during 2002, 2001 or 2000. 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.
2002 Annual Report 53
• 09 GUARANTEES, COMMITMENTS AND CONTINGENCIES
Guarantees
The company guarantees the bills of exchange related to a European business (“affiliate”) in which Whirlpool is a minority shareholder. These bills of exchange are short-term agreements, usually for 90 days, which allow the issuer to convert its receivables into cash, less a minor fee paid to the bank. The bills of exchange are issued both by the company for loans made to the affiliate and by the affiliate for its trade accounts receivable. In the event the affiliate defaults on its obligations under any of the bills of exchange, the company would be liable for the related amounts. The company has limited recourse provisions against the assets of the affiliate in the event of its insolvency. As of December 31, 2002 and 2001, the company had approximately $30 million and $24 million of guarantees outstanding for the bills of exchange related to the affiliate.
The company also has guarantee arrangements in place in a Brazilian subsidiary. As a standard business practice in Brazil, the subsidiary guarantees customer lines of credit at commercial banks following its normal credit policies. In the event that a customer were to default on its line of credit with the bank, the subsidiary would be required to satisfy the obligation with the bank, and the receivable would revert back to the subsidiary. The total amount of the related guarantees at December 31, 2002 and 2001, is approximately $66 million and $124 million, respectively. The only recourse available on these guarantees would be legal or administrative collection efforts directed against the customer.
The company provides guarantees of indebtedness for various consolidated subsidiaries. Guarantee agreements for consolidated subsidiaries totaled $1.4 billion and $1.3 billion at December 31, 2002 and 2001, respectively.
Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized. The amounts of those reserves are based on established terms and the company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. The product warranty reserves increased in 2002 due to increased sales volume and an extension of certain product warranty terms from one to two years in various European operations. The following represents a reconciliation of the changes in product warranty reserves for the periods presented:
December 31 – Millions of dollars | 2002 | 2001 | ||||||
Balance at January 1 | $ | 108 |
| $ | 114 |
| ||
Warranties issued |
| 228 |
|
| 198 |
| ||
Warranties acquired |
| 7 |
|
| — |
| ||
Settlements made |
| (214 | ) |
| (203 | ) | ||
Other changes |
| (1 | ) |
| (1 | ) | ||
Balance at December 31 | $ | 128 |
| $ | 108 |
| ||
Current portion | $ | 71 |
| $ | 63 |
| ||
Non-current portion |
| 57 |
|
| 45 |
| ||
Total | $ | 128 |
| $ | 108 |
| ||
Commitments and 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.
54 Notes to Consolidated Financial Statements
At December 31, 2002, the company had non-cancelable operating lease commitments totaling $203 million. The annual future minimum lease payments are detailed in the table below.
Millions of dollars | |||
2003 | $ | 54 | |
2004 |
| 41 | |
2005 |
| 34 | |
2006 |
| 31 | |
2007 |
| 26 | |
Thereafter |
| 17 | |
Total non-cancelable operating lease commitments | $ | 203 | |
The company’s rent expense was $72 million, $98 million and $93 million for the years 2002, 2001 and 2000, respectively.
• 10 HEDGES AND DERIVATIVE FINANCIAL INSTRUMENTS
The company is exposed to market risk from changes in foreign currency exchange rates, domestic and foreign interest rates, and commodity prices. Fluctuations in these rates and prices can affect the company’s operating results and financial condition. The company manages its exposure to these market risks through its operating and financing activities, and through the use of derivative financial instruments. The company does not enter into derivative financial instruments for trading purposes.
Using derivative markets means assuming counter-party credit risk. Counter-party risk relates to the loss the company could incur if a counter-party defaulted on a derivative contract. The company deals only with investment-grade counterparties to these contracts and monitors its overall credit risk and exposure to individual counter-parties. The company does not anticipate nonperformance by any counter-parties. The amount of counter-party credit exposure is generally the unrealized gains on such derivative contracts. The company does not require, nor does it post, collateral or security on such contracts.
The following summarizes the outstanding derivative contracts at December 31, 2002 and 2001, and the exposures to which they relate:
Notional Amount in Millions of Dollars | ||||||||||||
Exposure | Derivative | 2002 | 2001 | Hedge Type | Term | |||||||
Forecasted cross currency cashflows | Foreign exchange forwards | $ | 324 | $ | 421 | Cash flow or fair value hedge | Various, up to 18 months | |||||
Non-functional currency asset/liability | Foreign exchange forwards | $ | 533 | $ | 501 | Undesignated | Various, up to 6 months | |||||
Raw Material Purchases | Commodity swaps | $ | 29 | $ | 14 | Cash flow hedge | Various, up to 18 months | |||||
Floating Rate Debt | Interest rate swaps | $ | 100 | $ | 100 | Cash flow hedge | 2006 | |||||
Fixed Rate Debt | Interest rate swaps | $ | 200 | $ | — | Fair value hedge | 2003 | |||||
2002 Annual Report 55
Forecasted cross currency cashflows relate primarily to foreign currency denominated expenditures and intercompany financing agreements, royalty agreements and dividends. Non-functional currency asset and liability hedges are undesignated, but relate primarily to short-term payables and receivables and intercompany loans. Commodity swaps relate to raw material purchases (for example, copper and aluminum) used in the manufacturing process. Unrealized gains and losses on the above foreign currency exchange contracts and commodities swaps were not significant as of December 31, 2002 and 2001.
The company’s $100 million interest-rate swap maturing in 2006 is designated and is effective as a hedge of future cash payments, and is treated as a cash-flow hedge for accounting purposes. The fair value of this contract was a loss of $12 million as of December 31, 2002, and a loss of $4 million as of December 31, 2001.
The company’s $200 million interest-rate swap maturing in 2003 is designated and is effective as a hedge of future cash payments and is treated as a fair-value hedge for accounting purposes. The fair value of this contract was a gain of $1 million as of December 31, 2002.
The company has designated a portion of its Euro-denominated, fixed-rate debt as a hedge to protect the value of its net investments in its European subsidiaries. Translation adjustments related to this debt are not included in the income statement, but are shown in the cumulative translation adjustment account included in accumulated other comprehensive income. During the year ended December 31, 2002, the company recognized $1 million of net losses included in the cumulative translation adjustment related to this net-investment hedge.
During the years ended December 31, 2002 and 2001, the company’s gains and losses related to the ineffective portion of its hedging instruments were immaterial. The company did not recognize any gains or losses during the years ended December 31, 2002 and 2001, for cash-flow hedges that were discontinued because the forecasted transaction was not probable to occur.
The amount of unrealized gains and losses on derivative instruments included in other comprehensive income at December 31, 2002, that will be reclassified into earnings during 2003 is not significant.
The company managed a portfolio of domestic and cross-currency interest-rate swaps that effectively converted U.S. dollar denominated debt into that of various European currencies. Through May 15, 2000, such local currency denominated debt served as an effective hedge against the company’s European cash flows and net assets. On May 15, 2000, the company undesignated these contracts as hedges of the net investment in its European operations and entered into offsetting Euro-denominated currency swaps, effectively locking in its positive cash position on the original swap portfolio. These contracts were not designated as hedges and, therefore, were marked-to-market each period through earnings as a component of interest expense, with unrealized gains (losses) on the May 2000 swap contracts substantially offsetting subsequent unrealized (losses) gains on the original swap portfolio. On October 5, 2001, the company monetized the above-referenced swaps, receiving $209 million in cash.
The net transaction losses recognized in other income (expense) in the statement of operations, including gains and losses from those contracts not qualifying as hedges, were $17 million in 2002, $11 million in 2001 and $17 million in 2000.
56 Notes to Consolidated Financial Statements
• 11 STOCKHOLDERS’ EQUITY
On February 15, 2000, the company announced that its Board of Directors approved an extension of the company’s stock repurchase program to $1 billion. The additional $750 million share repurchase authorization extends the previously authorized $250 million repurchase program that was announced March 1, 1999. The shares are to be purchased in the open market and through privately negotiated sales as the company deems appropriate. The company has purchased 12.7 million shares at a cost of $683 million through December 31, 2002, under this stock repurchase program, of which 8.7 million shares ($427 million) were purchased in 2000, 0.7 million shares ($43 million) were purchased in 2001, and 0.7 million shares ($46 million) were purchased in 2002. The 2002 shares were purchased from one of the company’s U.S. pension plans at an average cost of $66.32 per share, which was based upon an average of the high and low market prices on the date of purchase. The 2001 share repurchases included 0.6 million shares that were purchased from one of the company’s U.S. pension plans at a cost of $41 million, or $67.78 per share, which was based upon an average of the high and low market prices on the date of purchase.
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.
Accumulated other comprehensive income (loss), net of tax, consists of:
Millions of dollars | 2002 | 2001 | ||||||
Foreign currency translation adjustments | $ | (821 | ) | $ | (673 | ) | ||
Derivative financial instruments |
| (20 | ) |
| (17 | ) | ||
Minimum pension liability adjustments |
| (158 | ) |
| (7 | ) | ||
Total | $ | (999 | ) | $ | (697 | ) | ||
Preferred Stock Purchase Rights
One Preferred Stock Purchase Right (Rights) is outstanding for each share of common stock. The Rights, which expire May 22, 2008, will become exercisable 10 days after a person or group (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding common stock (the Trigger Date) or 10 business days after the commencement, or public disclosure of an intention to commence, a tender offer or exchange offer by a person that could result in beneficial ownership of 15% or more of the outstanding common stock. Each Right entitles the holder to purchase from the company one one-thousandth of a share of a Junior Participating Preferred Stock, Series B, par value $1.00 per share, of the company at a price of $300 per one one-thousandth of a Preferred Share subject to adjustment.
If a person becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights that are or were beneficially owned by the Acquiring Person (which will thereafter be void), shall thereafter have the right to receive upon exercise of such Right that number of shares of common stock (or other securities) having at the time of such transaction a market value of two times the exercise price of the Right. If a person becomes an Acquiring Person and the company is involved in a merger or other business combination transaction where the company is not the surviving corporation or where common stock is changed or exchanged or in a transaction or transactions in which 50% or more of its consolidated assets or earning power are sold, proper provision shall be made so that each holder of a Right (other than such Acquiring Person) shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the 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
2002 Annual Report 57
price of $.01 per Right, payable in cash, shares of common stock or any other consideration deemed appropriate by the Board of Directors. Immediately upon action of the Board of Directors ordering redemption of the Rights, the ability of holders to exercise the Rights will terminate and such holders will only be able to receive the redemption price.
Until such time as the Rights become exercisable, the Rights have no voting or dividend privileges and are attached to, and do not trade separately from, the common stock.
The company covenants and agrees that it will cause to be reserved and kept available at all times a sufficient number of shares of Preferred Stock (and following the occurrence of a Triggering Event, shares of common stock and/or other securities) to permit the exercise in full of all Rights from time to time outstanding.
• 12 STOCK OPTION AND INCENTIVE PLANS
Stock option and incentive plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Generally, no compensation expense is recognized for stock options with exercise prices equal to the market value of the underlying shares of stock at the date of grant. Stock options generally have 10-year terms, and vest and become fully exercisable over a two-year period after date of grant. Compensation expense related to the company’s stock based incentive plans is recognized ratably over each plan’s defined vesting period. Pre-tax expenses under the company’s stock based incentive plans were $20 million, $26 million and $1 million in 2002, 2001 and 2000.
The company’s stock option and incentive plans permit the grant of stock options and other stock awards covering up to 14.5 million shares to key employees of the company and its subsidiaries, of which 4.9 million shares are available for grant at December 31, 2002. Outstanding restricted and phantom shares totaled 1,557,123 with a weighted-average grant-date fair value of $56.01 per share at December 31, 2002, and 1,060,000 with a weighted-average grant-date fair value of $55.35 per share at December 31, 2001.
Under the Nonemployee Director Stock Ownership Plan, each nonemployee director is automatically granted 400 shares of common stock annually and is eligible for a stock option grant of 600 shares if the company’s earnings meet a prescribed earnings formula. In addition, each nonemployee director is awarded annually deferred compensation in the form of 400 shares of phantom stock, which is converted into common stock on a one-for-one basis and paid when the director leaves the Board. This plan provides for the grant of up to 300,000 shares as either stock or stock options, of which 152,385 shares are available for grant at December 31, 2002. The stock options vest and become exercisable six months after date of grant. There were no significant expenses under this plan for 2002, 2001 or 2000.
The fair value of stock options used to compute proforma net earnings and diluted net earnings per share disclosures, as presented in Note 1, is the estimated present value at grant date using the Black-Scholes option-pricing model with the following assumptions for 2002, 2001 and 2000: expected volatility of 33.8%, 32.6% and 28.6%; dividend yield of 2.2%, 2.3% and 2.7%; risk-free interest rate of 2.7%, 4.3% and 5.1%, and a weighted-average expected option life of 5 years for all three years.
58 Notes to Consolidated Financial Statements
A summary of stock option information follows:
2002 | 2001 | 2000 | ||||||||||||||||
Thousands of shares,except per share data | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Exercise Price | ||||||||||||
Outstanding at January 1 | 6,066 |
| $ | 51.83 | 6,437 |
| $ | 50.86 | 4,605 |
| $ | 52.21 | ||||||
Granted | 1,466 |
|
| 67.07 | 1,401 |
|
| 54.30 | 2,222 |
|
| 47.59 | ||||||
Exercised | (1,395 | ) |
| 51.48 | (1,508 | ) |
| 50.19 | (190 | ) |
| 42.23 | ||||||
Canceled or expired | (172 | ) |
| 52.72 | (264 | ) |
| 50.49 | (200 | ) |
| 53.83 | ||||||
Outstanding at December 31 | 5,965 |
| $ | 55.63 | 6,066 |
| $ | 51.83 | 6,437 |
| $ | 50.86 | ||||||
Exercisable at December 31 | 3,639 |
| $ | 52.59 | 3,574 |
| $ | 52.68 | 3,545 |
| $ | 52.44 | ||||||
Fair value of options granted during the year | $ | 18.28 | $ | 15.59 | $ | 12.23 | ||||||||||||
Of the outstanding options at December 31, 2002, 2.6 million options, of which 2.3 million are exercisable at a weighted-average price of $49.24, have exercise prices ranging from $38.38 to $52.47 and a weighted-average remaining life of 6.3 years. The remaining 3.4 million outstanding options, of which 1.3 million are exercisable at a weighted-average price of $57.97, have exercise prices ranging from $53.06 to $77.85 and a weighted-average remaining life of 7.6 years.
• 13 RESTRUCTURING AND RELATED CHARGES
Restructuring Charges
Through December 31, 2002, the company had approved all phases of a restructuring program that began in the fourth quarter of 2000 and resulted in cumulative pre-tax restructuring charges of $251 million, of which $101 million was recognized during 2002 and $150 million was recognized during 2001. These charges have been identified as a separate component of operating profit. The restructuring plan and related charges relate primarily to the closing of a refrigeration plant in the company’s Latin American region, a parts packing facility and a cooking plant in the North American region, a plastic components facility in the Asian region, the relocation of several laundry manufacturing facilities in Europe, and a restructuring of the company’s microwave business in its European region. Employees terminated to date under the plan include both hourly and salaried employees. However, the majority are hourly personnel at the facilities listed above. For the initiatives announced through December 31, 2002, the company expects to eliminate over 7,000 employees, of which approximately 5,000 had left the company through December 31, 2002.
Other Related Charges
As a result of the company’s restructuring activity, $122 million of pre-tax restructuring related charges, of which $60 million was recognized during 2002 and $62 million was recognized during 2001, have also been recorded primarily within cost of products sold. The 2002 charges include $4 million and $1 million write-downs of buildings in the North American and Latin American regions, inventory write-offs of $1 million in Europe, and $16 million of miscellaneous equipment in North America, Europe and Latin America, as well as $38 million in cash costs incurred during the year for various restructuring related activities, such as relocating employees and equipment and concurrent operating costs. The 2001 charges included $12 million in write-downs of various fixed assets, primarily buildings that are no longer used in the company’s business activities in its Latin American region, $7 million of excess inventory due to the parts distribution consolidation in North America, $25 million in various assets in its North American, European and Asian regions, which were primarily made up of equipment no longer used in its business, and $18 million in cash costs incurred during 2001 for various restructuring related activities.
2002 Annual Report 59
Details of the restructuring liability balance and full year restructuring and related activity for 2002 and 2001 are as follows:
Millions of dollars | Beginning Balance | Charge to Earnings | Cash Paid | Non-cash | Translation | Acquisitions | Ending Balance | |||||||||||||||||
2002 | ||||||||||||||||||||||||
Restructuring | ||||||||||||||||||||||||
Termination costs | $ | 73 | $ | 92 | $ | (60 | ) | $ | — |
| $ | 4 |
| $ | 7 | $ | 116 | |||||||
Non-employee exit costs |
| 4 |
| 9 |
| (7 | ) |
| — |
|
| — |
|
| — |
| 6 | |||||||
Related charges | ||||||||||||||||||||||||
Miscellaneous buildings |
| — |
| 5 |
| — |
|
| (5 | ) |
| — |
|
| — |
| — | |||||||
Inventory |
| — |
| 1 |
| — |
|
| (1 | ) |
| — |
|
| — |
| — | |||||||
Miscellaneous equipment |
| — |
| 16 |
| — |
|
| (16 | ) |
| — |
|
| — |
| — | |||||||
Various cash costs |
| — |
| 38 |
| (38 | ) |
| — |
|
| — |
|
| — |
| — | |||||||
Total | $ | 77 | $ | 161 | $ | (105 | ) | $ | (22 | ) | $ | 4 |
| $ | 7 | $ | 122 | |||||||
2001 | ||||||||||||||||||||||||
Restructuring | ||||||||||||||||||||||||
Termination costs | $ | 5 | $ | 134 | $ | (64 | ) | $ | — |
| $ | (2 | ) | $ | — | $ | 73 | |||||||
Non-employee exit costs |
| — |
| 16 |
| (12 | ) |
| — |
|
| — |
|
| — |
| 4 | |||||||
Related charges | ||||||||||||||||||||||||
Miscellaneous buildings |
| — |
| 12 |
| — |
|
| (12 | ) |
| — |
|
| — |
| — | |||||||
Inventory |
| — |
| 7 |
| — |
|
| (7 | ) |
| — |
|
| — |
| — | |||||||
Miscellaneous equipment |
| — |
| 25 |
| — |
|
| (25 | ) |
| — |
|
| — |
| — | |||||||
Various cash costs |
| — |
| 18 |
| (18 | ) |
| — |
|
| — |
|
| — |
| — | |||||||
Total | $ | 5 | $ | 212 | $ | (94 | ) | $ | (44 | ) | $ | (2 | ) | $ | — | $ | 77 | |||||||
• 14 PRODUCT RECALLS
In September 2001, the company announced a voluntary recall of 1.8 million microwave hood combination units sold under theWhirlpool, KitchenAid,and SearsKenmorebrands. The company recognized a product recall pre-tax charge of $300 million ($184 million after tax) during the third quarter of 2001 and recorded this charge as a separate component of operating profit. During the fourth quarter of 2001 this liability was reduced by $79 million ($48 million after tax) due to the development of a more efficient service repair procedure, which enabled faster repairs and reduced costs. During 2002, the company incurred additional charges of approximately $9 million ($6 million after tax) for costs related to this recall.
In January of 2002, the company announced a voluntary recall of approximately 1.4 million dehumidifier units sold under theWhirlpool, ComfortAire,and SearsKenmorebrands. The company recognized a product recall pre-tax charge of $74 million ($45 million after tax) during the fourth quarter of 2001 and recorded this charge as a separate component of operating profit.
60 Notes to Consolidated Financial Statements
• 15 INCOME TAXES
Income tax expense from continuing operations are as follows:
Year ended December 31 – Millions of dollars | 2002 | 2001 | 2000 | |||||||||
Current: | ||||||||||||
Federal | $ | 101 |
| $ | 201 |
| $ | 149 |
| |||
State and local |
| (6 | ) |
| 14 |
|
| 14 |
| |||
Foreign |
| 109 |
|
| 34 |
|
| 34 |
| |||
| 204 |
|
| 249 |
|
| 197 |
| ||||
Deferred: | ||||||||||||
Federal |
| 47 |
|
| (121 | ) |
| 26 |
| |||
State and local |
| 3 |
|
| (21 | ) |
| 3 |
| |||
Foreign |
| (61 | ) |
| (64 | ) |
| (26 | ) | |||
| (11 | ) |
| (206 | ) |
| 3 |
| ||||
Total income tax expense | $ | 193 |
| $ | 43 |
| $ | 200 |
| |||
Domestic and foreign earnings (loss) from continuing operations before income taxes and other items are as follows:
Year ended December 31 – Millions of dollars | 2002 | 2001 | 2000 | |||||||
Domestic | $ | 485 | $ | 204 |
| $ | 479 | |||
Foreign |
| 10 |
| (111 | ) |
| 98 | |||
Total earnings from continuing operations before taxes and other items | $ | 495 | $ | 93 |
| $ | 577 | |||
Earnings before income taxes and other items, including discontinued operations (refer to Note 5), were $427 million, $58 million and $577 million for 2002, 2001 and 2000, respectively.
Reconciliations between tax expense at the U.S. federal statutory income tax rate of 35% and the consolidated effective income tax rate for earnings before income taxes and other items from continuing operations are as follows:
Year ended December 31 – Millions of dollars | 2002 | 2001 | 2000 | |||||||||
Income tax expense computed at U.S. federal statutory rate | $ | 173 |
| $ | 33 |
| $ | 202 |
| |||
State and local taxes, net of federal tax benefit |
| 3 |
|
| (4 | ) |
| 5 |
| |||
Nondeductible expenses |
| 6 |
|
| 7 |
|
| (1 | ) | |||
Nondeductible goodwill amortization |
| — |
|
| 6 |
|
| 6 |
| |||
Excess foreign taxes |
| 4 |
|
| 11 |
|
| 1 |
| |||
Foreign dividends and subpart F income |
| 7 |
|
| 13 |
|
| 13 |
| |||
Foreign government tax incentive |
| (15 | ) |
| (22 | ) |
| (21 | ) | |||
Foreign tax credits |
| (19 | ) |
| (9 | ) |
| (10 | ) | |||
Deductible interest on capital |
| (8 | ) |
| (18 | ) |
| (5 | ) | |||
Foreign withholding taxes |
| 13 |
|
| 6 |
|
| 5 |
| |||
Valuation allowances |
| 36 |
|
| 16 |
|
| 1 |
| |||
Other items, net |
| (7 | ) |
| 4 |
|
| 4 |
| |||
Income tax expense | $ | 193 |
| $ | 43 |
| $ | 200 |
| |||
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.
2002 Annual Report 61
Significant components of the company’s deferred tax liabilities and assets are as follows:
Year ended December 31 – Millions of dollars | 2002 | 2001 | ||||||
Deferred tax liabilities | ||||||||
Property, plant and equipment | $ | 150 |
| $ | 115 |
| ||
Financial services leveraged leases |
| 69 |
|
| 120 |
| ||
Pensions |
| 11 |
|
| 95 |
| ||
Software costs |
| 16 |
|
| 21 |
| ||
Contested liabilities |
| 24 |
|
| 22 |
| ||
LIFO Inventory |
| 17 |
|
| 14 |
| ||
Other |
| 108 |
|
| 73 |
| ||
Total deferred tax liabilities |
| 395 |
|
| 460 |
| ||
Deferred tax assets | ||||||||
Postretirement obligation |
| 205 |
|
| 196 |
| ||
Restructuring costs |
| 29 |
|
| 12 |
| ||
Product warranty accrual |
| 21 |
|
| 19 |
| ||
Receivable and inventory allowances |
| 47 |
|
| 35 |
| ||
Loss carryforwards |
| 260 |
|
| 182 |
| ||
Product recall reserves |
| — |
|
| 93 |
| ||
Employee payroll and benefits |
| 71 |
|
| 45 |
| ||
Other |
| 130 |
|
| 144 |
| ||
Total deferred tax assets |
| 763 |
|
| 726 |
| ||
Valuation allowances for deferred tax assets |
| (65 | ) |
| (29 | ) | ||
Deferred tax assets, net of valuation allowances |
| 698 |
|
| 697 |
| ||
Net deferred tax assets | $ | 303 |
| $ | 237 |
| ||
Other deferred tax liabilities relate to temporary differences in multiple foreign jurisdictions and various other items. Other deferred tax assets relate to various reserves and accrued expenses, financing activities, and various other items.
The company has recorded valuation allowances to reflect the estimated amount of net operating loss carryforwards that may not be realized. At December 31, 2002, the company has foreign net operating loss carryforwards of $632 million, $525 million of which do not expire, with substantially all of the remaining $107 million expiring in various years through 2007.
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 ($440 million at December 31, 2002) 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 $126 million in 2002, $148 million in 2001 and $262 million in 2000.
Income taxes payable of $186 million and $109 million are included in other current liabilities at December 31, 2002 and 2001.
62 Notes to Consolidated Financial Statements
Ÿ 16 PENSION AND POSTRETIREMENT MEDICAL BENEFITS PLANS
The company sponsors defined benefit pension plans and defined contribution 401(k) plans for active employees and certain medical benefit plans for retirees. The company’s funding policy is to contribute to its U.S. pension plans amounts sufficient to meet the minimum funding requirement as defined by employee benefit and tax laws, plus additional amounts which the company may determine to be appropriate. In certain countries other than the U.S., the funding of pension plans is not common practice. The company has several unfunded, non-U.S. pension plans in certain of these countries. The company pays for retiree medical benefits as they are incurred.
The company’s defined benefit pension plans include contributory and non-contributory plans and cover substantially all North American employees and certain Brazilian and European employees. Pension benefits are based primarily on either service and compensation during a specified period before retirement or specified amounts for each year of service. Plan assets are held in trust and consist primarily of common stock and fixed income securities and cash. At December 31, 2002, stocks represent 75% of the market value of pension assets for the U.S. plans, and fixed income securities and cash represent 25%. As of December 31, 2002, the company’s U.S. pension plans held as investments approximately $51 million, or 1 million shares, of Whirlpool Corporation common stock. This investment represented approximately 4% of the total market value of assets held by these plans as of December 31, 2002.
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 either a change in the majority of the incumbent board of directors or an acquisition of 25% or more of the voting power of the company’s outstanding stock, without the approval of a majority of the incumbent board.
The company maintains a 401(k) defined contribution plan covering substantially all U.S. employees. Company matching contributions for domestic hourly and certain other employees under the plan, based on the company’s annual operating results and the level of individual participant’s contributions, amounted to $16 million, $12 million and $12 million in 2002, 2001 and 2000, respectively.
The company sponsors plans to provide selected health care benefits for eligible retired employees. Eligible retirees are those full-time U.S. employees with 10 years of service who have attained age 55 while in service with the company. The company’s practice with respect to these plans is to fund expenses as incurred. The Plan is currently noncontributory and contains cost-sharing features such as deductibles, coinsurance and a lifetime maximum. The company has reserved the right to modify the benefits. No significant postretirement medical benefits are provided by the company to non-U.S. employees.
The company’s pension plans were underfunded on a combined basis as of December 31, 2002, which resulted in a non-cash, after-tax charge to equity of $151 million to recognize a minimum pension liability. While certain plans were overfunded, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the underfunded plans at December 31, 2002, were $1,572 million, $1,414 million and $1,168 million. Although the company’s pension plans were overfunded on a combined basis as of December 31, 2001 and 2000, several of the plans did not hold or had minimal assets and were therefore underfunded. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for these plans were $197 million, $187 million and $109 million, respectively, as of December 31, 2001, and $83 million, $73 million and $6 million, respectively, as of December 31, 2000.
2002 Annual Report 63
The company’s obligations and related expense for pension and postretirement health care plans are as follow:
Pension Benefits | ||||||||||||||||||||||||
US | Foreign | |||||||||||||||||||||||
Millions of dollars | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | ||||||||||||||||||
Change in benefit obligation | ||||||||||||||||||||||||
Benefit obligation as of January 1 | $ | 1,269 |
| $ | 1,090 |
| $ | 1,044 |
| $ | 145 |
| $ | 193 |
| $ | 198 |
| ||||||
Service cost |
| 56 |
|
| 53 |
|
| 38 |
|
| 7 |
|
| 8 |
|
| 10 |
| ||||||
Interest cost |
| 95 |
|
| 88 |
|
| 86 |
|
| 11 |
|
| 13 |
|
| 15 |
| ||||||
Plan participants’ contributions |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||
Amendments |
| 29 |
|
| 48 |
|
| 11 |
|
| (11 | ) |
| (3 | ) |
| — |
| ||||||
Business combinations |
| — |
|
| — |
|
| — |
|
| 25 |
|
| — |
|
| — |
| ||||||
Actuarial (gain) loss |
| 124 |
|
| 55 |
|
| 44 |
|
| 12 |
|
| (4 | ) |
| (6 | ) | ||||||
Settlements |
| — |
|
| — |
|
| — |
|
| — |
|
| (36 | ) |
| — |
| ||||||
Benefits paid |
| (70 | ) |
| (65 | ) |
| (165 | ) |
| (8 | ) |
| (11 | ) |
| (10 | ) | ||||||
Curtailments |
| — |
|
| — |
|
| — |
|
| (13 | ) |
| (1 | ) |
| — |
| ||||||
Special termination benefits |
| — |
|
| — |
|
| 32 |
|
| — |
|
| (3 | ) |
| — |
| ||||||
Foreign currency exchange rate changes |
| — |
|
| — |
|
| — |
|
| 4 |
|
| (11 | ) |
| (14 | ) | ||||||
Benefit obligation as of December 31 | $ | 1,503 |
| $ | 1,269 |
| $ | 1,090 |
| $ | 172 |
| $ | 145 |
| $ | 193 |
| ||||||
Change in plan assets: | ||||||||||||||||||||||||
Fair value of plan assets as of January 1 | $ | 1,460 |
| $ | 1,794 |
| $ | 2,050 |
| $ | 97 |
| $ | 147 |
| $ | 151 |
| ||||||
Actual return on plan assets |
| (203 | ) |
| (275 | ) |
| (72 | ) |
| 1 |
|
| 6 |
|
| 15 |
| ||||||
Employer contributions |
| 3 |
|
| 6 |
|
| 1 |
|
| 2 |
|
| 1 |
|
| 2 |
| ||||||
Settlements |
| — |
|
| — |
|
| — |
|
| (11 | ) |
| (36 | ) |
| — |
| ||||||
Plan participants’ contributions |
| — |
|
| — |
|
| — |
|
| 1 |
|
| 1 |
|
| — |
| ||||||
401 (h) transfer |
| — |
|
| — |
|
| (20 | ) |
| — |
|
| — |
|
| — |
| ||||||
Benefits paid |
| (70 | ) |
| (65 | ) |
| (165 | ) |
| (8 | ) |
| (11 | ) |
| (10 | ) | ||||||
Foreign currency exchange rate changes |
| — |
|
| — |
|
| — |
|
| (1 | ) |
| (11 | ) |
| (11 | ) | ||||||
Fair value of plan assets as of December 31 | $ | 1,190 |
| $ | 1,460 |
| $ | 1,794 |
| $ | 81 |
| $ | 97 |
| $ | 147 |
| ||||||
64 Notes to Consolidated Financial Statements
Pension Benefits (continued) | ||||||||||||||||||||||||
US | Foreign | |||||||||||||||||||||||
Millions of dollars | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | ||||||||||||||||||
Reconciliation of prepaid (accrued) cost and total amount recognized: | ||||||||||||||||||||||||
Funded status as of December 31 | $ | (313 | ) | $ | 191 |
| $ | 704 |
| $ | (91 | ) | $ | (48 | ) | $ | (46 | ) | ||||||
Unrecognized actuarial loss (gain) |
| 407 |
|
| (118 | ) |
| (659 | ) |
| 17 |
|
| (17 | ) |
| (42 | ) | ||||||
Unrecognized prior service cost |
| 129 |
|
| 115 |
|
| 78 |
|
| 5 |
|
| 6 |
|
| 1 |
| ||||||
Unrecognized transition asset |
| — |
|
| (1 | ) |
| (3 | ) |
| 1 |
|
| 8 |
|
| 14 |
| ||||||
Prepaid (accrued) cost as of December 31 | $ | 223 |
| $ | 187 |
| $ | 120 |
| $ | (68 | ) | $ | (51 | ) | $ | (73 | ) | ||||||
Prepaid cost | $ | 43 |
| $ | 219 |
| $ | 155 |
| $ | — |
| $ | 5 |
| $ | 5 |
| ||||||
Accrued benefit liability |
| (188 | ) |
| (37 | ) |
| (43 | ) |
| (92 | ) |
| (63 | ) |
| (80 | ) | ||||||
Intangible asset |
| 128 |
|
| (5 | ) |
| (1 | ) |
| 5 |
|
| 5 |
|
| 2 |
| ||||||
Equity Charge and Other |
| 240 |
|
| 10 |
|
| 9 |
|
| 19 |
|
| 2 |
|
| — |
| ||||||
Total recognized as of December 31 | $ | 223 |
| $ | 187 |
| $ | 120 |
| $ | (68 | ) | $ | (51 | ) | $ | (73 | ) | ||||||
Assumptions as of December 31 | ||||||||||||||||||||||||
Discount rate |
| 6.75 | % |
| 7.50 | % |
| 8.00 | % |
| 5.5—11.3 | % |
| 5.0—11.3 | % |
| 5.0—11.3 | % | ||||||
Expected return on assets |
| 8.75 | % |
| 10.00 | % |
| 10.50 | % |
| 5.5—11.3 | % |
| 6.0—11.3 | % |
| 6.0—11.3 | % | ||||||
Rate of compensation increase |
| 4.50 | % |
| 5.00 | % |
| 5.00 | % |
| 2.5—8.0 | % |
| 2.5—8.0 | % |
| 1.0—8.0 | % | ||||||
Components of net periodic benefit cost (credit) | ||||||||||||||||||||||||
Service cost | $ | 56 |
| $ | 53 |
| $ | 38 |
| $ | 6 |
| $ | 8 |
| $ | 10 |
| ||||||
Interest cost |
| 95 |
|
| 89 |
|
| 86 |
|
| 11 |
|
| 12 |
|
| 15 |
| ||||||
Expected return on plan assets |
| (175 | ) |
| (177 | ) |
| (164 | ) |
| (7 | ) |
| (12 | ) |
| (14 | ) | ||||||
Recognized actuarial (gain) |
| (22 | ) |
| (35 | ) |
| (37 | ) |
| (1 | ) |
| (1 | ) |
| (2 | ) | ||||||
Amortization of prior service cost |
| 14 |
|
| 11 |
|
| 10 |
|
| — |
|
| — |
|
| — |
| ||||||
Amortization of transition asset |
| (1 | ) |
| (2 | ) |
| (4 | ) |
| 2 |
|
| 2 |
|
| 3 |
| ||||||
Net periodic benefit cost (credit) |
| (33 | ) |
| (61 | ) |
| (71 | ) |
| 11 |
|
| 9 |
|
| 12 |
| ||||||
Curtailments |
| — |
|
| — |
|
| — |
|
| (10 | ) |
| (1 | ) |
| — |
| ||||||
Special termination benefits |
| — |
|
| — |
|
| 32 |
|
| (2 | ) |
| 3 |
|
| — |
| ||||||
Settlements |
| — |
|
| — |
|
| (71 | ) |
| (3 | ) |
| (20 | ) |
| — |
| ||||||
Total pension cost (credit) | $ | (33 | ) | $ | (61 | ) | $ | (110 | ) | $ | (4 | ) | $ | (9 | ) | $ | 12 |
| ||||||
2002 Annual Report 65
Postretirement Medical Benefits | ||||||||||||
Millions of dollars | 2002 | 2001 | 2000 | |||||||||
Change in benefit obligation | ||||||||||||
Benefit obligation as of January 1 | $ | 525 |
| $ | 439 |
| $ | 414 |
| |||
Service cost |
| 14 |
|
| 11 |
|
| 9 |
| |||
Interest cost |
| 41 |
|
| 34 |
|
| 32 |
| |||
Amendments |
| (9 | ) |
| (43 | ) |
| – |
| |||
Actuarial loss |
| 123 |
|
| 108 |
|
| 6 |
| |||
Benefits paid |
| (39 | ) |
| (24 | ) |
| (22 | ) | |||
Benefit obligation as of December 31 | $ | 655 |
| $ | 525 |
| $ | 439 |
| |||
Change in plan assets | ||||||||||||
Fair value of plan assets as of January 1 | $ | — |
| $ | — |
| $ | — |
| |||
Contributions |
| 39 |
|
| 24 |
|
| 22 |
| |||
Benefits paid |
| (39 | ) |
| (24 | ) |
| (22 | ) | |||
Fair value of plan assets as of December 31 | $ | — |
| $ | — |
| $ | — |
| |||
Reconciliation of prepaid (accrued) cost and total amount recognized | ||||||||||||
Funded status as of December 31 | $ | (655 | ) | $ | (525 | ) | $ | (439 | ) | |||
Unrecognized actuarial (gain) loss |
| 215 |
|
| 87 |
|
| (21 | ) | |||
Unrecognized prior service cost |
| (47 | ) |
| (43 | ) |
| — |
| |||
Prepaid (accrued) cost as of December 31 | $ | (487 | ) | $ | (481 | ) | $ | (460 | ) | |||
Prepaid cost at December 31 | $ | — |
| $ | — |
| $ | — |
| |||
Accrued benefit liability at December 31 |
| (487 | ) |
| (481 | ) |
| (460 | ) | |||
Total recognized as of December 31 | $ | (487 | ) | $ | (481 | ) | $ | (460 | ) | |||
Weighted average assumptions as of December 31 | ||||||||||||
Discount rate |
| 6.75 | % |
| 7.50 | % |
| 8.00 | % | |||
Medical costs trend rate: | ||||||||||||
For year ending December 31 |
| 9.5—10.5 | % |
| 8.5—10.5 | % |
| 6.00 | % | |||
Ultimate medical trend rate (2006) |
| 5.50 | % |
| 6.00 | % | ||||||
Components of net periodic benefit cost | ||||||||||||
Service cost | $ | 14 |
| $ | 11 |
| $ | 9 |
| |||
Interest cost |
| 41 |
|
| 34 |
|
| 32 |
| |||
Recognized actuarial loss |
| 5 |
|
| — |
|
| — |
| |||
Amortization of prior service cost |
| (4 | ) |
| — |
|
| — |
| |||
Net periodic benefit cost | $ | 56 |
| $ | 45 |
| $ | 41 |
| |||
66 Notes to Consolidated Financial Statements
The medical cost trend significantly affects the reported postretirement benefit cost and benefit obligations. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
Millions of dollars | One Percentage Point Increase | One Percentage Point Decrease | |||||
Effect on total service cost and interest cost components | $ | 1 | $ | (2 | ) | ||
Effect on postretirement benefit obligation |
| 17 |
| (19 | ) | ||
Ÿ 17 BUSINESS SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment.
The company identifies such segments based upon geographical regions of operations because each operating segment manufactures home appliances and related components, but serves strategically different markets. The chief operating decision maker evaluates performance based upon each segment’s operating income, which is defined as income before interest income and sundry, interest expense, taxes, minority interests, and before one-time charges. Total assets by segment are those assets directly associated with the respective operating activities. The “Other/Elimination” column primarily includes corporate expenses, assets and eliminations, as well as all other one-time charges. Intersegment sales are eliminated within each region with the exception of compressor sales out of Latin America, which are included in Other/Eliminations.
Sales activity with Sears, Roebuck and Co., a North American major home appliance retailer, represented 21%, 21% and 20% of consolidated net sales in 2002, 2001, 2000, respectively. Related receivables were 23%, 25% and 22% of consolidated trade receivables as of December 31, 2002, 2001 and 2000, respectively.
The company conducts business in two countries that individually comprised over 10% of consolidated net sales and total assets within the last three years. The United States represented 59%, 59%, and 55% of net sales for 2002, 2001 and 2000, respectively, while Brazil totaled 8%, 9% and 11% for 2002, 2001 and 2000, respectively. As a percentage of total assets, the United States accounted for 40%, 44% and 41% at the end of 2002, 2001 and 2000, respectively. Brazil accounted for 11%, 14% and 18% of total assets at the end of 2002, 2001 and 2000, respectively.
As described above, the company’s chief operating decision maker reviews each operating segment’s performance based upon operating income excluding one-time charges. In 2002, these one-time charges were comprised of restructuring and other related charges, product recall charges and goodwill impairment charges in Asia. These charges are included in operating profit on a consolidated basis and included in the Other/Eliminations column in the tables below. For 2002 year-to-date amounts, the operating segments recorded total restructuring and related charges (refer to Note 13) as follows: North America – $43 million, Europe – $79 million, Latin America – $24 million, Asia – $11 million and Corporate – $4 million, for a total of $161 million. Also included in Other/Eliminations during 2002 is $9 million of product recall related charges (refer to Note 14) recorded in the fourth quarter and $9 million in goodwill impairment charges. In 2001, the operating segments recorded total restructuring and related charges as follows: North America – $35 million, Europe – $92 million, Latin America – $68 million, Asia – $13 million and Corporate – $4 million for a total of $212 million. Also included in the Other/Eliminations column during 2001 is $295 million of product recall charges related to the North American region.
2002 Annual Report 67
Geographic Segments | |||||||||||||||||||
Millions of dollars | North America | Europe | Latin America | Asia | Other/ Eliminations | Total Whirlpool | |||||||||||||
Net sales | �� | ||||||||||||||||||
2002 | $ | 7,306 | $ | 2,199 | $ | 1,266 | $ | 391 | $ | (146 | ) | $ | 11,016 | ||||||
2001 |
| 6,581 |
| 2,058 |
| 1,487 |
| 373 |
| (156 | ) |
| 10,343 | ||||||
2000 |
| 6,223 |
| 2,156 |
| 1,706 |
| 390 |
| (150 | ) |
| 10,325 | ||||||
Intangible amortization | |||||||||||||||||||
2002 | $ | — | $ | — | $ | — | $ | — | $ | 14 |
| $ | 14 | ||||||
2001 |
| 3 |
| 13 |
| 3 |
| 5 |
| 4 |
|
| 28 | ||||||
2000 |
| 3 |
| 13 |
| 3 |
| 5 |
| 5 |
|
| 29 | ||||||
Depreciation | |||||||||||||||||||
2002 | $ | 197 | $ | 83 | $ | 80 | $ | 16 | $ | 15 |
| $ | 391 | ||||||
2001 |
| 173 |
| 78 |
| 91 |
| 15 |
| 11 |
|
| 368 | ||||||
2000 |
| 157 |
| 74 |
| 106 |
| 17 |
| 17 |
|
| 371 | ||||||
Operating profit (loss) | |||||||||||||||||||
2002 | $ | 830 | $ | 81 | $ | 107 | $ | 14 | $ | (340 | ) | $ | 692 | ||||||
2001 |
| 758 |
| 39 |
| 134 |
| 19 |
| (644 | ) |
| 306 | ||||||
2000 |
| 682 |
| 102 |
| 125 |
| 21 |
| (123 | ) |
| 807 | ||||||
Total assets | |||||||||||||||||||
2002 | $ | 2,913 | $ | 2,015 | $ | 1,054 | $ | 516 | $ | 133 |
| $ | 6,631 | ||||||
2001 |
| 2,591 |
| 2,067 |
| 1,339 |
| 653 |
| 317 |
|
| 6,967 | ||||||
2000 |
| 2,624 |
| 1,948 |
| 1,600 |
| 704 |
| 26 |
|
| 6,902 | ||||||
Capital expenditures | |||||||||||||||||||
2002 | $ | 165 | $ | 103 | $ | 112 | $ | 15 | $ | 35 |
| $ | 430 | ||||||
2001 |
| 191 |
| 87 |
| 80 |
| 10 |
| 10 |
|
| 378 | ||||||
2000 |
| 175 |
| 94 |
| 86 |
| 10 |
| 10 |
|
| 375 | ||||||
68 Notes to Consolidated Financial Statements
Ÿ 18 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Three Months Ended | ||||||||||||||||
Millions of dollars, except per share data | Dec. 31 | Sept. 30 | Jun. 30 | Restated Mar. 31 | ||||||||||||
2002 | ||||||||||||||||
Net sales | $ | 2,947 |
| $ | 2,759 |
| $ | 2,737 |
| $ | 2,574 |
| ||||
Cost of products sold |
| 2,266 |
|
| 2,114 |
|
| 2,103 |
|
| 1,982 |
| ||||
Earnings from continuing operations |
| 14 |
|
| 101 |
|
| 63 |
|
| 84 |
| ||||
Net earnings (loss) |
| (29 | ) |
| 101 |
|
| 63 |
|
| (529 | ) | ||||
Per share of common stock | ||||||||||||||||
Basic earnings from continuing operations | $ | 0.20 |
| $ | 1.48 |
| $ | 0.93 |
| $ | 1.25 |
| ||||
Basic net earnings (loss) |
| (0.43 | ) |
| 1.48 |
|
| 0.93 |
|
| (7.86 | ) | ||||
Diluted earnings from continuing operations | $ | 0.20 |
| $ | 1.46 |
| $ | 0.91 |
| $ | 1.21 |
| ||||
Diluted net earnings (loss) |
| (0.42 | ) |
| 1.46 |
|
| 0.91 |
|
| (7.63 | ) | ||||
Dividends | $ | 0.34 |
| $ | 0.34 |
| $ | 0.34 |
| $ | 0.34 |
| ||||
Significant after-tax items included in the quarterly net earnings (loss): | ||||||||||||||||
Restructuring and related charges (Note 13) | $ | (84 | ) | $ | (11 | ) | $ | (19 | ) | $ | (8 | ) | ||||
Impairment charge related to minority investment (Note 7) |
| — |
|
| — |
|
| (22 | ) |
| — |
| ||||
Goodwill write-off of an Asian entity (Note 3) |
| (9 | ) |
| — |
|
| — |
|
| — |
| ||||
Product recalls (Note 14) |
| (6 | ) |
| — |
|
| — |
|
| — |
| ||||
Discontinued operations (Note 5) |
| (43 | ) |
| — |
|
| — |
|
| — |
| ||||
Cumulative effect of a change in accounting principle (Note 3) |
| — |
|
| — |
|
| — |
|
| (613 | ) | ||||
The net loss (and related per share amounts) for the restated first quarter as shown above differ from the originally filed amounts due to the adoption of SFAS No. 142, as discussed in Note 3.
Three Months Ended | ||||||||||||||||
Millions of dollars, except per share data | Dec. 31 | Sept. 30 | Jun. 30 | Mar. 31 | ||||||||||||
2001 | ||||||||||||||||
Net sales | $ | 2,647 |
| $ | 2,594 |
| $ | 2,585 |
| $ | 2,517 |
| ||||
Cost of products sold |
| 1,989 |
|
| 1,988 |
|
| 1,989 |
|
| 1,959 |
| ||||
Earnings (loss) from continuing operations |
| 21 |
|
| (94 | ) |
| 74 |
|
| 33 |
| ||||
Net earnings (loss) |
| 21 |
|
| (94 | ) |
| 53 |
|
| 41 |
| ||||
Per share of common stock | ||||||||||||||||
Basic earnings (loss) from continuing operations | $ | 0.31 |
| $ | (1.40 | ) | $ | 1.12 |
| $ | 0.49 |
| ||||
Basic net earnings (loss) |
| 0.31 |
|
| (1.40 | ) |
| 0.80 |
|
| 0.62 |
| ||||
Diluted earnings (loss) from continuing operations | $ | 0.31 |
| $ | (1.40 | ) | $ | 1.10 |
| $ | 0.49 |
| ||||
Diluted net earnings (loss) |
| 0.31 |
|
| (1.40 | ) | �� |
| 0.78 |
|
| 0.61 |
| |||
Dividends | $ | 0.34 |
| $ | 0.34 |
| $ | 0.34 |
| $ | 0.34 |
| ||||
Significant after-tax items included in the quarterly net earnings (loss): | ||||||||||||||||
Restructuring and related charges (Note 13) | $ | (91 | ) | $ | (11 | ) | $ | (14 | ) | $ | (40 | ) | ||||
Product recalls (Note 14) |
| 3 |
|
| (184 | ) |
| — |
|
| — |
| ||||
Discontinued operations (Note 5) |
| — |
|
| — |
|
| (21 | ) |
| — |
| ||||
Cumulative effect of a change in accounting principle (Note 1) |
| — |
|
| — |
|
| — |
|
| 8 |
| ||||
2002 Annual Report 69
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, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. 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. 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation as of December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 3 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets. As discussed in Note 1 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative instruments and hedging activities.
/s/ Ernst & Young LLP |
Chicago, Illinois February 4, 2003 |
70 Report of Independent Auditors and Management
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 LLP, independent auditors, whose report, based upon their audits, expresses the opinion that these financial statements present fairly the consolidated financial position, results of operations and cash flows of Whirlpool and its subsidiaries in accordance with accounting principles generally accepted in the United States. Their audits are conducted in conformity with auditing standards generally accepted in the United States.
The financial statements were prepared from the company’s accounting records, books and accounts which, in reasonable detail, accurately and fairly reflect all material transactions. The company maintains a system of internal controls designed to provide reasonable assurance that the company’s accounting records, books and accounts are accurate and that transactions are properly recorded in the company’s books and records, and the company’s assets are maintained and accounted for, in accordance with management’s authorizations. The company’s accounting records, policies and internal controls are regularly reviewed by an internal audit staff.
The audit committee of the board of directors of the company is composed of five independent directors who, in the opinion of the board, meet the relevant financial experience, literacy, and expertise requirements. The audit committee provides independent and objective oversight of the company’s accounting functions and internal controls and monitors the objectivity of the company’s financial statements, (2) the company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, and (4) the performance of the company’s internal audit function and independent auditors. In performing these functions, the committee has the responsibility to review and discuss the annual audited financial statements and quarterly financial statements and related reports with management and independent auditors, including the company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” to monitor the adequacy of financial disclosure; and to retain and terminate the company’s independent auditors and exercise the committee’s sole authority to review and approve all audit engagement fees and terms and preapprove the nature, extent, and cost of all non-audit services provided by independent auditors (for 2002 and prior, the board of directors held this responsibility).
/s/ R. Stephen Barrett, Jr. |
R. Stephen Barrett, Jr. Executive Vice President and Chief Financial Officer February 27, 2003 |
2002 Annual Report 71
Eleven-Year Consolidated Statistical Review
Millions of dollars, except share and employee data | 2002 | 2001 | 2000 | |||||||||
Consolidated operations | ||||||||||||
Net sales | $ | 11,016 |
| $ | 10,343 |
| $ | 10,325 |
| |||
Operating profit1 |
| 692 |
|
| 306 |
|
| 807 |
| |||
Earnings (loss) from continuing operations before income taxes and other items |
| 495 |
|
| 93 |
|
| 577 |
| |||
Earnings (loss) from continuing operations |
| 262 |
|
| 34 |
|
| 367 |
| |||
Earnings (loss) from discontinued operations2 |
| (43 | ) |
| (21 | ) |
| — |
| |||
Net earnings (loss)3 |
| (394 | ) |
| 21 |
|
| 367 |
| |||
Net capital expenditures |
| 430 |
|
| 378 |
|
| 375 |
| |||
Depreciation |
| 391 |
|
| 368 |
|
| 371 |
| |||
Dividends |
| 91 |
|
| 113 |
|
| 70 |
| |||
Consolidated financial position | ||||||||||||
Current assets |
| 3,327 |
|
| 3,311 |
|
| 3,237 |
| |||
Current liabilities |
| 3,505 |
|
| 3,102 |
|
| 3,303 |
| |||
Working capital |
| (178 | ) |
| 209 |
|
| (66 | ) | |||
Property, plant and equipment-net |
| 2,338 |
|
| 2,052 |
|
| 2,134 |
| |||
Total assets |
| 6,631 |
|
| 6,967 |
|
| 6,902 |
| |||
Long-term debt |
| 1,092 |
|
| 1,295 |
|
| 795 |
| |||
Stockholders’ equity |
| 739 |
|
| 1,458 |
|
| 1,684 |
| |||
Per share data | ||||||||||||
Basic earnings (loss) from continuing operations |
| 3.86 |
|
| 0.51 |
|
| 5.24 |
| |||
Diluted earnings (loss) from continuing operations |
| 3.78 |
|
| 0.50 |
|
| 5.20 |
| |||
Diluted net earnings (loss)3 |
| (5.68 | ) |
| 0.31 |
|
| 5.20 |
| |||
Dividends |
| 1.36 |
|
| 1.36 |
|
| 1.36 |
| |||
Book value |
| 10.67 |
|
| 21.44 |
|
| 23.84 |
| |||
Closing Stock Price – NYSE |
| 52.22 |
|
| 73.33 |
|
| 47.69 |
| |||
Key ratios4 | ||||||||||||
Operating profit margin |
| 6.3 | % |
| 3.0 | % |
| 7.8 | % | |||
Pre-tax margin5 |
| 4.5 | % |
| 0.9 | % |
| 5.6 | % | |||
Net margin6 |
| 2.4 | % |
| 0.3 | % |
| 3.6 | % | |||
Return on average stockholders’ equity7 |
| 14.8 | % |
| 1.3 | % |
| 20.7 | % | |||
Return on average total assets8 |
| 3.4 | % |
| 0.4 | % |
| 5.5 | % | |||
Current assets to current liabilities |
| 0.9 | x |
| 1.1 | x |
| 1.0 | x | |||
Total debt-appliance business as a percent of invested capital9 |
| 65.1 | % |
| 48.0 | % |
| 49.4 | % | |||
Price earnings ratio |
| — |
|
| 236.5 | x |
| 9.2 | x | |||
Interest coverage10 |
| 4.5 | x |
| 1.6 | x |
| 4.2 | x | |||
Other data | ||||||||||||
Number of common shares outstanding (in thousands): | ||||||||||||
Average – on a diluted basis |
| 69,267 |
|
| 68,036 |
|
| 70,637 |
| |||
Year-end |
| 68,226 |
|
| 67,215 |
|
| 66,265 |
| |||
Number of stockholders (year-end) |
| 8,556 |
|
| 8,840 |
|
| 11,780 |
| |||
Number of employees (year-end) |
| 68,272 |
|
| 61,923 |
|
| 62,527 |
| |||
Total return to shareholders (five year annualized)11 |
| 1.4 | % |
| 12.2 | % |
| 0.3 | % | |||
| 1 | Restructuring and special operating charges were $161 million in 2002, $212 million in 2001, $405 million in 1997, $30 million in 1996, and $250 million in 1994. |
| 2 | The company’s financial services business was discontinued in 1997. |
| 3 | Includes cumulative effect of accounting changes: 2002 – Accounting for goodwill of ($613) million or ($8.84) per diluted share; 2001 – Accounting for derivative instruments and hedging activities of $8 million or $0.12 per diluted share; 1993 – Accounting for postretirement benefits other than pensions of ($180) million or ($2.42) per diluted share. |
| 4 | Excluding one-time charges for restructuring and related charges, a minority investment write-off in a European business, goodwill write-off of an Asian entity, product recalls, discontinued operations and accounting changes in 2002, selected key ratios would be as follows: a) Operating profit margin -7.9%, b) Pre-tax margin – 6.1%, c) Net margin – 3.8%, d) Return on average stockholders’ equity – 27%, e) Return on average total assets – 6.1%, and f) Interest coverage – 6x. Excluding one-time charges for restructuring and related charges, product recalls, discontinued operations and accounting changes in 2001, selected key ratios would be as follows: a) Operating profit margin – 7.9%, b) Pre-tax margin – 5.8%, c) Net margin – 3.6%, d) Return on average |
72
Millions of dollars, except share and employee data | 1999 | 1998 | 1997 | 1996 | 1995 | 1994 | 1993 | 1992 | |||||||||||||||||||||||
Consolidated operations | $10,511 |
| $ | 10,323 |
| $ | 8,617 |
| $ | 8,523 |
| $ | 8,163 |
| $ | 7,949 |
| $ | 7,368 |
| $ | 7,097 |
| ||||||||
Net sales | |||||||||||||||||||||||||||||||
Operating profit1 | 875 |
|
| 688 |
|
| 11 |
|
| 278 |
|
| 366 |
|
| 370 |
|
| 504 |
|
| 447 |
| ||||||||
Earnings (loss) from continuing operations before income taxes and other items | 514 |
|
| 564 |
|
| (171 | ) |
| 100 |
|
| 214 |
|
| 269 |
|
| 418 |
|
| 334 |
| ||||||||
Earnings (loss) from continuing operations | 347 |
|
| 310 |
|
| (46 | ) |
| 141 |
|
| 195 |
|
| 147 |
|
| 257 |
|
| 179 |
| ||||||||
Earnings (loss) from discontinued operations2 | — |
|
| 15 |
|
| 31 |
|
| 15 |
|
| 14 |
|
| 11 |
|
| (28 | ) |
| 26 |
| ||||||||
Net earnings (loss)3 | 347 |
|
| 325 |
|
| (15 | ) |
| 156 |
|
| 209 |
|
| 158 |
|
| 51 |
|
| 205 |
| ||||||||
Net capital expenditures | 437 |
|
| 542 |
|
| 378 |
|
| 336 |
|
| 483 |
|
| 418 |
|
| 309 |
|
| 288 |
| ||||||||
Depreciation | 386 |
|
| 399 |
|
| 322 |
|
| 318 |
|
| 282 |
|
| 246 |
|
| 241 |
|
| 275 |
| ||||||||
Dividends | 103 |
|
| 102 |
|
| 102 |
|
| 101 |
|
| 100 |
|
| 90 |
|
| 85 |
|
| 77 |
| ||||||||
Consolidated financial position | |||||||||||||||||||||||||||||||
Current assets | 3,177 |
|
| 3,882 |
|
| 4,281 |
|
| 3,812 |
|
| 3,541 |
|
| 3,078 |
|
| 2,708 |
|
| 2,740 |
| ||||||||
Current liabilities | 2,892 |
|
| 3,267 |
|
| 3,676 |
|
| 4,022 |
|
| 3,829 |
|
| 2,988 |
|
| 2,763 |
|
| 2,887 |
| ||||||||
Working capital | 285 |
|
| 615 |
|
| 605 |
|
| (210 | ) |
| (288 | ) |
| 90 |
|
| (55 | ) |
| (147 | ) | ||||||||
Property, plant and equipment-net | 2,178 |
|
| 2,418 |
|
| 2,375 |
|
| 1,798 |
|
| 1,779 |
|
| 1,440 |
|
| 1,319 |
|
| 1,325 |
| ||||||||
Total assets | 6,826 |
|
| 7,935 |
|
| 8,270 |
|
| 8,015 |
|
| 7,800 |
|
| 6,655 |
|
| 6,047 |
|
| 6,118 |
| ||||||||
Long-term debt | 714 |
|
| 1,087 |
|
| 1,074 |
|
| 955 |
|
| 983 |
|
| 885 |
|
| 840 |
|
| 1,215 |
| ||||||||
Stockholders’ equity | 1,867 |
|
| 2,001 |
|
| 1,771 |
|
| 1,926 |
|
| 1,877 |
|
| 1,723 |
|
| 1,648 |
|
| 1,600 |
| ||||||||
Per share data | |||||||||||||||||||||||||||||||
Basic earnings (loss) from continuing operations | 4.61 |
|
| 4.09 |
|
| (0.62 | ) |
| 1.90 |
|
| 2.64 |
|
| 1.98 |
|
| 3.60 |
|
| 2.55 |
| ||||||||
Diluted earnings (loss) from continuing operations | 4.56 |
|
| 4.06 |
|
| (0.62 | ) |
| 1.88 |
|
| 2.60 |
|
| 1.95 |
|
| 3.47 |
|
| 2.46 |
| ||||||||
Diluted net earnings (loss)3 | 4.56 |
|
| 4.25 |
|
| (0.20 | ) |
| 2.08 |
|
| 2.78 |
|
| 2.10 |
|
| 0.71 |
|
| 2.81 |
| ||||||||
Dividends | 1.36 |
|
| 1.36 |
|
| 1.36 |
|
| 1.36 |
|
| 1.36 |
|
| 1.22 |
|
| 1.19 |
|
| 1.10 |
| ||||||||
Book value | 24.55 |
|
| 26.16 |
|
| 23.71 |
|
| 25.93 |
|
| 25.40 |
|
| 23.21 |
|
| 23.17 |
|
| 22.91 |
| ||||||||
Closing Stock Price – NYSE | 65.06 |
|
| 55.38 |
|
| 55.00 |
|
| 46.63 |
|
| 53.25 |
|
| 50.25 |
|
| 66.50 |
|
| 44.63 |
| ||||||||
Key ratios4 | |||||||||||||||||||||||||||||||
Operating profit margin | 8.3 | % |
| 6.7 | % |
| 0.1 | % |
| 3.3 | % |
| 4.5 | % |
| 4.7 | % |
| 6.8 | % |
| 6.3 | % | ||||||||
Pre-tax margin5 | 4.9 | % |
| 5.5 | % |
| (2.0 | )% |
| 1.2 | % |
| 2.6 | % |
| 3.4 | % |
| 5.7 | % |
| 4.7 | % | ||||||||
Net margin6 | 3.3 | % |
| 3.0 | % |
| (0.5 | )% |
| 1.7 | % |
| 2.4 | % |
| 1.8 | % |
| 3.5 | % |
| 2.5 | % | ||||||||
Return on average stockholders’ equity7 | 17.9 | % |
| 17.2 | % |
| (0.8 | )% |
| 8.2 | % |
| 11.6 | % |
| 9.4 | % |
| 14.2 | % |
| 13.1 | % | ||||||||
Return on average total assets8 | 4.2 | % |
| 4.6 | % |
| (0.7 | )% |
| 1.8 | % |
| 3.0 | % |
| 2.8 | % |
| 4.0 | % |
| 3.3 | % | ||||||||
Current assets to current liabilities | 1.1 | x |
| 1.2 | x |
| 1.2 | x |
| 0.9 | x |
| 0.9 | x |
| 1.0 | x |
| 1.0 | x |
| 0.9 | x | ||||||||
Total debt-appliance business as a percent of invested capital9 | 37.7 | % |
| 43.5 | % |
| 46.1 | % |
| 44.2 | % |
| 45.2 | % |
| 35.6 | % |
| 33.8 | % |
| 42.8 | % | ||||||||
Price earnings ratio | 14.3 | x |
| 13.0 | x |
| — |
|
| 22.4 | x |
| 19.2 | x |
| 23.9 | x |
| 21.2 | x |
| 15.9 | x | ||||||||
Interest coverage10 | 4.1 | x |
| 3.2 | x |
| — |
|
| 1.6 | x |
| 2.7 | x |
| 3.6 | x |
| 5.0 | x |
| 3.5 | x | ||||||||
Other data | |||||||||||||||||||||||||||||||
Number of common shares outstanding (in thousands): | |||||||||||||||||||||||||||||||
Average – on a diluted basis | 76,044 |
|
| 76,507 |
|
| 74,697 |
|
| 77,178 |
|
| 76,812 |
|
| 77,588 |
|
| 76,013 |
|
| 75,661 |
| ||||||||
Year-end | 74,463 |
|
| 76,089 |
|
| 75,262 |
|
| 74,415 |
|
| 74,081 |
|
| 73,845 |
|
| 73,068 |
|
| 70,027 |
| ||||||||
Number of stockholders (year-end) | 12,531 |
|
| 13,584 |
|
| 10,171 |
|
| 11,033 |
|
| 11,686 |
|
| 11,821 |
|
| 11,438 |
|
| 11,724 |
| ||||||||
Number of employees (year-end) | 62,706 |
|
| 59,885 |
|
| 62,419 |
|
| 49,254 |
|
| 46,546 |
|
| 39,671 |
|
| 40,071 |
|
| 38,902 |
| ||||||||
Total return to shareholders (five year annualized)11 | 7.9 | % |
| (1.2 | )% |
| 6.8 | % |
| 6.3 | % |
| 20.8 | % |
| 12.0 | % |
| 25.8 | % |
| 17.0 | % | ||||||||
stockholders’ equity – 22%, e) Return on average total assets – 5.6%, and f) Interest coverage – 5x. Excluding the first-quarter impact of the Brazilian currency devaluation in 1999 and the gain from discontinued operations in 1998, returns on average stockholders’ equity were 19.9% and 16.5%, and returns on average total assets were 5.7% and 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%, e) Return on average total assets – 2.7%, f) Interest coverage – 3x.
| 5 | Earnings from continuing operations before income taxes and other items, as a percent of sales. |
| 6 | Earnings from continuing operations, as a percent of sales. |
| 7 | Net earnings (loss) before accounting change, divided by average stockholders’ equity. |
| 8 | Net earnings (loss) before accounting change, plus minority interest divided by average total assets. |
| 9 | Debt divided by debt, stockholders’ equity and minority interests. |
| 10 | Ratio of earnings from continuing operations (before income taxes, accounting change and interest expense) to interest expense. |
| 11 | Stock appreciation plus reinvested dividends. |
73
Shareholders’ and Other Information
FINANCIAL INFORMATION
Whirlpool Corporation’s annual report on Form 10-K, a cassette-tape recording of the annual report to shareholders and other financial information is available free of charge.
If you are not a stockholder of record – that is, if your Whirlpool shares are registered in the name of a broker, bank or other nominee – you must ask that holder to mail stockholder reports directly to you. Company earnings releases for each quarter – typically issued in April, July, October and February – can be obtained by contacting Whirlpool’s Director, Investor Relations:
Tom Filstrup
Whirlpool Corporation, 2000 N. M-63,
Mail Drop 2800
Benton Harbor, MI 49022-2692
Telephone: 269.923.3189
Fax: 269.923.3525
Email: thomas_c_filstrup@whirlpool.com
TRANSFER AGENT, SHAREHOLDER RECORDS, DIVIDEND DISBURSEMENTS AND CORPORATE SECRETARY
For information about or assistance with individual stock records, transactions, dividend checks or stock certificates, contact:
EquiServe Trust Company, N.A. Shareholder Services
P.O. Box 2500, Jersey City, NJ 07303-2500
Telephone: 800.446.2617
www.equiserve.com
For additional information about the company contact:
Robert T. Kenagy, Corporate Secretary
Whirlpool Corporation, 2000 N. M-63,
Mail Drop 2200
Benton Harbor, MI 49022-2692
Telephone: 269.923.3910
Fax: 269.923.3722
Email: robert_t_kenagy@whirlpool.com
DIRECT STOCK PURCHASE PLAN
As a participant in the DirectSERVICE Investment and Stock Purchase PROGRAM, you can be the direct owner of your shares of Whirlpool Common Stock. Non-shareholders may purchase their initial shares through the plan for a minimum investment of $250, or through automatic bank account debits of $50 for five months. Participants may make cash contributions of up to $250,000 annually, invested daily, with or without reinvesting their dividends, and can sell part of the shares held in the program without exiting the plan. There are modest transaction processing fees and brokerage commissions for purchases, sales and dividend reinvestment. For details, contact EquiServe or visit their Direct Stock Purchase Plan Web site to enroll.
ANNUAL MEETING
Whirlpool Corporation’s next annual meeting is scheduled for April 15, 2003, at 9:30 a.m. (Central Time), at 181 West Madison Street, 7th Floor, Chicago, IL.
STOCK EXCHANGES
Common stock of Whirlpool Corporation (exchange symbol: WHR) is listed on the New York and Chicago stock exchanges.
STOCK-SPLIT EXCHANGE AND DIVIDEND HISTORY
March 1952, 2-for-1 stock exchange
December 1954, 100% stock dividend
May 1965, 2-for-1
May 1972, 3-for-1
December 1986, 2-for-1
Example: 100 shares of Whirlpool common stock purchased in February 1952 equaled 4,800 shares in January 2003.
COMMON-STOCK
Market Price | High | Low | Close | ||||||
4Q 2002 | $ | 55.99 | $ | 39.23 | $ | 52.22 | |||
3Q 2002 |
| 66.36 |
| 44.79 |
| 45.86 | |||
2Q 2002 |
| 78.20 |
| 63.45 |
| 65.36 | |||
1Q 2002 |
| 79.80 |
| 61.85 |
| 75.55 | |||
4Q 2001 | $ | 74.20 | $ | 53.25 | $ | 73.33 | |||
3Q 2001 |
| 71.93 |
| 50.20 |
| 55.35 | |||
2Q 2001 |
| 65.50 |
| 48.81 |
| 62.50 | |||
1Q 2001 |
| 57.38 |
| 45.88 |
| 49.99 | |||
TRADEMARKS
AccuWave, Acros, Advantech, Axent, Bauknecht, big, Brastemp, briva, Calypso, ComfortAire, Conquest, Consul, Crolls, De Ville Grill, Dreamspace, DryAire, Duet, Embraco, Eslabón de Lujo, Estate, Facility, Fast Forward Ice, GearWall, Gladiator, Glide, Icemagic, Ideale, Ignis, ImPress, Inglis, Insperience, Jupiter, KIC, KitchenAid, KitchenAid Experience, Laden, MagiCook, MagiCool, Maison Tri Chama, Max! Advance, Performer, Personal Valet, Polar, Polara, Pratice, Quality, Quick Cool, Roper by Whirlpool Corporation, Satina, SinkSpa, 6th Sense, Supermatic, Timer Classe A, Whirlpool and Whitemagic are trademarks of Whirlpool Corporation or its wholly or majority-owned affiliates.
Kenmore, Kenmore Elite and HE3t are trademarks of Sears, Roebuck and Co.
ENERGY STAR is a U.S. registered mark.
Epcot and Walt Disney World are registered marks of Disney Enterprises, Inc.
© 2003 Whirlpool Corporation.
All rights reserved.
74 Shareholders and Other Information
Directors & Executive Committee
DIRECTORS
Herman Cain2,3
Chairman of the Board,
Godfather’s Pizza, Inc. and
Chief Executive Officer, T.H.E., Inc.
Gary T. DiCamillo1,2
President and Chief Executive Officer,
TAC Worldwide Co.
Jeff M. Fettig
President and Chief Operating
Officer of the Company
Allan D. Gilmour1,3
Vice Chairman and
Chief Financial Officer,
Ford Motor Company
Kathleen J. Hempel2,3
Former Vice Chairman and
Chief Financial Officer,
Fort Howard Corporation
James M. Kilts1,4
Chairman of the Board and
Chief Executive Officer,
The Gillette Company
Arnold G. Langbo1,4
Former Chairman of the Board and
Chief Executive Officer,
Kellogg Company
Miles L. Marsh2,4
Former Chairman of the Board and
Chief Executive Officer,
Fort James Corporation
Philip L. Smith2,3
Former Chairman of the Board and
Chief Executive Officer,
The Pillsbury Company
Paul G. Stern3,4
Partner, Thayer Capital Partners, LLP and
Arlington Capital Partners, LLP
Janice D. Stoney1,4
Former Executive Vice President,
US WEST Communications Group, Inc.
David R. Whitwam
Chairman of the Board and
Chief Executive Officer of the Company
COMMITTEES
1. Audit
2. Corporate Governance and Nominating
3. Finance
4. Human Resources
EXECUTIVE COMMITTEE
David R. Whitwam
Chairman of the Board and
Chief Executive Officer
Jeff M. Fettig
President and Chief Operating Officer
R. Stephen Barrett, Jr.
Executive Vice President and
Chief Financial Officer
Mark E. Brown
Senior Vice President,
Global Strategic Sourcing
Daniel F. Hopp
Senior Vice President,
Corporate Affairs and General Counsel
Paulo F. M. Periquito
Executive Vice President and President,
Latin American Region
David L. Swift
Executive Vice President,
North American Region
Michael D. Thieneman
Executive Vice President and
Chief Technology Officer
Michael A. Todman
Executive Vice President and
President, Whirlpool Europe
[Photo Appears Here]
ŸFrom LeftPhilip L. Smith, Gary T. DiCamillo, Kathleen J. Hempel, Herman Cain, Jeff M. Fettig, James M. Kilts, David R. Whitwam, Allan D. Gilmour, Miles L. Marsh, Paul G. Stern, Janice D. Stoney, Arnold G. Langbo.
2002 Annual Report 75
Senior Officers & Corporate Addresses
SENIOR OFFICERS (VICE PRESIDENTS)
John Alexander
Whirlpool Brand, North America
J.C. Anderson
Senior Vice President,
North American Region Operations
Roy V. Armes
Whirlpool Mexico, North America
Betty A. Beaty
Controller
David A. Binkley
Global Human Resources
Marc R. Bitzer
Senior Vice President,
Marketing, Sales and Services,
Whirlpool Europe
R. David Butler
Chief Information Officer
Ruy Campos
Brazil Sales, Multibras
Blair A. Clark
Treasurer
Ted A. Dosch
Finance, North America
Garrick D’Silva
Regional Vice President,
Whirlpool Asia
Ernesto Heinzelmann
President and Chief Executive Officer,
Embraco S. A., Latin America
Barry Holt
Global Communications
Marise Fernandes Kumar
Emerging Brands and Categories,
North America
Karim Lalani
Sears Sales and Marketing,
North America
Rubin J. McDougal
Finance and Administration,
Whirlpool Europe
Gregory T. McManus
Sales and Distribution,
North America
Jamie Moldafsky
KitchenAid Brand,
North America
Che Naraine
Operations and Technology,
Whirlpool Europe
Giuseppe Perucchetti
Brand Marketing,
Whirlpool Europe
G. Alan Shaw
Customer Relationship Management,
North America
Nancy T. Snyder
Strategic Competency Creation
Jeremy S. Weinstein
Global Procurement Operations
W. Timothy Yaggi
Senior Vice President,
Brand Portfolio Group, North America
WHIRLPOOL CORPORATION GENERAL OFFICES
World Headquarters and North America Region
2000 N. M-63
Benton Harbor, MI 49022-2692
Telephone: 269.923.5000
Europe Region
Viale G. Borghi 27
21025 Comerio (VA), Italy
Telephone: 39.0332.759.111
Fax: 39.0332.759.347
Latin America Region
Av. das Nações Unidas N. 12.995
São Paulo – S.P. CEP 04578-000, Brazil
Telephone: 55.11.5586.6100
Fax: 55.11.5586.6040
Asia Region
16th Floor, Paliburg Plaza
68 Yee Wo St.
Causeway Bay, Hong Kong
Telephone: 852.2881.0882
Fax: 852.2881.1018
Product and Service Information (North America)
KitchenAid brand: 800.422.1230
Whirlpool brand: 800.253.1301
Internet Address
Whirlpool financial information and more
are available at Whirlpool’s site on the
Internet: www.whirlpoolcorp.com
76 Senior Officer & Corporate Addresses
Ÿ Our Vision
Every Home… Everywhere with Pride,
Passion and Performance
Ÿ Our Mission
Everyone… Passionately Creating
Loyal Customers for Life
[LOGO OF WHIRLPOOL]
www.whirlpoolcorp.com
