UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1996
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
Commission file number 1-655
MAYTAG CORPORATION
A Delaware Corporation I.R.S. Employer Identification No. 42-0401785
403 West Fourth Street North, Newton, Iowa 50208
Registrant's telephone number, including area code: 515-792-7000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $1.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock (Common Stock) held by non-
affiliates of the registrant as of the close of business on March 17, 1997 was
$2,070,947,400. The number of shares outstanding of the registrant's Common
Stock (par value $1.25) as of the close of business on March 17, 1997 was
98,033,013.
DOCUMENTS INCORPORATED BY REFERENCE
As noted in Part III of this Form 10-K, portions of the registrant's Proxy
statement for its Annual Meeting of Shareholders to be held May 15, 1997 have
been incorporated by reference.
1
MAYTAG CORPORATION
1996 ANNUAL REPORT ON FORM 10-K CONTENTS
Item Page
PART I:
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business - Home Appliances . . . . . . . . . . . . . . . . . . . 3
Business - Vending Equipment . . . . . . . . . . . . . . . . . . 5
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6
4. Submission of Matters to a Vote of Security Holders . . . . . . 6
Executive Officers of the Registrant . . . . . . . . . . . . . . 7
PART II:
5. Market for the Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 9
8. Financial Statements and Supplementary Data . . . . . . . . . . 15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 38
PART III:
10. Directors and Executive Officers of the Registrant . . . . . . . 38
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 39
12. Security Ownership of Certain Beneficial Owners and Management . 39
13. Certain Relationships and Related Transactions . . . . . . . . . 39
PART IV:
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2
PART I
Item 1. Business.
Maytag Corporation (the "Company") was organized as a Delaware corporation in
1925. The Company operates in two business segments: home appliances and
vending equipment. Financial and other information relating to industry segment
and geographic data is included in Part II, Item 7, Pages 9-13, and Item 8,
Pages 36 and 37.
HOME APPLIANCES
The home appliances segment represented 94.6 percent of consolidated net sales
in 1996.
The Company, through its various business units, manufactures, distributes and
services a broad line of home appliances including laundry equipment,
dishwashers, refrigerators, cooking appliances, vacuum cleaners and extractors.
The Company's home appliance brands include Maytag, Jenn-Air, Magic Chef,
Admiral and Hoover. Maytag International, Inc., the Company's international
marketing subsidiary, handles the sales of appliances and licensing of certain
home appliance brands in markets outside the United States and Canada. The
Company markets its home appliances to major United States and certain
international markets, including the replacement market, the commercial laundry
market, the new home and apartment builder market, the recreational vehicle
market, the private label market and the household/commercial floor care market.
Products are primarily sold to major retailers, independent dealers and
distributors.
During the first quarter of 1996 the Company announced the restructuring of its
major appliance operations in an effort to strengthen its position in the
industry and to deliver improved results to both customers and shareowners.
This included the consolidation of two separate organizational units into a
single operation responsible for all activities associated with the manufacture
and distribution of the Company's brands of major appliances and the closing of
a cooking products plant in Indianapolis, Indiana, with transfer of that
production to an existing plant in Cleveland, Tennessee.
In the third quarter of 1996 the Company invested approximately $35 million and
committed additional investments of $35 million for a 50.5 percent ownership in
a joint venture with a manufacturer of appliances in China. In the second
quarter of 1995 the Company sold its home appliance operations in Europe
("European Operations") and in the fourth quarter of 1994 the Company sold its
home appliance operations in Australia and New Zealand ("Australian
Operations"). Additional information regarding this acquisition and these
divestitures is included in Part II, Item 7, Pages 12 and 14; and Item 8, Pages
24 and 25.
During 1997, the Company expects to introduce new products and newly designed
products resulting from major capital projects. The Company's major capital
projects and planned capital expenditures for 1997 are described in Part II,
Item 7, Page 14.
A portion of the Company's operations and sales is outside the United States.
The risks involved in foreign operations vary from country to country and
include tariffs, trade restrictions, changes in currency values, economic
conditions and international relations. Geographic information is included in
Part II, Item 8, Page 37.
3
The Company uses basic raw materials such as steel, copper, aluminum, rubber and
plastic in its manufacturing process in addition to purchased motors,
compressors, timers, valves and other components. These materials are supplied
by established sources and the Company anticipates that such sources will, in
general, be able to meet its future requirements.
The Company holds a number of patents which are important in the manufacture of
its products. The Company also holds a number of trademark registrations of
which the most important are ADMIRAL, HOOVER, JENN-AIR, MAGIC CHEF, MAYTAG and
the associated corporate symbols.
The Company's home appliance business is not seasonal.
The Company is not dependent upon a single home appliance customer or a few
customers. Therefore, the loss of any one customer would not have a material
adverse effect on its business.
The dollar amount of backlog orders of the Company is not considered significant
for home appliances in relation to the total annual dollar volume of sales.
Because it is the Company's practice to maintain a level of inventory sufficient
to cover anticipated shipments and since orders are generally shipped upon
receipt, a large backlog would be unusual.
The home appliance market is highly competitive with the principal competitors
being larger than the Company. Competitive pressures make price increases
difficult to implement. The Company uses brand image, product quality, product
innovation, customer service, advertising and warranty as its principal methods
of competition.
Expenditures for company-sponsored research and development activities relating
to the development of new products and the improvement of existing products are
included in Part II, Item 8, page 35.
Although the Company has many manufacturing sites with environmental concerns,
compliance with laws and regulations regarding the discharge of materials into
the environment or relating to the protection of the environment has not had a
material effect on capital expenditures, earnings or the Company's competitive
position.
The Company has been identified as one of a group of potentially responsible
parties by state and federal environmental protection agencies in remedial
activities related to various "superfund" sites in the United States. The
Company does not presently anticipate any material adverse effect upon the
Company's earnings or financial condition arising from resolution of these
matters.
The Company continues to progress on major capital projects implemented to
address the stricter governmental energy and environmental standards regarding
appliances which may become effective over the next several years. The Company
intends to be in compliance with these various standards, which affect the
entire appliance industry, as they become effective.
The number of employees of the Company within the home appliances segment as of
February 22, 1997 was 19,463.
4
VENDING EQUIPMENT
The vending equipment segment represented 5.4 percent of consolidated net sales
in 1996.
The Company manufactures, through its Dixie-Narco subsidiary, a variety of
bottle and can vending equipment and glass front merchandisers. The products
are sold worldwide primarily to soft drink bottlers and vending equipment
distributors.
In the fourth quarter of 1995, the Company sold the business and assets of a
Dixie-Narco manufacturing operation in Eastlake, Ohio ("Eastlake Operation").
The Eastlake Operation designed and manufactured currency validators and
electronic components used in the gaming and vending industries. Dixie-Narco's
headquarters and vending machine manufacturing facility in Williston, South
Carolina, were not affected by this business disposition. Additional
information regarding this divestiture is included in Part II, Item 7, Page 12.
The Company uses steel as a basic raw material in its manufacturing processes in
addition to purchased motors, compressors and other components. These materials
are supplied by established sources and the Company anticipates that such
sources will, in general, be able to meet its future requirements.
The Company holds a number of patents which are important in the manufacture of
its products. The Company holds a DIXIE-NARCO trademark registration and its
associated corporate symbol.
Vending equipment sales, though stronger in the first six months of the year,
are considered by the Company to be essentially nonseasonal.
The Company's vending equipment segment is dependent upon a few major soft drink
suppliers. Therefore, the loss of one or more of these customers could have a
material significant adverse effect on this segment. The Company manufactures
and sells its vending machines and glass front merchandisers in competition with
a small number of other manufacturers and is the major manufacturer of such
equipment. The principal methods of competition utilized by the vending
equipment segment are product quality, customer service, warranty and price.
The dollar amount of backlog orders of the Company is not considered significant
for vending equipment in relation to the total annual dollar volume of sales.
Because it is the Company's practice to maintain a level of inventory sufficient
to cover shipments and since orders are generally shipped upon receipt, a large
backlog would be unusual.
Although the Company has manufacturing sites with environmental concerns,
compliance with laws and regulations regarding the discharge of materials into
the environment or relating to the protection of the environment has not had a
material effect on capital expenditures, earnings or the Company's competitive
position.
The number of employees of the Company within the vending equipment segment as
of February 22, 1997 was 1,080.
5
Item 2. Properties.
The Company's corporate headquarters is located in Newton, Iowa. Major offices
and manufacturing facilities in the United States related to the home appliances
segment are located in: Newton, Iowa; Galesburg, Illinois; Cleveland,
Tennessee; Jackson, Tennessee; Milan, Tennessee; Herrin, Illinois; North Canton,
Ohio; and El Paso, Texas. In addition to manufacturing facilities in the United
States, the Company has three other North American manufacturing facilities, one
in Canada and two in Mexico.
In the third quarter of 1996 the Company invested approximately $35 million and
committed additional investments of $35 million for a 50.5 percent ownership in
a joint venture with a manufacturer of appliances in China. In the second
quarter of 1995 the Company sold its European Operations and in the fourth
quarter of 1994 the Company sold its Australian Operations. Additional
information regarding this acquisition and these divestitures is included in
Part II, Item 7, Pages 12 and 14; and Item 8, Pages 24 and 25.
During 1996 the Company phased out production at its Indianapolis, Indiana
cooking products facility and consolidated the manufacturing of all cooking
products at its larger cooking products plant in Cleveland, Tennessee.
The office and manufacturing facility related to the vending equipment segment
is located in Williston, South Carolina. In the fourth quarter of 1995, the
Company sold its Eastlake Operation. Additional information regarding this
divestiture is included in Part II, Item 7, Page 12.
The manufacturing facilities for both segments are well maintained, suitably
equipped and in good operating condition. The facilities used had sufficient
capacity to meet production needs in 1996, and the Company expects that such
capacity will be adequate for planned production in 1997. The Company's major
capital projects and planned capital expenditures for 1997 are described in Part
II, Item 7, Page 14.
The Company also owns or leases sales offices in many large metropolitan areas
throughout the United States and Canada. Lease commitments are included in Part
II, Item 8, Page 32.
Item 3. Legal Proceedings.
The Company is involved in contractual disputes, environmental, administrative
and legal proceedings and investigations of various types. Although any
litigation, proceeding or investigation has an element of uncertainty, the
Company believes that the outcome of any proceeding, lawsuit or claim which is
pending or threatened, or all of them combined, will not have a material adverse
effect on its consolidated financial position. The Company's contingent
liabilities are discussed in Part II, Item 8, Pages 35 and 36.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to a vote of security holders during the
fourth quarter of 1996 through a solicitation of proxies or otherwise.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names of all executive officers of the Company, the
offices held by them, the year they first became an officer of the Company and
their ages:
First
Became
Name Office Held an Officer Age
Leonard A. Hadley Chairman and
Chief Executive Officer 1979 62
Lloyd D. Ward Executive Vice President, President
Maytag Appliances 1996 48
Gerald J. Pribanic Executive Vice President and Chief
Financial Officer 1996 53
Brian A. Girdlestone President, The Hoover Company 1996 63
Robert W. Downing President, Dixie-Narco, Inc. 1996 60
Edward H. Graham Senior Vice President, General
Counsel and Assistant Secretary 1990 61
John M. Dupuy Vice President, Strategic Planning 1996 40
Jon O. Nicholas Vice President, Human Resources,
Maytag Appliances 1993 57
David D. Urbani Vice President and Treasurer 1995 51
Steven H. Wood Vice President, Financial Reporting
and Audit 1996 39
The executive officers were elected to serve in the indicated office until the
organizational meeting of the Board of Directors following the Annual Meeting of
Shareholders on May 15, 1997 or until their successors are elected.
Each of the executive officers has served the Company in various executive or
administrative positions for at least five years except for:
Name Company/Position Period
Lloyd D. Ward PepsiCo, Inc. - President, Central
Division, Frito-Lay, Inc. 1992-1996
John M. Dupuy A. T. Kearney - Principal Consultant 1993-1995
Booz, Allen & Hamilton - Principal 1985-1993
Consultant
David D. Urbani Air Products and Chemicals, Inc.
- Assistant Treasurer 1984-1994
7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
1996 1995 1996 1995
Quarter High Low High Low
First $21 7/8 $18 5/8 $17 1/8 $14 1/2 $.14 $.125
Second 22 7/8 18 3/4 17 5/8 15 3/8 .14 .125
Third 21 1/2 17 1/2 18 1/8 15 1/4 .14 .125
Fourth 21 1/4 18 7/8 21 1/2 17 3/8 .14 .14
The principal U.S. market in which the Company's common stock is traded is the
New York Stock Exchange. As of March 17, 1997, the Company had 28,442
shareowners of record.
Item 6. Selected Financial Data.
Dollars in thousands
except per share data 1996(1) 1995 (2) 1994 (3) 1993 (4) 1992 (5)
Net sales $3,001,656 $3,039,524 $3,372,515 $2,987,054 $3,041,223
Gross profit 821,443 788,908 876,450 724,112 701,817
Percent to sales 27.4% 26.0% 26.0% 24.2% 23.1%
Operating profit $ 269,079 $ 288,234 $ 322,768 $ 158,878 $ 78,567
Percent to sales 9.0% 9.5% 9.6% 5.3% 2.6%
Income (loss) from
continuing operations $ 137,977 $ (14,996)$ 151,137 $ 51,270 $ (8,354)
Percent to sales 4.6% (.5%) 4.5% 1.7% (.3%)
Per share $ 1.36 $ (0.14)$ 1.42 $ 0.48 $ (0.08)
Dividends paid per
share 0.56 0.515 0.50 0.50 0.50
Average shares
outstanding 101,727 107,062 106,795 106,252 106,077
Working capital $ 334,948 $ 543,431 $ 595,703 $ 406,181 $ 452,626
Depreciation of
property, plant and
equipment 101,912 102,572 110,044 102,459 94,032
Additions to property,
plant and equipment 219,902 152,914 84,136 99,300 129,891
Total assets 2,329,940 2,125,066 2,504,327 2,469,498 2,501,490
Long-term debt 488,537 536,579 663,205 724,695 789,232
Total debt to
capitalization 51.2% 45.9% 50.7% 60.6% 58.7%
(1) Net sales include $40.4 million of sales from the Company's acquisition of a
50.5 percent ownership in a joint venture of appliances in China in the third
quarter of 1996. Operating profit includes a $40 million charge for the
restructuring of the Company's major home appliance business. The after-tax
charge for this restructuring of $24.4 million is included in income (loss) from
continuing operations. Excludes the extraordinary loss on the early retirement
of debt.
(2) Net sales include $181.2 million made by the Company's European Operations
which was sold effective June 30, 1995. Income (loss) from continuing
operations includes a $135.4 million after-tax loss on the sale of the Company's
European Operations, a $9.9 million after-tax charge to settle a lawsuit
relating to the closing of the former Dixie-Narco plant in Ranson, West
8
Virginia, a $3.6 million after-tax loss on the sale of the Eastlake Operation
and a $10.8 million after-tax loss arising from a guarantee of indebtedness
relating to the sale of one its manufacturing plants in 1992. Excludes the
extraordinary loss on the early retirement of debt.
(3) Net sales include $399 million made by the Company's European Operations
which was sold effective June 30, 1995 and $142 million made by the Company's
Australian Operations which was sold effective December 31, 1994. Income (loss)
from continuing operations includes a $20 million one-time tax benefit
associated with European operating losses and reorganization costs and a $16.4
million after-tax loss from the sale of the Company's Australian Operations.
Excludes the cumulative effect of an accounting change.
(4) Net sales include $390.8 million made by the Company's European Operations
which was sold effective June 30, 1995 and $127.9 million made by the Company's
Australian Operations which was sold effective December 31, 1994. Operating
profit includes $60.4 million in charges ($50 million in a special charge) for
costs associated with two Hoover Europe "free flights" promotion programs. The
$30 million after-tax charge for the $50 million special charge is included in
income (loss) from continuing operations.
(5) Net sales include $501.9 million made by the Company's European Operations
which was sold effective June 30, 1995 and $131.8 million made by the Company's
Australian Operations which was sold effective December 31, 1994. Operating
profit includes a $95 million pretax charge relating to the reorganization of
the North American and European business units. The after-tax charge for this
restructuring of $73.8 million is included in income (loss) from continuing
operations. Excludes the cumulative effect of accounting changes.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Comparison of 1996 with 1995
The Company operates in two business segments, home appliances and vending
equipment. Operations of the home appliances segment represented 94.6 percent
of net sales in 1996 and 93.6 percent of net sales in 1995.
NET SALES: The Company's consolidated net sales decreased 1.2 percent in 1996
compared to 1995. Net sales in 1996 include four months of sales totaling $40.4
million of the Company's China joint venture (See discussion of this investment
in "Liquidity and Capital Resources" section of this Management's Discussion and
Analysis.) Net sales in 1995 include six months of sales of $181.2 million of
the Company's home appliance operations in Europe ("European Operations") which
were sold effective June 30, 1995. Excluding sales of the China joint venture
and the European Operations, the Company's net sales increased 3.6 percent in
1996 compared to 1995.
Sales of the North American home appliances segment, which includes major
appliances and floor care products, increased 5.1 percent from 1995. Sales of
floor care products increased over the prior year due largely to increased sales
of new floor care products as well as increased sales of existing products. New
floor care products sales have resulted in significant year over year increases
based in part on the Hoover brand upright extractor which was previously the
only product of this unique design in the market. A major competitor entered
the upright extractor market in the third quarter of 1996 and at least one other
competitor is expected to enter this market during 1997. The Company believes
that the potential negative impact of this competition may be mitigated by the
expansion of the market for products of this type. Sales by the Company of
9
major appliances were approximately the same as the previous year and its
overall market share in major appliances for 1996 was consistent with year-ago
levels. Shipments in the U.S. major appliance industry in 1996 were at record
levels. The industry's trade association projects 1997 shipments of major
appliances to be approximately the same as 1996 levels.
Vending equipment sales were down 16.6 percent from 1995. Sales
decreased 9.4 percent compared to last year after excluding sales totaling $15.6
million in 1995 made by a Dixie-Narco manufacturing operation in Ohio ("Eastlake
Operation") sold in December 1995. The decrease in sales is a result of an
unexpected shift in domestic customer demand for venders which handle certain
large soft drink packages. This shift led to significant design and tooling
changes which resulted in Dixie-Narco being unable to efficiently produce this
type of vender in sufficient volume during 1996. The Company has taken action
to remedy this situation and believes that it will be able to meet the market
demand for these venders in 1997. In addition to this decline in domestic
vender sales, export sales of glass front merchandisers were down from the
previous year primarily due to the loss of one customer, BAESA. (See reference
to this customer in "Contingencies" section of this Management's Discussion and
Analysis.)
GROSS PROFIT: Gross profit as a percent of sales in 1996 increased to 27.4
percent of sales from 26.0 percent of sales in 1995. The increase in gross
margin performance is due to the divestiture of the lower margin European
Operations in 1995 as well as the factors described below.
Gross margins increased in the North American home appliances segment
primarily as a result of lower raw material prices and more favorable brand and
product sales mix. These improvements were partially offset by an increase in
distribution costs related to a transition to regional distribution centers.
The increased distribution costs are expected to continue in future periods.
Vending equipment gross margins decreased due to lower production volumes and an
increase in manufacturing costs associated with the production of the newly
designed venders discussed previously.
The lower raw material prices the Company experienced in 1996 compared to
1995 resulted in approximately $17 million of additional gross profit for the
year. The Company expects raw material prices in 1997 to be approximately the
same as 1996 levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased to 17.1 percent of sales in 1996 from 16.5
percent of sales in 1995. The increase is primarily due to an increase in
advertising and sales promotion spending related to new product introductions
and to respond to competitive market conditions.
RESTRUCTURING CHARGE: During the first quarter of 1996 the Company announced
the restructuring of its major appliance operations in an effort to strengthen
its position in the industry and to deliver improved results to both customers
and shareowners. This included the consolidation of two separate organizational
units into a single operation responsible for all activities associated with the
manufacture and distribution of the Company's brands of major appliances and the
closing of a cooking products plant in Indianapolis, Indiana, with transfer of
that production to an existing plant in Cleveland, Tennessee.
As a result of these actions the Company recorded a one-time
restructuring charge of $40 million, or $24.4 million after-tax, in the first
quarter of 1996. This charge is primarily related to the costs associated with
the consolidation of cooking products manufacturing and consolidation of
activities of the two separate organizational units.
The Company incurred $10.5 million of additional restructuring costs
10
during 1996, not included in the one-time restructuring charge. The additional
costs were charged to operations as incurred.
OPERATING INCOME: Operating income for 1996 was 9.0 percent of sales compared
to 9.5 percent of sales in 1995. However, excluding the $40 million
restructuring charge, operating income in 1996 was 10.3 percent of sales. This
is consistent with operating income for 1995 of 10.3 percent of sales excluding
the European Operations.
Operating income for the North American home appliances segment in 1996,
excluding the $40 million restructuring charge, increased 4.6 percent from 1995.
Operating income as a percent of sales was 11.3 percent in 1996 which is
approximately the same as the 11.4 percent realized in 1995. Vending equipment
operating income decreased 54.3 percent in 1996 compared to 1995. The decrease
in operating income is due to the decrease in gross profit discussed previously.
INTEREST EXPENSE: Interest expense decreased 17.4 percent from 1995 primarily
as a result of the debt reduction during 1995 and over $6 million of higher
capitalized interest related to capital spending in 1996 compared to 1995.
INCOME TAXES: The effective tax rate for 1996 was 39 percent compared to 40
percent in 1995 when excluding amounts relating to the loss on the sale of the
European Operations. (See discussion of Income Taxes in "Comparison of 1995
with 1994" section of this Management's Discussion and Analysis.) This decrease
is primarily due to the realization of capital gains and the related adjustments
to the valuation allowances recorded against deferred tax assets.
EXTRAORDINARY ITEM: In 1996 the Company retired $17.5 million of long-term debt
at a cost of $1.5 million after-tax, or $.02 per share. In 1995, the Company
retired $116.5 million of long-term debt at a cost of $5.5 million after-tax, or
$.05 per share.
NET INCOME (LOSS): Net income for 1996 was $136.4 million, or $1.34 per share,
compared to a net loss of $20.5 million, or $.19 per share in 1995. The
increase in net income is primarily due to the amount of special items charged
to income in 1995 compared to 1996. Special items in 1995 totaled $165.2
million after-tax compared to $25.9 million after-tax in 1996. Special items in
1995 included a $135.4 million after-tax loss on the sale of the European
Operations, a $3.6 million after-tax loss on the sale of the Eastlake Operation,
a $9.9 million after-tax charge related to a Dixie-Narco plant closing
settlement, a $10.8 million after-tax charge arising from a guarantee of
indebtedness relating to the sale of one of the Company's manufacturing
facilities in 1992 and the $5.5 million extraordinary item from the early
retirement of debt. Special items in 1996 included the $24.4 million after-tax
restructuring charge and the $1.5 million extraordinary item from the early
retirement of debt.
Excluding special items, income for 1996 would have been $162.4 million,
or $1.60 per share, compared to income for 1995 of $144.7 million, or $1.35 per
share. This increase is primarily due to an increase in operating income, lower
interest expense and the lower effective tax rate. In addition, earnings per
share in 1996 was favorably impacted by $.08 per share from the Company's share
repurchase program. (See discussion of the share repurchase program in
"Liquidity and Capital Resources" section of this Management's Discussion and
Analysis.)
11
Comparison of 1995 with 1994
Operations of the home appliance segment represented 93.6 percent of net sales
in 1995 and 94.3 percent of net sales in 1994.
NET SALES: The Company's consolidated net sales decreased 9.9 percent in 1995
compared to 1994. However, net sales were up 0.9 percent after excluding sales
of the Australian Operations and the European Operations sold in 1994 and 1995,
respectively. Effective December 31, 1994, the Company sold its home appliance
operations in Australia and New Zealand ("Australian Operations") which had
sales of $142 million in 1994. Similarly, net sales in 1995 and 1994 include
sales of $181.2 million and $399 million, respectively, by the Company's
European Operations which were sold effective June 30, 1995.
Sales by the North American home appliances segment increased 0.9 percent
from 1994. The segment's performance in 1995 was consistent with overall U.S.
industry performance for comparable product categories with the Company's market
share remaining relatively unchanged. Shipments in the U.S. major appliance
industry in 1995 were slightly below the record shipment levels in 1994 due to
downward inventory adjustments by dealers and a slowdown in general economic
conditions. Vending equipment sales increased 1.5 percent due to growth in
demand for the Company's core soft drink vending machines and glass front
merchandisers.
GROSS PROFIT: Gross profit as a percent of sales in 1995 remained consistent
with 1994 at 26.0 percent of sales. Margins in the North American home
appliances segment decreased due to increases in material costs that could not
be passed on to customers because of competitive conditions. Vending equipment
margins increased due to the implementation of cost improvement projects.
Consolidated gross profit margins remained flat as the impact of the increase in
material costs was offset by divestitures of the lower margin Australian
Operations and European Operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses remained relatively consistent at 16.5 percent of sales
in 1995 compared to 16.4 percent of sales in 1994.
OPERATING INCOME: Operating income for 1995 totaled $288.2 million or 9.5
percent of sales compared to $322.8 million or 9.6 percent of sales in 1994.
Excluding the Australian and European Operations in 1995 and 1994, operating
income totaled $295.4 million in 1995 or 10.3 percent of sales compared to
$309.8 million or 10.9 percent of sales in 1994.
INTEREST EXPENSE: Interest expense decreased 29.7 percent from 1994 due to debt
reduction from proceeds of the sale of the Australian and European Operations
and from cash provided by operations.
LOSS ON BUSINESS DISPOSITIONS: In 1995 and 1994 the Company divested several
under-performing businesses to improve shareowner value. In the fourth quarter
of 1994, the Company sold its Australian Operations for $82.1 million in cash.
The pretax loss from the sale was $13.1 million and resulted in an after-tax
loss of $16.4 million. In the second quarter of 1995, the Company sold its
European Operations for $164.3 million in cash. The pretax loss from the sale
was $140.8 million and resulted in an after-tax loss of $135.4 million or $1.27
per share. In the fourth quarter of 1995, the Company sold the business and
assets of the Eastlake Operation. The pretax loss from the sale was $6 million
and resulted in an after-tax loss of $3.6 million or $.03 per share.
SETTLEMENT OF LAWSUIT: In the third quarter of 1995, the Company recorded a
12
$16.5 million charge to settle a lawsuit relating to the 1991 closing of a
Dixie-Narco plant in Ranson, West Virginia. The after-tax charge was $9.9
million or $.09 per share.
LOSS ON GUARANTEE OF INDEBTEDNESS: In the fourth quarter of 1995, the Company
recorded an $18 million charge arising from a guarantee of indebtedness relating
to the sale of one of its manufacturing facilities in 1992. The after-tax
charge was $10.8 million or $.10 per share.
INCOME TAXES: The significant fluctuation in the relationship of income taxes
to income before taxes is due largely to valuation allowances established
against deferred tax assets relating to capital loss carryforwards from the loss
on the sale of the European Operations. Excluding amounts relating to the loss
on the sale of the European Operations, the effective tax rate was 40 percent in
1995. In 1994 the Company recorded a $20 million tax benefit associated with
European operating losses and reorganization costs. This benefit was partially
offset by the tax expense arising from the sale of the Australian Operations.
Excluding these special items the effective tax rate was 42 percent in 1994.
The decrease in the effective tax rate from 42 percent in 1994 to 40 percent in
1995 is primarily due to an increase in tax benefits from export sales from the
United States.
ACCOUNTING CHANGE: In 1994 the Company adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits." The new rules required
recognition of a liability for certain disability and severance benefits to
former or inactive employees. The cumulative effect of this accounting change
in 1994 was $3.2 million after-tax or $.03 per share.
NET INCOME (LOSS): The Company reported a net loss for 1995 of $20.5 million,
or $.19 per share, compared to reported net income of $147.9 million, or $1.39
per share in 1995. The decrease is primarily due to the special items in 1995
compared to 1994. Special items in 1995 include the $135.4 million after-tax
loss on the sale of the European Operations, the $3.6 million after-tax loss on
the sale of the Eastlake Operation, the $9.9 million after-tax charge related to
a Dixie-Narco plant closing settlement, the $10.8 million after-tax charge
arising from a guarantee of indebtedness relating to the sale of one of the
Company's manufacturing facilities in 1992 and the $5.5 million extraordinary
item from the early retirement of debt. Special items in 1994 include a $16.4
million after-tax loss on sale of the Australian Operations, a $20 million tax
benefit associated with European operating losses and reorganization costs and a
$3.2 million cumulative effect of accounting change.
Excluding special items in 1995 and 1994, income for 1995 would have been
$144.7 million, or $1.35 per share, compared to $147.6 million, or $1.38 per
share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operating
activities and borrowings. Detailed information on the Company's cash flows is
presented in the Statements of Consolidated Cash Flows.
NET CASH PROVIDED BY OPERATING ACTIVITIES: Cash flow generated from operating
activities consists of net income (loss) adjusted for certain non-cash items,
changes in working capital, and changes in pension assets and liabilities and
postretirement benefits. Non-cash items include depreciation and amortization,
the restructuring charge and deferred income taxes. Working capital consists
primarily of accounts receivable, inventories, other current assets and other
current liabilities.
13
Net cash provided by operating activities in 1996 decreased from 1995
primarily due to an additional $40 million pension contribution made in 1996 and
an increase in working capital, partially offset by a smaller increase in net
deferred tax assets.
TOTAL INVESTING ACTIVITIES: In the third quarter of 1996, the Company invested
approximately $35 million, net of $5.2 million of cash acquired, and committed
additional investments of approximately $35 million for a 50.5 percent ownership
in a joint venture with a manufacturer of appliances in China. The results of
this joint venture are consolidated in the Company s financial statements.
The Company continually invests in its businesses for new product
designs, cost reduction programs, replacement of equipment, capacity expansion
and governmentally mandated product requirements.
Capital expenditures in 1996 were $211.5 million compared to $148.3
million in 1995. The higher capital spending is due to several major capital
projects that the Company continues to implement. These projects include a new
high efficiency clothes washer for both commercial and household use and a
complete redesign of the Company's refrigerator product lines. Planned capital
expenditures for 1997 are approximately $245 million and primarily relate to the
continuation of the projects described above in addition to other previously
announced projects. These projects include the addition of a newly designed
line of Hoover upright floor care products and the establishment of a
refrigeration products facility by the China joint venture. Capital spending in
1996 and planned capital spending in 1997 include approximately $9 million and
$8 million, respectively, of interest expense capitalized as a result of the
major projects discussed previously.
TOTAL FINANCING ACTIVITIES: Dividend payments for 1996 amounted to $57.2
million, or $.56 per share, compared to $55.4 million, or $.515 per share in
1995.
During 1996 the Company completed its stock repurchase program to buy
10.8 million shares of the Company's outstanding Common stock. The cost of the
8.1 million shares repurchased in 1996 was $164.4 million. In the fourth
quarter of 1996, the Company announced plans to expand this program to buy an
additional 5 million shares over a non-specified period of time.
The Company initiated a trading program of interest rate swaps which it
marks to market each period. Due to the volatility in the Canadian interest
rate market in 1996 the Company realized $38 million of gains which were offset
by mark to market unrealized losses of $40.6 million. The value of these
individual swaps is dependent upon movements in the Canadian and U.S. interest
rates. As the portfolio of interest rate swaps outstanding at December 31, 1996
is configured, there would be no measurable impact on the net market value of
all swap transactions outstanding with any future changes in interest rates.
As discussed previously, the Company retired $17.5 million of 9.75
percent notes of long-term debt at a cost of $1.5 million after-tax. During
1996 the Company also issued $25 million of 7.22 percent medium-term notes
maturing in 2006. In addition, the Company obtained $34.1 million of short-term
borrowings to finance its investing and financing activities. The Company
expects interest expense to increase in 1997 as a result of increased short-term
financing and from interest expense of the China joint venture.
Any funding requirements for future investing and financing activities in
excess of cash on hand and generated from future operations will be supplemented
by borrowings. The Company's commercial paper program is supported by a credit
agreement with a consortium of banks which provides revolving credit facilities
totaling $400 million. This agreement expires June 29, 2001 and includes
covenants for interest coverage and leverage which the Company was in compliance
with at December 31, 1996.
14
CONTINGENCIES
A soft drink bottler, Buenos Aires Embotelladora Inc. ("BAESA"), previously
announced it was unable to pay amounts due on various bank loans totaling
approximately $500 million and was exploring alternatives with its lenders to
restructure its debt. BAESA has negotiated a standstill agreement with its
lenders which provides for payment of 30 percent of the interest which will
accrue and suspension of principal payments until March 31, 1997. The Company
had guaranteed bank loans of BAESA in the amount of $19.8 million used to
finance the purchases of vending equipment from Dixie-Narco. The Company
purchased a guaranteed loan in the amount of $14.3 million from one of the banks
prior to December 31, 1996 and remained contingently liable on its guarantees
for the remaining bank loans of $5.5 million. Dixie-Narco also has receivables
owed by the customer totaling $1.8 million. Subsequent to December 31, 1996 the
Company reached an agreement to sell the $14.3 million loan and its obligations
and rights under the loan guarantees to a financial institution at a discount
and without recourse to the Company. The sale of these items will not have a
significant adverse effect on the Company's consolidated financial position.
The Company has other contingent liabilities arising in the normal
course of business or from operations which have been discontinued or divested.
(See discussion of these contingent liabilities in "Contingencies and Disclosure
of Certain Risks and Uncertainties" section of the Notes to Consolidated
Financial Statements.)
Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Auditors . . . . . . . . . . . . . . 16
Statements of Consolidated Income (Loss)--Years Ended
December 31, 1996, 1995, and 1994 . . . . . . . . . . . . 17
Statements of Consolidated Financial Condition--
December 31, 1996 and 1995 . . . . . . . . . . . . . . . 18
Statements of Consolidated Shareowners' Equity--Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 20
Statements of Consolidated Cash Flows--Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 22
Notes to Consolidated Financial Statements . . . . . . . . 23
Quarterly Results of Operations--Years 1996 and 1995 . . . 38
15
Report of Independent Auditors
Shareowners and Board of Directors
Maytag Corporation
We have audited the accompanying statements of consolidated financial condition
of Maytag Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income (loss), shareowners' equity and cash
flows for each of three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and related schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and related schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maytag
Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statement taken as
a whole, presents fairly in all material respects the information set forth
therein.
s/sErnst & Young LLP
Chicago, Illinois
January 28, 1997
16
Statements of Consolidated Income (Loss)
Year Ended December 31
In thousands except per share data 1996 1995 1994
Net sales $3,001,656 $3,039,524 $3,372,515
Cost of sales 2,180,213 2,250,616 2,496,065
Gross profit 821,443 788,908 876,450
Selling, general and administrative
expenses 512,364 500,674 553,682
Restructuring charge 40,000
Operating income 269,079 288,234 322,768
Interest expense (43,006) (52,087) (74,077)
Loss on business dispositions (146,785) (13,088)
Settlement of lawsuit (16,500)
Loss on guarantee of indebtedness (18,000)
Other--net 2,164 4,942 5,734
Income before income taxes,
minority interest, extraordinary
item and cumulative effect of
accounting change 228,237 59,804 241,337
Income taxes 89,000 74,800 90,200
Income (loss) before minority
interest, extraordinary item and
cumulative effect of accounting
change 139,237 (14,996) 151,137
Minority interest (1,260)
Income (loss) before extraordinary
item and cumulative effect of
accounting change 137,977 (14,996) 151,137
Extraordinary item - loss on early
retirement of debt (1,548) (5,480)
Cumulative effect of accounting change (3,190)
Net income (loss) $ 136,429 $ (20,476) $ 147,947
Earnings (loss) per common share:
Income (loss) before extraordinary
item and cumulative effect of
accounting change $ 1.36 $ (0.14) $ 1.42
Extraordinary item - loss on early
retirement of debt $ (0.02) $ (0.05)
Cumulative effect of accounting
change $ (0.03)
Net income (loss) $ 1.34 $ (0.19) $ 1.39
See notes to consolidated financial statements.
17
Statements of Consolidated Financial Condition
December 31
In thousands except share data 1996 1995
Assets
Current assets
Cash and cash equivalents $ 27,543 $ 141,214
Accounts receivable, less allowance for doubtful
accounts--(1996--$13,790; 1995--$12,540) 462,882 417,457
Inventories 327,136 265,119
Deferred income taxes 30,266 42,785
Other current assets 57,132 43,559
Total current assets 904,959 910,134
Noncurrent assets
Deferred income taxes 131,159 91,610
Pension investments 1,441 1,489
Intangible pension asset 70,511 91,291
Other intangibles, less allowance for amortization--
(1996--$74,375; 1995--$65,039) 322,436 300,086
Other noncurrent assets 47,549 29,321
Total noncurrent assets 573,096 513,797
Property, plant and equipment
Land 20,734 24,246
Buildings and improvements 296,786 260,394
Machinery and equipment 1,253,803 1,030,233
Construction in progress 84,323 97,053
1,655,646 1,411,926
Less allowance for depreciation 803,761 710,791
Total property, plant and equipment 851,885 701,135
Total assets $2,329,940 $2,125,066
18
December 31
In thousands except share data 1996 1995
Liabilities and Shareowners' Equity
Current liabilities
Notes payable $ 55,489 $
Accounts payable 206,397 142,676
Compensation to employees 64,104 61,644
Accrued liabilities 180,726 156,041
Income taxes payable 4,209 3,141
Current maturities of long-term debt 59,086 3,201
Total current liabilities 570,011 366,703
Noncurrent liabilities
Deferred income taxes 27,012 14,367
Long-term debt 488,537 536,579
Postretirement benefits other than pensions 447,415 428,478
Pension liability 50,377 88,883
Other noncurrent liabilities 102,621 52,705
Total noncurrent liabilities 1,115,962 1,121,012
Minority interest 69,977
Shareowners' equity
Preferred stock:
Authorized--24,000,000 shares (par value $1.00)
Issued--none
Common stock:
Authorized--200,000,000 shares (par value $1.25)
Issued--117,150,593 shares, including shares in
treasury 146,438 146,438
Additional paid-in capital 471,158 472,602
Retained earnings 423,552 344,346
Cost of Common stock in treasury (1996--19,106,012
shares; 1995--11,745,395 shares) (405,035) (255,663)
Employee stock plans (55,204) (57,319)
Minimum pension liability adjustment (107) (5,656)
Foreign currency translation (6,812) (7,397)
Total shareowners' equity 573,990 637,351
Total liabilities and shareowners' equity $2,329,940 $2,125,066
See notes to consolidated financial statements.
19
Statements of Consolidated Shareowners' Equity
Common Stock Additional Treasury Stock Employee Pension Foreign
Paid-In Retained Stock Liability Currency
In thousands Shares Amount Capital Earnings Shares Amount Plans Adjustment Translation
Balance at December
31, 1993 117,151 $146,438 $480,067 $325,823 (10,431) ($232,510) ($62,342)$ ($70,695)
Net income 147,947
Cash dividends (53,596)
Stock issued under
employee stock plans (1,760) 207 4,635
Stock awards:
Granted (1,045) 243 5,397 (4,352)
Earned or canceled 413 (65) (1,457) 4,284
Conversion of
subordinated debentures (985) 137 3,063
ESOP:
Issued (493) 95 2,127
Allocated 1,594
Tax benefit of ESOP
dividends and stock
options 956
Translation adjustments
related to business
disposition 13,089
Translation adjustments 25,114
Balance at December
31, 1994 117,151 146,438 477,153 420,174 (9,814) (218,745) (60,816) (32,492)
Net loss (20,476)
Cash dividends (55,352)
Stock issued under
employee stock plans (2,301) 339 7,295
Stock awards:
Granted (1,539) 212 4,713 (3,173)
Earned or canceled 672 (108) (2,408) 4,949
Purchase of Common
stock for treasury (2,744) (54,775)
Conversion of
subordinated debentures (1,941) 272 6,071
ESOP:
Issued (629) 98 2,186
Allocated 1,721
Tax benefit of ESOP
dividends and stock
options 1,187
Minimum pension
liability adjustment (5,656)
Translation adjustments
related to business
disposition 19,887
Translation adjustments 5,208
20
Balance at December 117,151 146,438 472,602 344,346 (11,745) (255,663) (57,319) (5,656) (7,397)
31, 1995
Net income 136,429
Cash dividends (57,223)
Stock issued under
employee stock plans (2,324) 390 8,435
Stock awards:
Granted (303) 205 4,462 (2,669)
Earned or canceled 127 (23) (511) 2,979
Purchase of Common
stock for treasury (8,056) (164,439)
ESOP:
Issued (264) 123 2,681
Allocated 1,805
Tax benefit of ESOP
dividends and stock
options 1,320
Minimum pension
liability adjustment 5,549
Translation adjustments 585
Balance at December
31, 1996 117,151 $146,438 $471,158 $423,552 (19,106) ($405,035) ($55,204) ($107) ($6,812)
See notes to consolidated financial statements.
21
Statements of Consolidated Cash Flows Year Ended December 31
In thousands 1996 1995 1994
Operating activities
Net income (loss) $ 136,429 $ (20,476) $ 147,947
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Extraordinary item - early retirement
of debt 1,548 5,480
Cumulative effect of accounting change 3,190
Minority interest 1,260
Loss on business dispositions 146,785 13,088
Depreciation and amortization 111,279 111,861 119,358
Deferred income taxes (15,341) (42,036) (10,058)
Restructuring charge 40,000
Changes in working capital items
exclusive of business dispositions and
investment in joint venture:
Accounts receivable (14,234) 60,156 (53,074)
Inventories (41,158) 13,248 24,503
Other current assets 15,124 5,548 (2,537)
Other current liabilities 28,956 4,624 43,387
Restructuring reserves (17,755) (903) (26,686)
"Free flights" promotion reserve (388) (26,709)
Pension assets and liabilities (12,129) 17,735 14,089
Postretirement benefits 18,937 15,702 21,197
Other--net (5,413) 2,643 1,667
Net cash provided by operating
activities 247,503 319,979 269,362
Investing activities
Capital expenditures (211,455) (148,349) (79,024)
Investment in joint venture (net of cash
acquired of $5,174) (29,625)
Proceeds from business dispositions (net
of cash in businesses sold of $15,783 in
1995 and $2,650 in 1994) 148,497 79,428
Total investing activities (241,080) 148 404
Financing activities
Proceeds from issuance of notes payable 34,094 18,921 19,562
Repayment of notes payable (48,729) (137,696)
Proceeds from issuance of long-term debt 26,536
Repayment of long-term debt (20,500) (163,609) (36,001)
Debt repurchase premiums (1,548) (5,480)
Stock repurchases (164,439) (54,775)
Stock options exercised and other
Common stock transactions 15,738 16,801 12,377
Dividends (57,223) (55,352) (53,596)
Investment by joint venture partner 8,625
Proceeds from interest rate swaps 38,038
Total financing activities (120,679) (292,223) (195,354)
Effect of exchange rates on cash 585 2,907 4,261
(Decrease) increase in cash and cash
equivalents (113,671) 30,811 78,673
Cash and cash equivalents at beginning
of year 141,214 110,403 31,730
Cash and cash equivalents at end of year $ 27,543 $ 141,214 $ 110,403
See notes to consolidated financial statements.
22
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Organization:
Home Appliances - the Company, through its various business units, manufactures,
distributes and services a broad line of home appliances including laundry
equipment, dishwashers, refrigerators, cooking appliances, vacuum cleaners and
extractors. The Company markets its home appliances primarily to major United
States markets, including the replacement market, the commercial laundry market,
the new home and apartment builder market, the recreational vehicle market, the
private label market and the household/commercial floor care market. Products
are primarily sold to major retailers, independent dealers and distributors.
Vending Equipment - the Company manufactures, through its Dixie-Narco
subsidiary, a variety of bottle and can vending equipment and glass front
merchandisers. The products are sold worldwide primarily to soft drink bottlers
and vending equipment distributors.
Principles of Consolidation: The consolidated financial statements include the
accounts and transactions of the Company and its wholly-owned and majority-owned
subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.
Exchange rate fluctuations from translating the financial statements of
subsidiaries located outside the United States into U.S. dollars and exchange
gains and losses from designated intercompany foreign currency transactions are
recorded in a separate component of shareowners' equity. All other foreign
exchange gains and losses are included in income.
Reclassifications: Certain previously reported amounts have been reclassified
to conform with the current period presentation.
Use of Estimates: The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents: Highly liquid investments with a maturity of 90 days or less
when purchased are considered by the Company to be cash equivalents.
Inventories: Inventories are stated at the lower of cost or market. Inventory
costs are determined by the last-in, first-out (LIFO) method for approximately
91 percent and 96 percent of the Company's inventories at December 31, 1996 and
1995, respectively. Costs for other inventories have been determined
principally by the first-in, first-out (FIFO) method.
Income Taxes: Income taxes are accounted for using the asset and liability
approach. Such approach results in the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the book carrying amounts and the tax basis of assets and liabilities.
Intangibles: Intangibles principally represent goodwill, which is the cost of
business acquisitions in excess of the fair value of identifiable net tangible
assets of businesses acquired. Goodwill is amortized over 40 years using the
straight-line method and the carrying value is reviewed annually. If this
review indicates that goodwill will not be recoverable based on the undiscounted
cash flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced by the estimated
shortfall of cash flows.
23
Property, Plant and Equipment: Property, plant and equipment is stated on the
basis of cost. Depreciation expense is calculated principally on the straight-
line method to amortize the cost of the assets over their estimated economic
useful lives. The estimated useful lives are 15 to 45 years for buildings and
improvements and 5 to 20 years for machinery and equipment.
Short and Long-Term Debt: The carrying amounts of the Company's borrowings
under its short-term revolving credit agreements approximate their fair value.
The fair values of the Company's long-term debt are estimated based on quoted
market prices of comparable instruments.
Revenue Recognition and Product Warranty Costs: Revenue from sales of products
is generally recognized upon shipment to customers. Estimated product warranty
costs are recorded at the time of sale and periodically adjusted to reflect
actual experience.
Advertising and Sales Promotion: All costs associated with advertising and
promoting products are expensed in the period incurred.
Financial Instruments: The Company enters into forward foreign exchange
contracts to hedge exposures related to foreign currency transactions. Gains
and losses on hedges of firm identifiable commitments are recognized in the same
period in which the underlying transaction is recorded. Gains and losses on
other contracts are marked to market each period and the gains and losses are
included in income.
The Company enters into interest rate swap contracts which it marks to
market each period with the gains and losses included in income.
Stock-Based Compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock options and
awards. Under APB 25, no compensation expense is recognized when the exercise
price of options equals the fair value (market price) of the underlying stock on
the date of grant.
Earnings (Loss) Per Common Share: Earnings (loss) per common share are computed
by dividing net income (loss) by the weighted average number of common shares
outstanding during the year.
Business Acquisition
In the third quarter of 1996 the Company invested approximately $35 million and
committed additional investments of $35 million for a 50.5 percent ownership in
a joint venture with a manufacturer of appliances in China. The Company
accounted for this investment as a purchase which resulted in an increase in
intangibles of $31.7 million. The results of this China joint venture are
consolidated in the Company s financial statements.
Business Dispositions
In the second quarter of 1995 the Company sold its home appliance operations in
Europe ( European Operations ) for $164.3 million in cash. The pretax loss from
the sale was $140.8 million and resulted in an after-tax loss of $135.4 million.
In the fourth quarter of 1995, the Company sold the business and assets of a
Dixie-Narco manufacturing operation in Eastlake, Ohio ( Eastlake Operations ).
The pretax loss from the sale was $6 million and resulted in an after-tax loss
of $3.6 million. In the fourth quarter of 1994, the Company sold its home
appliance operations in Australia and New Zealand ( Australian Operations ) for
$82.1 million in cash. The pretax loss on the sale was $13.1 million and
resulted in an after-tax loss of $16.4 million. See Industry Segment and
24
Geographic Information for financial information related to these businesses.
Restructuring Charge
During the first quarter of 1996 the Company announced the restructuring of its
major appliance operations in an effort to strengthen its position in the
industry and to deliver improved results to both customers and shareowners.
This included the consolidation of two separate organizational units into a
single operation responsible for all activities associated with the manufacture
and distribution of the Company's brands of major appliances and the closing of
a cooking products plant in Indianapolis, Indiana, with transfer of that
production to an existing plant in Cleveland, Tennessee.
As a result of these actions the Company recorded a one-time restructuring
charge of $40 million, or $24.4 million after-tax, in the first quarter of 1996.
This charge is primarily related to the costs associated with the consolidation
of cooking products manufacturing activities and consolidation of activities of
the two separate organizational units. Of this $40 million restructuring charge
it is estimated that cash expenditures of approximately $24 million primarily
related to severance are expected to be incurred. The non-cash charges of
approximately $16 million are primarily related to write-offs of property, plant
and equipment. During 1996 the Company incurred approximately $18 million of
costs, of which approximately $12 million were cash expenditures that were
charged to the $40 million reserve established for this restructuring.
Other Expenses
In the third quarter of 1995 the Company recorded a $16.5 million charge to
settle a lawsuit relating to the 1991 closing of a former Dixie-Narco plant in
Ranson, West Virginia. In the fourth quarter of 1995 the Company recorded an
$18 million charge arising from a guarantee of indebtedness relating to the sale
of one of its manufacturing facilities in 1992. The obligation was settled and
paid in 1996.
Inventories
December 31
In thousands 1996 1995
Raw materials $ 53,319 $ 30,046
Work in process 45,406 44,371
Finished goods 222,954 185,338
Supplies 5,457 5,364
$ 327,136 $ 265,119
If the FIFO method of inventory accounting, which approximates current
cost, had been used for all inventories, they would have been $79.5 million and
$82.1 million higher than reported at December 31, 1996 and 1995, respectively.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
25
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31
In thousands 1996 1995
Deferred tax assets (liabilities):
Tax over book depreciation $ (84,448) $ (93,173)
Postretirement benefit obligation 174,044 167,783
Product warranty/liability accruals 21,221 22,473
Pensions and other employee benefits 6,199 11,112
Capital loss carryforward 22,226 37,876
Restructuring reserve 8,653
Interest rate swaps 15,813
Other 3,200 13,493
166,908 159,564
Less valuation allowance for deferred tax assets 32,495 40,492
Net deferred tax assets $ 134,413 $ 119,072
Recognized in statements of consolidated financial
condition:
Deferred tax assets--current $ 30,266 $ 42,785
Deferred tax liabilities--current (956)
Deferred tax assets--noncurrent 131,159 91,610
Deferred tax liabilities--noncurrent (27,012) (14,367)
Net deferred tax assets $ 134,413 $ 119,072
At December 31, 1996 the Company has available for tax purposes
approximately $1 million of net operating loss carryforwards outside the United
States which expire in various years through 2005. The Company also has a
capital loss carryforward available in the United States of $64 million which
expires in the year 2000.
Income before income taxes, minority interest, extraordinary item and
cumulative effect of accounting change consists of the following:
Year Ended December 31
In thousands 1996 1995 1994
United States $ 216,248 $ 65,041 $ 230,320
Non-United States 11,989 (5,237) 11,017
$ 228,237 $ 59,804 $ 241,337
Significant components of the provision for income taxes are as follows:
Year Ended December 31
In thousands 1996 1995 1994
Current provision:
Federal $ 99,500 $ 81,200 $ 78,200
State 19,200 16,400 16,400
Non-United States 4,100 1,100 12,900
122,800 98,700 107,500
Deferred provision:
Federal (29,000) (19,900) (9,400)
State (5,500) (5,200) (2,500)
Non-United States 700 1,200 (5,400)
(33,800) (23,900) (17,300)
Provision for income taxes $ 89,000 $ 74,800 $ 90,200
26
Significant items impacting the effective income tax rate are as follows:
Year Ended December 31
In thousands 1996 1995 1994
Income before minority interest,
extraordinary item and cumulative effect
of accounting change computed at the
statutory United States income tax rate $ 79,900 $ 20,900 $ 84,500
Increase (reduction) resulting from:
Utilization of capital loss
carryforward (14,000)
Deferred tax asset valuation allowance 9,800
Tax benefit associated with European
operating losses and reorganization
costs (20,000)
Non-United States losses with no tax
benefit 100 400 5,800
Goodwill amortization 3,200 3,200 3,200
Effect of business disposition 46,000 7,800
State income taxes, net of federal tax
benefit 8,900 7,300 9,000
Tax credits arising outside the United
States (1,000) (1,200) (600)
Other-net 2,100 (1,800) 500
Provision for income taxes $ 89,000 $ 74,800 $ 90,200
Since the Company plans to continue to finance expansion and operating
requirements of subsidiaries outside the United States through reinvestment of
the undistributed earnings of these subsidiaries (approximately $8 million at
December 31, 1996), taxes which would result from distribution have only been
provided on the portion of such earnings estimated to be distributed in the
future. If such earnings were distributed beyond the amount for which taxes
have been provided, additional taxes payable would be substantially eliminated
by available tax credits arising from taxes paid outside the United States.
Income taxes paid, net of refunds received, during 1996, 1995 and 1994 were
$102 million, $123 million, and $103 million, respectively.
Notes Payable
Notes payable at December 31, 1996 consisted of notes payable to banks of $30.5
million and commercial paper borrowings of $25 million. The Company's
commercial paper program is supported by a credit agreement totaling $400
million which expires on June 29, 2001. Subject to certain exceptions, the
credit agreement requires the Company to be within certain quarterly levels of
maximum leverage and minimum interest coverage. At December 31, 1996 the
Company was in compliance with all covenants. The weighted average interest
rate on all notes payable and commercial paper borrowings was 8.5 percent at
December 31, 1996. There were no short-term notes payable and commercial paper
borrowings at December 31, 1995.
27
Long-Term Debt
Long-term debt consisted of the following:
December 31
In thousands 1996 1995
Notes payable with interest payable semiannually:
Due May 15, 2002 at 9.75% $ 159,925 $ 177,425
Due July 15, 1999 at 8.875% 148,550 148,550
Due July 1, 1997 at 8.875% 53,741 53,741
Medium-term notes, maturing from 2001 to 2010, from
7.22% to 9.03% with interest payable semiannually 126,500 101,500
Employee stock ownership plan notes payable
semiannually through July 2, 2004 at 9.35% 52,671 55,373
Other 6,236 3,191
547,623 539,780
Less current maturities of long-term debt 59,086 3,201
Long-term debt $ 488,537 $ 536,579
The 9.75 percent notes, the 8.875 percent notes due in 1999 and the medium-
term notes grant the holders the right to require the Company to repurchase all
or any portion of their notes at 100 percent of the principal amount thereof,
together with accrued interest, following the occurrence of both a change of
Company control and a credit rating decline.
The fair value of the Company's long-term debt, based on public quotes if
available, exceeded the amount recorded in the statements of consolidated
financial condition at December 31, 1996 and 1995 by $46.9 million and $68.1
million, respectively.
Interest paid during 1996, 1995 and 1994 was $51.1 million, $60.3 million,
and $75.2 million, respectively. The Company capitalizes interest incurred on
funds used to construct property, plant and equipment. Interest capitalized
during 1996, 1995 and 1994 was $8.9 million, $2.5 million, and $0.6 million,
respectively.
The aggregate maturities of long-term debt in each of the next five years and
thereafter is as follows (in thousands): 1997-$59,086; 1998-$5,350; 1999-
$154,563; 2000-$6,123; 2001-$7,151; thereafter-$315,350.
In 1996 the Company retired $17.5 million of the 9.75 percent notes due May
15, 2002. As a result of this early retirement the Company recorded an after-
tax charge of $1.5 million (net of income tax benefit of $1.0 million). In 1996
the Company also issued an additional $25 million of 7.22 percent medium- term
notes maturing in 2006. In 1995 the Company retired $116.5 million of long-term
debt. Included in this amount was $22.6 million of the 9.75 percent notes due
May 15, 2002, $26.4 million of the 8.875 percent notes due July 15, 1999, $46.3
million of the 8.875 percent notes due July 1, 1997 and $21.2 million of medium-
term notes ranging in maturities from November 15, 2001 to February 23, 2010.
As a result of these early retirements, the Company recorded an after-tax charge
of $5.5 million (net of income tax benefit of $3.6 million). The 1996 and 1995
charges have been reflected in the statements of consolidated income (loss) as
extraordinary items.
Accrued Liabilities
December 31
In thousands 1996 1995
Warranties $ 33,881 $ 31,035
Advertising and sales promotion 42,899 28,297
Other 103,946 96,709
$ 180,726 $ 156,041
28
Pension Benefits
The Company provides noncontributory defined benefit pension plans for most
employees. Plans covering salaried and management employees generally provide
pension benefits that are based on an average of the employee's earnings and
credited service. Plans covering hourly employees generally provide benefits of
stated amounts for each year of service. The Company's funding policy for the
plans is to contribute amounts sufficient to meet the minimum funding
requirement of the Employee Retirement Income Security Act of 1974, plus any
additional amounts which the Company may determine to be appropriate. In 1996,
1995 and 1994 the Company made contributions to the plans of $42.3 million, $1.6
million and $1.7 million, respectively.
A summary of the components of net periodic pension cost for the plans is as
follows:
Year Ended December 31
In thousands 1996 1995 1994
Service cost--benefits earned during the
period $ 19,637 $ 20,358 $ 28,550
Interest cost on projected benefit
obligation 63,828 80,163 94,148
Actual return on plan assets (96,929) (170,847) 559
Net amortization and deferral 38,431 88,782 (108,079)
Net periodic pension cost $ 24,967 $ 18,456 $ 15,178
Assumptions used in determining net periodic pension cost for the plans in
the United States were:
1996 1995 1994
Discount rates 7.5% 8.5% 7.5%
Rates of increase in compensation levels 5.0% 6.0% 5.0%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
For the valuation of pension obligations at the end of 1996 set forth in
the table below, and for determining pension expense in 1997, the discount rate
and rate of compensation increase remained at 7.5 percent and 5.0 percent,
respectively. Assumptions for plans outside the United States are comparable to
the above in all periods.
As of December 31, 1996 approximately 97 percent of the plan assets are
invested in listed stocks and bonds. The balance is invested in real estate and
short term investments.
The plan in the United States provides that in the event of a change of
Company control and plan termination any excess funding may be used only to
provide pension benefits or to fund retirees' health care benefits. The use of
all pension assets for anything other than providing employee benefits is either
limited by legal restrictions or subject to severe taxation.
29
The following table sets forth the funded status and amounts recognized in
the Statements of Consolidated Financial Condition for the Company's defined
benefit pension plans:
December 31, 1996 December 31, 1995
Plans in Plans in Plans in Plans in
Which Which Which Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
In thousands Benefits Exceed Assets BenefitsExceed Assets
Actuarial present value
of benefit obligation:
Vested benefit
obligation $ (8,695) $ (758,171) $ (8,096) $ (721,880)
Accumulated benefit
obligation $ (8,697) $ (837,891) $ (8,099) $ (803,468)
Projected benefit
obligation $ (9,206) $ (895,825) $ (8,781) $ (855,017)
Plan assets at fair value 10,769 787,806 9,934 714,818
Projected benefit
obligation less than (in
excess of) plan assets 1,563 (108,019) 1,153 (140,199)
Unrecognized net (gain)
loss (453) 71,728 5 83,828
Unrecognized prior
service cost 613 77,708 604 90,670
Unrecognized net
transition asset (282) (21,176) (273) (26,235)
Net pension asset $ 1,441 $ 20,241 $ 1,489 $ 8,064
Recognized in the
statements of
consolidated financial
condition
Pension investment
(liability) $ 1,441 $ (50,377) $ 1,489 $ (88,883)
Intangible pension asset 70,511 91,291
Reduction of shareowners'
equity 107 5,656
Net pension asset $ 1,441 $ 20,241 $ 1,489 $ 8,064
FASB Statement No. 87 "Employers' Accounting For Pensions" requires the
Company to recognize a minimum pension liability equal to the amount by which
the actuarial present value of the accumulated benefit obligation exceeds the
fair value of plan's assets. In 1996 and 1995 the Company recorded $70.6
million and $96.9 million, respectively, to recognize the minimum pension
liability. A corresponding amount is required to be recognized as an intangible
asset to the extent of the unrecognized prior service cost and unrecognized net
transition obligation on an individual plan basis. Any excess of the minimum
pension liability above the intangible asset is recorded as a separate component
and reduction of shareowners' equity. In 1996 the Company recorded an
intangible asset of $70.5 million and a reduction in shareowners' equity of $0.1
million. In 1995 an intangible asset of $91.2 million and a reduction of
shareowners' equity of $5.7 million was recorded in the Company's Statements of
Consolidated Financial Condition.
30
Postretirement Benefits Other Than Pensions and Other Employee Benefits
In addition to providing pension benefits, the Company provides postretirement
health care and life insurance benefits for certain employee groups in the
United States. Most of the postretirement plans are contributory and contain
certain other cost sharing features such as deductibles and coinsurance. The
plans are unfunded. Employees do not vest, and these benefits are subject to
change. Death benefits for certain retired employees are funded as part of, and
paid out of, pension plans.
A summary of the components of net periodic postretirement benefit cost
is as follows:
Year Ended December 31
In thousands 1996 1995 1994
Service cost $ 15,453 $ 12,876 $ 15,440
Interest cost 28,498 27,911 29,448
Net amortization and deferral (8,130) (8,147) (5,957)
Net periodic postretirement benefit cost $ 35,821 $ 32,640 $ 38,931
Assumptions used in determining net periodic postretirement benefit cost
were:
1996 1995 1994
Health care cost trend rates(1):
Current year 8.5% 9.0% 13.0%
Decreasing gradually to in the year 2001 and
thereafter 6.0% 6.0% 6.0%
Discount rates 7.5% 8.5% 7.5%
(1) Weighted-average annual assumed rate of increase in the per capita cost of
covered benefits.
For the valuation of the accumulated benefit obligation at December 31, 1996
and for determining postretirement benefit costs in 1997, the health care cost
trend rates were decreased to 7.0 percent for 1997 decreasing gradually to 5.0
percent in the year 2001 and 5.0 percent each year thereafter. The discount
rate remained at 7.5 percent.
The health care cost trend rate assumption has a significant impact on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 by $41.6 million and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1996 by $5.7 million.
The following table presents the status of the plans reconciled with amounts
recognized in the Statements of Consolidated Financial Condition for the
Company's postretirement benefits.
December 31
In thousands 1996 1995
Accumulated postretirement benefit obligation:
Retirees $ 243,900 $ 259,421
Fully eligible active plan participants 41,063 42,698
Other active plan participants 92,526 92,557
377,489 394,676
Unamortized prior service cost 28,778 37,235
Unrecognized net gain (loss) 41,148 (3,433)
Postretirement benefit liability recognized in the
statements of consolidated financial condition $ 447,415 $ 428,478
31
In the first quarter of 1994 the Company adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits." The new rules require
recognition of a liability for certain disability and severance benefits to
former or inactive employees. The cumulative effect of the accounting change
was $3.2 million. The ongoing expenses associated with the adoption of this
standard are not significant.
Leases
The Company leases buildings, machinery, equipment and automobiles under
operating leases. Rental expense for operating leases amounted to $22.1
million, $20.6 million, and $24.4 million for 1996, 1995 and 1994.
Minimum lease payments under leases expiring subsequent to December 31, 1996
are:
Year Ending Thousands
1997 $ 12,317
1998 10,357
1999 7,507
2000 5,051
2001 3,889
Thereafter 7,145
Total minimum lease payments $ 46,266
Financial Instruments
The Company enters into forward exchange contracts and options to hedge
exposures from certain monetary assets and liabilities as well as firm
commitments and anticipated foreign exchange transactions resulting from the
export and import of products and supplies. Counterparties to these agreements
are major international financial institutions. The purpose of the Company's
foreign currency hedging activities is to protect the Company from the risk that
the eventual cash flows resulting from these transactions could be adversely
affected by changes in exchange rates.
At December 31, 1996 the Company had forward exchange contracts for the
exchange of Canadian dollars, all having maturities of less than twelve months,
in the amount of U.S. $50.0 million. The Company also had option contracts,
with maturities of less than twelve months, to exchange Canadian dollars to U.S.
dollars in the amount U.S. $15.8 million. Gains and losses recognized from
these contracts in 1996 were not significant.
The Company initiated a trading program of interest rate swaps which it
marks to market each period. The swap transactions involve the exchange of
Canadian variable interest and fixed interest rate instruments. The
counterparty is a single financial institution of the highest credit quality.
All swaps are executed under an International Swap and Derivatives Association,
Inc. (ISDA) master netting agreement. Due to the volatility in the Canadian
interest rate market in 1996, the Company realized $38 million of gains which
were offset by mark to market unrealized losses of $40.6 million. These net
realized gains and unrealized losses totaling are reflected in Other-net in the
Statement of Consolidated Income (Loss).
As of December 31, 1996 the Company had five swap transactions outstanding
with a total notional principal amount of $90.9 million which mature by 2003.
The fair value of the swap positions at December 31, 1996 is reflected in Other
noncurrent liabilities in the Statements of Consolidated Financial Condition.
The value of these individual swaps is dependent upon movements in the Canadian
and U.S. interest rates. As the portfolio of interest rate swaps outstanding at
December 31, 1996 is configured, there would be no measurable impact on the net
market value of the swap transactions outstanding with any future changes in
interest rates.
32
Stock Plans
In 1996 the shareowners approved the 1996 Employee Stock Incentive Plan which
replaced all other previous employee stock incentive plans. The plan provides
that options and awards for not more than 6.5 million shares of the Common Stock
of the Company can be granted to key employees. The option price under the plan
is the fair market value at the date of grant. The vesting period and term of
options granted are established by the Compensation Committee of the Board of
Directors. In no instances is the term of the option more than ten years. Of
the total 6.5 million shares authorized by this plan, not more than 2.5 million
shares of the Common Stock of the Company can be granted as stock awards. Stock
awards may contain such vesting and other requirements as the Compensation
Committee may establish. The plan permits the Compensation Committee to grant
other incentive awards on terms and conditions established by the Committee.
Options and awards are outstanding for grants issued under previous plans
with similar terms to the 1996 plan.
The Maytag Corporation 1989 Non-Employee Directors Stock Option Plan
authorizes the issuance of up to 250,000 shares of Common Stock to the Company's
non-employee directors. Options under this plan are immediately exercisable
upon grant.
The following is a summary of stock option activity:
Average Option
Price Shares
Outstanding December 31, 1993 $15.33 2,358,601
Granted 15.78 650,216
Exercised 13.66 (211,689)
Exchanged for SAR 12.40 (6,610)
Canceled or expired 17.10 (78,765)
Outstanding December 31, 1994 15.53 2,711,753
Granted 17.62 1,745,420
Exercised 14.88 (352,320)
Exchanged for SAR 14.21 (8,905)
Canceled or expired 16.50 (130,650)
Outstanding December 31, 1995 16.47 3,965,298
Granted 19.34 1,933,330
Exercised 15.09 (394,371)
Exchanged for SAR 14.73 (4,610)
Canceled or expired 19.68 (103,276)
Outstanding December 31, 1996 $17.54 5,396,371
Some options were granted with stock appreciation rights (SAR) which entitle
the employee to surrender the right to receive up to one-half of the shares
covered by the option and to receive a cash payment equal to the difference
between the option price and the market value of the shares being surrendered.
Options with an SAR outstanding were 234,680 at December 31, 1996, 334,673 at
December 31, 1995 and 412,423 at December 31, 1994.
Options for 3,494,501 shares, 2,236,868 shares and 2,082,747 shares were
exercisable at December 31, 1996, 1995 and 1994, respectively. In the event of
a change of Company control, all stock options granted become immediately
exercisable.
Exercise prices for options outstanding as of December 31, 1996 ranged from
$6.78 to $22.13. The weighted-average remaining contractual life of those
options is 8.15 years. There were 4,751,430 and 507,334 shares available for
future stock grants at December 31, 1996 and 1995, respectively.
Incentive stock awards outstanding at December 31, 1996, 1995 and 1994 were
462,253, 740,045 and 636,664. The amount charged to expense for the anticipated
payout was $4.8 million, $9.4 million and $6.2 million in 1996, 1995 and 1994,
respectively.
33
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996 and 1995,
respectively: risk-free interest rates of 6.03 percent and 5.93 percent;
dividend yields of 2.8 percent for both years; volatility factors of the
expected market price of the Company's common stock of 0.24 for both years; and
a weighted-average expected life of the option of 5 years.
The weighted-average fair value of options was $4.61 for options granted in
1996 and $4.16 for options granted in 1995.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
1996 1995
Net earnings - as reported $136,429 $(20,476)
Net earnings - pro forma $132,558 $(21,593)
Earnings per share - as reported $1.34 $(0.19)
Earnings per share - pro forma $1.30 $(0.20)
The pro forma effect on net income for 1996 and 1995 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995 and an increased vesting period for grants made in 1996.
Employee Stock Ownership Plan
The Company has established a trust to administer a leveraged employee stock
ownership plan (ESOP) within an existing employee savings plan. The Company has
guaranteed the debt of the trust and will service the repayment of the debt,
including interest, through the Company's employee savings plan contributions
and from the quarterly dividends paid on stock held by the ESOP. The ESOP notes
are collateralized by the Common stock owned by the ESOP trust.
The Company makes annual contributions to the ESOP to the extent the
dividends earned on the shares held are less than the debt service requirements.
Dividends paid by the Company on stock held by the ESOP to service the debt
totaled $1.5 million, $1.4 million and $1.4 million in 1996, 1995 and 1994. The
Company also made contributions to the plan for loan payments of $6.5 million,
$6.3 million and $5.9 million in 1996, 1995 and 1994.
As the debt is repaid shares are released from collateral and allocated to
active employees based on the proportion of debt service paid in the year.
Accordingly, the loan outstanding is recorded as debt and the cost of shares
pledged as collateral are reported as a reduction of Shareowners' Equity
(employee stock plans). As the shares are released from collateral, the Company
reports compensation expense based on the historical cost of the shares. The
Company also expenses any additional contributions required if the shares
released from collateral are less than the shares earned by the employees. All
shares held by the ESOP are considered outstanding for earnings per share
computations and dividends earned on the shares are recorded as a reduction of
retained earnings. Compensation expense which is based on the shares released
from collateral and the additional contribution of shares as required was $8.8
million, $8.3 million and $7.4 million in 1996, 1995 and 1994. Of these amounts,
interest on the ESOP debt which is recognized as interest expense by the Company
was $5.0 million, $5.2 million and $5.4 million in 1996, 1995 and 1994.
34
The ESOP shares as of December 31 were as follows:
1996 1995
Original shares held in trust:
Released and allocated 1,229,910 1,053,087
Unreleased shares (fair value; 1996 - $32,748,064;
1995 - $36,632,134) 1,627,233 1,804,056
2,857,143 2,857,143
Additional shares contributed and allocated 646,560 530,977
Shares withdrawn (338,193) (222,759)
Total shares held in trust 3,165,510 3,165,361
Shareowners' Equity
Pursuant to a Shareholder Rights Plan approved by the Company in 1988, each
share of Common stock carries with it one Right. Until exercisable, the Rights
will not be transferable apart from the Company's Common stock. When
exercisable, each Right will entitle its holder to purchase one one-hundredth of
a share of Preferred stock of the Company at a price of $75. The Rights will
only become exercisable if a person or group acquires 20 percent (which may be
reduced to not less than 10 percent at the discretion of the Board of Directors)
or more of the Company's Common stock. In the event the Company is acquired in
a merger or 50 percent or more of its consolidated assets or earnings power are
sold, each Right entitles the holder to purchase Common stock of either the
surviving or acquired company at one-half its market price. The Rights may be
redeemed in whole by the Company at a purchase price of $.01 per Right. The
Preferred shares will be entitled to 100 times the aggregate per share dividend
payable on the Company's Common stock and to 100 votes on all matters submitted
to a vote of shareowners. The Rights expire May 2, 1998.
Supplementary Expense Information
Year Ended December 31
In thousands 1996 1995 1994
Advertising costs $ 137,865 $ 134,411 $ 153,233
Research and development expenses 47,996 47,013 45,926
Contingencies and Disclosure of Certain Risks and Uncertainties
The Company made various warranties to the buyer in connection with the sale
of its Australian Operations. In the fourth quarter of 1996 the buyer asserted
several claims against the Company alleging breaches of a few of those
warranties, including a claim for future product warranty costs which may be
incurred associated with certain products manufactured prior to the date of
sale. Based on the information currently available no estimate of the potential
loss can be made at this time.
A soft drink bottler, Buenos Aires Embotelladora Inc. ("BAESA"), previously
announced it was unable to pay amounts due on various bank loans totaling
approximately $500 million and was exploring alternatives with its lenders to
restructure its debt. BAESA has negotiated a standstill agreement with its
lenders which provides for payment of 30 percent of the interest which will
accrue and suspension of principal payments until March 31, 1997. The Company
had guaranteed bank loans of BAESA in the amount of $19.8 million used to
finance the purchases of vending equipment from Dixie-Narco. The Company
purchased a guaranteed loan in the amount of $14.3 million from one of the banks
prior to December 31, 1996 and remains contingently liable on its guarantees for
the remaining bank loans of $5.5 million. Dixie-Narco also has receivables owed
by the customer totaling $1.8 million. The ultimate settlement on such loans is
not expected to have a significant adverse effect on the Company's consolidated
35
financial position.
In connection with the sale of the European Operations, the Company has made
various warranties to the buyer, including the accuracy of tax net operating
losses in the United Kingdom, and has agreed to indemnify the buyer for
liabilities resulting from customer claims under the 1992 and 1993 "free
flights" promotions in excess of the reserve balance at the time of sale. The
resolution of these items is not expected to have a significant adverse effect
on the Company's consolidated financial position.
As announced in 1995 the Company conducted an in-home inspection program to
eliminate a potential problem with a small electrical component in Maytag brand
dishwashers. The majority of the costs have been incurred as the inspection has
been completed for substantially all of the units identified for inspection.
At December 31, 1996 the Company has outstanding commitments for capital
expenditures of $70 million and unused letters of credit of $36.7 million.
Other contingent liabilities arising in the normal course of business,
including guarantees, repurchase agreements, pending litigation, environmental
issues, taxes and other claims are not considered to be significant in relation
to the Company's consolidated financial position.
Industry Segment and Geographic Information
Principal financial data by industry segment is as follows:
In thousands 1996 1995 1994
Net sales
Home appliances $2,839,355 $2,844,811 $3,180,766
Vending equipment 162,301 194,713 191,749
Total $3,001,656 $3,039,524 $3,372,515
Income before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting change
Home appliances $ 280,747 $ 295,806 $ 334,027
Vending equipment 10,731 23,466 21,866
General corporate (22,399) (31,038) (33,125)
Operating income 269,079 288,234 322,768
Interest expense (43,006) (52,087) (74,077)
Other (see statements of
consolidated income/loss) 2,164 (176,343) (7,354)
Total $ 228,237 $ 59,804 $ 241,337
Capital expenditures
Home appliances $ 208,362 $ 140,549 $ 75,017
Vending equipment 2,714 3,998 1,902
General corporate 379 3,802 2,105
Total $ 211,455 $ 148,349 $ 79,024
Depreciation and amortization
Home appliances $ 106,180 $ 105,271 $ 113,160
Vending equipment 3,820 4,307 4,434
General corporate 1,279 2,283 1,764
Total $ 111,279 $ 111,861 $ 119,358
Identifiable assets
Home appliances $1,922,478 $1,593,538 $2,053,175
Vending equipment 91,886 94,299 98,109
General corporate 315,576 437,229 353,043
Total $2,329,940 $2,125,066 $2,504,327
36
Information about the Company's operations in different geographic locations
is as follows:
In thousands 1996 1995 1994
Net sales
North America $2,961,208 $2,858,347 $2,831,583
Asia 40,448
Europe 181,177 398,966
Australia and New Zealand 141,966
Total $3,001,656 $3,039,524 $3,372,515
Income before income taxes, minority
interest, extraordinary item and
cumulative effect of accounting change
North America $ 287,676 $ 326,451 $ 342,887
Asia 3,802
Europe (7,179) 420
Australia and New Zealand 12,586
General corporate (22,399) (31,038) (33,125)
Operating income 269,079 288,234 322,768
Interest expense (43,006) (52,087) (74,077)
Other (see statements of
consolidated income/loss) 2,164 (176,343) (7,354)
Total $ 228,237 $ 59,804 $ 241,337
Identifiable assets
North America $1,825,002 $1,687,837 $1,768,629
Asia 189,362
Europe 382,655
General corporate 315,576 437,229 353,043
Total $2,329,940 $2,125,066 $2,504,327
Sales between affiliates of different geographic regions are not
significant. The amount of exchange gain or loss included in operations in any
of the years presented was not significant.
In September 1996 the Company acquired a 50.5 percent ownership in a joint
venture with a manufacturer of appliances in China. In June 1995 the Company
sold its European Operations and in December 1994 the Company sold its
Australian Operations.
The general Corporate asset category includes items such as cash, deferred
tax assets, pension investments and other assets. Prior to the quarter ended
December 31, 1994 the Company's European subsidiaries were consolidated as of a
date one month earlier than subsidiaries in the United States. In the fourth
quarter of 1994 this one month reporting lag was eliminated and European results
for the quarter ended December 31, 1994 include activity for four months. The
effect of this change increased net sales by $25.2 million in the fourth quarter
and the impact on income before income taxes and cumulative effect of accounting
change was not significant.
37
Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations:
December September June March
In thousands except per share data 31 30 30 31
1996
Net sales $ 772,941 $ 742,850 $ 754,619 $ 731,246
Gross profit 206,713 205,088 207,215 202,427
Income before extraordinary item 35,338 42,178 44,343 16,118
Per average share 0.36 0.42 0.43 0.15
Net income 35,338 40,630 44,343 16,118
Per average share $ 0.36 $ 0.40 $ 0.43 $ 0.15
1995
Net sales $ 689,541 $ 726,371 $ 803,479 $ 820,133
Gross profit 179,721 187,630 200,333 221,224
Income (loss) before extraordinary
item 16,616 30,003 (101,146) 39,531
Per average share 0.16 0.28 (0.95) 0.37
Net income (loss) 16,616 27,946 (104,569) 39,531
Per average share $ 0.16 $ 0.26 $ (0.98)$ 0.37
The quarter ended March 31, 1996 includes a $24.4 million after-tax charge
for the restructuring of its major home appliance business.
In the third quarter of 1996 the Company acquired a 50.5 percent ownership
in a joint venture with a manufacturer of appliances in China. The results of
this operation are consolidated in the Company's financial statements beginning
in September 1996. Net sales from the joint venture of $10.0 and $30.4 million
are included in the quarters ended September 30, 1996 and December 31, 1996,
respectively.
In the second quarter of 1995 the Company sold its European Operations.
Net sales from the European Operations of $98.8 and $82.4 million are included
in the quarters ended March 31, 1995 and June 30, 1995, respectively.
The quarter ended June 30, 1995 includes a $135.4 million after-tax loss on
the sale of the European Operations. The quarter ended September 30, 1995
includes a $9.9 million after-tax charge to settle a lawsuit relating to the
1991 closing of a former Dixie-Narco plant in Ranson, West Virginia. The
quarter ended December 31, 1995 includes a $10.8 million after-tax loss arising
from a guarantee of indebtedness relating to the sale of one of its
manufacturing facilities in 1992 and a $3.6 million after-tax loss on the sale
of the Eastlake Operation.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning directors and officers on pages 1 through 8 of the Proxy
Statement of the Company is incorporated herein by reference. Additional
information concerning executive officers of the Company is included under
"Executive Officers of the Registrant" included in Part I, Item 4.
38
Item 11. Executive Compensation.
Information concerning executive compensation on pages 9 through 17 of the Proxy
Statement, is incorporated herein by reference; provided that the information
contained in the Proxy Statement under the heading "Compensation Committee
Report on Executive Compensation" is specifically not incorporated herein by
reference. Information concerning director compensation on pages 18 and 19 of
the Proxy Statement is incorporated herein by reference, provided that the
information contained in the Proxy Statement under the headings "Shareholder
Return Performance" and "Other Matters" is specifically not incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The security ownership of certain beneficial owners and management is
incorporated herein by reference from pages 6 through 8 of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions is
incorporated herein by reference from pages 2 through 5 of the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report in the "List of Financial
Statements and Financial Statement Schedules" on page 41.
(3) The response to this portion of Item 14 is submitted as a
separate section of this report in the "List of Exhibits" on
pages 42 through 45.
(b) There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 1996.
(c) Exhibits--The response to this portion of Item 14 is submitted as a
separate section of this report in the "List of Exhibits" on pages 42
through 45.
(d) Financial Statement Schedules--The response to this portion of Item 14 is
submitted as a separate section of this report in the "List of Financial
Statements and Financial Statement Schedules" on page 41.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAYTAG CORPORATION
(Registrant)
s/s Leonard A. Hadley
____________________________________
Leonard A. Hadley
Chairman and Chief Executive Officer
Director
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
s/s Gerald J. Pribanic s/sSteven H. Wood
_____________________________________ _____________________________________
Gerald J. Pribanic Steven H. Wood
Executive Vice President and Vice President Financial Reporting
Chief Financial Officer and Audit and Chief Accounting
Officer
s/s Barbara Allen s/s Howard L. Clark
_____________________________________ _____________________________________
Barbara R. Allen Howard L. Clark, Jr.
Director Director
s/s Lester Crown s/s Wayland R. Hicks
_____________________________________ _____________________________________
Lester Crown Wayland R. Hicks
Director Director
s/s Bernard G. Rethore s/s Neele E. Stearns
_____________________________________ _____________________________________
Bernard G. Rethore Neele E. Stearns, Jr.
Director Director
s/s Fred G. Steingraber s/s Carole J. Uhrich
_____________________________________ _____________________________________
Fred G. Steingraber Carole J. Uhrich
Director Director
Date: March 26, 1997
40
ANNUAL REPORT ON FORM 10-K
Item 14(a)(1), (2) and (3), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
LIST OF EXHIBITS
FINANCIAL STATEMENT SCHEDULES
Year Ended December 31, 1996
MAYTAG CORPORATION
NEWTON, IOWA
FORM 10-K--ITEM 14(a)(1), (2) AND ITEM 14(d)
MAYTAG CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and supplementary data of Maytag
Corporation and subsidiaries are included in Part II, Item 8:
Page
Statements of Consolidated Income (Loss)--Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . 17
Statements of Consolidated Financial Condition--
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 18
Statements of Consolidated Shareowners' Equity--Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . 20
Statements of Consolidated Cash Flows--Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . 22
Notes to Consolidated Financial Statements . . . . . . . . . 23
Quarterly Results of Operations--Years 1996 and 1995 . . . . 38
The following consolidated financial statement schedule of Maytag Corporation
and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts . . . . . . . 46
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
41
FORM 10-K--ITEM 14(a) (3) AND ITEM 14(c)
MAYTAG CORPORATION
LIST OF EXHIBITS
The following exhibits are filed herewith or incorporated by reference. Items
indicated by (1) are considered a compensatory plan or arrangement required to
be filed pursuant to Item 14 of Form 10-K.
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
3(a) Restated Certificate of Incorporation of 1993 Annual
Registrant. Report on
Form 10-K
3(b) Certificate of Designations of Series A 1988 Annual
Junior Participating Preferred Stock of Report on
Registrant. Form 10-K.
3(c) Certificate of Increase of Authorized 1988 Annual
Number of Shares of Series A Junior Report on
Participating Preferred Stock of Form 10-K.
Registrant.
3(d) By-Laws of Registrant, as amended through 1993 Annual
February 7, 1991. Report on
Form 10-K
4(a) Rights Agreement dated as of May 2, 1988 Current
between Registrant and The First National Report on
Bank of Boston. Form 8-K
dated May 5,
1988, Exhibit
1.
4(b) Amendment, dated as of September 24, 1990 Current
to the Rights Agreement, dated as of May Report on
2, 1988 between the Registrant and The Form 8-K
First National Bank of Boston. dated October
3, 1990,
Exhibit 1.
4(c) Indenture dated as of June 15, 1987 Quarterly
between Registrant and The First National Report on
Bank of Chicago. Form 10-Q for
the quarter
ended June
30, 1987.
42
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
4(d) First Supplemental Indenture dated as of Current
September 1, 1989 between Registrant and Report on
The First National Bank of Chicago. Form 8-K
dated
September 28,
1989, Exhibit
4.3.
4(e) Second Supplemental Indenture dated as of Current
November 15, 1990 between Registrant and Report on
The First National Bank of Chicago. Form 8-K
dated
November 29,
1990.
4(f) Third Supplemental Indenture dated as of Current
August 20, 1996 between Registrant and Report on
The First National Bank of Chicago. Form 8-K
dated August
20, 1996.
4(g) U.S. $400,000,000 Credit Agreement Dated 1995 Annual
as of July 28, 1995 among Registrant, the Report on
banks Party Hereto and Bank of Montreal, Form 10-K
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(h) Second Amendment to Credit Agreement Dated X
as of July 1, 1996 among Registrant, the
banks Party Hereto and Bank of Montreal,
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(i) Copies of instruments defining the rights
of holders of long-term debt not required
to be filed herewith or incorporated
herein by reference will be furnished to
the Commission upon request.
10(a) Annual Management Incentive Plan, as 1990 Annual
amended through December 21, 1990 (1). Report on
Form 10-K
10(b) Executive Severance Agreements (1). X
10(c) Corporate Severance Agreements (1). 1989 Annual
Report on
Form 10-K.
10(d) Revised definition of Change of Control 1995 Annual
adopted by the Board of Directors amendingReport on
the definition included in the Executive Form 10-K
Severance Agreement listed in Exhibits
10(b) and 10(c).
43
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
10(e) Severance Agreement with Joseph Fogliano, 1995 Annual
former Executive Vice President and Report on
President North American Appliance Group Form 10-K
(1).
10(f) 1989 Non-Employee Directors Stock Option Exhibit A to
Plan (1). Registrant's
Proxy
Statement
dated March
18, 1990.
10(g) 1986 Stock Option Plan for Executives and Exhibit A to
Key Employees (1). Registrant's
Proxy
Statement
dated March
14, 1986.
10(h) 1992 Stock Option Plan for Executives and Exhibit A to
Key Employees (1). Registrant's
Proxy
Statement
dated March
16, 1992.
10(i) 1991 Stock Incentive Award Plan for Key Exhibit A to
Executives (1). Registrant's
Proxy
Statement
dated March
15, 1991.
10(j) Directors Deferred Compensation Plan (1). Amendment No.
1 on Form 8
dated April
5, 1990 to
1989 Annual
Report on
Form 10-K.
10(k) 1996 Employee Stock Incentive Plan (1). Exhibit A to
Registrant's
Proxy
Statement
dated March
20, 1996.
44
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
10(l) 1988 Capital Accumulation Plan for Key Amendment No.
Employees (1). (Superseded by Deferred 1 on Form 8
Compensation Plan, as amended and dated April
restated effective January 1, 1996) 5, 1990 to
1989 Annual
Report on
Form 10-K.
10(m) Maytag Deferred Compensation Plan, as 1995 Annual
amended and restated effective January 1, Report on
1996. Form 10-K
10(n) Directors Retirement Plan (1). Amendment No.
1 on Form 8
dated April
5, 1990 to
1989 Annual
Report on
Form 10-K.
12 Ratio of Earnings to Fixed Charges. X
21 List of Subsidiaries of the Registrant. X
23 Consent of Ernst & Young LLP. X
27 Financial Data Schedule X
45
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Maytag Corporation
Thousands of Dollars
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
DESCRIPTION Balance at Deductions-- Balance at End
Beginning Charged to Charged to Describe of Period
of Period Costs and Other
Expenses Accounts--
Describe
Year ended December 31, 1996:
Allowance for doubtful $12,540 $14,152 $ 14,169 (1) $13,790
accounts receivable 2 (2)
(1,269)(3)
$12,540 $14,152 $ 12,902 $13,790
Year ended December 31, 1995:
Allowance for doubtful $20,037 $16,630 $ 19,387 (1) $12,540
accounts receivable (183)(2)
4,923 (4)
$20,037 $16,630 $ 24,127 $12,540
Year ended December 31, 1994:
Allowance for doubtful $15,629 $12,412 $ 5,852 (1) $20,037
accounts receivable (551)(2)
2,703 (5)
$15,629 $12,412 $ 8,004 $20,037
<FN>
Note (1) - Uncollectible accounts written off
Note (2) - Effect of foreign currency translation
Note (3) - Resulting from acquistion of the Company's China joint venture in September 1996.
Note (4) - Resulting from divestiture of the Company's European Operations in June 1995.
Note (5) - Resulting from divestiture of the Company's Australian Operations in December 1994.
</FN>
46