UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-655
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: 515-792-7000
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
The number of shares outstanding of each of the issuer's classes of common
stock, as of October 3, 1998:
Common Stock, $1.25 par value - 89,969,496
Page 1 of 18
MAYTAG CORPORATION
Quarterly Report on Form 10-Q
Quarter Ended September 30, 1998
I N D E X
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Consolidated Income................ 3
Condensed Statements of Consolidated Financial Condition... 4
Condensed Statements of Consolidated Cash Flows............ 6
Notes to Condensed Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk................................................. 16
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................... 17
Signatures........................................... 18
Page 2 of 18
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
MAYTAG CORPORATION
Condensed Statements of Consolidated Income
Three Months Ended Nine Months Ended
September 30 September 30
In thousands except per
share data 1998 1997 1998 1997
Net sales $1,035,202 $ 855,804 $ 3,097,287 $2,462,814
Cost of sales 736,385 616,270 2,207,451 1,789,353
Gross profit 298,817 239,534 889,836 673,461
Selling, general and
administrative expenses 159,526 149,714 489,314 418,755
Operating income 139,291 89,820 400,522 254,706
Interest expense (16,089) (13,473) (47,288) (42,615)
Other - net 3,549 661 5,282 1,139
Income before
income taxes and
minority interest 126,751 77,008 358,516 213,230
Income taxes 47,630 25,381 133,320 77,253
Income before
minority interest 79,121 51,627 225,196 135,977
Minority interest (1,681) (2,350) (7,502) (4,417)
Income before
extraordinary item 77,440 49,277 217,694 131,560
Extraordinary item -
loss on early
retirement of debt (3,500) (3,500)
Net income $ 73,940 $ 49,277 $ 214,194 $ 131,560
Basic earnings per
common share:
Income before
extraordinary item $ 0.85 $ 0.51 $ 2.35 $ 1.35
Extraordinary item
- loss on early
retirement of debt (0.04) (0.04)
Net income $ 0.82 $ 0.51 $ 2.31 $ 1.35
Diluted earnings per
common share:
Income before
extraordinary item $ 0.84 $ 0.50 $ 2.30 $ 1.34
Extraordinary item
- loss on early
retirement of debt (0.04) (0.04)
Net income $ 0.80 $ 0.50 $ 2.26 $ 1.34
Dividends per common
share $ 0.18 $ 0.16 $ 0.50 $ 0.48
See notes to condensed consolidated financial statements.
Page 3 of 18
MAYTAG CORPORATION
Condensed Statements of Consolidated Financial Condition
September 30 December 31
1998 1997
In thousands except share data
Assets
Current assets
Cash and cash equivalents $ 24,131 $ 27,991
Accounts receivable 581,497 473,741
Inventories 361,779 350,209
Deferred income taxes 46,073 46,073
Other current assets 14,154 36,703
Total current assets 1,027,634 934,717
Noncurrent assets
Deferred income taxes 118,006 118,931
Pension investments 1,325 2,160
Intangible pension asset 33,819 33,819
Other intangibles 425,283 433,595
Other noncurrent assets 40,886 49,660
Total noncurrent assets 619,319 638,165
Property, plant and equipment
Property, plant and equipment 1,890,471 1,816,209
Less allowance for depreciation 963,302 874,937
Total property, plant and equipment 927,169 941,272
Total assets $ 2,574,122 $ 2,514,154
See notes to condensed consolidated financial statements.
Page 4 of 18
MAYTAG CORPORATION
Condensed Statements of Consolidated Financial Condition - Continued
September 30 December 31
1998 1997
In thousands except share data
Liabilities and Shareowners' Equity
Current liabilities
Notes payable $ 249,273 $ 112,843
Accounts payable 224,229 221,417
Compensation to employees 78,230 62,758
Accrued liabilities 202,013 161,344
Current maturities of long-term debt 128,159 8,276
Total current liabilities 881,904 566,638
Noncurrent liabilities
Deferred income taxes 15,380 23,666
Long-term debt 374,904 549,524
Postretirement benefits other than
pensions 459,164 454,390
Pension liability 35,600 31,308
Other noncurrent liabilities 119,895 99,096
Total noncurrent liabilities 1,004,943 1,157,984
Minority interest 175,152 173,723
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 459,086 494,646
Retained earnings 709,863 542,118
Cost of Common stock in treasury
(1998--26,869,606 shares;
1997--22,465,256 shares) (740,936) (508,115)
Employee stock plans (45,949) (48,416)
Accumulated other comprehensive income (16,379) (10,862)
Total shareowners' equity 512,123 615,809
Total liabilities and shareowners'
equity $ 2,574,122 $ 2,514,154
See notes to condensed consolidated financial statements.
Page 5 of 18
MAYTAG CORPORATION
Condensed Statements of Consolidated Cash Flows
Nine Months Ended
September 30
In thousands 1998 1997
Operating activities
Net income $ 214,194 $ 131,560
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item - early retirement of debt 3,500 0
Minority interest 7,502 4,417
Depreciation and amortization 112,375 100,694
Deferred income taxes (7,361) (5,632)
Changes in working capital items:
Accounts receivable (107,755) (52,790)
Inventories (11,570) (18,711)
Other current assets 15,649 3,498
Other current liabilities 69,645 25,203
Restructuring reserves (1,970) (7,728)
Pension assets and liabilities 5,126 12,087
Postretirement benefits 4,775 4,687
Other--net 29,245 12,395
Net cash provided by operating 333,355 209,680
activities
Investing activities
Capital expenditures (93,831) (166,760)
Total investing activities (93,831) (166,760)
Financing activities
Proceeds from issuance of notes payable 138,045 36,524
Repayment of notes payable (1,615) (3,142)
Proceeds from issuance of long-term debt 8,688
Repayment of long-term debt (54,737) (69,810)
Debt repurchase premiums (3,500)
Stock repurchases (247,106) (123,529)
Forward stock purchase contract amendment (63,782)
Stock options exercised and other Common stock
transactions 37,341 45,763
Dividends (52,520) (46,816)
Investment by joint venture partner 6,900 18,975
Proceeds from sale of LLC member interest 100,000
Total financing activities (240,974) (33,347)
Effect of exchange rates on cash (2,410) 30
Increase in cash and cash equivalents (3,860) 9,603
Cash and cash equivalents at beginning of year 27,991 27,543
Cash and cash equivalents at end of period $ 24,131 $ 37,146
See notes to condensed consolidated financial statements.
Page 6 of 18
MAYTAG CORPORATION
Notes to Condensed Consolidated Financial Statements
September 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal
recurring nature. Operating results for the nine month period ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes included in the Maytag
Corporation annual report on Form 10-K for the year ended December 31, 1997.
NOTE B--INVENTORIES
Inventories consist of the following (in thousands):
September 30 December 31
1998 1997
Raw materials $ 55,171 $ 61,740
Work in process 58,002 53,069
Finished products 242,277 229,450
Supplies 6,329 5,950
$ 361,779 $ 350,209
NOTE C--INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
Principal financial data by industry segment and different geographic locations
is as follows (in thousands):
Quarter Ended September 30
Net sales 1998 1997
Home appliances
North America $ 891,311 $ 777,257
Asia 16,598 27,654
Commercial appliances 127,293 50,893
Consolidated $ 1,035,202 $ 855,804
Operating income 1998 1997
Home appliances
North America $ 133,107 $ 87,217
Asia 503 2,340
Commercial appliances 13,780 4,303
General corporate (8,099) (4,040)
Consolidated $ 139,291 $ 89,820
Page 7 of 18
Nine Months Ended September 30
Net sales 1998 1997
Home appliances
North America $ 2,634,155 $ 2,202,986
Asia 97,843 89,362
Commercial appliances 365,289 170,466
Consolidated $ 3,097,287 $ 2,462,814
Operating income 1998 1997
Home appliances
North America $ 377,916 $ 245,320
Asia 6,844 8,489
Commercial appliances 41,741 18,603
General corporate (25,979) (17,706)
Consolidated $ 400,522 $ 254,706
NOTE D--COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted FASB Statement 130, "Reporting
Comprehensive Income," ("SFAS 130"). SFAS 130 establishes new rules for
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company s net income or
shareowners equity. SFAS 130 requires unrealized gains or losses on the
Company s available-for-sale securities and foreign currency translation
adjustments to be included in other comprehensive income, which prior to
adoption were reported separately in shareowners equity. Prior year financial
statements have been reclassified to conform to the requirements of SFAS 130.
Total comprehensive income and its components, net of related tax, are as
follows (in thousands):
Quarter Ended September 30 1998 1997
Net income $ 73,940 $ 49,277
Unrealized gain on securities (953)
Foreign currency translation adjustments (1,781) 200
Comprehensive income $ 71,206 $ 49,477
Nine Months Ended September 30 1998 1997
Net income $ 214,194 $ 131,560
Unrealized loss on securities (2,281)
Foreign currency translation adjustments (3,236) 38
Comprehensive income $ 208,677 $ 131,598
The components of accumulated other comprehensive income, net of related tax, at
September 30, 1998 and December 31, 1997 are as follows:
1998 1997
Unrealized loss on securities $ (5,886) $ (3,605)
Foreign currency translation adjustments (10,493) (7,257)
Accumulated other comprehensive income $ (16,379) $ (10,862)
Page 8 of 18
NOTE E--EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
September 30 September 30
In thousands except per
share data 1998 1997 1998 1997
Numerator for basic and
diluted earnings per
share - net income $ 73,940 $ 49,277 $ 214,194 $ 131,560
Denominator for basic
earnings per share -
weighted average shares 90,705 96,600 92,722 97,334
Effect of dilutive
securities:
Stock option plans 1,600 1,050 1,655 820
Restricted stock awards 206 166 185 189
Put options 149 21 62 10
Forward stock purchase
contract 221 43 74
Denominator for diluted
earnings per share -
adjusted weighted average
shares 92,660 98,058 94,667 98,427
Basic earnings per share $ 0.82 $ 0.51 $ 2.31 $ 1.35
Diluted earnings per
share $ 0.80 $ 0.50 $ 2.26 $ 1.34
NOTE F--CONTINGENCIES
The Company has contingent liabilities arising in the normal course of business,
including: guarantees, repurchase agreements, pending litigation, environmental
remediation and other claims, taxes and other claims which are not considered to
be significant in relation to the Company's consolidated financial position.
Page 9 of 18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
COMPARISON OF 1998 WITH 1997
Net Sales: Consolidated net sales were $1.04 billion in the third quarter of
1998, an increase of 21 percent compared to the same period in 1997. Net sales
in the third quarter of 1998 included sales of G. S. Blodgett Corporation
("Blodgett"), a manufacturer of commercial cooking equipment, which was acquired
by the Company on October 1, 1997. Excluding Blodgett, net sales increased 17
percent from the same period in the prior year. For the first nine months of
1998, consolidated net sales increased 26 percent compared to the prior year.
Excluding Blodgett, net sales increased 22 percent from the same period in the
prior year.
North American home appliances net sales, which includes major appliances
and floor care products, increased 15 percent in the third quarter of 1998
compared to 1997. For the first nine months of 1998, net sales for North
American home appliances increased 20 percent from the same period in 1997. Net
sales were up from the prior year due to the introduction of new products,
including new lines of Maytag Neptune laundry products, Maytag refrigerators,
Maytag cooking products, Hoover upright vacuum cleaners and Hoover upright deep
carpet cleaners. In addition, net sales were up from the prior year due to the
volume associated with shipments to Sears, Roebuck and Co. in connection with
the Company's agreement to begin selling the full line of Maytag brand major
appliances through most Sears stores in the U.S. beginning in February 1998.
The Company's net sales also benefited from the significant volume growth in
industry shipments of major appliances in the first nine months of 1998 compared
to the prior year period.
Net sales reported by Rongshida-Maytag, the Company's home appliances joint
venture in China, were down 40 percent in the third quarter of 1998 from the
third quarter of 1997. The decrease in sales was primarily a result of economic
conditions in China exacerbated by record flooding occurring in the third
quarter of 1998. For the first nine months of 1998, Rongshida-Maytag net sales
increased 9 percent compared to the same period in 1997. The sales increase was
primarily attributable to higher unit volume partially offset by price
reductions on selected models in response to competitive conditions in China.
Net sales of commercial appliances, which include commercial vending and
cooking, were up 150 percent from the third quarter of 1997. Excluding
Blodgett, net sales increased 77 percent from 1997. For the first nine months
of 1998, net sales of commercial appliances were up 114 percent compared to
1997. Excluding Blodgett, net sales increased 53 percent from the first nine
months of 1997. This net sales increase was primarily driven by a significant
increase in the sales volume of Dixie-Narco enhanced capacity venders introduced
in 1997.
Gross Profit: Consolidated gross profit as a percent of sales increased to 28.9
percent in the third quarter of 1998 from 28.0 percent in the third quarter of
1997. For the first nine months of 1998, consolidated gross profit as a percent
of sales increased to 28.7 percent compared to 27.3 percent in 1997.
North American home appliances gross margins increased in the third quarter
and first nine months of 1998 compared to the prior year, due to an increase in
sales volume, favorable brand and product sales mix and the absence of
production start-up costs associated with the Company's new line of top-mount
refrigerators which were incurred in 1997.
Rongshida-Maytag gross margins decreased in large part from refrigeration
production start-up costs and an increase in research and development costs
associated with the new line of refrigerators. Refrigerator production start-up
costs will adversely impact the results of Rongshida-Maytag through the
Page 10 of 18
remainder of 1998.
Commercial appliances gross margins increased in the third quarter and
first nine months of 1998 compared to the prior year, due to the operating
leverage obtained from the increase in sales volume, partially offset by
inefficiencies from the reorganization of manufacturing operations at Blodgett.
The Company has realized lower raw material prices in 1998 compared to 1997
and expects the trend to continue for the remainder of 1998.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were 15.4 percent of sales in the third quarter of 1998
compared to 17.5 percent of sales in the same period in 1997. The primary
reason for the decrease as a percent of sales was the operating leverage
obtained on fixed expenses with the increase in net sales, and 1997 included
additional advertising and sales promotion related to new product introductions.
For the first nine months of 1998, consolidated selling, general and
administrative expenses were 15.8 percent of sales compared to 17.0 percent in
1997. The decrease as a percent of sales was driven by the items discussed
above.
Operating Income: Consolidated operating income for the third quarter of 1998
increased 55 percent to $139 million, or 13.5 percent of sales, compared to $90
million, or 10.5 percent of sales in the same period in 1997. For the first
nine months of 1998, consolidated operating income increased 57 percent to $401
million, or 12.9 percent of sales, compared to $255 million, or 10.3 percent of
sales in 1997.
North American home appliances operating income increased 53 percent in the
third quarter of 1998 compared to 1997. Operating margin for the third quarter
of 1998 was 14.9 percent of sales compared to 11.2 percent of sales in 1997.
For the first nine months of 1998, operating income increased 54 percent
compared to 1997. Operating margin for the first nine months of 1998 was 14.3
percent of sales compared to 11.1 percent of sales in 1997. The increase in
operating margins in the third quarter and first nine months of 1998 was
primarily due to the increase in gross profit margins and decrease in selling,
general and administrative expenses as a percent of sales discussed above.
Rongshida-Maytag operating income decreased 79 percent in the third quarter
of 1998 compared to 1997. Operating margin for the third quarter of 1998 was
3.0 percent of sales compared to 8.5 percent of sales in 1997. For the first
nine months of 1998, operating income decreased 19 percent compared to 1997.
Operating margin for the first nine months of 1998 was 7.0 percent of sales
compared to 9.5 percent of sales in 1997. The decrease in operating margins in
the third quarter and first nine months of 1998 was primarily due to the
decrease in gross profit margins discussed above.
Commercial appliances operating income, which includes Blodgett in the
current year, increased 220 percent in the third quarter of 1998 compared to
1997. Operating margin for the third quarter of 1998 was 10.8 percent of sales
compared to 8.5 percent of sales in 1997. For the first nine months of 1998,
operating income increased 124 percent compared to the same period in 1997.
Operating margin for the first nine months of 1998 was 11.4 percent of sales
compared to 10.9 percent of sales in 1997. The increase in operating margins in
the third quarter and first nine months of 1998 was due to the increase in gross
profit margins and decrease in selling, general and administrative expenses as a
percent of sales described above.
Interest Expense: Interest expense increased 19 percent and 11 percent from the
third quarter and first nine months of 1997, respectively, due to an increase in
short-term borrowings and lower capitalized interest.
Income Taxes: The effective tax rate for the third quarter of 1998 was 37.6
Page 11 of 18
percent compared to 33.0 percent in 1997. The effective tax rate for the first
nine months of 1998 was 37.2 percent compared to 36.2 percent in 1997. The
increase in the effective tax rate was primarily due to 1997 including a $2
million one-time benefit from the resolution of certain Internal Revenue Service
issues. Excluding that benefit, the 1997 consolidated tax rate would have been
37.2 percent.
Extraordinary Item: During the third quarter, the Company retired $50.5 million
of long-term debt at a cost of $3.5 million after-tax, or $0.04 per share.
Net Income: Net income for the third quarter of 1998 was $74 million, an
increase of 50 percent, compared to net income of $49 million in 1997. For the
first nine months of 1998, net income increased 63 percent to $214 million
compared to $132 million in 1997. The increase in net income was primarily due
to the increase in operating income. The third quarter and the first nine
months of 1998 include a $3.5 million after-tax charge for the early retirement
of debt. (See discussion of the extraordinary items in "Extraordinary Item"
section of this Management's Discussion and Analysis.) Excluding the special
charge, net income was $77 million and $218 million for the third quarter and
the first nine months of 1998, respectively.
Diluted earnings per share increased 60 percent to $0.80 per share in the
third quarter of 1998 compared to $0.50 per share in 1997. Excluding the
special charge described above, 1998 third quarter diluted earnings per share
was $.84. Diluted earnings per share increased 69 percent to $2.26 per share in
the first nine months of 1998 compared to $1.34 per share in 1997. Excluding
the special charge described above, the first nine months of 1998 diluted
earnings per share was $2.30. The increase in diluted earnings per share in the
third quarter and first nine months of 1998 was due to the increase in net
income and the effect of 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.)
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 Condensed Consolidated Cash Flows.
Net Cash Provided by Operating Activities: Cash flow provided by operating
activities primarily consists of net income adjusted for certain non-cash items,
changes in working capital items, changes in pension assets and liabilities, and
changes in the liability for postretirement benefits. Non-cash items include
depreciation and amortization and deferred income taxes. Working capital items
consists primarily of accounts receivable, inventories, other current assets and
other current liabilities.
Net cash provided by operating activities in the first nine months of 1998
increased from 1997 as a result of an increase in net income and various
accruals related to the increase in sales (i.e., warranty, advertising and sales
promotion) partially offset by an increase in working capital.
A portion of the Company's accounts receivable is concentrated among major
national retailers. A significant loss of business with any of these national
retailers could have an adverse impact on the Company's ongoing operations.
Total Investing Activities: The Company continually invests in its businesses
for new product designs, cost reduction programs, replacement of equipment,
capacity expansion and government mandated product requirements.
Capital expenditures in the first nine months of 1998 were $94 million
compared to $167 million in the same period in 1997. The lower capital spending
Page 12 of 18
was due to the completion of several major capital projects in 1997. For 1998,
the Company plans to invest approximately $150 million in capital expenditures,
including those for Rongshida-Maytag.
Total Financing Activities: Dividend payments on the Company's common stock in
the first nine months of 1998 were $46.4 million, or $.50 per share, compared to
$46.6 million, or $.48 per share in 1997.
In 1997, the Company's board of directors authorized the repurchase of up
to 15 million additional shares beyond the previous share repurchase
authorizations totalling 15.8 million shares. Under these authorizations, the
Company has repurchased 20.8 million shares at a cost of $604 million, which
includes five million shares purchased at a cost of $247 million during the
first nine months of 1998. As of September 30, 1998, of the ten million shares
which may be repurchased under existing board authorization, the Company is
committed to purchase four million shares under put options contracts, if such
options are exercised. (See discussion of these put option contracts below.)
The Company plans to continue the repurchase of shares over a non-specified
period of time.
During the first quarter of 1998, the Company amended the forward stock
purchase agreement associated with the repurchase of four million shares by the
Company during 1997. The future contingent purchase price adjustment included
in the forward stock purchase agreement was amended to provide for settlement
based on the difference in the market price of the Company's common stock at the
time of settlement compared to the market price of the Company's common stock as
of March 24, 1998 rather than as of August 20, 1997. The net cost of the
amendment was $64 million. During the third quarter of 1998, the Company
further amended the forward stock purchase agreement to establish the future
settlement price on one million of the total four million shares. The forward
stock purchase contract allows the Company to determine the method of
settlement. The Company's objective in this transaction is to reduce the
average price of repurchased shares.
In connection with the share repurchase program, the Company sells put
options which give the purchaser the right to sell shares of the Company's
common stock to the Company at specified prices upon exercise of the options.
The put option contracts allow the Company to determine the method of
settlement. The Company's objective in selling put options is to reduce the
average price of repurchased shares. In the first nine months of 1998, the
Company received $23 million in premium proceeds from the sale of put options.
As of September 30, 1998, there were four million put options outstanding with
strike prices ranging from $43.25 to $52.09 (the weighted-average strike price
was $48.69).
Any funding requirements for future investing and financing activities in
excess of cash on hand and generated from operations are planned to 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, with which the Company
was in compliance at September 30, 1998.
Market Risks
The Company is subject to market risk, including changes in interest rates and
foreign currency exchange rates. The Company manages market risks through the
use of a variety of financial and derivative financial instruments. The
Company's objective in managing these risks is to reduce fluctuations in
earnings and cash flows associated with changes in interest rates and foreign
currency rates. The Company manages its exposure to interest rate risk through
the proportion of fixed rate and variable rate debt in its total debt portfolio.
Page 13 of 18
The Company uses foreign currency forward and option contracts to hedge the U.S.
dollar value resulting from anticipated foreign currency transactions.
There have been no material changes in the reported market risks of the
Company since December 31, 1997. See further discussion of these market risks
and related financial instruments in the Maytag Corporation annual report on
Form 10-K for the year ended December 31, 1997.
Year 2000
The much publicized "Year 2000 problem," affecting most companies, arises
because many existing computer programs use only the last two digits to refer to
a year. Therefore, these computer programs do not properly recognize a year
that begins with "20" instead of the familiar "19." If not corrected, these
computer applications could fail or create erroneous results. The global extent
of the potential impact of the Year 2000 problem is not yet known, and if not
timely corrected, it could affect the economy and the Company. The Company uses
computer information systems and manufacturing equipment which may be affected.
It also relies on suppliers and customers who are also dependent on systems and
equipment which use date dependent software.
In 1996 the Company began its effort for the conversion or replacement of
North American computer information systems which did not properly address the
Year 2000. This effort involved both plans for creating replacement systems for
those computer information systems which were developed internally as well as
obtaining versions of software purchased from third parties which are Year 2000
ready. The Company estimates that this effort is approximately 75 percent
complete as of September 30, 1998. The Company expects to have substantially
converted or replaced its critical computer information systems for its North
American business operations by the end of 1998 except that the conversion
effort is not expected to be completed until mid-1999 for Blodgett, which was
acquired by the Company in the fourth quarter of 1997.
In mid-1997 the Company began to review the production equipment used in
manufacture of its products in the Company s North American operations as well
as the systems related to the infrastructure of the North American manufacturing
and office facilities. The Company is continuing to inventory and verify Year
2000 readiness of computer controlled manufacturing equipment and computer
controls for the North American manufacturing and office facilities. This
effort is approximately 50 percent complete as of September 30, 1998 and
requires validation of equipment from the equipment manufacturer. The Company
expects the remediation effort of its critical production equipment and systems
related to its infrastructure for its North American business operations to be
substantially completed by the end of 1998.
In 1997 the Company also began to assess the Year 2000 problem remediation
efforts of third parties in North America who have material relationships with
the Company including, but not limited to: providers of services such as
utilities, suppliers of raw materials and customers where there is a significant
business relationship; however there is no assurance that the Company will not
be affected by the Year 2000 problems of other organizations.
Rongshida-Maytag is currently initiating a review of the implications of
the Year 2000 problem on computer information systems and equipment used in the
manufacture of its products or facilities. The remediation effort required for
the computer information systems and equipment for Rongshida-Maytag has not yet
been identified.
The costs associated with the Company's Year 2000 remediation are being
expensed as incurred; are not material to the performance of the Company for
previous periods and are not expected to be material relative to the future
performance of the Company. The company estimates it has spent approximately
$10 million to date on the Year 2000 issue and expects to spend not more than
$20 million in total on the Year 2000 issue. As previously identified, the
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Company utilizes software which was acquired from third parties. The Company
has maintenance agreements with certain of its software vendors which, in return
for annual contractual payments, enable it to obtain new software releases,
including versions which are now Year 2000 ready.
If the Company is unsuccessful or if the remediation efforts of its key
suppliers or customers are unsuccessful with regard to Year 2000 remediation,
there may be a material adverse impact on the Company's consolidated results and
financial condition. If the Company's Year 2000 remediation effort is not
successful, the most likely worst case scenario is that the Company will be
unable to manufacture and distribute its products. The Company is unable to
estimate the financial impact of Year 2000 issues because it cannot predict the
magnitude or time length of potential Year 2000 business interruptions. The
Company s contingency plan is currently under development and includes such
precautionary measures as an anticipated increased level of finished goods and
raw materials to minimize the potential disruption in the Company s ability to
manufacture and distribute products.
While the Company expects its Year 2000 issues to be successfully remedied,
it cannot guarantee that the Year 2000 issues of third parties will not
negatively impact Maytag's financial condition.
Contingencies
See discussion of contingent liabilites in "NOTE F--CONTINGENCIES" section of
the Notes to Condensed Consolidated Financial Statements.
Forward-Looking Statements
This Management's Discussion and Analysis contains statements which are not
historical facts and are considered "forward-looking" within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are identified by their use of terms such as "expects," "intends,"
"plans" or "should." These forward-looking statements involve a number of risks
and uncertainties that may cause actual results to differ materially from
expected results. These risks and uncertainties include, but are not limited
to, the following: business conditions and growth of industries in which the
Company competes, including changes in economic conditions in the geographic
areas where the Company's operations exist or products are sold; timing and
start-up of newly designed products; shortages of manufacturing capacity;
competitive factors, such as price competition and new product introductions;
significant loss of business from a major national retailer; the ability of the
Company and customers and suppliers to become Year 2000 ready in a timely
manner; the cost and availability of raw materials and purchased components;
progress on capital projects; the impact of business acquisitions or
dispositions; the costs of complying with governmental regulations; level of
share repurchases; litigation and other risk factors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See discussion of quantitative and qualitative disclosures about market risk in
"Market Risks" section of Management's Discussion and Analysis.
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MAYTAG CORPORATION
Exhibits and Reports on Form 8-K
September 30, 1998
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27(a) Financial Data Schedule - Nine Months Ended September 30, 1998
27(b) Restated Financial Data Schedule - Nine Months Ended September 30,
1997
(b) Reports on Form 8-K
The Company filed a Form 8-K dated August 6, 1998 under Item 5, Other
Events, indicating it expects to repurchase more of its common stock in
1998 than originally planned given the cash flow strength being generated
by record sales and earnings.
The Company filed a Form 8-K dated September 9, 1998, under item 5, Other
Events, indicating it expects earnings per share in the third quarter of
1998 to be much better than the current earnings per share consensus
estimate of financial analysts published by First Call.
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MAYTAG CORPORATION
Signatures
September 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAYTAG CORPORATION
Date: November 12, 1998 s/s G. J. Pribanic
Gerald J. Pribanic
Executive Vice President and
Chief Financial Officer
s/s Steven H. Wood
Steven H. Wood
Vice President, Financial
Reporting and Audit and Chief
Accounting Officer
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