SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001.
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-1490038
(State of incorporation) (I.R.S. Employer Identification No.)
2000 M-63
Benton Harbor, Michigan 49022-2692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 616/923-5000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--------- ---------
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date:
Class of common stock Shares outstanding at June 30, 2001
--------------------- -----------------------------------
Common stock, par value $1 per share 66,904,815
PAGE 1 OF 21
QUARTERLY REPORT ON FORM 10-Q
WHIRLPOOL CORPORATION
Quarter Ended June 30, 2001
INDEX OF INFORMATION INCLUDED IN REPORT
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements
of Earnings 3
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements
of Changes in Equity 5
Consolidated Condensed Statements
of Cash Flows 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
2
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THE PERIODS ENDED JUNE 30
(millions of dollars except share and dividend data)
Three Months Ended Six Months Ended
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Net sales $2,585 $2,586 $5,101 $5,176
EXPENSES:
Cost of products sold 1,989 1,958 3,948 3,900
Selling and administrative 405 389 810 794
Intangible amortization 7 7 14 15
Restructuring costs 14 - 62 -
------ ------ ------ ------
2,415 2,354 4,834 4,709
------ ------ ------ ------
OPERATING PROFIT 170 232 267 467
OTHER INCOME(EXPENSE):
Interest and sundry income (expense) (7) (4) (11) (14)
Interest expense (43) (46) (87) (83)
------ ------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND OTHER ITEMS 120 182 169 370
Income taxes 43 63 61 135
------ ------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
EQUITY EARNINGS AND MINORITY INTERESTS 77 119 108 235
Equity in earnings of affiliated companies 2 7 3 6
Minority interests (5) (5) (4) (8)
------ ------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 74 121 107 233
Loss from discontinued operations, net of tax (21) (21)
Cumulative effect of change in accounting
principle, net of tax - - 8 -
------ ------ ------ ------
NET EARNINGS $ 53 $ 121 $ 94 $ 233
====== ====== ====== ======
Per share of common stock:
Basic earnings from continuing operations $ 1.12 $ 1.68 $ 1.61 $ 3.20
Loss from discontinued operations, net of tax (0.32) - (0.32) -
Cumulative effect of change in accounting principle,
net of tax - - 0.12 -
------ ------ ------ ------
Basic net earnings $ .80 $ 1.68 $ 1.41 $ 3.20
====== ====== ====== ======
Diluted earnings from continuing operations $ 1.10 $ 1.66 $ 1.59 $ 3.18
Loss from discontinued operations, net of tax (0.32) - (0.32) -
Cumulative effect of change in accounting principle,
net of tax - - 0.12 -
------ ------ ------ ------
Diluted net earnings $ .78 $ 1.66 $ 1.39 $ 3.18
====== ====== ====== ======
Dividends declared $ .34 $ .34 $ .68 $ .68
====== ====== ====== ======
Weighted-average shares outstanding (millions):
Basic 66.5 72.1 66.4 72.8
Fully diluted 67.7 72.9 67.3 73.4
See notes to consolidated condensed financial statements.
3
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION
(millions of dollars)
(Unaudited)
June 30 December 31
2001 2000
--------------- ----------------
ASSETS
Current Assets
- --------------
Cash and equivalents $ 153 $ 114
Trade receivables, less allowances of
(2001: $91; 2000: $103) 1,648 1,748
Inventories 1,099 1,119
Prepaid expenses and other 225 206
Deferred income taxes 31 50
--------------- ----------------
Total Current Assets 3,156 3,237
Other Assets
- ------------
Investment in affiliated companies 114 113
Intangibles, net 710 762
Deferred income taxes 219 253
Derivative financial instruments 230 -
Other 392 403
--------------- ----------------
1,665 1,531
Property, Plant and Equipment
- -----------------------------
Land 58 64
Buildings 789 838
Machinery and equipment 4,221 4,374
Accumulated depreciation (3,128) (3,142)
--------------- ----------------
1,940 2,134
--------------- ----------------
Total Assets $ 6,761 $ 6,902
=============== ================
(Unaudited)
June 30 December 31
2001 2000
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Notes payable $ 828 $ 961
Accounts payable 1,174 1,257
Employee compensation 239 256
Accrued expenses 841 795
Restructuring costs 26 5
Current maturities of long-term debt 17 29
--------------- ----------------
Total Current Liabilities 3,125 3,303
Other Liabilities
- -----------------
Deferred income taxes 156 175
Postemployment benefits 631 630
Other liabilities 146 168
Long-term debt 1,000 795
--------------- ----------------
1,933 1,768
Minority Interests 135 147
Stockholders' Equity
- --------------------
Common stock 84 84
Paid-in capital 414 393
Retained earnings 2,588 2,539
Unearned restricted stock (6) (11)
Accumulated other comprehensive income (684) (495)
Treasury stock - at cost (828) (826)
--------------- ----------------
Total Stockholders' Equity 1,568 1,684
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 6,761 $ 6,902
=============== ================
See notes to consolidated condensed financial statements.
4
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED JUNE 30
(millions of dollars)
Second Quarter
------------------------------------------------------------------
Accumulated
Other Treasury
Retained Comprehensive Common Stock/Paid-
Total Earnings Income Stock in-Capital
--------- ---------- ------------- -------- -----------
Beginning balance, 2000 $ 1,898 $ 2,354 $ (418) $ 84 $ (122)
Comprehensive income
Net income 121 121
Foreign currency items, net of tax (20) (19)
---------
Comprehensive income 101
=========
Common stock issued (122) (123)
Dividends declared on common stock (24) (24)
--------- --------- -------- ------ --------
Ending balance, June 30, 2000 $ 1,853 $ 2,451 $ (437) $ 84 $ (245)
========= ========= ======== ====== ========
Beginning balance, 2001 $ 1,586 $ 2,558 $ (618) $ 84 $ (438)
Comprehensive income
Net income 53 53
Cumulative effect of change in accounting principle -
Net loss on derivative instruments, net of tax (8) (8)
Foreign currency items, net of tax (58) (58)
---------
Comprehensive income (13)
=========
Common stock issued 18 18
Dividends declared on common stock (23) (23)
--------- --------- -------- ------ --------
Ending balance, June 30, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420)
========= ========= ======== ====== ========
Year-to-Date
------------------------------------------------------------------
Accumulated
Other Treasury
Retained Comprehensive Common Stock/Paid-
Total Earnings Income Stock in-Capital
--------- ---------- ------------- -------- -----------
Beginning balance, 2000 $ 1,867 $ 2,268 $ (443) $ 84 $ (42)
Comprehensive income
Net income 233 233
Foreign currency items, net of tax 6 6
---------
Comprehensive income 239
=========
Common stock issued (203) (203)
Dividends declared on common stock (50) (50)
--------- --------- -------- ------ --------
Ending balance, June 30, 2000 $ 1,853 $ 2,451 $ (437) $ 84 $ (245)
========= ========= ======== ====== ========
Beginning balance, 2001 $ 1,684 $ 2,539 $ (495) $ 84 $ (444)
Comprehensive income
Net income 94 94
Cumulative effect of change in accounting principle (11) (11)
Net loss on derivative instruments, net of tax (6) (6)
Foreign currency items, net of tax (172) (172)
---------
Comprehensive income (95)
=========
Common stock issued 24 24
Dividends declared on common stock (45) (45)
--------- --------- -------- ------ --------
Ending balance, June 30, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420)
========= ========= ======== ====== ========
See notes to consolidated condensed financial statements.
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR SIX MONTHS ENDED JUNE 30
(millions of dollars)
2001 2000
-------- --------
OPERATING ACTIVITIES
Net earnings $ 94 $ 233
Depreciation 185 203
Amortization of goodwill 14 15
Provision for doubtful accounts 10 2
Equity in net earnings of affiliated
companies, less dividends received (3) (6)
Loss on discontinued operations 21 --
Restructuring charges, net of cash paid 23 (29)
Minority interests 4 8
Deferred income taxes (9) 23
Change in working capital:
Trade receivables 9 (195)
Inventories (19) (260)
Accounts payable (21) 62
Changes in other assets and liabilities:
Payroll and other compensation (7) (63)
Current taxes payable 45 9
Other - net (5) (83)
-------- --------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 341 $ (81)
-------- --------
INVESTING ACTIVITIES
Net additions to properties $ (118) $ (162)
Acquisitions of businesses, less cash acquired -- (283)
-------- --------
CASH USED IN INVESTING ACTIVITIES $ (118) $ (445)
-------- --------
FINANCING ACTIVITIES
Proceeds of short-term borrowings $ 17,969 $ 14,005
Repayments of short-term borrowings (18,077) (13,260)
Proceeds of long-term debt 6 336
Repayments of long-term debt (32) (413)
Dividends (68) (50)
Purchase of treasury stock -- (228)
Other 18 34
-------- --------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (184) 424
-------- --------
INCREASE / (DECREASE) IN CASH AND EQUIVALENTS $ 39 $ (102)
Cash and equivalents at beginning of year 114 261
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 153 $ 159
======== ========
See notes to consolidated condensed financial statements.
6
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements. Management believes the financial statements include all
normal recurring accrual adjustments necessary for a fair presentation.
Operating results for the six months ended June 30, 2001 do not necessarily
indicate the results that may be expected for the full year. For further
information, refer to the consolidated financial statements and notes thereto
included in the company's annual report for the year ended December 31, 2000.
Diluted net earnings per share of common stock include the dilutive effect of
stock and put options.
NOTE B--NEW ACCOUNTING STANDARDS
On January 1, 2001, the company adopted the provisions of FASB No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended, and
recorded the impact as a change in accounting principle. The transition
adjustment to adopt SFAS 133 resulted in $8 million of income, net of tax, from
the cumulative effect of a change in accounting principle, and an $11 million
decrease, net of tax, in stockholders' equity in the company's financial
statements for the quarter ended March 31, 2001.
7
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In June 2001, the company entered into interest rate swaps which effectively
neutralize interest rate fluctuations on $100 million of the company's floating
rate obligations. These contracts are designated and effective as hedges of
anticipated cash payments and treated as cash flow hedges for accounting
purposes. The effective portion of unrealized gains and losses related to these
contracts is deferred in accumulated other comprehensive income and recognized
in income when the hedged transaction affects earnings.
NOTE C--BUSINESS ACQUISITIONS & DISPOSITIONS
On January 7, 2000, the company completed its tender offer for the outstanding
publicly traded shares in Brazil of its subsidiaries Brasmotor S.A. (Brasmotor)
and Multibras S.A. Eletrodomesticos (Multibras). In completing the offer, the
company purchased additional shares of Brasmotor and Multibras for $283 million.
With this additional investment, the company's equity interest in its Brazilian
subsidiaries increased from approximately 55% to approximately 87%.
NOTE D--DISCONTINUED OPERATIONS
During the second quarter of 2001, the company wrote off its investment in a
securitized aircraft lease portfolio which was owned by the company's previously
discontinued finance company, Whirlpool Financial Corporation. The write-off,
due primarily to the softening aircraft leasing industry, resulted in a pre-tax
loss from discontinued operations of $35 million ($21 million after-tax).
NOTE E--SUBSEQUENT EVENTS
On July 3, 2001, the company completed the issuance of 300 million euro
denominated 5.875% Notes due 2006. The notes are general obligations of the
company and the proceeds are expected to be used for general corporate purposes,
including but not limited to refinancing outstanding debt.
8
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F--INVENTORIES
Inventories consist of the following:
June 30 December 31
2001 2000
------------ -----------
(millions of dollars)
Finished products $ 975 $ 956
Raw materials and work in process 268 314
------------ -----------
Total FIFO cost 1,243 1,270
Less excess of FIFO cost
over LIFO cost 144 151
------------ -----------
$ 1,099 $ 1,119
============ ===========
NOTE G--RESTRUCTURING AND OTHER SPECIAL CHARGES
Restructuring
In December, 2000, the company announced a global restructuring plan. Through
June 30, 2001, the company announced phases of the restructuring activity that
have resulted in pre-tax restructuring charges of $62 million, which was
identified as a separate component of operating profit. The restructuring
charges included $50 million in termination benefits and $12 million in
non-employee exit costs. These charges relate primarily to the closing of a
refrigeration plant in the company's Latin American region, a parts packing
facility in the North American region and a plastic components facility in the
Asian region. The majority of employees to date represent hourly personnel at
the identified facilities. The company expects to eliminate approximately 3,000
employees of which 1,500 had left the company through June 30, 2001.
Other Special Charges
Also included in the company's restructuring activity to date were $29 million
pre-tax, of restructuring related charges recorded primarily as cost of products
sold. Included in this total were $12 million in write-downs of various fixed
assets, primarily buildings that will not be used in the company's business
activities in its Latin American region. The company also wrote off $15 million
in various assets in its European and Asian regions which was primarily made up
of equipment no longer to be used in its business activities.
9
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Details of the year-to-date restructuring and related charges was as follows:
Six Months Beginning Charge Accrual at
Ended June 30, 2001 Balance to Earnings Cash Paid Non-cash Translation 30-Jun-01
- ----------------------------------------------------------------------------------------------------------
(millions of dollars)
Restructuring
Termination costs $ 5 50 $ (34) $ - $ 21
Non-employee exit costs 12 (5) - 7
Translation impact (2) (2)
Asset Write-offs
Miscellaneous buildings 12 - (12) -
Inventory 2 - (2)
Miscellaneous equipment 15 - (15) -
--------- ----------- --------- -------- ------------ ----------
Total $ 5 91 $ (39) $ (29) (2) $ 26
========= =========== ========= ======== ============ ==========
NOTE H--CONTINGENCIES
The company is involved in various legal actions arising in the normal course of
business. Management, after taking into consideration legal counsel's evaluation
of such actions, is of the opinion that the outcome of these matters will not
have a material adverse effect on the company's financial position.
The company is a party to certain financial instruments with off-balance-sheet
risk which are entered into in the normal course of business. These instruments
consist of financial guarantees, repurchase agreements and letters of credit.
The company's exposure to credit loss in the event of nonperformance by the
debtors varies amongst these agreements. The company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. Collateral or other security is generally required
to support financial instruments with off-balance-sheet risk.
At June 30, 2001, the company had $104 million in guarantees of customer lines
of credit at commercial banks.
10
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I--GEOGRAPHIC SEGMENTS
The company identifies operating segments based upon geographical regions of
operations because each operating segment manufactures home appliances and
related components, but serves strategically different markets.
The company's chief operating decision maker reviews each operating segment's
performance based upon operating profit excluding one-time charges such as
restructuring and related charges. These charges are included in operating
profit on a consolidated basis and included in the Other and Eliminations column
in the tables below. For the quarter and year-to-date amounts through June 30,
2001, the operating segments recorded total restructuring and related charges as
follows; North America $10 and $15 million, Europe $9 and $17 million, Latin
America $0 and $47 million, Asia $1 and $9 million and Corporate $1 and $3
million. Refer to Note E, presented earlier, for a discussion of restructuring
and other special charges.
(millions of dollars)
Three Months North Latin Other and
Ended June 30 America Europe America Asia (Eliminations) Consolidated
- --------------------------------------------------------------------------------------------------
Sales
2001 $ 1,661 $ 483 $ 379 $ 106 $ (44) $ 2,585
2000 $ 1,589 $ 524 $ 401 $ 115 $ (43) $ 2,586
Intangible amortization
2001 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7
2000 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7
Depreciation
2001 $ 47 $ 17 $ 22 $ 3 $ 1 $ 90
2000 $ 46 $ 20 $ 29 $ 3 $ 11 $ 109
Operating profit (loss)
2001 $ 176 $ 4 $ 35 $ 6 $ (51) $ 170
2000 $ 195 $ 38 $ 25 $ 6 $ (32) $ 232
Capital expenditures
2001 $ 27 $ 15 $ 16 $ 2 $ - $ 60
2000 $ 39 $ 15 $ 16 $ 3 $ 12 $ 85
Total assets
June 30, 2001 $ 2,690 $ 1,825 $ 1,353 $ 679 $ 214 $ 6,761
December 31, 2000 $ 2,624 $ 1,948 $ 1,600 $ 704 $ 26 $ 6,902
11
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(millions of dollars)
Six Months North Latin Other and
Ended June 30 America Europe America Asia (Eliminations) Consolidated
- --------------------------------------------------------------------------------------------------
Sales
2001 $ 3,198 $ 996 $ 791 $ 194 $ (78) $ 5,101
2000 $ 3,145 $ 1,093 $ 817 $ 204 $ (83) $ 5,176
Intangible amortization
2001 $ 2 $ 6 $ 2 $ 2 $ 2 $ 14
2000 $ 2 $ 7 $ 1 $ 3 $ 2 $ 15
Depreciation
2001 $ 94 $ 33 $ 47 $ 7 $ 4 $ 185
2000 $ 86 $ 39 $ 54 $ 8 $ 16 $ 203
Operating profit (loss)
2001 $ 346 $ 9 $ 63 $ 10 $ (161) $ 267
2000 $ 400 $ 77 $ 51 $ 9 $ (70) $ 467
Capital expenditures
2001 $ 56 $ 26 $ 31 $ 4 $ 1 $ 118
2000 $ 69 $ 31 $ 39 $ 4 $ 19 $ 162
Total assets
June 30, 2001 $ 2,690 $ 1,825 $ 1,353 $ 679 $ 214 $ 6,761
December 31, 2000 $ 2,624 $ 1,948 $ 1,600 $ 704 $ 26 $ 6,902
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The statements of earnings summarize operating results for the three and six
month periods ended June 30, 2001 and 2000. This section of Management's
Discussion highlights the main factors affecting the changes in operating
results.
Net Sales
The total number of units sold increased 2% and 1% for the quarter and
year-to-date comparisons. Consolidated net sales were level with the year ago
quarter and down 1% versus the comparable year-to-date period. Excluding the
impact of currency fluctuations around the world, net sales would have increased
4% and 2% over the comparable periods. The table below provides a breakdown of
sales by region.
2nd Quarter Year-to-date
------------------- --------------------------
(millions of dollars) 2001 2000 Change 2001 2000 Change
-------- -------- ------ -------- -------- ------
Net Sales:
North America $ 1,661 $ 1,589 4.5% $ 3,198 $ 3,145 1.7%
Europe 483 524 (7.8) 996 1,093 (8.9)
Latin America 379 401 (5.5) 791 817 (3.2)
Asia 106 115 (7.8) 194 204 (4.9)
Other/eliminations (44) (43) - (78) (83) -
-------- -------- -------- --------
Consolidated $ 2,585 $ 2,586 (0.0)% $ 5,101 $ 5,176 (1.4)%
======== ======== ===== ======== ======== ======
Regional trends were as follows:
- - North American unit sales increased 3% for the quarter in an industry that
was down approximately 5%. Year-to-date unit shipments were level while the
industry declined approximately 8%. The increased net sales reflected an
improved product mix over 2000 for both the quarter and year-to-date
periods. North American industry shipments are currently expected to be
down 3% for the full year.
- - European unit volumes remained level year-over-year for both the quarter
and year-to-date periods in a slowing appliance industry. The decline in
net sales is primarily due to the impact of currency fluctuations.
Excluding this impact, net sales were down 2% versus the comparable 2000
periods. European industry shipments are currently expected to be flat to
up 2% for the full year.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
- - Latin American unit volumes were up 4% for the quarter and year-to-periods
while net sales were lower for the comparable periods as the impact of
currency and price competition offset the increased unit volumes. Excluding
the impact of currency fluctuations, net sales increased 8% for both
comparative periods, respectively. Latin American industry shipments are
currently expected to be down approximately 3% for the full year.
- - Asia's unit volumes increased 1% and 3% for the quarter and year-to-date
periods despite a slowing appliance industry in India and other Asia
Pacific markets. Asia net sales decreased, however, reflecting currency
impact and price competition.
Gross Margin
Gross margin percentage declined by 1.0 percentage points and 1.6 percentage
points for the quarter and year-to-date comparisons, excluding the impact of $6
million and $26 million in special charges for asset write-offs related to the
company's restructuring program which were classified in cost of products sold.
Pricing pressures globally and higher material costs in Europe offset
company-wide productivity improvements and a lower effective excise tax rate in
Brazil.
Selling and Administrative
Selling and administrative expenses as a percent of net sales increased 0.7
percentage points for the quarter and 0.6 percentage points year-to-date. The
North American ratios improved over the prior year as benefits from cost
containment efforts more than offset increased spending for new product
launches. The European ratios increased for the quarter and year-to-date periods
as lower sales more than offset cost containment efforts. The Latin American
ratios increased for both period comparisons due to investments in growth
initiatives and the required change in classification of customer freight
recovery into revenue and out of selling and administrative expenses.
Other Income and Expense
Interest and sundry income (expense) was $3 million unfavorable
quarter-over-quarter mainly due to lower interest income. Interest and sundry
income was $3 million favorable for the year-to-date comparison as lower
miscellaneous costs offset $7 million in reduced interest income. The lower
interest income for both period comparisons was due to reduced short-term
investments primarily in Latin America. Interest expense decreased $3 million
for the quarter, but increased $4 million for the year-to-date comparisons due
to higher average balances in short-term borrowings during the first quarter.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Income Taxes
The consolidated effective income tax rate was 36% for the quarter and
year-to-date periods versus rates of 35% and 37%, respectively, for the year ago
periods. The lower effective tax rate for the year-to-date period was due to
Befiex credits utilized in 2001, which are nontaxable, and various tax
strategies, combining to offset minimum taxes required in Europe.
Earnings
Core earnings for the second quarter, which excluded restructuring and related
charges of $14 million, after-tax and minority interests (refer to Note G to the
accompanying consolidated condensed financial statements for a discussion of
restructuring and other special charges) and a $21 million loss, after-tax on
discontinued operations (refer to Note D to the accompanying consolidated
condensed financial statements for a discussion of discontinued operations),
were $88 million or $1.30 per diluted share versus $121 million or $1.66 per
diluted share in 2000. Reported second quarter net earnings were $53 million or
$0.78 per diluted share.
Core earnings for the year-to-date period, which excluded restructuring and
related charges of $55 million, after-tax and minority interests, a $21 million
loss, after-tax, on discontinued operations and a one-time gain related to the
implementation of SFAS No. 133 of $8 million, after-tax, were $162 million or
$2.40 per diluted share versus $233 million or $3.18 per diluted share in 2000.
Reported year-to-date net earnings were $94 million or $1.39 per diluted share.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the
six months ended June 30, 2001 and 2000 by classifying transactions into three
major categories: operating, investing and financing activities.
Operating Activities
The company's main source of liquidity is cash from operating activities
consisting of net earnings from operations adjusted for non-cash operating items
such as depreciation and changes in operating assets and liabilities such as
receivables, inventories and payables.
Cash provided by operating activities in the first six months of 2001 was $341
million compared to $81 million used in 2000. The improvement over the prior
year was due to changes in inventories and accounts receivable offsetting a
decrease in accounts payable and lower net earnings.
Investing Activities
The principal recurring investing activities are property additions. Net
property additions for the first half were $118 million in 2001 down from $162
million in the 2000 period. These expenditures are primarily for equipment and
tooling related to product improvements, more efficient production methods and
replacement for normal wear and tear.
Refer to Note C to the accompanying consolidated financial statements for a
discussion of business dispositions and acquisitions.
Financing Activities
Dividends to shareholders totaled $68 million for the first half of 2001 versus
$50 million in 2000. The increase was due to the timing of funding for the
fourth quarter 2000 payment more than offsetting a reduction in outstanding
shares due to the repurchase program.
The company's borrowings, adjusted for currency fluctuations, decreased $134
million from year end as cash provided by operating activities was used to
reduce short term notes payable.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the company remains strong as evidenced by the June
30, 2001 balance sheet. The company's total assets are $6.8 billion and
stockholders' equity is $1.6 billion versus the June 30, 2000 totals of $7.0
billion and $1.9 billion, respectively. The decrease in stockholders' equity
versus a year ago was due primarily to $203 million of treasury stock purchases
in the second half of 2000 and a $230 million reduction due to translation
offsetting net earnings retention of $137 million. The company's total assets
and stockholders' equity at
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
December 31, 2000 were $6.9 billion and $1.7 billion, respectively. The lower
equity from year-end was due to $172 million of translation offsetting $49
million of net earnings retention.
On February 15, 2000, the company announced that its Board of Directors approved
an extension of the company's stock repurchase program to $1 billion. The
additional $750 million share repurchase authorization extended the previously
authorized $250 million repurchase program which was announced March 1, 1999.
The shares are purchased in the open market and through privately negotiated
sales as the company deems appropriate. The company has purchased 11.3 million
shares at a cost of $594 million under the program, none of which were
repurchased in 2001.
The overall debt to invested capital ratio of 52.0 percent at June 30, 2001 was
up from 48.7 percent at June 30, 2000 and up from 49.4 percent at December 31,
2000. The increase from year-end is due primarily to lower stockholders' equity
as described above and the increase in long-term debt from the reclassification
of a $221 million positive cash position on previously held net investment
hedges, from a contra debt account to other long-term assets on the balance
sheet. The long-term debt adjustment was in accordance with the adoption of
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The company's debt continues to
be rated investment grade by Moody's Investors Service Inc., Standard and
Poor's, and Fitch IBCA, Duff & Phelps.
The company has external sources of capital available and believes it has
adequate financial resources and liquidity to meet anticipated business needs
and to fund future growth opportunities.
In December 1996, Multibras and Empresa Brasileira de Compressores S.A.
(Embraco), Brazilian subsidiaries, obtained a favorable decision with respect to
additional export incentives in connection with the Brazilian government's
export incentive program (Befiex). These incentives were worth approximately
$420 million as of December 31, 2000. The company recognized $52 million
(Whirlpool's share after minority interest was $49 million) in Befiex credits in
2000 as a reduction of current excise taxes payable and therefore an increase in
net sales. The company recognized $12 million and $29 million for the quarter
and year-to-date periods of 2001, respectively.
Due to the company's U.S. pension plan funding policy and higher than expected
returns on plan assets in recent years, the company has recorded pension credits
in its operating profit during 2000 and 2001. These credits have approximated
$15 million per quarter for all of 2000 and 2001.
EURO CURRENCY CONVERSION
On January 1, 1999, eleven member nations of the European Union began the
conversion to a common currency, the "euro." The company has significant
manufacturing operations and sales in these countries. The introduction of the
euro has eliminated transaction gains and losses within participating countries
and there currently has not been any significant impact on operating results
from the change to the euro.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Internal computer system and business processes are being changed to accommodate
the new currency and the company established a cross-functional team, guided by
an executive-level steering committee, to address these issues. The company
estimates that all of the euro countries will be converted in various steps to
the euro currency by the end of 2001. The total cost of the euro conversion
program will be approximately $3 million.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Management's
Discussion and Analysis and other sections of this report may contain
forward-looking statements that reflect our current views with respect to future
events and financial performance.
Certain statements contained in this annual report and other written and oral
statements made from time to time by the company do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast," and similar words or
expressions. The company's forward-looking statements generally relate to its
growth strategies, financial results, product development, and sales efforts.
These forward-looking statements should be considered with the understanding
that such statements involve a variety of risks and uncertainties, known and
unknown, and may be affected by inaccurate assumptions. Consequently, no
forward-looking statement can be guaranteed and actual results may vary
materially.
Many factors could cause actual results to differ materially from the company's
forward-looking statements. Among these factors are: (1) competitive pressure to
reduce prices; (2) the ability to gain or maintain market share in an intensely
competitive global market; (3) the success of our global strategy to develop
brand differentiation and brand loyalty; (4) our ability to control operating
and selling costs and to maintain profit margins during industry downturns; (5)
the success of our Brazilian businesses operating in a volatile environment
currently facing energy shortages; (6) continuation of our strong relationship
with Sears, Roebuck and Co. in North America which accounted for approximately
20% of our consolidated net sales of $10.3 billion in 2000; (7) currency
exchange rate fluctuations in Latin America, Europe, and Asia that could affect
our consolidated balance sheet and income statement; (8) social, economic, and
political volatility in developing markets; (9) continuing uncertainty in the
North American, Latin American and European economies; (10) changes in North
America's consumer preferences regarding how appliances are purchased; and (11)
the effectiveness of the series of restructuring actions the company anticipates
taking through 2002.
The company undertakes no obligation to update every forward-looking statement,
and investors are advised to review disclosures by the company in our filings
with the Securities and Exchange Commission. It is not possible to foresee or
identify all factors that could cause actual results to differ from expected or
historic results. Therefore, investors should not consider the foregoing factors
to be an exhaustive statement of all risks, uncertainties, or factors that could
potentially cause actual results to differ.
18
PART II. OTHER INFORMATION
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 2001
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
The Annual Meeting of Stockholders was held on April 17, 2001. At the meeting,
the following items were voted on by shareholders:
a. Messrs. Herman Cain, Allan D. Gilmour, and David R. Whitwam and Ms. Janice
D. Stoney were each elected to a term to expire in 2004
Nominee For Against Abstentions
------- --- ------- -----------
Herman Cain 56,023,914 0 794,861
Allan D. Gilmour 55,991,100 0 827,675
Janice D. Stoney 56,019,082 0 799,693
David R. Whitwam 55,960,814 0 857,961
Messrs. DiCamillo, Fettig, Kilts, Langbo, Marsh, Smith, and Stern and Ms.
Hempel each have terms of office as directors that continued after the 2001
Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K
a. The following are included herein:
(99) Computation of the ratios of earnings to fixed charges
b. The registrant filed the following Current Reports on Form 8-K for the
quarterly period ended June 30, 2001.
A Current Report on Form 8-K dated April 18, 2001 pursuant to Item 5, "Other
Events," to announce the Company's earnings for the first quarter 2001.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHIRLPOOL CORPORATION
(Registrant)
By /s/ Mark Brown
----------------------------
Mark E. Brown
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
July 19, 2001
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