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 September 30, 2000.
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 September 30, 2000
--------------------- ----------------------------------------
Common stock, par value $1 per share 66,536,283
PAGE 1 OF 20
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
WHIRLPOOL CORPORATION
---------------------
Quarter Ended September 30, 2000
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 PERIOD ENDED SEPTEMBER 30
(millions of dollars except share and dividend data)
Three Months Ended Year-to-Date
------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
NET SALES $2,570 $2,719 $7,746 $7,822
EXPENSES:
Cost of products sold 1,973 2,036 5,873 5,869
Selling and administrative 417 437 1,211 1,296
Intangible amortization 7 8 22 23
------ ------ ------ ------
2,397 2,481 7,106 7,188
------ ------ ------ ------
OPERATING PROFIT 173 238 640 634
OTHER INCOME (EXPENSE):
Interest and sundry income (expense) (11) (27) (24) (176)
Interest expense (49) (41) (132) (126)
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 113 170 484 332
Income taxes 41 65 177 134
------ ------ ------ ------
EARNINGS BEFORE EQUITY EARNINGS
(LOSS) AND MINORITY INTERESTS 72 105 307 198
Equity in earnings (loss) of affiliated companies (3) (2) 3 (4)
Minority interests (2) 4 (9) 40
------ ------ ------ ------
NET EARNINGS $ 67 $ 107 $ 301 $ 234
====== ====== ====== ======
Per share of common stock:
Basic net earnings $ .98 $ 1.42 $ 4.21 $ 3.10
Diluted net earnings $ .98 $ 1.40 $ 4.18 $ 3.06
Cash dividends $ .34 $ .34 $ 1.02 $ 1.02
====== ====== ====== ======
See notes to consolidated condensed financial statements.
3
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION
(millions of dollars)
September 30 December 31
2000 1999
(Unaudited) (Audited)
------------ -----------
ASSETS
Current Assets
Cash and equivalents $ 266 $ 261
Trade receivables, less allowances of
(2000: $108; 1999: 124) 1,590 1,477
Inventories 1,147 1,065
Prepaid expenses and other 238 286
Deferred income taxes 73 88
------- -------
Total Current Assets 3,314 3,177
Other Assets
Investment in affiliated companies 117 112
Intangibles, net 776 795
Deferred income taxes 245 247
Other 384 317
------- -------
1,522 1,471
Property, Plant and Equipment
Land 65 70
Buildings 849 863
Machinery and equipment 4,215 4,249
Accumulated depreciation (3,077) (3,004)
------- -------
2,052 2,178
------- -------
Total Assets $ 6,888 $ 6,826
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 1,152 $ 444
Accounts payable 1,045 1,081
Employee compensation 245 300
Accrued expenses 866 803
Restructuring costs 12 39
Current maturities of long-term debt 33 225
------- -------
Total Current Liabilities 3,353 2,892
Other Liabilities
Deferred income taxes 142 157
Postemployment benefits 621 612
Other liabilities 170 168
Long-term debt 785 714
------- -------
1,718 1,651
Minority Interests 153 416
Stockholders' Equity
Common stock 84 84
Paid-in capital 391 374
Retained earnings 2,495 2,268
Unearned restricted stock (10) (6)
Accumulated other comprehensive income (470) (443)
Treasury stock - at cost (826) (410)
------- -------
Total Stockholders' Equity 1,664 1,867
------- -------
Total Liabilities and
Stockholders' Equity $ 6,888 $ 6,826
======= =======
See notes to consolidated condensed financial statements.
4
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED SEPTEMBER 30
(millions of dollars)
Third Quarter
--------------------------------------------------------
Accumulated Treasury
Other Stock/
Retained Comprehensive Common Paid-in-
Total Earnings Income Stock Capital
------ -------- ------------- ------ --------
Beginning balance $1,784 $2,098 $ (433) $ 83 $ 36
Comprehensive income
Net income 107 107
Foreign currency items, net of tax (23) (23)
------
Comprehensive income 84
======
Common stock issued, net of treasury shares (78) 1 (79)
Dividends declared on common stock (25) (25)
------ ------ ------- ----- -----
Ending balance, September 30, 1999 $1,765 $2,180 $ (456) $ 84 $ (43)
====== ====== ======= ===== =====
Beginning balance $1,853 $2,451 $ (437) $ 84 $ 245
Comprehensive income
Net income 67 67
Foreign currency items, net of tax (33) (33)
------
Comprehensive income 34
======
Common stock issued, net of treasury shares (200) - (200)
Dividends declared on common stock (23) (23)
------ ------ ------- ----- ------
Ending balance, September 30, 2000 $1,664 $2,495 $ (470) $ 84 $(445)
====== ====== ======= ===== =====
Year-to-Date
--------------------------------------------------------
Accumulated Treasury
Other Stock/
Retained Comprehensive Common Paid-in-
Total Earnings Income Stock Capital
------ -------- ------------- ------ --------
Beginning balance $2,001 $2,024 $ (183) $ 83 $ 77
Comprehensive income
Net income 242 242
Foreign currency items, net of tax (273) (273)
------
Comprehensive income (39)
======
Common stock issued, net of treasury shares (119) 1 (120)
Dividends declared on common stock (78) (78)
------ ------ ------- ----- ------
Ending balance, September 30, 1999 $1,765 $2,188 $ (456) $ 84 $ (43)
====== ====== ======= ===== ======
Beginning balance $1,867 $2,268 $ (443) $ 84 (42)
Comprehensive income
Net income 301 301
Foreign currency items, net of tax (27) (27)
------
Comprehensive income 274
======
Common stock issued, net of treasury shares (403) - (403)
Dividends declared on common stock (74) (74)
------ ------ ------- ----- ------
Ending balance, September 30, 2000 $1,664 $2,495 $ (470) $ 84 $(445)
====== ====== ======= ===== ======
See notes to consolidated condensed financial statements.
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR NINE MONTHS ENDED SEPTEMBER 30,
(millions of dollars)
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net earnings $ 301 $ 234
Depreciation 291 292
Deferred income taxes 33 (53)
Equity in net earnings (loss) of affiliated
companies, less dividends received (3) 4
Provision for doubtful accounts 13 37
Amortization of goodwill 22 23
Restructuring charges, net of cash paid (35) (49)
Minority interests 9 (40)
Changes in assets and liabilities,
net of effects of business
acquisitions and dispositions:
Trade receivables (210) (259)
Inventories (135) (79)
Accounts payable 27 28
Other - net (78) 53
----------- -----------
CASH PROVIDED BY
OPERATING ACTIVITIES $ 235 $ 191
----------- -----------
INVESTING ACTIVITIES
Net additions to properties $ (231) $ (281)
Acquisitions of businesses,
less cash acquired (283) -
----------- -----------
CASH USED FOR
INVESTING ACTIVITIES $ (514) $ (281)
----------- -----------
FINANCING ACTIVITIES
Proceeds of short-term borrowings $ 21,450 $ 13,010
Repayments of short-term borrowings (20,623) (13,133)
Proceeds of long-term debt 336 120
Repayments of long-term debt (406) (119)
Dividends (74) (78)
Purchase of treasury stock (416) (167)
Other 17 51
----------- -----------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 284 (316)
----------- -----------
INCREASE / (DECREASE) IN
CASH AND EQUIVALENTS $ 5 $ (406)
Cash and equivalents at beginning of year 261 636
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 266 $ 230
=========== ===========
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 three and nine months ended September 30, 2000 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,
1999.
In June 1998, the Financial Accounting and Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
by Statement No. 138. The company will adopt FAS 133 on January 1, 2001 and
does not currently believe it will have a material impact on the company's
financial position and results of operations.
The company also believes that the application of SAB No. 101, "Revenue
Recognition in Financial Statements," which the company is required to implement
in the fourth quarter of 2000, will not have a material impact on the company's
financial position and results of operations.
7
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following table provides the computation of basic and diluted net earnings
per share:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
(in millions except earnings per share)
Basic:
Average Shares Outstanding 68.7 74.9 71.4 75.4
Diluted:
Average Shares Outstanding 68.7 74.9 71.4 75.4
Treasury Stock Method:
Stock Options (a) 0.3 1.2 0.5 0.9
------ ------ ------ ------
Diluted Average Shares Outstanding 69.0 76.1 71.9 76.3
====== ====== ====== ======
Net Earnings $67.5 $106.6 $300.7 $233.7
====== ====== ====== ======
Basic Net Earnings Per Share $0.98 $ 1.42 $4.21 $3.10
Diluted Net Earnings Per Share $0.98 $ 1.40 $4.18 $3.06
(a) Using the average market price of the stock for the period.
NOTE B--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%.
8
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C--INVENTORIES
Inventories consist of the following:
September 30 December 31
2000 1999
------------ -----------
(millions of dollars)
Finished products $ 997 $ 932
Raw materials and work in process 318 301
------ ------
Total FIFO cost 1,315 1,233
Less excess of FIFO cost over LIFO cost 168 168
------ ------
$1,147 $1,065
====== ======
9
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D--RESTRUCTURING CHARGES
During 1997, the company incurred restructuring costs of $343 million ($244
million cash costs and $99 million noncash costs) to better align the company's
cost structure within the global home-appliance marketplace. Substantially all
of the cash costs have been paid to date and approximately 7,600 positions have
been eliminated.
NOTE E--BRAZILIAN CURRENCY DEVALUATION
The Brazilian real declined from 1.21 to 1.72 per USD from mid-January 1999,
when the Brazilian government changed its foreign exchange policy to a floating
exchange rate, to March 31, 1999. Because the Brazilian operations maintained
significant USD denominated debt on their books at that time, the currency
devaluation resulted in a $146 million pre-tax charge to earnings (Whirlpool's
share after-tax and minority interest was $53 million). Also included in other
income and expense was a $12 million pre-tax mark-to-market charge ($7 million
after-tax) related to short term forward contracts purchased to hedge movement
in Brazil's currency.
NOTE F--CONTINGENCIES
The company is involved in various legal actions arising in the normal course of
business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the outcome of these matters
will not have a material adverse effect on the company's financial position.
The company is a party to certain financial instruments with off-balance-sheet
risk which are entered into in the normal course of business. These instruments
consist of financial guarantees, repurchase agreements and letters of credit.
The company's exposure to credit loss in the event of nonperformance by the
debtors is the contractual amount of the financial instruments. The company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. Collateral or other security is
generally required to support financial instruments with off-balance-sheet risk.
At September 30, 2000, the company had approximately $200 million in receivables
subject to recourse or inventory repurchase provisions and $158 million in
guarantees of customer lines of credit at commercial banks.
10
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE G--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.
Three Months North Latin Other and Total
Ended September 30 America Europe America Asia (Eliminations) Whirlpool
- ---------------------------------------------------------------------------------------------
Sales
2000 $1,569 $ 538 $ 414 $ 81 $(32) $2,570
1999 $1,619 $ 626 $ 432 $ 83 $(41) $2,719
Intangible amortization
2000 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7
1999 $ 1 $ 4 $ - $ 1 $ 2 $ 8
Depreciation
2000 $ 39 $ 18 $ 27 $ 5 $ (1) $ 88
1999 $ 39 $ 21 $ 24 $ 5 $ - $ 89
Operating profit (loss)
2000 $ 143 $ 31 $ 25 $ 5 $(31) $ 173
1999 $ 191 $ 48 $ 35 $ 4 $(40) $ 238
Total assets
2000 $2,526 $1,919 $1,617 $738 $ 88 $6,888
1999 $2,182 $2,028 $1,745 $719 $325 $6,999
Capital expenditures
2000 $ 40 $ 14 $ 22 $ 1 $ (8) $ 69
1999 $ 58 $ 9 $ 40 $ 1 $ 1 $ 109
11
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(millions of dollars)
Nine Months North Latin Other and Total
Ended September 30 America Europe America Asia (Eliminations) Whirlpool
- ---------------------------------------------------------------------------------------------
Sales
2000 $4,714 $1,631 $1,231 $285 $(115) $7,746
1999 $4,638 $1,819 $1,214 $266 $(115) $7,822
Intangible amortization
2000 $ 2 $ 10 $ 2 $ 4 $ 4 $ 22
1999 $ 2 $ 12 $ 2 $ 4 $ 3 $ 23
Depreciation
2000 $ 125 $ 57 $ 81 $ 13 $ 15 $ 291
1999 $ 119 $ 67 $ 75 $ 16 $ 15 $ 292
Operating profit (loss)
2000 $ 542 $ 108 $ 77 $ 14 $(101) $ 640
1999 $ 543 $ 126 $ 78 $ 8 $(121) $ 634
Total assets
2000 $2,526 $1,919 $1,617 $738 $ 88 $6,888
1999 $2,182 $2,028 $1,745 $719 $ 325 $6,999
Capital expenditures
2000 $ 109 $ 45 $ 61 $ 5 $ 11 $ 231
1999 $ 140 $ 48 $ 84 $ 2 $ 7 $ 281
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The statements of earnings summarize operating results for the three and nine
month periods ended September 30, 2000 and 1999. This section of Management's
Discussion highlights the main factors affecting the changes in operating
results.
Net Sales
Net sales were $2.6 billion for the third quarter, down 6% from a year ago, and
$7.7 billion for the first nine months of 2000, down 1% over the comparable 1999
period. Excluding the impact of currency fluctuations around the world, sales
would have decreased 3% for the quarter and increased 2% year-to-date over the
prior year's periods.
North American unit volumes were down 1% in the third quarter and up 5% year-to-
date versus 1999. North American sales were down 3% for the quarter and up 2%
year-to-date versus the comparative 1999 periods, reflecting the impact of
Circuit City exiting the appliance business during the quarter, softening
industry growth and the competitive pricing environment. Whirlpool North
American unit shipments are currently expected to slow during the fourth
quarter, but grow 2% for the full year. European sales in U.S. dollars were down
14% in the third quarter and 10% year-to-date, due primarily to the negative
impact of currency fluctuations and pricing pressures offsetting 3% and 4%
increases in units sold for the quarter and year-to-date periods. Excluding the
impact of currency fluctuations, European sales would have been down 1% for the
quarter and up 1% year-to-date. Whirlpool European unit shipments are currently
expected to increase 4% to 5% for the full year. Latin American unit shipments
decreased 10% for the quarter as market conditions and consumer activity in
Brazil remained soft. Year-to-date unit shipments increased 3% over the
comparable 1999 period due primarily to the impact on economic conditions of the
January 1999 Brazilian devaluation. Full year shipments are currently expected
to be up 7% to 10% over 1999. Net sales were down 4% for the quarterly
comparison, but were up 1% year-to-date. Asia's unit volumes and net sales for
the quarter decreased 2% and 3%, respectively. For the year-to-date comparison,
units shipments increased 8% and net sales increased 7% as economic conditions
in the region remained strong versus 1999.
Gross Margin
Gross margin percentage on products sold to net sales declined by 1.9 percentage
points for the third quarter comparison with 1999 and 0.8 percentage points for
the year-to-date comparison. The current year gross margin percentage included a
pension credit of $6 million for the quarter and $18 million year-to-date caused
by favorable returns of pension fund investments. The effect of these credits
were offset by pricing pressures in North America and Europe, increasing
material costs particularly in Europe and a reclassification within North
America of certain sales allowances from selling, general and administrative
expenses into net sales, to be consistent with the treatment of similar sales
program costs in other areas of the company.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Selling, General and Administrative
Selling, general and administrative expenses, which were reduced by pension
credits of $9 million for the quarter and $27 million year-to-date, as a percent
of net sales increased by 0.1 percentage points for the third quarter comparison
and decreased 1.0 percentage points for the year-to-date comparison. Within
North America, the reclassification of sales allowances and the pension credits
offset additional advertising costs and costs to implement Enterprise Resource
Planning, which is an SAP based enterprise-wide business software. Europe's
expense ratio improved 1.1 percentage points for the quarter due to the
realization of restructuring benefits while Latin America's ratio weakened by
1.6 percentage points for the quarter due to Brazilian tax credits taken in the
1999 third quarter.
Other Income and Expense
Other income (expense) was $8 million favorable quarter-over-quarter and $146
million favorable in the year-to-date comparison. The favorable quarterly
performance was due to a lower amount of foreign exchange losses, primarily in
Brazil, partially offsetting a $23 million increase in net interest expense
related to the company restructuring its Brazilian short term financing and
increased interest expense on long term debt. Net interest expense was also
higher year-to-date related to the same issues, but was offset by $158 million
of charges in the first quarter of 1999 due to the Brazilian currency
devaluation.
Income Taxes
The consolidated effective income tax rate was 37% for the quarter and year-to-
date periods versus rates of 38% and 40% for the year ago periods. The Brazilian
export incentive tax credits (discussed under "Financial Conditions and Other
Matters"), which are non-taxable, and various tax strategies are responsible for
the decreased rates.
Net Earnings
Third quarter net earnings were $67 million or $0.98 per diluted share compared
to $107 million or $1.40 per diluted share in 1999. Year-to-date earnings from
continuing operations were $301 million, or $4.18 per diluted share, versus
earnings of $234 million, or $3.06 per diluted share, for the comparable 1999
period. Excluding the first quarter impact of the Brazilian currency
devaluation, 1999 year-to-date earnings from continuing operations would have
been $294 million, or $3.85 per diluted share.
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the
nine months ended September 30, 2000 and 1999 by classifying transactions into
three major categories: operating, investing and financing activities.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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 nine months of 2000 was $235
million compared to $191 million provided in 1999, reflecting the first quarter
impact in 1999 of the Brazilian currency devaluation, partially offset by higher
current year inventory and other operating assets levels.
Investing Activities
The principal recurring investing activities are property additions. Net
property additions for the nine months ended were $231 million in 2000, down
from $281 million in the 1999 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 B to the accompanying consolidated condensed financial statements
for a discussion of business dispositions and acquisitions.
Financing Activities
Dividends to shareholders totaled $74 million for 2000 versus $78 million in
1999. The company's borrowings, net of short term investments, increased $757
million during the nine month period due primarily to the purchase of additional
shares in its Brazilian subsidiaries, the issuance of additional long term debt
and seasonal working capital needs. The net increase included the issuance on
May 5, 2000 of $325 million of 8.6% debentures maturing in 2010, partially
offset by the maturity on June 15, 2000 of $200 million in 9.5% debentures.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the company remains strong as evidenced by the
September 30, 2000 balance sheet. The company's total assets were $6.9 billion
and stockholders' equity was $1.7 billion versus the December 1999 totals of
$6.8 billion and $1.9 billion, respectively. The decrease in equity from year-
end 1999 is due primarily to $427 million of stock repurchases (discussed below)
offsetting $227 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 extends the previously
authorized $250 million repurchase program which was announced March 1, 1999.
The shares are to be purchased in the open market and through privately
negotiated purchases as the company deems appropriate and the program is
currently expected to be completed over an eighteen-month period. The company
has purchased
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
11.3 million shares at a cost of $594 million through September 30, 2000, of
which 8.7 million shares or $427 million occurred since the beginning of the
year.
The overall debt to invested capital ratio of 52.0% at September 30, 2000 was up
from 44.1% at September 30, 1999 and up from 37.7% at December 31, 1999. The
increase from year-end is due to the increased debt discussed above combined
with lower equity also discussed above. The company's debt continues to be
rated investment grade by Moody's Investors Service Inc., Standard and Poor's,
and Duff & Phelps.
The company uses foreign currency forward contracts and options from time to
time to hedge the price risk associated with firmly committed and forecasted
cross-border payments and receipts related to its ongoing business and
operational financing activities with their impact included in other income
(expense) in the income statement. The company also previously hedged a portion
of its European net assets through the use of cross currency interest rate swaps
that effectively converted USD denominated debt into various European
currencies. Changes in the value of these contracts due to movements in exchange
rates were included in the currency translation component of stockholders'
equity. On May 15, 2000, the company entered into offsetting Euro denominated
currency swaps, effectively locking in an approximate $220 million positive
position on the previously referenced cross currency interest rate swaps. This
positive cash position will be realized as the contracts mature in 2002 and
2004.
The company has external sources of capital available and believes it has
adequate financial resources and liquidity to meet anticipated business needs
and to fund future growth opportunities such as new products, acquisitions and
joint ventures.
In December 1996, Multibras and Embraco, Brazilian subsidiaries, obtained a
favorable decision with respect to additional export incentives in connection
with the Brazilian government's export incentive program (Befiex). In April
1997, Multibras and Embraco submitted tax-credit claims for about 447 million
reais (equivalent to US$440 million as of December 1996) relating to the
favorable decision for exports from July 1988 through December 1996. This
amount is affected by exchange rate fluctuations, offset by accrued interest.
The company recognized $20.0 million in Befiex benefits for the quarter and
$29.6 million year-to-date as a reduction of current excise taxes payable and
therefore an increase in net sales as it has begun to monetize these incentives.
EURO CURRENCY CONVERSION
On January 1, 1999, eleven member nations of the European Union began the
conversion to a common currency, the "Euro." The company has significant
manufacturing operations and sales in these countries. The introduction of the
Euro has eliminated transaction gains and losses within participating countries
and there currently has not been any significant impact on operating results
from the change over to the Euro.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Prices to customers may converge throughout the affected countries, although the
company believes that in recent years competitive pressures have to some extent
eliminated price differences solely caused by the lack of price transparency.
Internal computer systems and business processes will need to be changed to
accommodate the new currency. The company has established a cross-functional
team, guided by an executive-level steering committee, to address these issues.
It currently plans to make changes in two phases. In the first phase, from 1999
to 2001, the company will have the capability to bill customers and pay
suppliers in Euro, but will continue to maintain its accounts in the national
currencies. In 2002, all remaining operational and financial systems will be
converted to the Euro. The total cost for the Euro currency conversion is
currently expected to be approximately $3 million.
Operating efficiencies should ultimately result from reduction of the complexity
of doing business in multiple currencies. No estimate of these efficiencies has
been made.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Management's
Discussion and Analysis and other sections of this report may contain forward-
looking statements that reflect our current views with respect to future events
and financial performance.
Certain statements contained in this quarterly report and other written and oral
statements made from time to time by the company do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast," and similar words or
expressions. The company's forward-looking statements generally relate to its
growth strategies, financial results, product development, and sales efforts.
These forward-looking statements should be considered with the understanding
that such statements involve a variety of risks and uncertainties, known and
unknown, and may be affected by inaccurate assumptions. Consequently, no
forward-looking statement can be guaranteed and actual results may vary
materially.
Many factors could cause actual results to differ materially from the Company's
forward-looking statements. Among these factors are: (1) competitive pressure
to reduce prices; (2) the ability to gain or maintain market share in an
intensely competitive global market; (3) the success of our global strategy to
develop brand differentiation and brand loyalty; (4) our ability to control
operating and selling costs and to maintain profit margins during industry
downturns; (5) the success of our Brazilian businesses operating in a
challenging and volatile environment; (6) continuation of our strong
relationship with Sears, Roebuck and Co. in North America which accounted for
approximately 18% of our consolidated net sales of $10.5 billion in 1999; (7)
currency exchange rate fluctuations in Latin America, Europe, and Asia that
could affect our
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
consolidated balance sheet and income statement; and (8) social, economic, and
political volatility in developing markets.
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 September 30, 2000
Item 6. Exhibits and Reports on Form 8-K
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a. The following are included herein:
(27) Financial Data Schedule
(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 September 30, 2000.
A Current Report on Form 8-K dated July 17, 2000 pursuant to Item 5, "Other
Events," to announce the Company's earnings for the second quarter 2000.
A Current Report on Form 8-K dated August 2, 2000 pursuant to Item 5, "Other
Events," to announce the Company commenced mailing a summary of the annual
report for the Whirlpool 401(k) Plan for the 1999 plan year that ended December
31, 1999 to members of the Plan.
A Current Report on Form 8-K dated August 30, 2000 pursuant to Item 5, "Other
Events," to announce the Company's third quarter and full year earnings would be
negatively impacted by Circuit City exiting the appliance business. Also the
company announced revised estimates of the third quarter and fourth quarter 2000
earnings and full year 2001 earnings.
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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 E. Brown
----------------------------
Mark E. Brown
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
November 10, 2000
20