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, 2001
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: 641-792-7000
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 September 30, 2001:
Common Stock, $1.25 par value - 76,761,248
------------------------------------------
1
MAYTAG CORPORATION
Quarterly Report on Form 10-Q
Quarter Ended September 30, 2001
INDEX
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income ..............................................................................3
Consolidated Balance Sheets ....................................................................................4
Consolidated Statements of Cash Flows ..........................................................................6
Notes to Consolidated Financial Statements .....................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .........................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....................................................19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..............................................................................20
Signatures ....................................................................................................21
2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
MAYTAG CORPORATION
Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------------------------------------------------------
In thousands except per share data 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 1,227,089 $ 1,056,429 $ 3,372,609 $ 3,256,197
Cost of sales 956,857 780,142 2,597,156 2,359,989
------------------ ------------------- ------------------- ------------------
Gross profit 270,232 276,287 775,453 896,208
Selling, general and administrative expenses 194,128 164,713 563,605 498,896
------------------ ------------------- ------------------- ------------------
Operating income 76,104 111,574 211,848 397,312
Interest expense (19,154) (17,397) (49,293) (47,464)
Loss on pending business disposition (59,500) - (59,500) -
Other - net (2,966) (1,581) (4,128) (4,230)
------------------ ------------------- ------------------- ------------------
Income (loss) before income taxes, minority
interest, extraordinary item and cumulative effect
of accounting change (5,516) 92,596 98,927 345,618
Income taxes 20,479 30,797 15,034 123,150
------------------ ------------------- ------------------- ------------------
Income (loss) before minority interest,
extraordinary item and cumulative effect of
accounting change (25,995) 61,799 83,893 222,468
Minority interest 1,495 (2,266) (6,581) (11,347)
------------------ ------------------- ------------------- ------------------
Income (loss) before extraordinary item and
cumulative effect of accounting change (24,500) 59,533 77,312 211,121
Extraordinary item-loss on early retirement of debt (5,171) - (5,171) -
Cumulative effect of accounting change - - (3,727) -
------------------ ------------------- ------------------- ------------------
Net income (loss) $ (29,671) $ 59,533 $ 68,414 $ 211,121
================== =================== =================== ==================
Basic earnings (loss) per common share:
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item and
cumulative effect of accounting change $ (0.32) $ 0.77 $ 1.01 $ 2.70
Extraordinary item-loss on early
retirement of debt (0.07) - (0.07) -
Cumulative effect of accounting change - - (0.05) -
Net income (loss) $ (0.39) $ 0.77 $ 0.90 $ 2.70
Diluted earnings (loss) per common share:
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item and
cumulative effect of accounting change $ (0.32) $ 0.74 $ 0.98 $ 2.55
Extraordinary item-loss on early
retirement of debt (0.07) - (0.07) -
Cumulative effect of accounting change - - 0.76 -
Net income (loss) $ (0.38) $ 0.74 $ 1.68 $ 2.55
Dividends per common share $ 0.18 $ 0.18 $ 0.54 $ 0.54
See notes to consolidated financial statements.
3
MAYTAG CORPORATION
Consolidated Balance Sheets
September 30 December 31
In thousands except share data 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 18,142 $ 27,198
Accounts receivable 814,454 538,403
Inventories 530,876 408,550
Deferred income taxes 62,522 45,616
Other current assets 19,376 56,792
---------- ----------
Total currents assets 1,445,370 1,076,559
Noncurrent assets
- ---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 146,731 110,393
Prepaid pension cost 2,883 1,526
Intangible pension asset 49,889 49,889
Other intangibles 379,685 414,981
Other noncurrent assets 64,364 45,381
---------- ----------
Total noncurrent assets 643,552 622,170
Property, plant and equipment
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 2,454,781 2,192,778
Less allowance for depreciation 1,325,380 1,222,583
---------- ----------
Total property, plant and equipment 1,129,401 970,195
---------- ----------
Total assets $3,218,323 $2,668,924
========== ==========
See notes to consolidated financial statements.
4
MAYTAG CORPORATION
Consolidated Balance Sheets-Continued
September 30 December 31
In thousands except share data 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareowners' Equity
Current liabilities
- --------------------------------------------------------------------------------------------------------------------------
Notes payable $ 488,314 $ 358,430
Accounts payable 388,409 285,187
Compensation to employees 79,457 59,444
Accrued liabilities 328,561 204,144
Income taxes payable 20,525 -
Current portion of long-term debt 135,660 64,482
----------- -----------
Total current liabilities 1,440,926 971,687
Noncurrent liabilities
- --------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 23,287 21,953
Long-term debt, less current portion 738,952 451,336
Postretirement benefit liability 494,000 480,422
Accrued pension cost 13,684 50,265
Other noncurrent liabilities 117,688 106,522
----------- -----------
Total noncurrent liabilities 1,387,611 1,110,498
Company obligated mandatorily redeemable preferred capital securities
of subsidiary trust holding solely the Company's debentures - 200,000
Minority interests 159,091 165,063
Temporary equity: put options - 200,000
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 452,358 285,924
Retained earnings 1,198,534 1,171,364
Cost of common stock in treasury
(2001 - 40,389,345 shares; 2000 - 40,910,458 shares) (1,531,675) (1,539,163)
Employee stock plans (22,965) (31,487)
Accumulated other comprehensive loss (11,995) (11,400)
----------- -----------
Total shareowners' equity 230,695 21,676
----------- -----------
Total liabilities and shareowners' equity $ 3,218,323 $ 2,668,924
============ ============
See notes to consolidated financial statements.
5
MAYTAG CORPORATION
Consolidated Statements of Cash Flows
Nine Months Ended
September 30
----------------------------------------------------
In thousands 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Operating activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 68,414 $ 211,121
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change 3,727 -
Extraordinary item-loss on early retirement of debt 5,171 -
Loss on pending business disposition 59,500 -
Minority interest 6,581 11,347
Depreciation 118,324 108,806
Amortization 10,772 10,754
Deferred income taxes (20,135) (9,276)
Changes in working capital items exclusive of business acquisitions:
Accounts receivable (149,863) (133,958)
Inventories 11,495 (17,373)
Other current assets 38,865 21,313
Other current liabilities 120,019 (3,881)
Pension assets and liabilities (36,454) (11,919)
Postretirement benefit liability 10,441 10,817
Special charges (10,250) -
Other - net (4,460) (10,419)
--------- ---------
Net cash provided by operating activities 232,147 187,332
Investing activities
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures (104,709) (116,010)
Investment in new acquisition, less cash acquired (313,489) -
--------- ---------
Total investing activities (418,198) (116,010)
Financing activities
- ------------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of notes payable 138,206 298,200
Repayment of notes payable (8,322) (846)
Proceeds from issuance of long-term debt 447,647 178,198
Repayment of long-term debt (288,853) (169,994)
Stock repurchases (27,672) (311,788)
Forward stock purchase amendment - (9,595)
Debt repurchase premiums (5,171) -
Stock options exercised and other common stock transactions (23,159) (2,615)
Dividends on common stock (41,244) (42,152)
Dividends on minority interests (13,812) (15,319)
--------- ---------
Total financing activities 177,620 (75,911)
Effect of exchange rates on cash (625) (1,141)
--------- ---------
Decrease in cash and cash equivalents (9,056) (5,730)
Cash and cash equivalents at beginning of period 27,198 28,815
--------- ---------
Cash and cash equivalents at end of period $ 18,142 $ 23,085
========== ==========
See notes to consolidated financial statements.
6
MAYTAG CORPORATION
Notes to Consolidated Financial Statements
September 30, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited 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. Operating results for the
nine-month period ended September 30, 2001 are not necessarily indicative of the
results that are expected for the year ending December 31, 2001. 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, 2000.
NOTE B - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income/(loss) and its components, net of related tax, are as
follows (in thousands):
Three Months Ended September 30 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (29,671) $ 59,533
Unrealized losses on securities (73) (900)
Foreign currency translation (1,343) (118)
--------- ---------
Comprehensive income (loss) $ (31,087) $ 58,515
========= =========
Nine Months Ended September 30 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 68,414 $ 211,121
Unrealized gains (losses) on securities 325 (2,788)
Foreign currency translation (920) (1,360)
--------- ---------
Comprehensive income $ 67,819 $ 206,973
========= =========
The components of accumulated other comprehensive loss, net of related tax are
as follows:
September 30 December 31
In thousands 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum pension liability adjustment $ (959) $ (959)
Unrealized gain on securities 325 -
Foreign currency translation (11,361) (10,441)
--------- ---------
Accumulated other comprehensive loss $ (11,995) $ (11,400)
========= =========
7
NOTE C - INVENTORIES
Inventories consisted of the following:
September 30 December 31
In thousands 2001 2000
- ------------------------------------------------------------------------------------------------------
Raw materials $ 87,840 $ 62,556
Work in process 91,379 67,535
Finished products 431,601 359,376
Supplies 9,630 7,451
-------- --------
Total FIFO cost 620,450 496,918
Less excess of FIFO cost over LIFO 89,574 88,368
-------- --------
Inventories $530,876 $408,550
======== ========
NOTE D - EARNINGS (LOSS) PER SHARE
The following table sets forth the components for computing basic and diluted
earnings (loss) per share:
Three months ended Nine months ended
September 30 September 30
-------------------------------------------------
In thousands except per share data 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator for basic and diluted earnings (loss) per
share-net income (loss) before extraordinary item and
cumulative effect of accounting change $ (24,500) $ 59,533 $ 77,312 $211,121
============ ========= ========== ========
Numerator for basic and diluted earnings (loss) per share- $ (5,171) $ - $ (5,171) $ -
extraordinary item-loss on early retirement of debt ============ ========= ========== ========
Numerator for basic earnings (loss) per share-
cumulative effect of accounting change $ - $ - $ (3,727) $ -
Adjustment for put options marked to market - - 63,092 -
------------ --------- ---------- --------
Numerator for diluted earnings (loss) per share-
cumulative effect of accounting change $ - $ - $ 59,365 $ -
============ ========= ========== ========
Numerator for basic earnings (loss) per share-
net income (loss) $ (29,671) $ 59,533 $ 68,414 $211,121
Adjustment for put options marked to market - - 63,092 -
------------ --------- ---------- --------
Numerator for diluted earnings (loss) per share-
net income (loss) $ (29,671) $ 59,533 $ 131,506 $211,121
============ ========= ========== ========
Denominator for basic earnings (loss)
per share-weighted-average shares 76,544 77,027 76,297 78,331
Effect of dilutive securities:
Stock option plans and restricted stock awards 788 1,014 770 996
Put options - 2,609 1,440 3,415
------------ --------- ---------- --------
Potential dilutive common shares 788 3,623 2,210 4,411
------------ --------- ---------- --------
Denominator for diluted earnings (loss) per
share-weighted- average shares 77,332 80,650 78,507 82,742
============ ========= ========== ========
8
NOTE E - CONTINGENCIES
Maytag has contingent liabilities arising in the normal course of business,
including: guarantees, repurchase agreements, pending litigation, environmental
remediation, taxes and other claims which are not considered to be significant
in relation to Maytag's consolidated financial position.
NOTE F - SEGMENT REPORTING
Maytag has three reportable segments: home appliances, commercial appliances and
international appliances. Maytag's home appliances segment manufactures major
appliances (laundry products, dishwashers, refrigerators, cooking appliances)
and floor care products. These products are sold primarily to major national
retailers and independent retail dealers in North America and targeted
international markets.
Maytag's commercial appliances segment manufactures vending and foodservice
equipment. These products are sold primarily to distributors, soft drink
bottlers, restaurant chains and dealers in North America and targeted
international markets.
The international appliances segment consists of Maytag's 50.5 percent owned
joint venture in China, Rongshida-Maytag, which manufactures laundry products
and refrigerators. These products are sold primarily to department stores and
distributors in China.
Maytag's reportable segments are distinguished by the nature of products
manufactured and sold and types of customers. Maytag's home appliances segment
has been further defined based on distinct geographical locations.
Financial information for Maytag's reportable segments consisted of the
following:
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------------------------
In thousands 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales
Home appliances $ 1,111,168 $ 931,283 $ 2,997,226 $ 2,833,547
Commercial appliances 92,873 105,282 290,141 341,689
International appliances 23,048 19,864 85,242 80,961
----------- ----------- ----------- -----------
Consolidated total $ 1,227,089 $ 1,056,429 $ 3,372,609 $ 3,256,197
=========== =========== =========== ===========
Operating income
Home appliances $ 85,249 $ 120,303 $ 240,466 $ 409,574
Commerical appliances 4,671 5,563 10,082 27,073
International appliances (5,282) (5,117) (8,910) (5,690)
----------- ----------- ----------- -----------
Total for reportable segments 84,638 120,749 241,638 430,957
Corporate (8,534) (9,175) (29,790) (33,645)
------------ ----------- ----------- -----------
Consolidated total $ 76,104 $ 111,574 $ 211,848 $ 397,312
========== =========== =========== ===========
9
The reconciliation of segment profit to consolidated income (loss) before income
taxes, minority interest, extraordinary item and cumulative effect of accounting
change consisted of the following:
Three Months Ended Nine Months Ended
September 30 September 30
-----------------------------------------------------------
In thousands 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating income for
reportable segments $ 84,638 $ 120,749 $ 241,638 $ 430,957
Corporate (8,534) (9,175) (29,790) (33,645)
Interest expense (19,154) (17,397) (49,293) (47,464)
Loss on pending business disposition (59,500) - (59,500) -
Other - net (2,966) (1,581) (4,128) (4,230)
--------- --------- --------- ---------
Consolidated income (loss) before income taxes,
minority interest, extraordinary item and
cumulative effect of accounting change $ (5,516) $ 92,596 $ 98,927 $ 345,618
========== ========== ========== ==========
Asset information for Maytag's reportable segments consisted of the following:
September 30 December 31
In thousands 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets
Home appliances $ 2,413,794 $ 1,793,626
Commercial appliances 202,665 268,314
International appliances 238,383 259,255
------------------ ------------------
Total for reportable segments 2,854,842 2,321,195
Corporate 363,481 347,729
------------------ ------------------
Consolidated total $ 3,218,323 $ 2,668,924
================== ==================
NOTE G - MINORITY INTEREST
The (income)/loss attributable to the noncontrolling interest reflected in
Minority interest in the Consolidated Statements of Income consisted of the
following:
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------------------- ----------------------------------------
In thousands 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------ ----------------------------------------
Rongshida-Maytag $ 3,369 $ 2,972 $ 6,010 $ 3,981
Maytag Trusts - (3,361) (6,963) (9,703)
Anvil Technologies (1,874) (1,877) (5,628) (5,625)
---------------------------------------- ----------------------------------------
Minority interests $ 1,495 $ (2,266) $ (6,581) $ (11,347)
======================================== ========================================
10
The outside investors' noncontrolling interest reflected in Minority interest in
the Consolidated Balance Sheets consisted of the following:
September 30 December 31
In thousands 2001 2000
- -------------------------------------------------------------------------------
Rongshida-Maytag $ 58,956 $ 64,966
Anvil Technologies 100,135 100,097
-------- --------
Minority interests $159,091 $165,063
======== ========
NOTE H - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
As of January 1, 2001, Maytag adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting For Derivative Instruments and
Hedging Activities," as amended in June 2000 by Statement of Financial
Accounting Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which require companies to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure such instruments at fair value. Derivatives that are not designated
as hedges must be adjusted to fair value through income. If the derivative is
designated as a hedge, depending on the nature of the hedge, changes in the fair
value of the derivatives will either be offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The adoption of SFAS No.133 and No.138 did not result in any
significant adjustment to the Company's earnings.
Maytag uses interest rate swaps to adjust the proportion of total debt that is
subject to variable and fixed interest rates. To manage associated cost of this
debt in an efficient manner, Maytag enters into interest rate swaps, in which
Maytag agrees to exchange, at specified intervals, the difference between
interest amounts calculated by reference to an agreed upon notional principal
amount. At September 30, 2001, Maytag had interest rate swaps with a fair market
value of approximately $10.6 million designated as fair value hedges of
underlying fixed rate debt obligations. The mark-to-market values of both the
fair value hedge instruments and the underlying debt obligations are recorded as
Other noncurrent assets and Long-term debt on the Consolidated Balance Sheets,
respectively, with equal and offsetting unrealized gains and losses in the
interest expense component of the Consolidated Statements of Income. Maytag has
analyzed its interest rate swaps and determined there is no ineffectiveness, and
as a result, there is no current impact to earnings.
As of June 30, 2001, Maytag adopted the Financial Accounting Standards Board's
(FASB) Emerging Issues Task Force (EITF) issue No.00-19, "Determination of
Whether Share Settlement is Within the Control of the Issuer for Purposes of
Applying EITF Issue No.96-13." As Maytag has determined that certain contract
features limit its ability to determine a net share settlement, EITF 00-19
required Maytag to record the fair market value of the put options as
liabilities and the fair market value of the purchase contracts as assets on
June 30, 2001 related to the Maytag Trusts. The $67 million fair market value of
the put options was reflected on the Consolidated Balance Sheets as $34 million
"Accrued liabilities" and $33 million "Other noncurrent liabilities." The $58
million fair market value of the purchase contracts was reflected on the
Consolidated Balance Sheets as $31 million "Other current assets" and $27
million "Other noncurrent assets." Maytag recognized a cumulative effect of
accounting change loss of $3.7 million related to the establishment of the
assets and liabilities related to the purchase contracts and put options.
11
The $200 million maximum potential obligation related to the Maytag Trust put
options was established at the end of 2000 as temporary equity with a reduction
in paid-in-capital. As the put options as of June 30, 2001 were reflected as
liabilities, the temporary equity was transferred back into paid-in capital.
The outside investor's noncontrolling interest in the Maytag Trust of $200
million previously reflected on the Consolidated Balance Sheets as "Company
obligated manditorily redeemable preferred capital securities of subsidiary
trust holding solely Maytag's debentures" was reflected as $100 million "Current
portion of long-term debt" and $100 million "Long-term debt, less current
portion." The income attributable to such noncontrolling interest previously
reflected as "Minority interests" in the "Consolidated Statements of Income" as
of June 30, 2001 was reflected as "Interest expense" in the third quarter of
2001. In September 2001, Maytag made an early retirement of this long-term debt
at an after-tax cost of $5.2 million that was reflected as an extraordinary item
on the "Consolidated Statements of Income." Maytag also cash settled the put
options and purchase contracts associated with the Maytag Trust and these
instruments are no longer reflected on the Consolidated Balance Sheet as of
September 30, 2001.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets," effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangibles assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements.
Maytag will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $10 million ($0.13 per share) for the year 2002,
that includes the impact of the pending Blodgett disposition. During 2002,
Maytag will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002. It has not determined
what the effect of these tests will be on the earnings and financial position of
Maytag.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," effective for fiscal years beginning after
December 15, 2001 with early adoption encouraged. It establishes a single
accounting method for long-lived assets to be disposed of, including those that
are a part of discontinued operations, and broadens the presentation
requirements of discontinued operations to include components of an entity
disposed of rather than a segment of a business. Maytag has not yet determined
what impact the adoption will have on earnings and financial position
presentation, nor whether Maytag will choose to adopt SFAS No. 144 before 2002.
NOTE I - BUSINESS ACQUISITION
On August 1, 2001, Maytag completed its acquisition of the major appliances
business of Amana Appliances ("Amana") for $313.5 million in cash, subject to
adjustments, and delivered 500,000 shares of common stock with a market value of
$16.5 million for a total purchase price of $330 million. The $313.5 million in
cash included approximately $4.5 million in transaction costs directly related
to the acquisition as well as net cash acquired of $4.7 million. The purchase
contract contains a purchase price adjustment mechanism that could change the
ultimate amount paid for Amana. A determination of the adjustment has not yet
been finalized. The annual sales of the Amana business is approximately $900
million. Maytag accounted for the acquisition as a purchase and the acquired
operations are included in the consolidated financial statements as a part of
the home appliances segment beginning August 1, 2001. The purchase price was
lower than the estimated fair values of the net assets acquired, and Maytag
allocated the "negative goodwill" to certain non-current assets reducing their
estimated fair values.
12
Assuming the purchase of Amana had been effective as of January 1, 2000, the
proforma consolidated net sales would have been $1.3 billion and $3.9 billion
for the three and nine month periods ended September 30, 2001, respectively. The
proforma consolidated net sales would have been $1.3 billion and $3.9 billion
for the three and nine month periods ended September 30, 2000, respectively.
Assuming the purchase had been effective as of January 1, 2000, the proforma
impact on income (loss) before extraordinary items and cumulative effect of
accounting change, net income and earnings per share would not have been
significant for the periods presented.
NOTE J - BUSINESS DISPOSITION
On August 31, 2001 Maytag announced that it had entered into an agreement for
the sale of its Blodgett commercial cooking products business. An estimated loss
of $59.5 million was recognized in the third quarter of 2001 to reduce the
carrying amount of the Blodgett net assets to their net realizable value. The
sale is not expected to be finalized by mid-November as originally anticipated.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Comparison of 2001 with 2000
Maytag Corporation ("Maytag") has three reportable segments: home
appliances, commercial appliances and international appliances. (See discussion
and financial information about Maytag's reportable segments in "Note F -
Segment Reporting" section of the Notes to Consolidated Financial Statements.)
The 2001 results included the recently acquired major appliances business of
Amana Appliances ("Amana") effective August 1, 2001. (See discussion in
"Business Acquisition" section of this Management's Discussion and Analysis.)
Net Sales: Consolidated net sales were $1.227 billion in the third quarter
of 2001, an increase of 16 percent compared to the same period in 2000.
Excluding the impact of the Amana acquisition, third quarter 2001 net sales
increased two percent over 2000. For the first nine months of 2001, consolidated
net sales were $3.373 billion, an increase of four percent from the same period
in 2000. Excluding the impact of the Amana acquisition, the first nine months of
2001 net sales decreased one percent over 2000.
Home appliances net sales, which include major appliances, floor care
products and international export sales, were 19 percent higher in the third
quarter of 2001 compared to the same period in 2000. The net sales increase was
due primarily to the impact of the Amana acquisition as well as record sales
levels being set in major appliances due to record industry units shipped. The
increase in major appliances net sales was partially offset by sales decreases
in floor care products and export sales. The decrease in sales of floor care
products was due to the continued erosion of Maytag's unit volume and market
share. Third quarter industry growth was attributable to increases in unit
volume of lower price product while Maytag's strategy is focused on premium
priced products. The decline from the prior year was also attributable to the
introduction of Maytag's new bagless floor care products in the third quarter of
2000.
For the first nine months of 2001, net sales for home appliances increased
six percent compared to the same period in 2000 primarily due to the impact of
the Amana acquisition. Excluding Amana, home appliances sales were up slightly
with increases in major appliances partially offset by decreases in floor care
products and export sales. The increase in major appliances sales was achieved
despite a decline in industry sales for the first nine months of 2001. The
decrease in sales of floor care products was due to a flat industry compared to
prior year combined with the erosion of Maytag's unit share. Maytag expects the
fourth quarter major appliances industry shipments to be up over the prior year.
Union workers at the Amana refrigeration plant approved a three-year contract
November 11, 2001, ending an eight-week strike that is expected to adversely
impact fourth quarter results.
Commercial appliances net sales, which include vending and foodservice
equipment, decreased 12 percent in the third quarter of 2001 compared to the
same period in 2000. For the first nine months of 2001, net sales of commercial
appliances decreased 15 percent from the same period in 2000. The net sales
decreases were due primarily to the continued weak vending equipment industry
and a decline in foodservice sales. The vending equipment industry decline is
expected to continue through the remainder of 2001. In the third quarter of
2001, Maytag announced the agreement to sell its Blodgett commercial cooking
products business. (See discussion in the "Loss on Pending Business Disposition"
section of this Management's Discussion and Analysis.)
Net sales of international appliances, which consist of Maytag's 50.5
percent owned joint venture in China ("Rongshida-Maytag"), increased 16 percent
in the third quarter of 2001 compared to the same period in 2000. For the first
nine months of 2001, net sales of international appliances increased 5 percent
compared to the same period in 2000.
Gross Profit: Consolidated gross profit as a percent of sales decreased to 22
percent in the third quarter of 2001 from 26.2 percent of sales in the same
period in 2000. Consolidated gross profit as a percent of sales decreased to 23
percent for the first nine months of 2001 from 27.5 percent of sales in the same
period in 2000. The decrease in gross margin was due primarily to weaker product
pricing, product mix and higher
14
distribution and warranty costs partially offset by lower raw material costs.
Maytag expects raw material prices for the remainder of 2001 to be lower
compared to 2000.
Selling, General and Administrative Expenses: Consolidated selling, general and
administrative expenses were 15.8 percent of sales in the third quarter of 2001
compared to 15.6 percent of sales in the same period in 2000. Consolidated
selling, general and administrative expenses were 16.7 percent of sales for the
first nine months of 2001 compared to 15.3 percent of sales in the same period
in 2000. The increases were due primarily to higher sales promotion and
advertising expenses. Maytag will recognize a charge in the fourth quarter
related to the elimination of approximately 300 salaried positions.
Operating Income: Consolidated operating income for the third quarter of 2001
decreased 32 percent to $76 million, or 6.2 percent of sales, compared to $112
million, or 10.6 percent of sales, in the same period in 2000. Consolidated
operating income for the first nine months of 2001 decreased 47 percent to $212
million, or 6.3 percent of sales, compared to $397 million, or 12.2 percent of
sales, in the same period in 2000. The decreases in operating margin for the
third quarter and first nine months were due primarily to the decreases in gross
profit margin and increased selling, general and administrative expenses as a
percent of sales discussed above.
Home appliances operating income decreased 29 percent in the third quarter
of 2001 compared to 2000. Operating margin for the third quarter of 2001 was 7.7
percent of sales compared to 12.9 percent of sales in the same period in 2000.
Home appliances operating income decreased 41 percent in the first nine months
of 2001 compared to 2000. Operating margin for the first nine months of 2001 was
8 percent of sales compared to 14.5 percent of sales in the same period in 2000.
The decreases in operating margin for the third quarter and first nine months
were due primarily to the decreases in gross profit margins and increased
selling, general and administrative expenses as a percent of sales discussed
above.
Commercial appliances operating income decreased 16 percent in the third
quarter of 2001 compared to the same period in 2000. Operating margin for the
third quarter of 2001 was 5 percent of sales compared to 5.3 percent of sales in
the same period in 2000. Commercial appliances operating income decreased 63
percent in the first nine months of 2001 compared to the same period in 2000.
Operating margin for the first nine months of 2001 was 3.5 percent of sales
compared to 7.9 percent of sales in the same period in 2000. The decreases in
operating margin for the third quarter and first nine months were due primarily
to the decline in net sales discussed above.
International appliances reported an operating loss of $5.3 million in the
third quarter of 2001 compared to an operating loss of $5.1 million in the same
period in 2000. International appliances reported an operating loss of $8.9
million in the first nine months of 2001 compared to an operating loss of $5.7
million in the same period in 2000. The unfavorable comparisons to 2000 were due
primarily to the competitive environment in China. Maytag is evaluating
strategic options for its China joint venture Rongshida-Maytag.
Interest Expense: Interest expense for the third quarter and first nine months
of 2001 was ten and four percent higher than the same periods in 2000,
respectively. The increases resulted from additional debt issued for the
acquisition of Amana and the classification of the financing costs related to
the Maytag Trusts as interest expense instead of minority interest effective
June 2001. These increases were partially offset by lower average borrowing
rates. (See "Note H-Impact of Recently Issued Accounting Standards" of Notes to
Consolidated Financial Statements for further discussion on the Maytag Trusts.)
Loss on Pending Business Disposition: On August 31, 2001 Maytag announced that
it had entered into an agreement for the sale of its Blodgett commercial cooking
products business. An estimated loss of $59.5 million was recognized in the
third quarter of 2001 to reduce the carrying amount of the Blodgett net assets
to their net realizable value. The sale is not expected to be finalized by
mid-November as originally anticipated.
Income Taxes: The 2001 third quarter effective tax rate, excluding the loss on
pending business disposition, was 37.9 percent compared to 33.3 percent for the
same period in 2000. For the first nine months of 2001, the effective tax rate,
excluding a $42 million one-time tax benefit recognized in the first quarter and
the loss on pending business disposition, was 36.0 percent compared to 35.6
percent for the same period in 2000. The increase in the effective tax rates
were due primarily to increased losses from the China joint venture that realize
no tax benefit and a benefit
15
from a capital loss carry-forward that was recognized in the third quarter of
2000. Maytag expects the effective tax rate for the remainder of 2001 to be
approximately 36 percent.
Minority Interest: Minority interest decreased by $3.8 million and $4.8 million
from the third quarter and first nine months of 2000, respectively, due
primarily to the classification of the financing costs related to the Maytag
Trusts as interest expense instead of minority interest, effective June 2001,
and the increased operating losses for Rongshida-Maytag. (See "Note H-Impact of
Recently Issued Accounting Standards" of Notes to Consolidated Financial
Statements for further discussion on the Maytag Trusts.)
Cumulative Effect of Accounting Change: The first nine months of 2001 included a
cumulative effect of accounting change of $3.7 million due to the implementation
of accounting rules effective June 30, 2001. (See "Note H-Impact of Recently
Issued Accounting Standards" of Notes to Consolidated Financial Statements for
further discussion on the Maytag Trusts.)
Extraordinary Item-Loss on Early Retirement of Debt: In the third quarter of
2001, Maytag recognized an after-tax loss on early retirement of debt of $5.2
million related to the cost of refinancing the Maytag Trusts. (See "Note
H-Impact of Recently Issued Accounting Standards" of Notes to Consolidated
Financial Statements for further discussion on the Maytag Trusts.)
Net Income (Loss): The following table summarizes the impact of the one-time tax
benefit, loss on pending business disposition, extraordinary item and cumulative
effect of accounting change on reported net income and diluted earnings per
share. The decrease in net income in the third quarter of 2001 compared to the
same period in 2000, excluding the loss on pending business disposition and
extraordinary item, was due primarily to the decrease in operating income. The
decrease in net income in the first nine months of 2001 compared to the same
period in 2000, excluding the one-time tax benefit, loss on pending business
disposition, extraordinary item and cumulative effect of accounting change, was
due primarily to the decrease in operating income.
The decrease in diluted earnings per share in the third quarter of 2001 and
the first nine months of 2001 compared to the same periods in 2000, excluding
the one-time tax benefit, loss on pending business disposition, extraordinary
item and the cumulative effect of accounting change, was also due primarily to
the decrease in operating income partially offset by lower diluted average
shares outstanding.
16
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ----------------------------------
Net income (in millions) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding tax benefit, loss on pending
business disposition, extraordinary item
and effect of accounting change $ 35.0 $ 59.5 $ 94.8 $ 211.1
Tax benefit - - 42.0 -
Loss on pending business disposition (59.5) - (59.5) -
Extraordinary item-loss on early
retirement of debt (5.2) - (5.2) -
Cumulative effect of accounting change - - (3.7) -
--------------- --------------- ---------------- ---------------
Reported $ (29.7) $ 59.5 $ 68.4 $ 211.1
=============== =============== ================ ===============
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ----------------------------------
Diluted earnings per common share 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding tax benefit, loss on pending
business disposition, extraordinary item
and effect of accounting change $ 0.45 $ 0.74 $ 1.21 $ 2.55
Tax benefit - - 0.53 -
Loss on pending business disposition (0.77) - (0.76) -
Extraordinary item-loss on early
retirement of debt (0.07) - (0.07) -
Cumulative effect of accounting change - - 0.76 -
--------------- --------------- ---------------- ---------------
Reported $ (0.38) $ 0.74 $ 1.68 $ 2.55
=============== =============== ================ ===============
Liquidity and Capital Resources
Maytag's primary sources of liquidity are cash provided by operating activities
and borrowings. Detailed information on Maytag's cash flows is presented in the
Consolidated Statements of Cash Flows.
Net Cash Provided by Operating Activities: Cash flow provided by operating
activities consists primarily of net income adjusted for certain non-cash items,
changes in working capital items, changes in pension assets and liabilities and
postretirement benefits. Non-cash items include depreciation and amortization
and deferred income taxes. Working capital items consist primarily of accounts
receivable, inventories, other current assets and other current liabilities.
Net cash provided by operating activities for the first nine months of
2001 increased $45 million compared to the same period in 2000 primarily due to
a decrease in working capital requirements and favorable timing benefits
associated with certain expense items in the first nine months of 2001 compared
to the same period in 2000.
A portion of Maytag's accounts receivable is concentrated among major
national retailers. A significant loss of business with any of these retailers
could have an adverse impact on Maytag's ongoing operations.
Total Investing Activities: Maytag's capital expenditures represent continual
investments in its businesses for new product designs, cost reduction programs,
replacement of equipment, capacity expansion and government mandated product
requirements and similar items.
17
Capital expenditures in the first nine months of 2001 were $105 million
compared to $116 million in 2000. Maytag plans to invest approximately $150-$160
million in capital expenditures in 2001. Effective August 2001, Maytag acquired
the appliance business of Amana for $313.5 million of cash and $16 million of
common stock. (See discussion in "Business Acquisition" section in the
Management's Discussion and Analysis.)
Total Financing Activities: Dividend payments on Maytag's common stock in the
first nine months of 2001 and 2000 were $41 million and $42 million, or $0.54
per share.
In connection with its share repurchase program, Maytag repurchased 0.4
million shares of common stock during the first nine months of 2001 at a cost of
$28 million. During the third quarter, Maytag retired all of the remaining
outstanding put option contracts associated with its share repurchase program.
Any funding requirements for future investing and financing activities in
excess of cash on hand and generated from operations will be supplemented by
borrowings. Maytag's commercial paper program is supported by two credit
agreements with a consortium of lenders that provide revolving credit facilities
of $200 million each, totaling $400 million. These agreements expire May 2, 2002
and May 3, 2004. The agreements include covenants with respect to interest
coverage and leverage that Maytag was in compliance with at September 30, 2001.
Maytag had $396 million of commercial paper outstanding as of September 30,
2001. In addition, Maytag has a $100 million bank credit facility that will
expire on December 15, 2001 which has covenants that mirror those in Maytag's
other credit facilities. Maytag had $40 million of drawn funds on this facility
as of September 30, 2001. In April 2001, Maytag issued $185 million of notes due
March 31, 2006 under an effective shelf registration statement. Maytag
subsequently filed a new shelf registration statement for $750 million that
became effective on August 1, 2001. In August 2001, Maytag issued $250 million
of notes due August 1, 2031 under this new shelf registration statement. Maytag
expects to use the net proceeds from the sale of debt securities for general
Corporate purposes.
Maytag explores and may periodically implement arrangements to adjust its
obligations under various stock repurchase arrangements.
Market Risks
Maytag is exposed to foreign currency exchange risk related to its transactions,
assets and liabilities denominated in foreign currencies. To manage certain
foreign exchange exposures, Maytag enters into foreign currency forward and
option contracts. Maytag's policy is to hedge a portion of its anticipated
foreign currency denominated export sales transactions, which are denominated
primarily in Canadian dollars, for periods not exceeding twelve months.
Maytag also is exposed to commodity price risk related to Maytag's
purchase of selected commodities used in the manufacture of its products. To
reduce the effect of changing raw material prices for selected commodities,
Maytag has entered into commodity swap agreements to hedge a portion of its
anticipated raw material purchases on selected commodities.
Maytag also is exposed to interest rate risk in the portfolio of Maytag's
debt. The Company uses interest rate swap contracts to adjust the proportion of
total debt that is subject to variable and fixed interest rates. The swaps
involve the exchange of fixed and variable rate payments without exchanging the
notional principal amount.
There have been no material changes in the reported market risks of Maytag
since December 31, 2000. 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, 2000.
Contingencies
Maytag has contingent liabilities arising in the normal course of business or
from operations that have been discontinued or divested. (See discussion of
these contingent liabilities in Contingencies section of the Notes to
Consolidated Financial Statements.)
18
Business Acquisition
On August 1, 2001, Maytag completed its acquisition of the major appliances
business of Amana Appliances ("Amana") for $313.5 million in cash, subject to
adjustments, and delivered 500,000 shares of common stock with a market value of
$16.5 million for a total purchase price of $330 million. The $313.5 million in
cash included approximately $4.5 million in transaction costs directly related
to the acquisition as well as net cash acquired of $4.7 million. The purchase
contract contains a purchase price adjustment mechanism that could change the
ultimate amount paid for Amana. A determination of the adjustment has not yet
been finalized. The annual sales of the Amana business is approximately $900
million. Maytag accounted for the acquisition as a purchase and the acquired
operations are included in the consolidation financial statements as a part of
the home appliances segment beginning August 1, 2001.
Forward-Looking Statements
This Management's Discussion and Analysis contains statements that 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 the terms: "expect," "intend," "may
impact," "plan," "should" or similar terms. 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 Maytag competes, including changes in economic conditions in
the geographic areas where Maytag's operations exist or products are sold;
timing, start-up and customer acceptance 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 cost and availability of raw materials and purchased components;
union labor negotiations; progress on capital projects; the impact of business
acquisitions or dispositions; the ability of Maytag to integrate the operations
from acquisitions into its operations; 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 of Financial
Condition and Results of Operations.
19
MAYTAG CORPORATION
Exhibits and Reports on Form 8-K
September 30, 2001
Item 6. Exhibits and Reports on Form 8-K.
(a)Exhibit Description
------- -----------
10 (b) Change of Control Agreements Additional Participants:
Ralph F. Hake and R. Craig Breese.
--------------------------------------------------------------
(b) Reports on Form 8-K
Maytag Corporation filed a Form 8-K dated August 31, 2001 containing a
press release announcing an agreement for the sale of its Blodgett
commercial cooking products business.
Maytag Corporation filed a Form 8-K dated October 30, 2001 containing
agreements relating to Medium-Term Notes that it might issue.
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MAYTAG CORPORATION
Signatures
September 30, 2001
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 14, 2001 /s/Steven H. Wood
----------------- -------------------
Steven H. Wood
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
21