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 March 31, 2002.
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 March 31, 2002
--------------------- ------------------------------------
Common stock, par value $1 per share 67,947,060
PAGE 1 OF 19
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
WHIRLPOOL CORPORATION
---------------------
Quarter Ended March 31, 2002
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 12
PART II - OTHER INFORMATION
- ---------------------------
Item 5 Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
2
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED MARCH 31
(millions of dollars except share and dividend data)
Three Months Ended
-----------------------------
2002 2001
------------ -------------
Net sales $ 2,574 $ 2,517
EXPENSES:
Cost of products sold 1,982 1,959
Selling and administrative 406 406
Intangible amortization 1 7
Restructuring costs 1 48
----------- -------------
2,390 2,420
------------ -------------
OPERATING PROFIT 184 97
OTHER INCOME (EXPENSE):
Interest and sundry income (expense) (20) (5)
Interest expense (34) (44)
------------ -------------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 130 48
Income taxes 45 17
------------ -------------
EARNINGS BEFORE EQUITY EARNINGS
AND MINORITY INTERESTS 85 31
Equity in earnings of affiliated companies - 1
Minority interests (1) 1
------------ -------------
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 84 33
Cumulative effect of change in accounting principle, net of tax - 8
------------ -------------
NET EARNINGS $ 84 $ 41
============ =============
Per share of common stock:
Basic earnings before cumulative effect of accounting change $ 1.25 $ .49
Cumulative effect of change in accounting principle, net of tax - .13
------------ -------------
Basic net earnings $ 1.25 $ .62
============ =============
Diluted earnings before cumulative effect of accounting change $ 1.21 $ .49
Cumulative effect of change in accounting principle, net of tax - .12
------------ -------------
Diluted net earnings $ 1.21 $ .61
============ =============
Dividends declared $ .34 $ .34
============ =============
Weighted-average shares outstanding (millions):
Basic 67.3 66.3
Fully diluted 69.3 66.9
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION
(millions of dollars)
(Unaudited)
March 31 December 31
2002 2001
-------------- -----------------
ASSETS
Current Assets
- --------------
Cash and equivalents $ 138 $ 316
Trade receivables, less allowances of
(2002: $84 ;2001: $93) 1,620 1,515
Inventories 1,205 1,110
Prepaid expenses and other 72 59
Deferred income taxes 117 176
Other current assets 151 135
-------------- -----------------
Total Current Assets 3,303 3,311
-------------- -----------------
Other Assets
- ------------
Investment in affiliated companies 117 117
Goodwill , net 678 685
Deferred income taxes 354 354
Prepaid pension costs 217 208
Other 232 240
-------------- -----------------
1,598 1,604
-------------- -----------------
Property, Plant and Equipment
- -----------------------------
Land 62 56
Buildings 885 886
Machinery and equipment 4,380 4,372
Accumulated depreciation (3,327) (3,262)
-------------- -----------------
2,000 2,052
-------------- -----------------
Total Assets $ 6,901 $ 6,967
============== =================
(Unaudited)
March 31 December 31
2002 2001
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 469 $ 148
Accounts payable 1,351 1,427
Employee compensation 207 252
Deferred income taxes 111 102
Accrued expenses 577 623
Restructuring costs 65 77
Accrued product recalls 93 239
Other current liabilities 98 195
Current maturities of long-term debt 214 19
--------------- ----------------
Total Current Liabilities 3,185 3,082
--------------- ----------------
Other Liabilities
- -----------------
Deferred income taxes 177 177
Postemployment benefits 628 623
Product warranty 48 45
Other liabilities 188 160
Long-term debt 1,055 1,295
--------------- ----------------
2,096 2,300
--------------- ----------------
Minority Interests 101 127
Stockholders' Equity
- --------------------
Common stock 87 86
Paid-in capital 547 480
Retained earnings 2,531 2,470
Accumulated other comprehensive income
(loss) (730) (697)
Treasury stock - at cost (916) (881)
--------------- ----------------
Total Stockholders' Equity 1,519 1,458
--------------- ----------------
Total Liabilities and Stockholders'
Equity $ 6,901 $ 6,967
=============== ================
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED MARCH 31
(millions of dollars)
Accumulated
Retained other Treasury Stock /
Total Earnings Comprehensive Commonm Stocks Paid-in-Capital
--------- ---------- --------------- ---------------- ------------------
Beginning balance, January 1, 2001 $ 1,684 $ 2,539 $ (495) $ 84 $ (444)
Comprehensive income (loss)
Net income 41 41
Cumulative effect of change in accounting
principle, net of tax of $7 (11) (11)
Unrealized gain on derivative instruments 2 2
Other, principally foreign currency items (114) (114)
---------
Comprehensive income (loss) (82)
---------
Common stock issued under stock option plans 6 6
Dividends declared on common stock (22) (22)
--------- --------- ------------- --------------- -----------------
Ending balance, March 31, 2001 $ 1,586 $ 2,558 $ (618) $ 84 $ (438)
========= ========= ============= =============== =================
Beginning balance, January 1, 2002 $ 1,458 $ 2,470 $ (697) $ 86 $ (401)
Comprehensive income (loss)
Net income 84 84
Unrealized gain on derivative instruments 1 1
Other, principally foreign currency items, net
of tax of $1 (34) (34)
---------
Comprehensive income (loss) 51
---------
Treasury shares purchased, net of shares issued (35) (35)
Common stock issued under stock option plans 68 1 67
Dividends declared on common stock (23) (23)
--------- --------- ------------- --------------- -----------------
Ending balance, March 31, 2002 $ 1,519 $ 2,531 $ (730) $ 87 $ (369)
========= ========= ============= =============== =================
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THREE MONTHS ENDED MARCH 31
(millions of dollars)
2002 2001
---------------------------
OPERATING ACTIVITIES
Net earnings $ 84 $ 41
Product recalls (146) -
Restructuring charges, net of cash paid (12) 35
Loss on disposition of assets 3 20
Taxes deferred and payable, net 68 33
Tax paid on cross currency interest rate swap gain (86) -
Depreciation and amortization 93 102
Changes in assets and liabilities:
Trade receivables (125) 50
Inventories (102) (32)
Accounts payable (70) (94)
Other - net (57) (81)
---------------------------
Cash Provided By (Used In) Operating Activities $ (350) $ 74
---------------------------
INVESTING ACTIVITIES
Net additions to properties $ (54) $ (58)
---------------------------
Cash Used In Investing Activities $ (54) $ (58)
---------------------------
FINANCING ACTIVITIES
Net proceeds of short-term borrowings $ 320 $ 109
Proceeds of long-term debt 10 3
Repayments of long-term debt (54) (21)
Dividends paid (23) (45)
Purchase of treasury stock (46) -
Redemption of WFC preferred stock (25) -
Stock options exercised 68 6
Other (18) (5)
---------------------------
Cash Provided By Financing Activities $ 232 $ 47
---------------------------
Effect of Exchange Rate Changes on Cash and Equivalents $ (6) $ -
---------------------------
Increase (Decrease) in Cash and Equivalents $ (178) $ 63
Cash and Equivalents at Beginning of Period 316 114
---------------------------
Cash and Equivalents at End of Period $ 138 $ 177
===========================
See notes to consolidated condensed financial statements
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 months ended March 31, 2002 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, 2001.
Certain amounts in the prior period financial statements have been reclassified
to conform with the current period presentation.
Diluted net earnings per share of common stock include the dilutive effect of
stock and put options.
NOTE B--NEW ACCOUNTING STANDARDS
The company adopted the non-amortization provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002, which resulted in a $6 million increase to the first quarter's
net earnings and is expected to increase full-year net earnings by approximately
$23 million. The company has not yet determined the financial impact that the
impairment provisions of SFAS No. 142 will have on its consolidated financial
statements. Any impairment charge resulting from the transitional impairment
testing will be reflected as a cumulative effect of a change in accounting
principle.
The following table provides comparative earnings and earnings per share had the
non-amortization provisions of SFAS No. 142 been adopted for all periods
presented:
7
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended March 31
---------------------------------------
(millions of dollars, except per share data) 2002 2001
---------------- -----------------
Reported net income $ 84 $ 41
Goodwill amortization - 6
---------------- -----------------
Adjusted net income $ 84 $ 47
================ =================
Basic earnings per share:
Reported net income $ 1.25 $ 0.62
Goodwill amortization - 0.08
---------------- -----------------
Adjusted net income $ 1.25 $ 0.70
================ =================
Diluted earnings per share:
Reported net income $ 1.21 0.61
Goodwill amortization - 0.08
---------------- -----------------
Adjusted net income $ 1.21 0.69
================ =================
The changes in the carrying amount of goodwill for the quarter ended March 31,
2002 were as follows:
North Latin
(millions of dollars) America Europe America Asia Consolidated
------- ------ ------- ---- ------------
Balance as of January 1, 2002 $ 68 367 64 186 685
Foreign exchange - (4) (3) 0 (7)
---- --- -- --- ---
Balance at March 31, 2002 $ 68 363 61 186 678
==== === == === ===
As of March 31, 2002, the company had $14 million of indefinite-lived intangible
assets (trademarks). The company also had $8 million of other intangible assets
which will continue to be amortized over their remaining usefull lives ranging
from 21 to 31 months. These other intangible asset amounts are included in other
assets in the company's balance sheets.
On January 1, 2002, the company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." There was no impact to the
company's operating results or financial position related to the adoption of
this standard.
On January 1, 2001, the company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No.
138. The company recorded the effect of the transition to these new accounting
requirements as a change in accounting principle. The transition adjustment to
adopt SFAS No. 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.
NOTE C--INVENTORIES
Inventories consist of the following:
8
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
March 31 December 31
2002 2001
-------------- ---------------
(millions of dollars)
Finished products $ 1,052 949
Raw materials and work in process 289 297
-------------- ---------------
Total FIFO cost 1,341 1,246
Less excess of FIFO cost
over LIFO cost 136 136
-------------- ---------------
$ 1,205 $ 1,110
============== ===============
NOTE D--RESTRUCTURING AND RELATED CHARGES
Restructuring
The current quarter's results included $1 million pre-tax in restructuring
charges for termination costs. As of March 31, 2002, an additional 300 employees
had left the company since December 31, 2001. The majority of these employees
were related to prior announcements under the company's restructuring program.
The prior year's quarterly results included $48 million pre-tax in restructuring
charges.
Related Charges
The current quarter's results included $11 million pre-tax of restructuring
related charges and were recorded primarily in the cost of goods sold section
within operating profit. Included in this total were $3 million for a building
write-down and $8 million in other cash costs, primarily relocation and
concurrent operating costs. The 2001 quarter included $22 million pre-tax of
restructuring related charges.
Details of the 2002 first quarter's restructuring and related charges were as
follows:
9
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Beginning Charge Ending
Balance to Earnings Cash Paid Non-cash Translation Balance
- -----------------------------------------------------------------------------------------------------------------
(millions of dollars)
Restructuring
Termination costs $ 75 $ 1 $ (10) $ - $ - $ 66
Non-employee exit costs 4 - (3) - - 1
Translation impact (2) - - - - (2)
Related Charges
Building write-down - 3 - (3) - -
Various cash costs - 8 (8) - - -
----------- ----------- ------------- ---------- ----------- --------
Total $ 77 $ 12 $ (21) $ (4) $ - $ 65
=========== =========== ============= ========== =========== ========
NOTE E--RELATED PARTY TRANSACTIONS
The company repurchased 700 thousand shares of its common stock during the
quarter ended March 31, 2002 from the company's U.S. pension plan at a total
cost of $46 million. The shares were repurchased from the pension plan at an
average cost of $66.32 per share, which was based upon an average of the high
and low market prices on the date of purchase.
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 guarantees and standby letters of
credit with risk not reflected on the balance sheet. The only significant
arrangement in place at March 31, 2002 and December 31, 2001 is in its Brazilian
subsidiary. As a standard business practice the subsidiary guarantees customer
lines of credit at commercial banks following its normal credit policies. As of
March 31, 2002 and December 31, 2001, these amounts totaled $138 million and
$124 million, respectively. The company currently believes the risk of loss to
be minimal.
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.
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 table below. For the quarters ended March 31, 2002 and 2001, the
operating segments recorded total restructuring and related charges as follows;
North America $7 and $5 million, Europe $3 and $8 million, Latin America $0 and
$47 million, Asia $1 and $8 million and Corporate $1 and $2 million. Refer to
Note D, presented earlier, for a discussion of restructuring and related
charges.
(millions of dollars)
Three Months North Latin Other and
Ended March 31 America Europe America Asia (Eliminations) Consolidated
- ---------------------------------------------------------------------------------------------------------
Net Sales
2002 $ 1,718 $ 475 $ 332 $ 86 $ (37) $ 2,574
2001 $ 1,537 $ 513 $ 412 $ 88 $ (33) $ 2,517
Intersegment sales
2002 $ 38 $ 31 $ 36 $ 10 $ (115) $ -
2001 $ 38 $ 10 $ 33 $ 16 $ (97) $ -
Intangible amortization
2002 $ - $ - $ - $ - $ 1 $ 1
2001 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7
Depreciation
2002 $ 46 $ 16 $ 23 $ 4 $ 3 $ 92
2001 $ 47 $ 16 $ 25 $ 4 $ 3 $ 95
Operating profit (loss)
2002 $ 204 $ 10 $ 25 $ 4 $ (59) $ 184
2001 $ 170 $ 4 $ 28 $ 4 $ (109) $ 97
Total assets
2002 $ 2,819 $ 1,957 $ 1,234 $ 677 $ 214 $ 6,901
December 31, 2001 $ 2,591 $ 2,067 $ 1,339 $ 653 $ 317 $ 6,967
Capital expenditures
2002 $ 12 $ 12 $ 15 $ 1 $ 14 $ 54
2001 $ 28 $ 10 $ 15 $ 2 $ 3 $ 58
11
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 months
ended March 31, 2002 and 2001. All comparisons are to 2001, unless otherwise
noted. This section of Management's Discussion and Analysis highlights the main
factors affecting the changes in operating results.
Net Sales
- ---------
Net sales increased 2% and totaled $2.6 billion for the first quarter of 2002.
Excluding currency fluctuations around the world, net sales increased 5%.
Three Months Ended March 31
-----------------------------------------
(millions of dollars) 2002 2001 Change
----------------- ------------------ ------------
Net Sales:
North America $ 1,718 $ 1,537 11.8%
Europe 475 513 (7.6)%
Latin America 332 412 (19.4)%
Asia 86 88 (2.3)%
Other/eliminations (37) (33) -
----------------- ------------------ ------------
Consolidated $ 2,574 $ 2,517 2.3%
================= ================== ============
Significant regional trends were as follows:
- - North America unit volumes increased 12% in an industry that was up 6%
resulting in a slight increase from the year-end 2001 record market
share in the region. Innovative new products and an improving U.S.
economy driven by increased consumer spending contributed to the
increased sales.
- - European unit volumes were down 2% as economic challenges within the
region continued. The lower unit volume, continued pricing pressures
and currency fluctuations more than offset an improved product mix. Net
sales decreased 3% excluding the impact of currency fluctuations.
- - Unit shipments decreased 15% in Latin America as the difficulties
within the region's economies continued. The appliance industry unit
shipments decreased 8% for the quarter in Brazil and over 60% in
Argentina. Net sales for the region decreased 19% reflecting the lower
volume and the impact of currency fluctuations. Excluding currency
fluctuations, net sales decreased 11%.
- - Asia's unit shipments increased 8% for the quarter due in part to the
introduction of new products in the Indian and Chinese markets. Net
sales for the region decreased as the
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
higher volume was more than offset by currency fluctuations and a less
favorable product mix. Net sales were level excluding currency
fluctuations.
For the full year 2002, appliance industry shipments are expected to be up 5% in
North America, down 2% in Europe and flat in Asia and Latin America.
Gross Margin
- ------------
Gross margin percentage improved for the quarter due primarily to improved
product mix in North America and Europe, manufacturing productivity gains in
North America and lower restructuring related charges. These factors combined to
offset lower Befiex tax credits in Latin America, which are discussed further
under "Other Matters," lower pension credits in North America and a softening
appliance industry across Asia.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses as a percent of net sales decreased
0.3 percentage points. Benefits from the company's restructuring program and
other cost containment efforts were reflected in improvements in the North
America, Latin America and Asia regions. Improvements within these regions
combined to offset increases in corporate overhead expenses. Europe's ratio
increased due to lower sales more than offsetting cost containment efforts.
Other Income and Expense
- ------------------------
Interest and sundry income (expense) was $15 million unfavorable due to currency
losses, primarily in Argentina, higher asset disposal costs and other
miscellaneous costs. Reduced overall borrowings and the lower interest rate
environment combined to reduce interest expense by $10 million for the quarter.
Income Taxes
- ------------
The effective income tax rate was 34.3 percent versus 35.7 percent. The lower
effective tax rate was due to various tax strategies offsetting income mix
amongst the various regions.
Net Earnings
- ------------
The table below reconciles the company's core earnings and core earnings per
diluted share with net earnings and net earnings per diluted share. The
differences between core earnings and reported net earnings are presented in the
table on an after-tax basis and reference the related note to the accompanying
consolidated condensed financial statements:
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Three Months Ended
-------------------------------------------------------------
2002 2001
------------------------------- -----------------------------
(millions of dollars, except per share data) Earnings EPS Earnings EPS
-------------- ------------- ------------- ------------
Core earnings $ 92 $ 1.32 $ 73 $ 1.10
Restructuring and related charges (note D) (8) (0.11) (40) (0.61)
-------------- -------------- ------------- ------------
Earnings before accounting change 84 1.21 33 0.49
Adoption of SFAS No. 133 (note B) - - 8 0.12
-------------- -------------- ------------- ------------
Net earnings $ 84 $ 1.21 $ 41 $ 0.61
============== ============== ============= ============
The current quarter's results were also impacted by the elimination of goodwill
amortization, in accordance with SFAS No. 142, which added approximately $6
million, after-tax, or $0.08 for both core and net earnings per diluted share.
The benefit attributable to the elimination of goodwill amortization was mostly
offset by lower pension credits recorded in the current year due to a reduction
in the discount rate, caused by the declining interest rate environment, and
lower expected returns on pension plan assets.
CASH FLOWS
The statements of cash flows reflect the changes in cash and cash equivalents
for the three months ended March 31, 2002 and 2001 by classifying transactions
into three major categories: operating, investing and financing activities.
Operating Activities
- --------------------
The company's main source of liquidity is cash generated 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 used in operating activities in the first three months was $350 million
compared to $74 million provided in 2001. The decrease in the current quarter
was due primarily to reduced net working capital cash flows, product recall
costs and taxes paid on the gain realized for tax purposes from the sale of a
portfolio of cross-currency interest rate swaps during the fourth quarter of
2001.
Investing Activities
- --------------------
The principal recurring investing activities are property additions. Net
property additions for the first three months were $54 million compared to $58
million. These expenditures are primarily for equipment and tooling related to
product improvements, more efficient production methods, and replacement for
normal wear and tear.
Financing Activities
- --------------------
Dividends to shareholders totaled $23 million for the first quarter versus $45
million a year ago. During the first quarter of 2001, both the fourth quarter
2000 dividend and the first quarter 2001 dividend were paid.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Also impacting the company's financing cash flows were $46 million in treasury
stock purchases, discussed further under "Financial Condition and Liquidity,"
and $25 million related to the redemption of preferred stock of the company's
discontinued financing company, Whirlpool Financial Corporation. These cash
outflows were mostly offset by $65 million in proceeds from the exercise of
company stock options during the quarter.
The company's borrowings, adjusted for currency fluctuations, increased $276
million from year-end. The increase, primarily in short-term notes payable, was
due to seasonal working capital needs.
FINANCIAL CONDITION AND LIQUIDITY
The financial position of the company remains strong as evidenced by the March
31, 2002 balance sheet. The company's total assets are $6.9 billion and
stockholders' equity is $1.5 billion versus the March 2001 totals of $6.9
billion and $1.6 billion, respectively. The company's total assets and
stockholders' equity at December 31, 2001 were $7.0 billion and $1.5 billion,
respectively.
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 12.7 million
shares at a cost of $684 million under this stock repurchase program, of which
0.7 million shares or $46 million were purchased in 2002. The 2002 shares were
repurchased from the company's U.S. pension plan at an average cost of $66.32
per share, which was based upon an average of the high and low market prices on
the date of purchase.
The overall debt to invested capital ratio of 51.7 percent at March 31, 2002 was
down from 54.6 percent at March 31, 2001 and up from 48.0 percent at December
31, 2001. The decrease from March 31, 2001 is due to the company's aggressive
debt reduction program implemented throughout 2001. The increase from year-end
is due to lower cash flows from operations resulting in increased short-term
borrowings. The company's debt continues to be rated investment grade by Moody's
Investors Service Inc., Standard and Poor's, and Fitch Ratings.
On July 3, 2001, the company issued 300 million euro denominated 5.875% Notes
due 2006. The notes are general obligations of the company and the proceeds were
used for general corporate purposes.
The company maintains an $800 million five-year committed credit agreement and a
committed $400 million 364-day credit agreement that provide backup liquidity.
As of March 31, 2002, there were no borrowings under these agreements, which
represent the company's total committed credit lines.
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.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
In February 2002, the company reached an agreement in principle to acquire the
remaining 51% interest in Vitromatic S.A. de C.V., an appliance manufacturing
and distribution joint venture in Mexico. The company expects to complete the
purchase for $150 million in cash plus Vitromatic's existing debt, which was
approximately $200 million as of March 31, 2002. This transaction is expected to
be completed in the second quarter of 2002, increase consolidated annual net
sales by more than $400 million and favorably impact the company's earnings in
the second half of 2002.
In March 2002, the company announced an agreement to acquire Polar S.A., a
leading major home appliance manufacturer based in Poland. Pending governmental
review in Poland, the company will pay $24 million in cash plus approximately
$19 million of Polar's existing debt in return for 96 percent of Polar shares.
This transaction is expected to be completed in the second quarter of 2002 and
favorably impact the company's earnings beginning in 2003.
OTHER MATTERS
During the third and fourth quarters of 2001, the company recorded $295 million
of charges related to two separate product recalls. As of December 31, 2001, the
remaining liability balance was $239 million, which was reduced by cash payments
of $146 million during the first quarter of 2002. The company's estimated
liability for product recall expenses is impacted by several factors such as
customer contact rate, consumer options, field repair costs, inventory repair
costs, extended warranty costs, communication structure and other miscellaneous
costs such as legal, logistics and consulting. There have been no significant
adjustments to any assumptions during the first quarter and management believes
the remaining $93 million liability is adequate to cover the remaining costs
associated with these recalls. The company believes these recall initiatives
will be completed by the end of 2002.
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). This decision also recognized the right to
utilize these credits as an offset against current Brazilian federal excise tax
on domestic sales. The company's remaining available credits were approximately
$315 million as of December 31, 2001, of which $13 million were recognized in
the first quarter of 2002 compared with $17 million in the year ago quarter. The
company expects to recognize $40 million for the full year 2002, while any
recognition of further amounts in subsequent years is dependent upon
governmental action and the interpretation of Brazilian laws by the Brazilian
courts governing the use of these credits.
In December, 2000, the company announced a global restructuring plan that when
fully implemented is currently expected to result in pre-tax charges of between
$300 and $350 million and an annualized savings of between $225 and $250
million. The plan is expected to eliminate approximately 6,000 positions
worldwide and the final phases will be announced over the remainder of 2002. For
the initiatives announced through March 31, 2002, the company expects to
eliminate approximately 5,000 employees of which 4,000 had left the company
through March 31, 2002. The reduction in positions due to restructuring has been
partially offset by an increase in the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
number of employees in other areas of the company. The company expects to
realize approximately $138 million in annualized benefits from the initiatives
to date. The company expects to utilize cash on hand and cash generated from
operations to fund the remaining restructuring initiatives.
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)
continuation of our strong relationship with Sears, Roebuck and Co. in North
America, which accounted for approximately 21% of our consolidated net sales of
$10.3 billion in 2001; (6) currency exchange rate fluctuations in Latin America,
Europe, and Asia that could affect our consolidated balance sheet and income
statement; (7) our ability to continue to recognize Befiex credits as described
in more detail in the "Other Matters" section within Management's Discussion and
Analysis; (8) the completion of the company's microwave-hood combination and
dehumidifier recalls and their impact on consumer preferences; (9) the
effectiveness of the series of restructuring actions the company anticipates
taking through 2002; and (10) social, economic, and political volatility,
including potential terrorist activity, in the North American, Latin American,
European and Asian economies.
The company undertakes no obligation to update any 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.
17
PART II. OTHER INFORMATION
--------------------------
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended March 31, 2002
Item 5. Other Information
During the quarter the Company amended the Whirlpool 401(k) Plan to comply with
the Economic Growth and Tax Relief Reconciliation Act of 2001, as amended, and
to designate the Whirlpool Stock Fund established under the Whirlpool 401(k)
Plan as an employee stock ownership plan within the meaning of Internal Revenue
Code Section 4975(e)(7). A copy of the current 401(k) Plan, as amended, is
attached.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. The following are included herein:
(99) The Whirlpool 401(k) Plan as amended through and including the amendment
dated February 22, 2002.
(99) Opinion of counsel letter regarding compliance of the Whirlpool 401(k) Plan
with the Employee Retirement Income Security Act of 1974, as amended.
b. The registrant filed the following Current Reports on Form 8-K for the
quarterly period ended March 31, 2002.
A Current Report on Form 8-K dated January 31, 2002 pursuant to Item 5, "Other
Events and Regulation FD Disclosure," to announce the Company's voluntary recall
of approximately 1.4 million Whirlpool, ComfortAire and Sears Kenmore brand
dehumidifiers. On February 5, 2002, the Company issued a press release to
announce fourth quarter and full year 2001 earnings. On February 7, 2002, the
Company issued a press release concerning stock market rumors.
A Current Report on Form 8-K dated February 25, 2002 that included the
following:
Pursuant to Item 5, "Other Events," to announce the anticipated purchase of
the remaining 51% interest held by Vitro S.A. in Vitromatic S.A. de C.V., an
appliance manufacturer and distribution joint venture in Mexico.
Pursuant to Item 9, "Regulation FD Disclosures," regarding comments to be
made by its Chairman and CEO concerning the Company's expectations for
appliance industry unit shipments in 2002, its 2002 strategy and new
products, and the Company's expected first quarter and full-year 2002
results.
18
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)
April 23, 2002
19