SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-1490038
(State of incorporation) (I.R.S. Employer
Identification No.)
2000 M-63
Benton Harbor, Michigan 49022-2692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 616/923-5000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X . No .
--- ---
Number of shares outstanding of each of the issuer's classes of common stock,
as of the latest practicable date:
Class of common stock Shares outstanding at September 30, 1996
--------------------- ----------------------------------------
Common stock, par value $1 per share 74,345,300
PAGE 1 OF 19
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
WHIRLPOOL CORPORATION
---------------------
Quarter Ended September 30, 1996
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 5
Consolidated Condensed Statements
of Cash Flows 7
Notes to Consolidated Condensed
Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 12
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 18
2
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION AND SUBSIDIARIES
THREE MONTHS ENDED September 30 Supplemental Consolidating Data
--------------------------------------------------
(millions of dollars except share data) Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
--------------------- --------------------- ----------------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
REVENUES
Net sales $2,155 $2,109 $2,155 $2,109 $ - $ -
Financial services 45 45 - - 56 55
------ ------ ------ ------ ------ ------
2,200 2,154 2,155 2,109 56 55
EXPENSES
Cost of products sold 1,679 1,626 1,679 1,626 - -
Selling and administrative 405 380 383 358 33 32
Financial services interest 18 16 - - 20 20
Intangible amortization 9 8 9 8 - -
Restructuring costs 30 - 30 - - -
------ ------ ------ ------ ------ ------
2,141 2,030 2,101 1,992 53 52
------ ------ ------ ------ ------ ------
OPERATING PROFIT 59 124 54 117 3 3
OTHER INCOME (EXPENSE)
Interest and sundry (1) (2) (1) (4) - 2
Interest expense (41) (41) (39) (37) - -
------ ------ ------ ------ ------ ------
EARNINGS BEFORE TAXES AND
OTHER ITEMS 17 81 14 76 3 5
Income taxes 19 30 18 29 1 1
------ ------ ------ ------ ------ ------
EARNINGS (LOSS) BEFORE EQUITY EARNINGS
AND MINORITY INTERESTS (2) 51 (4) 47 2 4
Equity in WFC - - 1 2 - -
Equity in affiliated companies 20 15 20 15 - -
Minority interests 3 (2) 4 - (1) (2)
------ ------ ------ ------ ------ ------
NET EARNINGS $ 21 $ 64 $ 21 $ 64 $ 1 $ 2
====== ====== ====== ====== ====== ======
Per share of Common Stock:
Primary earnings $ 0.28 $ 0.85
====== ======
Cash dividends $ 0.34 $ 0.34
====== ======
See notes to consolidated condensed financial statements
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED September 30 Supplemental Consolidating Data
(millions of dollars except share data) ----------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
------------------- -------------------- -------------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
REVENUES
Net sales $ 6,397 $ 6,117 $ 6,397 $ 6,117 $ - $ -
Financial services 134 137 - - 165 163
------- ------- ------- ------- ------- -------
6,531 6,254 6,397 6,117 165 163
EXPENSES
Cost of products sold 4,979 4,654 4,979 4,654 - -
Selling and administrative 1,216 1,180 1,154 1,114 93 92
Financial services interest 50 49 - - 58 58
Intangible amortization 27 22 27 22 - -
Restructuring costs 30 - 30 - - -
------- ------- ------- ------- ------- -------
6,302 5,905 6,190 5,790 151 150
------- ------- ------- ------- ------- -------
OPERATING PROFIT 229 349 207 327 14 13
OTHER INCOME (EXPENSE)
Interest and sundry (2) (2) (8) (10) 6 8
Interest expense (125) (104) (117) (95) - -
------- ------- ------- ------- ------- -------
EARNINGS BEFORE TAXES AND
OTHER ITEMS 102 243 82 222 20 21
Income taxes 58 96 51 89 7 7
------- ------- ------- ------- ------- -------
EARNINGS BEFORE EQUITY EARNINGS
AND MINORITY INTERESTS 44 147 31 133 13 14
Equity in WFC - - 10 10 - -
Equity in affiliated companies 61 49 61 49 - -
Minority interests 6 (5) 9 (1) (3) (4)
------- ------- ------- ------- ------- -------
NET EARNINGS $ 111 $ 191 $ 111 $ 191 $ 10 $ 10
======= ======= ======= ======= ======= =======
Per share of Common Stock:
Primary earnings $ 1.48 $ 2.55
======= =======
Cash dividends $ 1.02 $ 1.02
======= =======
See notes to consolidated condensed financial statements
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(millions of dollars) Supplemental Consolidating Data
-----------------------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
---------------------------- ----------------------------- ---------------------------
September 30, December 31, September 30, December 31, September 30, December 31,
1996 1995 1996 1995 1996 1995
(Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited)
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 172 $ 149 $ 134 $ 125 $ 38 $ 24
Trade receivables, less allowances
(1996: $42; 1995: $39) 1,003 1,031 1,003 1,031 - -
Financing receivables and leases,
less allowances
(1996: $13; 1995: $12) 1,453 1,086 - - 1,453 1,086
Inventories 1,027 1,029 1,027 1,029 - -
Other current assets 298 246 320 235 9 11
------- ------- ------- ------- ------- -------
TOTAL CURRENT ASSETS 3,953 3,541 2,484 2,420 1,500 1,121
Investments and other assets 817 777 1,086 1,046 - -
Financing receivables and leases,
less allowances
(1996: $32; 1995: $30) 727 772 - - 727 772
Intangibles, net 882 931 882 931 - -
------- ------- ------- ------- ------- -------
2,426 2,480 1,968 1,977 727 772
Property, plant and equipment 3,802 3,662 3,779 3,638 23 24
Accumulated depreciation (2,052) (1,883) (2,037) (1,867) (15) (16)
------- ------- ------- ------- ------- -------
1,750 1,779 1,742 1,771 8 8
------- ------- ------- ------- ------- -------
TOTAL ASSETS $ 8,129 $ 7,800 $ 6,194 $ 6,168 $ 2,235 $ 1,901
======= ======= ======= ======= ======= =======
See notes to consolidated condensed financial statements
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(millions of dollars) Supplemental Consolidating Data
----------------------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
--------------------------- ---------------------------- ---------------------------
September 30, December 31, September 30, December 31, September 30, December 31,
1996 1995 1996 1995 1996 1995
(Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited)
------------ ----------- ------------ ---------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,085 $ 1,998 $ 659 $ 765 $ 1,426 $ 1,233
Accounts payable 1,004 977 794 896 241 81
Other current liabilities 843 854 839 844 4 10
------- ------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES 3,932 3,829 2,292 2,505 1,671 1,324
Long-term debt 1,108 983 1,015 870 93 113
Postemployment benefits 579 517 574 517 5 -
Other liabilities 434 415 312 295 122 120
------- ------- ------- ------- ------- -------
2,121 1,915 1,901 1,682 220 233
Minority interests 171 179 96 104 75 75
STOCKHOLDERS' EQUITY
Common stock 81 81 81 81 8 8
Paid-in capital 237 229 237 229 26 26
Retained earnings 1,898 1,863 1,898 1,863 237 234
Unearned restricted stock (8) (8) (8) (8) - -
Currency translation adjustments (67) (53) (67) (53) (2) 1
Treasury stock-at cost (236) (235) (236) (235) - -
------- ------- ------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY 1,905 1,877 1,905 1,877 269 269
------- ------- ------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,129 $ 7,800 $ 6,194 $ 6,168 $ 2,235 $ 1,901
======= ======= ======= ======= ======= =======
See notes to consolidated condensed financial statements
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30
(millions of dollars) Supplemental Consolidating Data
--------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
-------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
OPERATING ACTIVITIES
Net earnings $ 111 $ 191 $ 111 $ 191 $ 10 $ 10
Equity in net earnings of affiliated
companies, less dividends received (54) (31) (54) (31) - -
Equity in net earnings of WFC, net of dividend - - (3) (10) - -
Depreciation and amortization 270 249 249 227 21 22
Provision for doubtful accounts 36 31 2 7 34 24
Restructuring spending (24) (65) (24) (65) - -
Change in receivables 11 (70) 11 (70) - -
Change in inventories (14) (86) (14) (86) - -
Change in payables (103) (25) (105) (61) 2 36
Other operating activities 90 (68) 88 (61) 2 (7)
------- -------- ------- ------- ------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 323 126 261 41 69 85
INVESTING ACTIVITIES
Net additions to properties (209) (263) (209) (259) - (4)
Financing receivables originated and leasing assets purchased (3,379) (2,584) - - (3,379) (2,584)
Principal payments received on financing
receivables and leases 3,067 2,410 - - 3,067 2,410
Acquisition of businesses, less cash acquired (14) (125) (14) (125) - -
Other investing activities 103 (23) 15 - 88 (23)
------- -------- ------- ------- ------- -------
CASH USED FOR INVESTING ACTIVITIES (432) (585) (208) (384) (224) (201)
FINANCING ACTIVITIES
Proceeds of short-term borrowings 13,986 11,668 5,031 4,839 8,955 6,829
Repayments of short-term borrowings (13,884) (11,020) (5,147) (4,370) (8,737) (6,650)
Proceeds of long-term debt 297 70 297 111 - -
Repayments of long-term debt (162) (63) (124) (60) (38) (44)
Repayments of non-recourse debt (11) (10) - - (11) (10)
Dividends (76) (75) (76) (75) (7) -
Purchase of treasury stock (1) (35) (1) (35) - -
Other financing activities (17) (4) (24) (4) 7 -
------- -------- ------- ------- ------- -------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 132 531 (44) 406 169 125
------- -------- ------- ------- ------- -------
INCREASE IN CASH AND EQUIVALENTS 23 72 9 63 14 9
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 149 72 125 51 24 21
------- -------- ------- ------- ------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 172 $ 144 $ 134 $ 114 $ 38 $ 30
======= ======== ======= ======= ======= =======
See notes to consolidated condensed financial statements
7
WHIRLPOOL CORPORATION AND SUBSIDIARIES
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 nine months ended September 30, 1996 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,
1995.
NOTE B--BUSINESS ACQUISITIONS
In October 1996, the Company plans to acquire the remaining minority interest in
Whirlpool Tatramat for about $4 million.
In September 1996, the Company acquired 100% of Gentech Trading (Pty.) Ltd., a
South African company, for about $25 million; $2 million of cash and $23 million
of assumed debt. Renamed Whirlpool South Africa, the company manufactures
refrigerators and markets manufactured and imported appliances under the
Whirlpool and local KIC brand names. Gentech annual sales were about $100
million for its fiscal year 1995.
In May 1996, two of the Company's majority owned subsidiaries in India,
Kelvinator of India ("KOI") and Whirlpool Washing Machines Limited ("WWML"),
were merged and renamed Whirlpool of India ("WOI"). As part of the merger plan,
the Company purchased an additional interest in WWML for $12 million in April
1996, resulting in a 56% interest in the combined entity, WOI.
During 1995, the Company expanded its presence in Asia by acquiring controlling
interests in three existing manufacturing companies and establishing the
following three new joint ventures.
In November 1995, the Company acquired a majority interest in Raybo Air
Conditioner Manufacturing Company ("Raybo"), a Chinese manufacturer and marketer
of air conditioners, for about $22 million in cash. Raybo annual sales were
about $20 million for its fiscal year 1994.
In May 1995, the Company acquired a majority interest in Shunde SMC
Microwave Products Co., Ltd. ("SMC"), a Chinese manufacturer and marketer of
microwave ovens,
8
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
for about $90 million in cash. SMC annual sales were about $100 million
for its fiscal year 1994.
In February 1995, the Company acquired a majority interest in KOI, a
manufacturer and marketer of refrigerators, for about $116 million in cash
funded principally in 1995. As the transaction involved an issue of new KOI
shares, most of the purchase price was invested as equity in KOI in support of
planned plant and product line expansion. KOI annual sales were about $120
million for its fiscal year 1994.
In 1995 the Company's Chinese joint ventures included a $17 million majority
interest in Beijing Whirlpool Snowflake Electric Appliance Co., Ltd. to produce
refrigerators; a $16 million majority interest in Whirlpool Narcissus
("Shanghai") Co. Ltd. to produce washing machines; and a $5 million minority
interest in Beijing Embraco Snowflake Compressor Co. Ltd. to produce compressors
for refrigerators and air conditioners.
Pro forma consolidated operating results reflecting these acquisitions would not
have been materially different from reported amounts. The acquisitions have
been accounted for as purchases and their operating results have been
consolidated with the Company's results since the dates of acquisition.
NOTE C--INVENTORIES
Inventories consist of the following:
September 30 December 31
1996 1995
------------ -----------
(millions of dollars)
Finished products $ 1,001 $ 984
Raw materials and work in process 266 278
-------- -------
Total FIFO cost 1,267 1,262
Less excess of FIFO cost
over LIFO cost 240 233
-------- -------
$ 1,027 $ 1,029
======== =======
9
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D--AFFILIATED COMPANIES
Equity in the net earnings (loss) of affiliated companies is as follows:
Nine Months Ended
September 30
1996 1995
---------------------
(millions of dollars)
Brazilian affiliates $ 67 $ 52
Mexican affiliate (8) (5)
Other 2 2
------ ------
$ 61 $ 49
====== ======
NOTE E--RESTRUCTURING COSTS
Restructuring costs in the third quarter of 1996 consist of the following (in
millions):
Cash costs:
Employee severance and related payments $ 9
Lease termination and other costs 3
------
Total cash costs 12
Non-cash costs:
Asset write-downs 18
------
$ 30
======
Restructuring costs of $18 million relate to the streamlining of a North
American refrigerator manufacturing operation in order to achieve greater
efficiencies and lower manufacturing costs for specific refrigerator models.
Restructuring costs of $12 million relate to the transfer of Asian research and
engineering operations from the regional center to the manufacturing locations
and the relocation of Whirlpool Asia headquarters to Hong Kong.
The Company expects to pay about $9 million of the cash costs in 1996 and the
remainder in 1997, principally for the severance of about 850 employees.
Total after-tax charges are $19 million or $.25 per share.
10
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F--GEOGRAPHIC SEGMENTS
(millions of dollars)
Major
Three Months North Other and Home
Ended September 30 America Europe Asia (Eliminations) Appliances
- --------------------------------------------------------------------------------
Sales
1996 $ 1,389 $ 656 $ 116 $ (6) $ 2,155
1995 $ 1,335 $ 632 $ 99 $ 43 $ 2,109
Operating Profit (Loss)
1996 $ 89 $ (4) $ (30) $ (1) $ 54
1995 $ 105 $ 22 $ (12) $ 2 $ 117
Major
Nine Months North Other and Home
Ended September 30 America Europe Asia (Eliminations) Appliances
- --------------------------------------------------------------------------------
Sales
1996 $ 4,172 $ 1,895 $ 361 $ (31) $ 6,397
1995 $ 3,860 $ 1,873 $ 239 $ 145 $ 6,117
Operating Profit (Loss)
1996 $ 300 $ (32) $ (56) $ (5) $ 207
1995 $ 253 $ 99 $ (35) $ 10 $ 327
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 and nine
months ended September 30, 1996 and 1995. This section of Management's
Discussion highlights the main factors affecting the changes in operating
results.
The accompanying financial statements include supplemental consolidating data
reflecting the Company's investment in Whirlpool Financial Corporation ("WFC")
on an equity basis rather than as a consolidated subsidiary. Management
believes this presentation provides more meaningful information about the major
home appliance and financial services businesses.
Revenues
- --------
Revenues increased 2% for the third quarter and 4% for the first nine months
compared to the prior year periods. North American product shipments were flat
in the third quarter with sales up 2% while product shipments for the first nine
months were up 4% and sales up 5% in an industry that has been up 4% for the
first nine months. North American sales improvements in the third quarter were
due to pricing and a combination of pricing and volume for the first nine
months. North American industry-wide shipments are currently expected to be up
about 3% for the full year over 1995. European unit volumes were up 10% in the
third quarter and 9% for the first nine months while the industry was down about
2% for the first nine months. European sales increased 2% for the third quarter
and were essentially flat for the first nine months; however, excluding the
effects of currency fluctuations, sales were up 5% for the third quarter and up
2% for the first nine months. Sales growth in Europe reflects the significant
volume increases partially offset by consumer preference toward lower priced
brands and products and unfavorable currency impact with no substantial price
increases for the first nine months of 1996. For the remainder of the year,
European industry-wide shipments are currently expected to be down about 2%
compared with last year. A continuing difficult economic and industry
environment in Europe make near-term prospects for improved regional economic
and industry performance uncertain. WFC financial services revenues increased
2% for the third quarter and 1% for the first nine months primarily due to
earnings from their inventory financing portfolio.
Expenses
- --------
The relationship of cost of products sold to net sales deteriorated by about one
percentage point for the third quarter and by about two percentage points for
the nine month period compared to 1995. North American margins were up for both
periods due to realized price increases early in the year, moderating material
costs and effective cost control as well as volume growth for the nine month
period. European margins were down for both periods due to customers shifting
to lower margin brands and products, currency fluctuations, lower than expected
margin realization on new products and stagnant pricing in the marketplace.
Appliance selling and administrative expenses as a percent of net sales
increased by about one percentage point for the third quarter and were
essentially flat for the first nine months compared to 1995. North American
expenses as a percent of net sales increased for the third quarter compared to
the prior year period due primarily to higher selling costs, partially offset by
tight control over
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
advertising. The comparable percentage for the first nine months was essentially
flat. European expenses as a percent of sales decreased for both periods
compared to 1995 due primarily to lower selling costs, tight control over other
spending and accrual adjustment to reflect lower employee compensation and other
expenses. Europe also benefited from cost reductions stemming from its
restructuring efforts executed during 1995. WFC financial services expenses as a
percent of the related revenue were flat for both periods.
Restructuring costs of $30 million in the third quarter of 1996 consist of
charges to streamline a North American refrigeration operation and Whirlpool's
Asian headquarters. The restructuring is expected to result in annual cost
savings of $37 million when fully implemented.
Other Income and Expense
- ------------------------
The reduced expense in appliance interest and sundry for both the quarter and
the first nine months compared to the prior year is due primarily to interest
income.
Appliance interest expense was up slightly in the third quarter but up
substantially for the first nine months compared to prior year periods. The
increases reflect higher borrowing levels during 1995 to fund acquisitions, a
greater portion of long-term debt and working capital needs, partially offset by
lower interest rates.
Income Taxes
- ------------
The consolidated provision for income taxes as a percent of earnings before
income taxes and other items was 57% for the first nine months of 1996 compared
to 40% in 1995 and 110% in the third quarter 1996 compared to 38% in 1995. The
higher effective tax rate is primarily due to the impact of increased
nondeductible intangible amortization on a lower level of pretax earnings,
higher unbenefited losses in Asia and unfavorable mix of pre-tax earnings and
losses by country. The first nine months effective tax rate for 1996 represents
the current estimate of the full year effective tax rate. The third quarter 1996
effective tax rate reflects substantial catch-up adjustments for the first half
previously recorded at a lower estimated full year rate.
Equity in Affiliated Companies
- ------------------------------
Equity earnings in affiliated companies were $20 million in the third quarter of
1996 compared to $15 million in 1995 and $61 million for the first nine months
of 1996 compared to $49 million in the prior year period.
The Company's Brazilian affiliates generated equity earnings of $20 million in
the third quarter and $67 million in the first nine months of 1996 compared to
$15 million and $52 million in 1995, reflecting significant growth in the
Brazilian appliance industry over 1995 levels, largely driven by improved
availability of consumer credit and lower interest rates. Results for the first
nine months of 1995 were favorably affected by certain tax credit benefits.
The Company's Mexican affiliate broke even for the third quarter of 1996
compared to a $1 million equity loss generated in 1995 and losses of $8 million
and $5 million for the first nine months of
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
1996 and 1995. This performance resulted from higher shipment volumes in
spite of industry declines in Mexico as well as lower financing costs partially
offset by foreign exchange losses as compared with gains in 1995. The Mexican
affiliate began benefiting from reduced financing costs following a refinancing
at the end of the second quarter.
Economic volatility and changes in government economic policy (including those
affecting exchange rates and tariffs) continue to affect consumer purchasing
power and the appliance industry as a whole in Mexico, Brazil and the entire
Latin American region. The outlook in these regions remains uncertain.
Net Earnings
- ------------
Third quarter net earnings were $21 million or $.28 per share compared to net
earnings of $64 million or $.85 per share in 1995. First nine months net
earnings were $111 million or $1.48 per share compared to net earnings of $191
million or $2.55 per share in 1995. Results for the 1996 periods include after-
tax restructuring costs of $19 million, or $.25 per share. Excluding the impact
of restructuring, third quarter net earnings are $40 million or $.53 per share
and $130 million or $1.73 per share for the first nine months.
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the
nine months ended September 30, 1996 and 1995 by classifying transactions into
three major categories: operating, investing and financing activities.
Operating Activities
- --------------------
The Company's main source of liquidity is cash from operating activities
consisting of net earnings from operations adjusted for non-cash operating items
such as depreciation and changes in operating assets and liabilities such as
receivables, inventories and payables.
Cash generated by operating activities in the first nine months was $323 million
in 1996 compared to $126 million in 1995. The current year cash generation
reflects reduced accounts receivable and inventory levels, lower restructuring
spending and favorable changes in other operating accounts primarily due to
increased accrued expenses as compared to last year, partially offset by lower
earnings and payable levels than in 1995.
Investing Activities
- --------------------
The principal recurring investing activities are property additions and
investments in and collection of financing receivables and leases. Net property
additions for the first nine months were $209 million in 1996 compared to $263
million in 1995. These expenditures are primarily for equipment and tooling
related to product improvements, more efficient production methods and
replacement for normal wear and tear. Investment in the financial services
business resulted in a net $312 million use of cash in 1996 compared to a net
$174 million use of cash in 1995 reflecting the
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
expansion of WFC's inventory financing portfolio partially offset by the
continuing liquidation of WFC's discontinued investment portfolios and the
liquidation of a portion of the consumer financing portfolio.
In October 1996, the Company plans to acquire the remaining minority interest in
Whirlpool Tatramat for about $4 million.
In September 1996, the Company acquired 100% of Gentech Trading (Pty.) Ltd., a
South African company, for about $25 million; $2 million of cash and $23 million
of assumed debt. Renamed Whirlpool South Africa, the company manufactures
refrigerators and markets manufactured and imported appliances under the
Whirlpool and local KIC brand names. Gentech annual sales were about $100
million for its fiscal year 1995.
In May 1996, two of the Company's majority owned subsidiaries in India,
Kelvinator of India ("KOI") and Whirlpool Washing Machines Limited ("WWML"),
were merged and renamed Whirlpool of India ("WOI"). As part of the merger plan,
the Company purchased an additional interest in WWML for $12 million in April
1996, resulting in a 56% interest in the combined entity, WOI.
In November 1995, the Company acquired a majority interest in Raybo Air
Conditioner Manufacturing Company ("Raybo"), a Chinese manufacturer and marketer
of air conditioners, for about $22 million in cash. Raybo annual sales were
about $20 million for its fiscal year 1994.
In May 1995, the Company acquired a majority interest in Shunde SMC Microwave
Products Co., Ltd. ("SMC"), a Chinese manufacturer and marketer of microwave
ovens, for about $90 million in cash. SMC annual sales were about $100 million
for its fiscal year 1994.
In February 1995, the Company acquired a majority interest in KOI, a
manufacturer and marketer of refrigerators, for about $116 million in cash
funded principally in 1995. As the transaction involved an issue of new KOI
shares, most of the purchase price was invested as equity in KOI in support of
planned plant and product line expansion. KOI annual sales were about $120
million for its fiscal year 1994.
The Company's new Chinese joint ventures included a $17 million majority
interest in Beijing Whirlpool Snowflake Electric Appliance Co., Ltd. to produce
refrigerators; a $16 million majority interest in Whirlpool Narcissus
("Shanghai") Co. Ltd. to produce washing machines; and a $5 million minority
interest in Beijing Embraco Snowflake Compressor Co. Ltd. to produce compressors
for refrigerators and air conditioners.
Financing Activities
- --------------------
Dividends to shareholders totaled $76 million for the first nine months of 1996
compared to $75 million in 1995.
The Company's borrowings increased by $226 million during the first nine months
of 1996, excluding the effect of currency fluctuations, primarily to fund
property additions, seasonal working
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
capital needs and the additional investment in the financial services business.
In July 1996, the Company sold $244 million of 7 3/4% debentures maturing in
2016 and used the proceeds to pay off short term borrowings.
In December 1994, the Company announced plans to repurchase up to five percent
of the outstanding shares of common stock. The treasury shares will be used in
employee stock-option, retirement and other compensation programs and for
general corporate purposes. Through the end of September 1996, the Company had
repurchased approximately 966,000 shares for $51 million.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the Company remains strong as evidenced by the
September 30, 1996 balance sheet. The Company's total assets are $8.1 billion
and stockholders' equity is $1.9 billion.
The overall debt to invested capital ratio at September 30, 1996 was up compared
to December 31, 1995. The appliance business debt to invested capital ratio net
of cash ("debt ratio") was flat with the 43% reported at the end of 1995. The
financial services debt to invested capital ratio increased from 79% to 81% due
primarily to higher borrowings to support growth in the inventory financing
portfolio. The Company's debt continues to be rated investment grade by Moody's
Investors Service Inc., Standard and Poors and Duff & Phelps.
WFC's financing portfolio by business segment is as follows (in millions):
September 30, 1996 December 31, 1995
-------------------- -----------------
Inventory $1,271 58% $ 857 46%
Consumer 429 20 531 29
Aerospace 436 20 411 22
Other 44 2 59 3
------ --- ------ ---
$2,180 100% $1,858 100%
====== === ====== ===
The aerospace portfolio is generally secured by newer (Stage III) aircraft on
lease to various international airlines. Although the commercial airline
industry seems to be stabilizing, the near-term outlook remains uncertain.
Management believes the aerospace portfolio carrying value is appropriate. The
Company is continuing to phase out of aerospace lending activities. The increase
in the aerospace portfolio as of September 30, 1996 is a result of WFC
purchasing the senior debt position on one aircraft in order to include it in
the resecuritization of several other aircraft. The securitization has been
completed and the aircraft will be rolled into it once a lease is in place,
which is expected to occur prior to year end, resulting in a $50 million
reduction in the portfolio.
The Company has external sources of capital available and believes it has
adequate financial resources and liquidity to meet anticipated business needs
and to fund future growth opportunities such as new products, acquisitions and
joint ventures.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
BUSINESS UNIT NET SALES AND OPERATING PROFIT
The following appliance business (WFC on an equity basis) data is presented as
supplemental information (in millions):
Net Sales by Business Unit were as follows:
Third Quarter Better/(Worse) Nine Months Better/(Worse)
----------------------- ----------------------- ----------------------- -----------------------
1996 1995 $ % 1996 1995 $ %
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
North America $ 1,360 $ 1,335 $ 25 2 % $ 4,075 $ 3,860 $ 215 6 %
Europe 633 624 9 1 1,831 1,825 6 -
Asia 101 91 10 11 318 247 71 29
Latin America 63 61 2 3 180 189 (9) (5)
Other (2) (2) - - (7) (4) (3) 75
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Appliance Business $ 2,155 $ 2,109 $ 46 2 % $ 6,397 $ 6,117 $ 280 5 %
========== ========== ========== ========== ========== ========== ========== ==========
Operating Profit by Business Unit was as follows:
Third Quarter Better/(Worse) Nine Months Better/(Worse)
----------------------- ----------------------- ----------------------- -----------------------
1996 1995 $ % 1996 1995 $ %
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
North America $ 138 $ 132 $ 6 5 % $ 416 $ 341 $ 75 22 %
Europe (2) 23 (25) (109) (27) 101 (128) (127)
Asia (19) (13) (6) (46) (45) (36) (9) (25)
Latin America 2 4 (2) (50) 4 18 (14) (78)
Restructuring (30) - (30) N/M (30) - (30) N/M
Other (35) (29) (6) (21) (111) (97) (14) (14)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Appliance Business $ 54 $ 117 $ (63) (54)% $ 207 $ 327 $ (120) (37) %
========== ========== ========== ========== ========== ========== ========== ==========
For commentary regarding performance in North America and Europe, refer to
Results of Operations. Asia had significant sales growth as compared to the
prior year periods due primarily to acquisitions in 1995. The planned quarterly
and first nine months operating losses in the region were higher than those
sustained in the prior periods as the region continues to solve manufacturing,
marketing and distribution issues particularly in China. Restructuring
activities relating to the region's headquarters announced in August, are
expected to improve the company's long-term cost competitiveness and
profitability in the region. The restructuring involves the transfer of Asian
research and engineering operations to manufacturing locations and regional
technology centers, and the relocation of the headquarter functions to Hong
Kong. Latin America includes Whirlpool Argentina and the South American Sales
Company (SASCO). Results in Argentina continued to be adversely affected by a
depressed appliance industry, driven by the sluggish Argentine economy and a
tight credit situation limiting customer and retailer financing resources. SASCO
results were down significantly due primarily to economic deterioration in its
key markets and the termination of certain distributors. Meaningful recovery in
industry activity and company performance in the Argentine or SASCO markets is
not expected to occur during 1996.
17
PART II. OTHER INFORMATION
--------------------------
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended September 30, 1996
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a. The following are included herein:
(11) Computation of earnings per share
(27) Financial Data Schedule
(99) Computation of the ratios of earnings to fixed charges
b. The registrant filed the following Current Reports on Form 8-K for the
quarterly period ended September 30, 1996:
1. A Current Report on Form 8-K dated July 16, 1996, pursuant to Item 5,
"Other Events", concerning the Company's second quarter and first half
earnings for 1996.
2. A Current Report on Form 8-K dated September 27, 1996, pursuant to Item
5, "Other Events," concerning the Company's announcement of lowered
expectations for third quarter operating results compared with the prior
year period, caused primarily by a continued difficult economic and
industry environment in Europe. The Company has concurrently lowered
its expectations for full-year operating results.
The Company also announced that it will take a restructuring charge of
about $30 million that will reduce net earnings in the third quarter. The
charge is for the previously announced streamlining of the Company's Asian
headquarters and a North American refrigeration operation.
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 John P. Cunningham
----------------------------
John P. Cunningham
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
November 1, 1996
19