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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 NORTH M-63, BENTON HARBOR, 49022-2692
MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (616) 923-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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<S> <C>
Common stock, par value $1.00 per share Chicago Stock Exchange
New York Stock Exchange
7 3/4% Debentures due 2016 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K X .
---
The aggregate market value of the voting stock of the registrant held by
stockholders not including voting stock held by directors and elected officers
of the registrant and certain employee plans of the registrant (the exclusion
of such shares shall not be deemed an admission by the registrant that any
such person is an affiliate of the registrant) on March 3, 1997, was
$3,682,350,173.
On March 3, 1997, the registrant had 74,842,729 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference
into the Part of the Form 10-K indicated:
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PART OF FORM 10-K INTO
DOCUMENT WHICH INCORPORATED
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The Company's annual report to stockholders for the year ended
December 31, 1996 Parts I, II and IV
The Company's proxy statement for the 1997 annual meeting of
stockholders (SEC File No. 1-3932) Part III
</TABLE>
EXHIBIT INDEX ON PAGE:**
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PART I
ITEM 1. BUSINESS.
GENERAL
Whirlpool Corporation, the leading worldwide manufacturer and marketer of
major home appliances, was incorporated in 1955 under the laws of Delaware as
the successor to a business that traces its origin to 1898. As used herein,
and except where the context otherwise requires, the term "Company" includes
Whirlpool Corporation and its consolidated subsidiaries. All currency figures
are in U.S. dollars.
RECENT DEVELOPMENTS
NORTH AMERICA
In July 1996, the Company announced that following an evaluation by Sears
Roebuck and Co. ("Sears"), the Company's largest trade customer, Sears would
continue its business with the Company. In addition to providing laundry
products, dishwashers, refrigerators, trash compactors and air control
products under Sears' KENMORE and SEARS brand names, the Company will continue
to sell KITCHENAID and WHIRLPOOL brand appliances through Sears' Brand Central
outlets.
In early 1996, the Company began production of gas and electric cooking
ranges at a new facility in Tulsa, Oklahoma and small appliances at a new
small appliance manufacturing facility in Greenville, Ohio.
EUROPE
In October 1996, the Company acquired the remaining minority (28%) equity
interest in Whirlpool Tatramat (in the Republic of Slovakia) it did not
already own for a purchase price of approximately $4 million.
In September 1996, the Company acquired Gentech Trading Ltd. ("Gentech"),
one of the largest appliance distributors and manufacturers in South Africa,
from Power Technologies Group of Johannesburg, South Africa for a purchase
price of approximately $27 million, consisting of $2 million in cash and $25
million in assumed liabilities. Gentech, renamed Whirlpool South Africa,
manufactures refrigerators and markets manufactured and imported appliances
under the WHIRLPOOL and local KIC brand names. Gentech's annual sales were
about $100 million for its fiscal year 1995.
ASIA
During 1996, the Company closed its Whirlpool Asia research and engineering
center in Singapore to more effectively use global technological product
development resources, including existing technology centers located in the
United States and Europe, to develop products for the Asia market. At the same
time, the Company consolidated and relocated its Singapore regional
headquarters to Hong Kong to achieve greater proximity to the majority of the
Company's business in Asia.
In November 1996, Whirlpool of India signed a memorandum of understanding
("MOU") with Tecumseh Products Company of the USA ("Tecumseh"), a global
manufacturer of compressors, to sell WOI's compressor division and related
facilities at Faridabad and Ballabhgarh, India. Under the terms of the MOU,
Tecumseh would enter into a long-term supply agreement with the Company
pursuant to which the Company would be required to purchase and Tecumseh would
be required to sell compressors to the Company. The agreement is contingent
upon receiving all necessary government and regulatory approvals and the
transaction is expected to be finalized during 1997.
1
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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 27% interest in WWML for $12 million
in April 1996 for a total interest of 78% in WWML. The merger will result in
the Company having a 56% interest in the combined entity, WOI.
FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS,
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company operates predominantly in the business segments classified as
Major Home Appliances and Financial Services.
During 1996, the Company's U.S. operations sold product into Canada, Mexico,
Latin America, Asia, Europe, Africa and the Middle East. However, export sales
by the Company's U.S. operations were less than 10 percent of gross revenues.
For certain other financial information concerning the Company's business
segments and foreign and domestic operations, see Notes 1 and 15 of the Notes
to Consolidated Financial Statements in the Company's Annual Report to
Stockholders (the "Annual Report"), which information is incorporated herein
by reference.
PRODUCTS AND SERVICES
The Company manufactures and markets a full line of major home appliances
and related products for home and commercial use and provides certain
inventory, consumer, and other financial services. The Company's principal
products and financial services are as follows:
Major Home Appliances:
Home laundry appliances: automatic and semi-automatic washers; automatic
dryers; coin-operated laundry machines; and stacked washer-dryer units.
Home refrigeration and room air conditioning equipment: refrigerator-
freezers; upright and chest freezers; room air conditioners; dehumidifiers;
and residential, commercial, and component ice makers; compact
refrigerators; and wine coolers.
Home cooking appliances: free-standing and set-in ranges; built-in ovens
and surface cooking units; microwave ovens; countertop cooking units; and
range hoods.
Small household appliances: stand mixers; hand mixers; food processors;
blenders; and toasters.
Other home appliances, products and services: dishwashers; residential
trash compactors; food waste disposers; hot water dispensers; water
filtration products; oil radiators; water heaters; kitchen sinks; component
parts; replacement parts, repair services and warranty contracts; and
product kits.
Financial Services:
Whirlpool Financial Corporation ("WFC") provides inventory financing and
factoring services, including stocking and display programs for retailers
and distributors that market products manufactured by the Company in North
America and various countries in Europe, Latin America and Asia plus other
manufacturers of consumer durables in the United States and Canada. It also
provides consumer financing services for retail sales in the United States,
principally through Whirlpool Financial National Bank ("WFNB") which offers
consumer credit card programs and in India through Whirlpool Apple Consumer
Credit Pvt. Ltd., a joint venture between a subsidiary of WFC and Apple
Industries Limited. WFC continues to phase out its aerospace financing and
leasing portfolios.
2
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The Company purchases a portion of its product requirements from other
manufacturers for resale by the Company. The Company purchases some of its
requirements of twin tub washers, and all of its requirements of certain
cooking products, range hoods, food waste disposers, upright and chest freezers
(North America only), wine coolers, food processors and certain other
miscellaneous products from other manufacturers for resale by the Company.
For certain information with respect to each class of similar products which
accounted for 10 percent or more of the Company's consolidated revenue in 1996,
1995, and 1994, see "Revenue Information" in the Annual Report, which
information is incorporated herein by reference.
The Company has been the principal supplier of home laundry appliances to
Sears for over 80 years. The Company is also the principal supplier to Sears of
residential trash compactors and dehumidifiers and a major supplier to Sears of
dishwashers, room air conditioners, and home refrigeration equipment. The
Company also supplies Sears with certain other products for which the Company
is not currently a major supplier. Sales of such other products to Sears are
not significant to the Company's business. The Company supplies products to
Sears for sale under Sears' KENMORE and SEARS brand names. Sears has also been
a major outlet for the Company's WHIRLPOOL and KITCHENAID brand appliances
since 1989. As previously noted under the caption "Recent Developments," the
Company announced that following an evaluation by Sears of its home appliance
suppliers, Sears would retain it business relationship with the Company.
Major home appliances are marketed and distributed in the United States under
the WHIRLPOOL, KITCHENAID, ROPER, ESTATE, CHAMBERS, and COOLERATOR brand names
through Company-owned sales branches primarily to retailers and builders.
KITCHENAID portable appliances are sold to retailers either directly or through
an independent representative organization. The Company sells product to the
builder trade both directly and through contract distributors. Major home
appliances are manufactured and/or distributed in Canada under the INGLIS,
ADMIRAL, SPEED QUEEN, WHIRLPOOL, ESTATE, ROPER, and KITCHENAID brand names.
Refrigerator-freezers, laundry products, room air conditioners, residential
trash compactors, residential and component ice makers, cooking products,
dishwashers, and other products are sold in limited quantities by the Company
to other manufacturers and retailers for resale in North America under their
respective brand names.
In Europe, Whirlpool Europe markets and distributes its major home appliances
through regional networks under the WHIRLPOOL, BAUKNECHT, IGNIS, and LADEN
brand names. In certain Eastern European countries, products bearing the
WHIRLPOOL and IGNIS brand names are sold through independent distributors.
Whirlpool Europe also has company-owned sales subsidiaries in Hungary, Poland,
the Czech Republic, Slovakia, Greece, Romania, Bulgaria, and Morocco and a
representative office in Russia. Whirlpool Europe has a subsidiary in South
Africa through which it markets products under the WHIRLPOOL and KIC brand
names.
Whirlpool Europe also sells products carrying the WHIRLPOOL, BAUKNECHT,
IGNIS, ALGOR, and FIDES brand names to the Company's wholly-owned sales
companies in Asia and/or Latin America (Whirlpool Asia Appliance Group and the
Latin America Appliance Group) and to independent distributors and retailers in
Africa and the Middle East.
In Asia, the Company markets and distributes its major home appliances
through three operating regions: the Greater China region, based in Hong Kong,
which includes the Peoples Republic of China and Hong Kong; the South Asia
region, based in Delhi, which includes India, Pakistan, and other surrounding
markets; and the Asia Pacific Sales region, based in Singapore, which includes
Southeast Asia, Japan, Korea, the Philippines, Thailand, Taiwan, Australia, and
New Zealand. The Company markets and sells its products in Asia under the
WHIRLPOOL, KITCHENAID, ROPER, IGNIS, BAUKNECHT, and RAYBO brand names as well
as under the SMC, NARCISSUS and SNOWFLAKE brand names (owned by its joint
venture partners and used under license). At the end of 1996, the Company
discontinued its licensed use of the KELVINATOR OF INDIA name and the
KELVINATOR brand for refrigerators. The Company also discontinued its licensed
use of the TVS brand name effective beginning in 1997.
3
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WHIRLPOOL FINANCIAL CORPORATION
WFC provides diversified financial services to businesses and consumers
throughout the United States and Canada and factoring, inventory and display
financing activities in Europe, Mexico, Argentina, India and Thailand. WFC
conducts its business through three divisions: the Inventory Finance Division,
which provides floorplan financing and display programs to retailers in the
United States and Canada; the Consumer Finance Division, which provides
installment financing and, through WFNB, WFC's credit card bank, consumer
credit card programs in the United States; and the International Division,
operated through Whirlpool Financial Corporation International and its
subsidiaries, Whirlpool Financial Latin America Inc. and Whirlpool Financial
Corporation Overseas, wholly-owned subsidiaries of WFC, which provide
factoring, inventory and display financing for retailers of products of
Whirlpool Europe, Whirlpool Argentina, Vitromatic, Whirlpool's joint venture
company in Mexico, Whirlpool India, and Whirlpool Thailand. Inventory
financing represents the largest segment of WFC's business, providing services
for manufacturers, distributors, and retailers in the appliance, consumer
electronics, outdoor power equipment, residential heating and cooling
equipment, and music industries. As previously mentioned, WFC is phasing-out
its aerospace financing and leasing portfolios.
COMPETITION
The major home appliance business is highly competitive. The Company
believes that, in terms of units sold annually, it is the largest U. S.
manufacturer of home laundry appliances and one of the largest United States
manufacturers of home refrigeration and room air conditioning equipment and
dishwashers. The Company estimates that during 1996 with respect to United
States manufacturers, there were approximately five manufacturers of home
laundry appliances, 10 manufacturers of room air conditioning equipment, five
manufacturers of home refrigeration equipment, and four manufacturers of
dishwashers. Competition in the North American major home appliance business
is based on a wide variety of factors, including principally product features,
price, product quality and performance, service, warranty, advertising, and
promotion.
The Company believes that Whirlpool Europe, in terms of units sold annually,
is one of the three largest manufacturers and marketers of major home
appliance products in Europe. The Company estimates that during 1996 there
were approximately 35 European manufacturers of major home appliances, the
majority of which manufacture a limited range of products for a specific
geographic region. In recent years, there has been significant merger and
acquisition activity as manufacturers seek to broaden product lines and expand
geographic markets, and the Company believes that this trend will continue.
The Company believes that, with Whirlpool Europe, it is in a favorable
position relative to its competitors because it has an experienced European
sales network, balanced sales throughout the European market under well-
recognized brand names, manufacturing facilities located in different
countries, and the ability to customize its products to meet the specific
needs of diverse consumer groups. Competition in the European major home
appliance business is based on a wide variety of factors, including
principally product features, price, product quality and performance, service,
warranty, advertising, and promotion. With respect to microwave ovens,
European manufacturers face competition from manufacturers in Asia, primarily
Japan and South Korea.
In Asia, the major domestic appliance market is characterized by rapid
growth and is dominated primarily by Asian diversified industrial
manufacturers whose significant size and scope of operations enable them to
achieve economies of scale. Products imported from Europe and North America
have a significant presence in some Asian markets. The Company estimates that
during 1996 there were approximately 50 manufacturers of major home appliances
competing in the Asian market. Competition in the Asian home appliance market
is based on a wide variety of factors, including principally local production
capabilities, product features, price, product quality, and performance.
The Company believes that, together with its Brazilian affiliates, it is
well-positioned in the Latin American appliance market due to its ability to
offer a broad range of products under well-recognized brand names such as
WHIRLPOOL and the BRASTEMP and CONSUL brand names (owned by its Brazilian
affiliate and used under license)
4
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to meet the specific requirements of consumers in the region. The Company
estimates that during 1996 there were approximately 65 manufacturers of home
appliances in the region. Competition in the Latin American home appliance
business is based on a wide variety of factors, including principally product
features, price, product quality and performance, service, warranty,
advertising, and promotion. In Latin America there are trends toward
privatization of government-owned businesses and a liberalization of
investment and trade restrictions. In addition the Company's majority-owned
sales company exports products to the Latin American market under the ALGOR,
FIDES, and IGNIS brand names.
As a result of its global expansion, the Company believes it may have a
competitive advantage by reason of its ability to share engineering
capabilities across regions, transfer best practices, and economically
purchase raw materials and component parts in large volumes.
The financial services industry is an intensely competitive business.
Factors affecting competition include new entrants into a market experiencing
only moderate growth and the continuing pressure to improve investment returns
in the financial services industry. With respect to inventory financing, there
has been a trend toward consolidation resulting in five dominant companies in
the United States market. In terms of total assets, WFC is the smallest of
these companies. WFC believes it has a competitive advantage due to its strong
relationship with the Company and other distribution networks. In the
inventory finance business, WFC's strategy is to exploit niches within the
consumer durables retail market. In consumer finance, WFC utilizes the same
retailer relationships to address the needs of their consumers through private
label credit card programs. The consumer finance market is highly fragmented
with numerous competitors, none of which has a dominant market share.
EMPLOYEES
The Company and its consolidated subsidiaries had approximately 48,000
employees as of December 31, 1996.
OTHER INFORMATION
The Company owns minority equity interests in certain Brazilian
manufacturers of major home appliances and components (Multibras and Embraco)
and has a controlling interest in a sales and marketing joint venture (the
South American Sales Company) with Multibras. The Company has a significant
minority equity interest in a major manufacturer of kitchen furniture in
Germany which is also a major trade customer of the Company. The Company also
has a majority interest in a joint venture company in Argentina which
manufactures home appliances for sale and distribution in its home and
surrounding markets. In China, the Company has majority interests in joint
venture companies that manufacture microwave ovens, refrigeration products,
air conditioners and automatic washing machines for sale and distribution in
their home countries and for export. In India, the Company has a majority
interest in a company that produces refrigeration products and washing
machines for the Indian market and for export to the rest of Asia. The Company
also has minority equity interests in a Mexican manufacturer of home
appliances and components and a Taiwanese marketer and distributor of home
appliances. In China, the Company has a minority equity interest in a
compressor manufacturing joint venture between its Brazilian affiliate and a
company in China which manufactures refrigeration products and is a joint
venture affiliate of the Company. For additional information regarding the
Company's affiliated companies, see the discussion contained under Note 5 of
the Notes to Consolidated Financial Statements in the Annual Report which is
incorporated herein by reference. In addition, the Company furnishes
engineering, manufacturing and marketing assistance to certain foreign
manufacturers of home laundry and refrigeration equipment and other major home
appliances for negotiated fees.
The Company's interests outside the United States and Western Europe are
subject to risks which may be greater than or in addition to those risks
currently present in the United States and Western Europe. Such risks may
include high inflation, the need for governmental approval of and restrictions
on certain financial and other
5
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corporate transactions and new or continued business operations, government
price controls, restrictions on the remittance of dividends, interest,
royalties, and other payments, and the convertibility of local currencies,
restrictions on imports and exports, duties, political and economic
developments and instability, the possibility of expropriation, uncertainty as
to the enforceability of commercial rights and trademarks, and various types
of local participation in ownership. In Brazil, the Company's minority equity
interests earned profits in 1995 and 1996 due to lower interest rates,
availability of consumer credit, higher purchasing power in certain market
segments, cost control, productivity improvements, and an increase in consumer
demand. However, issues such as economic volatility and exchange rate changes
continue to affect consumer purchasing power and the appliance industry as a
whole.
The Company is generally not dependent on any one source for raw materials
or purchased components essential to its business. In those areas where a
single supplier is used, alternative sources are generally available and can
be developed within the normal manufacturing environment, although some
unanticipated costs may be incurred in transitioning to a new supplier where a
prior single supplier is abruptly terminated. While there are pricing
pressures on some materials and significant demand for certain components, it
is believed that such raw materials and components will be available in
adequate quantities to meet anticipated production schedules.
Patents presently owned by the Company are considered, in the aggregate, to
be important to the conduct of the Company's business. The Company is licensed
under a number of patents, none of which individually is considered material
to its business. The Company is the owner of a number of trademarks and the
U.S. and foreign registrations thereof. The most important for its North
American operations are the trademarks WHIRLPOOL, KITCHENAID, ROPER, and
INGLIS. Whirlpool Europe, through its subsidiaries, is also the owner of a
number of trademarks and the foreign registrations thereof. The most important
trademarks owned by Whirlpool Europe are BAUKNECHT, IGNIS, and LADEN. The most
important trademark for the Company's European, Asian and Latin American
operations is WHIRLPOOL. The most important trademark licensed to the
Company's subsidiaries is the trademark PHILIPS and the PHILIPS shield emblem,
which can be used exclusively on major home appliances by such subsidiaries
until July 31, 1998. In the event of a change in control of the Company,
Philips ("Philips") has the option to terminate the use by the Company's
subsidiaries of the trademark PHILIPS and the PHILIPS shield emblem. Pursuant
to the agreement whereby the Company purchased most of Whirlpool Europe's
business from Philips, except for certain limited exceptions and subject to
certain phase-out provisions, neither Philips nor any subsidiary of Philips
may engage directly or indirectly in the major domestic appliance business
anywhere in the world until July 31, 1998.
The Company believes that its business, in the aggregate, is not seasonal.
Certain of its products, however, sell more heavily in some seasons than in
others. In the United States, room air conditioners and dehumidifiers are
generally produced and sold heavily in the first half of each year.
Refrigerators have a seasonal increase in production and sales from May
through September. Portable appliances and microwave ovens tend to sell more
heavily in the second half of each year. In Europe, clothes dryers are sold
more heavily in the winter. In Asia, with the exception of India,
refrigerators tend to sell more heavily in summer, while demand for washers is
greater in winter. In India, refrigerators and washers sell more frequently in
the fall and winter months. Air conditioners are sold more heavily in the
summer in Asia. In South America, refrigerators and room air conditioners sell
more heavily in the second half of the year.
Backlogs of the Company's products are filled and renewed relatively
frequently in each year and are not significant in relation to the Company's
annual sales. However, with respect to Asia, marked seasonality of certain
product sales as noted above, combined with less efficient modes of
distribution in that region, can result in significant inventory backlogs.
Expenditures for Company-sponsored research and engineering activities
relating to the development of new products and the improvement of existing
products are included in Note 1 of the Notes to Consolidated Financial
Statements in the Annual Report, which is incorporated herein by reference.
Customer-sponsored research activities relating to the development of new
products, services or techniques, or the improvement of existing products,
services, or techniques are not material.
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The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect or enhance the environment, many of which
require federal, state, or other governmental licenses and permits with regard
to wastewater discharges, air emissions, and hazardous waste management. These
laws are continually changing and, as a general matter, are becoming more
restrictive. The Company's policy is to comply with all such laws and
regulations.
The Company believes that it is in compliance in all material respects with
all presently applicable federal, state, local, and other provisions relating
to environmental protection in the countries in which it has manufacturing
operations. Capital expenditures and expenses attributable to compliance with
such provisions worldwide amounted to approximately $78 million in 1994, $58
million in 1995 and $50 million in 1996. The Company anticipates that such
capital expenditures and expenses will aggregate approximately $52 million in
1997. Much of the decrease from 1994 to 1996 is attributable to the phaseout
of CFCs and is associated with the elimination of taxes on chloroflourocarbons
("CFCs") (which were eliminated from the Company's products in the United
States prior to December 31, 1995). The Company is using a global
environmental management process to assist in achieving its goals of producing
environmentally compatible products, better integrating environmental
considerations into the Company's product design and employee training,
improving the Company's ability to report and monitor its management of
environmental, health and safety affairs, and reducing its worldwide emissions
of certain chemicals.
The entire United States home appliance industry, including the Company,
must contend with adoption of stricter governmental energy and environmental
standards to be phased in over the next several years. These include the
general phaseout of CFCs used in refrigeration and energy standards
rulemakings for other selected major appliances produced by the Company.
Enactment of Federal energy standards is uncertain at this time due to funding
and rulemaking restrictions being considered for the Department of Energy by
the U.S. Congress. Compliance with these various standards as they become
effective will require some product redesign.
In Europe, the Company met the December 31, 1994 deadline for the
elimination of CFCs in its products. As in the United States, Whirlpool Europe
is also dealing with anticipated regulations and rules regarding improved
efficiency and energy usage for its products. The Company believes it is well
positioned to field products that comply with these anticipated regulations.
In most Asian countries, the Company has until 2010 to eliminate CFCs from its
products. Whirlpool's Asian operations are also well positioned to meet
anticipated efficiency and energy usage regulations.
The Company has been notified by state and federal environmental protection
agencies of its possible involvement in a number of so-called "Superfund"
sites in the United States. However, the Company does not presently anticipate
any material adverse effect upon the Company's earnings or financial condition
arising out of the resolution of these matters or the resolution of any other
known governmental proceeding regarding environmental protection matters. The
Company has completed environmental assessments of its European facilities
acquired as a result of the Company's purchase of the Major Domestic Appliance
division of Philips. The Company does not presently anticipate any material
adverse effect upon the Company's earnings or financial condition arising out
of the resolution of these matters. The Company is also in the process of
evaluating several recently acquired facilities in India and China. The
Company does not presently anticipate any material adverse effect upon the
Company's earnings or financial condition from the environmental condition of
these facilities.
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The following table sets forth the names of the Company's executive officers
at December 31, 1996, the positions and offices with the Company held by them
at such date, the year they first became officers, and their ages at December
31, 1996:
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FIRST BECAME
NAME OFFICE AN OFFICER AGE
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David R. Whitwam Director, Chairman of the 1983 54
Board and Chief Executive
Officer
William D. Marohn Director, President and 1984 56
Chief Operating Officer
John P. Cunningham Executive Vice President 1995 59
and Chief Financial
Officer
Jeff M. Fettig Executive Vice President 1993 39
Ralph F. Hake Executive Vice President 1988 47
Robert D. Hall Executive Vice President 1992 48
Ronald L. Kerber Executive Vice President 1991 53
P. Daniel Miller Executive Vice President 1991 47
</TABLE>
Each of the executive officers named above was elected to serve in the office
indicated until the first meeting of the Board of Directors following the
annual meeting of stockholders in 1997 and until his successor is chosen and
qualified or until his earlier resignation or removal.
Each of the executive officers of the Company has held the position set forth
in the table above or has served the Company in various executive or
administrative capacities for at least the past five years, except for:
<TABLE>
<CAPTION>
NAME COMPANY/POSITION PERIOD
---- ---------------- ------
<S> <C> <C>
John P. Maytag Corporation 1/94 through 12/95
Cunningham Chief Financial Officer
12/66 through 12/93
IBM
Vice President and Assistant General Manager--
Main Frame Division (last title held)
</TABLE>
ITEM 2. PROPERTIES.
The principal executive offices of Whirlpool Corporation are located in
Benton Harbor, Michigan. At December 31, 1996, the principal manufacturing and
service operations of the Company were carried on at 32 locations worldwide, 20
of which are located in 10 countries outside the United States. The Company
occupied a total of approximately 35 million square feet devoted to
manufacturing, service, administrative offices, warehouse, distribution, and
sales space. Over 10 million square feet of such space is occupied under lease.
In general, all such facilities are well maintained, suitable equipped, and in
good operating condition. In 1996, manufacturing plants in Tulsa, Oklahoma, and
Greenville, Ohio, were completed and became fully operational.
ITEM 3. LEGAL PROCEEDINGS.
As of, and during the quarter ended, December 31, 1996, there were no
material pending legal proceedings to which the Company or any of its
subsidiaries was a party or to which any of their property was subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the fourth
quarter of 1996.
8
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded on the New York Stock Exchange, the
Chicago Stock Exchange, and the London Stock Exchange.
At March 3, 1997, the number of holders of record of the Company's common
stock was approximately 10,904.
High and low sales prices (as reported on the New York Stock Exchange
composite tape) and cash dividends declared and paid for the Company's common
stock for each quarter during the years 1995 and 1996 are set forth in Note 16
of the Notes to Consolidated Financial Statements in the Annual Report, which
is herein incorporated by reference.
In December 1996, Whirlpool Financial Corporation issued 250,000 shares of
Series C redeemable cumulative preferred stock for an initial price of $100
per share. Goldman, Sachs & Co. ("Goldman") was the initial purchaser of all
of the shares of the Series C preferred stock and such shares were purchased
by Goldman and sold by the Company pursuant to a purchase agreement (the
"Purchase Agreement") between Goldman and the Company. Pursuant to the terms
and conditions of the Purchase Agreement, Goldman made the representation that
it was purchasing the Series C shares in reliance on Rule 144A under the
Securities Act and that any resale of such Series C shares would be made to
institutional "accredited investors" (within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Act (Regulation D)). Goldman received $218,750 in
fees, deducted from the offering proceeds, for its services in connection with
the issuance of the Series C preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the five years ended December 31, 1996 with
respect to the following line items shown under the "Eleven Year Consolidated
Statistical Review" in the Annual Report is incorporated herein by reference
and made a part of this report: Total revenues; earnings from continuing
operations before accounting change; earnings from continuing operations
before accounting change per share of common stock; dividends paid per share
of common stock; total assets; and long-term debt. See the material
incorporated herein by reference in response to Item 7 of this report for a
discussion of the effects on such data of business combinations and other
acquisitions, disposition and restructuring activity, restructuring costs,
accounting changes, and earnings of foreign affiliates.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Management's Discussion and Analysis of Results of Operations and
Financial Condition in the Annual Report is incorporated herein by reference
and made a part of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company in the Annual Report
are incorporated herein by reference and made a part of this report.
Supplementary financial information regarding quarterly results of operations
(unaudited) for the years ended December 31, 1996 and 1995 is set forth in
Note 16 of the Notes to Consolidated Financial Statements. For a list of
financial statements and schedules filed as part of this report, see the
"Index to Financial Statements and Financial Statement Schedule(s)" beginning
on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
9
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors of the Company is incorporated herein
by reference to the information under the caption "Directors and Nominees for
Election as Directors" in the Company's proxy statement for the 1997 annual
meeting of stockholders (SEC File No. 1-3932) (the "Proxy Statement").
Information with respect to executive officers of the Company is set forth in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to compensation of executive officers and directors
of the Company is incorporated herein by reference to the information under
the captions "Executive Compensation" and "Compensation of Directors" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP.
Information with respect to security ownership by the only person(s) known
to the Company to beneficially own more than 5 percent of the Company's stock
and by each director of the Company and all directors and elected officers of
the Company as a group is incorporated herein by reference to the information
under the caption "Security Ownership" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. The financial statements listed in the "Index to Financial Statements
and Financial Statement Schedules."
2. The financial statement schedule listed in the "Index to Financial
Statements and Financial Statement Schedules."
3. The exhibits listed in the "Index to Exhibits."
(b) Reports on Form 8-K filed during the fourth quarter of 1996.
1. None.
(c) Exhibits.
1. The following exhibits are included herein:
(11) Computation of per share earnings.
(12) Computation of the ratios of earnings to fixed charges.
(27) Financial Data Schedule.
(99) Audited Consolidated Financial Statements of Multibras S.A.
Electrodomesticos and subsidiaries.
2. The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.
10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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)
/s/ John P. Cunningham
By: _________________________________
John P. Cunningham(Principal
Financial Officer) Executive Vice
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
David R. Whitwam* Director, Chairman of the
____________________________________ Board and Chief Executive
David R. Whitwam Officer (Principal
Executive Officer)
William D. Marohn* Director, and Vice Chairman
____________________________________ of the Board
William D. Marohn
John P. Cunningham* Executive Vice President and
____________________________________ Chief Financial Officer
John P. Cunningham (Principal Financial
Officer)
Robert G. Thompson* Vice President and
____________________________________ Controller (Principal
Robert G. Thompson Accounting Officer)
Robert A. Burnett* Director
____________________________________
Robert A. Burnett
Herman Cain* Director
____________________________________
Herman Cain
Allan D. Gilmour* Director
____________________________________
Allan D. Gilmour
March 21, 1997
Kathleen J. Hempel* Director
____________________________________
Kathleen J. Hempel
Arnold G. Langbo* Director
____________________________________
Arnold G. Langbo
Miles L. Marsh* Director
____________________________________
Miles L. Marsh
Philip L. Smith* Director
____________________________________
Philip L. Smith
Paul G. Stern* Director
____________________________________
Paul G. Stern
Janice D. Stoney* Director
____________________________________
Janice D. Stoney
</TABLE>
/s/ Daniel F. Hopp Attorney-in-Fact
*By: __________________________
Daniel F. Hopp
11
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEMS 14(A) (1) AND (2) AND 14(D)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE(S)
YEAR ENDED DECEMBER 31, 1996
WHIRLPOOL CORPORATION AND CONSOLIDATED SUBSIDIARIES
The following consolidated financial statements of the registrant and its
consolidated subsidiaries, set forth in the Annual Report, are incorporate
herein by reference in Item 8:
Consolidated balance sheets--December 31, 1996 and 1995
Consolidated statements of earnings--Three years ended December 31,
1996
Consolidated statements of cash flows--Three years ended December 31,
1996
Notes to consolidated financial statements
The following reports of independent auditors and consolidated financial
statement schedules of the registrant and its consolidated subsidiaries are
submitted herewith in response to Items 14(a) (2) and 14(d):
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young, Independent Auditors........................ F-2
Reports of Price Waterhouse, Independent Auditors.................... F-3
Schedule II--Valuation and Qualifying Accounts....................... F-9
The following exhibits are included herein:
Exhibit 11--Computation of Earnings Per Share........................ F-10
Exhibit 12--Ratio of Earnings to Fixed Charges....................... F-11
Exhibit 99--Audited Consolidated Financial Statements of Multibras
S.A.
Electrodomesticos and Subsidiaries as of and for the Years Ended
December 31, 1996
and 1995............................................................ F-13
</TABLE>
Individual financial statements of the registrant's affiliated foreign
companies, other than affiliated Brazilian companies, accounted for by the
equity method, have been omitted since no such company individually
constitutes a significant subsidiary. Summarized financial information
relating to the affiliated companies is set forth in Note 5 of the Notes to
Consolidated Financial Statements incorporated by reference herein.
Certain schedules for which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE>
[LETTERHEAD ERNST & YOUNG LLP]
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Whirlpool Corporation
Benton Harbor, Michigan
We have audited the consolidated financial statements of Whirlpool
Corporation listed in the Index at Item 14(a)(1) of the annual report on Form
10-K of Whirlpool Corporation for the year ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)(2). These financial statements and schedule are the responsibility of
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of the Brazilian affiliates used as the basis for
recording the Company's equity in their net earnings, as presented in Note 5 to
the consolidated financial statements. The financial statements of those
affiliates were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amount included for the
Brazilian affiliates, is based on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Whirlpool Corporation at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
[LOGO SIGNATURE Ernst & Young LLP]
Chicago, Illinois
January 20, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 22, 1997
To the Board of Directors and Stockholders
Brasmotor S.A.
We have audited the accompanying consolidated balance sheets of Brasmotor
S.A. and its subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of earnings, of movement in stockholders' equity and
of cash flows for the years then ended, expressed in U.S. dollars. Such audits
were made in conjunction with our audits of the financial statements expressed
in local currency on which we issued an unqualified opinion dated January 22,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Whirlpool Argentina S.A. used as the basis for recording the Company's equity
in its net earnings, as presented in Note 4 to the consolidated financial
statements. The financial statements of that affiliate were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as
it relates to the amounts included for Whirlpool Argentina S.A. (Note 4), is
based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As stated in Note 1, Whirlpool Corporation has prescribed that accounting
principles generally accepted in the United States of America be applied in
the preparation of the consolidated financial statements of Brasmotor S.A. and
its subsidiaries to be included in Whirlpool's consolidated financial
statements. Brazil has a highly inflationary economy. Accounting principles
generally accepted in the United States of America require that financial
statements of a company denominated in the currency of a country with a highly
inflationary economy be remeasured into a more stable currency unit for
purposes of consolidation. Accordingly, the accounts of Brasmotor S.A. and its
Brazilian subsidiaries, which are maintained in reais, were remeasured and
adjusted into U.S. dollars for the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
on the bases stated in Note 1.
F-3
<PAGE>
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements expressed in U.S. dollars audited by us
are presented fairly, in all material respects, on the bases stated in Note 1
and discussed in the preceding paragraph.
Price Waterhouse
Auditors Independents
CRC 2SP000160/O-5
Carlos Roberto Asciutti
Partner
Contador CRC 1SP145670/O-1
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 22, 1997
To the Board of Directors and Stockholders
Empresa Brasileira de Compressores S.A.--EMBRACO
We have audited the accompanying consolidated balance sheets of Empresa
Brasileira de Compressores S.A.--EMBRACO and its subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of earnings, of
movement in stockholders' equity and of cash flows for the years then ended,
expressed in U.S. dollars. Such audits were made in conjunction with our
audits of the financial statements expressed in local currency on which we
issued an unqualified opinion dated January 22, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As stated in Note 1, Whirlpool Corporation has prescribed that accounting
principles generally accepted in the United States of America be applied in
the preparation of the consolidated financial statements of Empresa Brasileira
de Compressores S.A.--EMBRACO and its subsidiaries to be included in
Whirlpool's consolidated financial statements. Brazil has a highly
inflationary economy. Accounting principles generally accepted in the United
States of America require that financial statements of a company denominated
in the currency of a country with a highly inflationary economy be remeasured
into a more stable currency unit for purposes of consolidation. Accordingly,
the accounts of Empresa Brasileira de Compressores S.A.--EMBRACO and its
Brazilian subsidiaries, which are maintained in reais, were remeasured and
adjusted into U.S. dollars, for the purpose of the financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America on the bases stated in Note 1.
F-5
<PAGE>
In our opinion, the consolidated financial statements expressed in U.S.
dollars audited by us are presented fairly, in all material respects, on the
bases stated in Note 1 and discussed in the preceding paragraph.
Price Waterhouse
Auditores Independentes
CRC 2SP000160/O-5 "S" SC
Carlos Roberto Asciutti
Partner
Contador CRC 1SP145670/O-1 "S" SC
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
January 22, 1997
To the Board of Directors and Stockholders
Multibras S.A. Electrodomesticos
We have audited the accompanying consolidated balance sheets of Multibras
S.A. Eletrodomesticos and its subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of earnings, of movement in
stockholders' equity and of cash flows for the years then ended, expressed in
U.S. dollars. Such audits were made in conjunction with our audits of the
financial statements expressed in local currency on which we issued an
unqualified opinion dated January 22, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As stated in Note 1, Whirlpool Corporation has prescribed that accounting
principles generally accepted in the United States of America be applied in
the preparation of the consolidated financial statements of Multibras S.A.
Eletrodomesticos and its subsidiaries to be included in Whirlpool's
consolidated financial statements. Brazil has a highly inflationary economy.
Accounting principles generally accepted in the United States of America
require that financial statements of a company denominated in the currency of
a country with a highly inflationary economy be remeasured into a more stable
currency unit for purposes of consolidation. Accordingly, the accounts of
Multibras S.A. Eletrodomesticos and its Brazilian subsidiaries, which are
maintained in reais, were remeasured and adjusted into U.S. dollars for the
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America on the basics stated in
Note 1.
F-7
<PAGE>
In our opinion, the consolidated financial statements expressed in U.S.
dollars audited by us are presented fairly, in all material respects, on the
bases stated in Note 1 and discussed in the preceding paragraph.
Price Waterhouse
Auditores Independentes
CRC 2SP000160/O-5
Carlos Roberto Asciutti
Partner
Contador CRC ISP145670/O-1
F-8
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ --------- ------------------- ------------ -------
ADDITIONS
-------------------
(1) (2)
BALANCE CHARGED CHARGED BALANCE
AT TO COSTS TO OTHER AT END
BEGINNING AND ACCOUNTS-- DEDUCTIONS-- OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- --------- -------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1996:
Allowances for doubtful
accounts--trade
receivables.............. $ 39 $ 15 $ 9(A) $ 45
==== ==== ==== ====
Allowances for doubtful
accounts--financing
receivables and leases... $ 42 $ 48 $ 40(B) $ 50
==== ==== ==== ====
Accrued expenses--
restructuring costs...... $ 70 $ 30 $ 68(C) $ 32
==== ==== ==== ====
Year Ended December 31,
1995:
Allowances for doubtful
accounts--trade
receivables.............. $ 38 $ 16 $ 15(A) $ 39
==== ==== ==== ====
Allowances for doubtful
accounts--financing
receivables and leases... $ 46 $ 34 $ 38(B) $ 42
==== ==== ==== ====
Accrued expenses--
restructuring costs...... $175 $-- $105(C) $ 70
==== ==== ==== ====
Year Ended December 31,
1994:
Allowances for doubtful
accounts--trade
receivables.............. $ 36 $ 13 $ 11(A) $ 38
==== ==== ==== ====
Allowances for doubtful
accounts--financing
receivables and leases... $ 49 $ 22 $ 25(B) $ 46
==== ==== ==== ====
Accrued expenses--
restructuring costs...... $ 33 $250 $108(C) $175
==== ==== ==== ====
</TABLE>
- - --------
Note A--The amounts represent accounts charged off, less recoveries of $7 in
1996, $5 in 1995 and $1 in 1994, and translation adjustments.
Note B--The amounts represent accounts charged off, less recoveries of $3 in
1996 and 1995 and $2 in 1994.
Note C--Includes cash payments for employee severance and related costs, lease
terminations, facility dispositions and other cash costs; write-down of
facilities, equipment and other assets; and translation adjustments.
F-9
<PAGE>
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(ALL AMOUNTS IN MILLIONS EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Primary:
Average Shares Outstanding............................... 74.3 73.9 74.2
Treasury Stock Method (a):
Stock Options.......................................... 0.5 0.6 1.0
Restricted Stock....................................... 0.3 0.3 0.3
------ ------ ------
Average Shares Outstanding............................... 75.1 74.8 75.5
====== ====== ======
Net Earnings............................................. $155.8 $209.4 $158.3
====== ====== ======
Earnings Per Share....................................... $ 2.08 $ 2.80 $ 2.10
====== ====== ======
Fully Diluted:
Average Shares Outstanding............................... 74.3 73.9 74.2
Treasury Stock Method (b):
Stock Options.......................................... 0.6 0.9 1.2
Restricted Stock....................................... 0.3 0.3 0.3
Assumed Conversion of Debt............................... 2.2 2.2 2.2
------ ------ ------
Average Shares Outstanding................................. 77.4 77.3 77.9
====== ====== ======
Net Earnings............................................. $155.8 $209.4 $158.3
Interest Expense, or Convertible Debt, net of tax........ 4.5 4.2 4.3
------ ------ ------
Fully Diluted Net Earnings............................... $160.3 $213.6 $162.6
====== ====== ======
Earnings Per Share....................................... $ 2.07 $ 2.76 $ 2.09
====== ====== ======
</TABLE>
- - --------
(a) Using the average market price per share of stock for the period.
(b) Using the greater of the average market price per share of stock for the
period or the market price per share of stock at the end of the period.
F-10
<PAGE>
EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------
APPLIANCE FINANCIAL WHIRLPOOL
BUSINESS SERVICES CORPORATION
--------- --------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Pretax earnings................................ $214.0 $ 28 $242
Portion of rents representative of the interest
factor........................................ 21 1 22
Interest on indebtedness....................... 128 79 207
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
------ ---- ----
Adjusted income................................ $ 364 $112 $476
====== ==== ====
<CAPTION>
FIXED CHARGES
- - -------------
<S> <C> <C> <C>
Portion of rents representative of the interest
factor........................................ $ 21 $ 1 $ 22
Interest on indebtedness....................... 128 79 207
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
------ ---- ----
$ 150 $ 84 $234
====== ==== ====
Ratio of earnings to fixed charges............. 2.4 1.3 2.0
====== ==== ====
</TABLE>
F-11
<PAGE>
EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------
APPLIANCE FINANCIAL WHIRLPOOL
BUSINESS SERVICES CORPORATION
--------- --------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Pretax earnings................................ $100 $ 30 $130
Portion of rents representative of the interest
factor........................................ 17 1 18
Interest on indebtedness....................... 154 81 235
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
---- ---- ----
Adjusted income................................ $272 $116 $388
==== ==== ====
<CAPTION>
FIXED CHARGES
- - -------------
<S> <C> <C> <C>
Portion of rents representative of the interest
factor........................................ $ 17 $ 1 $ 18
Interest on indebtedness....................... 154 81 235
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
---- ---- ----
$172 $ 86 $258
==== ==== ====
Ratio of earnings to fixed charges............. 1.6 1.3 1.5
==== ==== ====
</TABLE>
F-12
<PAGE>
EXHIBIT 99
Multibras S.A.
Eletrodomesticos
and Its Subsidiaries
Consolidated Financial Statements
at
December 31, 1996 and 1995
and Report of Independent
Accountants
F-13
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Balance Sheet at December 31
In thousands of U.S. dollars
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1996 1995
--------- ---------
<S> <C> <C>
Current assets
Cash and equivalents 524,740 350,961
Trade receivables 308,120 243,557
Inventories 300,664 237,112
Other assets 87,775 73,588
--------- ---------
1,221,299 905,218
--------- ---------
Non-current assets
Deferred income taxes 59,150 37,387
Intangibles, net 11,414 12,528
Investments in affiliated
companies 36,920 33,073
Sundry investments and other
assets 35,772 32,479
--------- ---------
143,256 115,467
--------- ---------
Property, plant and equipment 606,604 554,364
--------- ---------
1,971,159 1,575,049
========= =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities 1996 1995
--------- ---------
<S> <C> <C>
Current liabilities
Short-term debt 265,789 203,158
Accounts payable 156,317 152,844
Employee compensation 71,672 62,534
Income taxes 51,452 25,405
Product warranty 24,032 16,326
Other taxes payable 43,947 22,546
Other accrued expenses 53,268 28,822
Dividends 37,669 16,865
--------- ---------
704,146 528,500
--------- ---------
Long-term liabilities
Long-term debt 182,447 172,483
Deferred income taxes 25,720 24,590
Employees' severance benefits 44,210 27,613
Other liabilities 27,888 33,342
--------- ---------
280,265 258,028
--------- ---------
Commitments and contingencies
(Note 10)
Minority interests 161,717 145,040
--------- ---------
Stockholders' equity
Capital stock 431,230 429,038
Retained earnings 393,801 214,443
--------- ---------
825,031 643,481
--------- ---------
1,971,159 1,575,049
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
<TABLE>
<CAPTION>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Statement of Earnings
Years Ended December 31
In thousands of U.S. dollars (except per-share amounts)
- - --------------------------------------------------------------------------------------------
1996 1995
---------- -----------
<S> <C> <C>
Net sales 2,528,327 2,138,389
Cost of products sold (1,786,359) (1,609,597)
Selling and administrative expenses (418,000) (358,633)
--------- ---------
Operating profit 323,968 170,159
--------- ---------
Interest expense (38,338) (64,819)
Export incentive credits 38,547
Interest income and other, net 50,055 87,788
--------- ---------
11,717 61,516
--------- ---------
Earnings before tax, equity earnings and minority interest 335,685 231,675
Income taxes
Current (118,786) (71,891)
Deferred 22,345 (2,664)
Tax incentives 17,026 15,026
--------- ---------
Income before equity earnings and minority interest 256,270 172,146
Equity in earnings of affiliated companies 6,307 6,638
Minority interest (19,429) (30,517)
--------- ---------
Net earnings 243,148 148,267
========= =========
Earnings per thousand shares - US$ 220.79 134.63
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
Multibras S.A. Eletrodomesticos
Statement of Movement in Stockholders' Equity
In thousands of U.S. dollars (except per-share amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Capital stock earnings
------------- -------------
<S> <C> <C>
At December 31, 1994 429,038 93,084
Net earnings for the year 148,267
Dividends
Interim (US$ 12.73 per thousand shares) (14,023)
Final (US$ 11.70 per thousand shares) (12,885)
------------- -------------
At December 31, 1995 429,038 214,443
Capitalization of retained earnings 2,192 (2,192)
Net earnings for the year 243,148
Dividends
Interim (US$ 23.23 per thousand shares) (25,578)
Final (US$ 32.71 per thousand shares) (36,020)
------------- -------------
At December 31, 1996 431,230 393,801
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31
In thousands of U.S. dollars
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the year 243,148 148,267
------- -------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loss on translation 12,369 11,288
Equity in net earnings of affiliated companies,
less dividends received (4,320) (4,191)
Depreciation and amortization 97,449 81,463
Gain on sale of property, plant and
equipment and investments (5,818) (862)
Foreign exchange gain (4,637) (5,586)
Deferred income tax (22,345) 2,664
Minority interests 19,429 30,517
------- -------
92,127 115,293
------- -------
Changes in assets and liabilities, net of effects of
business acquisitions and dispositions:
Trade receivables (82,906) (128,182)
Inventories (63,552) (82,843)
Other assets (19,552) (30,313)
Long-term assets 9,796 7,917
Accounts payable 13,752 47,221
Other payables and accruals 101,011 94,882
------- -------
(41,451) (91,318)
------- -------
Total adjustments 50,676 23,975
Net cash provided by operating activities 293,824 172,242
------- -------
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31
In thousands of U.S. dollars (continued)
- - -------------------------------------------------------------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment
and investments and other long-term assets disposals 26,867 15,267
Net additions to property, plant and equipment (157,918) (134,558)
Increase in investments in affiliated companies
and sundry investments, including goodwill (19,328) (671)
-------- --------
Net cash used in investing activities (150,379) (119,962)
-------- --------
Cash flows from financing activities:
Short-term debt 78,223 133,536
Net increase in long-term debt 21,765 55,940
Dividends paid (38,463) (30,966)
Dividends to minority interests (6,069) (3,520)
Increase in minority interests 986 13,919
-------- --------
Net cash provided by financing activities 56,442 168,909
-------- --------
Effect of exchange rate changes on cash (26,108) (65,243)
Net increase in cash and equivalents 173,779 155,946
Cash and equivalents at beginning of year 350,961 195,015
-------- --------
Cash and equivalents at end of year 524,740 350,961
======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest 27,330 21,189
Income taxes 67,465 37,844
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-18
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
------------------------------------------------------------------------
1 Summary of Principal Accounting Policies
(a) Nature of operations
The Company is the leading Brazilian manufacturer and marketer of home
appliances. The majority of its production is sold in the local market.
The Company was formed in 1994 as a result of the merger of three
companies under common control with consolidated assets of US$ 1,176,441,
net sales of US$ 1,506,299 and net earnings of US$ 135,729 at, and for
the year ended, December 31, 1994.
(b) Bases of consolidation
The consolidated financial statements include the financial statements of
Multibras S.A. Eletrodomesticos and all majority-owned subsidiaries.
Investments in affiliated companies are accounted for by the equity
method. All intercompany receivables and payables, revenues and expenses,
unrealized profits and losses and investments in directly or indirectly
owned subsidiary companies have been eliminated. The amounts of net
earnings and stockholders' equity attributed to minority stockholders are
separately stated in the financial statements.
(c) Bases of adjustment and remeasurement into U.S. dollars
The Company is incorporated in Brazil and its books and records and those
of its Brazilian subsidiaries are kept in reais and in accordance with
Brazilian generally accepted accounting principles. The financial
statements expressed in U.S. dollars conform with accounting principles
generally accepted in the United States of America and reflect the
adjustment and remeasurement into U.S. dollars on the bases set out in
(i) and (ii) below:
(i) Adjustments
The following principal adjustments have been reflected in the U.S.
dollar financial statements:
. Present value adjustment of short-term receivables and payables.
. Interest incurred on financing of property, plant and equipment under
construction is capitalized in accordance with FAS 34.
. Income taxes are accounted for in accordance with FAS 109.
. Pension expense is recognized in accordance with FAS 87.
F-19
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
- - --------------------------------------------------------------------------------
(ii) Remeasurement
Operations in hyperinflationary economy - Brazil
The basis of remeasurement of local currency into U.S. dollars is
summarized as follows:
<TABLE>
Basis of remeasurement
----------------------
<S> <C>
Inventories, intangibles, investments in affiliated Historical exchange rates
companies, sundry investments, property, plant
and equipment, accumulated depreciation,
capital stock and retained earnings
All other assets and liabilities Closing exchange rate of R$ 1,0395
(1995 - R$ 0.9726) per US$ 1
Income and expense, except for cost of products Accumulation of the monthly operations,
sold, depreciation, amortization, and equity in each translated at the respective month-
earnings of affiliated companies, which are at end exchange rate, resulting in an individual
historical rates weighted average exchange rate for each
income and expense
</TABLE>
Price-level restatements, which were required to be recorded in the local
books up to December 31, 1995 to partially recognize the effects of
inflation, do not receive a U.S. dollar equivalent on remeasurement, except
insofar as the price-level restatements affect the computation of income
taxes.
Had the undistributed retained earnings reflected in the official
accounting records at December 31, 1996 and 1995 of R$ 322.711 thousand and
R$ 153.623 thousand (shown in the accompanying financial statements at US$
393.801 and US$ 214,443), been expressed in U.S. currency at the prevailing
exchange rate on those dates, the amounts thereof would have been US$
310.448 and US$ 157.951.
The resulting remeasurement gains and losses are classified in the
statement of earnings as detailed in Note 12.
Operations in non-hyperinflationary economies - foreign
<TABLE>
<S> <C>
Balance sheet items Closing exchange rate
Income and expenses Exchange rate prevailing at the time
income is earned and expense is
incurred
Translation gains and losses are taken directly to equity.
</TABLE>
F-20
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
(d) Cash and equivalents
Cash and equivalents are carried at cost plus interest and include highly
liquid financial investments with original maturities of 90 days or less.
(e) Trade receivables
The Company makes substantial sales to a relatively small number of home
appliance retailers, which operate nationally or regionally. Trade
receivables are stated at estimated net realizable values. An allowance for
uncollectible accounts is provided in an amount considered to be
sufficient to meet probable future losses.
(f) Inventories
Inventories are stated at the lower of average cost of purchase or
production, replacement cost or net realizable value.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method, over the estimated useful lives of the various
classes of assets.
Expenditures for maintenance and repairs are charged to income.
Improvements and major renewals are capitalized.
(h) Recoverability of long-lived assets
On an annual basis or more frequently if circumstances require, the Company
evaluates long-lived assets, including property, plant and equipment,
investments and intangibles, against current and estimated undiscounted
future operating income of the related businesses. No impairment losses
have been recorded for any of the periods presented. Write-down of the
carrying value of assets or groups of assets will be made, if appropriate.
(i) Current and long-term liabilities
These are adjusted for the effects of indexation or exchange rate
fluctuations on the basis of the contractually agreed indexes or rates,
when applicable.
(j) Product warranty
Provision is made currently for estimated product warranty costs, based on
past experience and future expected commitments.
F-21
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
-----------------------------------------------------------------------
(k) Revenue and expense recognition
Sales revenues are recognized when products are shipped or services are
rendered. Expenses and costs are recognized on the accrual basis.
(l) Income taxes
(i) Under the terms of the Government International Trade Authority
(BEFIEX) fiscal incentive program, which expires in 1998, earnings from
qualified export sales are subject to income tax at the rate of 6%, in
the proportion that those export sales bear to total Company sales.
That part of earnings not deemed, on this basis, to be eligible for a
reduced tax rate is subject to income tax at the standard statutory
rate. The Company also records accelerated depreciation on certain
plant and equipment for tax purposes only.
(ii) Pursuant to FAS 109 "Accounting for Income Taxes" the net tax charges
or benefits related to (i) tax loss carryforwards available to be
offset against future taxable income and (ii) tax effects of temporary
differences between tax results and financial reporting results,
excluding the effects of indexation recorded for tax purposes and
changes in exchange rates, are recorded at the enacted tax rates at
each balance sheet date.
(iii) Income taxes are recorded gross of tax incentive investments and
subsequently reduced by the amount of incentive investment deposits
when received.
(m) Use of estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates .
<TABLE>
<CAPTION>
2 Trade receivables
1996 1995
------- -------
<S> <C> <C>
Trade receivables 442,476 354,202
Trade receivables sold with recourse (78,718) (73,614)
Allowance for doubtful accounts (55,638) (37,031)
------- -------
308,120 243,557
-------- -------
</TABLE>
F-22
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
3 Inventories
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Finished products and work in progress 128,736 79,261
Raw materials and others 171,928 157,851
-------------------
300,664 237,112
-------------------
</TABLE>
4 Investments in affiliated companies
(i) The Company has direct voting interests of 36% in Multibras da Amazonia
S.A., 50% in each of Sabrico Utilidades Domesticas Ltda. and Consorcio
Nacional Brastemp Sabrico S/C Ltda., and other companies engaged in the
manufacture of home appliances or related components.
(ii) In February 1995, the subsidiary company Empresa Brasileira de Compressores
S.A. - EMBRACO entered into a joint venture to produce compressors in
China. The subsidiary is the majority partner of the joint venture with an
interest of 52%. As of December 31, 1996, US$13,807 was invested as
capital in the joint venture. The other partners in this joint venture are
Whirlpool Overseas Holdings Corporation (8%) and Beijing Snowflake
Eletric Appliance Group Corporation (40%).
(iii)In September, 1996, the investment in Motores Eletricos Brasil S.A. was
sold to a third party for US$22,026.
5 Property, plant and equipment
<TABLE>
<CAPTION>
Annual
depreciation
1996 1995 rate%
--------------------------------------
<S> <C> <C> <C>
Land 10,993 11,171
Buildings 165,422 156,115 4
Machinery, equipment and installations 794,830 729,037 10 to 40
Molds and tools 114,231 114,325 10 to 20
Furniture and fixtures 41,124 42,198 10 to 20
Other 36,771 38,236 6 to 20
---------------------
1,163,371 1,091,082
Accumulated depreciation and amortization (680,309) (606,390)
---------------------
483,062 484,692
Plant and equipment - investments in progress 110,458 64,100
Advances to suppliers 13,084 5,572
---------------------
606,604 554,364
---------------------
</TABLE>
Property, plant and equipment of US$3,709 are pledged in guarantee of
borrowings.
F-23
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
--------------------------------------------------------------------------
6 Debt
<TABLE>
<CAPTION>
Interest 1996 1995
----------------------- --------------------------------
<S> <C> <C> <C>
Local currency loans - Monetary correction plus
Brazil interest of 12% p.a. 74,546 35,165
Foreign currency loans
. U.S. dollars Interest from 8 to 12,4% p.a. 290,075 229,716
. Italian lire RIBOR plus 1.25% p.a. 83,615 110,760
--------------------------------
448,236 375,641
Current portion (265,789) (203,158)
--------------------------------
Long-term portion 182,447 172,483
--------------------------------
</TABLE>
At December 31, 1996, the long-term portion of total long-term debt matures
in the following years:
<TABLE>
<S> <C> <C>
1998 51,629
1999 90,385
2000 27,210
2001 10,475
Thereafter 2,748
--------------------------------
182,447
---------------------------------
</TABLE>
7 Income Tax
(a) Tax rate
Income taxes in Brazil include Federal income tax and social contribution
(which is an additional Federal tax on income). There are no State or local
income taxes in Brazil. The statutory rates applicable in each year
presented were as follows (in percentage):
<TABLE>
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Federal income tax 25% 43%
Social contribution 8% 10%
Adjustment to composite rate (2%) (5%)
--------------------------------
Composite Federal income tax rate 31% 48%
--------------------------------
</TABLE>
The social contribution is deductible both for Federal income tax and
social contribution purposes.
F-24
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
--------------------------------------------------------------------------
(b) Income tax reconciliation
The amount reported as income tax expense or benefit is reconciled to the
statutory rates as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Earnings before income tax, equity
earnings and minority interest 335,685 231,675
Tax charge at statutory rates 104,062 111,204
Adjustments to derive effective rate:
Effects of change in tax rates on deferred taxes. 5,826
Permanent differences 3,208 (8,028)
Reduced tax rates on incetivated export sales (6,609) (12,447)
Valuation allowance 3,536 1,194
Difference related to assets and liabilities
remeasured at historical exchange rates that
result from (i) changes in exchange rates and
(ii) indexing used for Brazilian tax purposes (7,756) (23,194)
--------- ---------
Income taxes 96,441 74,555
--------- ---------
</TABLE>
(c) Deferred Income Taxes
The deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Differences between the tax and the book basis of certain
property, plant and equipment. (20,703) (20,378)
Acelerated depreciation (6,794) (4,819)
Temporary differences between Brazilian tax basis and US GAAP 7,306 1,977
Tax loss carryforwards 3,536 1,194
Allowances and accruals not currently deductible 47,439 25,850
Others 6,182 10,167
---------- ---------
36,966 13,991
Valuation allowance (3,536) (1,194)
--------- ---------
33,430 12,797
--------- ---------
Assets 59,150 37,387
Liabilities (25,720) (24,590)
--------- ---------
33,430 12,797
--------- ---------
</TABLE>
8 Employees' Severance Benefits
As required by Italian legislation, the subsidiary Embraco Europe SrL.
accrues severance benefits equal to one month's salary for every year of
service of each employee.
9 Stockholders' Equity
Issued and fully-paid capital stock comprises 739,465,532 common shares and
361,804,950 preferred shares with no par value.
The Company's statutes establish a minimum compulsory annual dividend of 25
% of net earnings for the year in local currency, adjusted in accordance
with corporate legislation, subject to the minimum dividend priority of
preferred stockholders.
F-25
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
--------------------------------------------------------------------------
In the statutory financial statements, retained earnings include: (i) the
tax incentive investments reserve, corresponding to that portion of the
income tax liability applied in tax incentive investments; and (ii) the
legal reserve which must be accumulated at the rate of 5% of the statutory
net earnings until the reserve reaches 20% of capital stock in local
currency. At December 31,1996 these restricted reserves totalled US$
26,079.
10 Commitments and Contingencies
(a) In 1989, a subsidiary initiated civil litigation contesting responsibility
for the payment of loan principal amounting to approximately US$ 39,500.
This loan, which did not have appropriate board approval, was allegedly
authorized at that time by the then chief executive officer and, according
to the financial institution, was drawn in the subsidiary's name, although
the proceeds were never recorded by the subsidiary. Simultaneously with
this legal action, a police inquiry was initiated at the subsidiary's
request.
In view of outside legal counsel's opinion that the chances of a favorable
decision in respect of this matter are very high, management considers that
no provision is necessary in respect thereof, and accordingly, no liability
for this contingency is recorded in the financial statements.
(b) Income tax returns for the last five years remain open to examination and
final acceptance by the fiscal authorities. Other taxes are also open to
review for varying periods. Management does not anticipate that any major
assessments would arise in the event of an examination.
(c) The Company and a subsidiary have signed a contract with BEFIEX under the
terms of which they are committed to jointly export products with a value
of US$ 1,987,000 and to make certain minimum capital expenditures during
the ten-year period ending July 1998, in compensation for benefits relating
to import and other taxes. In the event of failure to comply with these
conditions, the Company and the subsidiary will be subject to the repayment
of tax benefits previously obtained, plus interest and fine. Management
expects that they will comply with these conditions.
(d) In 1995, a subsidiary obtained a favorable decision in the law courts with
respect to a legal claim relative to certain export incentives, which were
eliminated by the government in 1989, in the amount of US$ 38,547. This
amount was realized and recognized as income by the subsidiary in 1995. In
September 1995, part of this amount was contested by the fiscal
authorities. No provision has been recorded with respect to this claim as
management, based on the opinion of its legal advisors, believes that the
probability of any loss is remote. On December 16, 1996, a favorable
decision was obtained by the Company and a subsidiary with respect to
additional export incentives in connection with the BEFIEX program. The
final implementation of such decision is dependent on the calculation of
the amount involved and approval by the court. A reasonable estimation of
the amount involved cannot be made at this time.
11 Related Party Transactions
A subsidiary makes substantial sales to Whirpool Corporation, a significant
shareholder of the Company, and its subsidiaries at normal prices and
conditions. Accounts receivable from these companies totalled US$ 6,972 and
US$ 6,306 at December 31, 1996 and 1995.
F-26
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
12 Gains and Losses on Remeasurement
The gains and losses on translation have been reclassified to the related
line items in the statement of earnings as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Net sales 1,481 11,947
Cost of products sold 2,260 2,311
--------- --------
3,741 14,258
Operating expenses 5,067 4,880
Interest and other income (22,311) (31,650)
Income taxes 1,134 1,224
--------- --------
Aggregate loss on remeasurement (12,369) (11,288)
========= ========
</TABLE>
13 Pension Plan
The Company and its Brazilian subsidiaries maintain both contributory and
concontributory defined benefit pension plans covering substantially all
employees in Brazil. The plans provide pension benefits that are based on
years of service and employees' compensation during a specified period
before retirement. The Company's present funding policy for these plans is
to generally make the minimum annual contribution required by applicable
regulations. Assets held by the plans are managed by an outside public
pension fund institution, which also manages funds of other unrelated
employers and guarantees a minimum annual fixed return of 4% on plan
assets.
Annual pension expense comprises the following components:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Service cost - benefits earned during the year 12,188 8,605
Interest cost on projected benefit obligation 7,359 5,545
Actual return on plan assets (5,318) (5,714)
Net amortization 7,354 7,898
--------- -------
21,583 16,334
--------- -------
</TABLE>
Assumptions used in accounting for defined benefit pension plans are as
follows:
<TABLE>
<CAPTION>
% per annum
above the
general price
index
-------------
<S> <C>
Discount rate 6.00
Rate of compensation level increase 3.75
Expected long-term rate of return on plan assets 6.00
</TABLE>
F-27
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
The funded status of the pension plans is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Projected benefit obligation (140,393) (106,102)
Plan assets at fair value 52,122 46,019
---------- --------
Projected benefit obligation in excess of plan assets (88,271) (60,083)
Unrecognized net loss (gain) 15,348 (3,524)
Unrecognized net obligation, net of amortization 49,488 53,911
--------- --------
Accrued pension expense, included in other
accrued expenses (23,435) (9,696)
========= ========
</TABLE>
The accumulated benefit obligation, which is included in the projected
benefit obligation, represents the actuarial present value of benefits
attributed to employee service and compensation levels to date. At December
31, 1996 and 1995, the accumulated benefit obligation was US$ 78,333 and
US$ 63,364, respectively. The vested portion was US$ 60,991 in 1996 and US$
51,817 in 1995.
14 Fair value of financial instruments
Besides cash and equivalents which are stated at cost plus accrued interest
and which approximate fair value, the carrying value of the Company's other
financial instruments approximates fair value at December 31, 1996 and 1995
reflecting the short-term maturity of these instruments at those dates.
Based on interest rates currently available to Multibras S. A.
Eletrodomesticos for bank loans with similar terms and average maturities,
the fair value of long-term debt at December 31, 1996 and 1995 approximates
its carrying value.
Fair value estimates are made at a specific date, based on relevant market
information about the financial instrument. These estimates are subjective
in nature and involve uncertainties and matters of significant judgement
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
* * *
F-28
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEMS 14(A)(3) AND 14(C)
INDEX TO EXHIBITS
YEAR ENDED DECEMBER 31, 1996
The following exhibits are submitted herewith or incorporated herein by
reference in response to Items 14(a)(3) and 14(c):
<TABLE>
<CAPTION>
NUMBER AND SEQUENTIAL
DESCRIPTION PAGE
OF EXHIBIT NUMBERS*
----------- ----------
<C> <C> <S> <C>
3(i) Restated Certificate of Incorporation of the
Company [Incorporated by reference from Exhibit
3(i) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993]
3(ii) Amended and Restated By-laws of the Company (as
amended January 23, 1995). [Incorporated by
reference from Exhibit 3(ii) to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994]
4 The registrant hereby agrees to furnish to the
Securities and Exchange Commission, upon
request, the instruments defining the rights of
holders of each issue of long-term debt of the
registrant and its subsidiaries.
10(iii) (a) Whirlpool Retirement Benefits Restoration Plan
(as amended January 1, 1992) [Incorporated by
reference from Exhibit 10(iii)(a) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993]
10(iii) (b) 1979 Stock Option Plan (as amended April 28,
1987) [Incorporated by reference from Exhibit
10(iii)(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (c) Whirlpool Supplemental Executive Retirement Plan
(as amended and restated effective December 31,
1993) [Incorporated by reference from Exhibit
10(iii)(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (d) Resolution adopted on December 12, 1989 by the
Board of Directors of the Company adopting a
compensation schedule, life insurance program
and retirement benefit program for eligible
Directors. [Incorporated by reference from
Exhibit 10(iii)(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993]
10(iii) (e) Resolution adopted on December 8, 1992 by the
Board of Directors of the Company adopting a
Flexible Compensation Program for the
Corporation's nonemployee directors.
[Incorporated by reference from Exhibit
10(iii)(e) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (f) Whirlpool Corporation Deferred Compensation Plan
for Directors (as amended effective January 1,
1992 and April 20, 1993) [Incorporated by
reference from Exhibit 10(iii)(f) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993]
10(iii) (g) Form of Agreement providing for severance
benefits for certain executive officers
[Incorporated by reference from Exhibit
10(iii)(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (h) Whirlpool Corporation 1989 Omnibus Stock and
Incentive Plan (as amended June 20, 1995)
[Incorporated by reference from Exhibit
10(iii)(r) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1995]
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER AND SEQUENTIAL
DESCRIPTION PAGE
OF EXHIBIT NUMBERS*
----------- ----------
<C> <C> <S> <C>
10(iii) (i) Whirlpool Corporation Restricted Stock Value
Program (Pursuant to the 1989 Whirlpool
Corporation Omnibus Stock and Incentive Plan)
[Incorporated by reference from Exhibit
10(iii)(i) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (j) Whirlpool Executive Stock Appreciation and
Performance Program (Pursuant to the 1989
Whirlpool Corporation Omnibus Stock and
Incentive Plan) [Incorporated by reference from
Exhibit (10)(iii)(j) to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993]
10(iii) (k) Whirlpool Corporation Nonemployee Director Stock
Ownership Plan (as amended February 20, 1996,
effective April 16, 1996) [Incorporated by
reference from Exhibit B to the Company's proxy
statement for the 1996 annual meeting of
stockholders]
10(iii) (l) Whirlpool 401(k) Plan (as amended and restated
April 1, 1993) [Incorporated by reference from
Exhibit 10(iii)(l) to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993]
10(iii) (m) Whirlpool Performance Excellence Plan (as
amended January 1, 1992 and February 15, 1994)
[Incorporated by reference from Exhibit
10(iii)(m) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (n) Whirlpool Corporation Executive Deferred Savings
Plan (as amended effective January 1, 1992)
[Incorporated by reference from Exhibit
10(iii)(n) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993]
10(iii) (o) Whirlpool Corporation Executive Officer Bonus
Plan (Effective as of January 1, 1994)
[Incorporated by reference from Exhibit
10(iii)(o) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994]
10(iii) (p) Whirlpool Corporation Charitable Award
Contribution and Additional Life Insurance Plan
for Directors (Effective April 20, 1993)
[Incorporated by reference from Exhibit
10(iii)(p) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994]
10(iii) (q) Whirlpool Corporation Career Stock Grant Program
(Pursuant to the 1989 Whirlpool Corporation
Omnibus Stock and Incentive Plan) [Incorporated
by reference from Exhibit 10(iii)(q) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995]
10(iii) (r) Whirlpool Corporation 1996 Omnibus Stock and
Incentive Plan (Effective April 25, 1996)
[Incorporated by reference from Exhibit A to the
Company's proxy statement for the 1996 annual
meeting of stockholders]
11 Statement Re: Computation of Earnings per share
12 Statement Re: Computation of the Ratios of
Earnings to Fixed Charges
13 Management's Discussion and Analysis and
Consolidated Financial Statements contained in
Annual Report to Stockholders for the year ended
December 31, 1996
21 List of Subsidiaries
23(ii) (a) Consent of Ernst & Young
23(ii) (b) Consent of Price Waterhouse
24 Powers of Attorney
27 Financial Data Schedule
99 Audited Consolidated Financial Statements of
Multibras S.A. Electrodomesticos and
subsidiaries
</TABLE>
- - --------
*This information appears only in the manually signed originals of the Form
10-K and conformed copies with exhibits.
E-2
<PAGE>
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(ALL AMOUNTS IN MILLIONS EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Primary:
Average Shares Outstanding............................... 74.3 73.9 74.2
Treasury Stock Method (a):
Stock Options.......................................... 0.5 0.6 1.0
Restricted Stock....................................... 0.3 0.3 0.3
------ ------ ------
Average Shares Outstanding............................... 75.1 74.8 75.5
====== ====== ======
Net Earnings............................................. $155.8 $209.4 $158.3
====== ====== ======
Earnings Per Share....................................... $ 2.08 $ 2.80 $ 2.10
====== ====== ======
Fully Diluted:
Average Shares Outstanding............................... 74.3 73.9 74.2
Treasury Stock Method (b):
Stock Options.......................................... 0.6 0.9 1.2
Restricted Stock....................................... 0.3 0.3 0.3
Assumed Conversion of Debt............................... 2.2 2.2 2.2
------ ------ ------
Average Shares Outstanding................................. 77.4 77.3 77.9
====== ====== ======
Net Earnings............................................. $155.8 $209.4 $158.3
Interest Expense, or Convertible Debt, net of tax........ 4.5 4.2 4.3
------ ------ ------
Fully Diluted Net Earnings............................... $160.3 $213.6 $162.6
====== ====== ======
Earnings Per Share....................................... $ 2.07 $ 2.76 $ 2.09
====== ====== ======
</TABLE>
- - --------
(a) Using the average market price per share of stock for the period.
(b) Using the greater of the average market price per share of stock for the
period or the market price per share of stock at the end of the period.
F-10
<PAGE>
EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------
APPLIANCE FINANCIAL WHIRLPOOL
BUSINESS SERVICES CORPORATION
--------- --------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Pretax earnings................................ $214.0 $ 28 $242
Portion of rents representative of the interest
factor........................................ 21 1 22
Interest on indebtedness....................... 128 79 207
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
------ ---- ----
Adjusted income................................ $ 364 $112 $476
====== ==== ====
<CAPTION>
FIXED CHARGES
- - -------------
<S> <C> <C> <C>
Portion of rents representative of the interest
factor........................................ $ 21 $ 1 $ 22
Interest on indebtedness....................... 128 79 207
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
------ ---- ----
$ 150 $ 84 $234
====== ==== ====
Ratio of earnings to fixed charges............. 2.4 1.3 2.0
====== ==== ====
</TABLE>
F-11
<PAGE>
EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------
APPLIANCE FINANCIAL WHIRLPOOL
BUSINESS SERVICES CORPORATION
--------- --------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Pretax earnings................................ $100 $ 30 $130
Portion of rents representative of the interest
factor........................................ 17 1 18
Interest on indebtedness....................... 154 81 235
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
---- ---- ----
Adjusted income................................ $272 $116 $388
==== ==== ====
<CAPTION>
FIXED CHARGES
- - -------------
<S> <C> <C> <C>
Portion of rents representative of the interest
factor........................................ $ 17 $ 1 $ 18
Interest on indebtedness....................... 154 81 235
Amortization of debt expense and premium....... 1 -- 1
WFC preferred stock dividend................... -- 4 4
---- ---- ----
$172 $ 86 $258
==== ==== ====
Ratio of earnings to fixed charges............. 1.6 1.3 1.5
==== ==== ====
</TABLE>
F-12
<PAGE>
Management's Discussion & Analysis
----------------------------------
Results of Operations
The consolidated statements of earnings summarize operating results for the
last three years. This section of Management's Discussion & Analysis highlights
main factors affecting changes in operating results during the three-year
period.
The accompanying consolidated 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 were $8.7 billion in 1996, an increase of 4% over 1995. Excluding
currency fluctuations, revenues were up 5% year over year due to the impact of
increased volume, partially offset by unfavorable brand and product mix. North
American unit volumes were up 2% over 1995, in an industry that was up nearly
5%. North American sales were up 4% due to a combination of higher pricing and
volume and improved product mix. North American industry shipments are expected
to be down about 3% in 1997. European unit volumes were up 11% over 1995 while
the industry was down nearly 2%. European sales were up 3% compared to 1995,
and were up 5% excluding currency fluctuations. Partially offsetting the impact
of volume increases on sales growth were unfavorable brand and product mix, as
consumer preference continued the trend toward lower-priced brands and products,
without any substantial price increases during the year. European industry
shipment growth is expected to be flat in 1997. Financial services revenues
were up 3% in 1996 primarily reflecting growth in WFC's inventory financing
portfolio, partially offset by contraction of the consumer financing and
aerospace portfolios.
Revenues were $8.3 billion in 1995, an increase of 3% over 1994. Excluding
currency fluctuations, revenues were flat from year to year with the impact of
increased volume offset by unfavorable brand and product mix. North American
sales were up 1% due primarily to selective price increases, partially offset by
unfavorable brand and product mix. North American unit volumes were virtually
identical to those from 1994, although the regional home-appliance industry
slipped by more than 1%. European revenues were up 2% compared to 1994.
Excluding currency fluctuations, revenues were off 8% due primarily to a 2%
decline in unit volumes and unfavorable brand and product mix. Volumes were
hurt by weak demand across the region, particularly toward the end of the year
and more pronounced in Germany and France, which together account for about 40%
of European sales. In addition, Europe saw a slight erosion of its market share
following a major sales-force reorganization. Financial services revenues were
up 19% in 1995 as WFC continued to expand its core inventory and consumer
financing businesses.
Expenses
Gross margin percentage on product sales deteriorated 1% in 1996 compared
to 1995 as the North American margin improvement of 1%, stemming from improved
product mix and higher pricing, was more than offset by a 5% European margin
deterioration. European margins reflect customers shifting to lower margin
brands and products, unfavorable currency fluctuations, delays in achieving cost
targets on new products and stagnant pricing in the marketplace.
Gross margin percentage on product sales deteriorated almost 2% in 1995
compared to 1994. North American margins declined about 2% in 1995 due to higher
material and component costs, start-up costs associated with the production of
redesigned midsize refrigerators and the difficult economic climate in Mexico,
partially offset by price increases. European margins were down 1% in 1995 due
to lower volumes and reduced production levels, combined with sharply higher
material and component costs and an industry shift to lower-priced products,
partially offset by productivity improvements, continued expense control,
benefits of restructuring and currency translation.
28
<PAGE>
Appliance selling and administrative expenses as a percent of net sales
decreased slightly in 1996 compared to 1995. The expense percentage in North
America decreased slightly from last year, while the European expense percentage
declined 1% in 1996 primarily due to reduced selling costs, tight control over
other spending. Europe also benefited from cost reductions stemming from its
restructuring efforts executed during 1995. WFC selling and administrative
expenses as a percent of financial services revenue increased 2% due primarily
to increased provisions for the aerospace portfolio.
Appliance selling and administrative expenses as a percent of net sales was
higher by nearly 1% in 1995 compared to 1994. The North American expense
percentage was down slightly in 1995 due to cost reduction initiatives and lower
compensation costs. After excluding currency translation impact, European
expenses were down compared to last year reflecting expense control efforts and
benefits of restructuring. However, European expenses as a percent of net sales
were up almost 2% in 1995 primarily due to decreased sales after excluding
currency translation effects. Both 1995 and 1994 were affected by increased
strategic spending to expand the company's presence in Asia. WFC selling and
administrative expenses as a percent of financial services revenue were down
nearly 1% as WFC successfully executed its strategy of supporting the inventory
and consumer finance business.
WFC's financial services interest expense as a percent of the related
revenue was essentially flat compared to 1995; however, it was up in 1995
compared to 1994 due to higher interest rates in 1995.
Restructuring costs of $30 million in 1996 consist of charges to streamline
a North American refrigeration operation, transfer Asian research and
development to manufacturing locations and regional technology centers and
relocate the Asian headquarters function to Hong Kong. The restructuring is
expected to improve the company's long-term cost competitiveness and
profitability in the North American refrigeration market and in Asia, with
annual cost savings of $37 million when fully implemented. Refer to Note 10 to
the accompanying consolidated financial statements.
In the third quarter of 1994, the company sold its minority interest in
Matsushita Floor Care Company (MFCC), a vacuum cleaner manufacturer, resulting
in a $26 million pretax gain. The company also sold its European compressor
operation in the second quarter of 1994 resulting in a $34 million pretax gain.
Refer to "Cash Flows - Investing Activities."
Restructuring costs of $250 million for 1994 consist of charges to
consolidate and reorganize the company's European sales, marketing and support
functions to better serve dealers by trade channel rather than by country;
rationalize European customer services and manufacturing operations; close two
North American manufacturing facilities; and further consolidate and rationalize
other North American operations. Refer to Note 10 to the accompanying
consolidated financial statements.
Other Income and Expense
Consolidated interest and sundry expense for 1996 was down slightly
compared to 1995 due to a gain on the disposal of investments, while the change
from 1995 to 1994 primarily reflects foreign currency losses. However, the
overall impact of currency fluctuations in 1995 was not significant due to
offsetting foreign currency gains reported elsewhere in the statement of
earnings.
Appliance business interest expense increased significantly in both 1996
and 1995 from the prior year due to higher borrowing levels (refer to "Cash
Flows - Financing Activities") and higher interest rates.
Income Taxes
The consolidated effective tax rate was 62% in 1996 compared to 41% in 1995
and 60% in 1994 (57% and 40%, excluding the effect of restructuring and business
dispositions, in 1996 and 1994). The higher effective tax rate in 1996 compared
to 1995 is primarily due to higher unbenefited losses in Asia, the relatively
larger impact permanent items have on the effective tax rate because of lower
net earnings and an unfavorable mix of pretax earnings and losses by country,
partially offset by tax credits relating to prior years. The increase in the
provision in 1995 compared to 1994, excluding the effect of restructuring and
business dispositions, is primarily due to
29
<PAGE>
Management's Discussion & Analysis
----------------------------------
the relatively larger impact permanent items have on the effective tax rate
because of lower net earnings nearly offset by favorable settlements of prior
year tax returns. The effective rate in 1994 reflects the impact of the 1994
restructuring charge, for which a full tax benefit was not recognized, and a
1994 tax charge associated with the sale of the European compressor operation
partially offset by a 1994 tax benefit associated with the sale of MFCC. Refer
to Note 11 to the accompanying consolidated financial statements.
Earnings before Equity Earnings and Other Items
Earnings before equity earnings and other items were $49 million, $142
million and $116 million in 1996, 1995 and 1994. Excluding the impact of
restructuring and business dispositions, earnings before equity earnings and
other items were $68 million, $142 million and $290 million in 1996, 1995 and
1994.
Equity in Affiliated Companies
Equity earnings were $93 million, $72 million and $59 million in 1996, 1995
and 1994.
The company's Brazilian affiliates generated equity earnings of $92
million, $70 million and $39 million in 1996, 1995 and 1994, reflecting
significant on-going growth in the Brazilian appliance industry in 1996 and
1995, driven by improved availability of consumer credit and lower interest
rates. Results in 1995 were also favorably affected by certain nonrecurring tax
benefits, including $17 million of excise tax credits and the consequences of
the May 1994 merger of two of the Brazilian affiliates, Brastemp S.A. and Consul
S.A., into a new entity, Multibras S.A. The merger resulted in operating
efficiencies as an outcome of consolidating selling and administrative
functions, improving utilization of prior year tax losses and more flexibility
managing brands and products.
The company's Mexican affiliate equity losses were $3 million in 1996 as
compared to break-even equity earnings in 1995 and equity earnings of $16
million in 1994. Equity earnings or losses included foreign exchange gains from
devaluation of the Mexican peso of $3 million, $25 million and $12 million in
1996, 1995 and 1994. Offsetting the significant reduction in foreign exchange
gain in 1996, compared to 1995, were higher shipment volumes, in spite of
Mexican industry declines, lower financing costs stemming from the mid-1996 debt
refinancing and tax benefits relating to prior years. In 1995, reduced shipments
and higher financing costs resulting from difficult economic conditions in
Mexico were partially offset by cost reductions and translation gains.
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.
Net Earnings
In 1996, the company recorded an after-tax restructuring charge of $19
million or $.25 per share.
In 1994, the company recorded an after-tax restructuring charge of $192
million or $2.54 per share. Business dispositions in 1994 resulted in an after-
tax gain of $18 million or $.24 per share.
Absent all restructuring and business dispositions, net earnings were $175
million, $209 million and $332 million in 1996, 1995 and 1994. Corresponding
earnings per share were $2.33, $2.80 and $4.40 in 1996, 1995 and 1994.
Cash Flows
The statements of cash flows reflect the changes in cash and equivalents for the
last three years 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.
30
<PAGE>
Cash provided by operating activities was $555 million, $377 million and
$449 million in 1996, 1995 and 1994. The increase in 1996 from the prior year is
primarily due to favorable changes in working capital and other operating
accounts and lower restructuring spending, partially offset by lower earnings.
The decrease in 1995 from the prior year is due primarily to lower earnings,
excluding the 1994 effects of restructuring, and business dispositions and 1995
restructuring spending partially offset by favorable accounts receivable
performance.
Investing Activities
The principal recurring investing activities are property additions and
investments in and collection of financing receivables and leases. Net property
additions were $336 million, $483 million and $418 million in 1996, 1995 and
1994. These expenditures were primarily for equipment and tooling related to
product improvements, more efficient production methods and equipment
replacement for normal wear and tear. Investment in the financial services
business resulted in $265 million of net WFC financing receivables originated in
1996 compared to $256 million in 1995 and $18 million of net cash receipts in
1994.
In 1994, the company began construction of a new $100 million cooking
products facility in Tulsa, Okla., to manufacture freestanding gas and electric
ranges for the North American appliance market. The facility was completed as
planned and began manufacturing product in April 1996.
Refer to Note 2 to the accompanying consolidated financial statements for
discussion of business dispositions and acquisitions during the last three
years.
Financing Activities
Dividends to shareholders totaled $101 million, $100 million and $90
million in 1996, 1995 and 1994.
The company's net borrowings increased by $158 million in 1996, excluding
currency translation and $25 million of borrowings assumed in acquisitions,
primarily to fund property additions and origination of financing receivables.
The increase included a $244 million issuance of 7 3/4% debentures maturing in
2016.
During 1996, WFC issued $25 million of preferred stock with the proceeds
used to reduce commercial paper. Refer to Note 6 to the accompanying
consolidated financial statements.
The company's borrowings increased by $747 million in 1995, excluding
currency translation and $50 million of borrowings assumed in acquisitions,
primarily to fund property additions, origination of financing receivables and
Asian acquisitions.
In December 1994, the company announced plans to repurchase up to 5% 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 December 1996, the company had
repurchased approximately 966,000 shares for $51 million.
The company reduced borrowings by $33 million in 1994 primarily due to the
continued liquidation of WFC's commercial lending portfolio.
Financial Condition and Other Matters
The financial position of the company remains strong as evidenced by the
December 31, 1996 balance sheet. The company's total assets are $8.0 billion
and stockholders' equity is $1.9 billion.
The overall debt to invested capital ratio at December 31, 1996 increased
compared to December 31, 1995. The appliance business debt to invested capital
ratio net of cash ("debt ratio") of 43% was down slightly from 1995. As of
December 31, 1996, convertible notes with principal amounts of $372 million had
been converted into 2.7 million shares of the company's common stock. In
January 1997, the company called all remaining outstanding convertible debt,
paying $113 million financed by issuing additional commercial paper. The debt
ratio is also affected by European currency movements due to a combination of
foreign borrowings and the company's hedging strategy related to European net
assets. The 1996 financial services debt to invested capital ratio increased
due to
31
<PAGE>
higher investment levels compared to the prior year. The company's debt
continues to be rated investment grade by Moody's Investors Service Inc.,
Standard and Poor's and Duff & Phelps.
Various European currency swaps and forward contracts serve as a hedge of
net foreign currency cash flows and also hedge a portion of the company's
European net assets. Changes in the value of the swaps and forward contracts due
to movements in exchange rates are included in the currency translation
component of stockholders' equity if they relate to the European net asset hedge
or otherwise in other income (expense). Refer to Notes 1 and 7 of the
accompanying consolidated financial statements for further description of the
company's hedging strategies and use of financial derivatives.
WFC's financing portfolio by business segment is as follows:
December 31 (millions of dollars) 1996 1995
- - -------------------------------------------------------------------------------
Inventory $ 1,215 58% $ 857 46%
Aerospace 361 17 411 22
Consumer 474 23 531 29
Other 55 2 59 3
- - -------------------------------------------------------------------------------
$2,105 100% $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 financial services industry is very competitive and various leasing
companies, financial institutions and finance companies operate in the same
markets as WFC. Refer to Notes 1 and 3 of the accompanying consolidated
financial statements for a further description of WFC's business.
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.
Business Unit Revenues and Operating Profit
The following appliance business (WFC on an equity basis) data are
presented as supplemental information:
Net Sales by Business Unit were as follows:
Increase/
Year ended December 31 (millions of dollars) 1996 1995 (Decrease)
- - -------------------------------------------------------------------------------
North America $5,310 $5,093 $ 217 4%
Europe 2,494 2,428 66 3
Asia 461 376 85 23
Latin America 268 271 (3) (1)
Other (10) (5) (5) (100)
- - -------------------------------------------------------------------------------
Total Appliance Business $8,523 $8,163 $ 360 4%
- - -------------------------------------------------------------------------------
Operating Profit by Business Unit was as follows:
Increase/
Year ended December 31 (millions of dollars) 1996 1995 (Decrease)
- - -------------------------------------------------------------------------------
North America $ 537 $ 445 $ 92 21 %
Europe (13) 92 (105) (114)
Asia (70) (50) (20) (40)
Latin America 12 26 (14) (54)
Restructuring (30) -- (30) N/M
Other (158) (147) (11) (7)
- - -------------------------------------------------------------------------------
Total Appliance Business $ 278 $ 366 $ (88) (24)%
- - -------------------------------------------------------------------------------
32
<PAGE>
Management's Discussion & Analysis (continued)
For commentary regarding performance in North America, Europe and
restructuring, refer to "Results of Operations." Latin American sales and
operating profit do not include the activities of Brazilian affiliates, which
are included in equity in affiliated companies and discussed in "Results of
Operations." Other consists of corporate expenses and eliminations.
The significant increase in Asian sales over 1995 was driven by higher unit
volumes from a full year of activity associated with prior year's acquisitions
and new joint ventures. The operating losses in the Asian region were higher
than those sustained in the prior periods as the region continues to solve
marketing and distribution issues primarily in China.
Latin American sales declined slightly from 1995 reflecting continued
economic stagnation, a tight credit situation limiting customer and retailer
financing resources in Argentina and economic decline in many other key regional
markets. The operating profit decline in Latin America reflects these economic
conditions as well as the termination of certain distributors.
Revenue Information
-------------------
Year ended December 31 (millions of dollars) Percent 1996 1995 1994
- - --------------------------------------------------------------------------------
Major Home Appliances
Home Laundry Appliances 31% $2,699 $2,593 $2,610
Home Refrigeration and
Room Air Conditioning
Equipment 35 3,078 3,017 2,900
Home Cooking Appliances 16 1,379 1,321 1,258
Other Home Appliances 16 1,367 1,232 1,181
- - --------------------------------------------------------------------------------
98 8,523 8,163 7,949
Financial Services 2 173 184 155
- - --------------------------------------------------------------------------------
100% $8,696 $8,347 $8,104
- - --------------------------------------------------------------------------------
33
<PAGE>
Consolidated Balance Sheets
---------------------------
<TABLE>
<CAPTION>
Supplemental Consolidating Data
----------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
December 31 (millions of dollars) 1996 1995 1996 1995 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
- - --------------
Cash and equivalents $ 129 $ 149 $ 102 $ 125 $ 27 $ 24
Trade receivables, less allowances of $45 in 1996 and $39 in 1995 966 1,031 966 1,031 - -
Financing receivables and leases, less allowances 1,400 1,086 - - 1,400 1,086
Inventories 1,034 1,029 1,034 1,029 - -
Prepaid expenses and other 188 152 196 141 6 11
Deferred income taxes 95 94 95 94 - -
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 3,812 3,541 2,393 2,420 1,433 1,121
Other Assets
- - ------------
Investment in affiliated companies 513 425 523 425 - -
Investment in WFC - - 273 269 - -
Financing receivables and leases, less allowances 705 772 - - 705 772
Intangibles, net 870 931 870 931 - -
Deferred income taxes 152 153 152 153 - -
Other 165 199 165 199 - -
- - ----------------------------------------------------------------------------------------------------------------------------------
2,405 2,480 1,983 1,977 705 772
Property, Plant and Equipment
- - -----------------------------
Land 93 97 93 97 - -
Buildings 731 710 731 710 - -
Machinery and equipment 3,015 2,855 2,996 2,831 19 24
Accumulated depreciation (2,041) (1,883) (2,030) (1,867) (11) (16)
- - ----------------------------------------------------------------------------------------------------------------------------------
1,798 1,779 1,790 1,771 8 8
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 8,015 $ 7,800 $ 6,166 $ 6,168 $2,146 $1,901
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Supplemental Consolidating Data
----------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
December 31 (millions of dollars) 1996 1995 1996 1995 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- - -------------------
Notes payable $2,038 $1,939 $ 585 $ 709 $1,453 $1,230
Accounts payable 983 977 886 896 111 81
Employee compensation 226 232 220 222 6 10
Accrued expenses 624 552 624 552 - -
Restructuring costs 32 70 32 70 - -
Current maturities of long-term debt 119 59 119 56 - 3
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 4,022 3,829 2,466 2,505 1,570 1,324
Other Liabilities
- - -----------------
Deferred income taxes 206 234 87 114 119 120
Postemployment benefits 563 517 557 517 6 -
Other liabilities 161 181 161 181 - -
Long-term debt 955 983 887 870 68 113
- - -----------------------------------------------------------------------------------------------------------------------------------
1,885 1,915 1,692 1,682 193 233
Minority Interests 182 179 82 104 110 75
- - ------------------
Stockholders' Equity
- - --------------------
Common stock, $1 par value: 250 million shares authorized,
81 million shares issued in 1996 and 1995 81 81 81 81 8 8
Paid-in capital 246 229 246 229 26 26
Retained earnings 1,918 1,863 1,918 1,863 242 234
Unearned restricted stock (7) (8) (7) (8) - -
Cumulative translation adjustments (76) (53) (76) (53) (3) 1
Treasury stock - 6 million shares at cost in 1996 and 1995 (236) (235) (236) (235) - -
- - -----------------------------------------------------------------------------------------------------------------------------------
1,926 1,877 1,926 1,877 273 269
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $8,015 $7,800 $6,166 $6,168 $2,146 $1,901
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
35
<PAGE>
Consolidated Statements of Cash Flows
-------------------------------------
<TABLE>
<CAPTION>
Supplemental Consolidating Data
----------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
(Consolidated) on an Equity Basis Corporation (WFC)
---------------------- ---------------------- --------------------
Year ended December 31 (millions of dollars) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- - -------------------------------------------- ---- ----- ----- ---- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $156 $ 209 $ 158 $156 $ 209 $ 158 $ 15 $ 14 $11
Depreciation 318 282 272 291 253 243 27 29 29
Deferred income taxes (32) 44 (28) (31) 35 (39) (1) 9 11
Equity in net earnings of affiliated companies,
less dividends received (84) (58) (57) (84) (58) (57) - - -
Equity in net earnings of WFC, net of dividend - - - (8) (14) (11) - - -
Gain on business dispositions - - (60) - - (60) - - -
Provision for doubtful accounts 52 43 28 4 9 6 48 34 22
Amortization of goodwill 35 30 20 35 30 20 - - -
Restructuring charges, net of cash paid (42) (119) 197 (42) (117) 195 - (2) 2
Minority interests (18) 1 12 (18) 1 12 - - -
Changes in assets and liabilities, net of effects
of business acquisitions and dispositions:
Trade receivables 58 23 (125) 58 23 (125) - - -
Inventories (7) (111) (72) (7) (111) (72) - - -
Accounts payable (21) 70 107 (21) 65 105 - 5 2
Other--net 130 (37) (3) 116 (19) 5 14 (18) (8)
- - --------------------------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities $545 $ 377 $ 449 $449 $ 306 $ 380 $103 $ 71 $69
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Supplemental Consolidating Data
----------------------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
Year Ended December 31 (Consolidated) on an Equity Basis Corporation (WFC)
(millions of dollars) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investing Activities
- - --------------------
Net additions to properties $ (336) $ (483) $ (418) $ (333) $ (477) $ (416) $ (3) $ (6) $ (2)
Financing receivables originated
and leasing assets purchased (4,860) (3,613) (3,050) - - - (4,860) (3,613) (3,050)
Principal payments received on
financing receivables and leases 4,595 3,357 3,068 - - - 4,595 3,357 3,068
Acquisitions of businesses,
less cash acquired (27) (157) (28) (37) (157) (28) 10 - -
Net increase (decrease) in investment
in and advances to affiliated
companies 15 (40) - 15 (40) - - - -
Business dispositions - 26 124 - 26 124 - - -
Other (32) (25) (35) - - (9) (32) (25) (26)
- - -----------------------------------------------------------------------------------------------------------------------------------
Cash Used For Investing Activities (645) (935) (339) (355) (648) (329) (290) (287) (10)
Financing Activities
- - --------------------
Proceeds of short-term borrowings 24,911 16,493 12,727 9,423 7,237 4,344 15,488 9,256 8,383
Repayments of short-term borrowings (24,847) (15,744) (12,585) (9,619) (6,768) (4,255) (15,228) (8,976) (8,330)
Proceeds of long-term debt 316 130 42 316 130 129 - - -
Repayments of long-term debt (209) (121) (206) (132) (72) (206) (77) (49) (87)
Repayments of non-recourse debt (13) (10) (11) - - - (13) (10) (11)
Dividends (101) (100) (90) (101) (100) (90) (7) - -
Purchase of treasury stock - (35) (16) - (35) (16) - - -
Proceeds from the sale of preferred
stock 25 - - - - - 25 - -
Other (2) 22 13 (4) 24 13 2 (2) -
- - -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided by (Used for)
Financing Activities 80 635 (126) (117) 416 (81) 190 219 (45)
- - -----------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in
Cash and Equivalents (20) 77 (16) (23) 74 (30) 3 3 14
Cash and equivalents at
beginning of year 149 72 88 125 51 81 24 21 7
- - -----------------------------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 129 $ 149 $ 72 $ 102 $ 125 $ 51 $ 27 $ 24 $ 21
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
37
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
<TABLE>
<CAPTION>
Supplemental Consolidating Data
--------------------------------------------------------
Whirlpool Corporation Whirlpool with WFC Whirlpool Financial
Year Ended December 31 (Consolidated) on an Equity Basis Corporation (WFC)
(millions of dollars except per share data) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Net sales $8,523 $8,163 $7,949 $8,523 $8,163 $7,949 $ - $ - $ -
Financial services 173 184 155 - - - 224 219 184
- - ------------------------------------------------------------------------------------------------------------------------------------
8,696 8,347 8,104 8,523 8,163 7,949 224 219 184
EXPENSES
Cost of products sold 6,623 6,245 5,952 6,623 6,245 5,952 - - -
Selling and administrative 1,637 1,609 1,490 1,557 1,521 1,415 131 123 104
Financial services interest 71 66 51 - - - 81 79 63
Intangible amortization 35 31 24 35 31 24 - - -
Gain on dispositions - - (60) - - (60) - - -
Restructuring costs 30 - 250 30 - 248 - - 2
- - ------------------------------------------------------------------------------------------------------------------------------------
8,396 7,951 7,707 8,245 7,797 7,579 212 202 169
OPERATING PROFIT 300 396 397 278 366 370 12 17 15
OTHER INCOME (EXPENSE)
Interest and sundry (5) (13) 9 (23) (23) 3 18 11 8
Interest expense (165) (141) (114) (155) (129) (104) - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 130 242 292 100 214 269 30 28 23
Income taxes 81 100 176 70 90 169 11 10 7
- - ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE EQUITY EARNINGS
AND MINORITY INTERESTS 49 142 116 30 124 100 19 18 16
Equity in WFC - - - 15 14 11 - - -
Equity in affiliated companies 93 72 59 93 72 59 - - -
Minority interests 14 (5) (17) 18 (1) (12) (4) (4) (5)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 156 $ 209 $ 158 $ 156 $ 209 $ 158 $ 15 $ 14 $ 11
- - ------------------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Net earnings $ 2.08 $ 2.80 $ 2.10
Cash dividends $ 1.36 $ 1.36 $ 1.22
Average number of common shares
and equivalents outstanding (millions) 75.1 74.8 75.5
</TABLE>
See notes to consolidated financial statements
38
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(1) Summary of Principal Accounting Policies
Nature of Operations: Whirlpool Corporation is the world's leading
manufacturer and marketer of major home appliances. The company manufactures in
13 countries on five continents and markets products to distributors and
retailers in about 140 countries. Whirlpool Financial Corporation (WFC), a
consolidated subsidiary, provides diversified financial services to businesses
and consumers in the Americas, Europe and Asia. Financial products include
inventory financing services for retailers and distributors that market products
manufactured by the company and various other manufacturers, and consumer
financing services for retail sales by retailers.
Principles of Consolidation: The consolidated financial statements
include all majority-owned subsidiaries. Investments in affiliated companies
are accounted for by the equity method. Intercompany transactions and amounts
between Whirlpool and WFC included in the supplemental consolidating data have
been eliminated in the consolidated financial statements. The eliminations
relate primarily to intercompany financing, interest and leasing transactions.
Use of Estimates: Management is required to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition: Sales are recorded when product is shipped to
distributors or directly to retailers. Refer also to "Financing Receivables and
Leases."
Cash and Equivalents: All highly liquid debt instruments purchased with a
maturity of three months or less are considered cash equivalents.
Inventories: Inventories are stated at first-in, first-out (FIFO) cost,
except U.S. production inventories, which are stated at last-in, first-out
(LIFO) cost. Costs do not exceed realizable values.
Property, Plant and Equipment: Property, plant and equipment are stated
at cost. Depreciation of plant and equipment is computed using the
straight-line method based on the estimated useful lives of the assets.
Intangibles: The cost of business acquisitions in excess of net tangible
assets acquired is amortized on a straight-line basis principally over 40 years.
Noncompete agreements are amortized on a straight-line basis over the terms of
the agreements. Accumulated amortization aggregated $191 million and $166
million at December 31, 1996 and 1995. Should circumstances indicate the
potential impairment of goodwill, the company would compare the carrying amount
against related estimated undiscounted future cash flows to determine if a
write-down to market value or discounted cash flow value is required.
Research and Development Costs: Research and development costs are
charged to expense as incurred. Such costs were $197 million, $180 million and
$152 million in 1996, 1995 and 1994.
Advertising costs: Advertising costs are charged to expense as incurred.
Such costs were $127 million, $126 million and $140 million in 1996, 1995 and
1994.
Financing Receivables and Leases: Interest and discount charges are
recognized in revenues using the effective yield method. Lease income is
recorded in decreasing amounts over the term of the lease contract, resulting in
a level rate of return on the net investment in the lease. Origination fees and
related costs are deferred and amortized as yield adjustments over the life of
the related receivable or lease.
The allowance for losses is maintained at estimated amounts necessary to
cover losses on all finance and leasing receivables based on management's
assessment of various factors, including loss experience and review of problem
accounts.
Derivative Financial Instruments: The company uses derivative financial
instruments to manage the economic impact of fluctuations in interest rates,
foreign currency exchange rates and commodity prices. To achieve this, the
company enters into interest rate and cross currency interest rate swaps,
foreign currency forward contracts and options, and commodity swaps.
The company's hedging strategy for the foreign currency exchange risk
associated with its investment in Europe is based on projected foreign currency
cash flows over periods up to 10 years. The company uses interest rate and
cross currency interest rate swaps
39
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(1) Summary to Principal Accounting Policies (continued)
to effectively convert a portion of the company's U.S. dollar denominated debt
into various European currencies. The company's investment in Europe and the
foreign currency portion of these cross currency interest rate swaps are
revalued in dollar terms each period to reflect current foreign currency
exchange rates, with gains and losses recorded in the equity section of the
balance sheet. To the extent that the notional amounts of these contracts exceed
the company's investment in Europe, the related mark-to-market gains and losses
are reflected currently in earnings. The net translation loss recognized in
other income, including the gains and losses from those contracts not qualifying
as hedges, was $14 million, $16 million and $3 million in 1996, 1995 and 1994.
The amounts receivable from or payable to counterparties to the swaps,
offsetting the gains and losses recorded in equity or earnings, are recorded in
long-term debt. The company also uses domestic interest rate swaps to manage the
duration and interest rate characteristics of its outstanding debt. The interest
component of the swaps, which overlay a portion of the company's interest
payments on outstanding debt, is not carried at fair value in the financial
statements. The interest differential paid or received is recognized as an
adjustment to interest expense. Gains and losses on the interest component of
terminated swaps are deferred in noncurrent liabilities and amortized as an
adjustment to interest expense over the remaining term of the original swap. In
the event of early extinguishment of debt, any realized or unrealized gains or
losses from related swaps would be recognized in income concurrent with the
extinguishment.
The company also uses foreign currency forward contracts to hedge payments
due on cross currency interest rate swaps and inter-company loans and, along
with foreign currency options, to hedge material purchases, intercompany
shipments and other commitments. In addition, the company hedges a portion of
its contractual requirements of certain commodities with commodity swaps. These
contracts are not carried at fair value in the financial statements as the
related gains and losses are recognized in the same period and classified in the
same manner as the underlying transactions. Any gains and losses on terminated
contracts are deferred in current liabilities until the underlying transactions
occur.
WFC enters into interest rate swaps, to match certain assets and
liabilities in terms of duration and pricing frequency to manage margins on its
financing transactions. In addition, currency swaps hedge certain foreign equity
investments. The WFC swaps are accounted for the same as the company's cross
currency and interest rate swaps.
The company deals only with investment-grade counterparties to these
contracts and monitors its overall credit risk and exposure to individual
counterparties. The company does not anticipate non-performance by any
counterparties. The amount of the exposure is generally the unrealized gains in
such contracts. The company does not require, nor does it post, collateral or
security on such contracts.
Net Earnings Per Common Share: Net earnings per common share are based on
the average number of shares of common stock and common stock equivalents
outstanding during each year. Primary per share amounts assume, if dilutive, the
exercise of stock options and vesting of restricted stock using the treasury
stock method.
(2) Business Acquisitions and Dispositions
In November 1996, the company announced an agreement to sell the compressor
division and related facilities of its majority-owned Indian subsidiary,
contingent upon receiving all necessary government and regulatory approvals and
finalization of definitive agreements. The transaction is expected to be
finalized in early 1997 at a sale price near the carrying amount of the related
assets and involves a long-term supplier relationship with the purchaser,
initially involving annual compressor purchases of about $25 million to $30
million.
In October 1996, the company acquired the remaining minority interest in
Whirlpool Tatramat a.s., a Slovakian washing machine manufacturer and appliance
distributor, for about $4 million.
40
<PAGE>
(2) Business Acquisitions and Dispositions (continued)
In September 1996, the Company acquired 100% of Gentech Trading (Pty.)
Ltd., a South African company, for about $27 million--$2 million of cash and $25
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 Ltd. (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
three new joint ventures.
In November 1995, the company acquired a majority interest in Raybo Air
Conditioner Manufacturing Co., a Chinese manufacturer and marketer of air
conditioners, for about $22 million in cash. In May 1995, the company acquired a
majority interest in Shunde SMC Microwave Products Co. Ltd., a Chinese
manufacturer and marketer of microwave ovens, for about $90 million in cash. 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. Annual sales for fiscal year 1994 were about $20 million, $100 million
and $120 million for Raybo, Shunde SMC and KOI.
The company's new Chinese joint ventures include 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.
In September 1994, the company sold its minority interest in Matsushita
Floor Care Co., a joint venture which manufactures and markets vacuum cleaners
in the North American market. The sale resulted in cash proceeds of $44 million
and a pretax gain of $26 million. The after-tax gain was $18 million or $.24 per
share.
In April 1994, the company sold its European compressor operations to one
of the company's Brazilian affiliates for $106 million. The company received 75%
of the selling price in cash at the closing date with the remainder received in
1995. The sale resulted in a pretax gain of $34 million but no significant gain
or loss after taxes. The European compressor operation contributed gross sales
of $213 million, including third-party sales of $127 million and pretax earnings
of $10 million in 1993.
In April 1994, the company made an additional $3 million investment in TVS
Whirlpool Ltd. to become the majority partner in this Indian joint venture,
renamed Whirlpool Washing Machines Ltd. in 1995. In February 1994, the company
made an additional $3 million investment in Whirlpool Tatramat to become the
majority partner in this Slovakian joint venture, and contributed $3 million for
a minority interest in a joint venture with Teco Electric and Machinery Co. Ltd.
to market and distribute appliances in Taiwan.
Pro forma consolidated operating results reflecting these acquisitions and
dispositions 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.
41
<PAGE>
<TABLE>
<CAPTION>
Notes to Consolidated Financial Statements
------------------------------------------
(3) Financing Receivables and Leases
December 31 (millions of dollars) 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Financing receivables $ 1,853 $ 1,569
Financing leases 102 106
Operating leases and investments 173 197
- - -------------------------------------------------------------------------------
2,128 1,872
Unearned income (51) (52)
Estimated residual value 78 80
Allowances for doubtful accounts (50) (42)
- - -------------------------------------------------------------------------------
(23) (14)
- - -------------------------------------------------------------------------------
Total financing receivables and leases 2,105 1,858
Less current portion 1,400 1,086
- - -------------------------------------------------------------------------------
Long-term portion $ 705 $ 772
- - -------------------------------------------------------------------------------
Deferred income tax liabilities relating to financing leases were $123 million
and $118 million at December 31, 1996 and 1995.
Financing receivables and leases at December 31, 1996, include $966 million
due from appliance and electronics dealers and $361 million resulting from
aerospace financing transactions. These amounts are generally secured by the
assets financed. Nonearning financing receivables and leases totaled $28 million
and $41 million at December 31, 1996 and 1995.
Net losses on financing receivables and leases were $40 million, $39
million and $25 million in 1996, 1995 and 1994. Financing receivables of $108
million and $112 million are considered impaired under Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan," at December 31, 1996 and 1995. Specific allowances for losses on these
receivables total $29 million and $19 million at December 31, 1996 and 1995. WFC
recognized $9 million and $12 million of interest income in 1996 and 1995 on
these receivables.
Financing receivables and minimum lease payments receivable at December 31,
1996, mature contractually as follows:
Financing Financing
December 31 (millions of dollars) Receivables Leases
- - -------------------------------------------------------------------------------
1997 $ 1,420 $ 2
1998 164 3
1999 110 2
2000 34 2
2001 8 2
Thereafter 117 91
- - -------------------------------------------------------------------------------
$ 1,853 $ 102
- - -------------------------------------------------------------------------------
(4) Inventories
December 31 (millions of dollars) 1996 1995
- - -------------------------------------------------------------------------------
Finished products $ 991 $ 984
Work in process 59 84
Raw materials 213 194
- - -------------------------------------------------------------------------------
Total FIFO cost 1,263 1,262
Less excess of FIFO cost over LIFO cost 229 233
- - -------------------------------------------------------------------------------
$ 1,034 $ 1,029
- - -------------------------------------------------------------------------------
LIFO inventories represent approximately 39% and 41% of total inventories at
December 31, 1996 and 1995.
(5) Affiliated Companies
The company has direct voting interests, ranging from 30% to 49%, in two
Brazilian companies (Multibras S.A., and Embraco S.A.), a Mexican company
(Vitromatic S.A. de C.V.) and several other international companies principally
engaged in the manufacture and sale of major home appliances or related
component parts.
Equity in the net earnings (loss) of affiliated companies, net of related
taxes, is as follows:
</TABLE>
42
<PAGE>
(5) Affiliated Companies (continued)
<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars) 1996 1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brazilian Affiliates $ 92 $ 70 $ 39
Mexican affiliate (3) -- 16
Other 4 2 4
- - -------------------------------------------------------------------------------------
Total equity earnings $ 93 $ 72 $ 59
=====================================================================================
Combined condensed financial information for all affiliated operating
companies follows:
December 31 (millions of dollars) 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $1,365 $1,044
Other assets 1,090 991
- - -------------------------------------------------------------------------------------
$2,455 $2,035
=====================================================================================
Current liabilities $1,795 $ 673
Other liabilities 380 321
Stockholders' equity 1,280 1,041
- - -------------------------------------------------------------------------------------
$2,455 $2,035
=====================================================================================
Year ended December 31 (millions of dollars) 1996 1995 1994
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $3,112 $2,772 $2,051
- - ------------------------------------------------------------------------------------
Cost of products sold $2,323 $2,122 $1,441
- - ------------------------------------------------------------------------------------
Net earnings $ 265 $ 192 $ 173
- - -------------------------------------------------------------------------------------
Dividends and fees paid to
Whirlpool by affiliates $ 20 $ 20 $ 16
- - -------------------------------------------------------------------------------------
(6) Financing Arrangements
After finalizing new credit arrangements in January 1997, the company has unused
credit lines of about $2.9 billion, including $1.5 billion expiring in 2002 and
the remainder expiring in 1998. Generally, the banks are compensated for their
credit lines by a fee and do not require formal compensating balances.
Notes payable consist of the following:
December 31 (millions of dollars) 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Payable to banks $ 263 $ 103
Commercial paper 1,761 1,778
Other 14 58
- - -------------------------------------------------------------------------------------
$2,038 $1,939
=====================================================================================
The weighted average interest rate on notes payable was 6.34% and 6.17% at
December 31, 1996 and 1995.
WFC preferred stock arrangements as follows:
Number of Face Annual Mandatory Date of
Shares Value Dividend Redemption Date Issuance
- - -------------------------------------------------------------------------
Series A 400,000 $100 $5.55 9/1/1998 8/31/1993
Series B 350,000 $100 $6.55 9/1/2008 8/31/1993
Series C 250,000 $100 $6.09 2/1/2002 12/27/1996
</TABLE>
The preferred stockholders are entitled to vote together on a
share-for-share basis with WFC's common stockholder. Preferred stock dividends
are payable quarterly. At its option, WFC may redeem the Series B at any time
on or after September 1, 2003, or at any earlier date for Series C. The
redemption price for each series is $100 per share plus any accrued unpaid
dividends and the applicable redemption premium if redeemed early. Commencing
September 1, 2003, WFC must pay $1,750,000 per year to a sinking fund for the
benefit of the Series B Preferred Stockholders, with a final payment of
$26,250,000 due on or before September 1, 2008. There are no sinking fund
requirements for the Series A or Series C Preferred Stock.
The company and WFC are parties to a support agreement. Pursuant to the
agreement, if at the close of any quarter WFC's net earnings available for fixed
charges (as defined) for the preceding 12 months is less than a stipulated
amount, the company is required to make a cash payment to WFC equal to the
insufficiency within 60 days of the end of the quarter. The support agreement
may be terminated by either WFC or the company upon 30 days notice provided that
43
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(6) Financing Arrangements (continued)
certain conditions are met. The company has also agreed to maintain ownership
of at least 70% of WFC's voting stock.
During 1991, the company sold $675 million in face amount of subordinated
zero-coupon convertible notes and received $170 million in gross proceeds. The
notes were priced to yield 7% interest to maturity. Holders may convert each
$1,000 face amount of the notes into 7.237 shares of common stock. Holders may
also redeem the notes for the issuance price plus accrued original issue
discount at the end of 5, 10 and 15 years or upon a change in control of the
company. The company may at its option elect to pay the redemption price in any
combination of cash and common stock, except upon a change in control, in which
case the redemption price is payable in cash. The company also has the right to
call the notes at a price equal to their issuance price plus accrued original
issue discount.
In January 1997, the company paid $113 million to call the outstanding
subordinated zero-coupon convertible notes resulting in an insignificant loss on
extinguishment. The call payment was financed through issuance of additional
commercial paper. At redemption, an aggregate principal amount of $372 million
had been converted into 2.7 million shares of the company's common stock.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Interest
December 31 (millions of dollars) Maturity Rate 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debentures 2008 and 2016 7.8 and 9.1% $ 368 $ 125
Senior notes 2000 and 2003 9.0 and 9.5 400 424
Medium term notes 1999 and 2006 8.9 to 9.1 25 72
Subordinated convertible notes 2011 7.0 113 105
Mortgage notes 1997 to 2012 6.3 and 6.6 67 61
Other 101 255
- - ------------------------------------------------------------------------------------
1,074 1,042
Less current maturities 119 59
- - ------------------------------------------------------------------------------------
$ 955 $ 983
====================================================================================
</TABLE>
Annual maturities of long-term debt in the next five years are $119
million, $39 million, $25 million, $227 million and $25 million in 1997 through
2001.
The company paid interest on short-term and long-term debt totaling $228
million, $232 million and $162 million in 1996, 1995 and 1994.
(7) Fair Value of Financial Instruments
The following methods and assumptions were used in estimating fair values of
financial instruments:
Cash and Equivalents and Notes Payable: The carrying amounts approximate
fair values.
Financing Receivables: The fair value is estimated using discounted cash
flow analyses based on current interest rates being offered to borrowers of
similar credit quality. The carrying amounts approximate fair values.
Long-Term Debt and WFC Preferred Stock: The fair values are estimated using
discounted cash flow analyses based on incremental borrowing or dividend yield
rates for similar types of borrowing or equity arrangements. The WFC preferred
stock carrying amount approximates fair value.
Derivative Financial Instruments: The fair values of interest rate swaps,
cross currency interest rate swaps, foreign currency forward contracts and
option collars and commodity swaps are based on quoted market prices.
44
<PAGE>
(7) Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of financial instruments for which the
fair value does not approximate the liability carrying amount are as follow:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
Carrying Fair Carrying Fair
December 31 (millions of dollars) Amount Value Amount Value
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt (including
current portion) $1,053 $1,118 $ 919 $1,021
Derivative financial
instruments (notional
amounts indicated):
Hedges of net investment in
Europe including converted
debt:
Interest rate and cross
currency interest rate swaps
($1,506 million and
$1,624 million in 1996 and 1995) 21 110 123 210
Foreign currency forward
contracts ($1 million and
$9 million in 1996 and 1995) - - - -
Domestic interest rate swaps
($240 million in 1996) - (1) - -
Transaction hedges:
Foreign currency forward
contracts ($950 million and
$514 million in 1996 and 1995) - - - 3
Foreign currency options
($149 million in 1995) - - - (4)
Hedges with commodity swaps
($35 million and $25 million
in 1996 and 1995) - - - 1
WFC interest rate and cross
currency swaps ($44 million
and $33 million in 1996
and 1995) - - - 2
- - -------------------------------------------------------------------------------------------
Total long-term debt $1,074 $1,227 $1,042 $1,233
- - -------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, interest rate and cross currency interest rate swaps
effectively convert $876 million of U.S. dollar denominated debt into European
currency denominations ($468 million - German marks, $319 million - French
francs, $39 million - Swiss francs and $50 million - British pounds). About one-
half of this converted debt has floating rates and the other half has fixed
rates. Floating rates received range from LIBOR less .9% to LIBOR, and floating
rates paid range from local currency LIBOR to local currency LIBOR plus 3.25%.
Fixed rates received range from 3.55% to 7.20%, and fixed rates paid range from
5.13% to 9.25%. The swaps mature within 10 years.
At December 31, 1996, domestic interest rate swaps effectively convert
$240 million of fixed rate debt into floating rate debt. Fixed rates received
range from 6.99% to 7.21%. Floating rates are LIBOR. The domestic interest rate
swaps mature within five years.
At December 31, 1996, WFC interest rate swaps effectively convert $39
million of floating rate debt into fixed rate debt, as well as convert $5
million of U.S. dollar denominated debt into Canadian currency denomination.
Floating rates received are based on LIBOR or commercial paper rates, and fixed
rates paid range from 6.33% to 9.31%. The WFC swaps mature within five years.
Foreign currency forward contracts mature within one day to two years and
involve principally European and North American currencies. Copper commodity
swaps mature within two years.
(8) Stockholders' Equity
In addition to its common stock, the company has 10 million authorized shares of
preferred stock (par value $1 per share), none of which is outstanding.
Consolidated retained earnings at December 31, 1996 included $313 million
of equity in undistributed net earnings of affiliated companies.
The cumulative translation component to stockholders' equity represents the
effect of translating net assets of the company's inter-
45
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(8) Stockholders' Equity (continued)
national subsidiaries offset by related hedging activity net of tax. Conversion
of notes, stock option transactions and restricted stock grants account for the
changes in paid-in capital.
One Preferred Stock Purchase Right (Rights) is outstanding for each share
of common stock. The Rights, which expire May 23, 1998, will become exercisable
10 days after a person or group either becomes the beneficial owner of 20% or
more of the common stock or commences a tender or exchange offer that would
result in such person or group beneficially owning 25% or more of the
outstanding common stock. Each Right entitles the holder to purchase from the
company one newly issued unit consisting of one one-hundredth of a share of
Series A Participating Cumulative Preferred Stock at an exercise price of $100,
subject to adjustment.
If (i) any person or group becomes the beneficial owner of 25% or more of
Whirlpool common stock, or (ii) the company is the surviving corporation in a
merger with a 20% or more stockholder and its common stock is not changed or
converted, or (iii) a 20% or more stockholder engages in certain self-dealing
transactions with the company, then each Right not owned by such person will
entitle the holder to purchase, at the Rights' then current exercise price,
shares of the company's common stock having a value of twice the Rights' then
current exercise price. In addition, if the company is involved in a merger in
which its common stock is converted or sells 50% or more of its assets, each
Right will entitle its holder to purchase for the exercise price shares of
common stock of the acquiring successor company having a value of twice the
Rights' then current exercise price.
The company will be entitled to redeem the Rights in whole, but not in
part, at $.05 per Right at any time prior to the expiration of a 10-day period
(subject to extension) following public announcement of the existence of a 20%
holder or of a 25% or more tender offer. Until such time as the Rights become
exercisable, the Rights have no voting or dividend privileges and are attached
to, and do not trade separately from, the common stock.
At December 31, 1996, one million preferred shares were reserved for future
exercise of Stock Purchase Rights.
(9) Stock Option and Incentive Plans
The company's stock option and incentive plan permits the grant of stock
options and other stock awards covering up to 9.4 million shares to key
employees of the company and its subsidiaries, of which 3.4 million shares are
available for grant at December 31, 1996. The plan authorizes the grant of both
incentive and nonqualified stock options and, further, authorizes the grant of
stock appreciation rights and related supplemental cash payments independently
of or with respect to options granted or outstanding. Stock options generally
have 10-year terms and vest and become fully exercisable over a three year
period after date of grant. An Executive Stock Appreciation and Performance
Program (ESAP), a Restricted Stock Value Program (RSVP) and a Career Stock
Program (CSP) have been established under the plan. Performance awards under
ESAP and RSVP are generally earned over multiyear time periods upon the
achievement of certain performance objectives or upon a change in control of the
company. CSP awards are earned at specified dates during a participant's career
with the company or upon change in control of the company, ESAP awards are
payable in cash, common stock or a combination thereof when earned. RSVP grants
restricted shares which may not be sold, transferred or encumbered until the
restrictions lapse. CSP grants phantom stock awards which are redeemable for
shares of the company's common stock upon the recipient's retirement after
attaining age 60 and subject to certain noncompetition provisions. Outstanding
restricted and phantom shares totaled 984,400 with a weighted-average grant-date
fair value of $46.84 per share at December 31, 1996 and 986,500 with a weighted-
average grant-date fair value of $45.94 per share at December 31, 1995. Expenses
under the plan were $3 million, $5 million and $6 million in 1996, 1995 and
1994.
Under the Nonemployee Director Stock Ownership Plan, each nonemployee
director is automatically granted 400 shares of common stock annually and is
eligible for a stock option grant of 600 shares if the company's earnings meet a
prescribed earnings formula. This plan provides for the grant of up to 200,000
shares as either stock or stock options, of which 147,000 shares are available
for grant at December 31, 1996. The stock options vest and become
46
<PAGE>
(9) Stock Option and Incentive Plans (continued)
exercisable six months after the date of grant. There were no significant
expenses under this plan for 1996, 1995 or 1994.
The company maintains an employee stock option plan (PartnerShare) that
grants substantially all full-time U.S. employees a fixed number of stock
options that vest over a three-year period and may be exercised over a 10-year
period. PartnerShare authorizes the grant of up to 2.5 million shares of which
500,000 shares are available for grant at December 31, 1996.
Stock option and incentive plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Generally, no compensation expense is
recognized for stock options with exercise prices equal to the market value of
the underlying shares of stock at the date of grant. Compensation expense is
recognized for ESAP, RSVP and CSP awards based on the market value of the
underlying shares of stock when the number of shares is determinable.
Had stock options and incentive plans been accounted for in accordance with
Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-
Based Compensation," under which stock options are accounted for at estimated
fair value, pro forma net earnings and pro forma earnings per share would not
have been materially different from reported amounts.
A summary of stock option information follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
Weighted Weighted
Number Average Number Average
December 31 (thousands of shares, except per-share data of Shares Option Price of Shares Option Price
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1 3,397 $43.99 3,214 $39.96
Granted 1,282 50.62 723 55.75
Exercised (331) 34.06 (427) 32.65
Canceled or expired (221) 53.99 (113) 47.62
----- -----
Outstanding at December 31 4,127 $46.31 3,397 $43.99
- - ---------------------------------------------------------------------------------------------------------------------------
Exercisable at December 31 2,438 $42.43 2,307 $38.60
- - ---------------------------------------------------------------------------------------------------------------------------
Available fair value of options
granted during year $13.00 $16.00
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Of the outstanding options at December 31, 1996, 1,466,000 shares granted prior
to 1993 (all of which are exercisable) have option prices ranging from $22.50 to
$37.63 and a weighted-average remaining contractual life of 4.6 years, while
2,661,000 shares granted subsequent to 1992 (of which 972,000 shares are
currently exercisable at a weighted-average option price of $54.74) have option
prices ranging from $50.31 to $55.81 and a weighted-average remaining
contractual life of 8.6 years.
(10) Restructuring Costs
Restructuring costs in 1996 and 1994 consist of the following:
<TABLE>
<CAPTION>
December 31 (millions of dollars) 1996 1994
- - ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash costs:
Employee severance and related payments $ 9 $176
Lease termination, facility disposition and
other costs 3 34
- - ------------------------------------------------------------------------------------------
Total cash costs 12 210
Noncash costs:
Loss on disposal of facilities and equipment - 20
Other asset write-downs 18 20
- - ------------------------------------------------------------------------------------------
Total noncash costs 18 40
- - ------------------------------------------------------------------------------------------
$30 $250
- - ------------------------------------------------------------------------------------------
</TABLE>
In 1996, restructuring costs relate to streamlining a North American
refrigerator manufacturing operation in order to achieve greater efficiencies
and lower manufacturing costs for specific refrigerator models, transferring
Asian research and engineering operations from the regional center to the
manufacturing locations and relocating Whirlpool Asia headquarters to Hong Kong.
The remaining cash costs will be paid in 1997. Pretax charges to $18 million and
$12 million relate to the company's North American and Asian operations and
involve the termination of about 850 employees. About one-half of the
47
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(10) Restructuring Costs (continued)
cash costs were paid in 1996, with the remainder to be paid in 1997. Total 1996
after-tax charges were $19 million or $.25 per share.
In 1994, restructuring costs relate to the consolidation and
reorganization of the company's European sales, marketing and support functions
to better serve dealers by trade channel rather than by country, the closure of
two North American manufacturing facilities and the further consolidation and
rationalization of North American operations. The company made payments of $205
million through 1996 related to severance of about 3,200 employees and other
costs. The remaining cash costs of the restructuring will be paid in 1997.
Pretax charges of $173 million, $72 million and $5 million relate to the
company's European, North American and WFC/corporate operations. Total 1994
after-tax charges were $192 million or $2.54 per share.
(11) Income Taxes
The provisions for income taxes are as follows:
Year ended December 31 (millions of dollars) 1996 1995 1994
- - ----------------------------------------------------------------------------
Current:
Federal $ 78 $ 40 $ 143
State and local 19 2 29
Foreign 9 24 44
- - ----------------------------------------------------------------------------
106 66 216
Deferred:
Federal (6) 32 2
State and local 1 10 (10)
Foreign (20) (8) (32)
- - ----------------------------------------------------------------------------
(25) 34 (40)
- - ----------------------------------------------------------------------------
$ 81 $ 100 $ 176
- - ----------------------------------------------------------------------------
Domestic and foreign earnings before income taxes and other items are as
follows:
Year ended December 31 (millions of dollars) 1996 1995 1994
- - ----------------------------------------------------------------------------
Domestic $ 309 $ 227 $ 315
Foreign (179) 15 (23)
- - ----------------------------------------------------------------------------
$ 130 $ 242 $ 292
- - ----------------------------------------------------------------------------
Reconciliations between the U.S. federal statutory income tax rate and the
consolidated effective income tax rate for earnings before income taxes and
other items are as follows:
Year ended December 31 (millions of dollars) 1996 1995 1994
- - ----------------------------------------------------------------------------
U.S. federal statutory rate 35.0% 35.0% 35.0%
Impact of restructuring charge 4.7 -- 13.2
Impact of business dispositions -- -- 7.2
State and local taxes, net of
federal tax benefit 8.4% 4.0 4.3
Nondeductible goodwill amortization 6.2 4.4 2.8
Settlement of prior year taxes -- (4.5) --
Excess foreign taxes (benefits) (3.6) 2.6 --
Net benefits from unrecognized
prior year deferred tax assets and
carryforwards (3.9) (6.7) (1.7)
Unbenefited operating losses 14.6 4.0 --
Nondeductible interest 2.7 1.7 --
Research tax credits (5.7) (.8) (.8)
Other items 3.5 1.6 .4
- - ----------------------------------------------------------------------------
Effective income tax rate 61.9% 41.3% 60.4%
- - ----------------------------------------------------------------------------
A full tax benefit was not recognized on the 1994 restructuring charge in
Europe and North America due to the net operating loss positions in certain tax
jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting purposes and the amounts used for income tax purposes.
48
<PAGE>
<TABLE>
<CAPTION>
(11) Income Taxes (continued)
Significant components of the company's deferred tax liabilities and assets
are as follows:
December 31 (million of dollars) 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 162 $ 178
Financial services leveraged leases 123 118
Other 38 31
- - -------------------------------------------------------------------------------
Total deferred tax liabilities 323 327
Deferred tax assets:
Postretirement obligation 151 142
Reserves 20 17
Restructuring Costs 20 52
Product warranty accrual 20 18
Prepaid expenses 9 11
Loss carryforwards 88 53
Employee compensation 21 28
Other 29 59
- - -------------------------------------------------------------------------------
Total deferred tax assets 358 380
Valuation allowances for deferred tax assets (30) (40)
- - -------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowances 328 340
- - -------------------------------------------------------------------------------
Net deferred tax assets $ 5 $ 13
- - -------------------------------------------------------------------------------
The company has recorded valuation allowances to reflect the estimated amount of
net operating loss carryforwards, restructuring costs and other deferred tax
assets which may not be realized.
The company provides deferred taxes on the undistributed earnings of
foreign subsidiaries and affiliates to the extent such earnings are expected to
be remitted. Generally, earnings have been remitted only when no significant net
tax liability would have been incurred. No provision has been made for U.S. or
foreign taxes that may result from future remittances of the undistributed
earnings ($392 million at December 31, 1996) of foreign subsidiaries and
affiliates expected to be reinvested indefinitely. Determination of the deferred
income tax liability on these unremitted earnings is not practicable as such
liability, if any, is dependent on circumstances existing when remittance
occurs.
(12) Pension Plans
The company maintains both contributory and noncontributory defined benefit
pension plans covering substantially all North American employees and certain
European employees. Benefits are based primarily on compensation during a
specified period before retirement or specified amounts for each year of
service. The company's present funding policy is to generally make the minimum
annual contribution required by applicable regulations. Assets held by the
plans consist primarily of listed common stocks and bonds, government
securities, investments in trust funds, bank deposits and other investments.
Pension cost includes the following components:
Year ended December 31 (millions of dollars) 1996 1995 1994
- - -------------------------------------------------------------------------------
Service cost - benefits earned
during the year $ 40 $ 36 $ 36
Interest cost projected benefit
obligation 80 77 75
Actual return on plan assets (157) (267) (3)
Net deferred/amorization 50 164 (97)
- - -------------------------------------------------------------------------------
$ 13 $ 10 $ 11
- - -------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(12) Pension Plans (continued)
Assumptions used in accounting for defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.5--9.0% 7.0--9.0% 7.0--10.0%
Rate of compensation
level increase 2.5--6.0% 3.5--6.5% 4.0--6.5%
Expected long-term rate
of return on plan assets 6.5--9.5% 6.5--9.5% 6.5--9.5%
</TABLE>
<TABLE>
<CAPTION>
The funded status of the pension plans is as follows:
Plans Whose Assets Plans Whose
Earned Accumulated Accumulated Benefits
Benefits Earned Plan Assets
--------------------------------------------
December 31 (millions of dollars) 1996 1995 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Projected benefit
obligation $ (913) $ (862) $ (144) $ (229)
Plan assets at fair value 1,259 1,101 63 145
- - ------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 346 239 (81) (84)
Unrecognized prior
service cost 47 25 7 24
Unrecognized net
experience gain (342) (215) 4 (5)
Unrecognized net obligation,
net of amortization (20) (19) (1) (6)
Additional minimum
liability -- -- (5) (9)
- - ------------------------------------------------------------------------------
Pension asset (liability)
included in other assets
(postemployment
benefits) $ 31 $ 30 $ (76) $ (80)
- - ------------------------------------------------------------------------------
</TABLE>
The accumulated benefit obligation, which is included in the projected
benefit obligation, represents the actuarial present value of benefits
attributed to employee service and compensation levels to date. The accumulated
benefit obligation was $919 million and $933 million at December 31, 1996 and
1995. The vested portion was $812 million and $825 million at December 31, 1996
and 1995.
The U.S. pension plans provide that in the event of a plan termination
within five years following a change in control of the company, any assets held
by the plans in excess of the amounts needed to fund accrued benefits would be
used to provide additional benefits to plan participants. A change in control
generally means one not approved by the incumbent board of directors, including
an acquisition of 25% or more of the voting power of the company's outstanding
stock or a change in a majority of the incumbent board.
Certain European subsidiaries maintain termination indemnity and special
severance plans. The cost of these plans, determined in accordance with local
government specifications, was $15 million, $12 million and $16 million in 1996,
1995 and 1994.
The company maintains a 401(k) defined contribution plan covering
substantially all U.S. employees. Company matching contributions for domestic
hourly and certain other employees under the plan, based on the company's annual
operating results and the level of individual participant's contributions,
amounted to $7 million, $5 million and $8 million in 1996, 1995 and 1994.
(13) Postretirement Benefit Plans
The company currently sponsors a defined benefit health-care plan that
provides postretirement medical benefits to full time U.S. employees who have
worked five years and attained age 55 while in service with the company. The
plan is currently noncontributory and contains cost-sharing features such as
deductibles, coinsurance and a lifetime maximum. The company does not fund the
plan. No significant postretirement benefits are provided by the company to
non-U.S. employees.
50
<PAGE>
(13) Postretirement Benefit Plans (continued)
The components of the annual postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars) 1996 1995 1994
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $11 $10 $ 9
Interest cost $28 $26 $26
- - ----------------------------------------------------------------------------------
$39 $36 $35
==================================================================================
</TABLE>
The components of the postretirement obligation are as follows:
<TABLE>
<CAPTION>
December 31 (millions of dollars) 1996 1995
- - -------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $181 $173
Fully eligible active participants 87 85
Other active plan participants 114 120
- - -------------------------------------------------------------------------
Total 382 378
Unrecognized loss (1) (21)
- - -------------------------------------------------------------------------
Postretirement obligation $381 $357
- - -------------------------------------------------------------------------
</TABLE>
The assumed health care trend rate decreases gradually from 8% in 1996 and
1997, to 7% in 1998 and 1999 and finally to 6% in 2000 and future years.
Increasing the health-care trend rate by one percentage point would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by $26
million and increase the annual postretirement benefit cost for 1996 by $3
million. Discount rates of 8.0% and 7.5% were used to determine the accumulated
postretirement benefit obligation at December 31, 1996 and 1995.
(14) Contingencies
The company is involved in various legal actions arising in the normal
course of business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the outcome of these matters
will not have a material adverse effect on the company's financial position.
The company is a party to certain financial instruments with off-balance-
sheet risk which are entered into in the normal course of business. These
instruments consist of financial guarantees, repurchase agreements and letters
of credit. The company's exposure to credit loss in the event of nonperformance
by the debtors is the contractual amount of the financial instruments. The
company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Collateral or other
security is generally required to support financial instruments with
off-balance-sheet credit risk.
At December 31, 1996 financial guarantees, repurchase agreements and
letters of credit totaled $88 million.
51
<PAGE>
Notes to Consolidated Financial Statements
------------------------------------------
(15) Business Segment Information
Geographic Segments - Major Home Appliances
<TABLE>
<CAPTION>
North Other used Major Home
Year ended December 31 (millions of dollars) America Europe Eliminations Appliances
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
1996 $5,441 $2,592 $ 490 $8,523
1995 $5,093 $2,502 $ 568 $8,163
1994 $5,048 $2,451 $ 450 $7,949
Operating profit (loss)
1996 $ 380 $ (17) $ (85) $ 278
1995 $ 314 $ 90 $ (38) $ 366
1994 $ 311 $ 43 $ 16 $ 370
Identifiable assets
1996 $2,080 $1,951 $2,135 $6,166
1995 $2,171 $2,084 $1,913 $6,168
1994 $2,137 $1,804 $1,339 $5,280
Depreciation expense
1996 $ 164 $ 107 $ 20 $ 291
1995 $ 140 $ 105 $ 8 $ 253
1994 $ 141 $ 98 $ 4 $ 243
Net capital expenditures
1996 $ 160 $ 103 $ 70 $ 333
1995 $ 262 $ 186 $ 29 $ 477
1994 $ 269 $ 135 $ 12 $ 416
</TABLE>
Identifiable assets are those assets directly associated with the
respective operating activities. Corporate assets which consist principally of
cash, investments, prepaid expenses, intangibles, deferred income taxes and
property and equipment related to corporate activities are included as other.
Substantially all of the company's trade receivables are from distributors
and retailers. Sales activity with Sears, Roebuck and Co., a North American
major home appliance retailer, represented 21%, 20% and 19% of consolidated net
sales in 1996, 1995 and 1994. Related receivables were 5% of consolidated trade
and financing receivables for both December 31, 1996 and 1995.
Financial Services: WFC financial information is included in the
supplemental consolidating data column of the consolidated financial statements.
52
<PAGE>
(16) Quarterly Results of Operations (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(millions of dollars, -----------------------------------------------
except per-share data) December 31 September 30 June 30 March 31
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Net sales $ 2,126 $ 2,155 $ 2,229 $ 2,013
Cost of products sold $ 1,644 $ 1,679 $ 1,737 $ 1,563
Financial services
revenue, less related
interest expense $ 18 $ 27 $ 27 $ 30
Net earnings $ 45 $ 21 $ 52 $ 38
Per share of
common stock:
Primary earnings $ .60 $ .28 $ .70 $ .50
Dividends paid $ .34 $ .34 $ .34 $ .34
Stock price:
High $50-7/8 $53-1/8 $61-3/8 $59-1/2
Low $44-1/4 $47-7/8 $48 $50-1/8
Close $46-5/8 $50-5/8 $49-5/8 $55-1/4
1995:
Net sales $ 2,046 $ 2,109 $ 2,069 $ 1,939
Cost of products sold $ 1,591 $ 1,626 $ 1,590 $ 1,438
Financial services
revenue, less related
interest expense $ 30 $ 29 $ 29 $ 30
Net earnings $ 18 $ 64 $ 52 $ 75
Per share of
common stock:
Primary earnings $ .25 $ .85 $ .70 $ 1.00
Dividends paid $ .34 $ .34 $ .34 $ .34
Stock price:
High $58 $60-7/8 $58-1/4 $55-1/2
Low $50-3/4 $54-3/8 $49-7/8 $49-1/4
Close $53-1/4 $57-3/4 $55 $54-3/4
</TABLE>
Restructuring initiatives described in Note 10 reduced third quarter net
earnings by $19 million or $.25 per share.
53
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
-------------------------------------------------
The Stockholders and Board of Directors
Whirlpool Corporation
Benton Harbor, Michigan
We have audited the accompanying consolidated balance sheets of Whirlpool
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of earnings and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of the Brazilian affiliates used as the basis for recording the
Company's equity in their net earnings, as presented in Note 5 to the
consolidated financial statements. The financial statements of those affiliates
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for the Brazilian
affiliates, is based on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Whirlpool Corporation at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
January 20, 1997
Report by Management
on the Consolidated Financial Statements
----------------------------------------
The management of Whirlpool Corporation has prepared the accompanying financial
statements. The financial statements have been audited by Ernst & Young,
independent auditors, whose report, based upon their audits and the reports of
other independent auditors, expresses the opinion that these financial
statements present fairly the consolidated financial position, results of
operations and cash flows of Whirlpool and subsidiaries in accordance with
generally accepted accounting principles. Their audits are conducted in
conformity with generally accepted auditing standards.
The financial statements were prepared from the company's accounting
records, books and accounts which, in reasonable detail, accurately and fairly
reflect all material transactions. The company maintains a system of internal
controls designed to provide reasonable assurance that the company's accounting
records, books and accounts are accurate and that transactions are properly
recorded in the company's books and records, and the company's assets are
maintained and accounted for, in accordance with management's authorizations.
The company's accounting records, policies and internal controls are regularly
reviewed by the company's internal audit staff.
The audit committee of the board of directors of the company, which is
composed of four directors who are not employed by the company, considers and
makes recommendations to the board of directors as to accounting and auditing
matters concerning the company, including recommending for appointment by the
board the firm of independent auditors engaged on an annual basis to audit the
financial statements of Whirlpool and its majority-owned subsidiaries. The audit
committee meets with the independent auditors at least three times each year to
review the scope of the audit, the results of the audit and such recommendations
as may be made by said auditors with respect to the company's accounting methods
and system of internal controls.
/s/ John P. Cunningham
John P. Cunningham
Executive Vice President and Chief Financial Officer
January 31, 1997
54
<PAGE>
Directors & Senior Management
-----------------------------
Directors
- - --------------------------------------------------------------------------------
Robert A. Burnett
Former Chairman of the Board, Meredith Corp.
Corporate Governance, Human Resources
Herman Cain
Chairman of the Board, Godfather's Pizza, Inc.
Corporate Governance
Allan D. Gilmour
Former Vice Chairman, Ford Motor Co.
Finance, Human Resources
Kathleen J. Hempel
Vice Chairman and Chief Financial Officer, Fort Howard Corp.
Audit, Finance
Arnold G. Langbo
Chairman of the Board and Chief Executive Officer, Kellogg Co.
Corporate Governance, Human Resources
William D. Marohn
Vice Chairman of the Board of the company
Miles L. Marsh
Chairman and Chief Executive Officer, James River Corp.
Audit, Finance
Philip L. Smith
Former Chairman of the Board, President and Chief Executive Officer,
Pillsbury Co.
Corporate Governance, Finance
Paul G. Stern
Partner, Thayer Capital Partners L.L.P.
Audit, Human Resources
Janice D. Stoney
Former Executive Vice President, Total Quality System,
US WEST Communications Group, Inc.
Audit
David R. Whitwam
Chairman of the Board and Chief Executive Officer of the company
Senior Management
- - --------------------------------------------------------------------------------
Executive Officers
David R. Whitwam
Chairman of the Board and Chief Executive Officer
William D. Marohn
Vice Chairman of the Board
Executive Vice Presidents
Ralph F. Hake
Senior Executive Vice President, Operations
John P. Cunningham
Chief Financial Officer
Jeff M. Fettig
President, Whirlpool Europe B.V.
Robert D. Hall
President, Whirlpool Asia
Ronald L. Kerber
Chief Technology Officer
P. Daniel Miller
Latin American Appliance Group
Senior Officers
Vice Presidents
J. C. Anderson
Group Manufacturing and Technology, North America
Roy V. Armes
President, Greater China, Whirlpool Asia
Bradley J. Bell
Treasurer
Garrick D'Silva
President and Chief Executive Officer, South Asia, Whirlpool Asia
E. R. Dunn
Human Resources and Assistant Secretary
Bengt G. Engstrom
Manufacturing and Technology, Whirlpool Europe
Dandridge L. Harrison
Corporate Affairs
Edward J. F. Herrelko
Group Sales and Marketing, Whirlpool Europe
Daniel F. Hopp
General Counsel and Secretary
Halvar Johansson
Corporate Technology and Engineering Development
Kenneth W. Kaminski
Small Appliance Business Unit
James E. LeBlanc
Chairman of the Board, President and Chief Executive Officer,
Whirlpool Financial Corporation
Gregory T. McManus
Group Sales and Distribution, North America
Rudy Provoost
Group Marketing, Whirlpool Europe
Michael D. Thieneman
Global Procurement Operations
Robert G. Thompson
Controller
Michael A. Todman
Product Teams, North America
David W. Williams
Group Marketing, North America
55
<PAGE>
Eleven-Year Consolidated Statistical Review
-------------------------------------------
<TABLE>
<CAPTION>
(millions of dollars except share and employee data) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Operations
- - -----------------------
Net sales $ 8,523 $ 8,163 $ 7,949 $ 7,368 $ 7,097 $ 6,550
Financial services 173 184 155 165 204 207
- - ------------------------------------------------------------------------------------------------------------------
Total revenues $ 8,696 $ 8,347 $ 8,104 $ 7,533 $ 7,301 $ 6,757
Operating profit $ 300 $ 396 $ 397 $ 482 $ 479 $ 393
Earnings from continuing operations before
income taxes and other items $ 130 $ 242 $ 292 $ 375 $ 372 $ 304
Earnings from continuing operations
before accounting change (1) $ 156 $ 209 $ 158 $ 231 $ 205 $ 170
Net earnings (2) $ 156 $ 209 $ 158 $ 51 $ 205 $ 170
Net capital expenditures $ 336 $ 483 $ 418 $ 309 $ 288 $ 287
Depreciation $ 318 $ 282 $ 246 $ 241 $ 275 $ 233
Dividends $ 101 $ 100 $ 90 $ 85 $ 77 $ 76
- - ------------------------------------------------------------------------------------------------------------------
Consolidated Financial Position
- - -------------------------------
Current assets $ 3,812 $ 3,541 $ 3,078 $ 2,708 $ 2,740 $ 2,920
Current liabilities $ 4,022 $ 3,829 $ 2,988 $ 2,763 $ 2,887 $ 2,931
Working capital $ (210) $ (288) $ 90 $ (55) $ (147) $ (11
Property, plant and equipment-net $ 1,798 $ 1,779 $ 1,440 $ 1,319 $ 1,325 $ 1,400
Total assets $ 8,015 $ 7,800 $ 6,655 $ 6,047 $ 6,118 $ 6,445
Long-term debt $ 955 $ 983 $ 885 $ 840 $ 1,215 $ 1,528
Total debt-appliance business $ 1,591 $ 1,635 $ 965 $ 850 $ 1,198 $ 1,330
Stockholders' equity $ 1,926 $ 1,877 $ 1,723 $ 1,648 $ 1,600 $ 1,515
- - ------------------------------------------------------------------------------------------------------------------
Per Share Data
- - --------------
Earnings from continuing operations
before accounting change $ 2.08 $ 2.80 $ 2.10 $ 3.19 $ 2.90 $ 2.45
Net earnings $ 2.08 $ 2.80 $ 2.10 $ 0.67 $ 2.90 $ 2.45
Dividends $ 1.36 $ 1.36 $ 1.22 $ 1.19 $ 1.10 $ 1.10
Book value $ 25.65 $ 25.08 $ 22.83 $ 22.80 $ 22.67 $ 21.78
Closing Stock Price - NYSE $46.5/8 $53.1/4 $50 1/4 $66 1/2 $44 5/8 $38 7/8
</TABLE>
<TABLE>
<CAPTION>
(millions of dollars except share and employee data) 1990 1989 1988 1987 1986
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Operations
- - -----------------------
Net sales $ 6,424 $ 6,138 $ 4,306 $ 4,104 $ 3,928
Financial services 181 $ 136 107 94 76
- - --------------------------------------------------------------------------------------------------------
Total revenues $ 6,605 $ 6,274 $ 4,413 $ 4,198 $ 4,004
Operating profit $ 349 $ 411 $ 261 $ 296 $ 326
Earnings from continuing operations before
income taxes and other items $ 220 $ 308 $ 233 $ 280 $ 329
Earnings from continuing operations
before accounting change (1) $ 72 $ 187 $ 161 $ 187 $ 202
Net earnings (2) $ 72 $ 187 $ 94 $ 192 $ 200
Net capital expenditures $ 265 $ 208 $ 166 $ 223 $ 217
Depreciation $ 247 $ 222 $ 143 $ 133 $ 120
Dividends $ 76 $ 76 $ 76 $ 79 $ 76
- - --------------------------------------------------------------------------------------------------------
Consolidated Financial Position
- - -------------------------------
Current assets $ 2,900 $ 2,889 $ 1,827 $ 1,690 $ 1,654
Current liabilities $ 2,651 $ 2,251 $ 1,374 $ 1,246 $ 1,006
Working capital $ 249 $ 638 $ 453 $ 444 $ 648
Property, plant and equipment-net $ 1,349 $ 1,288 $ 820 $ 779 $ 677
Total assets $ 5,614 $ 5,354 $ 3,410 $ 3,137 $ 2,856
Long-term debt $ 874 $ 982 $ 474 $ 367 $ 298
Total debt-appliance business $ 1,026 $ 1,125 $ 441 $ 383 $ 194
Stockholders' equity $ 1,424 $ 1,421 $ 1,321 $ 1,304 $ 1,350
- - --------------------------------------------------------------------------------------------------------
Per Share Data
- - --------------
Earnings from continuing operations
before accounting change $ 1.04 $ 2.70 $ 2.33 $ 2.61 $ 2.72
Net earnings $ 1.04 $ 2.70 $ 1.36 $ 2.68 $ 2.70
Dividends $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.03
Book value $ 20.51 $ 20.49 $ 19.06 $ 18.83 $ 18.21
Closing Stock Price - NYSE $23 1/2 $ 33 $24 3/4 $24 3/8 $33 7/8
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
(millions of dollars except share and
employee data) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Key Ratios
- - ----------
Operating profit margin 3.5% 4.7% 4.9% 6.4% 6.6% 5.8% 5.3% 6.6% 5.9% 7.1% 8.1%
Pre-tax margin (3) 1.5% 2.9% 3.6% 5.0% 5.1% 4.5% 3.3% 4.9% 5.3% 6.6% 8.2%
Net margin (4) 1.8% 2.5% 2.0% 3.1% 2.8% 2.5% 1.1% 3.0% 3.6% 4.4% 5.0%
Return on average stockholders' equity (5) 8.2% 11.6% 9.4% 14.2% 13.1% 11.6% 5.1% 13.7% 12.3% 14.1% 15.8%
Return on average total assets (6) 1.8% 3.0% 2.8% 4.0% 3.3% 2.9% 1.4% 4.9% 4.9% 6.2% 8.0%
Current assets to current liabilities 0.9 0.9 1.0 1.0 0.9 1.0 1.1 1.3 1.3 1.4 1.6
Total debt-appliance business
as a percent of invested capital (7) 42.6% 43.3% 34.4% 31.6% 41.7% 46.1% 37.6% 39.2% 20.5% 19.3% -
Price earnings ratio 22.4 19.0 23.9 20.8 15.4 15.9 22.7 12.2 18.2 9.1 12.5
Fixed charge coverage (8) 2.0 2.5 3.0 3.2 2.6 2.3 1.8 2.7 3.5 5.4 7.7
- - ---------------------------------------------------------------------------------------------------------------------------------
Other Data
- - ----------
Number of common shares
outstanding (in thousands):
Average 75,077 74,827 75,490 72,272 70,558 69,528 69,443 69,338 69,262 71,732 73,831
Year-end 74,415 74,081 73,845 73,068 70,027 69,640 69,465 69,382 69,289 69,232 74,128
Number of stockholders (year-end) 11,033 11,686 11,821 11,438 11,724 12,032 12,542 12,454 12,521 12,128 11,297
Number of employees (year-end) 48,163 45,435 39,016 39,590 38,520 37,886 36,157 39,411 29,110 30,301 30,520
Total return to shareholders
(five year annualized) (9) 6.3% 20.8% 12.0% 25.8% 17.0% 6.7% 2.8% 11.3% 4.4% 6.2% 26.8%
</TABLE>
(1) Accounting changes: 1993 - Accounting for postretirement benefits other than
pensions, 1987 - Accounting for income taxes and 1986 - Accounting for
pensions.
(2) The Company's kitchen cabinet business was discontinued in 1988.
(3) Earnings from continuing operations before income taxes and other items, as
a percent of revenue.
(4) Earnings from continuing operations before accounting change, as a percent
of revenue.
(5) Earnings from continuing operations before accounting change divided by
average stockholders' equity.
(6) Earnings from continuing operations before accounting change, plus minority
interest, divided by average total assets.
(7) Debt less cash and equivalents divided by debt, stockholders' equity and
minority interests less cash and equivalents.
(8) Ratio of earnings from continuing operations (before income taxes,
accounting change and interest expense) to interest expense.
(9) Stock appreciation plus reinvested dividends.
57
<PAGE>
Subsidiaries
------------
Subsidiary and Name Jurisdiction In
Under Which It Does Business Which Organized
- - ---------------------------- ---------------
Whirlpool Europe B.V./1/ The Netherlands
Whirlpool Properties, Inc./1/ Michigan
Whirlpool Financial Corporation Delaware
Whirlpool Financial National Bank/2/ A National Banking Association
Multibras S.A. Electrodomesticos/3/ Brazil
The names of the Company's other subsidiaries are omitted because, considered in
the aggregate as a single subsidiary, such subsidiaries would not constitute a
significant subsidiary as of December 31, 1996.
- - --------------------------------------
1Wholly-owned by the Company
2Wholly-owned by Whirlpool Financial Corporation
3An affiliate of the Company which constitutes a significant subsidiary as of
December 31, 1996
<PAGE>
Consent of Ernst & Young LLP
The Board of Directors
Whirlpool Corporation
Benton Harbor, Michigan
We consent to the incorporation by reference in Registration Statement Nos.
33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33-40249, 33-40010,
33-43823, 33-02827 and 33-02835 of Whirlpool Corporation and Registration
Statement Nos. 33-26680 and 33-53196 of Whirlpool Corporation and Whirlpool
Savings Plan of our report dated January 20, 1997, with respect to the
consolidated financial statements and schedule of Whirlpool Corporation,
included in this Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
March 19, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement Nos. 33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904,
33-40249, 33-40010, 33-43823, 33-02827 and 33-02825 of Whirlpool Corporation and
Registration Statement Nos. 33-26680 and 33-53196 of Whirlpool Corporation and
Whirlpool Savings Plan of our reports with respect to the financial statements
of Brasmotor S.A. and its subsidiaries, Multibras S.A. Eletrodomesticos and its
subsidiaries and Empresa Brasileira de Compressores S.A.--EMBRACO and its
subsidiaries dated January 22, 1997 included in this Annual Report (Form 10-K)
for the year ended December 31, 1996.
Price Waterhouse
Auditores Independentes
Sao Paulo, Brazil
March 19, 1997
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of WHIRLPOOL CORPORATION, a Delaware corporation
(hereinafter called the "Corporation"), does hereby constitute and appoint DAVID
R. WHITWAM, WILLIAM D. MAROHN, JOHN P. CUNNINGHAM, and DANIEL F. HOPP, with full
power to each ofthem to act alone, as the true and lawful attorneys and against
of the undersigned, with full power of substitution and resubstitution to each
of said attorneys, to execute, file or deliver any and all instruments and to do
all acts and things which said attorneys and agents, or any of them, deem
advisable to enable the Corporation to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any
requirements of the Securities and Exchange Commission in respect any thereof,
in connection with the filing under said Securities Exchange Act of the
Corporation's Annual report on Form 10-K for the year ended December 31, 1996,
including specifically, but without limitation of the general authority hereby
granted, the power and authority to sign his or her name as a director or
officer, or both, of the Corporation, as indicated below opposite his or her
signature, to the Annual Report on Form 10-K, or any amendment, post-effective
amendment, or papers supplemental thereto to be filed in respect of said Annual
Report; and each of the undersigned does hereby fully ratify and confirm all
that said attorneys and agents, or any of them, or the substitute of any of
them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed these presents,
as of the 18th day of February, 1997.
Name Title
/s/ David R. Whitwam Director, Chairman of the Board
- - ---------------------- and Chief Executive Officer
David R. Whitwam (Principal Executive Officer)
/s/ William D. Marohn Director, President and
- - ---------------------- Chief Operating Officer
William D. Marohn
/s/ John P. Cunningham Executive Vice President and
- - ---------------------- Chief Financial Officer
John P. Cunningham (Principal Financial Officer)
/s/ Robert G. Thompson Vice President and Controller
- - ---------------------- (Principal Accounting Officer)
Robert G. Thompson
<PAGE>
/s/ Robert A. Burnett Director
- - ----------------------
Robert A. Burnett
/s/ Herman Cain Director
- - ----------------------
Herman Cain
/s/ Allan D. Gilmour Director
- - ----------------------
Allan D. Gilmour
/s/ Kathleen J. Hempel Director
- - ----------------------
Kathleen J. Hempel
/s/ Arnold G. Langbo Director
- - ----------------------
Arnold G. Langbo
/s/ Miles L. Marsh Director
- - ----------------------
Miles L. Marsh
/s/ Philip L. Smith Director
- - ----------------------
Philip L. Smith
/s/ Paul G. Stern Director
- - ----------------------
Paul G. Stern
/s/ Janice D. Stoney Director
- - ---------------------
Janice D. Stoney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
1996 10-K Whirlpool Corporation and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 2,366
<ALLOWANCES> 58
<INVENTORY> 1,034
<CURRENT-ASSETS> 3,812
<PP&E> 3,839
<DEPRECIATION> 2,041
<TOTAL-ASSETS> 8,015
<CURRENT-LIABILITIES> 4,022
<BONDS> 955
<COMMON> 81
0
0
<OTHER-SE> 1,845
<TOTAL-LIABILITY-AND-EQUITY> 8,015
<SALES> 8,523
<TOTAL-REVENUES> 8,696
<CGS> 6,623
<TOTAL-COSTS> 8,331
<OTHER-EXPENSES> 65
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 165
<INCOME-PRETAX> 130
<INCOME-TAX> 81
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.07
</TABLE>
<PAGE>
EXHIBIT 99
Multibras S.A.
Eletrodomesticos
and Its Subsidiaries
Consolidated Financial Statements
at
December 31, 1996 and 1995
and Report of Independent
Accountants
F-13
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Balance Sheet at December 31
In thousands of U.S. dollars
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1996 1995
--------- ---------
<S> <C> <C>
Current assets
Cash and equivalents 524,740 350,961
Trade receivables 308,120 243,557
Inventories 300,664 237,112
Other assets 87,775 73,588
--------- ---------
1,221,299 905,218
--------- ---------
Non-current assets
Deferred income taxes 59,150 37,387
Intangibles, net 11,414 12,528
Investments in affiliated
companies 36,920 33,073
Sundry investments and other
assets 35,772 32,479
--------- ---------
143,256 115,467
--------- ---------
Property, plant and equipment 606,604 554,364
--------- ---------
1,971,159 1,575,049
========= =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities 1996 1995
--------- ---------
<S> <C> <C>
Current liabilities
Short-term debt 265,789 203,158
Accounts payable 156,317 152,844
Employee compensation 71,672 62,534
Income taxes 51,452 25,405
Product warranty 24,032 16,326
Other taxes payable 43,947 22,546
Other accrued expenses 53,268 28,822
Dividends 37,669 16,865
--------- ---------
704,146 528,500
--------- ---------
Long-term liabilities
Long-term debt 182,447 172,483
Deferred income taxes 25,720 24,590
Employees' severance benefits 44,210 27,613
Other liabilities 27,888 33,342
--------- ---------
280,265 258,028
--------- ---------
Commitments and contingencies
(Note 10)
Minority interests 161,717 145,040
--------- ---------
Stockholders' equity
Capital stock 431,230 429,038
Retained earnings 393,801 214,443
--------- ---------
825,031 643,481
--------- ---------
1,971,159 1,575,049
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
<TABLE>
<CAPTION>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Statement of Earnings
Years Ended December 31
In thousands of U.S. dollars (except per-share amounts)
- - --------------------------------------------------------------------------------------------
1996 1995
---------- -----------
<S> <C> <C>
Net sales 2,528,327 2,138,389
Cost of products sold (1,786,359) (1,609,597)
Selling and administrative expenses (418,000) (358,633)
--------- ---------
Operating profit 323,968 170,159
--------- ---------
Interest expense (38,338) (64,819)
Export incentive credits 38,547
Interest income and other, net 50,055 87,788
--------- ---------
11,717 61,516
--------- ---------
Earnings before tax, equity earnings and minority interest 335,685 231,675
Income taxes
Current (118,786) (71,891)
Deferred 22,345 (2,664)
Tax incentives 17,026 15,026
--------- ---------
Income before equity earnings and minority interest 256,270 172,146
Equity in earnings of affiliated companies 6,307 6,638
Minority interest (19,429) (30,517)
--------- ---------
Net earnings 243,148 148,267
========= =========
Earnings per thousand shares - US$ 220.79 134.63
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
Multibras S.A. Eletrodomesticos
Statement of Movement in Stockholders' Equity
In thousands of U.S. dollars (except per-share amounts)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Capital stock earnings
------------- -------------
<S> <C> <C>
At December 31, 1994 429,038 93,084
Net earnings for the year 148,267
Dividends
Interim (US$ 12.73 per thousand shares) (14,023)
Final (US$ 11.70 per thousand shares) (12,885)
------------- -------------
At December 31, 1995 429,038 214,443
Capitalization of retained earnings 2,192 (2,192)
Net earnings for the year 243,148
Dividends
Interim (US$ 23.23 per thousand shares) (25,578)
Final (US$ 32.71 per thousand shares) (36,020)
------------- -------------
At December 31, 1996 431,230 393,801
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31
In thousands of U.S. dollars
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the year 243,148 148,267
------- -------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loss on translation 12,369 11,288
Equity in net earnings of affiliated companies,
less dividends received (4,320) (4,191)
Depreciation and amortization 97,449 81,463
Gain on sale of property, plant and
equipment and investments (5,818) (862)
Foreign exchange gain (4,637) (5,586)
Deferred income tax (22,345) 2,664
Minority interests 19,429 30,517
------- -------
92,127 115,293
------- -------
Changes in assets and liabilities, net of effects of
business acquisitions and dispositions:
Trade receivables (82,906) (128,182)
Inventories (63,552) (82,843)
Other assets (19,552) (30,313)
Long-term assets 9,796 7,917
Accounts payable 13,752 47,221
Other payables and accruals 101,011 94,882
------- -------
(41,451) (91,318)
------- -------
Total adjustments 50,676 23,975
Net cash provided by operating activities 293,824 172,242
------- -------
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
Multibras S.A. Eletrodomesticos and its subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31
In thousands of U.S. dollars (continued)
- - -------------------------------------------------------------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment
and investments and other long-term assets disposals 26,867 15,267
Net additions to property, plant and equipment (157,918) (134,558)
Increase in investments in affiliated companies
and sundry investments, including goodwill (19,328) (671)
-------- --------
Net cash used in investing activities (150,379) (119,962)
-------- --------
Cash flows from financing activities:
Short-term debt 78,223 133,536
Net increase in long-term debt 21,765 55,940
Dividends paid (38,463) (30,966)
Dividends to minority interests (6,069) (3,520)
Increase in minority interests 986 13,919
-------- --------
Net cash provided by financing activities 56,442 168,909
-------- --------
Effect of exchange rate changes on cash (26,108) (65,243)
Net increase in cash and equivalents 173,779 155,946
Cash and equivalents at beginning of year 350,961 195,015
-------- --------
Cash and equivalents at end of year 524,740 350,961
======== ========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest 27,330 21,189
Income taxes 67,465 37,844
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-18
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
------------------------------------------------------------------------
1 Summary of Principal Accounting Policies
(a) Nature of operations
The Company is the leading Brazilian manufacturer and marketer of home
appliances. The majority of its production is sold in the local market.
The Company was formed in 1994 as a result of the merger of three
companies under common control with consolidated assets of US$ 1,176,441,
net sales of US$ 1,506,299 and net earnings of US$ 135,729 at, and for
the year ended, December 31, 1994.
(b) Bases of consolidation
The consolidated financial statements include the financial statements of
Multibras S.A. Eletrodomesticos and all majority-owned subsidiaries.
Investments in affiliated companies are accounted for by the equity
method. All intercompany receivables and payables, revenues and expenses,
unrealized profits and losses and investments in directly or indirectly
owned subsidiary companies have been eliminated. The amounts of net
earnings and stockholders' equity attributed to minority stockholders are
separately stated in the financial statements.
(c) Bases of adjustment and remeasurement into U.S. dollars
The Company is incorporated in Brazil and its books and records and those
of its Brazilian subsidiaries are kept in reais and in accordance with
Brazilian generally accepted accounting principles. The financial
statements expressed in U.S. dollars conform with accounting principles
generally accepted in the United States of America and reflect the
adjustment and remeasurement into U.S. dollars on the bases set out in
(i) and (ii) below:
(i) Adjustments
The following principal adjustments have been reflected in the U.S.
dollar financial statements:
. Present value adjustment of short-term receivables and payables.
. Interest incurred on financing of property, plant and equipment under
construction is capitalized in accordance with FAS 34.
. Income taxes are accounted for in accordance with FAS 109.
. Pension expense is recognized in accordance with FAS 87.
F-19
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
- - --------------------------------------------------------------------------------
(ii) Remeasurement
Operations in hyperinflationary economy - Brazil
The basis of remeasurement of local currency into U.S. dollars is
summarized as follows:
<TABLE>
Basis of remeasurement
----------------------
<S> <C>
Inventories, intangibles, investments in affiliated Historical exchange rates
companies, sundry investments, property, plant
and equipment, accumulated depreciation,
capital stock and retained earnings
All other assets and liabilities Closing exchange rate of R$ 1,0395
(1995 - R$ 0.9726) per US$ 1
Income and expense, except for cost of products Accumulation of the monthly operations,
sold, depreciation, amortization, and equity in each translated at the respective month-
earnings of affiliated companies, which are at end exchange rate, resulting in an individual
historical rates weighted average exchange rate for each
income and expense
</TABLE>
Price-level restatements, which were required to be recorded in the local
books up to December 31, 1995 to partially recognize the effects of
inflation, do not receive a U.S. dollar equivalent on remeasurement, except
insofar as the price-level restatements affect the computation of income
taxes.
Had the undistributed retained earnings reflected in the official
accounting records at December 31, 1996 and 1995 of R$ 322.711 thousand and
R$ 153.623 thousand (shown in the accompanying financial statements at US$
393.801 and US$ 214,443), been expressed in U.S. currency at the prevailing
exchange rate on those dates, the amounts thereof would have been US$
310.448 and US$ 157.951.
The resulting remeasurement gains and losses are classified in the
statement of earnings as detailed in Note 12.
Operations in non-hyperinflationary economies - foreign
<TABLE>
<S> <C>
Balance sheet items Closing exchange rate
Income and expenses Exchange rate prevailing at the time
income is earned and expense is
incurred
Translation gains and losses are taken directly to equity.
</TABLE>
F-20
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
(d) Cash and equivalents
Cash and equivalents are carried at cost plus interest and include highly
liquid financial investments with original maturities of 90 days or less.
(e) Trade receivables
The Company makes substantial sales to a relatively small number of home
appliance retailers, which operate nationally or regionally. Trade
receivables are stated at estimated net realizable values. An allowance for
uncollectible accounts is provided in an amount considered to be
sufficient to meet probable future losses.
(f) Inventories
Inventories are stated at the lower of average cost of purchase or
production, replacement cost or net realizable value.
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method, over the estimated useful lives of the various
classes of assets.
Expenditures for maintenance and repairs are charged to income.
Improvements and major renewals are capitalized.
(h) Recoverability of long-lived assets
On an annual basis or more frequently if circumstances require, the Company
evaluates long-lived assets, including property, plant and equipment,
investments and intangibles, against current and estimated undiscounted
future operating income of the related businesses. No impairment losses
have been recorded for any of the periods presented. Write-down of the
carrying value of assets or groups of assets will be made, if appropriate.
(i) Current and long-term liabilities
These are adjusted for the effects of indexation or exchange rate
fluctuations on the basis of the contractually agreed indexes or rates,
when applicable.
(j) Product warranty
Provision is made currently for estimated product warranty costs, based on
past experience and future expected commitments.
F-21
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
-----------------------------------------------------------------------
(k) Revenue and expense recognition
Sales revenues are recognized when products are shipped or services are
rendered. Expenses and costs are recognized on the accrual basis.
(l) Income taxes
(i) Under the terms of the Government International Trade Authority
(BEFIEX) fiscal incentive program, which expires in 1998, earnings from
qualified export sales are subject to income tax at the rate of 6%, in
the proportion that those export sales bear to total Company sales.
That part of earnings not deemed, on this basis, to be eligible for a
reduced tax rate is subject to income tax at the standard statutory
rate. The Company also records accelerated depreciation on certain
plant and equipment for tax purposes only.
(ii) Pursuant to FAS 109 "Accounting for Income Taxes" the net tax charges
or benefits related to (i) tax loss carryforwards available to be
offset against future taxable income and (ii) tax effects of temporary
differences between tax results and financial reporting results,
excluding the effects of indexation recorded for tax purposes and
changes in exchange rates, are recorded at the enacted tax rates at
each balance sheet date.
(iii) Income taxes are recorded gross of tax incentive investments and
subsequently reduced by the amount of incentive investment deposits
when received.
(m) Use of estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates .
<TABLE>
<CAPTION>
2 Trade receivables
1996 1995
------- -------
<S> <C> <C>
Trade receivables 442,476 354,202
Trade receivables sold with recourse (78,718) (73,614)
Allowance for doubtful accounts (55,638) (37,031)
------- -------
308,120 243,557
-------- -------
</TABLE>
F-22
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
3 Inventories
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Finished products and work in progress 128,736 79,261
Raw materials and others 171,928 157,851
-------------------
300,664 237,112
-------------------
</TABLE>
4 Investments in affiliated companies
(i) The Company has direct voting interests of 36% in Multibras da Amazonia
S.A., 50% in each of Sabrico Utilidades Domesticas Ltda. and Consorcio
Nacional Brastemp Sabrico S/C Ltda., and other companies engaged in the
manufacture of home appliances or related components.
(ii) In February 1995, the subsidiary company Empresa Brasileira de Compressores
S.A. - EMBRACO entered into a joint venture to produce compressors in
China. The subsidiary is the majority partner of the joint venture with an
interest of 52%. As of December 31, 1996, US$13,807 was invested as
capital in the joint venture. The other partners in this joint venture are
Whirlpool Overseas Holdings Corporation (8%) and Beijing Snowflake
Eletric Appliance Group Corporation (40%).
(iii)In September, 1996, the investment in Motores Eletricos Brasil S.A. was
sold to a third party for US$22,026.
5 Property, plant and equipment
<TABLE>
<CAPTION>
Annual
depreciation
1996 1995 rate%
--------------------------------------
<S> <C> <C> <C>
Land 10,993 11,171
Buildings 165,422 156,115 4
Machinery, equipment and installations 794,830 729,037 10 to 40
Molds and tools 114,231 114,325 10 to 20
Furniture and fixtures 41,124 42,198 10 to 20
Other 36,771 38,236 6 to 20
---------------------
1,163,371 1,091,082
Accumulated depreciation and amortization (680,309) (606,390)
---------------------
483,062 484,692
Plant and equipment - investments in progress 110,458 64,100
Advances to suppliers 13,084 5,572
---------------------
606,604 554,364
---------------------
</TABLE>
Property, plant and equipment of US$3,709 are pledged in guarantee of
borrowings.
F-23
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
--------------------------------------------------------------------------
6 Debt
<TABLE>
<CAPTION>
Interest 1996 1995
----------------------- --------------------------------
<S> <C> <C> <C>
Local currency loans - Monetary correction plus
Brazil interest of 12% p.a. 74,546 35,165
Foreign currency loans
. U.S. dollars Interest from 8 to 12,4% p.a. 290,075 229,716
. Italian lire RIBOR plus 1.25% p.a. 83,615 110,760
--------------------------------
448,236 375,641
Current portion (265,789) (203,158)
--------------------------------
Long-term portion 182,447 172,483
--------------------------------
</TABLE>
At December 31, 1996, the long-term portion of total long-term debt matures
in the following years:
<TABLE>
<S> <C> <C>
1998 51,629
1999 90,385
2000 27,210
2001 10,475
Thereafter 2,748
--------------------------------
182,447
---------------------------------
</TABLE>
7 Income Tax
(a) Tax rate
Income taxes in Brazil include Federal income tax and social contribution
(which is an additional Federal tax on income). There are no State or local
income taxes in Brazil. The statutory rates applicable in each year
presented were as follows (in percentage):
<TABLE>
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Federal income tax 25% 43%
Social contribution 8% 10%
Adjustment to composite rate (2%) (5%)
--------------------------------
Composite Federal income tax rate 31% 48%
--------------------------------
</TABLE>
The social contribution is deductible both for Federal income tax and
social contribution purposes.
F-24
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
--------------------------------------------------------------------------
(b) Income tax reconciliation
The amount reported as income tax expense or benefit is reconciled to the
statutory rates as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Earnings before income tax, equity
earnings and minority interest 335,685 231,675
Tax charge at statutory rates 104,062 111,204
Adjustments to derive effective rate:
Effects of change in tax rates on deferred taxes. 5,826
Permanent differences 3,208 (8,028)
Reduced tax rates on incetivated export sales (6,609) (12,447)
Valuation allowance 3,536 1,194
Difference related to assets and liabilities
remeasured at historical exchange rates that
result from (i) changes in exchange rates and
(ii) indexing used for Brazilian tax purposes (7,756) (23,194)
--------- ---------
Income taxes 96,441 74,555
--------- ---------
</TABLE>
(c) Deferred Income Taxes
The deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Differences between the tax and the book basis of certain
property, plant and equipment. (20,703) (20,378)
Acelerated depreciation (6,794) (4,819)
Temporary differences between Brazilian tax basis and US GAAP 7,306 1,977
Tax loss carryforwards 3,536 1,194
Allowances and accruals not currently deductible 47,439 25,850
Others 6,182 10,167
---------- ---------
36,966 13,991
Valuation allowance (3,536) (1,194)
--------- ---------
33,430 12,797
--------- ---------
Assets 59,150 37,387
Liabilities (25,720) (24,590)
--------- ---------
33,430 12,797
--------- ---------
</TABLE>
8 Employees' Severance Benefits
As required by Italian legislation, the subsidiary Embraco Europe SrL.
accrues severance benefits equal to one month's salary for every year of
service of each employee.
9 Stockholders' Equity
Issued and fully-paid capital stock comprises 739,465,532 common shares and
361,804,950 preferred shares with no par value.
The Company's statutes establish a minimum compulsory annual dividend of 25
% of net earnings for the year in local currency, adjusted in accordance
with corporate legislation, subject to the minimum dividend priority of
preferred stockholders.
F-25
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
--------------------------------------------------------------------------
In the statutory financial statements, retained earnings include: (i) the
tax incentive investments reserve, corresponding to that portion of the
income tax liability applied in tax incentive investments; and (ii) the
legal reserve which must be accumulated at the rate of 5% of the statutory
net earnings until the reserve reaches 20% of capital stock in local
currency. At December 31,1996 these restricted reserves totalled US$
26,079.
10 Commitments and Contingencies
(a) In 1989, a subsidiary initiated civil litigation contesting responsibility
for the payment of loan principal amounting to approximately US$ 39,500.
This loan, which did not have appropriate board approval, was allegedly
authorized at that time by the then chief executive officer and, according
to the financial institution, was drawn in the subsidiary's name, although
the proceeds were never recorded by the subsidiary. Simultaneously with
this legal action, a police inquiry was initiated at the subsidiary's
request.
In view of outside legal counsel's opinion that the chances of a favorable
decision in respect of this matter are very high, management considers that
no provision is necessary in respect thereof, and accordingly, no liability
for this contingency is recorded in the financial statements.
(b) Income tax returns for the last five years remain open to examination and
final acceptance by the fiscal authorities. Other taxes are also open to
review for varying periods. Management does not anticipate that any major
assessments would arise in the event of an examination.
(c) The Company and a subsidiary have signed a contract with BEFIEX under the
terms of which they are committed to jointly export products with a value
of US$ 1,987,000 and to make certain minimum capital expenditures during
the ten-year period ending July 1998, in compensation for benefits relating
to import and other taxes. In the event of failure to comply with these
conditions, the Company and the subsidiary will be subject to the repayment
of tax benefits previously obtained, plus interest and fine. Management
expects that they will comply with these conditions.
(d) In 1995, a subsidiary obtained a favorable decision in the law courts with
respect to a legal claim relative to certain export incentives, which were
eliminated by the government in 1989, in the amount of US$ 38,547. This
amount was realized and recognized as income by the subsidiary in 1995. In
September 1995, part of this amount was contested by the fiscal
authorities. No provision has been recorded with respect to this claim as
management, based on the opinion of its legal advisors, believes that the
probability of any loss is remote. On December 16, 1996, a favorable
decision was obtained by the Company and a subsidiary with respect to
additional export incentives in connection with the BEFIEX program. The
final implementation of such decision is dependent on the calculation of
the amount involved and approval by the court. A reasonable estimation of
the amount involved cannot be made at this time.
11 Related Party Transactions
A subsidiary makes substantial sales to Whirpool Corporation, a significant
shareholder of the Company, and its subsidiaries at normal prices and
conditions. Accounts receivable from these companies totalled US$ 6,972 and
US$ 6,306 at December 31, 1996 and 1995.
F-26
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
12 Gains and Losses on Remeasurement
The gains and losses on translation have been reclassified to the related
line items in the statement of earnings as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Net sales 1,481 11,947
Cost of products sold 2,260 2,311
--------- --------
3,741 14,258
Operating expenses 5,067 4,880
Interest and other income (22,311) (31,650)
Income taxes 1,134 1,224
--------- --------
Aggregate loss on remeasurement (12,369) (11,288)
========= ========
</TABLE>
13 Pension Plan
The Company and its Brazilian subsidiaries maintain both contributory and
concontributory defined benefit pension plans covering substantially all
employees in Brazil. The plans provide pension benefits that are based on
years of service and employees' compensation during a specified period
before retirement. The Company's present funding policy for these plans is
to generally make the minimum annual contribution required by applicable
regulations. Assets held by the plans are managed by an outside public
pension fund institution, which also manages funds of other unrelated
employers and guarantees a minimum annual fixed return of 4% on plan
assets.
Annual pension expense comprises the following components:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Service cost - benefits earned during the year 12,188 8,605
Interest cost on projected benefit obligation 7,359 5,545
Actual return on plan assets (5,318) (5,714)
Net amortization 7,354 7,898
--------- -------
21,583 16,334
--------- -------
</TABLE>
Assumptions used in accounting for defined benefit pension plans are as
follows:
<TABLE>
<CAPTION>
% per annum
above the
general price
index
-------------
<S> <C>
Discount rate 6.00
Rate of compensation level increase 3.75
Expected long-term rate of return on plan assets 6.00
</TABLE>
F-27
<PAGE>
Multibras S.A. Eletrodomesticos and its subsidiaries
Notes to the Consolidated Financial Statements
at December 31, 1996 and 1995
In thousands of U.S. dollars, unless otherwise stated
---------------------------------------------------------------------------
The funded status of the pension plans is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Projected benefit obligation (140,393) (106,102)
Plan assets at fair value 52,122 46,019
---------- --------
Projected benefit obligation in excess of plan assets (88,271) (60,083)
Unrecognized net loss (gain) 15,348 (3,524)
Unrecognized net obligation, net of amortization 49,488 53,911
--------- --------
Accrued pension expense, included in other
accrued expenses (23,435) (9,696)
========= ========
</TABLE>
The accumulated benefit obligation, which is included in the projected
benefit obligation, represents the actuarial present value of benefits
attributed to employee service and compensation levels to date. At December
31, 1996 and 1995, the accumulated benefit obligation was US$ 78,333 and
US$ 63,364, respectively. The vested portion was US$ 60,991 in 1996 and US$
51,817 in 1995.
14 Fair value of financial instruments
Besides cash and equivalents which are stated at cost plus accrued interest
and which approximate fair value, the carrying value of the Company's other
financial instruments approximates fair value at December 31, 1996 and 1995
reflecting the short-term maturity of these instruments at those dates.
Based on interest rates currently available to Multibras S. A.
Eletrodomesticos for bank loans with similar terms and average maturities,
the fair value of long-term debt at December 31, 1996 and 1995 approximates
its carrying value.
Fair value estimates are made at a specific date, based on relevant market
information about the financial instrument. These estimates are subjective
in nature and involve uncertainties and matters of significant judgement
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
* * *
F-28
