<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-1490038
(State of incorporation) (I.R.S. Employer Identification No.)
2000 M-63
Benton Harbor, Michigan 49022-2692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 616/923-5000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No_____
-----
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date:
Class of common stock Shares outstanding at June 30, 1998
--------------------- -----------------------------------
Common stock, par value $1 per share 75,992,728
PAGE 1 OF 20
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
WHIRLPOOL CORPORATION
---------------------
Quarter Ended June 30, 1998
INDEX OF INFORMATION INCLUDED IN REPORT
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements
of Earnings 3
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements
of Changes in Equity 5
Consolidated Condensed Statements
of Cash Flows 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 12
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION AND SUBSIDIARIES
FOR THE PERIOD ENDED JUNE 30
(millions of dollars except share and dividend data)
<TABLE>
<CAPTION>
Second Quarter First Half
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $2,585 $2,074 $5,049 $4,064
EXPENSES:
Cost of products sold 1,962 1,588 3,831 3,124
Selling and administrative 456 381 872 754
Intangible amortization 9 9 19 17
------ ------ ------ ------
2,427 1,978 4,722 3,895
------ ------ ------ ------
OPERATING PROFIT 158 96 327 169
OTHER INCOME (EXPENSE):
Interest and sundry income (expense) 42 2 81 (3)
Interest expense (65) (38) (127) (73)
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 135 60 281 93
Income taxes 49 29 105 45
------ ------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 86 31 176 48
Equity in affiliated companies 2 24 2 46
Minority interests (7) 7 (29) 10
------ ------ ------ ------
EARNINGS FROM CONTINUING OPERATIONS 81 62 149 104
Discontinued operations less applicable taxes 3 3 15 7
------ ------ ------ ------
NET EARNINGS $ 84 $ 65 $ 164 $ 111
====== ====== ====== ======
Per share of common stock:
Basic earnings from continuing operations $ 1.07 $ .82 $ 1.97 $ 1.39
Basic net earnings $ 1.11 $ .87 $ 2.17 $ 1.49
Diluted earnings from continuing operations $ 1.05 $ .81 $ 1.95 $ 1.38
Diluted net earnings $ 1.10 $ .86 $ 2.14 $ 1.48
Cash dividends $ .34 $ .34 $ .68 $ .68
====== ====== ====== ======
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(millions of dollars)
June 30 December 31
1998 1997
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash and equivalents $ 606 $ 578
Trade receivables, less allowances of
(1998: $116 ; 1997: $156 ) 1,831 1,565
Inventories 1,224 1,170
Prepaid expenses and other 256 191
Deferred income taxes 221 215
Net assets of discontinued operations - 562
----------- -----------
Total Current Assets 4,138 4,281
Other Assets
- ------------
Investment in affiliated companies 107 100
Intangibles, net 916 916
Deferred income taxes 231 220
Other 337 378
----------- -----------
1,591 1,614
Property, Plant and Equipment
- -----------------------------
Land 94 92
Buildings 905 969
Machinery and equipment 4,368 4,201
Accumulated depreciation (3,024) (2,887)
----------- -----------
2,343 2,375
----------- -----------
Total Assets $ 8,072 $ 8,270
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Notes payable $ 1,051 $ 1,332
Accounts payable 970 987
Employee compensation 242 265
Accrued expenses 828 858
Restructuring costs 158 212
Current maturities of long-term debt 10 22
----------- -----------
Total Current Liabilities 3,259 3,676
Other Liabilities
- -----------------
Deferred income taxes 192 190
Postemployment benefits 620 598
Other liabilities 192 188
Long-term debt 1,152 1,074
----------- -----------
2,156 2,050
Minority Interests 762 773
Stockholders' Equity
- --------------------
Common stock 83 82
Paid-in capital 314 280
Retained earnings 1,913 1,801
Unearned restricted stock (3) (6)
Cumulative translation adjustments (172) (149)
Treasury stock - at cost (240) (237)
----------- -----------
Total Stockholders' Equity 1,895 1,771
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,072 $ 8,270
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
WHIRLPOOL CORPORATION AND SUBSIDIARIES
FOR THE PERIOD ENDED JUNE 30
(millions of dollars)
Second Quarter
------------------------------------------------------------------------
Accumulated
Other
Retained Comprehensive Common Treasury Stock/
Total Earnings Income Stock Paid-in-Capital
--------- --------- ------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Beginning balance, 1997 $ 1,912 $ 1,939 $ (112) $ 81 $ 4
Comprehensive income
Net income 65 65
Other comprehensive income, net of tax
Foreign currency translation adjustments (18)
Hedge adjustment 9
---------
Other comprehensive income, net of tax (9) (9)
---------
Comprehensive income, net of tax 56
=========
Common stock issued 5 5
Dividends declared on common stock (26) (26)
--------- --------- ------- ------ -------
Ending balance, June 30, 1997 $ 1,947 $ 1,978 $ (121) $ 81 $ 9
========= ========= ======= ====== =======
Beginning balance, 1998 $ 1,828 $ 1,855 $ (159) $ 82 $ 50
Comprehensive income
Net income 84 84
Other comprehensive income, net of tax
Foreign currency translation adjustments (3)
Hedge adjustment (5)
Other (5)
---------
Other comprehensive income, net of tax (13) (13)
---------
Comprehensive income, net of tax 71
=========
Common stock issued 22 1 21
Dividends declared on common stock (26) (26)
--------- --------- ------- ------ -------
Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71
========= ========= ======= ====== =======
First Half
------------------------------------------------------------------------
Accumulated
Other
Retained Comprehensive Common Treasury Stock/
Total Earnings Income Stock Paid-in-Capital
--------- --------- ------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Beginning balance, 1997 $ 1,926 $ 1,918 $ (76) $ 81 $ 3
Comprehensive income
Net income 111 111
Other comprehensive income, net of tax
Foreign currency translation adjustments (95)
Hedge adjustment 50
---------
Other comprehensive income, net of tax (45) (45)
---------
Comprehensive income, net of tax 66
=========
Common stock issued 6 6
Dividends declared on common stock (51) (51)
--------- --------- ------- ------ -------
Ending balance, June 30, 1997 $ 1,947 $ 1,978 $ (121) $ 81 $ 9
========= ========= ======= ====== =======
Beginning balance, 1998 $ 1,771 $ 1,801 $ (149) $ 82 $ 37
Comprehensive income
Net income 164 164
Other comprehensive income, net of tax
Foreign currency translation adjustments (25)
Hedge adjustment 7
Other (5)
---------
Other comprehensive income, net of tax (23) (23)
---------
Comprehensive income, net of tax 141
=========
Common stock issued 35 1 34
Dividends declared on common stock (51) (52)
--------- --------- ------- ------ -------
Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71
========= ========= ======= ====== =======
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION AND SUBSIDIARIES
FOR SIX MONTHS ENDED JUNE 30
(millions of dollars)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 164 $ 111
Equity in net earnings of affiliated
companies, less dividends received (2) (38)
Gain on dispositions (25) -
Depreciation and amortization 230 181
Provision for doubtful accounts 22 22
Restructuring spending (50) (11)
Change in receivables (312) (178)
Change in inventories (85) (88)
Change in payables (3) (71)
Other operating activities (15) 8
-------- --------
CASH USED FOR OPERATING ACTIVITIES (76) (64)
INVESTING ACTIVITIES
Net additions to properties (218) (105)
Financing receivables originated and leasing assets purchased - (2,042)
Principal payments received on financing
receivables and leases - 2,100
Acquisition of businesses, less cash acquired (18) -
Business dispositions 587 -
Other investing activities - 3
-------- --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 351 (44)
FINANCING ACTIVITIES
Proceeds of short-term borrowings 10,680 21,053
Repayments of short-term borrowings (10,931) (20,773)
Proceeds of long-term debt 202 62
Repayments of long-term debt (118) (140)
Repayments of non-recourse debt - (6)
Dividends (51) (51)
Other financing activities (29) 6
-------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (247) 151
-------- --------
INCREASE IN CASH AND EQUIVALENTS 28 43
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 578 129
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 606 $ 172
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements. Management believes the financial statements include all
normal recurring accrual adjustments necessary for a fair presentation.
Operating results for the six months ended June 30, 1998 do not necessarily
indicate the results that may be expected for the full year. For further
information, refer to the consolidated financial statements and notes thereto
included in the company's annual report for the year ended December 31, 1997.
In 1997 and prior years, the company's Brazilian subsidiaries had used the U.S.
dollar as their functional currency due to the high level of inflation in the
Brazilian economy. Because the inflation rate has declined significantly over a
number of years, the Brazilian economy has ceased to be considered highly
inflationary and the functional currency for all of the Brazilian operations was
changed to the local currency as of January 1, 1998.
7
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
The following table provides the computation of basic and diluted earnings (loss) per
share:
Six Months Ended
(millions of dollars except earnings per share) June 30
------------------------
1998 1997
-------- --------
<S> <C> <C>
Basic:
Average Shares Outstanding 75.5 74.5
Earnings:
Continuing Operations $ 148.9 $ 103.7
Discontinued Operations 14.8 7.3
-------- --------
Net Earnings $ 163.7 $ 111.0
======== ========
Earnings Per Share from Continuing Operations $ 1.97 $ 1.39
Net Earnings Per Share $ 2.17 $ 1.49
======== ========
Diluted:
Average Shares Outstanding 75.5 74.5
Treasury Stock Method (a):
Stock Options 1.0 0.5
-------- --------
Diluted Average Shares Outstanding 76.5 75.0
======== ========
Diluted Earnings:
Continuing Operations $ 148.9 $ 103.7
Discontinued Operations 14.8 7.3
-------- --------
Diluted Net Earnings $ 163.7 $ 111.0
======== ========
Diluted Earnings Per Share from Continuing Operations $ 1.95 $ 1.38
Diluted Net Earnings Per Share $ 2.14 $ 1.48
======== ========
</TABLE>
(a) Using the average market price per share of stock for the period.
NOTE B--BUSINESS ACQUISITIONS & DISPOSITIONS
In July 1998, the company purchased the remaining 35% ownership in Shunde SMC
Microwave Products Co., Ltd. (SMC), a Chinese manufacturer and marketer of
microwave ovens, for about $60 million in cash. The company now owns 100% of
SMC.
In March 1998, the company increased its majority ownership interest in
Whirlpool Narcissus Co., its Chinese joint venture that manufactures washing
machines, for about $12 million in cash.
In November 1997, the company completed the purchase of approximately 33% of the
voting shares, as well as preferred, or non-voting shares of the company's
8
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Brazilian affiliate, Brasmotor S.A., for $217 million. The shares, combined with
the existing holdings, give the company a controlling interest of approximately
66% of the voting shares of Brasmotor. Brasmotor is the parent company of
Multibras S.A. Eletrodomesticos (Multibras), an approximately $1.6 billion
appliance company with the leading market share position in Latin America, and
Empresa Brasileira de Compresorres S.A. (Embraco), the world's second largest
hermetic compressor manufacturer with annual sales of approximately $790
million.
In September 1997, the company reached a definitive agreement to sell the
inventory, consumer, and international financing businesses of Whirlpool
Financial Corporation ("WFC") to Transamerica Distribution Finance Corporation
("TDF"). Refer to Note C for further explanation.
In August 1997, the company sold its majority interest in its Argentine business
to Multibras, in a share for share exchange of Whirlpool Argentina shares for
additional shares in Multibras, slightly increasing the company's ownership
stake in Multibras. No gain or loss was recognized by the company on this
transaction. Whirlpool Argentina's annual sales and earnings are not significant
to the company's consolidated results of operations.
NOTE C--DISCONTINUED OPERATIONS
In the second quarter of 1998, the company sold to Transamerica Distribution
Finance Corporation ("TDF") the European inventory financing assets previously
held by WFC, recording a gain of $5 million pretax ($3 million after-tax). This
concluded the series of sales transactions with TDF. Also during the first half
of 1998, the company completed the sale of certain aerospace financing assets
for $156 million; no gain or loss related to these sales was recorded. In
January 1998, the company sold to TDF additional international assets and
consumer financing receivable assets for approximately $370 million, recording a
pretax gain of $20 million ($11 million after-tax).
During the third quarter of 1997, the company discontinued its financing
operations and reached an agreement to sell the majority of WFC's assets in a
series of transactions to TDF. During the fourth quarter of 1997, the company
completed the sale of certain inventory floor planning financing assets and
international factoring assets to TDF for approximately $927 million. Under an
ongoing strategic partnership, TDF will continue to provide financing services
to the company's trade partners and customers. In separate transactions during
the fourth quarter of 1997, the company sold certain consumer financing
receivables for $98 million and entered into an agreement to sell a portion of
WFC's aerospace financing business for $168 million. The company recorded a
pretax gain of $70 million ($42 million after-tax) related to these transactions
in the fourth quarter of 1997. A $36 million operating charge ($22 million
9
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
after-tax) was recorded in the third quarter of 1997 to provide an additional
reserve for certain retained WFC aerospace assets.
Income taxes related to discontinued operations - Expense / (Income):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(millions of dollars) (millions of dollars)
<S> <C> <C>
1998 $ 2 $ 10
1997 $ 3 $ 7
</TABLE>
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
June 30 December 31
1998 1997
------- -----------
(millions of dollars)
<S> <C> <C>
Finished products $1,108 $1,015
Raw materials and work in process 331 373
------ ------
Total FIFO cost 1,439 1,388
Less excess of FIFO cost
over Lifo cost 215 218
------ ------
$1,224 $1,170
====== ======
</TABLE>
NOTE E--AFFILIATED COMPANIES
Equity in the net earnings of affiliated companies is as follows:
<TABLE>
Six Months Ended
June 30
1998 1997
------------------------
(millions of dollars)
<S> <C> <C>
Brazilian affiliates $ - $ 45
Mexican affiliate 1 -
Other 1 1
------ ------
$ 2 $ 46
====== ======
</TABLE>
10
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In November 1997, the company increased its voting ownership in its Brazilian
affiliate, Brasmotor S.A., from 33% to 66% (Refer to Note B -- Business
Acquisitions and Dispositions). As a result, the Brazilian operations are
consolidated as of November 1, 1997. Prior to that date, the Brazilian
operations were accounted for on an equity basis.
NOTE F--GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
(millions of dollars)
Three Months North Latin Other and Total
Ended June 30 America Europe America Asia (Eliminations) Whirlpool
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales
1998 $1,462 $ 595 $ 508 $ 115 $ (95) $2,585
1997 $1,366 $ 596 $ 63 $ 119 $ (70) $2,074
Operating Profit
1998 $ 117 $ 27 $ 17 $ (4) $ 1 $ 158
1997 $ 107 $ 6 $ 3 $ (18) $ (2) $ 96
Six Months North Latin Other and Total
Ended June 30 America Europe America Asia (Eliminations) Whirlpool
- -----------------------------------------------------------------------------------------------------------------
Sales
1998 $2,804 $1,145 $1,064 $ 198 $ (162) $5,049
1997 $2,655 $1,178 $ 123 $ 240 $ (132) $4,064
Operating Profit
1998 $ 224 $ 48 $ 64 $ (10) $ 1 $ 327
1997 $ 193 $ 8 $ 4 $ (32) $ (4) $ 169
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The statements of earnings summarize operating results for the three and six
months ended June 30, 1998 and 1997. Unless otherwise noted, all comparisons are
to the same period for 1997. This section of Management's Discussion highlights
the main factors affecting the changes in operating results. The accompanying
financial statements include the company's investment in Whirlpool Financial
Corporation ("WFC") on a discontinued basis and the company's investment in its
Brazilian subsidiary, Brasmotor S.A., on a consolidated basis for 1998 and the
last two months of 1997.
Net Sales
- ---------
Net sales were $2.6 billion for the second quarter and $5.0 billion for the
first half of 1998, increases of 25% and 24%, respectively. Excluding the impact
of consolidating Brasmotor and currency fluctuations, revenues were up 5% for
the quarter and 3% for the first half. North American unit volumes were up 14%
in the second quarter and 13% in the first half in an industry that was reported
to be up 9%. North American sales were 10% higher in the second quarter and 8%
higher in the first half, reflecting continuing competitive pricing pressures.
North American industry shipments are expected to be up about 6% for the full
year. European sales in U.S. dollars were up 2% in the second quarter and down
1% in the first half. Excluding currency fluctuations, European first half sales
were up 6% due to higher volumes and improved product and brand mix that is
driving higher average sales value. European industry shipments are expected to
be up 5% for the full year.
Expenses
- --------
Gross margin percentage on products sold to net sales improved by .7 percentage
point for the second quarter and 1.0 percentage point for the first half. This
improvement was due to the benefits of the restructuring started in 1997 plus
manufacturing efficiencies and reduced material costs in both North America and
Europe, partially offset by pricing deterioration in North America.
Appliance selling and administrative expenses as a percent of net sales
decreased by .8 percentage point for the second quarter and 1.3 percentage
points for the first half due to cost reduction initiatives and the
consolidation of Brasmotor, which has a lower level of these expenses relative
to sales. The second quarter included provisions totaling $20 million in Brazil
related to increased credit risk as a number of retailers sought protection from
creditors under the Brazilian equivalent of Chapter 11. North American expenses
as a percent of net sales decreased in the first half on higher sales. European
expenses as a percent of net sales improved by more than 2 percentage points due
to reduced costs mainly from restructuring and advertising spending.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Other Income and Expense
- ------------------------
Interest and sundry income (expense) was $40 million favorable in the second
quarter and $84 million favorable in the first half compared to 1997 due to the
inclusion of interest income from the company's Brazilian operations, which
typically hold larger balances of cash equivalents relative to the size of the
business. Partly offsetting this was the $27 million increase in interest
expense in the second quarter, $54 million in the first half, which was also
driven by the consolidation of the company's Brazilian operations.
Income Taxes
- ------------
The consolidated effective income tax rate was 38% in the first half, compared
to 49% for the comparable period in 1997 and a (5)% annual 1997 rate. The
reduction from the prior year's rate reflects the consolidation of Brasmotor and
improved profitability in Europe. The (5)% annual 1997 rate was caused by the
restructuring and other non-recurring charges in 1997, for which the related tax
benefits were at an average rate lower than the U.S. statutory tax rate.
Equity in Affiliated Companies
- ------------------------------
Equity earnings in affiliated companies were $2 million in the first half of
1998 compared to $46 million in 1997 due to the consolidation of Brasmotor
starting in the last two months of 1997.
Discontinued Operations
- -----------------------
The company recorded a gain of $5 million pretax, $3 million after-tax, in the
second quarter related to the sale of European inventory financing assets to
Transamerica Distribution Finance Corporation ("TDF"), concluding a series of
transactions with TDF initiated in the fourth quarter of 1997. Total first half
gains from these transactions totaled $25 million pretax, $15 million after-tax.
Refer to Note C to the accompanying consolidated financial statements for a
discussion of discontinued operations.
Net Earnings
- ------------
Second quarter earnings from continuing operations were $81 million or $1.05 per
diluted share compared to $62 million or 81 cents per diluted share in 1997.
Second quarter net earnings were $84 million or $1.10 per diluted share compared
to $65 million or 86 cents per diluted share in 1997.
First half earnings from continuing operations were $149 million or $1.95 per
diluted share compared to $104 million or $1.38 per diluted share in 1997.
Second quarter net earnings were $164 million or $2.14 per diluted share
compared to $111 million or $1.48 per diluted share in 1997.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the
six months ended June 30, 1998 and 1997 by classifying transactions into three
major categories: operating, investing and financing activities.
Operating Activities
The company's main source of liquidity is cash from operating activities
consisting of net earnings from operations adjusted for non-cash operating items
such as depreciation and changes in operating assets and liabilities such as
receivables, inventories and payables.
Cash used by operating activities in the first six months of 1998 was $76
million compared to $64 million used in 1997. The company generally uses
significant cash flow in the first half of the year largely due to seasonal
working capital needs of the appliance business. The current year increase in
cash usage compared to the prior year reflects higher working capital needs,
partially offset by higher earnings.
Investing Activities
The principal recurring investing activities are property additions. Net
property additions for the first half were $218 million in 1998 increased from
$105 million in 1997 primarily due to the consolidation of Brasmotor. These
expenditures are primarily for equipment and tooling related to product
improvements, more efficient production methods and replacement for normal wear
and tear.
Refer to Note B to the accompanying consolidated financial statements for a
discussion of business dispositions and acquisitions.
Financing Activities
Dividends to shareholders totaled $51 million for the first half of 1998 and
1997.
The company's borrowings decreased by $167 million during the first half of
1998, excluding the effect of currency fluctuations, resulting primarily from
proceeds related to the WFC asset sales.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the company remains strong as evidenced by the June
30, 1998 balance sheet. The company's total assets are $8.1 billion and
stockholders' equity is $1.9 billion.
The overall debt to invested capital ratio of 37.7% at June 30, 1998 was down
from 42.1% at December 31, 1997 due to the ongoing disposition of assets related
to the discontinued financing
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
operations. 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 hedge or otherwise in
other income (expense).
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.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
BUSINESS UNIT NET SALES AND OPERATING PROFIT
The following data is presented as supplemental information (in millions):
Net Sales by Business Unit were as follows:
<TABLE>
<CAPTION>
Better/ Better/
Second Quarter (Worse) Six Months (Worse)
----------------- ------------ ----------------- ------------
1998 1997 $ % 1998 1997 $ %
------ ------ ---- ---- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $1,464 $1,335 $129 10% $2,801 $2,595 $206 8%
Europe 575 565 10 2 1,115 1,125 (10) (1)
Latin America 493 63 430 683 1,039 123 916 745
Asia 87 111 (24) (22) 154 224 (70) (31)
Other (34) 0 (34) N/M (60) (3) (57) N/M
------ ------ ---- ---- ------ ------ ---- ----
Total Appliance Business $2,585 $2,074 $511 25% $5,049 $4,064 $985 24%
====== ====== ==== ==== ====== ====== ==== ====
</TABLE>
Operating Profit by Business Unit was as follows:
<TABLE>
<CAPTION>
Better/ Better/
Second Quarter (Worse) Six Months (Worse)
----------------- ------------ ----------------- ------------
1998 1997 $ % 1998 1997 $ %
------ ------ ---- ---- ------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $ 166 $ 144 $ 22 15% $ 313 $ 272 $ 41 15%
Europe 28 6 22 367 50 10 40 400
Latin America 15 3 12 400 62 4 58 1,450
Asia (3) (20) 17 85 (10) (35) 25 71
Other (48) (37) (11) (30) (88) (82) (6) (7)
------ ------ ---- --- ------ ------ ---- -----
Total Appliance Business $ 158 $ 96 $ 62 65% $ 327 $ 169 $158 93%
====== ====== ==== === ====== ====== ==== =====
</TABLE>
For commentary regarding performance in North America and Europe, refer to
"Results of Operations." Other consists of corporate expenses and eliminations.
Latin America sales and operating profits reflect the consolidation of Brasmotor
beginning in November 1997. Prior to that date, the company's Brazilian
operations were accounted for as equity affiliates. First half appliance
shipments in Brazil were down 26% from 1997, consistent with the significant
downturn in the Brazilian appliance industry and overall economy. The company's
after-tax share of the benefits from a Brazilian government export incentive
program (Befiex) was about $7 million in the second quarter and $14 million in
the first half of 1998. This program is scheduled to end in July 1998.
In December 1996, a favorable decision was obtained by Multibras S.A.
Eletrodomesticos (Multibras) and Empresa Brasileira de Compresorres S.A.
(Embraco) with respect to additional export incentives in connection with the
Befiex program. In April 1997, Multibras and Embraco submitted tax-credit
claims for about 447 million reais (equivalent to US$440 million as of December
1996) relating to the favorable decision for exports from July 1988 through
December 1996. The Brazilian court must render a final decision on the amount,
timing and payment method of any final award. The company has not recognized
any income relating to the claims involving sales prior to 1997 because the
timing and payment amount of such claims is uncertain.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Asia had lower unit volumes and sales compared to the prior year due to the
closure of two factories in 1997 and worse economic conditions in the region.
The second quarter operating loss in the region was lower than 1997 due to the
restructuring plan implemented in late 1997.
17
<PAGE>
PART II. OTHER INFORMATION
--------------------------
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 1998
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
a. The annual Meeting of Stockholders was held on April 28, 1998 with Messrs.
Robert A. Burnett, Herman Cain, Allan D. Gilmour, David R. Whitwam, and Ms.
Janice D. Stoney each elected to a term to expire on 2001 pursuant to a
stockholder vote.
<TABLE>
<CAPTION>
Nominee For Against Abstentions
------- --- ------- -----------
<S> <C> <C> <C>
Robert A. Burnett 64,309,821 0 1,006,453
Herman Cain 64,332,906 0 983,368
Allan D. Gilmour 64,324,700 0 991,574
Janice D. Stoney 64,324,050 0 992,224
David R. Whitwam 64,271,206 0 1,045,068
</TABLE>
Messrs. DiCamillo, Langbo, Smith, Etchenique, Marohn, Marsh and Stern and Ms.
Hempel each have terms of office as directors that continued after the 1998
Annual Meeting.
Item 5. Other Information
- --------------------------
Advance Notice of Stockholder Proposals: Under Article II, Section 12 of the
registrant's by-laws, a shareholder proposal submitted outside the processes of
Rule 14a-8 of the Proxy Solicitation Rules (17 C.F.R. 240.14a-8) is considered
untimely unless written notice of the stockholder's intent to make such a
proposal is given, either by personal delivery or by registered or certified
United States mail postage prepaid, to the Secretary of the Corporation. This
notice must be received by the Secretary not later than (i) ninety (90) days in
advance of an annual meeting of stockholders to be held on the third Tuesday in
April; and (ii) with respect to an annual meeting to be held on a day other than
the third Tuesday in April, the close of business on the seventh day following
the date on which notice of such meeting is first given to stockholders. A
stockholder's notice to the Secretary must include (a) a description of the
proposal to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting; (b) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such business and any
other
18
<PAGE>
stockholders known by such stockholder to be supporting such proposal; (c) the
class and number of shares of the Corporation's stock that are beneficially
owned by the stockholder on the date of such notice; and (d) any financial
interest of the stockholder in such proposal. The chairman of the meeting shall
determine whether the requirements of the registrant's by-laws have been met
with respect to any stockholder proposal. If the chairman of the meeting
determines that a stockholder proposal was not made in accordance with the terms
of the registrant's by-laws the chairman shall so declare at the meeting, and
any such proposal shall not be acted upon at the meeting.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. The following are included herein:
(27) Financial Data Schedule
(99) Computation of the ratios of earnings to fixed charges
b. The registrant filed the following Current Reports on Form 8-K for the
quarterly period ended June 30, 1998.
A Current Report on Form 8-K dated April 21, 1998 pursuant to Item 5, "Other
Events," to adopt a replacement Shareholders Rights Plan.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Second
Quarter 10-Q for Whirlpool Corporation and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 606
<SECURITIES> 0
<RECEIVABLES> 1831
<ALLOWANCES> 116
<INVENTORY> 1224
<CURRENT-ASSETS> 4138
<PP&E> 5367
<DEPRECIATION> 3024
<TOTAL-ASSETS> 8072
<CURRENT-LIABILITIES> 3259
<BONDS> 1152
0
0
<COMMON> 83
<OTHER-SE> 1812
<TOTAL-LIABILITY-AND-EQUITY> 8072
<SALES> 5049
<TOTAL-REVENUES> 5049
<CGS> 3831
<TOTAL-COSTS> 4703
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (127)
<INCOME-PRETAX> 281
<INCOME-TAX> 105
<INCOME-CONTINUING> 149
<DISCONTINUED> 15
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.14
</TABLE>
<PAGE>
EXHIBIT 99
RATIOS OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
----------------
<S> <C>
Pretax earnings $ 281.1
Portion of rents representative
of the interest factor 9.1
Interest on indebtedness 127.6
Amortization of debt expense
and premium .3
WFC preferred stock dividend 3.2
-----------
Adjusted income $ 421.3
===========
Fixed charges
Portion of rents representative
of the interest factor $ 9.1
Interest on indebtedness 127.6
Amortization of debt expense
and premium 0.3
WFC preferred stock dividend 3.2
-----------
$ 140.2
===========
Ratio of earnings to
fixed charges 3.00
===========
Appliance Business ratio of
earnings to fixed charges
at June 30, 1998 2.15
===========
</TABLE>
