<PAGE>
- --------------------------------------------------------------------------------
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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
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-3932
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, Michigan 49022-2692
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (616) 923-5000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ---------------------
<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 ((S)229.405 of this chapter) 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 1, 1999, was $3,042,333,004.
On March 1, 1999, the registrant had 76,494,003 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:
<TABLE>
<CAPTION>
Part of Form 10-K
into which
Document incorporated
-------- ------------------
<S> <C>
The Company's Annual Report to Stockholders for the
year ended
December 31, 1998 Parts I, II and IV
The Company's proxy statement for the 1999 annual
meeting of
stockholders (SEC File No. 1-3932) Part III
</TABLE>
Exhibit Index on page: **
Total number of pages: ***
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<PAGE>
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
1) On March 1, 1999, the Company announced that it intends to repurchase up
to $250 million of the Company's outstanding shares of common stock. The
Company anticipates that purchases will be made from time to time both on the
open market and in private sales over the next 18 months.
2) On January 26, 1999, the Company announced that it anticipated an
adverse effect on its first-quarter 1999 net earnings due to the devaluation
of the Brazilian currency against the U.S. dollar. At that time the Company
announced that it expected for every one percent of devaluation in the
Brazilian currency, its first-quarter 1999 net earnings could potentially be
affected negatively by approximately one and one-half cents per diluted share.
On March 1, 1999, the Company announced that it plans to make a series of
adjustments to its Brazilian balance sheet over the next 30 days in order to
mitigate the exposure to fluctuations in the Brazilian currency to one-half of
the previous levels, thereby reducing future volatility and the potential for
negative impact on its earnings resulting from the currency devaluation. The
Company also said that it is unable to predict the extent of the Brazilian
currency devaluation and its impact on net earnings for the full year. For
additional information see the Management's Discussion and Analysis of Results
of Operations and Financial Condition section (the "Management's Discussion
and Analysis") of the Company's Annual Report to Stockholders for the year
ended December 31, 1998 (the "Annual Report"), which is incorporated herein by
reference.
3) On May 15, 1998, Whirlpool and its subsidiary, Brasmotor S.A., announced
that they were exploring a full array of strategic options (including possible
alliances, sale, partnerships, or other alternatives) involving Empressa
Brasileira de Compressores S.A. (Embraco), their hermetic compressor
manufacturing subsidiary. On March 1, 1999, the Company announced that it had
elected to retain Embraco.
Financial Information Relating to Operating Segments,
Foreign and Domestic Operations and Export Sales
The Company operates predominantly in the business segment classified as
Major Home Appliances. Prior to the sale of WFC assets, which was completed in
1998, the Company also operated in the Financial Services business segment.
During 1998 the Company's U.S. operations sold product into Canada, Mexico,
Latin America, the Carribean, 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 14 of the Notes
to Consolidated Financial Statements in the Annual Report.
1
<PAGE>
Products and Services
The Company manufactures and markets a full line of major home appliances
and related products, primarily for home use. The Company's principal products
are: home laundry appliances, home refrigeration and room air conditioning
equipment, home cooking appliances, home dishwashers, and mixers and other
small household appliances. Less than 10% of the Company's unit sales volume
is purchased from other manufacturers for resale by the Company. The Company
also produces hermetic compressors and plastic components, primarily for the
home appliance and electronics industries.
The following table sets forth information regarding the total revenue
contributed by each class of similar products which accounted for 10 percent
or more of the Company's consolidated revenue in 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars) Percent 1998 1997 1996
- -------------------------------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
Home Laundry Appliances.......................... 28% $ 2,932 $2,704 $2,699
Home Refrigeration and Room Air Conditioning
Equipment....................................... 35% $ 3,622 $2,913 $3,078
Home Cooking Appliances.......................... 16% $ 1,625 $1,434 $1,379
Other............................................ 21% $ 2,144 $1,566 $1,367
--- ------- ------ ------
Net Sales...................................... 100% $10,323 $8,617 $8,523
=== ======= ====== ======
</TABLE>
The Company has been the principal supplier of home laundry appliances to
Sears, Roebuck and Co. ("Sears") for over 80 years. The Company is also the
principal supplier to Sears of residential trash compactors and microwave hood
combinations and a major supplier to Sears of dishwashers, free-standing
ranges, 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 products since 1989.
Major home appliances are marketed and distributed in the United States
under the Whirlpool, KitchenAid, Roper, Estate, and Coolerator brand names
through Company-owned sales branches primarily to retailers, buying groups,
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. In Mexico the Company's affiliate, Vitromatic S.A.,
manufactures and markets major home appliances for sale under the Whirlpool,
Acros, and Supermatic 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 markets and distributes, through wholly owned sales
entities, its major home appliances under the Whirlpool, Bauknecht, Ignis,
Algor, and Laden brand names and its portable appliances under the KitchenAid
brand name. In addition to its extensive operations in western Europe, the
Company has sales subsidiaries in Hungary, Poland, the Czech Republic,
Slovakia, Greece, Romania, Bulgaria, Latvia, Estonia, Lithuania, and Morocco
and a representative office in Russia. In certain Eastern European countries
and ex-Soviet states, products bearing the Whirlpool and Ignis brand names are
sold through independent distributors. The Company owns a subsidiary in South
Africa which manufactures refrigerators and freezers and through which it
markets a full line of products under the Whirlpool and KIC brand names.
Whirlpool's European operations also sell products carrying the Whirlpool,
Bauknecht, Ignis, Algor, and Fides brand names to the Company's wholly-owned
sales companies in Asia and majority-owned sales companies in Latin America
and to independent distributors and dealers in Africa and the Middle East.
In Asia the Company markets and distributes its major home appliances
through three operating regions: the South Asia Sales region based in Delhi,
which includes India and surrounding markets; the Asia Pacific Sales
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region, which includes the ASEAN countries, Korea, Japan, Australia, New
Zealand, Hong Kong, and Taiwan; and the China Sales region through Whirlpool
Narcissus and SMC. With the exception of the Narcissus and Taiwan joint
ventures, all of these entities are wholly-owned by Whirlpool. The Company
markets and sells its products in Asia under the Whirlpool, KitchenAid, Ignis,
Bauknecht, and SMC brand names, as well as under the Narcissus brand name
(owned by its joint venture partner and used under license).
In Latin America the Company markets and distributes its major home
appliances through regional networks under the Whirlpool, Brastemp, Consul,
and Eslabon de Lujo brand names. Appliance sales and distribution in Brazil,
Argentina, Bolivia, Chile, Paraguay, and Peru are managed through subsidiaries
owned by Multibras S.A. Eletrodomesticos ("Multibras"), the Company's
Brazilian subsidiary, and through independent distributors. Appliance sales
and distribution in Central American countries, the Caribbean, Venezuela, and
Ecuador are managed through Whirlpool sales subsidiaries which are part of
Whirlpool's North America Region and through independent distributors. In
Colombia the Company operates a sales branch which sells and distributes
products for the Colombian market.
Competition
The major home appliance business is highly competitive. The Company
believes that, in terms of units sold annually, it is the largest United
States manufacturer of home laundry appliances and one of the largest United
States manufacturers of home refrigeration and room air conditioning
equipment, dishwashers, and cooking products. The Company estimates that
during 1998 with respect to U.S. manufacturers, there were approximately five
manufacturers of home laundry appliances, ten manufacturers of room air
conditioning equipment, five manufacturers of home refrigeration equipment,
five manufacturers of dishwashers, and five manufacturers of cooking products.
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 in Europe it is, in terms of units sold annually,
one of the three largest manufacturers and marketers of major home appliance
products. The Company estimates that during 1998 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 this trend will continue. The Company believes it is in a
favorable position in Europe 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, Western
European manufacturers face competition from manufacturers in Asia, primarily
China, South Korea, and Japan.
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. The Company estimates that during 1998 there were
approximately 50 manufacturers of major home appliances competing in the Asian
market. Competition in the Asian home appliance business is based on a wide
variety of factors including principally local production capabilities,
product features, price, product quality, and performance.
The Company believes that 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, Brastemp, Consul, and Eslabon
de Lujo to meet the specific requirements of consumers in the region. The
Company estimates that during 1998 there were approximately 20 manufacturers
of home appliances in the region. Competition in the
3
<PAGE>
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.
As a result of its global expansion, the Company believes it has a
competitive advantage by reason of its ability to leverage engineering
capabilities across regions, transfer best practices, and economically
purchase raw materials and component parts in large volumes.
Employees
The Company and its consolidated subsidiaries had approximately 59,000
employees as of December 31, 1998.
Other Information
The Company has a controlling equity interest in Brasmotor S.A., the
Company's long-time partner in Latin America and the parent company of certain
Latin American manufacturers of major home appliances and components
(Multibras and Embraco). The Company has a minority equity interest in a
Mexican manufacturer of home appliances and components. In China the Company
has a majority interest in a joint venture company that manufactures automatic
washing machines for sale and distribution in China and for export, and a
minority interest in a joint venture company that manufactures air
conditioners. The Company also has a minority equity interest in China in a
compressor manufacturing joint venture between its Brazilian subsidiary and a
company in China that manufactures refrigeration products. 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 a minority equity interest in a Taiwanese
marketer and distributor of home appliances. The company has a significant
minority equity interest in a major manufacturer of kitchen furniture in
Germany that is also a major trade customer of the Company. 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.
On January 1, 1999, eleven member nations of the European Union began the
conversion to a common currency, the "euro." The effects on the Company's
business operations resulting from the introduction of the euro are discussed
in the Management's Discussion and Analysis section of the Annual Report.
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 which
are currently present in the United States and Western Europe. Such risks may
include: currency exchange rate fluctuations; high inflation; the need for
governmental approval of and restrictions on certain financial and other
corporate transactions and new or continued business operations; the
convertibility of local currencies; government price controls; restrictions on
the remittance of dividends, interest, royalties, and other payments;
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 subsidiaries were profitable in 1998 despite a
declining home appliances market depressed by record unemployment levels, high
interest rates and declining consumer income. These results are due in part to
successful new product launches, line extensions, and cost reductions from
restructuring. Nonetheless, high interest rates and contractionary fiscal
policy adopted by the government may lead to a severe recession in the first
half of 1999, indicating another challenging year for the appliance industry,
a trend that began in 1997. For additional information see the Management's
Discussion and Analysis section of the Annual Report.
4
<PAGE>
The Company is generally not dependent upon 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, the
Company believes 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, the KitchenAid
Mixer Shape, Roper, and Inglis. In Europe Whirlpool, through its subsidiaries,
is also the owner of a number of trademarks and the foreign registrations
thereof. The most important trademarks owned by the Company in Europe are
Bauknecht, Ignis, and Laden. The most important trademark for the Company's
European, Asian, and Latin American operations is Whirlpool. Pursuant to the
agreement whereby the Company purchased most of its European business from
Philips, except for certain limited exceptions and subject to certain phase-
out provisions, neither Philips nor any subsidiary of Philips was able to
engage directly or indirectly in the major domestic appliance business
anywhere in the world until after 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. For example, air conditioners typically sell more heavily during
summer months. Where appropriate, the Company manages its regional
manufacturing operations and product inventories to address seasonal
variations in demand.
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, 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. 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.
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 seek 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 governmental
provisions relating to environmental protection in the countries in which it
has manufacturing operations. Capital expenditures and expenses, for
manufacturing operations and product related activities combined, attributable
to compliance with such provisions worldwide amounted to approximately $58
million in 1995, $50 million in 1996, and $48 million in 1997. In 1998 such
capital expenditures and expenses related to manufacturing operations were $30
million, and capital expenditures and expenses for product related
environmental activities were not material. It is estimated that in 1999
environmental capital expenditures and expenses for manufacturing operations
will be $26 million, and that such expenses for product related environmental
activities will again not be material. Much of the decrease from 1995 to 1996
and later years is attributable to the phase-out of chloroflourocarbons (CFCs)
and is associated with the elimination of taxes on CFCs (CFCs were eliminated
from the Company's products in the United States prior to
5
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December 31, 1995). The anticipated decrease from 1998 to 1999 is attributable
to the completion of air and water pollution control capital improvement
projects in 1998, as well as benefits from previous pollution prevention
projects.
The entire United States home appliance industry, including the Company,
must contend with the adoption of stricter governmental energy and
environmental standards to be phased in over the next several years. These
include the general phase-out of CFCs used in refrigeration and energy
standards rulemakings for other selected major appliances produced by the
Company. Compliance with these various standards as they become effective will
require some product redesign.
As in the United States, Whirlpool's European and Latin American operations
are 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 in 1989. 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 has also evaluated
its facilities in China and India. 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.
The Company does not anticipate any material adverse effect on its
operations or performance as a result of the Year 2000 computer software
issue. For more information on Year 2000, see the Management's Discussion and
Analysis section of the Annual Report.
In an effort to enhance productivity and business systems performance, the
Company is implementing an integrated business software package to replace and
consolidate many of its existing stand-alone systems. The new system was
implemented in Austria, Brazil, Canada, Germany, and Switzerland in 1998. The
project is expected to be completed within the next two to three years.
6
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The following table sets forth the names of the Company's executive
officers at December 31, 1998, 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, 1998:
<TABLE>
<CAPTION>
First Became
Name Office an Officer Age
---- ------ ------------ ---
<S> <C> <C> <C>
David R. Director, Chairman of the Board and 1983 56
Whitwam Chief Executive Officer
William D.
Marohn Director and Vice Chairman of the Board 1984 58
Ralph F. Senior Executive Vice President and 1988 49
Hake Chief Financial Officer
Jeff M. Executive Vice President and 1993 41
Fettig President, Whirlpool Europe and Asia
Daniel F. Senior Vice President, Corporate Affairs and 1989 51
Hopp General Counsel
Ronald L. Executive Vice President and 1991 55
Kerber Chief Technology Officer
Greg A.
Lee Senior Vice President, Human Resources 1998 49
Paulo F.M.
Periquito Executive Vice President, Latin American Region 1997 52
Michael D.
Thieneman Executive Vice President, North American Region 1997 50
</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 1999 and until his successor is chosen
and qualified or until his earlier resignation or removal. William D. Marohn
retired from the Company effective January 1, 1999.
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>
Greg A. St. Paul Companies December 1992 through May 1998
Lee Senior Vice President, Human Resources
Paulo March 1996 through present
F.M. Multibras S.A.
Periquito Chief Executive Officer
ALCOA Latin America 1981 through March 1996
Executive Vice President and Chief
Operating Officer (last title held)
</TABLE>
ITEM 2. Properties.
The principal executive offices of Whirlpool Corporation are located in
Benton Harbor, Michigan. At December 31, 1998, the principal manufacturing and
service operations of the Company were carried on at 44 locations worldwide,
34 of which are located in 12 countries outside the United States. The Company
occupied a total of approximately 41.3 million square feet devoted to
manufacturing, service, administrative offices, warehouse, distribution, and
sales space. Over 12 million square feet of such space is occupied under
lease. In general, all facilities are well maintained, suitably equipped, and
in good operating condition.
ITEM 3. Legal Proceedings.
As of, and during the quarter ended, December 31, 1998, 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.
7
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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 1998.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange.
As of March 1, 1999, the number of holders of record of the Company's
common stock was approximately 13,371.
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 1997 and 1998 are set forth in Note 15
of the Notes to Consolidated Financial Statements in the Annual Report.
ITEM 6. Selected Financial Data.
The selected financial data for the five years ended December 31, 1998 with
respect to the following line items are shown under the "Eleven Year
Consolidated Statistical Review" in the Annual 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.
See the Management's Discussion and Analysis section of the Annual Report.
ITEM 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are contained in the
Annual Report. Supplementary financial information regarding quarterly results
of operations (unaudited) for the years ended December 31, 1998 and 1997 is
set forth in Note 15 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.
The Board of Directors of the Company's subsidiary, Multibras, announced on
February 8, 1999, the engagement of Ernst & Young LLP as its independent
auditors for the fiscal year ending December 31, 1999 to replace the firm of
PricewaterhouseCoopers Auditores Independentes, Brazil, who were dismissed as
auditors of Multibras effective February 8, 1999. Multibras does not have an
audit or similar committee of the Board of Directors.
The reports of PricewaterhouseCoopers Auditores Independentes, Brazil, on
the financial statements of Multibras for the past two fiscal years did not
contain an adverse opinion or a disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the financial statements of Multibras for
each of the two fiscal years ended December 31, 1998 and through February 8,
1999, there were no disagreements with PricewaterhouseCoopers
8
<PAGE>
Auditores Independentes, Brazil, on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
that, if not resolved to the satisfaction of PricewaterhouseCoopers Auditores
Independentes, Brazil, would have caused PricewaterhouseCoopers Auditores
Independentes, Brazil, to make reference to the matter in their report. For
additional information see the Company's Current Report on Form 8-K filed
February 8, 1999, as amended on February 25, 1999.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information with respect to directors of the Company can be found under the
captions "Directors and Nominees for Election as Directors" in the Company's
proxy statement for the 1999 annual meeting of stockholders (SEC File No.1-
3932) (the "Proxy Statement"), which is incorporated herein by reference.
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 can be found under the captions "Executive
Compensation" and "Compensation of Directors" in the Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
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 can be found under the caption "Security Ownership" in
the Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions.
Information with respect to certain transactions with executive officers
and directors of the Company and others can be found under the caption
"Certain Transactions" in the Proxy Statement.
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 "Exhibit Index."
(b) No reports on Form 8-K were filed during the fourth quarter of 1998.
(c) Exhibits.
See attached "Exhibit Index."
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Ralph F. Hake
By: _________________________________
Ralph F. Hake
(Principal Financial Officer)
Senior 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)
Ralph F. Hake* Senior Executive Vice
____________________________________ President
Ralph F. Hake and Chief Financial Officer
(Principal Financial
Officer)
Mark E. Brown* Vice President and
____________________________________ Controller (Principal
Mark E. Brown Accounting Officer)
Robert A. Burnett* Director
____________________________________
Robert A. Burnett
Herman Cain* Director March 22, 1999
____________________________________
Herman Cain
Gary T. DiCamillo* Director
____________________________________
Gary T. DiCamillo
Allan D. Gilmour* Director
____________________________________
Allan D. Gilmour
Kathleen J. Hempel* Director
____________________________________
Kathleen J. Hempel
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Arnold G. Langbo* Director
____________________________________
Arnold G. Langbo
Miles L. Marsh* Director
____________________________________
Miles L. Marsh
Philip L. Smith* Director March 22, 1999
____________________________________
Philip L. Smith
Paul G. Stern* Director
____________________________________
Paul G. Stern
Janice D. Stoney* Director
____________________________________
Janice D. Stoney
</TABLE>
/s/ Daniel F. Hopp
*By: __________________________
Daniel F. Hopp
Attorney-in-Fact
11
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEMS 14(a) (1) AND (2) AND 14(d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1998
WHIRLPOOL CORPORATION AND CONSOLIDATED SUBSIDIARIES
The following consolidated financial statements of the registrant and its
consolidated subsidiaries, set forth in the Annual Report, are incorporated
herein by reference in Item 8:
Consolidated balance sheets--December 31, 1998 and 1997
Consolidated statements of earnings--Three years ended December 31, 1998
Consolidated statements of changes in stockholders' equity--Three years
ended December 31, 1998
Consolidated statements of cash flows--Three years ended December 31,
1998
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 account......................... F-9
The following exhibits are included herein:
Exhibit 11--Statement Re: Computation of Earnings Per Share........... F-10
Exhibit 12--Ratio of Earnings to Fixed Charge......................... F-11
</TABLE>
Individual financial statements of the registrant's affiliated foreign
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>
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, 1998 and 1997, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. 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 Brasmotor S.A. and its
consolidated subsidiaries, whose statements reflect total assets of $2,500
million and $2,200 million as of December 31, 1998 and 1997, respectively and
net earnings of $58 million, $41 million and $120 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to data included for Brasmotor S.A. and its consolidated
subsidiaries, 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 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 auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Whirlpool Corporation at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
Chicago, Illinois
January 21, 1999
F-2
<PAGE>
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998 and 1997 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 (not presented
herein). 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 18, 1999. 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. and Sociedade Financeira de
Grandes Aparatos Domesticos S.A., which statements reflect total assets of
US$149,457 thousand and US$119,549 thousand as of December 31, 1998 and 1997,
respectively, and net earnings of US$6,037 thousand and US$9,487 thousand for
the years ended December 31, 1998 and 1997, respectively. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for Whirlpool Argentina S.A.
and Sociedade Financeira de Grandes Aparatos Domesticos S.A., 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 and the reports of the other auditors 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.
Up to December 31, 1997, Brazil had 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 as of December 31, 1997, 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. As from January
1, 1998, the functional currency, for the purpose of the translation of the
financial statements into U.S. dollars, has been changed from the U.S. dollar
to the local currency (reais).
F-3
<PAGE>
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Brasmotor S.A.
Page 2
In our opinion, based on our audits and the reports 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.
[PRICEWATERHOUSECOOPERS SIGNATURE]
PricewaterhouseCoopers
Auditores Independentes
Sao Paulo, Brazil
January 18, 1999
F-4
<PAGE>
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1998 and 1997 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 (not presented herein). 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 18, 1999.
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. Up to December 31, 1997, Brazil had 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 as of December 31, 1997, 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. As from January 1, 1998, the
functional currency, for the purpose of the translation of the financial
statements into U.S. dollars, has been changed from U.S. dollar to the local
currency (reais).
F-5
<PAGE>
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Empresa Brasileira de Compressores S.A.--EMBRACO
Page 2
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.
[PRICEWATERHOUSECOOPERS SIGNATURE]
PricewaterhouseCoopers
Auditores Independentes
Sao Paulo, Brazil
January 18, 1999
F-6
<PAGE>
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Multibras S.A. Eletrodomesticos
We have audited the accompanying consolidated balance sheets of Multibras
S.A. Eletrodomesticos and its subsidiaries as of December 31, 1998 and 1997 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
(not presented herein). 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 18, 1999. 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. and Sociedade Financeira de
Grandes Aparatos Domesticos S.A., which statements reflect total assets of US$
149,457 thousand and US$ 119,549 thousand as of December 31, 1998 and 1997,
respectively, and net earnings of US$ 6,037 thousand and US$ 9,487 thousand for
the years ended December 31, 1998 and 1997, respectively. Those statements were
audited by other auditors whose reports hves been furnished to us, and our
opinion, insofar as it relates to data included for Whirlpool Argentina S.A.
and Sociedade Financeira de Grandes Aparatos Domesticos S.A., is based solely
on the report 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 and the reports of the other auditors 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. Up to December 31, 1997, Brazil had 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 as
of December 31, 1997, 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. As from January 1, 1998, the functional
currency, for the purpose of the translation of the financial statements into
U.S. dollars, has been changed from the U.S. dollar to the local currency
(reais).
F-7
<PAGE>
[PRICEWATERHOUSECOOPERS LETTERHEAD]
Multibras S.A. Eletrodomesticos
Page 2
In our opinion, based on our audits and the reports 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.
[PRICEWATERHOUSECOOPERS SIGNATURE]
PricewaterhouseCoopers
Auditores Independentes
Sao Paulo, Brazil
January 18, 1999
F-8
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Years Ended December 31, 1998, 1997, and 1996
(millions of dollars)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ---------- ------------------ ------------ ---------
Additions
------------------
(1) (2)
Charged Charged
Balance at to Costs to Other Balance
Beginning and Accounts/ Deductions-- at End of
Description of Period Expenses Other Describe Period
----------- ---------- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998:
Allowances for doubtful
accounts--trade
receivables............ $134 $ 45 $ 63(B) $116
==== ==== ==== ====
Allowances for doubtful
accounts--financing
receivables and leases. $ 90 $ 0 $ 19(C) $ 71
==== ==== ==== ====
Accrued expenses--
restructuring costs.... $212 $-- $ 95(E) $117
==== ==== ==== ====
Year Ended December 31,
1997:
Allowances for doubtful
accounts--trade
receivables............ $ 45 $ 34 $55(A) $ 0(B) $134
==== ==== === ==== ====
Allowances for doubtful
accounts--financing
receivables and leases. $ 50 $125 $ 0 $ 85(C) $ 90
==== ==== === ==== ====
Accrued expenses--
restructuring costs.... $ 32 $343 $ 5(D) $168(E) $212
==== ==== === ==== ====
Year Ended December 31,
1996:
Allowances for doubtful
accounts--trade
receivables............ $ 39 $ 15 $ 9(B) $ 45
==== ==== ==== ====
Allowances for doubtful
accounts--financing
receivables and leases. $ 42 $ 48 $ 40(C) $ 50
==== ==== ==== ====
Accrued expenses--
restructuring costs.... $ 70 $ 30 $ 68(E) $ 32
==== ==== ==== ====
</TABLE>
- --------
Note A--The amount represents the allowance for doubtful accounts balance on
the balance sheet of Brasmotor S.A. at the time of consolidation in 1997.
Note B--The amounts represent accounts charged off, less recoveries of $5 in
1998, $15 in 1997, and $7 in 1996, and translation adjustments and transfers.
Note C--The amount for 1998 represents a transfer to the trade receivable
allowance while the amounts for 1997 and 1996 represent accounts charged off,
less recoveries of $4 and $3, respectively.
Note D--The amount represents the restructuring provision on the balance
sheet of Brasmotor S.A. at the time of consolidation in 1997.
Note E--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>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Basic:
Average Shares Outstanding ........................... 75.8 74.7 74.3
Earnings (Loss):
Continuing Operations .............................. $310.3 $ (46.4) $140.9
Discontinued Operations ............................ 14.8 31.6 14.9
------ ------- ------
Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8
====== ======= ======
Earnings (Loss) Per Share from Continuing Operations . $ 4.09 $ (0.62) $ 1.90
Net Earnings (Loss) Per Share ........................ $ 4.29 $ (0.20) $ 2.10
====== ======= ======
Diluted:
Average Shares Outstanding ........................... 75.8 74.7 74.3
Treasury Stock Method (a):
Stock Options ...................................... 0.7 -- 0.7
Assumed Conversion of Debt ........................... -- -- 2.2
------ ------- ------
Average Shares Outstanding ............................. 76.5 74.7 77.2
====== ======= ======
Earnings (Loss) from Continuing Operations ........... $310.3 $ (46.4) $140.9
Interest Expense, net of tax ......................... -- -- 4.5
------ ------- ------
Diluted Earnings (Loss) from Continuing Operations ... $310.3 $ (46.4) $145.4
====== ======= ======
Diluted Earnings (Loss) Per Share from Continuing
Operations........................................... $ 4.06 $ (0.62) $ 1.88
====== ======= ======
Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8
Interest Expense, net of tax ......................... -- -- 4.5
------ ------- ------
Diluted Net Earnings (Loss) .......................... $325.1 $ (14.8) $160.3
====== ======= ======
Diluted Net Earnings (Loss) Per Share ................ $ 4.25 $ (0.20) $ 2.08
====== ======= ======
</TABLE>
- --------
(a) Using the average market price per share of stock for the period; effect
of stock options precipitates an anti-dilutive calculation in 1997, and
therefore not included; convertible debt retired in 1997.
F-10
<PAGE>
EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
December
31
----------
1998 1997
---- -----
<S> <C> <C>
Pretax earnings.................................................... $564 $(178)
Portion of rents representative of the interest factor............. 20 21
Interest on indebtedness........................................... 260 244
Amortization of debt expense and premium .......................... 1 1
WFC preferred stock dividend....................................... 5 6
---- -----
Adjusted income................................................ $851 $ 94
==== =====
<CAPTION>
Fixed charges
- -------------
<S> <C> <C>
Portion of rents representative of the interest factor........... $ 20 $ 21
Interest on indebtedness......................................... 260 244
Amortization of debt expense and premium......................... 1 1
WFC preferred stock dividend..................................... 5 6
---- -----
$287 $ 272
==== =====
Ratio of earnings to fixed charges................................. 3.0 0.3
==== =====
</TABLE>
F-11
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEMS 14(a)(3) and 14(c)
EXHIBIT INDEX
YEAR ENDED DECEMBER 31, 1998
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
escriptionD Sequential
of Page
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] [File
No. 1-3932]
3(ii) Amended and Restated By-laws of the Company as
amended February 17, 1998 [Incorporated by
reference from Exhibit 3(ii) to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1997] [File No. 1-3932]
4(i) 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.
4(ii) Rights Agreement, dated April 21, 1998, between
Whirlpool Corporation and First Chicago Trust
Company of New York, with exhibits [Incorporated by
reference from Exhibit 4 to the Company's Form 8-K,
dated April 22, 1998] [File No. 1-3932]
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] [File No. 1-3932]
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] [File No. 1-
3932]
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]
[File No. 1-3932]
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] [File
No.1-3932]
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] [File No. 1-3932]
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] [File No. 1-3932]
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Number
and
escriptionD Sequential
of Page
Exhibit Numbers*
- ----------- ----------
<C> <C> <S> <C>
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] [File No. 1-3932]
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] [File No. 1-
3932]
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] [File 1-3932]
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] [File No. 1-
3932]
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] [File No. 1-3932]
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] [File No. 1-3932]
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] [File No. 1-
3932]
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] [File No. 1-
3932]
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] [File No. 1-3932]
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] [File No. 1-3932]
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] [File No. 1-3932]
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] [File No. 1-3932]
10(iii) (s) Whirlpool Corporation 1998 Omnibus Stock and
Incentive Plan (Effective April 28, 1998)
[Incorporated by reference From Exhibit A to the
Company's proxy statement for the 1998 annual
meeting of stockholders] [File No. 1-3932]
11 Statement Re: Computation of Earnings per share
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Number
and
Dscriptione Sequential
of Page
Exhibit Numbers*
- ----------- ----------
<C> <C> <S> <C>
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, 1998
21 List of Subsidiaries
23(ii) (a) Consent of Ernst & Young LLP
23(ii) (b) Consent of PricewaterhouseCoopers
24 Powers of Attorney
27 Financial Data Schedules
</TABLE>
- --------
*This information appears only in the manually signed originals of the Form
10-K and conformed copies with exhibits.
E-3
<PAGE>
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(all amounts in millions except earnings per share)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Basic:
Average Shares Outstanding ........................... 75.8 74.7 74.3
Earnings (Loss):
Continuing Operations .............................. $310.3 $ (46.4) $140.9
Discontinued Operations ............................ 14.8 31.6 14.9
------ ------- ------
Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8
====== ======= ======
Earnings (Loss) Per Share from Continuing Operations . $ 4.09 $ (0.62) $ 1.90
Net Earnings (Loss) Per Share ........................ $ 4.29 $ (0.20) $ 2.10
====== ======= ======
Diluted:
Average Shares Outstanding ........................... 75.8 74.7 74.3
Treasury Stock Method (a):
Stock Options ...................................... 0.7 -- 0.7
Assumed Conversion of Debt ........................... -- -- 2.2
------ ------- ------
Average Shares Outstanding ............................. 76.5 74.7 77.2
====== ======= ======
Earnings (Loss) from Continuing Operations ........... $310.3 $ (46.4) $140.9
Interest Expense, net of tax ......................... -- -- 4.5
------ ------- ------
Diluted Earnings (Loss) from Continuing Operations ... $310.3 $ (46.4) $145.4
====== ======= ======
Diluted Earnings (Loss) Per Share from Continuing
Operations........................................... $ 4.06 $ (0.62) $ 1.88
====== ======= ======
Net Earnings (Loss) .................................. $325.1 $ (14.8) $155.8
Interest Expense, net of tax ......................... -- -- 4.5
------ ------- ------
Diluted Net Earnings (Loss) .......................... $325.1 $ (14.8) $160.3
====== ======= ======
Diluted Net Earnings (Loss) Per Share ................ $ 4.25 $ (0.20) $ 2.08
====== ======= ======
</TABLE>
- --------
(a) Using the average market price per share of stock for the period; effect
of stock options precipitates an anti-dilutive calculation in 1997, and
therefore not included; convertible debt retired in 1997.
<PAGE>
EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended
December
31
----------
1998 1997
---- -----
<S> <C> <C>
Pretax earnings.................................................... $564 $(178)
Portion of rents representative of the interest factor............. 20 21
Interest on indebtedness........................................... 260 244
Amortization of debt expense and premium .......................... 1 1
WFC preferred stock dividend....................................... 5 6
---- -----
Adjusted income................................................ $851 $ 94
==== =====
<CAPTION>
Fixed charges
- -------------
<S> <C> <C>
Portion of rents representative of the interest factor........... $ 20 $ 21
Interest on indebtedness......................................... 260 244
Amortization of debt expense and premium......................... 1 1
WFC preferred stock dividend..................................... 5 6
---- -----
$287 $ 272
==== =====
Ratio of earnings to fixed charges................................. 3.0 0.3
==== =====
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The consolidated statements of earnings summarize operating results for the last
three years. This section of Management's Discussion and Analysis highlights
the main factors affecting changes in operating results during the three-year
period. Unless otherwise noted, all comparisons are to 1997 and 1996 excluding
discontinued operations, restructuring and other non-recurring items [see
"Discontinued Operations, Non-Recurring Items and Net Earnings/(Loss)"].
The company's investment in its Brazilian subsidiary, Brasmotor S.A., is
accounted for on a consolidated basis for the full year 1998 and the last two
months of 1997. Prior to the consolidation, the Brazilian operations were
accounted for on an equity basis. Prior to the fourth quarter of 1997, the
company's Brazilian operations were reported on a one-month lag. In the fourth
quarter of 1997, this one-month reporting lag was eliminated and the Brazilian
results for the year ended December 31, 1997 included activity for 13 months.
The effect of eliminating the one-month lag increased 1997 net earnings $5
million.
Net Sales
- ---------
Net sales were $10.3 billion in 1998, an increase of 20% over 1997. Excluding
the impact of consolidating Brasmotor and currency fluctuations, net sales were
up 4%. North American unit volumes were up 10%, in an industry that was up
nearly 9%. North American sales were up 6% due to increased volume, partially
offset by competitive price pressures and mix. North American industry
shipments are expected to be flat in 1999. European unit volumes were up 7%
over 1997 while the industry was up 4%. European sales in U.S. dollars were up
4%. Excluding the effect of currency fluctuations, sales were up nearly 8%
year-over-year 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 2% in 1999.
Net sales were $8.6 billion in 1997, including two months of sales related to
consolidating Brasmotor, an increase of 1% over 1996. Excluding currency
fluctuations and the consolidation of Brasmotor, net sales were down 1%. North
American unit volumes were up 1% over 1996, in an industry that was up less than
1%. North American sales were down 1%, due to competitive pricing partially
offset by increased volume and favorable product mix. European unit volumes
were up 4%, which was in line with the industry growth. European sales in U.S.
dollars were down 6% compared to 1996; however, excluding the effect of currency
fluctuations, sales were up more than 8% year-over-year. Sales growth in
Europe, in local currency, reflected stabilization of the declining price
realization that affected the industry in 1996.
Expenses
- --------
Gross margin percentage improved by nearly one percentage point in 1998. North
American gross margin percentage improved due to increased volume, productivity
improvements and reduced
1
<PAGE>
material costs, partially offset by price deterioration. European gross margin
improved due to the benefits of restructuring plus manufacturing efficiencies
and reduced material costs.
Gross margin percentage improved over one percentage point in 1997. North
American gross margin percentage improved principally due to manufacturing
efficiencies, effective cost control management and reduced material costs,
partially offset by price deterioration. Price realization combined with
improved product mix, effective cost control management and reduced material
costs improved the European gross margin percentage nearly three percentage
points in 1997.
Selling and administrative expenses as a percent of net sales improved by over
one percentage point in 1998 versus 1997 due to restructuring savings and other
cost reduction initiatives, partially offset by pretax provisions totaling $28
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 percentage of net sales improved on higher sales
and cost reduction efforts. European expenses as a percent of net sales
improved by nearly two percentage points due to higher sales and reduced costs
mainly from restructuring and further efficiency savings.
Selling and administrative expenses as a percent of net sales were flat in 1997
compared to 1996. The North American and European percentages were both
essentially flat with the prior year.
Other Income and Expense
- ------------------------
Interest and sundry income (expense) for 1998 was favorable to 1997 primarily
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 an increase in interest expense from
1997, which was also primarily driven by the consolidation of the company's
Brazilian operations.
Interest and sundry income (expense) for 1997 was favorable compared to 1996,
but was almost fully offset by the increase in interest expense.
Income Taxes
- ------------
The effective tax rate for continuing operations was 37% in 1998 compared to 44%
in 1997 and 62% in 1996. The lower tax rate in 1998 compared to 1997 is due to
the impact of consolidating Brasmotor, the recognition of certain tax benefits
in Europe and Brazil, and the lower impact of permanent tax differences
resulting from higher earnings. The lower effective tax rate in 1997 compared
to 1996 is due to the diminished impact of permanent items resulting from higher
pretax earnings, the impact of consolidating Brasmotor as well as certain tax
loss benefits.
Including restructuring charges and non-recurring charges, the effective tax
(benefit) rates for 1997 and 1996 were (5)% and 70%, respectively.
2
<PAGE>
Equity in Affiliated Companies
- ------------------------------
Equity earnings were $1 million, $72 million and $93 million in 1998, 1997 and
1996. The decrease in 1998 is due primarily to the consolidation of Brasmotor
starting in the last two months of 1997. The 1997 decline primarily reflected a
slowdown in the previously robust growth in the Brazilian appliance industry
partially offset by Befiex, a Brazilian government export incentive program, and
other tax benefits.
Earnings from Continuing Operations
- ------------------------------------
Excluding non-recurring items, earnings from continuing operations for 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from Continuing Operations $310 million $226 million $160 million
- ---------------------------------------------------------------------------------------------------
Diluted Earnings per Share $4.06 $2.99 $2.13
- ---------------------------------------------------------------------------------------------------
Basic Earnings per Share $4.09 $3.02 $2.15
- ---------------------------------------------------------------------------------------------------
</TABLE>
Discontinued Operations, Non-Recurring Items and Net Earnings/(Loss)
- --------------------------------------------------------------------
During 1998, the company recorded an after-tax gain of $15 million or $.19 per
diluted share related to the sale of consumer financing and European inventory
financing assets to Transamerica Distribution Finance Corporation ("TDF"),
concluding a series of transactions to dispose of its financing business
initiated in the fourth quarter of 1997. Over the two years 1998 and 1997, the
company recorded total after-tax gains of $57 million or $.74 per diluted share
related to these transactions.
In 1997, an after-tax and minority interests restructuring charge of $232
million or $3.07 per diluted share and an after-tax and minority interests
special operating charge of $40 million or $.54 per diluted share were incurred
to better align the company's cost structure within the global home-appliance
marketplace. A discontinued operations after-tax charge of $22 million or $.29
per diluted share, an after-tax gain on business dispositions of $42 million or
$.55 per diluted share and discontinued earnings of $12 million or $.16 per
diluted share were also recorded. Refer to Notes 3 and 10 to the accompanying
consolidated financial statements.
In 1996, an after-tax restructuring charge of $19 million or $.25 per diluted
share was incurred to improve the company's long-term cost competitiveness and
profitability in the North American refrigeration market and in Asia.
Discontinued earnings of $15 million or $.19 per diluted share were also
recorded.
Including discontinued operations and non-recurring items, net earnings/(loss)
for 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings/(Loss) $325 million $(15) million $156 million
- ----------------------------------------------------------------------------------------------------
Diluted Earnings/(Loss) per Share $4.25 $(.20) $2.08
- ----------------------------------------------------------------------------------------------------
Basic Earnings/(Loss) per Share $4.29 $(.20) $2.10
- ----------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
CASH FLOWS
The statements of cash flows from continuing operations 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.
Cash provided by operating activities was $763 million, $593 million and $545
million in 1998, 1997 and 1996. The increase in 1998 from 1997 is primarily due
to higher earnings, adjusted for depreciation and minority interests, partially
offset by spending for restructuring. The increase in 1997 from 1996 is
primarily due to favorable performance in inventory, accounts payable, income
tax payable and other operating accounts.
Investing Activities
- --------------------
The principal recurring investing activities are property additions. Net
property additions for continuing operations were $523 million, $378 million and
$336 million in 1998, 1997 and 1996. The increase in 1998 from 1997 principally
resulted from the consolidation of Brasmotor. These expenditures were primarily
for equipment and tooling related to product improvements, more efficient
production methods and equipment replacement for normal wear and tear.
In 1997, the company began construction of a new $86 million facility in Pune,
India to manufacture no-frost refrigerators for the South Asia appliance market.
The facility began commercial production in the first quarter of 1998.
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 $102 million, $102 million and $101 million in
1998, 1997 and 1996.
The company's net borrowings decreased by $423 million in 1998, excluding the
effect of currency fluctuations, resulting primarily from proceeds related to
the WFC asset sales. Also during 1998, the company redeemed $40 million of WFC
preferred stock.
4
<PAGE>
The company's net borrowings decreased by $1,069 million in 1997, excluding
currency translation and $132 million of borrowings net of cash assumed in
acquisitions, resulting primarily from proceeds related to the WFC asset sales.
The 1997 borrowing activities for continuing operations included the first
quarter repayment of $113 million of outstanding subordinated zero-coupon
convertible notes, financed through the issuance of additional commercial paper.
The company's net borrowings increased by $171 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.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the company remains strong as evidenced by the
December 31, 1998 balance sheet. The company's total assets are $7.9 billion
and stockholders' equity is $2.0 billion.
The overall debt, net of cash, to invested capital ratio (debt ratio) of 34.6%
was down from 42.1% in 1997 due primarily to the proceeds related to the WFC
asset sales used to repay debt and improved cash flows. The company's debt
continues to be rated investment grade by Moody's Investors Service Inc.,
Standard and Poor's and Duff & Phelps.
Market Risk
- -----------
The company is exposed to market risk from changes in foreign currency exchange
rates, domestic and foreign interest rates, and commodity prices, which can
impact its operating results and overall financial condition. The company
manages its exposure to these market risks through its operating and financing
activities and, when deemed appropriate, through the use of derivative financial
instruments. Derivative financial instruments are viewed as risk management
tools and are not used for speculation or for trading purposes. Derivative
financial instruments are entered into with a diversified group of investment
grade counterparties to reduce the company's exposure to nonperformance on such
instruments.
The company manages a portfolio of domestic and cross currency interest rate
swaps that serve to effectively convert U.S. Dollar (USD) denominated debt into
that of various European currencies. Such local currency denominated debt
serves as an effective hedge against the European cash flows and net assets that
exist today and that are expected to be generated by the European business over
time. (Refer to Notes 1 and 7 for the accounting treatment for, and a detailed
description of, these instruments.) Domestic and cross currency interest rate
swaps in this portfolio are sensitive to changes in foreign currency exchange
rates and interest rates. As of December 31, 1998, a ten percent appreciation
of the USD versus the European currencies alone would have resulted in an
incremental unrealized gain on these contracts of $57 million. The converse
event would have resulted in an incremental unrealized loss on these contracts
of $100 million. As of December 31, 1998, ten percent favorable shifts in
interest rates alone to each swap
5
<PAGE>
would have resulted in an incremental unrealized gain of $13 million. The
converse events would have resulted in an incremental unrealized loss of $10
million.
The company uses foreign currency forward contracts and options from time to
time to hedge the price risk associated with firmly committed and forecasted
cross-border payments and receipts related to its ongoing business and
operational financing activities. The value of these contracts moves in a
direction opposite to that of the transaction being hedged, thus eliminating the
price risk associated with changes in market prices. Foreign currency contracts
are sensitive to changes in foreign currency exchange rates. At December 31,
1998, ten percent unfavorable exchange rate movements in the company's portfolio
of foreign currency forward contracts would have resulted in an incremental
unrealized loss of $43 million while ten percent favorable shifts would have
resulted in an incremental unrealized gain of $43 million. Consistent with the
use of these contracts, such unrealized losses or gains would be offset by
corresponding gains or losses, respectively, in the remeasurement of the
underlying transactions. The company had no foreign currency options
outstanding at December 31, 1998.
The company manages a portfolio of domestic interest rate swap contracts that
serve to effectively convert long-term, fixed rate USD-denominated debt into
floating rate LIBOR-based debt. The company also uses commodity swap contracts
to hedge the price risk associated with firmly committed and forecasted
commodities purchases which are not hedged by contractual means directly with
suppliers. As of December 31, 1998, a ten percent increase or decrease in
interest rates would not have resulted in a material gain or loss. Ten percent
favorable shifts in copper and zinc prices would have resulted in an incremental
$4 million gain and $4 million loss, respectively.
Brasmotor's long-term debt carries a floating interest rate that periodically
reprices driving the carrying value to approximate the fair value. As of
December 31, 1998, a ten percent increase or decrease in interest rates would
not have resulted in a material gain or loss. The company's USD-denominated
debt is sensitive to currency exchange rates. Refer to the Latin America
section below.
The company's sensitivity analysis reflects the effects of changes in market
risk but does not factor in potential business risks.
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.
Latin America
- --------------
In January 1999, the company's Brazilian operations faced significant financial
and operational difficulties due to high interest rates and the devaluation of
Brazil's currency, the real. The company's financial strategy is to minimize
the long-term cost of capital within Latin America by borrowing primarily in
USD, and believes that short-run exchange rate fluctuations on USD-denominated
debt are acceptable risks compared to the long-term cost of funding in local
currencies.
6
<PAGE>
Consistent with the above strategy, the company's Brazilian subsidiary currently
maintains a significant level of cash that is invested in local currency. The
primary reason for holding cash in Brazil is the desire to hold a reasonable
safety stock of cash in case of an economic downturn and the resultant difficult
credit markets. The secondary reason is that the company has significant
historical earnings in Brazil that cannot be economically repatriated due to
minority shareholder positions and tax costs.
On January 26, 1999, the company announced that the foreign currency loss in the
first quarter 1999 could be approximately $0.015 per diluted share for each 1%
in devaluation from the exchange rate in effect immediately prior to the
devaluation of the real and the change in the Brazilian government's foreign
exchange policy in January 1999. The company also announced at that time that
it expected the full year 1999 devaluation of the Brazilian currency to be
approximately 30%.
The company's after-tax share of the benefits of a Brazilian government export
incentive program (Befiex) was $15 million in 1998. In 1997, the company
recorded $34 million in Befiex and other tax benefits. The Befiex program ended
in mid July 1998.
On May 15, 1998, the company announced it was exploring a full array of
strategic business options involving Empresa Brasileira de Compresorres S.A.
(Embraco), a hermetic compressor manufacturing subsidiary with approximately
$800 million in sales for 1998. The review, which is still ongoing, includes
the possible sale of Embraco.
In December 1996, a favorable decision was obtained by Multibras S.A.
Eletrodomesticos (Multibras) and 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. This amount is impacted by
exchange rate fluctuations, offset by accrued interest. 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.
Year 2000
- ---------
An issue affecting the company and most other companies is whether computer
systems and applications will properly process dates beyond the Year 2000. In
1996, the company began assessing the effect of this issue on its operations and
has since utilized the services of outside consultants in this effort. In 1998,
the company appointed a new Chief Information Officer, who has as one of his key
responsibilities the global coordination of the company's efforts to assess the
Year 2000 problem and implement the necessary changes.
The company currently does not anticipate any material adverse effect on its
computer software systems as a result of the Year 2000 problem. Key internal
computer systems have been evaluated
7
<PAGE>
for Year 2000 compliance and regional remediation plans have been developed.
Work is underway to replace or upgrade key internal systems to ensure they
remain operational up to and beyond December 31, 1999. All critical computer
systems are expected to be Year 2000 compliant by the second quarter of 1999.
The company anticipates that Year 2000 remediation projects will be successfully
completed according to plan and that the costs of such projects will not be
material to the company. The cumulative cost of projects dedicated solely to
Year 2000 remediation is approximately $19 million and is currently expected to
reach close to $32 million by December 31, 1999. These costs do not include the
cost of upgrading systems for other business reasons; such upgrades will usually
provide the additional benefit of making the systems Year 2000 compliant.
The company also has completed an assessment of its products and does not
anticipate that any significant problems will be experienced with the appliances
it manufactures due to the Year 2000 issue. Appliances produced by the company
generally do not have calendar date systems and therefore are not likely to
experience failures caused by the millennium date change.
The company has surveyed its key suppliers to understand their plans to address
the Year 2000 problem. The company will continue monitoring its suppliers to
determine the availability of components and raw materials as the millennium
approaches; however, suppliers could have significant Year 2000 problems that
could adversely affect the company. The company is also in the process of
creating business teams in each of its regions around the world to consider the
contingency plans that may be necessary for this issue, particularly with regard
to delays that may occur with supplier orders. Additionally, building and
equipment infrastructure compliance is still being assessed.
Although the company believes that it can address Year 2000 readiness issues
related to its operations, there still may be disruptions that are unforeseen.
These issues create risks for the entire business community with a wide range of
opinions on the effect of the Year 2000 issue on the overall global economy.
The effect of the problem on transportation systems and government agencies,
among others, are risks that cannot be adequately assessed or addressed to
eliminate the risk of the Year 2000 issue for the company. As a result, while
it is difficult for the company to appraise the likelihood, or the impact on its
business, of the risks of the Year 2000 problem, the company does not believe
its risks are greater than or different from other companies with similar
operations.
Over the past several months, the company has taken further steps to increase
the global coordination of its Year 2000 compliance program and has appointed a
global project manager to oversee the Year 2000 compliance efforts of the
company's operations in each region. As part of this global coordination, an
outside consultant has completed a review of the internal Year 2000 programs of
the company's operations in each of its regions around the world. The review
indicated that the company's major business units in its key markets of Europe,
North America and Latin America are following reasonable plans to address the
Year 2000 issue. The outside consultant's review also indicated that the
company's business units in India and China will need more attention compared to
the other regions in order to implement the company's Year 2000 program, and the
company intends to increase its Year 2000 efforts in these two business units
8
<PAGE>
over the next several months. However, due to the low level of automation in
the company's India and China operations and the operations of the supply base
in these countries, the Year 2000 issue will not be as significant a problem in
these countries as in other parts of the world.
The above section, even if incorporated by reference into other documents or
disclosures, is a Year 2000 Readiness Disclosure as defined under the Year 2000
Information and Readiness Disclosure Act of 1998.
Euro Currency Conversion
- ------------------------
On January 1, 1999, eleven member nations of the European Union began the
conversion to a common currency, the "euro." The company has significant
manufacturing operations and sales in these countries. The introduction of the
euro may have the following effects on the company's business operations.
The competitive structure of the industry may change as the single currency
eliminates short-term cost advantages or disadvantages due solely to currency
fluctuation.
The euro will eliminate transaction gains and losses on accounts receivable and
payable with third parties located within the participating countries. Because
the company operates and sells throughout the affected countries, it believes
these impacts will tend to offset each other and not have a material impact on
overall results.
Prices to customers may converge throughout the affected countries, although the
company believes that in recent years competitive pressures have to some extent
eliminated price differences solely caused by the lack of price transparency.
Internal computer system and business processes will need to be changed to
accommodate the new currency. The company has established a cross-functional
team, guided by an executive-level steering committee, to address these issues.
It currently plans to make changes in two phases. In the first phase, from 1999
to 2001, the company will have the capability to bill customers and pay
suppliers in euro, but will continue to maintain its accounts in the national
currencies. In 2002, all remaining operational and financial systems will be
converted to the euro. The cost of the first phase is not material; the cost of
the second phase has not been estimated at this time.
Operating efficiencies should ultimately result from reduction of the complexity
of doing business in multiple currencies. No estimate of these efficiencies has
been made.
9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31 (millions of dollars, except per share data)
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Net sales .......................................................... $ 10,323 $ 8,617 $ 8,523
EXPENSES
Cost of products sold .............................................. 7,805 6,604 6,623
Selling and administrative ......................................... 1,791 1,625 1,557
Intangible amortization ............................................ 39 34 35
Restructuring costs ................................................ -- 343 30
-------- -------- --------
9,635 8,606 8,245
-------- -------- --------
OPERATING PROFIT ............................................... 688 11 278
OTHER INCOME (EXPENSE)
Interest and sundry ................................................ 136 (14) (23)
Interest expense ................................................... (260) (168) (155)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES
AND OTHER ITEMS .............................................. 564 (171) 100
Income taxes (benefit) ............................................. 209 (9) 70
-------- -------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE EQUITY EARNINGS AND MINORITY INTERESTS ................ 355 (162) 30
Equity in affiliated companies ..................................... 1 67 93
Minority interests ................................................. (46) 49 18
-------- -------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS ..................... 310 (46) 141
Earnings (loss) from discontinued operations (less applicable taxes) -- (11) 15
Gain on disposal of discontinued operations (less applicable taxes) 15 42 --
-------- -------- --------
NET EARNINGS (LOSS) ............................................ $ 325 $ (15) $ 156
======== ======== ========
Per share of common stock:
Basic Earnings (loss) from continuing operations ................. $ 4.09 $ (0.62) $ 1.90
Basic Net earnings (loss) ........................................ $ 4.29 $ (0.20) $ 2.10
======== ======== ========
Diluted Earnings (loss) from continuing operations ............... $ 4.06 $ (0.62) $ 1.88
Diluted Net earnings (loss) ...................................... $ 4.25 $ (0.20) $ 2.08
======== ======== ========
Cash dividends ................................................... $ 1.36 $ 1.36 $ 1.36
======== ======== ========
</TABLE>
See notes to consolidated financial statements
10
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31 (millions of dollars)
1905 1905
------- -------
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash and equivalents ..................... $ 636 $ 578
Trade receivables, less allowances of
(1998: $116; 1997: $156) .............. 1,711 1,565
Inventories .............................. 1,100 1,170
Prepaid expenses and other ............... 268 191
Deferred income taxes .................... 167 215
Net assets of discontinued operations .... -- 562
------- -------
Total Current Assets ..................... 3,882 4,281
Other Assets
- ------------
Investment in affiliated companies ....... 108 100
Intangibles, net ......................... 936 916
Deferred income taxes .................... 262 220
Other .................................... 329 378
------- -------
1,635 1,614
Property, Plant and Equipment
- -----------------------------
Land ..................................... 77 92
Buildings ................................ 900 969
Machinery and equipment .................. 4,534 4,201
Allowance for Depreciation ............... (3,093) (2,887)
------- -------
2,418 2,375
------- -------
Total Assets ............................. $ 7,935 $ 8,270
======= =======
<CAPTION>
December 31 December 31
1998 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Notes payable ............................ $ 905 $ 1,332
Accounts payable ......................... 1,079 987
Employee compensation .................... 271 265
Accrued expenses ......................... 870 858
Restructuring costs ...................... 117 212
Current maturities of long-term debt ..... 25 22
------- -------
Total Current Liabilities ................ 3,267 3,676
Other Liabilities
- -----------------
Deferred income taxes .................... 152 190
Postemployment benefits .................. 622 598
Other liabilities ........................ 192 188
Long-term debt ........................... 1,087 1,074
------- -------
2,053 2,050
Minority Interests ....................... 614 773
Stockholders' Equity
- --------------------
Common stock ............................. 83 82
Paid-in capital .......................... 321 280
Retained earnings ........................ 2,024 1,801
Unearned restricted stock ................ (3) (6)
Cumulative translation adjustments ....... (183) (149)
Treasury stock - at cost ................. (241) (237)
------- -------
Total Stockholders' Equity ............... 2,001 1,771
------- -------
Total Liabilities and Stockholders' Equity $ 7,935 $ 8,270
======= =======
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (millions of dollars)
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) ................... $ 325 $ (15) $ 156
Depreciation .......................... 399 322 318
Deferred income taxes ................. 26 (208) (32)
Equity in net earnings of affiliated
companies, less dividends received .. (1) (51) (84)
Gain on business dispositions ......... (25) (70) --
Provision for doubtful accounts ....... 29 89 52
Amortization of goodwill .............. 39 34 35
Restructuring charges, net of cash paid (99) 267 (42)
Minority interests .................... 46 (49) (18)
Changes in assets and liabilities,
net of effects of business
acquisitions and dispositions:
Trade receivables ................. (184) (145) 58
Inventories ....................... 73 177 (7)
Accounts payable .................. 89 20 (21)
Other - net ....................... 46 222 130
----- ----- -----
CASH PROVIDED BY
OPERATING ACTIVITIES .............. $ 763 $ 593 $ 545
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Net additions to properties .................. $ (523) $ (378) $ (336)
Net change in financing receivables and leases -- 706 (265)
Net assets of discontinued operations ........ -- (562) --
Acquisitions of businesses,
less cash acquired ......................... (121) 179 (27)
Net increase (decrease) in investment in
and advances to affiliated companies ....... -- 13 15
Business dispositions ........................ 587 1,038 --
Other ........................................ -- (8) (32)
-------- -------- --------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES ..................... (57) 988 (645)
FINANCING ACTIVITIES
Proceeds of short-term borrowings ............ 19,112 31,479 24,911
Repayments of short-term borrowings .......... (19,519) (32,439) (24,847)
Proceeds of long-term debt ................... 290 102 316
Repayments of long-term debt ................. (306) (211) (209)
Repayments of non-recourse debt .............. -- (8) (13)
Dividends .................................... (102) (102) (101)
Redemption of preferred stock ................ (40) -- 25
Other ........................................ (83) 47 (2)
-------- -------- --------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES ..................... (648) (1,132) 80
-------- -------- --------
INCREASE (DECREASE) IN
CASH AND EQUIVALENTS ..................... 58 449 (20)
Cash and equivalents at beginning of year .. 578 129 149
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR ........ $ 636 $ 578 $ 129
======== ======== ========
</TABLE>
See notes to consolidated financial statements
12
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Treasury Accumulated
Stock/ Other
Paid-in- Comprehensive Retained
(millions of dollars) Common Stock Capital Income Earnings Total
------------- ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996 .................................. $ 81 $ (6) $ (61) $1,863 $1,877
Comprehensive income
Net income .......................................... 156 156
Foreign currency items, net of tax of $28 ........... (15) (15)
------
Comprehensive income ....................................... 141
------
Common stock issued ........................................ -- 9 9
Dividends declared on common stock ......................... (101) (101)
------ ------ ------ ------ ------
Balances, December 31, 1996 ................................ $ 81 $ 3 $ (76) $1,918 $1,926
Comprehensive income (loss)
Net income (loss) ................................... (15) (15)
Foreign currency items, net of tax (benefit) of ($36) (73) (73)
------
Comprehensive income (loss) ................................ (88)
------
Common stock issued ........................................ 1 34 35
Dividends declared on common stock ......................... (102) (102)
------ ------ ------ ------ ------
Balances, December 31, 1997 ................................ $ 82 $ 37 $ (149) $1,801 $1,771
Comprehensive income
Net income .......................................... 325 325
Foreign currency items, net of tax (benefit) of ($18) (34) (34)
------
Comprehensive income ....................................... 291
------
Common stock issued ........................................ 1 40 41
Dividends declared on common stock ......................... (102) (102)
====== ====== ====== ====== ======
Balances, December 31, 1998 ................................ $ 83 $ 77 $ (183) $2,024 $2,001
====== ====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements
13
<PAGE>
WHIRLPOOL CORPORATION
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
under 11 major brand names and markets products to distributors and retailers in
more than 170 countries.
Principles of Consolidation: The consolidated financial statements include all
majority-owned subsidiaries. Investments in affiliated companies are accounted
for by the equity method. All intercompany transactions have been eliminated
upon consolidation.
In 1997, the company increased its voting ownership to a majority interest in
its Brazilian affiliate, Brasmotor S.A. 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.
Discontinued Operations: In 1997, the company discontinued its financial
services business; as a result, the statement of earnings, balance sheet and
cash flow reflect this business as a discontinued operation.
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.
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
and Brazilian inventories which are stated at average 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. Non-
compete agreements are amortized on a straight-line basis over the terms of the
agreements. Accumulated amortization totaled $258 million and $211 million at
December 31, 1998 and 1997. 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 $209 million, $181 million and $197
million in 1998, 1997 and 1996.
Advertising Costs: Advertising costs are charged to expense as incurred. Such
costs from continuing operations were $179 million, $155 million and $142
million in 1998, 1997 and 1996.
Foreign Currency Translation: The functional currency for the company's
international subsidiaries and affiliates is the local currency. Prior to
January 1, 1998, Brazil was considered hyperinflationary and its results were
remeasured into U.S. dollars.
14
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1999, the company's Brazilian operations faced significant financial
and operational difficulties due to high interest rates and the devaluation of
Brazil's currency, the real. The company's financial strategy is to minimize
the long-term cost of capital within Latin America by borrowing primarily in
USD, and believes that short-run exchange rate fluctuations on USD-denominated
debt are acceptable risks compared to the long-term cost of funding in local
currencies.
Consistent with the above strategy, the company's Brazilian subsidiary currently
maintains a significant level of cash that is invested in local currency. The
primary reason for holding cash in Brazil is the desire to hold a reasonable
safety stock of cash in case of an economic downturn and the resultant difficult
credit markets. The secondary reason is that the company has significant
historical earnings in Brazil that cannot be economically repatriated due to
minority shareholder positions and tax costs.
On January 26, 1999, the company announced that the foreign currency loss in the
first quarter 1999 could be approximately $0.015 per diluted share for each 1%
in devaluation from the exchange rate in effect immediately prior to the
devaluation of the real and the change in the Brazilian government's foreign
exchange policy in January 1999
15
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES--CONTINUED
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 ten years. The company uses interest rate and cross currency
interest rate swaps 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 $12 million, $8 million and $14 million in 1998,
1997 and 1996. 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 intercompany 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.
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 nonperformance 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.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
requires recording all derivative instruments as assets or liabilities,
measured at fair value. This standard is effective for all companies for fiscal
years beginning after June 15, 1999. The Company is in the process of
evaluating this Statement and does not currently believe it will have a material
impact on the company's financial position.
16
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES--CONTINUED
Net Earnings Per Common Share: Earnings per share amounts, for all periods, have
been presented to conform to Financial Accounting Standards Board Statement No.
128, "Earnings Per Share," requirements.
The following table provides the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
December 31 (millions of dollars,
except per share data) 1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Numerator
Net earnings (loss):
Continuing operations .......................... $ 310 $ (46) $ 141
Discontinued operations ........................ 15 31 15
------- ------ -------
Numerator for basic earnings (loss) per share .... 325 (15) 156
Effect of dilutive securities:
Convertible debt ............................... -- -- 4
------- ------ -------
Numerator for diluted earnings (loss) per share .. $ 325 $ (15) $ 160
======= ====== =======
Denominator
For basic earnings (loss) per share-
weighted-average shares outstanding ............ 75.8 74.7 74.3
Effect of dilutive securities:
Employee stock options ......................... 0.7 -- 0.7
Convertible debt ............................... -- -- 2.2
------- ------ -------
Dilutive potential common shares ................. 0.7 -- 2.9
Denominator for diluted earnings (loss) per share 76.5 74.7 77.2
======= ====== =======
Basic earnings (loss) from continuing operations . $ 4.09 $ (.62) $ 1.90
Basic earnings (loss) ............................ 4.29 (.20) 2.10
======= ====== =======
Diluted earnings (loss) from continuing operations 4.06 (.62) 1.88
Diluted earnings (loss) .......................... 4.25 (.20) 2.08
======= ====== =======
</TABLE>
17
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) BUSINESS ACQUISITIONS AND DISPOSITIONS
In September 1998, the company completed a transaction to sell 75% of its
majority-owned air conditioning joint venture in Shenzhen, China, for $13
million, to Electra Consumer Products Ltd., a leading European manufacturer of
air conditioners. Shenzhen Whirlpool Raybo Air-Conditioner Industrial Co. Ltd.
was a joint venture formed in 1995. After completion of the sale, the company
will continue to hold 20% of the joint venture. The joint venture will continue
to sell products under the Whirlpool brand in China for a period of three years
while it introduces the Electra brand. No significant gain or loss was
recognized from this transaction.
During 1998, the company increased its ownership stake in its Brazilian
subsidiaries by purchasing $43 million of additional shares.
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 to 80% in
Whirlpool Narcissus Co., its Chinese joint venture that manufactures washing
machines, for approximately $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
Brazilian affiliate, Brasmotor S.A., for $217 million. The shares, combined
with the existing holdings, gave 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), which has the leading
market share position in Latin America, and Empresa Brasileira de Compressores
S.A. (Embraco), the world's second largest hermetic compressor manufacturer.
In September 1997, the company reached a definitive agreement to sell the
inventory, consumer, and international financing businesses of Whirlpool
Financial Corporation (WFC). (refer to Note 3).
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.
In May 1996, two of the company's majority-owned subsidiaries in India,
Kelvinator of India (KOI) and Whirlpool Washing Machines Limited (WWML), were
merged and renamed Whirlpool of India (WOI). As part of the merger plan, the
company purchased an additional interest in WWML for $12 million in April 1996.
In 1998, the company merged Whirlpool Financial India Ltd. into WOI thereby
increasing its ownership percentage in WOI to 82%.
The above acquisitions have been accounted for as purchases and their operating
results have been consolidated with the company's results since the dates of
acquisition. The proforma consolidated operating results reflecting these
acquisitions for the full year would not have been materially different from
reported amounts.
18
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) DISCONTINUED OPERATIONS
In 1997, the company discontinued its financing operations and reached an
agreement to sell the majority of WFC's assets in a series of transactions.
The company completed the following sales in 1997: certain inventory floor
planning financing assets, international factoring assets and certain consumer
financing receivables. The company recorded a discontinued pretax gain of $70
million ($42 million after-tax) related to these transactions. A $36 million
pretax operating charge ($22 million after-tax) was also recorded in 1997 to
provide an additional reserve for certain retained WFC aerospace assets.
During 1998, the company also sold the following assets which were previously
held by WFC: international factoring assets, consumer financing receivable
assets, certain aerospace financing assets and the European inventory financing
assets. These transactions resulted in the company recording a discontinued
pretax gain of $25 million ($15 million after-tax), and concluded the series of
sales transactions. Over the two years 1997 and 1998, the company recorded total
after-tax gains of $57 million or $.74 per diluted share related to these sale
transactions.
19
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) INVENTORIES
<TABLE>
<CAPTION>
December 31 (millions of dollars) 1998 1997
-----------------
<S> <C> <C>
Finished products ..................... $ 960 $1,015
Work in process ....................... 54 69
Raw materials ......................... 279 304
------ ------
1,293 1,388
Less excess of FIFO cost over LIFO cost 193 218
------ ------
$1,100 $1,170
====== ======
</TABLE>
LIFO inventories represent approximately 23% and 24% of total inventories at
December 31, 1998 and 1997.
20
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) AFFILIATED COMPANIES
The company has a 49% direct voting interest in a Mexican company (Vitromatic,
S.A. de C.V.) and direct voting interests ranging from 20% to 40% in several
other international companies principally engaged in the manufacture and sale of
major home appliances or related component parts. Prior to consolidation of the
company's Brazilian subsidiary for the last two months of 1997 (refer to Note
1), its results were reflected as equity earnings of affiliated companies.
Equity in the net earnings (loss) of affiliated companies, net of related taxes,
is as follows:
<TABLE>
<CAPTION>
(millions of dollars) 1998 1997 1996
-----------------------
<S> <C> <C> <C>
Brazilian affiliates $ (1) $ 60 $ 92
Mexican affiliate ... 1 5 (3)
Other ............... 1 2 4
---- ---- ----
Total equity earnings $ 1 $ 67 $ 93
==== ==== ====
</TABLE>
21
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) FINANCING ARRANGEMENTS
The company enters into and utilizes numerous uncommitted credit lines from
banks and other financial institutions in the normal course of funding of its
operations. To ensure that the company has access to adequate and competitive
financing under unusual market conditions, the company also enters into
committed credit lines backed by formal agreements with counterparties deemed to
be reliable. At December 31, 1998, the company had committed credit lines of
approximately $1.2 billion, of which $960 million was available, in place with
maturities ranging from one month to four years. 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:
<TABLE>
<CAPTION>
December 31 (millions of dollars) 1998 1997
----------------------
<S> <C> <C>
Payable to banks ................ $ 732 $ 558
Commercial paper ................ 153 752
Other ........................... 20 22
------ ------
$ 905 $1,332
====== ======
</TABLE>
The weighted average interest rate on notes payable was 7.60% and 7.37% at
December 31, 1998 and 1997.
Although its operating assets have been divested, WFC remains a legal entity
with preferred stock arrangements, included within minority interests in the
consolidated balance sheet, as follows:
<TABLE>
<CAPTION>
Mandatory
Number Face Annual Redemption Date of
of Shares Value Dividend Date Issuance
------------- --------- ----------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
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 is no sinking fund requirement for the Series C
preferred stock. In September 1998, WFC paid $40,555,000, consisting of
$40,000,000 face value plus $555,000 accrued but unpaid dividends, to redeem its
entire Series A preferred stock. The redemption payment was financed with
existing WFC cash balances.
22
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) FINANCING ARRANGEMENTS--CONTINUED
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 twelve 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
certain conditions are met. The company has also agreed to maintain ownership of
at least 70% of WFC's voting stock.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Interest
December 31 (millions of dollars) Maturity Rate 1998 1997
-------------- ------------- -----------------------------
<S> <C> <C> <C> <C>
Debentures 2008 and 2016 7.8 and 9.1% $ 368 $ 368
Senior notes 2000 and 2003 9.0 and 9.5 400 400
Medium term notes 1999 to 2006 8.9 to 9.1 25 25
Mortgage notes 1999 to 2012 6.3 to 6.6 64 65
Brazilian bank note 2000 to 2004 12.1 131 33
Other 124 205
------------- -------------
1,112 1,096
Less current maturities 25 22
------------- -------------
$ 1,087 $ 1,074
============= =============
</TABLE>
Annual maturities of long-term debt in the next five years are $25 million, $293
million, $83 million, $35 million and $33 million.
The company paid interest, including a portion recorded as discontinued
operations, on short-term and long-term debt totaling $290 million, $242 million
and $228 million in 1998, 1997 and 1996.
23
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
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.
24
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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>
1998 1997
------------------------------ ------------------------------
Carrying Fair Carrying Fair
December 31 (millions of dollars) Amount Value Amount Value
-------------- ------------ ------------------------------
<S> <C> <C> <C>
Long-term debt (including current portion) ......... $ 1,152 $ 1,257 $ 1,174 $ 1,280
Derivative financial instruments (notional
amounts indicated):
Hedges of net investment in Europe including
converted debt:
Interest rate and cross currency interest rate
swaps ($1,182 million in 1998;
$1,390 million in 1997) .................... (40) (7) (78) (42)
Foreign currency forward contracts
($19 million in 1998; $7 million in 1997) .. -- (1) -- --
Domestic interest rate swaps
($120 million in 1998; $240 million in 1997).... -- (2) -- (4)
Transaction hedges:
Foreign currency forward contracts
($424 million in 1998; $736 million in 1997) . -- (9) -- (2)
Hedges with commodity swaps
($23 million in 1998; $19 million in 1997) ... -- (2) -- 1
WFC interest rate and cross currency swaps
($- million in 1998; $30 million in 1997) ...... -- -- -- --
------- ------- ------- -------
Total long-term debt ............................... $ 1,112 $ 1,236 $ 1,096 $ 1,233
======= ======= ======= =======
</TABLE>
25
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED
At December 31, 1998, interest rate and cross currency interest rate swaps
effectively convert $662 million of U.S. dollar denominated debt into European
currency denominations ($329 million - German marks, $300 million - French
francs, $33 million - Swiss francs). About 39% of this converted debt has
floating rates and 61% has fixed rates. Floating rates received range from
LIBOR less .08% to LIBOR, and floating rates paid range from local currency
LIBOR to local currency LIBOR plus 3.09%. Fixed rates received range from
5.93% to 7.20%, and fixed rates paid range from 5.13% to 7.98%. The swaps
mature within eight years.
At December 31, 1998, one domestic interest rate swap effectively converts $120
million of fixed rate debt into floating rate debt. Fixed rates received are
6.99%. Floating rates paid are LIBOR. The domestic interest rate swap matures
within four years.
Foreign currency forward contracts mature within one day to two years and
involve principally European and North American currencies. Copper and zinc
commodity swaps mature within two years.
26
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) SHAREHOLDERS' 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, 1998 included $21 million of
equity in undistributed net earnings of affiliated companies.
The cumulative translation component of stockholders' equity represents the
effect of translating net assets of the company's international 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 22, 2008, will become exercisable 10
days after a person or group (an Acquiring Person) has acquired, or obtained the
right to acquire, beneficial ownership of 15% or more of the outstanding common
stock (the Trigger Date) or 10 business days after the commencement, or public
disclosure of an intention to commence, of a tender offer or exchange offer by a
person that could result in beneficial ownership of 15% or more of the
outstanding common stock. Each Right entitles the holder to purchase from the
company one one-thousandth of a share of a Junior Participating Preferred Stock,
Series B, par value $1.00 per share, of the company at a price of $300 per one
one-thousandth of a Preferred Share subject to adjustment.
If a person becomes an Acquiring Person, proper provision shall be made so that
each holder of a Right, other than Rights that are or were beneficially owned by
the Acquiring Person (which will thereafter be void), shall thereafter have the
right to receive upon exercise of such Right that number of shares of common
stock (or other securities) having at the time of such transaction a market
value of two times the exercise price of the Right. If a person becomes an
Acquiring Person and the company is involved in a merger or other business
combination transaction where the company is not the surviving corporation or
where common stock is changed or exchange or in a transaction or transactions in
which 50% or more of its consolidated assets or earning power are sold, proper
provision shall be made so that each holder of a Right (other than such
Acquiring Person) shall thereafter have the right to receive, upon the exercise
thereof tat the then current exercise price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
would have a market value of two times the exercise price of the Right. In
addition, if an Acquiring Person, does not have beneficial ownership of 50% or
more of the common stock, the company's Board of Directors has the option of
exchanging all or part of the Rights for an equal number of shares of common
stock in the manner described in the Rights Agreement.
Prior to the Trigger Date, the Board of Directors of the company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right, payable in cash,
shares of common stock or any other consideration deemed appropriate by the
Board of Directors. Immediately upon action of the Board of Directors ordering
redemption of the Rights, the ability of holders to exercise the Rights will
terminate and such holders will only be able to receive the redemption price.
Until such time as the Rights become exercisable, the Rights have no voting or
dividend privileges and is attached to, and does not trade separately from, the
common stock.
The company covenants and agrees that it will cause to be reserved and kept
available at all times a sufficient number of shares of Preferred Stock (and
following the occurrence of a Triggering Event,
27
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
shares of common stock and/or other securities) to permit the exercise in full
of all Rights from time to time outstanding.
28
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 13.4 million shares to key employees of
the company and its subsidiaries, of which 5.5 million shares are available for
grant at December 31, 1998. 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 two to three year
period after date of grant. An Executive Stock Appreciation and Performance
Program (ESAP), a Restricted Stock Value Program (RSVP), a Career Stock Program
(CSP) and a Key Employee Retention Program (KERP) have been established under
the plan. Performance awards under ESAP, RSVP and KERP 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 and KERP grant 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 are
subject to certain noncompetition provisions. Outstanding restricted and
phantom shares totaled 731,000 with a weighted-average grant-date fair value of
$48.06 per share at December 31, 1998 and 882,400 with a weighted-average grant-
date fair value of $46.07 per share at December 31, 1997. Expenses under the
plan were $17 million, $21 million and $3 million in 1998, 1997 and 1996.
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 133,000 shares are available for grant
at December 31, 1998. The stock options vest and become exercisable six months
after date of grant. There were no significant expenses under this plan for
1998, 1997 or 1996.
The company maintains an employee stock option plan (PartnerShare) that may
grant 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, 1998.
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.
29
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) STOCK OPTION AND INCENTIVE PLANS--CONTINUED
Had the company elected to adopt recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," under which stock options are
accounted for at estimated fair value, proforma net earnings (loss) and diluted
net earnings (loss) per share would be as follows:
<TABLE>
<CAPTION>
December 31 (millions of dollars) 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Net earnings (loss)
As reported ....................... $ 325 $ (15) $ 156
Proforma .......................... 318 (21) 153
Diluted net earnings (loss) per share
As reported ....................... $ 4.25 $ (.20) $ 2.08
Proforma .......................... 4.16 (.28) 2.04
</TABLE>
The fair value of stock options used to compute proforma net earnings (loss) and
earnings (loss) per share disclosures is the estimated present value at grant
date using the Black-Scholes option-pricing model with the following assumptions
for 1998, 1997 and 1996: expected volatility factor of .216, .183 and .183;
dividend yield of 2.4% for all three years; risk-free interest rate of 4.5%,
5.5% and 5.5% and a weighted-average expected option life of 5 years for all
three years.
30
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) STOCK OPTION AND INCENTIVE PLANS--CONTINUED
A summary of stock option information follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
December 31 Average Average Average
(thousands of shares, Number Exercise Number Exercise Number Exercise
except per share data) of Shares Price of Shares Price of Shares Price
----------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 . 4,230 $47.06 4,127 $ 46.31 3,397 $43.99
Granted .................. 919 61.83 1,360 45.78 1,282 50.62
Exercised ................ (770) 44.88 (842) 39.83 (331) 34.06
Canceled or expired ...... (259) 49.81 (415) 50.12 (221) 53.99
------ ------ ----- -------- ------ ------
Outstanding at December 31 4,120 $50.59 4,230 $ 47.06 4,127 $46.31
====== ====== ===== ======== ====== ======
Exercisable at December 31 2,534 $47.65 2,308 $ 46.43 2,438 $42.43
====== ====== ===== ======== ====== ======
Fair value of options
granted during the year $12.67 $ 9.26 $10.24
====== ======== ======
</TABLE>
Of the outstanding options at December 31, 1998, 578,000 shares granted prior to
1993 (all of which are exercisable at a weighted-average exercise price of
$34.54) have exercise prices ranging from $24.75 to $37.50 and a weighted-
average remaining contractual life of 2.8 years, while 3,542,000 shares granted
subsequent to 1992 (of which 1,956,000 shares are currently exercisable at a
weighted-average exercise price of $51.53) have exercise prices ranging from
$45.75 to $63.13 and a weighted-average remaining contractual life of 7.8
years.
31
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) RESTRUCTURING AND OTHER SPECIAL CHARGES
During 1997, the company incurred restructuring costs of $343 million ($244
million cash costs and $99 million noncash costs) to better align the company's
cost structure within the global home-appliance marketplace. Pretax
restructuring charges of $172 million, $101 million, $35 million, $25 million
and $10 million relate to the company's European, Asian, Latin American,
corporate and North American operations, respectively. More than 60% of the cash
costs have been paid to date, with the remainder to be paid in 1999. The
restructuring charge includes the elimination of 7,900 global positions of which
more than 6,000 positions have eliminated to date. The impact of 1997
restructuring costs after-tax and minority interest was $232 million or $3.07
per diluted share.
In 1997, the company also recognized special charges of $62 million ($53 million
of which affected operating profit), principally due to the adjustment of the
carrying value of receivables and inventory, primarily in Europe and Asia. The
impact of 1997 special operating charges on continuing operations after-tax and
minority interest was $40 million or $.54 per diluted share. In addition,
discontinued operations results included a pretax charge of $36 million, after-
tax charge of $22 million or $.29 per diluted share to provide a reserve for
certain WFC aerospace assets.
In 1996, the company incurred restructuring costs of $30 million ($18 million
noncash costs and $12 million cash costs) related to streamlining a North
American refrigerator manufacturing operation, transferring Asian research and
engineering to the manufacturing locations and relocating the Whirlpool Asian
headquarters. About 50% of the cash costs were paid in 1996 and the remainder
paid in 1997. The restructuring charge included the elimination of 850
positions of which 100% have been eliminated. Total 1996 after-tax charges were
$19 million or $.25 per diluted share.
32
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INCOME TAXES
Income tax provisions from continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31
(millions of dollars) 1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Current:
Federal ........... $ 132 $ 78 $ 72
State and local.... 22 20 17
Foreign ........... 40 26 7
----- ----- -----
194 124 96
Deferred:
Federal ........... 10 (27) (7)
State and local.... 6 (3) 1
Foreign ........... (1) (103) (20)
----- ----- -----
15 (133) (26)
----- ----- -----
$ 209 $ (9) $ 70
===== ===== =====
</TABLE>
Domestic and foreign earnings (loss) before income taxes and other items from
continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31
(millions of dollars) 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Domestic ............ $ 407 $ 288 $ 288
Foreign ............. 157 (459) (188)
----- ----- -----
$ 564 $(171) $ 100
===== ===== =====
</TABLE>
Earnings (loss) before income taxes and other items, including discontinued
operations (refer to Note 3), were $589 million, $(178) million and $130 million
for 1998, 1997 and 1996, respectively.
33
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INCOME TAXES--CONTINUED
Reconciliations between the U.S. federal statutory income tax rate and the
consolidated effective income tax (benefit) rate for earnings before income
taxes and other items for continuing operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31 1998 1997 1996
-------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate ............ 35.0 % (35.0)% 35.0 %
Impact of restructuring charge ......... -- 18.2 (0.5)
State and local taxes, net of
federal tax benefit .................. 5.3 8.8 12.4
Nondeductible goodwill amortization .... 1.1 2.3 9.9
Excess foreign taxes (benefits) ........ (1.0) (4.0) (5.8)
Unrecognized prior year foreign deferred
tax assets and carryforwards ......... (1.9) (5.1) (6.2)
Foreign dividends and subpart F income . 2.2 (5.9) 10.1
Foreign government tax incentive ....... (4.0) -- --
Unbenefited operating losses ........... 3.3 10.9 23.2
Nondeductible interest ................. -- -- 4.3
Research tax credits ................... (0.2) (0.6) (9.0)
Other items ............................ (2.7) 5.4 (3.3)
----- ------ ------
Effective income tax (benefit) rate .... 37.1 % (5.0)% 70.1 %
===== ====== ======
</TABLE>
Inclusive of discontinued operations, the effective income tax (benefit) rate
was 37.3%, (6.9)% and 61.9% for 1998, 1997 and 1996, respectively.
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.
34
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) INCOME TAXES --CONTINUED
Significant components of the company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
December 31 (millions of dollars) 1998 1997
----------------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment .................. $ 158 $ 166
Financial services leveraged leases ............ 125 126
Software costs ................................. 15 --
Other .......................................... 37 23
----- -----
Total deferred tax liabilities ............... 335 315
Deferred tax assets:
Postretirement obligation ...................... 170 161
Reserves ....................................... 18 17
Restructuring costs ............................ 58 68
Product warranty accrual ....................... 33 20
Receivable and inventory allowances ............ 33 97
Prepaid expenses ............................... 19 11
Loss carryforwards ............................. 148 125
Employee compensation .......................... 39 35
Other .......................................... 45 24
----- -----
Total deferred tax assets .................... 563 558
Valuation allowances for deferred tax assets (19) (25)
----- -----
Deferred tax assets, net of valuation allowances 544 533
----- -----
Net deferred tax assets ........................ $ 209 $ 218
===== =====
</TABLE>
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 ($498 million at December 31, 1998) 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.
The company paid income taxes of $239 million in 1998, $23 million in 1997 and
$102 million in 1996. The increase in 1998 is due to increased earnings as
1997 included $343 million in pretax restructuring charges.
35
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the company has foreign net operating loss carryforwards
of $367 million, which are primarily nonexpiring.
36
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) PENSION AND POSTRETIREMENT MEDICAL BENEFITS PLANS
The company maintains both contributory and noncontributory defined benefit
pension plans covering substantially all North American and Brazilian 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
The company also currently sponsors a defined benefit health-care plan that
provides postretirement medical benefits to full time U.S. employees who have
worked 10 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 medical benefits are provided by the
company to non-U.S. employees.
37
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pension Benefits Postretirement Medical Benefits
----------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
------- ------ ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at as of January 1, ....... $ 1,255 1,057 1,091 388 382 378
Service cost ................................ 49 41 40 10 10 11
Interest cost ............................... 91 84 80 29 29 28
Plan participants' contributions ............ 1 1 1 -- -- --
Amendments .................................. 30 35 14 -- -- --
Business combinations ....................... -- 160 -- -- -- --
Actuarial (gain) loss ....................... 28 36 (46) 22 (15) (20)
Benefits paid ............................... (86) (152) (113) (21) (18) (15)
Curtailments ................................ (14) (14) (4) -- -- --
Special termination benefits ................ (2) 17 6 -- -- --
Foreign currency exchange rate changes ...... (8) (10) (12) -- -- --
------- ------- ------- ------- ------- -------
Benefit obligation as of December 31, ....... $ 1,344 1,255 1,057 428 388 382
======= ======= ======= ======= ======= =======
Change in plan assets
Fair value of plan assets as of January 1, .. $ 1,452 1,322 1,246 -- -- --
Actual return on plan assets ................ 292 207 187 -- -- --
Business combinations ....................... -- 72 -- -- -- --
Employer contribution ....................... 17 7 6 21 18 15
Plan participants' contributions ............ 1 1 1 -- -- --
Benefits paid ............................... (86) (152) (113) (21) (18) (15)
Foreign currency exchange rate changes ...... (4) (5) (5) -- -- --
------- ------- ------- ------- ------- -------
Fair value of plan assets as of December 31, $ 1,672 1,452 1,322 -- -- --
======= ======= ======= ======= ======= =======
</TABLE>
38
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(millions of dollars) Pension Benefits Postretirement Medical Benefits
---------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
-------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of Prepaid (Accrued)
Cost and Total Amount Recognized
Funded status as of December 31, ........ $ 328 197 265 (428) (388) (382)
Unrecognized actuarial (gain) loss ...... (471) (365) (338) 8 (14) 1
Unrecognized prior service cost ......... 71 83 54 -- -- --
Unrecognized transition asset ........... 22 33 (21) -- -- --
----- ----- ----- ----- ----- -----
Prepaid (accrued) cost as of December 31, $ (50) (52) (40) (420) (402) (381)
===== ===== ===== ===== ===== =====
Prepaid cost at December 31, ............ $ 114 98 72 -- -- --
Accrued benefit liability at December 31, (173) (159) (116) (420) (402) (381)
Intangible asset ........................ 2 3 1 -- -- --
Other ................................... 7 6 3 -- -- --
----- ----- ----- ----- ----- -----
Total recognized as of December 31, ..... $ (50) (52) (40) (420) (402) (381)
===== ===== ===== ===== ===== =====
Weighted Average Assumptions
as of December 31
Discount rate ........................... 5.5%-9.0% 6.0%-9.0% 6.5%-9.0% 7.25% 7.75% 8.00%
Expected return on assets ............... 6.0%-9.5% 4.5%-9.5% 6.5%-9.5% -- -- --
Rate of compensation increases .......... 2.0%-8.0% 2.5%-9.0% 2.5%-6.0% -- -- --
Medical costs trend rate:
- --For year ending, 12/31 ................ -- -- -- 7.00% 8.00% 8.00%
- --Ultimate (year 2000) .................. -- -- -- 6.00% 6.00% 6.00%
</TABLE>
39
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(millions of dollars) Pension Benefits Postretirement Medical Benefits
--------------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996
------- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic
Benefit Cost
Service cost ..................... $ 49 41 40 10 10 11
Interest cost .................... 91 84 80 29 29 28
Expected return on plan assets ... (112) (103) (103) -- -- --
Recognized actuarial (gain) loss . (8) (7) (7) -- -- --
Amortization of prior service cost 9 8 7 -- -- --
Amortization of transition asset . -- (3) (4) -- -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost ........ $ 29 20 13 39 39 39
----- ----- ----- ----- ----- -----
Curtailments ..................... $ (7) (13) (4) -- -- --
Special termination benefits ..... 2 17 6 -- -- --
Settlements ...................... (3) (29) (7) -- -- --
----- ----- ----- ----- ----- -----
Total Cost ....................... $ 21 (5) 8 39 39 39
===== ===== ===== ===== ===== =====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $86 million, $67 million and $6 million,
respectively, as of December 31, 1998, $312 million, $221 million and $140
million, respectively, as of December 31, 1997, and $144 million, $101 million
and $63 million, respectively, as of December 31, 1996.
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 in 1996. The costs in 1997 and 1998
before restructuring charges were immaterial due to a lower termination rate
than prior years.
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, $6 million and $7 million in 1998, 1997 and 1996.
40
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Medical cost trend rate significantly affects the reported postretirement
benefit cost and benefit obligations. A one-percentage-point change in the
assumed health care trend rate would have the following effects:
<TABLE>
<CAPTION>
One-percentage- One-percentage-
(millions of dollars) point increase point decrease
------------------- --------------------
<S> <C> <C>
Effect on total service cost and
interest cost components ..... $ 3 (3)
Effect on postretirement benefit
obligation .................. $31 (29)
</TABLE>
(13) 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, 1998 the company had $219 million in recourse obligations of
finance receivables related to the discontinued operations of WFC (Refer to Note
3) and $155 million in guarantees of customer lines of credit at commercial
banks.
41
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the company had noncancelable operating lease commitments
totaling $237 million. The annual future minimum lease payments are detailed in
the table below.
<TABLE>
<CAPTION>
Annual
(dollars in millions) Expense
- --------------------- -------
<S> <C>
1999 ......................... $ 61
2000 ......................... 50
2001 ......................... 35
2002 ......................... 28
2003 ......................... 24
Thereafter ................... 39
----
$237
====
</TABLE>
The company's rent expense was $81 million, $82 million and $74 million for the
years 1998, 1997 and 1996, respectively.
42
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) BUSINESS SEGMENT INFORMATION
The company adopted the Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
the fourth quarter of 1998. Statement No. 131 established standards for
reporting information about operating segments in annual financial statements
and in interim financial reports issued to stockholders. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated on a regular basis by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources to an individual segment and in assessing performance of the segment.
The company identifies such segments based upon geographical regions of
operations because each operating segment manufactures home appliances and
related components, but serves strategically different markets. The chief
operating decision maker evaluates performance based upon each segment's
operating income, which is defined as income before interest income or interest
expense, taxes and minority interests. Intersegment sales and transfers are
generally at current market prices, as if the sales or transfers were to third
parties. The "Other" segment primarily includes corporate expenses and
eliminations.
The company generally evaluates business segments based on net sales, not
including intersegment appliance sales. Intersegment sales are included in
Other/Eliminations. Latin America consists of the company's Brazilian
sumbsidiaries in 1997 and 1998. Total assets are those assets directly
associated with the respective operating activities. Other assets consist
principally of assets related to corporate activities, including the equity
investment in Brazil in 1996 and the assets of discontinued operations held for
sale in 1997.
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 17%, 20% and 21% of consolidated net sales in
1998, 1997 and 1996. Related receivables were 16%, 17% and 24% of consolidated
trade receivables for December 31, 1998, 1997 and 1996.
The company conducts business in two countries which individually comprised over
ten percent of consolidated net sales and total assets within the last three
years. The United States represented 50%, 57% and 58% of net sales for 1998,
1997 and 1996, respectively, while Brazil totalled 20% for 1998. As a
percentage of total assets, the United States accounted for 53%, 64% and 79% at
the end of 1998, 1997 and 1996. Brazil accounted for 24% and 28% of total
assets at the end of 1998 and 1997, respectively. The company's Brazilian
affiliates were consolidated in November of 1997 and therefore not included in
both 1996 calculations and only in the total asset calculation for 1997.
43
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) BUSINESS SEGMENT INFORMATION--CONTINUED
<TABLE>
<CAPTION>
North Latin Other/ Total
America Europe America Asia Eliminations Whirlpool
----------- ------------ ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales: 1998 5,599 2,439 2,090 313 (118) 10,323
1997 5,263 2,343 447 400 164 8,617
1996 5,310 2,494 -- 461 258 8,523
Intangible
amortization: 1998 3 16 6 4 10 39
1997 3 16 1 4 10 34
1996 -- 19 -- 4 12 35
Depreciation: 1998 143 94 126 15 21 399
1997 145 110 3 13 51 322
1996 145 107 -- 13 53 318
Restucturing costs
and operating charges: 1998 -- -- -- -- -- --
1997 -- -- -- -- 396 396
1996 -- -- -- -- 30 30
Operating profit(loss): 1998 630 122 120 (17) (167) 688
1997 546 54 22 (62) (549) 11
1996 545 (15) -- (70) (182) 278
Total assets: 1998 2,091 2,298 2,499 722 325 7,935
1997 2,046 1,999 2,403 672 1,150 8,270
1996 2,020 2,501 -- 722 2,772 8,015
Capital expenditures: 1998 188 78 239 25 12 542
1997 128 84 49 100 17 375
1996 148 103 -- 63 22 336
</TABLE>
44
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) 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>
1998
Net sales ................................... $ 2,735 $ 2,539 $ 2,585 $ 2,464
Cost of products sold ....................... $ 2,045 $ 1,929 $ 1,962 $ 1,870
Earnings from continuing operations ......... $ 83 $ 78 $ 81 $ 68
Net earnings ................................ $ 83 $ 78 $ 84 $ 80
Per share of common stock:
Basic earnings from continuing operations . $ 1.10 $ 1.03 $ 1.07 $ .91
Basic net earnings .................... $ 1.10 $ 1.03 $ 1.11 $ 1.06
Diluted earnings from continuing operations $ 1.09 $ 1.02 $ 1.05 $ .90
Diluted net earnings .................. $ 1.09 $ 1.02 $ 1.10 $ 1.05
Dividends paid ............................ $ .34 $ .34 $ .34 $ .34
Stock price:
High ...................................... $ 59-1/2 $ 69-15/16 $ 75-1/4 $ 70
Low ....................................... $ 43-11/16 $ 45 $ 62-7/16 $ 50-3/8
Close ..................................... $ 55-3/8 $ 47 $ 68-3/4 $ 68-11/16
</TABLE>
45
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) *--CONTINUED
<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>
1997
Net sales .......................................... $ 2,510 $ 2,043 $ 2,074 $ 1,990
Cost of products sold .............................. $ 1,887 $ 1,593 $ 1,588 $ 1,536
Earnings (loss) from continuing operations ......... $ 50 $ (200) $ 61 $ 43
Net earnings (loss) ................................ $ 92 $ (218) $ 65 $ 46
Per share of common stock:
Basic earnings (loss) from continuing operations . $ .67 $ (2.68) $ .82 $ .57
Basic net earnings (loss) .................... $ 1.24 $ (2.93) $ .87 $ .62
Diluted earnings (loss) from continuing operations $ .66 $ (2.68) $ .81 $ .57
Diluted net earnings (loss) .................. $ 1.22 $ (2.93) $ .86 $ .62
Dividends paid ................................... $ .34 $ .34 $ .34 $ .34
Stock price:
High ............................................. $ 66-15/16 $ 69-1/2 $ 55-1/4 $ 52-1/2
Low .............................................. $ 51-7/8 $ 48 $ 45-1/4 $ 46
Close ............................................ $ 55 $ 66-5/16 $ 54-9/16 $ 47-5/8
</TABLE>
Restructuring and other special charges described in Note 10 reduced third and
fourth quarter 1997 earnings from continuing operations by $258 million and $14
million, respectively. Discontinued operations include a third quarter after-
tax charge of $22 million to provide a reserve for certain WFC assets and a $42
million after-tax gain in the fourth quarter for the sale of WFC assets (refer
to Note 3).
Fourth quarter 1997 included two months of consolidated Brazilian results, $5
million related to the elimination of the Brazil one month lag in reported
equity earnings and $8 million related to a pension settlement gain.
* The first three quarters of 1997 earnings per share amounts have been restated
to reflect WFC as a discontinued operation and to comply with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." As a result of
the company's 1997 full year net loss, diluted earnings per share on a year-to-
date basis does not equal the sum of the individual quarters' diluted earnings
per share.
46
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998 and 1997, and the related consolidated
statements of earnings, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. 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 Brasmotor S.A. and its
consolidated subsidiaries, whose statements reflect total assets of $2,500
million and $2,200 million as of December 31, 1998 and 1997, respectively and
net earnings of $58 million, $41 million and $120 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Those statements were audited
by other auditors whose reports have been furnished to us, and our opinion,
insofar as it relates to data included for Brasmotor S.A. and its consolidated
subsidiaries, 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
missstatement. 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 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,
1998 and 1997, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
Chicago, Illinois
January 21, 1999
47
<PAGE>
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 its 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 an internal audit staff.
The audit committee of the board of directors of the company, which is
composed of five 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.
Ralph F. Hake
Senior Executive Vice President and Chief Financial Officer
February 12, 1999
48
<PAGE>
<TABLE>
<CAPTION>
(millions of dollars except share and employee data)
CONSOLIDATED OPERATIONS 1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 10,323 $ 8,617 $ 8,523 $ 8,163 $ 7,949
- ------------------------------------------------------------------------------------------------------------------------------
Operating profit (1) $ 688 $ 11 $ 278 $ 366 $ 370
Earnings (loss) from continuing operations
before income taxes and other items $ 564 $ (171) $ 100 $ 214 $ 269
Earnings (loss) from continuing operations $ 310 $ (46) $ 141 $ 195 $ 147
Earnings (loss) from discontinued operations (2) $ 15 $ 31 $ 15 $ 14 $ 11
Net earnings (loss) (3) $ 325 $ (15) $ 156 $ 209 $ 158
- ------------------------------------------------------------------------------------------------------------------------------
Net capital expenditures $ 542 $ 378 $ 336 $ 483 $ 418
Depreciation $ 399 $ 322 $ 318 $ 282 $ 246
Dividends $ 102 $ 102 $ 101 $ 100 $ 90
- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL POSITION
Current assets $ 3,882 $ 4,281 $ 3,812 $ 3,541 $ 3,078
Current liabilities $ 3,267 $ 3,676 $ 4,022 $ 3,829 $ 2,988
Working capital $ 615 $ 605 $ (210) $ (288) $ 90
Property, plant and equipment-net $ 2,418 $ 2,375 $ 1,798 $ 1,779 $ 1,440
Total assets $ 7,935 $ 8,270 $ 8,015 $ 7,800 $ 6,655
Long-term debt $ 1,087 $ 1,074 $ 955 $ 983 $ 885
Stockholders' equity $ 2,001 $ 1,771 $ 1,926 $ 1,877 $ 1,723
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings (loss) from continuing
operations before accounting change $ 4.09 $ (0.62) $ 1.90 $ 2.64 $ 1.98
Diluted earnings (loss) from continuing
operations before accounting change $ 4.06 $ (0.62) $ 1.88 $ 2.60 $ 1.95
Diluted net earnings (loss) (3) $ 4.25 $ (0.20) $ 2.08 $ 2.78 $ 2.10
Dividends $ 1.36 $ 1.36 $ 1.36 $ 1.36 $ 1.22
Book value $ 26.16 $ 23.71 $ 25.93 $ 25.40 $ 23.21
Closing Stock Price - NYSE $ 55-3/8 $ 55 $ 46-5/8 $ 53-1/4 $ 50-1/4
- ------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS (4)
Operating profit margin 6.7% 0.1% 3.3% 4.5% 4.7%
Pre-tax margin (5) 5.5% (2.0)% 1.2% 2.6% 3.4%
Net margin (6) 3.0% (0.5)% 1.7% 2.4% 1.8%
Return on average stockholders' equity (7) 17.2% (0.8)% 8.2% 11.6% 9.4%
Return on average total assets (8) 4.6% (0.7)% 1.8% 3.0% 2.8%
Current assets to current liabilities 1.2 1.2 0.9 0.9 1.0
Total debt-appliance business
as a percent of invested capital (9) 34.6% 38.5% 42.6% 43.3% 34.4%
Price earnings ratio 13.0 -- 22.4 19.2 23.9
Interest coverage (10) 3.0 0.7 2.4 3.1 4.0
- ------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Number of common shares
outstanding (in thousands):
Average - on a diluted basis 76,507 74,697 77,178 76,812 77,588
Year-end 76,089 75,262 74,415 74,081 73,845
Number of stockholders (year-end) 13,584 10,171 11,033 11,686 11,821
Number of employees (year-end) 58,630 61,370 48,163 45,435 39,016
Total return to shareholders
(five year annualized) (11) (1.2)% 6.8% 6.3% 20.8% 12.0%
<CAPTION>
CONSOLIDATED OPERATIONS 1993 1992 1991 1990 1989
--------- ---------- ---------- ---------- ----------
Net sales $ 7,368 $ 7,097 $ 6,550 $ 6,424 $ 6,138
- -----------------------------------------------------------------------------------------------------------------------------
Operating profit (1) $ 504 $ 447 $ 353 $ 300 $ 377
Earnings (loss) from continuing operations
before income taxes and other items $ 418 $ 334 $ 256 $ 177 $ 281
Earnings (loss) from continuing operations $ 257 $ 179 $ 139 $ 45 $ 169
Earnings (loss) from discontinued operations (2) $ (28) $ 26 $ 31 $ 27 $ 18
Net earnings (loss) (3) $ 51 $ 205 $ 170 $ 72 $ 187
- -----------------------------------------------------------------------------------------------------------------------------
Net capital expenditures $ 309 $ 288 $ 287 $ 265 $ 208
Depreciation $ 241 $ 275 $ 233 $ 247 $ 222
Dividends $ 85 $ 77 $ 76 $ 76 $ 76
- -----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL POSITION
Current assets $ 2,708 $ 2,740 $ 2,920 $ 2,900 $ 2,889
Current liabilities $ 2,763 $ 2,887 $ 2,931 $ 2,651 $ 2,251
Working capital $ (55) $ (147) $ (11) $ 249 $ 638
Property, plant and equipment-net $ 1,319 $ 1,325 $ 1,400 $ 1,349 $ 1,288
Total assets $ 6,047 $ 6,118 $ 6,445 $ 5,614 $ 5,354
Long-term debt $ 840 $ 1,215 $ 1,528 $ 874 $ 982
Stockholders' equity $ 1,648 $ 1,600 $ 1,515 $ 1,424 $ 1,421
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Basic earnings (loss) from continuing
operations before accounting change $ 3.60 $ 2.55 $ 2.00 $ 0.65 $ 2.44
Diluted earnings (loss) from continuing
operations before accounting change $ 3.47 $ 2.46 $ 1.98 $ 0.65 $ 2.44
Diluted net earnings (loss) (3) $ 0.71 $ 2.81 $ 2.41 $ 1.04 $ 2.70
Dividends $ 1.19 $ 1.10 $ 1.10 $ 1.10 $ 1.10
Book value $ 23.17 $ 22.91 $ 21.78 $ 20.51 $ 20.49
Closing Stock Price - NYSE $ 66-1/2 $ 44-5/8 $ 38-7/8 $ 23-1/2 $ 33
- -----------------------------------------------------------------------------------------------------------------------------
KEY RATIOS (4)
Operating profit margin 6.8% 6.3% 5.4% 4.7% 6.1%
Pre-tax margin (5) 5.7% 4.7% 3.9% 2.8% 4.6%
Net margin (6) 3.5% 2.5% 2.1% 0.7% 2.8%
Return on average stockholders' equity (7) 14.2% 13.1% 11.6% 5.1% 13.7%
Return on average total assets (8) 4.0% 3.3% 2.9% 1.4% 4.9%
Current assets to current liabilities 1.0 0.9 1.0 1.1 1.3
Total debt-appliance business
as a percent of invested capital (9) 31.6% 41.7% 46.1% 37.6% 39.2%
Price earnings ratio 21.2 15.9 16.1 22.6 12.2
Interest coverage (10) 5.0 3.4 2.9 2.0 3.6
- -----------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Number of common shares
outstanding (in thousands):
Average - on a diluted basis 76,013 75,661 72,581 69,595 69,461
Year-end 73,068 70,027 69,640 69,465 69,382
Number of stockholders (year-end) 11,438 11,724 12,032 12,542 12,454
Number of employees (year-end) 39,590 38,520 37,886 36,157 39,411
Total return to shareholders
(five year annualized) (11) 25.8% 17.0% 6.7% 2.8% 11.3%
CONSOLIDATED OPERATIONS 1988
----------
Net sales $ 4,306
- -----------------------------------------------------------------
Operating profit (1) $ 227
Earnings (loss) from continuing operations
before income taxes and other items $ 210
Earnings (loss) from continuing operations $ 146
Earnings (loss) from discontinued operations (2) $ (52)
Net earnings (loss) (3) $ 94
- -----------------------------------------------------------------
Net capital expenditures $ 166
Depreciation $ 143
Dividends $ 76
- -----------------------------------------------------------------
CONSOLIDATED FINANCIAL POSITION
Current assets $ 1,827
Current liabilities $ 1,374
Working capital $ 453
Property, plant and equipment-net $ 820
Total assets $ 3,410
Long-term debt $ 474
Stockholders' equity $ 1,321
- -----------------------------------------------------------------
PER SHARE DATA
Basic earnings (loss) from continuing
operations before accounting change $ 2.11
Diluted earnings (loss) from continuing
operations before accounting change $ 2.10
Diluted net earnings (loss) (3) $ 1.36
Dividends $ 1.10
Book value $ 19.06
Closing Stock Price - NYSE $ 24-3/4
- -----------------------------------------------------------------
KEY RATIOS (4)
Operating profit margin 5.3%
Pre-tax margin (5) 4.9%
Net margin (6) 3.4%
Return on average stockholders' equity (7) 7.2%
Return on average total assets (8) 2.9%
Current assets to current liabilities 1.3
Total debt-appliance business
as a percent of invested capital (9) 20.5%
Price earnings ratio 18.2
Interest coverage (10) 6.2
- -----------------------------------------------------------------
OTHER DATA
Number of common shares
outstanding (in thousands):
Average - on a diluted basis 69,435
Year-end 69,289
Number of stockholders (year-end) 12,521
Number of employees (year-end) 29,110
Total return to shareholders
(five year annualized) (11) 4.4%
</TABLE>
(1) Restructuring and special operating charges were $405 million in 1997, $30
million in 1996, and $250 million in 1994. See Note 10.
(2) The Company's financial services business was discontinued in 1997 and the
kitchen cabinet business was discontinued in 1988.
(3) Includes cumulative effect of accounting changes: 1993-Accounting for
postretirement benefits other than pensions of ($180) million or ($2.42)
per diluted share.
(4) Excluding gain from discontinued operations in 1998, return on average
stockholders' equity was 16.5%, and return on average total assets was
4.3%. Excluding non-recurring items, selected 1997 Key Ratios would be as
follows: a) Operating profit margin 4.7%, b) Pre-tax margin 2.7%, c) Net
margin 2.6%, d) Return on average stockholders' equity 12.0%, e) Return on
average total assets 2.7%, and f) Interest coverage 3.0%.
(5) Earnings from continuing operations before income taxes and other items,
as a percent of sales.
(6) Earnings from continuing operations before accounting change, as a percent
of sales.
(7) Net earnings before accounting change divided by average stockholders'
equity.
(8) Net earnings before accounting change, plus minority interest divided by
average total assets.
(9) Debt less cash and equivalents divided by debt, stockholders' equity and
minority interests less cash and equivalents.
(10) Ratio of earnings from continuing operations (before income taxes,
accounting change and interest expense) to interest expense.
(11) Stock appreciation plus reinvested dividends.
49
<PAGE>
Subsidiaries
------------
Subsidiary and Name Jurisdiction In
Under Which It Does Business Which Organized
- ---------------------------- ---------------
Whirlpool Europe B.V. The Netherlands
Whirlpool Properties, Inc. Michigan
Whirlpool Financial Corporation Delaware
Brasmotor S.A. 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, 1998.
<PAGE>
CONSENT OF ERNST & YOUNG LLP
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, 33-43823,
333-02827, 333-02825 and 333-66211 of Whirlpool Corporation and Registration
Statement Nos. 33-26680, 33-53196 and 333-66163 of Whirlpool Corporation
pertaining to the Whirlpool Savings Plan of our report dated January 21, 1999,
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, 1998.
March 16, 1999
<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, 33-43823, 333-02827, 333-02825 and 333-66211 of Whirlpool Corporation
and Registration Statement nos. 33-26680, 333-66163 and 33-53196 of Whirlpool
Corporation pertaining to the Whirlpool Savings Plan of our reports dated
January 18, 1999 with respect to the consolidated 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, included in this Annual Report (Form 10-K) for the year ended
December 31, 1998.
PricewaterhouseCoopers
Auditores Independentes
Sao Paulo, Brazil
March 17, 1999
<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, RALPH F. HAKE, and DANIEL F. HOPP, with full power to each of them
to act alone, as the true and lawful attorneys and agents 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 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, 1998, 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 on Form 10-K;
and each of the undersigned does hereby fully ratify and confirm all that said
attorneys and agents, of 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 16th day of February, 1999.
Name Title
/s/ David R. Whitwam Director, Chairman of the Board and
- ---------------------- Chief Executive Officer
David R. Whitwam (Principal Executive Officer)
/s/ Ralph F. Hake Senior Executive Vice President
- ---------------------- and Chief Financial Officer
Ralph F. Hake (Principal Financial Officer)
/s/ Mark E. Brown Vice President and Controller
- ---------------------- (Principal Accounting Officer)
Mark E. Brown
<PAGE>
/s/ Robert A. Burnett Director
- ----------------------
Robert A. Burnett
/s/ Herman Cain Director
- ----------------------
Herman Cain
/s/ Gary T. DiCamillo Director
- ----------------------
Gary T. DiCamillo
Director
- ----------------------
H. Miguel Etchenique
/s/ Alan D. Gilmour Director
- ----------------------
Alan 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
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 636
<SECURITIES> 0
<RECEIVABLES> 1,711
<ALLOWANCES> 116
<INVENTORY> 1,100
<CURRENT-ASSETS> 3,882
<PP&E> 5,511
<DEPRECIATION> 3,093
<TOTAL-ASSETS> 7,935
<CURRENT-LIABILITIES> 3,267
<BONDS> 1,087
0
0
<COMMON> 83
<OTHER-SE> 1,918
<TOTAL-LIABILITY-AND-EQUITY> 7,935
<SALES> 10,323
<TOTAL-REVENUES> 10,323
<CGS> 7,805
<TOTAL-COSTS> 9,596
<OTHER-EXPENSES> 39
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 260
<INCOME-PRETAX> 564
<INCOME-TAX> 209
<INCOME-CONTINUING> 310
<DISCONTINUED> 15
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325
<EPS-PRIMARY> 4.09
<EPS-DILUTED> 4.06
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 578
<SECURITIES> 0
<RECEIVABLES> 1,565
<ALLOWANCES> 156
<INVENTORY> 1,170
<CURRENT-ASSETS> 4,281
<PP&E> 5,262
<DEPRECIATION> 2,887
<TOTAL-ASSETS> 8,270
<CURRENT-LIABILITIES> 3,676
<BONDS> 1,074
0
0
<COMMON> 82
<OTHER-SE> 1,689
<TOTAL-LIABILITY-AND-EQUITY> 8,270
<SALES> 8,617
<TOTAL-REVENUES> 8,617
<CGS> 6,604
<TOTAL-COSTS> 8,229
<OTHER-EXPENSES> 377
<LOSS-PROVISION> 160
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> (171)
<INCOME-TAX> (9)
<INCOME-CONTINUING> (46)
<DISCONTINUED> 31
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15)
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