<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999.
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-1490038
(State of incorporation) (I.R.S. Employer Identification No.)
2000 M-63
Benton Harbor, Michigan 49022-2692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 616/923-5000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No ____
---
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date:
Class of common stock Shares outstanding at March 31, 1999
--------------------- ------------------------------------
Common stock, par value $1 per share 75,300,474
----------
PAGE 1 OF 20
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
WHIRLPOOL CORPORATION
---------------------
Quarter Ended March 31, 1999
INDEX OF INFORMATION INCLUDED IN REPORT
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements
of Earnings 3
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements
of Changes in Equity 5
Consolidated Condensed Statements
of Cash Flows 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 12
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 19
2
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED MARCH 31
(millions of dollars except share and dividend data)
<TABLE>
<CAPTION>
First Quarter
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 2,486 $ 2,464
EXPENSES:
Cost of products sold 1,867 1,870
Selling and administrative 421 416
Intangible amortization 9 9
-------- --------
2,297 2,295
-------- --------
OPERATING PROFIT 189 169
OTHER INCOME (EXPENSE):
Interest and sundry income (expense) (152) 40
Interest expense (41) (63)
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES
AND OTHER ITEMS (4) 146
Income taxes 8 56
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE EQUITY EARNINGS AND MINORITY INTERESTS (12) 90
Equity in earnings of affiliated companies (2) -
Minority interests 42 (22)
-------- --------
EARNINGS FROM CONTINUING OPERATIONS 28 68
Earnings from discontinued operations less applicable taxes - 12
-------- --------
NET EARNINGS $ 28 $ 80
======== ========
Per share of common stock:
Basic earnings from continuing operations $ .37 $ .91
Basic net earnings $ .37 $ 1.06
Diluted earnings from continuing operations $ .36 $ .90
Diluted net earnings $ .36 $ 1.05
Cash dividends $ .34 $ .34
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION
(millions of dollars)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
(Unaudited) (Audited)
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets
--------------
Cash and equivalents $ 410 $ 636
Trade receivables, less allowances of
(1999: $118 ;1998: $116) 1,614 1,711
Inventories 1,171 1,100
Prepaid expenses and other 213 268
Deferred income taxes 158 167
----------------- -----------------
TOTAL CURRENT ASSETS 3,566 3,882
Other Assets
------------
Investment in affiliated companies 109 108
Intangibles, net 884 936
Deferred income taxes 243 262
Other 287 329
----------------- -----------------
1,523 1,635
Property, Plant and Equipment
-----------------------------
Land 72 77
Buildings 845 900
Machinery and equipment 4,188 4,534
Accumulated depreciation (2,958) (3,093)
----------------- -----------------
2,147 2,418
----------------- -----------------
TOTAL ASSETS $ 7,236 $ 7,935
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
-------------------
Notes payable $ 993 $ 905
Accounts payable 964 1,079
Employee compensation 223 271
Accrued expenses 794 870
Restructuring costs 87 117
Current maturities of long-term debt 17 25
----------------- -----------------
TOTAL CURRENT LIABILITIES 3,078 3,267
Other Liabilities
-----------------
Deferred income taxes 146 152
Postemployment benefits 599 622
Other liabilities 183 192
Long-term debt 1,031 1,087
----------------- -----------------
1,959 2,053
Minority Interests 437 614
Stockholders' Equity
--------------------
Common stock 83 83
Paid-in capital 328 321
Retained earnings 2,025 2,024
Unearned restricted stock (6) (3)
Accumulated other comprehensive income (386) (183)
Treasury stock - at cost (282) (241)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 1,762 2,001
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,236 $ 7,935
================= =================
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
WHIRLPOOL CORPORATION
FOR THE QUARTER ENDED MARCH 31
(millions of dollars)
<TABLE>
<CAPTION>
Accumulated
Other
Earnings Comprehensive Treasury Stock/
Total Retained Income Commonm Stock Paid-in-Capital
----------- --------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE, JANUARY 1, 1998 $ 1,771 1,801 $ (149) $ 82 $ 37
Comprehensive income
Net income 80 80
Foreign currency items, net of tax (10) (10)
-----------
Comprehensive income 70
-----------
Common stock issued 13 13
Dividends declared on common stock (26) (26)
=========== ========= ============= ============= ===============
ENDING BALANCE, MARCH 31, 1998 $ 1,828 $ 1,855 $ (159) $ 82 $ 50
=========== ========= ============= ============= ===============
BEGINNING BALANCE, JANUARY 1, 1999 $ 2,001 $ 2,024 $ (183) $ 83 $ 77
Comprehensive income
Net income 28 28
Foreign currency items, net of tax (203) (203)
-----------
Comprehensive income (175)
-----------
Common stock issued (37) (37)
Dividends declared on common stock (27) (27)
=========== ========= ============= ============= ============
ENDING BALANCE, MARCH 31, 1999 $ 1,762 $ 2,025 $ (386) $ 83 $ 40
=========== ========= ============= ============= ============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THREE MONTHS ENDED MARCH 31
(millions of dollars)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 28 $ 80
Depreciation 100 105
Deferred income taxes (24) (19)
Equity in net earnings of affiliated
companies, less dividends received 3 -
Gain on business dispositions - (20)
Provision for doubtful accounts 12 -
Amortization of goodwill 9 10
Restructuring charges, net of cash paid (24) (33)
Minority interests (42) 22
Changes in assets and liabilities,
net of effects of business
acquisitions and dispositions:
Trade receivables (79) (112)
Inventories (148) (30)
Accounts payable (42) (41)
Other - net (42) (27)
-------- --------
CASH USED FOR OPERATING ACTIVITIES $ (249) $ (65)
INVESTING ACTIVITIES
Net additions to properties $ (65) $ (94)
Acquisitions of businesses,
less cash acquired - (18)
Business dispositions - 522
Other - -
-------- ---------
CASH PROVIDED BY/(USED FOR)
INVESTING ACTIVITIES (65) 410
FINANCING ACTIVITIES
Proceeds of short-term borrowings 3,569 5,705
Repayments of short-term borrowings (3,430) (6,077)
Proceeds of long-term debt 67 126
Repayments of long-term debt (30) (31)
Dividends (27) (26)
Purchase of treasury stock (41) -
Other (20) (2)
-------- ---------
CASH PROVIDED BY/(USED FOR)
FINANCING ACTIVITIES 88 (305)
-------- ---------
INCREASE/(DECREASE) IN
CASH AND EQUIVALENTS (226) 40
Cash and equivalents at beginning of year 636 578
-------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 410 $ 618
======== =========
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements. Management believes the financial statements include all
normal recurring accrual adjustments necessary for a fair presentation.
Operating results for the three months ended March 31, 1999 do not necessarily
indicate the results that may be expected for the full year. For further
information, refer to the consolidated financial statements and notes thereto
included in the company's annual report for the year ended December 31, 1998.
7
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following table provides the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1999 1998
---- ----
<S> <C> <C>
(dollars in millions except earnings per share)
Basic:
Average Shares Outstanding 75.9 75.3
Earnings (Loss):
Continuing Operations $ 27.8 $ 68.4
Discontinued Operations - 11.4
-------- --------
Net Earnings (Loss) $ 27.8 $ 79.8
======== ========
Earnings (Loss) Per Share
from Continuing Operations $ 0.37 $ 0.91
Net Earnings (Loss) Per Share $ 0.37 $ 1.06
======== ========
Diluted:
Average Shares Outstanding 75.9 75.3
Treasury Stock Method:
Stock Options 0.2 1.0
-------- --------
Diluted Average Shares Outstanding 76.1 76.3
======== ========
Diluted Earnings (Loss):
Continuing Operations $ 27.8 $ 68.4
Discontinued Operations - 11.4
-------- --------
Diluted Net Earnings (Loss) $ 27.8 $ 79.8
======== ========
Diluted Earnings (Loss) Per Share
from Continuing Operations $ 0.36 $ 0.90
Diluted Net Earnings (Loss) Per Share $ 0.36 $ 1.05
======== ========
</TABLE>
NOTE B--BUSINESS ACQUISITIONS & 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
8
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
period of three years while it introduces the Electra brand. No significant gain
or loss was recognized from this transaction.
During the third and fourth quarters of 1998, the company increased its
ownership stake in its Brazilian subsidiaries to approximately 55% 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.
NOTE C--DISCONTINUED OPERATIONS
During the third quarter of 1997, the company discontinued its financing
operations and reached an agreement to sell the majority of Whirlpool Financial
Corporation's (WFC) assets in a series of transactions. During the first quarter
of 1998, the company sold additional international assets and consumer financing
receivables under this agreement which resulted in the company recording a
discontinued pretax gain of $20 million ($11 million after-tax).
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
(millions of dollars)
<S> <C> <C>
Finished products $ 1,073 $ 960
Raw materials and work in process 290 333
------- -------
Total FIFO cost 1,363 1,293
Less excess of FIFO cost
over LIFO cost 192 193
------- -------
$ 1,171 $ 1,100
======= =======
</TABLE>
9
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E--RESTRUCTURING CHARGES
During 1997, the company incurred restructuring cost 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 over the final nine
months of 1999. The restructuring charge included the elimination of
approximately 7,900 global positions, of which more than 6,000 positions have
been eliminated to date.
NOTE F--BRAZILIAN CURRENCY DEVALUATION
The Brazilian real declined from 1.21 to 1.72 per USD from mid-January when the
Brazilian government changed its foreign exchange policy to a floating exchange
rate. Because the Brazilian operations maintain significant USD denominated debt
on their books, the currency devaluation resulted in a $146 million pre-tax
charge to earnings (Whirlpool's share after-tax and minority interest was $53
million). Also included in other income and expense was a $12 million pre-tax
mark-to-market charge ($7 million after-tax) related to short term forward
contracts purchased to hedge movement in Brazil's currency.
NOTE G--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 risk.
At March 31, 1999, the company had $223 million in receivables subject to
recourse provisions and $120 million in guarantees of customer lines of credit
at commercial banks.
10
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE H--GEOGRAPHIC SEGMENTS
The company identifies operating segments based upon geographical regions of
operations because each operating segment manufactures home appliances and
related components, but serves strategically different markets.
<TABLE>
<CAPTION>
Three Months North Latin Other and Total
Ended March 31 America Europe America Asia (Eliminations) Whirlpool
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES
1999 $ 1,438 $ 611 $ 374 $ 84 $ (21) $ 2,486
1998 $ 1,336 $ 540 $ 546 $ 68 $ (26) $ 2,464
INTANGIBLE AMORTIZATION
1999 $ 1 $ 4 $ 1 $ 1 $ 2 $ 9
1998 $ 1 $ 4 $ 1 $ 1 $ 2 $ 9
DEPRECIATION
1999 $ 40 $ 23 $ 25 $ 6 $ 6 $ 100
1998 $ 39 $ 21 $ 36 $ 3 $ 6 $ 105
OPERATING PROFIT (LOSS)
1999 $ 170 $ 37 $ 20 $ 1 $ (39) $ 189
1998 $ 153 $ 22 $ 47 $ (8) $ (45) $ 169
TOTAL ASSETS
1999 $ 2,135 $ 2,076 $ 1,962 $ 716 $ 347 $ 7,236
1998 $ 2,130 $ 1,985 $ 2,489 $ 670 $ 619 $ 7,893
CAPITAL EXPENDITURES
1999 $ 25 $ 14 $ 26 $ - $ - $ 65
1998 $ 20 $ 6 $ 54 $ 14 $ - $ 94
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
The statements of earnings summarize operating results for the three months
ended March 31, 1999 and 1998. This section of Management's Discussion
highlights the main factors affecting the changes in operating results.
Net Sales
- ---------
Net sales increased 1% over the prior year and totaled $2.5 billion for the
first quarter of 1999. North American unit volumes were up 9% in the first
quarter compared to the prior year, in an industry that was up 6%, while sales
were 8% higher than the prior year. North American industry shipments are
expected to be up about 3% for the full year. European sales in U.S. dollars
were up 13% compared to the prior year, due to a 12% increase in units sold and
a slightly higher average sales value. European industry shipments are expected
to be up between one and two percent for the full year. Weak economic
conditions in Latin America and the currency devaluation in Brazil resulted in
units sold and net sales declines of 21% and 32%, respectively, for the Latin
American region.
Asia's unit volumes and net sales increased 22% and 23%, respectively, compared
to the prior year due to improving economic conditions in the region and the
introduction of some new products to the region.
Expenses
- --------
The gross margin percentage improved by 0.8 percentage points for the first
quarter compared to 1998, building on the benefits of the restructuring started
in 1997 and productivity improvements.
Selling and administrative expenses as a percent of net sales were relatively
flat for the first quarter compared to 1998. Improvements in Europe and Asia of
1.0 percentage points and 7.5 percentage points, respectively, offset
unfavorable variances in North America and Brazil. North America's ratio
increased due to higher advertising costs and costs to implement Enterprise
Resource Planning, which involves improving business processes and installing
enterprise-wide business software. Brazil's ratio increased due primarily to
lower sales levels and additional reserves for Brazilian credit risk.
Other Income and Expense
- ------------------------
Interest and sundry income (expense) was $171 million unfavorable to the first
quarter of 1998 due primarily to the impact of the Brazilian currency
devaluation. The Brazilian real declined from 1.21 to 1.72 per US Dollars from
mid-January when the Brazilian government changed its foreign exchange policy to
a floating exchange rate. Because the Brazilian operations maintain significant
USD denominated debt on their books, the currency devaluation resulted in a $146
million pre-tax charge to earnings (Whirlpool's share after-tax and minority
interest was $53
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
million). Also included in this category was a $12 million pre-tax mark-to-
market charge ($7 million after-tax) related to short term forward contracts
purchased to hedge movement in Brazil's currency.
Income Taxes
- ------------
Excluding the devaluation, the effective income tax rate would have been 40% for
the 1999 quarter compared to 38% for the comparable period in 1998. The losses
within the Brazilian operations, which resulted in tax benefits at an average
lower rate than the U.S. statutory tax rate, heavily skewed the quarter's actual
effective tax rate.
Discontinued Operations
- -----------------------
The company recorded a gain of $20 million pre-tax, $11 million after-tax, in
the first quarter of 1998 related to the sale of certain consumer financing and
European inventory financing assets. These transactions continued a series of
sales resulting from the company's decision in the third quarter of 1997 to
discontinue its financing operations. The remaining sales of additional
European inventory financing assets closed in the second quarter of 1998.
Refer to Note C to the accompanying consolidated financial statements for a
discussion of discontinued operations.
Net Earnings
- ------------
First quarter earnings from continuing operations were $28 million or $.36 per
diluted share compared to $68 million or $.90 per diluted share in 1998. First
quarter net earnings for 1998 were $80 million or $1.05 per diluted share, which
includes the asset sales described under Discontinued Operations. Excluding the
foreign exchange loss from the Brazilian currency devaluation, the 1999 earnings
from continuing operations would have been $88 million or $1.15 per diluted
share.
CASH FLOWS
The statements of cash flows reflect the changes in cash and cash equivalents
for the three months ended March 31, 1999 and 1998 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.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Cash used by operating activities in the first three months of 1999 was $249
million compared to $65 million used in 1998, reflecting the $98 million impact
of the currency devaluation flowing through net earnings and minority interest
and a build up of inventories due to the business slowdown in Brazil.
Investing Activities
- --------------------
The principal recurring investing activities are property additions. Net
property additions for the first three months were $65 million in 1999 as
compared to $94 million in 1998. These expenditures are primarily for equipment
and tooling related to product improvements, more efficient production methods,
and replacement for normal wear and tear.
Refer to Note B to the accompanying consolidated financial statements for a
discussion of business dispositions and acquisitions.
Financing Activities
- --------------------
Dividends to shareholders totaled $27 million for the first quarter of 1999 and
$26 million for 1998 while the company's borrowings increased slightly during
the first quarter of 1999.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the company remains strong as evidenced by the March
31, 1999 balance sheet. The company's total assets are $7.2 billion and
stockholders' equity is $1.8 billion.
On March 1, 1999, the company announced that its Board of Directors approved the
repurchase of up to $250 million of the company's outstanding shares of common
stock. The shares are to be purchased in the open market and through privately
negotiated sales as the company deems appropriate. Through March 31, 1999, the
company had repurchased a total of 870,000 shares at a cost of $41 million.
The overall debt to invested capital ratio of 48.1% at March 31, 1999 was up
from 44.9% at March 31, 1998 and up from 43.5% at December 31, 1998. (The debt
to capital ratio is calculated on a gross basis and no longer is calculated net
of cash.) The company's debt continues to be rated investment grade by Moody's
Investors Service Inc., Standard and Poor's, and Duff & Phelps.
Various European currency swaps and forward contracts serve as a hedge against
net foreign currency cash flows and also hedge a portion of the company's
European net assets. Changes in the value of the swaps and forward contracts
due to movements in exchange rates are included in the currency translation
component of stockholders' equity if they relate to the European net asset hedge
or otherwise are included in other income (expense) in the income statement.
In mid-March, the company entered into short term forward foreign currency
contracts as a hedge against movements in the Brazilian currency. As of March
31, 1999, these contracts were marked to market resulting in a pre-tax charge of
$12 million ($7 million after-tax). The company will
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
continue to monitor the Brazilian currency risk and limit the company's exposure
to currency moves.
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.
In December 1996, a favorable decision was obtained by Multibras S.A.
Eletrodomesticos (Multibras) and Empresa Brasileira de Compresorres S.A.
(Embraco) with respect to additional export incentives in connection with the
Befiex program. In April 1997, Multibras and Embraco submitted tax-credit
claims for about 447 million reais (equivalent to US$440 million as of December
1996) relating to the favorable decision for exports from July 1988 through
December 1996. This amount is impacted by exchange rate fluctuations, offset by
accrued interest. The Brazilian government has filed an appeal to this ruling
on which the courts must render a decision, and then the Brazilian court must
render a final decision on the amount, timing and payment method of any final
award, which will also be subject to appeal. 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 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 end of 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
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
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 has established business teams
in each of its regions around the world to refine contingency plans that may be
necessary for this issue, particularly with regard to delays that may occur with
supplier orders and the corresponding need to recommend possible increases in
inventories of raw materials, parts, and finished product. 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, public utilities, 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
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
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
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.
Once implementation is complete, 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.
Forward Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the company. Management's
Discussion and Analysis and other sections of this report may contain forward-
looking statements that reflect our current views with respect to future events
and financial performance.
Certain statements contained in this Quarterly Report on Form 10-Q and other
written and oral statements made from time to time by the company do not relate
strictly to historical or current facts. As such, they are considered "forward-
looking statements" which provide current expectations or forecasts of future
events. Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast," and similar words or
expressions. The company's forward-looking statements generally relate to its
growth strategies, financial results, product development, and sales efforts.
These forward-looking statements should be considered with the understanding
that such statements involve a variety of risks and uncertainties, known and
unknown, and may be affected by inaccurate assumptions. Consequently, no
forward-looking statement can be guaranteed and actual results may vary
materially.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Many factors could cause actual results to differ materially from the company's
forward-looking statements. Among these factors are: (1) competitive pressure
to reduce prices; (2) the ability to gain or maintain market share in an
intensely competitive global market; (3) the success of our global strategy to
develop brand differentiation and brand loyalty; (4) our ability to control
operating and selling costs and to maintain profit margins during industry
downturns; (5) the success of our Brazilian businesses operating in a
challenging and volatile environment; (6) continuation of our strong
relationship with Sears, Roebuck and Co. in North America which accounted for
approximately 17% of our consolidated net sales of $10.3 billion in 1998; (7)
currency exchange rate fluctuations in Latin America, Europe, and Asia that
could affect our consolidated balance sheet and income statement; (8) social,
economic, and political volatility in developing markets; and (9) our company's
ability and our customers' and suppliers' ability to replace, modify, or upgrade
computer programs in ways that adequately address the Year 2000 issue.
The company undertakes no obligation to update every forward-looking statement,
and investors are advised to review disclosures by the company in our filings
with the Securities and Exchange Commission. It is not possible to foresee or
identify all factors that could cause actual results to differ from expected or
historic results. Therefore, investors should not consider the foregoing
factors to be an exhaustive statement of all risks, uncertainties, or factors
that could potentially cause actual results to differ.
18
<PAGE>
PART II. OTHER INFORMATION
--------------------------
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended March 31, 1999
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
a. The following are included herein:
(27) Financial Data Schedule
(99) Computation of the ratios of earnings to fixed charges
b. The registrant filed the following Current Reports on Form 8-K for the
quarterly period ended March 31, 1999:
A Current Report on Form 8-K dated January 26, 1999 pursuant to Item 5,
"Other Events," concerning the Company's announcement of its fourth-quarter
and full year earnings for 1998. The registrant also reported that the
first quarter 1999's net earnings could be adversely affected by the
Brazilian currency devaluation.
A Current Report on Form 8-K dated February 8, 1999 pursuant to Item 4,
"Changes in Registrant's Certifying Accountants," concerning the engagement
of Ernst & Young LLP as the registrant's independent auditors for its
Brazilian subsidiaries for the fiscal year ending December 31, 1999 to
replace PricewaterhouseCoopers Auditores Independentes, Brazil, who were
dismissed as auditors.
A Current Report on Form 8-K dated March 1, 1999 pursuant to Item 5, "Other
Events," concerning the registrant's announcement that the Board of
Directors had authorized the repurchase of up to $250 million of the
company's outstanding shares of common stock.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHIRLPOOL CORPORATION
(Registrant)
By /s/ Ralph F. Hake
----------------------------------
Ralph F. Hake
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 8, 1999
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 410
<SECURITIES> 0
<RECEIVABLES> 1614
<ALLOWANCES> 118
<INVENTORY> 1171
<CURRENT-ASSETS> 3566
<PP&E> 5105
<DEPRECIATION> 2958
<TOTAL-ASSETS> 7236
<CURRENT-LIABILITIES> 3078
<BONDS> 1031
0
0
<COMMON> 83
<OTHER-SE> 1679
<TOTAL-LIABILITY-AND-EQUITY> 7236
<SALES> 2486
<TOTAL-REVENUES> 2486
<CGS> 1867
<TOTAL-COSTS> 2288
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41)
<INCOME-PRETAX> (4)
<INCOME-TAX> 8
<INCOME-CONTINUING> 28
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28
<EPS-PRIMARY> .37
<EPS-DILUTED> .36<F1>
<FN>
<F1>*The tags in the FDS will not be changed by the SEC to correspond to the new
captions under SFAS 128. The SEC expects registrants to report "Earnings per
share - Basic" data as the value for the EPS-PRIMARY tag and "Earnings per
share - Diluted" data (as opposed to "EPS - Fuly Diluted") as the value for the
EPS-DILUTED tag. Queries regarding these requirements may be directed to
the Office of Chief Accountants (202-942-2950) or Meg Black in the Division of
Corporation Finance (202-942-2940).
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
RATIOS OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
--------------------
<S> <C>
Pretax earnings (4.2)
Portion of rents representative
of the interest factor 4.7
Interest on indebtedness 40.9
Amortization of debt expense
and premium .2
WFC preferred stock dividend 1.0
------------------
Adjusted income 42.6
==================
Fixed charges
Portion of rents representative
of the interest factor 4.7
Interest on indebtedness 40.9
Amortization of debt expense
and premium 0.2
WFC preferred stock dividend 1.0
------------------
46.8
==================
Ratio of earnings to
fixed charges .91
==================
Ratio of earnings to
fixed charges at
March 31, 1998 3.15
==================
</TABLE>
