<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 1999
--------------------- -----------------------------------
Common stock, par value $1 per share 75,406,540
PAGE 1 OF 24
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
WHIRLPOOL CORPORATION
---------------------
Quarter Ended June 30, 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 13
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
2
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION AND SUBSIDIARIES
FOR THE PERIOD ENDED JUNE 30
(millions of dollars except share and dividend data)
<TABLE>
<CAPTION>
Three Months Ended Year-to-Date
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales $ 2,617 $ 2,585 $ 5,102 $ 5,049
EXPENSES:
Cost of products sold 1,967 1,962 3,833 3,831
Selling and administrative 437 456 858 872
Intangible amortization 8 9 16 19
-------- -------- -------- -------
2,412 2,427 4,707 4,722
-------- -------- -------- -------
OPERATING PROFIT 205 158 395 327
OTHER INCOME (EXPENSE):
Interest and sundry income (expense) 5 42 (148) 81
Interest expense (44) (65) (85) (127)
-------- -------- -------- -------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 166 135 162 281
Income taxes 62 49 70 105
-------- -------- -------- -------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 104 86 92 176
Equity in affiliated companies 1 2 (2) 2
Minority interests (6) (7) 37 (29)
-------- -------- -------- -------
EARNINGS FROM CONTINUING OPERATIONS 99 81 127 149
Discontinued operations less applicable - 3 - 15
-------- -------- -------- -------
NET EARNINGS $ 99 $ 84 $ 127 $ 164
======== ======== ======== =======
Per share of common stock:
Basic earnings from continuing operations $ 1.32 $ 1.07 $ 1.68 $ 1.97
Basic net earnings $ 1.32 $ 1.11 $ 1.68 $ 2.17
Diluted earnings from continuing operations $ 1.30 $ 1.05 $ 1.66 $ 1.95
Diluted net earnings $ 1.30 $ 1.10 $ 1.66 $ 2.14
Cash dividends $ .34 $ .34 $ .68 $ .68
======= ======== ======== =======
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION
(millions of dollars)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash and equivalents $ 265 $ 636
Trade receivables, less allowances of
(1999: $114 ;1998: $116 )
Inventories 1,710 1,711
Prepaid expenses and other 1,172 1,100
Deferred income taxes 201 268
Total Current Assets 166 167
----------- -----------
3,514 3,882
Other Assets
- ------------
Investment in affiliated companies 115 108
Intangibles, net 811 936
Defferred income taxes 229 262
Other 302 329
----------- -----------
1,457 1,635
Property, Plant and Equipment
- -----------------------------
Land 71 77
Buildings 852 900
Machinery and equipment 4,199 4,534
Accumulated depreciation (3,001) (3,093)
----------- -----------
2,121 2,418
----------- -----------
Total Assets $ 7,092 $ 7,935
=========== ===========
June 30 December 31
1999 1998
(Unaudited) (Audited)
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Notes payable $ 861 $ 905
Accounts payable 994 1,079
Employee compensation 238 271
Accrued expenses 808 870
Restructuring costs 73 117
Current maturities of long-term debt 216 25
----------- -----------
Total Current 3,190 3,267
Liabilities
Other Liabilities
- -----------------
Deferred income taxes 155 152
Postemployment benefits 606 622
Other liabilities 173 192
Long-term debt 765 1,087
----------- -----------
1,699 2,053
Minority Interests 419 614
Stockholders' Equity
- --------------------
Common stock 83 83
Paid-in capital 350 321
Retained earnimgs 2,098 2,024
Unearned restricted stock (6) (3)
Accumulated other comprehensive income (433) (183)
Treasury stock - at cost (308) (241)
----------- -----------
Total Stockholders' Equity 1,784 2,001
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,092 $ 7,935
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED JUNE 30
(millions of dollars)
<TABLE>
<CAPTION>
Second Quarter
-----------------------------------------------------------------------------------
Accumulated
Other Treasury
Total Retained Comprehensive Common Stock/Paid-
Earnings Income Stock in-Capital
-------- -------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Beginning balance, 1998 $ 1,828 $ 1,855 $ (159) $ 82 $ 50
Comprehensive income
Net income 84 84
Foreign currency items, net of tax (13) (13)
--------
Comprehensive income 71
========
Common stock issued 22 1 21
Dividends declared on common stock (26) (26)
-------- -------- ------------- ------ ----------
Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71
======== ======== ============= ====== ==========
Beginning balance, 1999 $ 1,762 $ 2,025 $ (386) $ 83 $ 40
Comprehensive income
Net income 99 99
Foreign currency items, net of tax (47) (47)
--------
Comprehensive income 52
========
Common stock issued (4) - (4)
Dividends declared on common stock (26) (26)
-------- -------- ------------- ------ ----------
Ending balance, June 30, 1999 $ 1,784 $ 2,098 $ (433) $ 83 $ 36
======== ======== ============= ====== ==========
<CAPTION>
Year-to-Date
-----------------------------------------------------------------------------------
Accumulated
Other Treasury
Total Retained Comprehensive Common Stock/Paid-
Earnings Income Stock in-Capital
-------- -------- ------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Beginning balance, 1998 $ 1,771 $ 1,801 $ (149) $ 82 $ 37
Comprehensive income
Net income 164 164
Foreign currency items, net of tax (23) (23)
--------
Comprehensive income 141
========
Common stock issued 35 1 34
Dividends declared on common stock (52) (52)
-------- -------- ------------- ------ ----------
Ending balance, June 30, 1998 $ 1,895 $ 1,913 $ (172) $ 83 $ 71
======== ======== ============= ====== ==========
Beginning balance, 1999 $ 2,001 $ 2,024 $ (183) $ 83 $ 77
Comprehensive income
Net income 127 127
Foreign currency items, net of tax (250) (250)
--------
Comprehensive income (123)
========
Common stock issued (41) - (41)
Dividends declared on common stock (53) (53)
-------- -------- ------------- ------ ----------
Ending balance, June 30, 1999 $ 1,784 $ 2,098 $ (433) $ 83 $ 36
======== ======== ============= ====== ==========
</TABLE>
5
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR SIX MONTHS ENDED JUNE 30
(millions of dollars)
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 127 $ 164
Depreciation 203 211
Deferred income taxes (31) (19)
Equity in net earnings of affiliated
companies, less dividends received 2 (2)
Gain on business dispositions - (25)
Provision for doubtful accounts 15 22
Amortization of goodwill 16 19
Restructuring charges, net of cash paid (37) (50)
Minority interests (37) 29
Changes in assets and liabilities,
net of effects of business
acquisitions and dispositions:
Trade receivables (222) (312)
Inventories (160) (85)
Accounts payable 8 (3)
Other - net 1 (25)
---------------- -----------------
CASH USED FOR
OPERATING ACTIVITIES $ (115) $ (76)
</TABLE>
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
INVESTING ACTIVITIES
Net additions to properties $ (172) $ (218)
Acquisitions of businesses,
less cash acquired - (18)
Business dispositions - 587
Other - -
--------------- --------------
CASH PROVIDED BY / (USED FOR)
INVESTING ACTIVITIES (172) 351
FINANCING ACTIVITIES
Proceeds of short-term borrowings 8,644 10,680
Repayments of short-term borrowings (8,614) (10,931)
Proceeds of long-term debt 61 202
Repayments of long-term debt (75) (118)
Dividends (53) (51)
Purchase of treasury stock (67) -
Other 20 (29)
--------------- --------------
CASH PROVIDED USED FOR
FINANCING ACTIVITIES (84) (247)
--------------- --------------
INCREASE / (DECREASE) IN
CASH AND EQUIVALENTS (371) 28
Cash and equivalents at beginning of year 636 578
--------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 265 $ 606
=============== =============
</TABLE>
See notes to consolidated 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 and six months ended June 30, 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 Six Months Ended
June 30 June 30
---------------------------------- ------------------------------------
1999 1998 1999 1998
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
(in millions except earnings per share)
Basic:
Average Shares Outstanding 75.5 75.5 75.7 75.5
Earnings:
Continuing Operations $ 99.3 $ 80.5 $ 127.1 $ 148.9
Discontinued Operations - 3.4 - 14.8
------------- ------------- -------------- --------------
Net Earnings $ 99.3 $ 83.9 $ 127.1 $ 163.7
============= ============= ============== ==============
Earnings Per Share
from Continuing Operations $ 1.32 $ 1.07 $ 1.68 $ 1.97
Net Earnings Per Share $ 1.32 $ 1.11 $ 1.68 $ 2.17
============= ============= ============== ==============
Diluted:
Average Shares Outstanding 75.5 75.5 75.7 75.5
Treasury Stock Method:
Stock Options 1.0 1.0 0.7 1.0
------------- ------------- -------------- --------------
Diluted Average Shares Outstanding 76.5 76.5 76.4 76.5
============= ============= ============== ==============
Diluted Earnings:
Continuing Operations $ 99.3 $ 80.5 $ 127.1 $ 148.9
Discontinued Operations - 3.4 - $ 14.8
------------- ------------- -------------- --------------
Diluted Net Earnings $ 99.3 $ 83.9 $ 127.1 $ 163.7
============= ============= ============== ==============
Diluted Earnings Per Share
from Continuing Operations $ 1.30 $ 1.05 $ 1.66 $ 1.95
Diluted Net Earnings Per Share $ 1.30 $ 1.10 $ 1.66 $ 2.14
============= ============= ============== ==============
</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
holds 20% of the joint venture. The joint venture continues to sell products
under the Whirlpool brand in China for a period of
8
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 six
months 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 $25 million ($15 million after-tax).
NOTE D--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
----------- -------------
(millions of dollars)
<S> <C> <C>
Finished products $ 1,085 $ 960
Raw materials and work in process 273 333
------------- ------------
Total FIFO cost 1,358 1,293
Less excess of FIFO cost
over LIFO cost 186 193
------------- ------------
$ 1,172 $ 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 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 75% of the cash
costs have been paid to date, with the remainder to be paid over the next twelve
months. The restructuring charge included the elimination of approximately 7,900
global positions, of which more than 6,600 positions have been eliminated to
date.
NOTE F -- BRAZILIAN CURRENCY DEVALUATION
The Brazilian real declined from 1.21 to 1.75 per USD from mid-January, when the
Brazilian government changed its foreign exchange policy to a floating exchange
rate, to June 30, 1999. 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) in the first quarter. Also included in other income
and expense during the first quarter 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. Year-to-date, foreign exchange losses
within the Brazilian operations have totaled $152 million pre-tax (Whirlpool's
share after-tax and minority interest was $55 million) and charges related to
short term forward contracts totalled $16 million pre-tax ($10 million
after-tax).
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 June 30, 1999, the company had $220 million in receivables subject to
recourse provisions and $62 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.
(millions of dollars)
<TABLE>
<CAPTION>
Three Months North Latin Other and Total
Ended June 30 America Europe America Asia (Eliminations) Whirlpool
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales
1999 $ 1,581 $ 582 $ 408 $ 99 $ (53) $ 2,617
1998 $ 1,464 $ 575 $ 493 $ 87 $ (34) $ 2,585
Intangible amortization
1999 $ 1 $ 4 $ - $ 1 $ 1 $ 7
1998 $ 1 $ 4 $ 2 $ 1 $ 1 $ 9
Depreciation
1999 $ 40 $ 23 $ 26 $ 5 $ 9 $ 103
1998 $ 39 $ 24 $ 32 $ 5 $ 6 $ 106
Operating profit (loss)
1999 $ 182 $ 42 $ 23 $ 3 $ (45) $ 205
1998 $ 163 $ 28 $ 15 $ (2) $ (46) $ 158
Total assets
1999 $ 2,220 $ 1,983 $ 1,872 $ 711 $ 306 $ 7,092
1998 $ 2,214 $ 2,109 $ 2,543 $ 662 $ 544 $ 8,072
Capital expenditures
1999 $ 56 $ 25 $ 18 $ 1 $ 7 $ 107
1998 $ 56 $ 21 $ 119 $ 17 $ (89) $ 124
</TABLE>
11
<PAGE>
WHIRLPOOL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(millions of dollars)
<TABLE>
<CAPTION>
Six Months North Latin Other and Total
Ended June 30 America Europe America Asia (Eliminations) Whirlpool
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales
1999 $ 3,018 $ 1,193 $ 782 $ 182 $ (73) $ 5,102
1998 $ 2,801 $ 1,115 $ 1,039 $ 154 $ (60) $ 5,049
Intangible amortization
1999 $ 2 $ 8 $ 1 $ 3 $ 2 $ 16
1998 $ 2 $ 8 $ 3 $ 2 $ 4 $ 19
Depreciation
1999 $ 80 $ 46 $ 51 $ 11 $ 15 $ 203
1998 $ 78 $ 45 $ 68 $ 8 $ 12 $ 211
Operating profit (loss)
1999 $ 352 $ 79 $ 43 $ 4 $ (83) $ 395
1998 $ 313 $ 50 $ 62 $ (10) $ (88) $ 327
Total assets
1999 $ 2,220 $ 1,983 $ 1,872 $ 711 $ 306 $ 7,092
1998 $ 2,214 $ 2,109 $ 2,543 $ 662 $ 544 $ 8,072
Capital expenditures
1999 $ 82 $ 39 $ 44 $ 1 $ 6 $ 172
1998 $ 56 $ 21 $ 119 $ 17 $ 5 $ 218
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS
The statements of earnings summarize operating results for the three and six
month periods ended June 30, 1999 and 1998. This section of Management's
Discussion highlights the main factors affecting the changes in operating
results.
Net Sales
- ---------
Net sales were $2.6 billion for the second quarter and $5.1 billion for the
first half of 1999, both representing one percent increases over the comparable
1998 periods. Excluding the impact of currency fluctuations around the world,
sales would have increased ten percent and nine percent over the prior year's
quarter and year-to-date periods, respectively.
North American unit volumes were up 11% in the second quarter and 10% in the
first half of the year over 1998. North American sales were 8% higher for both
the second quarter and year-to-date periods, reflecting product mix impact.
Whirlpool North American unit shipments are currently expected to exceed the
anticipated 8% growth within the industry for the full year. European sales in
U.S. dollars were up 1% in the second quarter and 7% in the first half, due to
increases of 6% and 9% in units sold for the quarter and year-to-date
comparisons. Whirlpool European unit shipments are currently expected to exceed
the industry growth expectations of 1% to 2% for the full year. Weak economic
conditions over the first six months of the year in Latin America and the
currency devaluation in Brazil resulted in a decrease for the quarter in net
sales of 17% and offset a 2% increase in units shipped. For the year-to-date
comparison, Latin American unit shipments decreased 11% and net sales decreased
25%. The current year quarter and year-to-date net sales included a $13.2
million recovery of Brazilian taxes paid in prior years. The comparable periods
for 1998 included $22.4 million and $39.6 million in Brazilian tax incentives,
respectively. Asia's unit volumes increased 7% and 13% and net sales increased
14% and 18% for the quarter and year-to-date comparisons, respectively, due to
improving economic conditions in the region.
Gross Margin
- ------------
Gross margin percentage on products sold to net sales improved by 0.7 percentage
points for the second quarter comparison with 1998 and 0.8 percentage points for
the year-to-date comparison. This improvement was due to the benefits resulting
from the restructuring started in 1997 and ongoing productivity from our
Operational Excellence program, partially offset by a reclassification in the
second quarter within North America of certain sales allowances from selling,
general and administrative expenses into net sales, to be consistent with the
treatment of similar sales program costs in other areas of the company. The
reclassification reduced the quarter's gross margin by 0.3 percentage points and
the year-to-date gross margin by 0.2 percentage points.
Selling, General and Administrative
- -----------------------------------
Appliance selling and administrative expenses as a percent of net sales
decreased by 0.9 percentage points for the second quarter comparison with 1998
and 0.5 percentage points for the
13
<PAGE>
year-to-date comparison. Quarter-over-quarter improvements in Europe, Brazil and
Asia and a 0.4 percentage points impact from the reclassification of sales
allowances within North America contributed to the improved cost performance
ratio. The improvement for the quarter in Brazil is due in part to a $6.7
million reduction in bad debt expense versus the year ago quarter. The year-to-
date improvement provided by Europe and Asia along with the reclassification
within North America, which accounted for an approximate 0.2 percentage points
improvement, offset declines in North America and Brazil. The North American
results included additional advertising costs and costs to implement Enterprise
Resource Planning, which is a SAP based enterprise-wide business software.
Other Income and Expense
- ------------------------
Interest and sundry income (expense) in the second quarter was $16 million
unfavorable to the second quarter of 1998 due to foreign exchange losses on the
Brazilian currency and the costs associated with forward contracts put into
place to hedge Brazil's currency and a $5 million increase in interest expense,
net of interest income. The increase in net interest expense was due to lower
interest income in 1999 partially offset by a $7 million recovery of Brazilian
taxes paid in prior years. Year-to-date, interest and sundry income (expense)
was $187 million unfavorable, also due primarily to the Brazilian real
devaluation. The Brazilian real declined from 1.21 to 1.75 per US Dollars from
mid-January, when the Brazilian government changed its foreign exchange policy
to a floating exchange rate, to June 30, 1999. Due to the timing of the change
in foreign exchange policy by the Brazilian government, the main impact from the
devaluation occurred in the first quarter and resulted in a $146 million pre-tax
charge to earnings (Whirlpool's share after-tax and minority interest was $53
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. Year-to-date, foreign
exchange losses within the Brazilian operations have totalled $152 million pre-
tax (Whirlpool's share after-tax and minority interest was $55 million) and
charges related to short term forward contracts totaled $16 million pre-tax ($10
million after-tax).
Income Taxes
- ------------
The consolidated effective income tax rate was 37% for the quarter and 43% year-
to-date versus rates of 37% and 38%, respectively, for the year ago periods.
The losses within the Brazilian operations, which resulted in tax benefits at an
average lower rate than the U.S. statutory tax rate, impacted the quarter and
year-to-date effective tax rates.
14
<PAGE>
Discontinued Operations
- -----------------------
The company recorded a gain of $5 million pre-tax, $3 million after-tax, in the
second quarter of 1998 related to the sale of certain consumer financing and
European inventory financing assets. For the first half of 1998, the total gain
recorded for similar transactions was $25 million pre-tax and $15 million after
tax. The transactions completed during the second quarter concluded a series of
sales resulting from the company's decision in the third quarter of 1997 to
discontinue its financing operations.
Refer to Note C to the accompanying consolidated financial statements for a
discussion of discontinued operations.
Net Earnings
- ------------
Second quarter earnings from continuing operations were $99 million or $1.30 per
diluted share compared to $81 million or $1.05 per diluted share in 1998. Year-
to-date earnings from continuing operations were $127 million, or $1.66 per
diluted share versus earnings of $149 million, or $1.95 per diluted share in the
first half of 1998. Excluding the first quarter impact of the Brazilian
currency devaluation, year-to-date earnings from continuing operations were $187
million, or $2.45 per diluted share. Including discontinued operations, 1998
net earnings were $84 million, or $1.10 per diluted share in the second quarter
and $164 million, or $2.14 per diluted share year-to-date.
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the
six months ended June 30, 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.
Cash used by operating activities in the first six months of 1999 was $115
million compared to $76 million used in 1998, reflecting the $98 million first
quarter impact of the currency devaluation flowing through net earnings and
minority interest and a build up of inventories over the first six months of the
year due to the business slowdown in Brazil.
Investing Activities
- --------------------
The principal recurring investing activities are property additions. Net
property additions for the first half were $172 million in 1999 down from $218
million in the 1998 period. These
15
<PAGE>
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 $53 million for the first half of 1998 versus
$52 million in 1998 and the company's borrowings increased by $16 million during
the first half of 1999.
FINANCIAL CONDITION AND OTHER MATTERS
The financial position of the company remains strong as evidenced by the June
30, 1999 balance sheet. The company's total assets were $7.1 billion and
stockholders' equity totalled $1.8 billion. The balances at December 31, 1998
were total assets of $7.9 billion and stockholders' equity of $2.0 billion. The
decrease in assets is due primarily to the currency devaluation in Brazil while
the decrease in equity is due to currency translation adjustments, primarily in
Brazil, and $67 million related to share buybacks referred to below, offsetting
net earnings retention of $74 million.
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 June 30, 1999, the
company had repurchased a total of 1.3 million shares at a cost of $67 million.
The overall debt to invested capital ratio of 45.5% at June 30, 1999 was level
with the year ago ratio, but down from 48.1% at March 31, 1999 due to the pay
down of debt during the second quarter. 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 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
16
<PAGE>
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.
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.
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 third 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 $27 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 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.
17
<PAGE>
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.
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 reviews of the internal Year 2000 programs of the company's operations
in each of its regions around the world. The reviews 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 company's increased focus on business units in India and China has resulted
in significant process over the past several months and these units are nearing
alignment with the other regional programs. Outside consultant reviews have
confirmed this progress. 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 has eliminated transaction gains and losses within participating countries
and there currently has not been any significant impact on operating results
from the change over to the euro.
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.
18
<PAGE>
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.
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.
19
<PAGE>
PART II. OTHER INFORMATION
--------------------------
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 1999
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
The Annual Meeting of Stockholders was held on April 20, 1999. At the meeting,
the following items were voted on by shareholders:
a. Messrs. James M. Kilts, Miles L. Marsh, and Paul G. Stern were each elected
to a term to expire in 2002.
Nominee For Against Abstentions
------- --- ------- -----------
James M. Kilts 63,234,368 0 3,803,118
Miles L. Marsh 52,056,912 0 14,980,574
Paul G. Stern 63,224,496 0 3,812,990
Messrs. Burnett, Cain, DiCamillo, Gilmour, Langbo, Smith and Whitwam and
Ms. Hempel and Ms. Stoney each have terms of office as directors that
continued after the 1999 Annual Meeting.
b. Amendments to the registrant's Nonemployee Director Stock Ownership Plan
and Performance Excellence Plan were approved.
Plan For Against Abstentions
---- --- ------- -----------
Nonemployee Director
Stock Ownership Plan 61,859,060 4,831,158 347,268
Performance Excellence
Plan 59,065,116 7,658,153 314,217
c. A stockholder proposal proposing the sale of the company to the highest
bidder was rejected by the shareholders.
For Against Abstentions
--- ------- -----------
1,245,744 58,096,063 643,866
20
<PAGE>
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
a. The registrant filed the following Current Reports on Forms 8-K for the
quarterly period ended June 30, 1999.
A Current Report on Form 8-K dated June 24, 1999 pursuant to Item 4, "Changes in
Registrant's Certifying Accountants," to announce the engagement of Ernst &
Young LLP as the independent auditors for the Registrant's subsidiary, Brasmotor
S.A.
A Current Report on Form 8-K dated June 4, 1999 pursuant to Item 5, "Other
Events," to announce the election of Jeff M. Fettig to the position of president
and chief operating officer and election to the company's board of directors.
The board also selected Bengt G. Engstrom to succeed Fettig as executive vice
president and head of Whirlpool Europe. Mark E. Brown was promoted to the
position of executive vice president and chief financial officer succeeding
Ralph F. Hake who resigned from the company.
A Current Report on Form 8-K dated May 10, 1999 pursuant to Item 5, "Other
Events," to announce the registrant's disapproval of the $581 million Alabama
state court verdict against Whirlpool Financial National Bank, a former
subsidiary of the registrant's subsidiary Whirlpool Financial Corporation.
A Current Report on Form 8-K dated April 15, 1999 pursuant to Item 5, "Other
Events," to announce the Company's earnings for the first quarter of 1999.
21
<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/ Mark Brown
-----------------------------
Mark Brown
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
August 11, 1999
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2ND QTR 10Q
FOR WHIRLPOOL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 265
<SECURITIES> 0
<RECEIVABLES> 1,710
<ALLOWANCES> 114
<INVENTORY> 1,172
<CURRENT-ASSETS> 3,514
<PP&E> 5,122
<DEPRECIATION> 3,001
<TOTAL-ASSETS> 7,092
<CURRENT-LIABILITIES> 3,190
<BONDS> 765
83
0
<COMMON> 0
<OTHER-SE> 1,701
<TOTAL-LIABILITY-AND-EQUITY> 7,092
<SALES> 5,102
<TOTAL-REVENUES> 5,102
<CGS> 3,833
<TOTAL-COSTS> 4,691
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (85)
<INCOME-PRETAX> 162
<INCOME-TAX> 70
<INCOME-CONTINUING> 127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.66
</TABLE>
<PAGE>
EXHIBIT 99
RATIOS OF EARNINGS TO FIXED CHARGES
WHIRLPOOL CORPORATION AND SUBSIDIARIES
(dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
----------------
<S> <C>
Pretax earnings $ 161.7
Portion of rents representative
of the interest factor 9.8
Interest on indebtedness 85.2
Amortization of debt expense and
premium .3
WFC preferred stock dividend 1.9
----------------
Adjusted income $ 258.9
================
Fixed charges
Portion of rents representative
of the interest factor $ 9.8
Interest on indebtedness 85.2
Amortization of debt expense
and premium 0.3
WFC preferred stock dividend 1.9
----------------
$ 97.2
================
Ratio of earnings to
fixed charges 2.66
================
Ratio of earnings to
fixed charges at
June 30, 1998 3.00
================
</TABLE>
24
