UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1997
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 1-655
MAYTAG CORPORATION
A Delaware Corporation I.R.S. Employer Identification No. 42-0401785
403 West Fourth Street North, Newton, Iowa 50208
Registrant's telephone number, including area code: 515-792-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. ( )
The aggregate market value of the voting stock (common stock) held by non-
affiliates of the registrant as of the close of business on March 16, 1998 was
$4,661,476,059. The number of shares outstanding of the registrant's common
stock (par value $1.25) as of the close of business on March 16, 1998 was
95,010,977.
DOCUMENTS INCORPORATED BY REFERENCE
As noted in Part III of this Form 10-K, portions of the registrant's proxy
statement for its annual meeting of shareholders to be held May 14, 1998 have
been incorporated by reference.
1<PAGE>
MAYTAG CORPORATION
1997 ANNUAL REPORT ON FORM 10-K CONTENTS
Item Page
PART I:
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business - Home Appliances . . . . . . . . . . . . . . . . . . . 3
Business - Commercial Appliances . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6
4. Submission of Matters to a Vote of Security Holders . . . . . . 6
Executive Officers of the Registrant . . . . . . . . . . . . . . 6
PART II:
5. Market for the Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 9
8. Financial Statements and Supplementary Data . . . . . . . . . . 17
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 41
PART III:
10. Directors and Executive Officers of the Registrant . . . . . . . 42
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 42
12. Security Ownership of Certain Beneficial Owners and Management . 42
13. Certain Relationships and Related Transactions . . . . . . . . . 42
PART IV:
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2<PAGE>
PART I
Item 1. Business.
Maytag Corporation (the "Company") was organized as a Delaware corporation in
1925. The Company operates in two business segments: home appliances and
commercial appliances. Financial and other information relating to industry
segment and geographic data is included in Part II, Item 7, Pages 9-13, and Item
8, Pages 39 and 40.
HOME APPLIANCES
The home appliances segment represented 92.7 percent of consolidated net sales
in 1997.
The Company, through its various business units, designs, manufactures,
distributes, markets and services a broad line of home appliances including
washers, dryers, dishwashers, refrigerators, cooking appliances and floor care
products primarily under the Maytag, Hoover, Jenn-Air and Magic Chef brand
names. The Company markets its home appliances primarily in the United States
and targeted international markets. The Company's appliances are sold primarily
to major national retailers, independent retail dealers and distributors.
Maytag International, Inc., the Company's international marketing subsidiary,
administers the sale of home appliances and licensing of certain home appliance
brands in markets outside the United States and Canada.
During the fourth quarter of 1997, the Company announced an agreement with
Sears, Roebuck and Co. to begin selling the full line of Maytag brand major
appliances through Sears stores throughout the U.S. The major appliances were
available in all Sears full line and authorized dealers stores beginning in
February 1998.
During the first quarter of 1996, the Company announced the restructuring of its
major appliance operations in an effort to strengthen its position in the
industry and to deliver improved performance to both customers and shareowners.
This included the consolidation of two separate organizational units into a
single operation responsible for all activities associated with the manufacture
and distribution of the Company's brands of major appliances and the closing of
a cooking products plant in Indianapolis, Indiana, with transfer of that
production to an existing plant in Cleveland, Tennessee.
In 1996, the Company invested approximately $35 million and committed additional
cash investments of approximately $35 million for a 50.5 percent ownership in
Rongshida-Maytag, a manufacturer of home appliances in China. In 1995, the
Company sold its home appliance operations in Europe ("European Operations").
In 1994, the Company sold its home appliance operations in Australia and New
Zealand ("Australian Operations"). For more information regarding these
acquisitions and divestitures, see Part II, Item 6, pages 8 and 9.
A portion of the Company's operations and sales are outside the United States.
The risks involved in foreign operations vary from country to country and
include tariffs, trade restrictions, changes in currency values, economic
conditions and international relations.
The Company uses basic raw materials such as steel, copper, aluminum, rubber and
plastic in its manufacturing process in addition to purchased motors,
compressors, timers, valves and other components. These materials are supplied
by established sources and the Company anticipates that such sources will, in
3<PAGE>
general, be able to meet its future requirements.
The Company holds a number of patents which are important in the manufacture of
its products. The Company also holds a number of trademark registrations of
which the most important are ADMIRAL, HOOVER, JENN-AIR, MAGIC CHEF, MAYTAG and
the associated corporate symbols.
The Company's home appliance business is not seasonal.
The Company is not dependent upon a single home appliance customer or a few
customers. Therefore, the loss of any one customer would not have a significant
adverse effect on its business.
The dollar amount of backlog orders of the Company is not considered significant
for home appliances in relation to the total annual dollar volume of sales.
Because it is the Company's practice to maintain a level of inventory sufficient
to cover anticipated shipments and since orders are generally shipped upon
receipt, a large backlog would be unusual.
The home appliance market is highly competitive with the two principal
competitors being larger than the Company. Competitive pressures make price
increases difficult to implement. The Company uses product innovation, brand
image, product quality, customer service, advertising and warranty as its
principal methods of competition.
Expenditures for company-sponsored research and development activities relating
to the development of new products and the improvement of existing products are
included in Part II, Item 8, page 38.
Although the Company has manufacturing sites with environmental concerns,
compliance with laws and regulations regarding the discharge of materials into
the environment or relating to the protection of the environment has not had a
significant effect on capital expenditures, earnings or the Company's
competitive position.
The Company has been identified as one of a group of potentially responsible
parties by state and federal environmental protection agencies in remedial
activities related to various "superfund" sites in the United States. The
Company does not presently anticipate any significant adverse effect upon the
Company's earnings or financial condition arising from resolution of these
matters. Additional information regarding environmental remediation is included
in Part II, Item 8, Page 38.
The Company is subject to changes in government mandated energy and
environmental standards regarding appliances which may become effective over the
next several years. The Company intends to be in compliance with these various
standards, which affect the entire appliance industry, as they become effective.
The number of employees of the Company in the home appliances segment as of
February 28, 1998 was 20,595.
COMMERCIAL APPLIANCES
The commercial appliances segment represented 7.3 percent of consolidated net
sales in 1997.
The Company designs, manufactures, distributes, markets and services commercial
appliances, including vending equipment and commercial cooking equipment,
4<PAGE>
primarily under the Dixie-Narco, Blodgett and Pitco Frialator brand names. The
Company markets its appliances primarily in the United States and targeted
international markets. The Company's appliances are sold primarily to soft
drink bottlers, distributors and food service providers.
In the fourth quarter of 1997, the Company acquired all of the outstanding
shares of G.S. Blodgett Corporation, a manufacturer of commercial ovens, fryers
and charbroilers for the food service industry, for $96.4 million. In
connection with the purchase, the Company also incurred transaction costs of
$4.2 million and retired debt of approximately $53.2 million. This business has
annual sales of approximately $135 million. Additional information regarding
this acquisition is included in Part II, Item 8, Page 26.
In the fourth quarter of 1995, the Company sold the business and assets of a
vending equipment operation in Eastlake, Ohio ("Eastlake Operation"). The
Eastlake Operation designed and manufactured currency validators and electronic
components used in the gaming and vending industries. Dixie-Narco's
headquarters and vending machine manufacturing facility in Williston, South
Carolina, were not affected by this business disposition.
The Company uses steel as a basic raw material in its manufacturing processes in
addition to purchased motors, compressors and other components. These materials
are supplied by established sources and the Company anticipates that such
sources will, in general, be able to meet its future requirements.
The Company holds a number of patents which are important in the manufacture of
its products. The Company also holds a numbers of trademark registrations of
which the most important are DIXIE-NARCO, BLODGETT and PITCO FRIALATOR and the
associated corporate symbols.
Commercial appliance sales, although stronger in the first six months of the
year due to vending equipment sales, are considered by the Company to be
essentially nonseasonal.
Within the commercial appliances segment, the Company's vending equipment sales
are dependent upon a few major soft drink suppliers. Therefore, the loss of one
or more of these customers could have a significant adverse effect on the
commercial appliances segment. The Company uses brand image, product quality,
product innovation, customer service, warranty and price as its principal
methods of competition.
The dollar amount of backlog orders of the Company is not considered significant
for commercial appliances in relation to the total annual dollar volume of
sales. Because it is the Company's practice to maintain a level of inventory
sufficient to cover shipments and since orders are generally shipped upon
receipt, a large backlog would be unusual.
Although the Company has manufacturing sites with environmental concerns,
compliance with laws and regulations regarding the discharge of materials into
the environment or relating to the protection of the environment has not had a
significant effect on capital expenditures, earnings or the Company's
competitive position.
The number of employees of the Company in the commercial appliances segment as
of February 28, 1998 was 2,090.
5<PAGE>
Item 2. Properties.
The Company's corporate headquarters are located in Newton, Iowa. Major offices
and manufacturing facilities in the United States related to the home appliances
segment are located in: Newton, Iowa; Galesburg, Illinois; Cleveland,
Tennessee; Jackson, Tennessee; Milan, Tennessee; Herrin, Illinois; North Canton,
Ohio; and El Paso, Texas. In addition to manufacturing facilities in the United
States, the Company has three other North American manufacturing facilities, one
in Canada and two in Mexico.
In 1996, the Company phased out production at its Indianapolis, Indiana cooking
products facility and consolidated the manufacturing of all cooking products at
its larger cooking products plant in Cleveland, Tennessee.
In 1996, the Company made investments to obtain a 50.5 percent ownership in a
joint venture with a manufacturer of home appliances in China. In 1995, the
Company sold its European Operations.
Major offices and manufacturing facilities in the United States related to the
commercial appliances segment are located in: Williston, South Carolina;
Burlington, Vermont; and Concord, New Hampshire. In 1995, the Company sold its
Eastlake Operation.
In the fourth quarter of 1997, the Company acquired all of the outstanding
shares of G.S. Blodgett Corporation, a manufacturer of commercial ovens, fryers
and charbroilers for the food service industry.
The facilities for both the home appliances and commerical appliances segments
are well maintained, suitably equipped and in good operating condition. The
facilities used had sufficient capacity to meet production needs in 1997, and
the Company expects that such capacity will be adequate for planned production
in 1998. The Company's major capital projects and planned capital expenditures
for 1998 are described in Part II, Item 7, Page 14.
The Company also owns or leases sales offices in many large metropolitan areas
throughout the United States and Canada. Lease commitments are included in Part
II, Item 8, Page 33.
Item 3. Legal Proceedings.
The Company is involved in contractual disputes, environmental, administrative
and legal proceedings and investigations of various types. Although any
litigation, proceeding or investigation has an element of uncertainty, the
Company believes that the outcome of any proceeding, lawsuit or claim which is
pending or threatened, or all of them combined, will not have a significant
adverse effect on its consolidated financial position. The Company's contingent
liabilities are discussed in Part II, Item 8, Page 39.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to a vote of security holders during the
fourth quarter of 1997 through a solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the names of all executive officers of the Company, the
offices held by them, the year they first became an executive officer of the
Company and their ages:
6<PAGE>
First
Became
Name Office Held an Officer Age
Leonard A. Hadley Chairman and
Chief Executive Officer 1979 63
Lloyd D. Ward President and Chief Operating
Officer 1996 49
Gerald J. Pribanic Executive Vice President and Chief
Financial Officer 1996 54
William L. Beer President, Maytag Appliances 1998 45
Robert W. Downing President, Dixie-Narco, Inc. 1996 61
Keith G. Minton President, The Hoover Company 1998 50
Edward H. Graham Senior Vice President, General
Counsel and Assistant Secretary 1990 62
John M. Dupuy Vice President, Strategic Planning 1996 41
Charles M. Peters Vice President, Administration 1997 44
Jon O. Nicholas Vice President, Human Resources 1993 58
David D. Urbani Vice President and Treasurer 1995 52
Steven H. Wood Vice President, Financial Reporting
and Audit 1996 40
The executive officers were elected to serve in the indicated office until the
organizational meeting of the Board of Directors following the annual meeting of
shareholders on May 14, 1998 or until their successors are elected.
Each of the executive officers has served the Company in various executive or
administrative positions for at least five years except for:
Name Company/Position Period
Lloyd D. Ward PepsiCo, Inc. - President, Central
Division, Frito-Lay, Inc. 1992-1996
John M. Dupuy A. T. Kearney - Principal Consultant 1993-1995
Booz, Allen & Hamilton - Principal
Consultant 1985-1993
David D. Urbani Air Products and Chemicals, Inc.
- Assistant Treasurer 1984-1994
Charles M. Peters Amana Refrigeration - President 1988-1993
Breakthrough Inc. - Chairman & Chief
Executive Officer 1994-1997
7<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Dividends
Sale Price of Common Shares Per Share
1997 1996 1997 1996
Quarter High Low High Low
First $23 3/4 $19 3/4 $21 7/8 $18 5/8 $.16 $.14
Second 27 3/4 20 1/8 22 7/8 18 3/4 .16 .14
Third 34 5/16 26 3/16 21 1/2 17 1/2 .16 .14
Fourth 37 1/2 30 7/16 21 1/4 18 7/8 .16 .14
The principal U.S. market in which the Company's common stock is traded is the
New York Stock Exchange. As of March 16, 1998, the Company had 29,274
shareowners of record.
Item 6. Selected Financial Data.
Dollars in thousands
except per share data 1997(1) 1996 (2) 1995 (3) 1994 (4) 1993(5)
Net sales $3,407,911 $3,001,656 $3,039,524 $3,372,515 $2,987,054
Gross profit 936,288 821,443 788,908 876,450 724,112
Percent to sales 27.5% 27.4% 26.0% 26.0% 24.2%
Operating profit $ 358,273 $ 269,079 $ 288,234 $ 322,768 158,878
Percent to sales 10.5% 9.0% 9.5% 9.6% 5.3%
Income (loss) from
continuing operations $ 183,490 $ 137,977 $ (14,996) $ 151,137 $ 51,270
Percent to sales 5.4% 4.6% (.5%) 4.5% 1.7%
Basic earnings per
share $ 1.90 $ 1.36 $ (0.14) $ 1.42 $ 0.48
Diluted earnings per
share 1.87 1.35 (0.14) 1.41 0.48
Dividends paid per
share 0.64 0.56 0.515 0.50 0.50
Basic weighted-average
shares outstanding 96,565 101,727 106,734 106,485 106,123
Diluted weighted-
average shares
outstanding 98,055 102,466 107,486 106,957 106,329
Working capital $ 368,079 $ 334,948 $ 543,431 $ 595,703 $ 406,181
Depreciation of
property, plant and
equipment 127,497 101,912 102,572 110,044 102,459
Capital expenditures 229,561 219,902 152,914 84,136 99,300
Total assets 2,514,154 2,329,940 2,125,066 2,504,327 2,469,498
Long-term debt 549,524 488,537 536,579 663,205 724,695
Total debt to
capitalization 52.1% 51.2% 45.9% 50.7% 60.6%
(1) Net sales include $31.3 million of sales from the Company's acquisition of
G.S. Blodgett Corporation, a commercial cooking equipment manufacturer in the
fourth quarter of 1997. Excludes the extraordinary loss on the early retirement
of debt.
(2) Net sales include $40.4 million of sales from the Company's acquisition of
a 50.5 percent ownership in a joint venture of home appliances in China in the
8<PAGE>
third quarter of 1996. Operating profit includes a $40 million charge for the
restructuring of the Company's major home appliance business. The after-tax
charge for this restructuring of $24.4 million is included in income (loss) from
continuing operations. Excludes the extraordinary loss on the early retirement
of debt.
(3) Net sales include $181.2 million made by the Company's European Operations
which was sold effective June 30, 1995. Income (loss) from continuing
operations includes a $135.4 million after-tax loss on the sale of the Company's
European Operations, a $9.9 million after-tax charge to settle a lawsuit
relating to the closing of the former Dixie-Narco plant in Ranson, West
Virginia, a $3.6 million after-tax loss on the sale of the Eastlake Operation
and a $10.8 million after-tax loss arising from a guarantee of indebtedness
relating to the sale of one its manufacturing plants in 1992. Excludes the
extraordinary loss on the early retirement of debt.
(4) Net sales include $399 million made by the Company's European Operations
which was sold effective June 30, 1995 and $142 million made by the Company's
Australian Operations which was sold effective December 31, 1994. Income (loss)
from continuing operations includes a $20 million one-time tax benefit
associated with European operating losses and reorganization costs and a $16.4
million after-tax loss from the sale of the Company's Australian Operations.
Excludes the cumulative effect of an accounting change.
(5) Net sales include $390.8 million made by the Company's European Operations
which was sold effective June 30, 1995 and $127.9 million made by the Company's
Australian Operations which was sold effective December 31, 1994. Operating
profit includes $60.4 million in charges ($50 million in a special charge) for
costs associated with two Hoover Europe "free flights" promotion programs. The
$30 million after-tax charge for the $50 million special charge is included in
income (loss) from continuing operations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Comparison of 1997 with 1996
The Company operates in two business segments, home appliances and commercial
appliances. Operations of the home appliances segment represented 92.7 percent
of consolidated net sales in 1997 and 94.6 percent of consolidated net sales in
1996. (See "Industry Segment and Geographic Information" section of the Notes
to Consolidated Financial Statements for financial information related to these
business segments.)
Net Sales: The Company's consolidated net sales for 1997 increased 13.5 percent
compared to 1996. Net sales in 1997 included a full year of sales of the
Company's joint venture in China ("Rongshida-Maytag") compared to four months of
sales included in 1996 when the Company entered into the joint venture. In
addition, net sales in 1997 included three months of sales of G. S. Blodgett
Corporation ("Blodgett"), a manufacturer of commercial cooking equipment, which
was acquired by the Company on October 1, 1997. (See discussion of these
investments in "Liquidity and Capital Resources" section of this Management's
Discussion and Analysis.) Excluding the impact of these acquisitions, the
Company's net sales increased 9.9 percent in 1997 compared to 1996.
Net sales of the North American home appliances segment, which includes
major appliances and floor care products, set new records with an 8.5 percent
increase from 1996. Net sales of major appliances were up from the previous
year primarily due to the introduction of a newly designed line of Maytag
9<PAGE>
Neptune laundry products, the redesigned line of Maytag top-mount refrigerators,
strong sales of Performa by Maytag laundry products and an increase in sales of
exports of major appliances partially offset by a decrease in private label
sales. Net sales of floor care products were up from 1996 primarily due to the
introduction of a newly designed line of Hoover upright vacuum cleaners and new
models of Hoover upright deep carpet cleaners.
In December 1997, the Company announced an agreement with Sears, Roebuck
and Co. to begin selling the full line of Maytag brand major appliances through
Sears stores throughout the U.S. The major appliances were available in all
Sears full line and authorized dealers stores beginning in February 1998. While
the benefits from this agreement did not have a significant impact on 1997
results, the Company expects 1998 results to be positively impacted by the
anticipated incremental sales and production volume.
Net sales of commercial appliances were up 53.7 percent from 1996.
Excluding the impact from the acquisition of Blodgett, net sales increased 34.4
percent from 1996. The increase in sales was driven by a significant increase
in domestic vender sales partially offset by a decrease in export vender sales
and glass front merchandiser sales. The increase in domestic vender sales is
due to the introduction of a new extended depth vender in addition to depressed
sales volume in 1996 resulting from product transition difficulties.
Gross Profit: The Company's consolidated gross profit as a percent of sales
increased to 27.5 percent of sales in 1997 from 27.4 percent of sales in 1996.
In 1997, gross margins increased in the North American home appliances
segment primarily due to favorable brand and product sales mix and manufacturing
cost savings resulting from the 1996 restructuring of the Company's major
appliance operations. (See discussion of the restructuring in "Restructuring
Charge" section of this Management's Discussion and Analysis.) These increases
in gross margins were partially offset by production start-up costs associated
with the Company's redesigned line of top-mount refrigerators and an increase in
distribution costs related to the transition to regional distribution centers.
During the second half of 1998, Rongshida-Maytag plans to begin production
of a newly designed line of refrigerators for home use. Production start-up
costs associated with the refrigerators may negatively impact the results of
Rongshida-Maytag in 1998.
Commercial appliances gross margins increased in 1997 compared to 1996 due
to the increase in production volume from the increase in net sales and the
additional manufacturing start-up costs associated with the new Dixie-Narco
extended depth vender incurred in 1996.
The Company expects raw material prices in 1998 to be approximately the
same as 1997 levels.
Selling, General and Administrative Expenses: Consolidated selling, general and
administrative expenses were 17 percent of sales in 1997 compared to 17.1
percent of sales in 1996. The decrease was driven by the operating leverage
obtained on fixed expenses with the increase in sales in 1997 partially offset
by additional advertising and sales promotion expenses to support new product
introductions and from an increase in the provision for doubtful accounts.
(See discussion of concentration of accounts receivable in "Liquidity and
Capital Resources" section of this Management's Discussion and Analysis.)
Restructuring Charge: During the first quarter of 1996, the Company recorded a
restructuring charge of $40 million, or $24.4 million after-tax, primarily
related to the costs associated with the consolidation of activities and
facilities related to the manufacture of cooking products and consolidation of
activities of two separate major appliance organizational units. (See
discussion of the restructuring in "Restructuring Charge" section of the Notes
to Consolidated Financial Statements.)
10<PAGE>
The Company incurred $10.5 million of additional restructuring costs during
1996, not included in the restructuring charge, which were charged to operations
as incurred.
Operating Income: The Company's consolidated operating income for 1997 was 10.5
percent of sales compared to 9 percent of sales in 1996. However, excluding the
$40 million restructuring charge, operating income in 1996 was 10.3 percent of
sales.
Excluding the $40 million restructuring charge recorded in 1996, operating
income for the North American home appliances segment was 11 percent higher in
1997 than 1996. Operating income for 1997 was 11.6 percent of sales compared to
11.3 percent of sales in 1996. The increase in operating margin is primarily
due to the increase in gross profit margins discussed previously.
Commercial appliances operating income increased to 7.8 percent of sales in
1997 compared to 6.6 percent of sales in 1996. Operating income increased from
the previous year primarily due to the increase in gross profit discussed
previously.
Interest Expense: Interest expense increased 37.2 percent from 1996 due to an
increase in short-term borrowings, interest expense related to Rongshida-Maytag,
lower capitalized interest and interest expense associated with the Company's
interest rate swap program. The interest rate swap interest expense is
partially offset by marked to market unrealized gains which are reflected in
Other-net in the Statements of Consolidated Income (Loss).
Income Taxes: The effective tax rate for 1997 was 36.5 percent compared to 39
percent in 1996. The decrease is primarily due to savings from the Company's
state and local tax initiatives and a lower tax rate for Rongshida-Maytag as a
result of its qualification for a tax holiday in China in 1997.
Extraordinary Item: In 1997, the Company made early retirements of debt
totaling $61.8 million at an after-tax cost of $3.2 million. In 1996 the
Company made early retirements of debt totaling $17.5 million at an after-tax
cost of $1.5 million.
Net Income: Net income for 1997 was $180.3 million, or $1.84 diluted earnings
per share, compared to net income of $136.4 million, or $1.33 diluted earnings
per share in 1996. Net income and diluted earnings per share were impacted by
special charges in both years. Special charges in 1997 included the $3.2
million after-tax charge for the early retirement of debt. Special charges in
1996 included the $24.4 million after-tax restructuring charge and the $1.5
million after-tax charge for the early retirement of debt.
Excluding these special charges in both years, income for 1997 would have
been $183.5 million, or $1.87 diluted earnings per share, compared to $162.4
million, or $1.58 diluted earnings per share for 1996. The increase in income
is primarily due to the increase in operating income partially offset by the
increase in interest expense. The increase in diluted earnings per share in
1997 compared to 1996, excluding special charges, was due to the increase in
income and the positive impact of $0.12 per share from the Company's share
repurchase program. (See discussion of the share repurchase program in
"Liquidity and Capital Resources" section of this Management's Discussion and
Analysis.)
11<PAGE>
Comparison of 1996 with 1995
Operations of the home appliances segment represented 94.6 percent of
consolidated net sales in 1996 and 93.6 percent of consolidated net sales in
1995.
Net Sales: The Company's consolidated net sales decreased 1.2 percent in 1996
compared to 1995. Net sales in 1996 included four months of sales of Rongshida-
Maytag. Net sales in 1995 included six months of sales of the Company's home
appliance operations in Europe ("European Operations") which were sold effective
June 30, 1995. Excluding the impact of Rongshida-Maytag and the European
Operations, the Company's net sales increased 3.6 percent in 1996 compared to
1995.
Net sales of the North American home appliances segment, which includes
major appliances and floor care products, increased 5.1 percent from 1995. Net
sales of floor care products increased over the prior year primarily due to
increased sales of new floor care products as well as increased sales of
existing products. Net sales by the Company of major appliances were
approximately the same as the previous year.
Commercial appliances sales were down 16.6 percent in 1996 from 1995. Net
sales decreased 9.4 percent compared to 1995 after excluding sales in 1995 made
by a vending equipment operation in Ohio ("Eastlake Operation") sold in December
1995. The decrease in sales was a result of the inability to produce sufficient
volume of Dixie-Narco brand flexible style venders. In addition to this decline
in domestic vender sales, export sales of glass front merchandisers were down
from the previous year primarily due to the loss of one customer.
Gross Profit: The Company's consolidated gross profit as a percent of sales in
1996 increased to 27.4 percent of sales from 26.0 percent of sales in 1995. The
increase in gross margin performance is due to the divestiture of the lower
margin European Operations in 1995 as well as the factors described below.
Gross margins increased in the North American home appliances segment
primarily as a result of lower raw material prices and more favorable brand and
product sales mix. These improvements were partially offset by an increase in
distribution costs related to a transition to regional distribution centers.
Commercial appliances gross margins decreased due to lower production volumes
and an increase in manufacturing costs associated with the production of the
newly designed flexible style venders discussed previously.
The lower raw material prices the Company experienced in 1996 compared to
1995 resulted in approximately $17 million of additional gross profit for the
year.
Selling, General and Administrative Expenses: Consolidated selling, general and
administrative expenses increased to 17.1 percent of sales in 1996 from 16.5
percent of sales in 1995. The increase is primarily due to an increase in
advertising and sales promotion spending related to new product introductions
and to respond to competitive market conditions.
Restructuring Charge: (See discussion of the restructuring in "Comparison of
1997 with 1996" section of this Management's Discussion and Analysis.)
Operating Income: The Company's consolidated operating income for 1996 was 9.0
percent of sales compared to 9.5 percent of sales in 1995. However, excluding
the $40 million restructuring charge, operating income in 1996 was 10.3 percent
of sales. This is consistent with operating income for 1995 of 10.3 percent of
sales excluding the European Operations.
Operating income for the North American home appliances segment in 1996,
excluding the $40 million restructuring charge, increased 4.6 percent from 1995.
12<PAGE>
Operating income as a percent of sales was 11.3 percent in 1996 which is
approximately the same as the 11.4 percent realized in 1995. Commercial
appliances operating income decreased 54.3 percent in 1996 compared to 1995.
The decrease in operating income is due to the decrease in gross profit
discussed previously.
Interest Expense: Interest expense decreased 17.4 percent from 1995 primarily
as a result of the debt reduction during 1995 and over $6 million of higher
capitalized interest related to capital spending in 1996 compared to 1995.
Income Taxes: The effective tax rate for 1996 was 39 percent compared to 40
percent in 1995, excluding amounts relating to the loss on the sale of the
European Operations. This decrease is primarily due to the realization of
capital gains and the related adjustments to the valuation allowances recorded
against deferred tax assets.
Extraordinary Item: In 1996, the Company made early retirements of totaling
$17.5 million at an after-tax cost of $1.5 million. In 1995 the Company made
early retirements of debt totaling $116.5 million at an after-tax cost of $5.5
million.
Net Income (Loss): Net income for 1996 was $136.4 million, or $1.33 diluted
earnings per share, compared to a net loss of $20.5 million, or $0.19 diluted
loss per share in 1995. The increase in net income is primarily due to the
amount of special items charged to income in 1995 compared to 1996. Special
items in 1995 totaled $165.2 million after-tax compared to $25.9 million after-
tax in 1996. Special items in 1995 included a $135.4 million after-tax loss on
the sale of the European Operations, a $3.6 million after-tax loss on the sale
of the Eastlake Operation, a $9.9 million after-tax charge related to a vending
equipment plant closing settlement, a $10.8 million after-tax charge arising
from a guarantee of indebtedness relating to the sale of one of the Company's
manufacturing facilities in 1992 and the $5.5 million extraordinary item from
the early retirement of debt. Special items in 1996 included the $24.4 million
after-tax restructuring charge and the $1.5 million extraordinary item from the
early retirement of debt.
Excluding special items in both years, income for 1996 would have been
$162.4 million, or $1.58 diluted earnings per share, compared to income for 1995
of $144.7 million, or $1.35 diluted earnings per share. This increase is
primarily due to an increase in operating income, lower interest expense and the
lower effective tax rate. In addition, earnings per share in 1996 was
positively impacted by $0.10 per share from the Company's share repurchase
program. (See discussion of the share repurchase program in "Liquidity and
Capital Resources" section of this Management's Discussion and Analysis.)
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash provided by operating
activities and borrowings. Detailed information on the Company's cash flows is
presented in the Statements of Consolidated Cash Flows.
Net Cash Provided by Operating Activities: Cash flow generated from operating
activities consists of net income (loss) adjusted for certain non-cash items,
changes in working capital, and changes in pension assets and liabilities and
postretirement benefits. Non-cash items include depreciation and amortization
and deferred income taxes. Working capital consists primarily of accounts
receivable, inventories, other current assets and other current liabilities.
Net cash provided by operating activities in 1997 increased from 1996 as a
result of an increase in net income and depreciation and amortization, lower
13<PAGE>
working capital requirements and a $40 million pension fund contribution made in
the first quarter of 1996.
A portion of the Company's accounts receivable is concentrated among major
national retailers, including Montgomery Ward. (See discussion of Montgomery
Ward and the allowance for doubtful accounts in "Contingencies and Disclosure of
Certain Risks and Uncertainties" section of the Notes to Consolidated Financial
Statements.) The Company believes the loss of business with any of these
national retailers and the impact on the Company's ongoing operations would be
mitigated by increased sales to other customers.
Total Investing Activities: The Company continually invests in its businesses
for new product designs, cost reduction programs, replacement of equipment,
capacity expansion and government mandated product requirements.
Capital expenditures in 1997 were $229.6 million compared to $219.9 million
in 1996. The higher capital spending is due to several major capital projects.
These projects include a newly designed line of washers for both home and
commercial use, a complete redesign of the Company's refrigerator product line,
a newly designed line of upright vacuum cleaners and a refrigeration products
facility at Rongshida-Maytag. Planned capital expenditures for 1998, including
those for Rongshida-Maytag, are approximately $190 million.
On October 1, 1997, the Company acquired all of the outstanding shares of
Blodgett, a manufacturer of commercial ovens, fryers and charbroilers for the
food service industry, for $96.4 million. In connection with the purchase, the
Company also incurred transaction costs of $4.2 million and retired debt of
approximately $53.2 million. As a result, the total cost of business acquired
was $148.3 million, net of cash acquired of $5.5 million. The Company funded
this acquisition through cash provided by operating activities and borrowings.
The results of the operations of the acquired business have been included in the
consolidated financial statements since the date of acquisition.
In 1996, the Company invested approximately $35 million and committed
additional cash investments of approximately $35 million for a 50.5 percent
ownership in Rongshida-Maytag, a manufacturer of major home appliances in China.
The Company's joint venture partner also committed additional cash investments
of approximately $35 million, of which $19 million was contributed in 1997 and
$8.6 million was contributed in 1996. The results of this majority-owned joint
venture in China have been included in the consolidated financial statements
since the date the Company entered into the joint venture.
Total Financing Activities: Dividend payments on the Company's common stock in
1997 amounted to $61.7 million, or $.64 per share, compared to $57.2 million, or
$.56 per share in 1996.
In the second quarter of 1997, the Company's board of directors authorized
the repurchase of up to 15 million additional shares beyond the previous share
repurchase authorizations of 5 million shares and 10.8 million shares. Under
these authorizations, the Company has repurchased approximately 15.8 million
shares at a cost of $357 million. The Company's planned share repurchases for
1998 are approximately 4 million shares.
Four million of the shares repurchased by the Company in 1997 are subject
to a future contingent purchase price adjustment to be settled based on the
difference in the market price of the Company's common stock at the time of
settlement compared to the market price of the Company's common stock as of
August 20, 1997. The forward stock purchase contract allows the Company to
determine the method of settlement. The Company's objective in this transaction
is to reduce the average price of repurchased shares. As of December 31, 1997,
the cost to settle the transaction would be approximately $53 million.
In connection with the share repurchase program, the Company sold put
options which gave the purchaser the right to sell shares of the Company's
common stock to the Company at specified prices upon exercise of the options.
14<PAGE>
The put option contracts allow the Company to determine the method of
settlement. The Company's objective in selling put options is to reduce the
average price of repurchased shares. In 1997, the Company received $9.9 million
in net proceeds from the sale of put options. As of December 31, 1997, there
were 2.8 million put options outstanding with strike prices ranging from $28.75
to $33.65 (the weighted-average strike price was $32.33).
In the third quarter of 1997, the Company and a wholly-owned subsidiary of
the Company contributed intellectual property and know-how with an appraised
value of $100 million and other assets with a market value of $54 million to
Anvil Technologies LLC ("LLC"), a newly formed Delaware limited liability
company. An outside investor purchased from the Company a non-controlling,
member interest in the LLC for $100 million. The Company's objective in this
transaction was to raise low-cost, equity funds. For financial reporting
purposes, the results of the LLC (other than those which are eliminated in
consolidation) are included in the Company's consolidated financial statements.
The outside investor's noncontrolling interest is reflected in Minority interest
in the Statements of Consolidated Financial Condition and the income
attributable to the noncontrolling interest is reflected in Minority interest in
the Statements of Consolidated Income (Loss).
As discussed previously, the Company made early retirements of debt
totaling $61.8 million. During 1997 the Company issued a $75 million medium-
term note maturing in 2009 which has an initial interest rate through February
1998 of 4.91 percent. The Company also issued $49.3 million of 5.13 percent
employee stock ownership plan notes.
Any funding requirements for future investing and financing activities in
excess of cash on hand and generated from operations will be supplemented by
borrowings. The Company's commercial paper program is supported by a credit
agreement with a consortium of banks which provides revolving credit facilities
totaling $400 million. This agreement expires June 29, 2001 and includes
covenants for interest coverage and leverage which the Company was in compliance
with at December 31, 1997. The Company also maintains the ability to issue an
aggregate of $125 million in medium-term note securities under an effective
shelf registration statement filed with the Securities and Exchange Commission.
Year 2000
The Company uses computer information systems in conducting business, some of
which do not properly address the year 2000. As a result of using two digits
rather than four to define the applicable year, some programs that work with
dates may incorrectly identify a date using "00" as the year 1900 rather than
the year 2000. The computer systems used by the Company include both internally
developed applications as well as software purchased from third parties. The
Company made an assessment of the computer systems in use to determine the
requirements to convert or replace such systems which do not properly address
the year 2000.
In the case of third party software, the Company incurs annual maintenance
costs which enable it to obtain new software releases from the software vendors
which address the year 2000. The Company is currently in the process of
implementing the year 2000 compliant releases of third party software. In the
case of internally developed software, the Company is replacing and converting
systems which do not properly address the year 2000. The Company believes this
effort will be completed in sufficient time to replace the existing systems.
All costs associated with this internal conversion effort are being expensed as
incurred and are not material to the performance of the Company.
In addition, the Company s operations could be impacted by its customers'
or suppliers' year 2000 efforts. The Company has undertaken an initiative to
assess the efforts of organizations where there is a significant business
relationship; however there is no assurance that the Company will not be
affected by year 2000 problems of other organizations.
15<PAGE>
Contingencies
The Company has contingent liabilities arising in the normal course of business
or from operations which have been discontinued or divested. (See discussion of
these contingent liabilities in "Contingencies and Disclosure of Certain Risks
and Uncertainties" section of the Notes to Consolidated Financial Statements.)
Forward-Looking Statements
This Management's Discussion and Analysis contains statements which are not
historical facts and are considered "forward-looking" within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve a number of risks and uncertainties that may cause actual
results to differ materially from expected results. These risks and
uncertainties include, but are not limited to, the following: business
conditions and growth of industries in which the Company competes, including
changes in economic conditions in the geographic areas where the Company's
operations exist or products are sold; timing and start-up of newly designed
products; shortages of manufacturing capacity; competitive factors, such as
price competition and new product introductions; the cost and availability of
raw materials and purchased components; progress on capital projects; the impact
of business acquisitions or dispositions; the costs of complying with
governmental regulations; level of share repurchases; litigation and other risk
factors. These forward-looking statements are identified by their use of terms
and phrases such as "expects," "plans," or "may impact."
Subsequent Event
In February 1998, the Company's Board of Directors approved a new Shareholder
Rights Plan effective May 2, 1998 which has the same principal features as the
Shareholder Rights Plan approved in 1988 except the purchase price of each one
one-hundredth of a share of preferred stock of the Company is $165. The new
Rights will be issued on May 2, 1998 and expire May 2, 2008. (See discussion of
the Shareholder Rights Plan approved in 1988 in "Shareowners' Equity" section of
the Notes to Consolidated Financial Statements.)
16<PAGE>
Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Auditors . . . . . . . . . . . . . . 18
Statements of Consolidated Income (Loss)--Years Ended
December 31, 1997, 1996, and 1995 . . . . . . . . . . . . 19
Statements of Consolidated Financial Condition--
December 31, 1997 and 1996 . . . . . . . . . . . . . . . 20
Statements of Consolidated Shareowners' Equity--Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . 22
Statements of Consolidated Cash Flows--Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . 23
Notes to Consolidated Financial Statements . . . . . . . . 24
Quarterly Results of Operations--Years 1997 and 1996 . . . 41
17<PAGE>
Report of Independent Auditors
Shareowners and Board of Directors
Maytag Corporation
We have audited the accompanying statements of consolidated financial condition
of Maytag Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income (loss), shareowners' equity and cash
flows for each of three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and related schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and related schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maytag
Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statement taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
February 3, 1998
18<PAGE>
Statements of Consolidated Income (Loss)
Year Ended December 31
In thousands except per share data 1997 1996 1995
Net sales $3,407,911 $3,001,656 $3,039,524
Cost of sales 2,471,623 2,180,213 2,250,616
Gross profit 936,288 821,443 788,908
Selling, general and administrative
expenses 578,015 512,364 500,674
Restructuring charge 40,000
Operating income 358,273 269,079 288,234
Interest expense (58,995) (43,006) (52,087)
Loss on business dispositions (146,785)
Settlement of lawsuit (16,500)
Loss on guarantee of indebtedness (18,000)
Other--net 1,277 2,164 4,942
Income before income taxes, minority
interest and extraordinary item 300,555 228,237 59,804
Income taxes 109,800 89,000 74,800
Income (loss) before minority interest
and extraordinary item 190,755 139,237 (14,996)
Minority interest (7,265) (1,260)
Income (loss) before extraordinary
item 183,490 137,977 (14,996)
Extraordinary item - loss on early
retirement of debt (3,200) (1,548) (5,480)
Net income (loss) $ 180,290 $ 136,429 $ (20,476)
Basic earnings (loss) per common share:
Income (loss) before extraordinary
item $ 1.90 $ 1.36 $ (0.14)
Extraordinary item - loss on early
retirement of debt $ (0.03) $ (0.02) $ (0.05)
Net income (loss) $ 1.87 $ 1.34 $ (0.19)
Diluted earnings (loss) per common share:
Income (loss) before extraordinary
item $ 1.87 $ 1.35 $ (0.14)
Extraordinary item - loss on early
retirement of debt $ (0.03) $ (0.02) $ (0.05)
Net income (loss) $ 1.84 $ 1.33 $ (0.19)
See notes to consolidated financial statements.
19<PAGE>
Statements of Consolidated Financial Condition
December 31
In thousands except share data 1997 1996
Assets
Current assets
Cash and cash equivalents $ 27,991 $ 27,543
Accounts receivable, less allowance for doubtful
accounts (1997--$36,386; 1996--$13,790) 473,741 462,882
Inventories 350,209 327,136
Deferred income taxes 46,073 30,266
Other current assets 36,703 57,132
Total current assets 934,717 904,959
Noncurrent assets
Deferred income taxes 118,931 131,159
Pension investments 2,160 1,441
Intangible pension asset 33,819 70,511
Other intangibles, less allowance for amortization
(1997--$85,071; 1996--$74,375) 433,595 322,436
Other noncurrent assets 49,660 47,549
Total noncurrent assets 638,165 573,096
Property, plant and equipment
Land 19,597 20,734
Buildings and improvements 309,960 296,786
Machinery and equipment 1,427,276 1,253,803
Construction in progress 59,376 84,323
1,816,209 1,655,646
Less allowance for depreciation 874,937 803,761
Total property, plant and equipment 941,272 851,885
Total assets $2,514,154 $2,329,940
20<PAGE>
December 31
In thousands except share data 1997 1996
Liabilities and Shareowners' Equity
Current liabilities
Notes payable $ 112,843 $ 55,489
Accounts payable 221,417 206,397
Compensation to employees 62,758 64,104
Accrued liabilities 161,344 180,726
Income taxes payable 4,209
Current maturities of long-term debt 8,276 59,086
Total current liabilities 566,638 570,011
Noncurrent liabilities
Deferred income taxes 23,666 27,012
Long-term debt 549,524 488,537
Postretirement benefits other than pensions 454,390 447,415
Pension liability 31,308 50,377
Other noncurrent liabilities 99,096 102,621
Total noncurrent liabilities 1,157,984 1,115,962
Minority interest 173,723 69,977
Shareowners' equity
Preferred stock:
Authorized--24,000,000 shares (par value $1.00)
Issued--none
Common stock:
Authorized--200,000,000 shares (par value $1.25)
Issued--117,150,593 shares, including shares in
treasury 146,438 146,438
Additional paid-in capital 494,646 471,158
Retained earnings 542,118 423,552
Cost of common stock in treasury (1997--22,465,256
shares; 1996--19,106,012 shares) (508,115) (405,035)
Employee stock plans (48,416) (55,204)
Minimum pension liability adjustment (107)
Unrealized loss on securities (3,605)
Foreign currency translation (7,257) (6,812)
Total shareowners' equity 615,809 573,990
Total liabilities and shareowners' equity $2,514,154 $2,329,940
See notes to consolidated financial statements.
21<PAGE>
Statements of Consolidated Shareowners' Equity
December 31
In thousands 1997 1996 1995
Common stock
Balance at beginning of period $ 146,438 $ 146,438 $ 146,438
Balance at end of period 146,438 146,438 146,438
Additional paid-in capital
Balance at beginning of period 471,158 472,602 477,153
Stock issued under stock option plans (7,375) (2,324) (2,301)
Stock issued under restricted stock
awards, net (86) (176) (867)
Conversion of subordinated debentures (1,941)
Additional ESOP shares issued (139) (264) (629)
Tax benefit of ESOP dividends and stock
options 6,640 1,320 1,187
Forward stock purchase contract premium 14,592
Put option premiums 9,856
Balance at end of period 494,646 471,158 472,602
Retained earnings
Balance at beginning of period 423,552 344,346 420,174
Net income (loss) 180,290 136,429 (20,476)
Dividends on common stock (61,724) (57,223) (55,352)
Balance at end of period 542,118 423,552 344,346
Treasury stock
Balance at beginning of period (405,035) (255,663) (218,745)
Purchase of common stock for treasury (138,051) (164,439) (54,775)
Stock issued under stock option plans 29,309 8,435 7,295
Stock issued under restricted stock
awards, net 3,212 3,951 2,305
Conversion of subordinated debentures 6,071
Additional ESOP shares issued 2,450 2,681 2,186
Balance at end of period (508,115) (405,035) (255,663)
Employee stock plans
Balance at beginning of period (55,204) (57,319) (60,816)
Stock issued under restricted stock
awards, net 7 310 1,776
ESOP shares allocated 6,781 1,805 1,721
Balance at end of period (48,416) (55,204) (57,319)
Minimum pension liability adjustment
Balance at beginning of period (107) (5,656)
Adjustment for the period 107 5,549 (5,656)
Balance at end of period (107) (5,656)
Unrealized loss on securities
Balance at beginning of period
Adjustment for the period (3,605)
Balance at end of period (3,605)
Foreign currency translation
Balance at beginning of period (6,812) (7,397) (32,492)
Translation adjustments related to
business disposition 19,887
Translation adjustment (445) 585 5,208
Balance at end of period (7,257) (6,812) (7,397)
Total shareowners' equity $ 615,809 $ 573,990 $ 637,351
See notes to consolidated financial statements.
22<PAGE>
Statements of Consolidated Cash Flows
Year Ended December 31
In thousands 1997 1996 1995
Operating activities
Net income (loss) $ 180,290 $ 136,429 $ (20,476)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Extraordinary item - loss on early
retirement of debt 3,200 1,548 5,480
Minority interest 7,265 1,260
Loss on business dispositions 146,785
Depreciation and amortization 138,163 111,279 111,861
Deferred income taxes (7,956) (15,341) (42,036)
Changes in working capital items
exclusive of business acquisitions and
dispositions:
Accounts receivable 4,631 (14,234) 60,156
Inventories (5,393) (41,158) 13,248
Other current assets 2,281 15,124 5,548
Other current liabilities 4,047 37,899 11,703
Restructuring charges, net of
cash expenditures (4,869) 26,735 (903)
Pension assets and liabilities 18,124 (12,129) 17,735
Postretirement benefits 5,952 18,937 15,702
Other--net 11,930 (1,456) 6,820
Net cash provided by operating
activities 357,665 264,893 331,623
Investing activities
Capital expenditures (229,561) (219,902) (152,914)
Investment in securities (10,015)
Business acquisitions, net of cash
acquired (148,283) (29,625)
Proceeds from business dispositions, net
of cash sold 148,497
Total investing activities (387,859) (249,527) (4,417)
Financing activities
Proceeds from issuance of notes payable 60,493 34,094 18,921
Repayment of notes payable (3,142) (48,729)
Proceeds from issuance of long-term debt 133,015 26,536
Repayment of long-term debt (124,123) (20,500) (163,609)
Debt repurchase premiums (3,200) (1,548) (5,480)
Stock repurchases (138,051) (164,439) (54,775)
Stock options exercised and other common
stock transactions 52,308 6,795 9,722
Dividends (65,243) (57,223) (55,352)
Proceeds from sale of LLC member interest
100,000
Investment by joint venture partner 18,975 8,625
Proceeds from interest rate swaps 38,038
Total financing activities 31,032 (129,622) (299,302)
Effect of exchange rates on cash (390) 585 2,907
Increase (decrease) in cash and
cash equivalents 448 (113,671) 30,811
Cash and cash equivalents at beginning of
year 27,543 141,214 110,403
Cash and cash equivalents at end of year $ 27,991 $ 27,543 $ 141,214
See notes to consolidated financial statements.
23<PAGE>
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Organization:
Home Appliances - The Company designs, manufactures, distributes, markets and
services a broad line of home appliances, including washers, dryers,
dishwashers, refrigerators, cooking appliances and floor care products,
primarily under the Maytag, Hoover, Jenn-Air and Magic Chef brand names. The
Company markets its appliances primarily in the United States and targeted
international markets. The Company's appliances are sold primarily to major
national retailers, independent retail dealers and distributors.
Commercial Appliances - The Company designs, manufactures, distributes,
markets and services commercial appliances, including vending equipment and
commercial cooking equipment, primarily under the Dixie-Narco, Blodgett and
Pitco Frialator brand names. The Company markets its appliances primarily in
the United States and targeted international markets. The Company's appliances
are sold primarily to soft drink bottlers, distributors and food service
providers.
Principles of Consolidation: The consolidated financial statements include the
accounts and transactions of the Company and its wholly-owned and majority-owned
subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.
Exchange rate fluctuations from translating the financial statements of
subsidiaries located outside the United States into U.S. dollars and exchange
gains and losses from designated intercompany foreign currency transactions are
recorded in a separate component of shareowners' equity. All other foreign
exchange gains and losses are included in income.
Reclassifications: Certain previously reported amounts have been reclassified
to conform with the current period presentation.
Use of Estimates: The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash Equivalents: Highly liquid investments with a maturity of 90 days or less
when purchased are considered by the Company to be cash equivalents.
Concentration of Credit Risk: Financial instruments which subject the Company
to concentrations of credit risk consist primarily of accounts receivable from
customers. The majority of the Company s sales are derived from the home
appliances business segment which sells predominantly to retailers. These
retail customers range from major national retailers to smaller regional or
local retailers. In some instances, the Company retains a security interest in
the product sold to customers. While the Company has experienced losses in
collection of accounts receivables due to business failures in the retail
environment, the assessed credit risk for existing accounts receivable is
provided for in the allowance for doubtful accounts.
Inventories: Inventories are stated at the lower of cost or market. Inventory
costs are determined by the last-in, first-out (LIFO) method for approximately
86 percent and 91 percent of the Company's inventories at December 31, 1997 and
1996, respectively. Costs for other inventories have been determined
principally by the first-in, first-out (FIFO) method.
24<PAGE>
Income Taxes: Income taxes are accounted for using the asset and liability
approach. Such approach results in the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the book carrying amounts and the tax basis of assets and liabilities.
Intangibles: Intangibles principally represent goodwill, which is the cost of
business acquisitions in excess of the fair value of identifiable net tangible
assets acquired. Goodwill is amortized over 40 years using the straight-line
method and the carrying value is reviewed for impairment annually. If this
review indicates that goodwill will not be recoverable based on the undiscounted
cash flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill will be reduced.
Property, Plant and Equipment: Property, plant and equipment is stated on the
basis of cost. Depreciation expense is calculated principally on the straight-
line method to amortize the cost of the assets over their estimated economic
useful lives. The estimated useful lives are 15 to 45 years for buildings and
improvements and 5 to 20 years for machinery and equipment.
Short and Long-Term Debt: The carrying amounts of the Company's borrowings
under its short-term revolving credit agreements approximate their fair value.
The fair values of the Company's long-term debt are estimated based on quoted
market prices of comparable instruments.
Environmental Expenditures: The Company accrues for losses associated with
environmental remediation obligations when such losses are probable and
reasonably estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than completion of the
remedial feasibility study. Such accruals are adjusted as further information
develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present value.
Revenue Recognition and Product Warranty Costs: Revenue from sales of products
is generally recognized upon shipment to customers. Estimated product warranty
costs are recorded at the time of sale and periodically adjusted to reflect
actual experience.
Advertising and Sales Promotion: All costs associated with advertising and
promoting products are expensed in the period incurred.
Financial Instruments: The Company enters into forward foreign exchange
contracts to hedge exposures related to foreign currency transactions. Gains
and losses on hedges of firm identifiable commitments are recognized in the same
period in which the underlying transaction is recorded. Gains and losses on
other contracts are marked to market each period, and the gains and losses are
included in income.
The Company has interest rate swap contracts outstanding which it marks to
market each period with the gains and losses included in income.
Stock-Based Compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee stock options and
awards. Under APB 25, no compensation expense is recognized when the exercise
price of options equals the fair value (market price) of the underlying stock on
the date of grant.
Earnings (Loss) Per Common Share: In 1997, the Company adopted FASB Statement
No. 128, "Earnings Per Share," requiring dual presentation of basic and diluted
25<PAGE>
earnings (loss) per share ("EPS") on the face of the income statement. Basic
EPS is computed by dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Diluted EPS reflects the potential
dilution from the exercise or conversion of securities into common stock, such
as stock options. All EPS amounts for all periods have been presented, and
where necessary, restated to conform to Statement 128 requirements.
Business Acquisition
On October 1, 1997, the Company acquired all of the outstanding shares of G. S.
Blodgett Corporation, a manufacturer of commercial ovens, fryers and
charbroilers for the food service industry, for $96.4 million. In connection
with the purchase, the Company also incurred transaction costs of $4.2 million
and retired debt of approximately $53.2 million. As a result, the total cost of
business acquired was $148.3 million, net of cash acquired of $5.5 million. The
Company funded this acquisition through cash provided by operating activities
and borrowings. This business, which has annual sales of approximately $135
million, produces and markets commercial cooking equipment primarily under the
Blodgett and Pitco Frialator brands. This acquisition has been accounted for as
a purchase, and the results of the operations of the acquired business have been
included in the consolidated financial statements since the date of acquisition.
The excess of purchase price over the fair values of net assets acquired was
approximately $120 million and has been recorded as Other intangibles (goodwill)
in the Statements of Consolidated Financial Condition, and is being amortized on
a straight-line basis over 40 years.
Assuming this acquisition had occurred January 1, 1996, consolidated net
sales would have been $3.5 billion for 1997 and $3.1 billion for 1996.
Consolidated pro forma income and earnings per share would not have been
materially different from the reported amounts for 1997 and 1996. Such
unaudited pro forma amounts are not indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1996.
Business Dispositions
In the second quarter of 1995, the Company sold its home appliance operations in
Europe ("European Operations") for $164.3 million in cash. The proceeds from
disposition were $148.5 million, net of cash sold of $15.8 million. The pretax
loss from the sale was $140.8 million and resulted in an after-tax loss of
$135.4 million. In the fourth quarter of 1995, the Company sold the business
and assets of a vending equipment operation in Eastlake, Ohio ("Eastlake
Operations"). The pretax loss from the sale was $6 million and resulted in an
after-tax loss of $3.6 million. See Industry Segment and Geographic Information
for financial information related to these businesses.
Restructuring Charge
During the first quarter of 1996, the Company announced the restructuring of its
major appliance operations in an effort to strengthen its position in the
industry and to deliver improved performance to both customers and shareowners.
This included the consolidation of two separate organizational units into a
single operation responsible for all activities associated with the manufacture
and distribution of the Company's brands of major appliances and the closing of
a cooking products plant in Indianapolis, Indiana, with transfer of that
production to an existing plant in Cleveland, Tennessee.
As a result of these actions, the Company recorded a restructuring charge of
$40 million, or $24.4 million after-tax, in the first quarter of 1996. This
charge is primarily related to the costs associated with the consolidation of
cooking products manufacturing activities and consolidation of activities of the
two separate organizational units.
Of the $40 million restructuring charge, cash expenditures of $20 million,
primarily related to severance, and non-cash charges of $20 million, primarily
26<PAGE>
related to write-offs of property, plant and equipment, will be incurred.
During 1997, the Company incurred $18 million of costs, of which $5 million were
cash expenditures, which were charged to the restructuring reserve. During
1996, the Company incurred $18 million of costs, of which $13 million were cash
expenditures, which were charged to the restructuring reserve.
Other Expenses
In the third quarter of 1995, the Company recorded a $16.5 million charge to
settle a lawsuit relating to the 1991 closing of a former vending equipment
plant in Ranson, West Virginia. In the fourth quarter of 1995, the Company
recorded an $18 million charge arising from a guarantee of indebtedness relating
to the sale of one of its manufacturing facilities in 1992. The obligation was
settled and paid in 1996.
Inventories
December 31
In thousands 1997 1996
Raw materials $ 61,740 $ 53,319
Work in process 53,069 45,406
Finished goods 229,450 222,954
Supplies 5,950 5,457
$ 350,209 $ 327,136
If the FIFO method of inventory accounting, which approximates current cost,
had been used for all inventories, they would have been $81.4 million and $79.5
million higher than reported at December 31, 1997 and 1996, respectively.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31
In thousands 1997 1996
Deferred tax assets (liabilities):
Book/tax basis differences $ (54,301) $ (84,448)
Postretirement benefit obligation 177,823 174,044
Product warranty/liability accruals 23,715 21,221
Pensions and other employee benefits 13,567 6,199
Capital loss carryforward 1,610 22,226
Restructuring reserve 914 8,653
Interest rate swaps 13,838 15,813
Other 4,963 3,200
182,129 166,908
Less valuation allowance for deferred tax assets 40,791 32,495
Net deferred tax assets $ 141,338 $ 134,413
Recognized in Statements of Consolidated Financial
Condition:
Deferred tax assets--current $ 46,073 $ 30,266
Deferred tax assets--noncurrent 118,931 131,159
Deferred tax liabilities--noncurrent (23,666) (27,012)
Net deferred tax assets $ 141,338 $ 134,413
27<PAGE>
Income (loss) before income taxes, minority interest and extraordinary item
consists of the following:
Year Ended December 31
In thousands 1997 1996 1995
United States $ 287,498 $ 216,248 $ 65,041
Non-United States 13,057 11,989 (5,237)
$ 300,555 $ 228,237 $ 59,804
Significant components of the provision (benefit) for income taxes are as
follows:
Year Ended December 31
In thousands 1997 1996 1995
Current provision:
Federal $ 86,300 $ 99,500 $ 81,200
State 11,200 19,200 16,400
Non-United States 2,200 4,100 1,100
99,700 122,800 98,700
Deferred provision (benefit):
Federal 8,400 (29,000) (19,900)
State 1,700 (5,500) (5,200)
Non-United States 700 1,200
10,100 (33,800) (23,900)
Provision for income taxes $ 109,800 $ 89,000 $ 74,800
Significant items impacting the effective income tax rate are as follows:
Year Ended December 31
In thousands 1997 1996 1995
Income before minority interest and
extraordinary item computed at the
statutory United States income tax rate $ 105,200 $ 79,900 $ 20,900
Increase (reduction) resulting from:
Utilization of capital loss
carryforward (28,900) (14,000)
Deferred tax asset valuation allowance 28,900 9,800
Goodwill amortization 3,400 3,200 3,200
Difference due to minority interest (2,500)
Effect of business disposition 46,000
State income taxes, net of federal tax
benefit 8,400 8,900 7,300
Tax credits arising outside the United
States (1,000) (1,200)
Other-net (4,700) 2,200 (1,400)
Provision for income taxes $ 109,800 $ 89,000 $ 74,800
Since the Company plans to continue to finance expansion and operating
requirements of subsidiaries outside the United States through reinvestment of
the undistributed earnings of these subsidiaries (approximately $16 million at
December 31, 1997), taxes which would result from distribution have only been
provided on the portion of such earnings estimated to be distributed in the
future. If such earnings were distributed beyond the amount for which taxes
have been provided, additional taxes payable would be substantially eliminated
by available tax credits arising from taxes paid outside the United States.
Income taxes paid, net of refunds received, during 1997, 1996 and 1995 were
$107 million, $102 million, and $123 million, respectively.
Notes Payable
Notes payable at December 31, 1997 consisted of notes payable to banks of $38.9
million and commercial paper borrowings of $73.9 million. The weighted average
28<PAGE>
interest rate on all notes payable and commercial paper borrowings was 7.4
percent at December 31, 1997. Notes payable at December 31, 1996 consisted of
notes payable to banks of $30.5 million and commercial paper borrowings of $25
million. The weighted average interest rate on all notes payable and commercial
paper borrowings was 8.5 percent at December 31, 1996.
The Company's commercial paper program is supported by a credit agreement
with a consortium of banks which provides revolving credit facilities totaling
$400 million. This agreement expires June 29, 2001 and includes covenants for
interest coverage and leverage which the Company was in compliance with at
December 31, 1997.
Long-Term Debt
Long-term debt consisted of the following:
December 31
In thousands 1997 1996
Notes payable with interest payable semiannually:
Due May 15, 2002 at 9.75% $ 147,425 $ 159,925
Due July 15, 1999 at 8.875% 148,550 148,550
Due July 1, 1997 at 8.875% 53,741
Medium-term notes, maturing from 2001 to 2010, from
7.22% to 9.03% with interest payable semiannually 126,500 126,500
Medium-term note, maturing in 2009, with interest
payable quarterly beginning at 4.91% and adjusted each
quarter thereafter 75,000
Employee stock ownership plan notes payable
semiannually through July 2, 2004 at 5.13% 45,890 52,671
Other 14,435 6,236
557,800 547,623
Less current maturities of long-term debt 8,276 59,086
Long-term debt $ 549,524 $ 488,537
The 9.75 percent notes due in 2002, the 8.875 percent notes due in 1999 and
the medium-term notes grant the holders the right to require the Company to
repurchase all or any portion of their notes at 100 percent of the principal
amount thereof, together with accrued interest, following the occurrence of both
a change of Company control and a credit rating decline.
The fair value of the Company's long-term debt, based on public quotes if
available, exceeded the amount recorded in the Statements of Consolidated
Financial Condition at December 31, 1997 and 1996 by $36.7 million and $46.9
million, respectively.
Interest paid during 1997, 1996 and 1995 was $65.1 million, $51.1 million and
$60.3 million, respectively. The Company capitalizes interest incurred on funds
used to construct property, plant and equipment. Interest capitalized during
1997, 1996 and 1995 was $4.2 million, $8.9 million and $2.5 million,
respectively.
The aggregate maturities of long-term debt in each of the next five years and
thereafter are as follows (in thousands): 1998-$8,276; 1999-$159,304; 2000-
$9,419; 2001-$24,985; 2002-$155,560; thereafter-$200,256.
In 1997, the Company issued a $75 million medium-term note maturing in 2009
which has an initial interest rate through February 1998 of 4.91 percent. The
interest rate on the note is then subsequently based on LIBOR through November
1999. In 1999, the interest rate for the remaining 10 years of the note will be
established at the Company's then borrowing rate for 10 year notes based on the
greater of the then current year treasury rate or 5.91 percent. In 1997, the
Company also issued $49.3 million of 5.13 percent employee stock ownership plan
notes.
In 1997, the Company made early retirements of debt of $61.8 million at an
after-tax cost of $3.2 million (net of income tax benefit of $2.0 million).
29<PAGE>
Included in this amount was $12.5 million of the 9.75 percent notes due May 15,
2002 and $49.3 million of 9.35 percent employee stock ownership plan notes.
In 1996, the Company made early retirements of debt of $17.5 million of the
9.75 percent notes due May 15, 2002 at an after-tax cost of $1.5 million (net of
income tax benefit of $1.0 million). In 1996, the Company also issued $25
million of 7.22 percent medium-term notes maturing in 2006.
In 1995, the Company made early retirements of debt of $116.5 million at an
after-tax cost of $5.5 million (net of income tax benefit of $3.6 million).
Included in this amount was $22.6 million of the 9.75 percent notes due May 15,
2002, $26.4 million of the 8.875 percent notes due July 15, 1999, $46.3 million
of the 8.875 percent notes due July 1, 1997 and $21.2 million of medium-term
notes ranging in maturities from November 15, 2001 to February 23, 2010.
The 1997, 1996 and 1995 charges for the early retirement of debt have been
reflected in the Statements of Consolidated Income (Loss) as extraordinary
items.
Accrued Liabilities
Accrued liabilities consisted of the following:
December 31
In thousands 1997 1996
Warranties $ 37,732 $ 33,881
Advertising and sales promotion 42,227 43,154
Other 81,385 103,691
$ 161,344 $ 180,726
Pension Benefits
The Company provides noncontributory defined benefit pension plans for most
employees. Plans covering salaried and management employees generally provide
pension benefits that are based on an average of the employee's earnings and
credited service. Plans covering hourly employees generally provide benefits of
stated amounts for each year of service. The Company's funding policy for the
plans is to contribute amounts sufficient to meet the minimum funding
requirement of the Employee Retirement Income Security Act of 1974, plus any
additional amounts which the Company may determine to be appropriate. In 1997,
1996 and 1995, the Company made contributions to the plans of $4.8 million,
$42.3 million and $1.6 million, respectively.
A summary of the components of net periodic pension cost for the plans is as
follows:
Year Ended December 31
In thousands 1996 1995 1994
Service cost--benefits earned during the
period $ 19,628 $ 19,637 $ 20,358
Interest cost on projected benefit
obligation 66,550 63,828 80,163
Actual return on plan assets (133,072) (96,929) (170,847)
Net amortization and deferral 68,546 38,431 88,782
Net periodic pension cost $ 21,652 $ 24,967 $ 18,456
Assumptions used in determining net periodic pension cost for the plans in
the United States were:
1997 1996 1995
Discount rates 7.5% 7.5% 8.5%
Rates of increase in compensation levels 5.0% 5.0% 6.0%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
For the valuation of pension obligations at the end of 1997 set forth in the
table below, and for determining pension expense in 1998, the discount rate
decreased to 7.25 percent while the rate of compensation increase remained at
30<PAGE>
5.0 percent. Assumptions for plans outside the United States are comparable to
the above in all periods.
As of December 31, 1997, approximately 96 percent of the plan assets are
invested in listed stocks and bonds. The balance is invested in real estate and
short-term investments.
The plan in the United States provides that in the event of a change of
Company control and plan termination any excess funding may be used only to
provide pension benefits or to fund retirees' health care benefits. The use of
all pension assets for anything other than providing employee benefits is either
limited by legal restrictions or subject to severe taxation.
The following table sets forth the funded status and amounts recognized in
the Statements of Consolidated Financial Condition for the Company's defined
benefit pension plans:
December 31, 1997 December 31, 1996
Plans in Plans in Plans in Plans in
Which Which Which Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
In thousands Benefits Exceed Assets Benefits Exceed Assets
Actuarial present value
of benefit obligation:
Vested benefit
obligation $ (22,521) $ (809,785) $ (8,695) $ (758,171)
Accumulated benefit
obligation $ (23,484) $ (891,378) $ (8,697) $ (837,891)
Projected benefit
obligation $ (29,405) $ (954,300) $ (9,206) $ (895,825)
Plan assets at fair value 32,119 860,207 10,769 787,806
Projected benefit
obligation less than (in
excess of) plan assets 2,714 (94,093) 1,563 (108,019)
Unrecognized net (gain)
loss (870) 39,227 (453) 71,728
Unrecognized prior
service cost 594 73,445 613 77,708
Unrecognized net
transition asset (278) (16,068) (282) (21,176)
Net pension asset $ 2,160 $ 2,511 $ 1,441 $ 20,241
Recognized in the
Statements of
Consolidated Financial
Condition
Pension investment
(liability) $ 2,160 $ (31,308) $ 1,441 $ (50,377)
Intangible pension asset 33,819 70,511
Minimum pension liability
adjustment--reduction of
shareowners' equity 107
Net pension asset $ 2,160 $ 2,511 $ 1,441 $ 20,241
FASB Statement No. 87 "Employers' Accounting For Pensions" requires the
Company to recognize a minimum pension liability equal to the amount by which
the actuarial present value of the accumulated benefit obligation exceeds the
fair value of plans' assets. In 1997 and 1996, the Company recorded $33.8
million and $70.6 million, respectively, to recognize the minimum pension
liability. A corresponding amount is required to be recognized as an intangible
asset to the extent of the unrecognized prior service cost and unrecognized net
transition obligation on an individual plan basis. Any excess of the minimum
31<PAGE>
pension liability above the intangible asset is recorded as a separate component
and reduction of shareowners' equity. The Company recorded an intangible asset
of $33.8 million in 1997 and recorded an intangible asset of $70.5 million and a
reduction of shareowners' equity of $0.1 million in 1996 in the Statements of
Consolidated Financial Condition.
Postretirement Benefits Other Than Pensions
The Company provides postretirement health care and life insurance benefits for
certain employee groups in the United States. Most of the postretirement plans
are contributory and contain certain other cost sharing features such as
deductibles and coinsurance. The plans are unfunded. Employees do not vest and
these benefits are subject to change. Death benefits for certain retired
employees are funded as part of, and paid out of, pension plans.
A summary of the components of net periodic postretirement benefit cost is as
follows:
Year Ended December 31
In thousands 1997 1996 1995
Service cost $ 12,491 $ 15,453 $ 12,876
Interest cost 26,588 28,498 27,911
Net amortization and deferral (11,718) (8,130) (8,147)
Net periodic postretirement benefit cost $ 27,361 $ 35,821 $ 32,640
Assumptions used in determining net periodic postretirement benefit cost
were:
1997 1996 1995
Health care cost trend rates(1):
Current year 7.0% 8.5% 9.0%
Decreasing gradually to the year 2001 and
remaining thereafter 5.0% 6.0% 6.0%
Discount rates 7.5% 7.5% 8.5%
(1) Weighted-average annual assumed rate of increase in the per capita cost of
covered benefits.
For the valuation of the accumulated benefit obligation at December 31, 1997
and for determining postretirement benefit costs in 1998, the discount rate was
decreased to 7.25 percent and the health care cost trend rates were assumed to
be 6.5 percent for 1998 decreasing gradually to 5.0 percent in the year 2001 and
remaining thereafter.
The health care cost trend rate assumption has a significant impact on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1997 by $39.9 million and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1997 by $5.2 million.
The following table presents the status of the plans reconciled with amounts
recognized in the Statements of Consolidated Financial Condition for the
Company's postretirement benefits:
December 31
In thousands 1997 1996
Accumulated postretirement benefit obligation:
Retirees $ 258,214 $ 243,900
Fully eligible active plan participants 40,304 41,063
Other active plan participants 83,172 92,526
381,690 377,489
Unrecognized prior service cost 18,839 28,778
Unrecognized net gain 53,861 41,148
Postretirement benefit liability $ 454,390 $ 447,415
32<PAGE>
Leases
The Company leases buildings, machinery, equipment and automobiles under
operating leases. Rental expense for operating leases amounted to $23.3
million, $22.1 million and $20.6 million for 1997, 1996 and 1995.
Minimum lease payments under leases expiring subsequent to December 31, 1997
are:
Year Ending Thousands
1998 $ 14,623
1999 11,315
2000 7,715
2001 5,567
2002 3,613
Thereafter 4,677
Total minimum lease payments $ 47,510
Financial Instruments
The Company enters into forward exchange contracts and options to hedge foreign
exchange exposures from certain monetary assets and liabilities as well as firm
commitments and anticipated transactions resulting from the export and import of
products and supplies. Counterparties to these agreements are major
international financial institutions. The purpose of the Company's foreign
currency hedging activities is to protect the Company from the risk that the
eventual cash flows resulting from these transactions could be adversely
affected by changes in exchange rates.
During 1997 and 1996, the Company used forward exchange and option contracts
for the exchange of Canadian dollars to U.S. dollars to hedge the sale of
appliances manufactured in the U.S. and sold to Canadian customers. All other
sales of products manufactured in the U.S. to customers outside the U.S. are
effectively denominated in U.S. dollars. Gains and losses recognized from these
contracts in both 1997 and 1996 were not significant.
In 1996, the Company initiated a trading program of interest rate swaps
which it marks to market each period. The swap transactions involve the
exchange of Canadian variable interest and fixed interest rate instruments. The
counterparty is a single financial institution of the highest credit quality.
All swaps are executed under an International Swap and Derivatives Association,
Inc. (ISDA) master netting agreement. In 1996, the Company realized $38 million
of gains which were offset by unrealized losses of $40.6 million. The net
losses of $2.6 million are reflected in Other-net in the Statement of
Consolidated Income (Loss). In 1997, the Company incurred $7.6 million of
interest expense in payment on the exchange position of these swap transactions.
Additionally the Company recognized unrealized gains of $5.4 million which are
reflected in Other-net in the Statement of Consolidated Income (Loss).
As of December 31, 1997, the Company had five swap transactions outstanding
with a total notional amount of $85.7 million which mature by 2003. The fair
value of the swap positions of $35.3 million at December 31, 1997 is reflected
in Other noncurrent liabilities in the Statements of Consolidated Financial
Condition. The value of these individual swaps is dependent upon movements in
the Canadian and U.S. interest rates. As the portfolio of interest rate swaps
outstanding at December 31, 1997 is configured, there would be no measurable
impact on the net market value of the swap transactions outstanding with any
future changes in interest rates.
The estimated fair value of the Company's derivative financial instruments
are as follows:
33<PAGE>
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
In thousands Amount Value Amount Value
Interest rate swaps $ 35,280 $ 35,280 $ 40,651 $ 40,651
Forward foreign exchange
contracts and options
Forward stock purchase
contract 53,042
Put option contracts 1,090
Medium-term note with
interest rate reset option
75,000 75,000
For additional disclosures regarding the Company's forward stock
purchase contract and put option contracts, see Shareowners' Equity section in
the Notes to Consolidated Financial Statements. For additional disclosures
regarding the Company's medium-term note with interest rate reset option, see
Long-Term Debt section in the Notes to Consolidated Financial Statements.
Minority Interest
In 1996, the Company invested approximately $35 million and committed additional
cash investments of approximately $35 million for a 50.5 percent ownership in
Rongshida-Maytag, a manufacturer of home appliances in China. The Company's
joint venture partner also committed additional cash investments of
approximately $35 million, of which $19 million was contributed in 1997 and $8.6
million was contributed in 1996. The Company accounted for this investment as a
purchase which resulted in an increase in Other intangibles (goodwill) of $32.6
million. The results of this majority-owned joint venture in China are included
in the consolidated financial statements. The income attributable to the
noncontrolling interest in 1997 and 1996 was $4 million and $1.3 million,
respectively. See Industry Segment and Geographic Information for financial
information related to this joint venture.
In the third quarter of 1997, the Company and a wholly-owned subsidiary of
the Company contributed intellectual property and know-how with an appraised
value of $100 million and other assets with a market value of $54 million to
Anvil Technologies LLC ("LLC"), a newly formed Delaware limited liability
company. An outside investor purchased from the Company a non-controlling,
member interest in the LLC for $100 million. The Company's objective in this
transaction was to raise low-cost, equity funds. For financial reporting
purposes, the results of the LLC (other than those which are eliminated in
consolidation) are included in the Company's consolidated financial statements.
The outside investors' noncontrolling interest of $100 million is reflected in
Minority interest in the Statements of Consolidated Financial Condition and the
income attributable to the noncontrolling interest of $3.3 million is reflected
in Minority interest in the Statements of Consolidated Income (Loss).
Stock Plans
In 1996, the shareowners approved the 1996 Employee Stock Incentive Plan which
replaced all other previous employee stock incentive plans. The plan provides
that stock options and restricted stock awards for not more than 6.5 million
shares of the common stock of the Company can be granted to key employees. The
option price under the plan is the fair market value at the date of grant. The
vesting period and term of options granted are established by the Compensation
Committee of the Board of Directors. In no instance is the term of the option
more than 10 years. Not more than 2.5 million shares of the common stock of the
Company can be granted as restricted stock awards. Restricted stock awards may
contain such vesting and other requirements as the Compensation Committee may
establish. The plan permits the Compensation Committee to grant other incentive
34<PAGE>
awards on terms and conditions established by the Committee.
Stock options and restricted stock awards are outstanding for grants issued
under previous plans with similar terms to the 1996 plan.
The Maytag Corporation 1989 Non-Employee Directors Stock Option Plan
authorizes the issuance of up to 250,000 shares of Common stock to the Company's
non-employee directors. Stock options under this plan are immediately
exercisable upon grant.
The following is a summary of stock option activity:
Average Option
Price Shares
Outstanding December 31, 1994 $ 15.53 2,711,753
Granted 17.62 1,745,420
Exercised 14.88 (352,320)
Exchanged for SAR 14.21 (8,905)
Canceled or expired 16.50 (130,650)
Outstanding December 31, 1995 16.47 3,965,298
Granted 19.34 1,933,330
Exercised 15.09 (394,371)
Exchanged for SAR 14.73 (4,610)
Canceled or expired 19.68 (103,276)
Outstanding December 31, 1996 17.54 5,396,371
Granted 30.87 1,284,460
Exercised 16.44 (1,424,657)
Exchanged for SAR 16.46 (3,305)
Canceled or expired 18.04 (30,230)
Outstanding December 31, 1997 $ 21.12 5,222,639
Some stock options were granted with stock appreciation rights (SAR) which
entitle the employee to surrender the right to receive up to one-half of the
shares covered by the option and to receive a cash payment equal to the
difference between the stock option price and the market value of the shares
being surrendered. Stock options with an SAR outstanding were 122,850 at
December 31, 1997, 234,680 at December 31, 1996 and 334,673 at December 31,
1995.
Stock options for 2,185,229 shares, 3,494,501 shares and 2,236,868 shares
were exercisable at December 31, 1997, 1996 and 1995, respectively. The
weighted-average exercise price of those stock options were $16.87, $16.58 and
$15.58 at December 31, 1997, 1996 and 1995, respectively. In the event of a
change of Company control, all then outstanding stock options become immediately
exercisable.
Exercise prices for stock options outstanding as of December 31, 1997 ranged
from $10.9375 to $31.5625. The weighted-average exercise price for remaining
contractual life of those stock options is 8.1 years. There were 3,384,284 and
4,751,430 shares available for future stock grants at December 31, 1997 and
1996, respectively.
Restricted stock awards outstanding at December 31, 1997, 1996 and 1995 were
409,634, 462,253 and 740,045. The amount charged to expense for the anticipated
payout was $7.6 million, $4.8 million and $9.4 million in 1997, 1996 and 1995,
respectively.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
stock options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997 and 1996,
respectively: risk-free interest rates of 5.85 percent and 6.03 percent;
dividend yields of 1.75 percent and 2.8 percent; volatility factors of the
expected market price of the Company's common stock of 0.25 and 0.24; and a
weighted-average expected life of the option of five years for both years.
35<PAGE>
The weighted-average fair value of stock options was $8.67 for options
granted in 1997 and $4.61 for options granted in 1996.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
In thousands except per share data 1997 1996
Net income - as reported $180,290 $136,429
Net income - pro forma 178,159 132,558
Basic earnings per share - as reported 1.87 1.34
Diluted earnings per share - as reported 1.84 1.33
Basic earnings per share - pro forma 1.84 1.30
Diluted earnings per share - pro forma 1.82 1.29
The pro forma effect on net income for 1997 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995 and an increasing vesting period for grants made in 1996 and later.
Employee Stock Ownership Plan
The Company has established a trust to administer a leveraged employee stock
ownership plan (ESOP) within an existing employee savings plan. The Company has
guaranteed the debt of the trust and will service the repayment of the debt,
including interest, through the Company's employee savings plan contributions
and from the quarterly dividends paid on stock held by the ESOP.
The Company makes annual contributions to the ESOP to the extent the
dividends earned on the shares held are less than the debt service requirements.
Dividends paid by the Company on stock held by the ESOP to service the debt
totaled $1.9 million, $1.5 million and $1.4 million in 1997, 1996 and 1995. The
Company also made contributions to the plan for loan payments of $7.9 million,
$6.5 million and $6.3 million in 1997, 1996 and 1995.
As the debt is repaid, shares are released and allocated to active employees
based on the proportion of debt service paid in the year. Accordingly, the loan
outstanding is recorded as debt and the cost of shares yet to be released is
reported as a reduction of Shareowners' Equity (employee stock plans) in the
Statements of Consolidated Financial Condition. As the shares are released, the
Company reports compensation expense based on the historical cost of the shares.
The Company also expenses any additional contributions required if the shares
released are less than the shares earned by the employees. All shares held by
the ESOP are considered outstanding for earnings per share computations and
dividends earned on the shares are recorded as a reduction of retained earnings.
Compensation expense which is based on the shares released and the additional
contribution of shares as required was $8.6 million, $8.8 million and $8.3
million in 1997, 1996 and 1995. In addition, interest on the ESOP debt,
recognized as interest expense by the Company, was $4.6 million, $5.0 million
and $5.2 million in 1997, 1996 and 1995.
The ESOP shares as of December 31 were as follows:
1997 1996
Original shares held in trust:
Released and allocated 1,460,105 1,229,910
Unreleased shares (fair value; 1997 - $50,904,572;
1996 - $32,748,064) 1,397,038 1,627,233
2,857,143 2,857,143
Additional shares contributed and allocated 666,158 646,560
Shares withdrawn (428,227) (338,193)
Total shares held in trust 3,095,074 3,165,510
36<PAGE>
Shareowners' Equity
The following is a summary of share activity of the Company's common stock:
December 31
In thousands 1997 1996 1995
Common stock
Balance at beginning of period 117,151 117,151 117,151
Balance at end of period 117,151 117,151 117,151
Treasury stock
Balance at beginning of period (19,106) (11,745) (9,814)
Purchase of common stock for treasury (5,000) (8,056) (2,744)
Stock issued under stock option plans 1,374 390 339
Stock issued under restricted stock
awards, net 151 182 104
Conversion of subordinated debentures 272
Additional ESOP shares issued 116 123 98
Balance at end of period (22,465) (19,106) (11,745)
In the second quarter of 1997, the Company's Board of Directors authorized
the repurchase of up to 15 million additional shares beyond the previous share
repurchase authorizations of 5 million shares and 10.8 million shares. Under
these authorizations the Company has repurchased approximately 15.8 million
shares at a cost of $357 million.
Four million of the shares repurchased by the Company in 1997 are subject
to a future contingent purchase price adjustment to be settled based on the
difference in the market price of the Company's common stock at the time of
settlement compared to the market price of the Company's common stock as of
August 20, 1997. The forward stock purchase contract allows the Company to
determine the method of settlement. The Company's objective in this transaction
is to reduce the average price of repurchased shares. As of December 31, 1997,
the cost to settle the transaction would be approximately $53 million.
In connection with the share repurchase program, the Company sold put
options which gave the purchaser the right to sell shares of the Company's
common stock to the Company at specified prices upon exercise of the options.
The put option contracts allow the Company to determine the method of
settlement. The Company's objective in selling put options is to reduce the
average price of repurchased shares. In 1997, the Company received $9.9 million
in net proceeds from the sale of put options. As of December 31, 1997, there
were 2.8 million put options outstanding with strike prices ranging from $28.75
to $33.65 (the weighted average strike price was $32.33).
Pursuant to a Shareholder Rights Plan approved by the Company in 1988, each
share of common stock carries with it one Right. Until exercisable, the Rights
will not be transferable apart from the Company's common stock. When
exercisable, each Right will entitle its holder to purchase one one-hundredth of
a share of preferred stock of the Company at a price of $75. The Rights will
only become exercisable if a person or group acquires 20 percent (which may be
reduced to not less than 10 percent at the discretion of the Board of Directors)
or more of the Company's common stock. In the event the Company is acquired in
a merger or 50 percent or more of its consolidated assets or earnings power are
sold, each Right entitles the holder to purchase common stock of either the
surviving or acquired company at one-half its market price. The Rights may be
redeemed in whole by the Company at a purchase price of $.01 per Right. The
preferred shares will be entitled to 100 times the aggregate per share dividend
payable on the Company's common stock and to 100 votes on all matters submitted
to a vote of shareowners. The Rights expire May 2, 1998.
37<PAGE>
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
December 31
In thousands except per share data 1997 1996 1995
Numerator:
Income (loss) before extraordinary item $ 183,490 $ 137,977 $ (14,996)
Extraordinary item - loss on early
retirement of debt (3,200) (1,548) (5,480)
Numerator for basic and diluted earnings
(loss) per share--net income (loss)
$ 180,290 $ 136,429 $ (20,476)
Denominator:
Denominator for basic earnings (loss)
per share--weighted-average shares 96,565 101,727 106,734
Effect of dilutive securities:
Stock option plans 940 434 204
Restricted stock awards 190 305 548
Forward stock purchase contract 360
Dilutive potential common shares 98,055 102,466 107,486
Basic earnings (loss) per share $1.87 $1.34 ($0.19)
Diluted earnings (loss) per share $1.84 $1.33 ($0.19)
For additional disclosures regarding stock option plans and restricted stock
awards, see Stock Plans section in the Notes to Consolidated Financial
Statements. For additional disclosures regarding the Company's forward stock
purchase contract, see Shareowners' Equity section in the Notes to Consolidated
Financial Statements.
Supplementary Expense Information
The following table summarizes the Company's advertising costs and research
and development expenses:
Year Ended December 31
In thousands 1997 1996 1995
Advertising costs $ 143,334 $ 138,141 $ 133,030
Research and development expenses 50,201 48,927 47,490
Environmental Remediation
The operations of the Company are subject to various federal, state and local
laws and regulations intended to protect the environment including regulations
related to air and water quality and waste handling and disposal. The Company
has also received notices from the U.S. Environmental Protection Agency, state
agencies and/or private parties seeking contribution, that it has been
identified as a "potentially responsible party"(PRP), under the Comprehensive
Environmental Response, Compensation and Liability Act, and may be required to
share in the cost of cleanup with respect to such sites. The Company s ultimate
liability in connection with those sites may depend on many factors, including
the volume of material contributed to the site, the number of other PRPs and
their financial viability and the remediation methods and technology to be used.
The Company also has responsibility, subject to specific contractual terms, for
environmental claims for assets or businesses which have previously been sold.
While it is possible the Company s estimated obligation of approximately $6
million for future environmental costs may change in the near term, the
resolution of these matters is not expected to have a significant adverse effect
on the Company s consolidated financial position. The accrual for environmental
liabilities is reflected in Other noncurrent liabilities in the Statements of
Consolidated Financial Condition.
38<PAGE>
Contingencies and Disclosure of Certain Risks and Uncertainties
On July 7, 1997, a major customer of the Company, Montgomery Ward Holding Co.
("Montgomery Ward"), filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. At the time of the filing, after adjustments which should be
available in bankruptcy, the Company had accounts receivable due from Montgomery
Ward of approximately $39 million. While the Company is currently unable to
project the ultimate recovery on the accounts receivable, the Company has
reserves of approximately $18 million for the estimated potential loss on the
accounts receivable.
At December 31, 1997, the Company has outstanding commitments for capital
expenditures of $26 million and unused letters of credit of $39 million.
Other contingent liabilities arising in the normal course of business,
including guarantees, repurchase agreements, pending litigation, environmental
remediation, taxes and other claims are not considered to be significant in
relation to the Company's consolidated financial position.
Industry Segment and Geographic Information
Principal financial data by industry segment is as follows:
In thousands 1997 1996 1995
Net sales
Home appliances $3,158,495 $2,839,355 $2,844,811
Commercial appliances 249,416 162,301 194,713
Total $3,407,911 $3,001,656 $3,039,524
Income before income taxes, minority
interest and extraordinary item
Home appliances $ 363,270 $ 280,747 $ 295,806
Commercial appliances 19,437 10,731 23,466
General corporate (24,434) (22,399) (31,038)
Operating income 358,273 269,079 288,234
Interest expense (58,995) (43,006) (52,087)
Other--net 1,277 2,164 (176,343)
Total $ 300,555 $ 228,237 $ 59,804
Capital expenditures
Home appliances $ 208,006 $ 216,377 $ 145,112
Commercial appliances 7,412 2,714 4,110
General corporate 14,143 811 3,692
Total $ 229,561 $ 219,902 $ 152,914
Depreciation and amortization
Home appliances $ 131,535 $ 106,180 $ 105,271
Commercial appliances 5,666 3,820 4,307
General corporate 962 1,279 2,283
Total $ 138,163 $ 111,279 $ 111,861
Identifiable assets
Home appliances $1,979,618 $1,922,478 $1,593,538
Commercial appliances 250,440 91,886 94,299
General corporate 284,096 315,576 437,229
Total $2,514,154 $2,329,940 $2,125,066
39<PAGE>
Information about the Company's operations in different geographic
locations is as follows:
In thousands 1997 1996 1995
Net sales
North America $3,285,009 $2,961,208 $2,858,347
Asia 122,902 40,448
Europe 181,177
Total $3,407,911 $3,001,656 $3,039,524
Income before income taxes, minority
interest and extraordinary item
North America $ 371,102 $ 287,676 $ 326,451
Asia 11,605 3,802
Europe (7,179)
General corporate (24,434) (22,399) (31,038)
Operating income 358,273 269,079 288,234
Interest expense (58,995) (43,006) (52,087)
Other--net 1,277 2,164 (176,343)
Total $ 300,555 $ 228,237 $ 59,804
Identifiable assets
North America $2,008,840 $1,825,002 $1,687,837
Asia 221,218 189,362
General corporate 284,096 315,576 437,229
Total $2,514,154 $2,329,940 $2,125,066
Sales between affiliates of different geographic regions are not
significant. Exchange gains or losses included in operations were not
significant.
On October 1, 1997, the Company acquired G.S. Blodgett Corporation, a
commercial cooking equipment manufacturer. In September 1996, the Company
acquired a 50.5 percent ownership in a joint venture with a manufacturer of home
appliances in China. In June 1995, the Company sold its European Operations.
The general Corporate asset category includes items such as cash, deferred
tax assets, intangible pension assets and other assets.
40<PAGE>
Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations:
December September June March
In thousands except per share data 31 30 30 31
1997
Net sales $ 945,097 $ 855,804 $ 814,541 $ 792,469
Gross profit 262,827 239,534 224,445 209,482
Income before extraordinary item 51,930 49,277 43,783 38,500
Basic earnings per share 0.55 0.51 0.45 0.39
Diluted earnings per share 0.54 0.50 0.44 0.39
Net income 48,730 49,277 43,783 38,500
Basic earnings per share 0.52 0.51 0.45 0.39
Diluted earnings per share 0.50 0.50 0.44 0.39
1996
Net sales $ 772,941 $ 742,850 $ 754,619 $ 731,246
Gross profit 206,713 205,088 207,215 202,427
Income before extraordinary item 35,338 42,178 44,343 16,118
Basic earnings per share 0.36 0.42 0.43 0.15
Diluted earnings per share 0.36 0.42 0.43 0.15
Net income 35,338 40,630 44,343 16,118
Basic earnings per share 0.36 0.40 0.43 0.15
Diluted earnings per share 0.36 0.40 0.43 0.15
In the fourth quarter of 1997, the Company acquired G.S. Blodgett
Corporation, a commercial cooking equipment manufacturer. The results of this
operation are consolidated in the Company's financial statements beginning in
October 1997. Net sales from the acquisition of $31.3 million are included in
the quarter ended December 31, 1997.
The quarter ended March 31, 1996 includes a $24.4 million after-tax charge
for the restructuring of its major home appliance business.
In the third quarter of 1996, the Company acquired a 50.5 percent ownership
in a joint venture with a manufacturer of home appliances in China. The results
of this operation are consolidated in the Company's financial statements
beginning in September 1996. Net sales from the joint venture of $10.0 and
$30.4 million are included in the quarters ended September 30, 1996 and
December 31, 1996, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
41<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning directors and officers on pages 1 through 7 of the Proxy
Statement of the Company is incorporated herein by reference. Additional
information concerning executive officers of the Company is included under
"Executive Officers of the Registrant" included in Part I, Item 4.
Item 11. Executive Compensation.
Information concerning executive compensation on pages 9 through 22 of the Proxy
Statement, is incorporated herein by reference; provided that the information
contained in the Proxy Statement under the heading "Compensation Committee
Report on Executive Compensation" is specifically not incorporated herein by
reference. Information concerning director compensation on page 8 of the Proxy
Statement is incorporated herein by reference, provided that the information
contained in the Proxy Statement under the headings "Shareholder Return
Performance" and "Other Matters" is specifically not incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The security ownership of certain beneficial owners and management is
incorporated herein by reference from pages 5 through 7 of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions is
incorporated herein by reference from pages 1 through 4 of the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report in the "List of Financial
Statements and Financial Statement Schedules" on page 44.
(3) The response to this portion of Item 14 is submitted as a
separate section of this report in the "List of Exhibits" on
pages 45 through 48.
(b) The Company filed a Form 8-K dated December 11, 1997 indicating that it had
reached an agreement with Sears, Roebuck and Co. to begin selling the full
line of Maytag brand major appliances through Sears stores throughout the
U.S.
(c) Exhibits--The response to this portion of Item 14 is submitted as a separate
section of this report in the "List of Exhibits" on pages 45 through 48.
(d) Financial Statement Schedules--The response to this portion of Item 14 is
submitted as a separate section of this report in the "List of Financial
Statements and Financial Statement Schedules" on page 44.
42<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.
MAYTAG CORPORATION
(Registrant)
s/s Leonard A. Hadley
__________________________________
Leonard A. Hadley
Chairman and Chief Executive Officer
Director
Pursuant to the requirement 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.
s/s G.J. Pribanic s/s Steven H. Wood
__________________________________ __________________________________
Gerald J. Pribanic Steven H. Wood
Executive Vice President and Vice President Financial Reporting
Chief Financial Officer and Audit and Chief Accounting Officer
s/s Barbara Allen s/s Howard L. Clark Jr.
__________________________________ __________________________________
Barbara R. Allen Howard L. Clark, Jr.
Director Director
s/s Lester Crown s/s Wayland R. Hicks
__________________________________ __________________________________
Lester Crown Wayland R. Hicks
Director Director
s/s Robert D. Ray s/s Bernard G. Rethore
Robert D. Ray Bernard G. Rethore
Director Director
s/s John A. Sivright s/s Neele E. Sterns
__________________________________ __________________________________
John A. Sivright Neele E. Stearns, Jr.
Director Director
s/s Fred G. Steingraber s/s Carole J. Uhrich
__________________________________ __________________________________
Fred G. Steingraber Carole J. Uhrich
Director Director
Date: March 25, 1998
43<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(1), (2) and (3), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
LIST OF EXHIBITS
FINANCIAL STATEMENT SCHEDULES
Year Ended December 31, 1997
MAYTAG CORPORATION
NEWTON, IOWA
FORM 10-K--ITEM 14(a)(1), (2) AND ITEM 14(d)
MAYTAG CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and supplementary data of Maytag
Corporation and subsidiaries are included in Part II, Item 8:
Page
Statements of Consolidated Income (Loss)--Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 19
Statements of Consolidated Financial Condition--
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . 20
Statements of Consolidated Shareowners' Equity--Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 22
Statements of Consolidated Cash Flows--Years Ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . 23
Notes to Consolidated Financial Statements . . . . . . . . . 24
Quarterly Results of Operations--Years 1997 and 1996 . . . . 41
The following consolidated financial statement schedule of Maytag Corporation
and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts . . . . . . . 49
All other schedules for which provision is 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.
44<PAGE>
FORM 10-K--ITEM 14(a) (3) AND ITEM 14(c)
MAYTAG CORPORATION
LIST OF EXHIBITS
The following exhibits are filed herewith or incorporated by reference. Items
indicated by (1) are considered a compensatory plan or arrangement required to
be filed pursuant to Item 14 of Form 10-K.
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
3(a) Restated Certificate of Incorporation of 1993 Annual
Registrant. Report on Form
10-K
3(b) Certificate of Designations of Series A 1988 Annual
Junior Participating Preferred Stock of Report on Form
Registrant. 10-K.
3(c) Certificate of Increase of Authorized 1988 Annual
Number of Shares of Series A Junior Report on Form
Participating Preferred Stock of 10-K.
Registrant.
3(d) Certificate of Amendment to Certificate of X
Designations of Series A Junior
Participating Preferred Stock of
Registrant.
3(e) By-Laws of Registrant, as amended through 1993 Annual
February 7, 1991. Report on Form
10-K
4(a) Rights Agreement dated as of May 2, 1988 Current Report
between Registrant and The First National on Form 8-K
Bank of Boston. dated May 5,
1988, Exhibit
1.
4(b) Amendment, dated as of September 24, 1990 Current Report
to the Rights Agreement, dated as of May on Form 8-K
2, 1988 between the Registrant and The dated October
First National Bank of Boston. 3, 1990,
Exhibit 1.
4(c) Indenture dated as of June 15, 1987 Quarterly
between Registrant and The First National Report on Form
Bank of Chicago. 10-Q for the
quarter ended
June 30, 1987.
4(d) Rights Agreement dated as of February 12, Form 8-A dated
1998 between Registrant and Harris Trust February 12,
and Savings Bank. 1998, Exhibit
1.
45<PAGE>
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
4(e) Letter to Shareholders dated February 12, Current Report
1998 relating to the adoption of a on Form 8-K
shareholders rights plan with attachments.dated February
12, 1998,
Exhibit 1.
4(f) First Supplemental Indenture dated as of Current Report
September 1, 1989 between Registrant and on Form 8-K
The First National Bank of Chicago. dated September
28, 1989,
Exhibit 4.3.
4(g) Second Supplemental Indenture dated as of Current Report
November 15, 1990 between Registrant and on Form 8-K
The First National Bank of Chicago. dated November
29, 1990.
4(h) Third Supplemental Indenture dated as of Current Report
August 20, 1997 between Registrant and on Form 8-K
The First National Bank of Chicago. dated August
20, 1996.
4(i) U.S. $400,000,000 Credit Agreement Dated 1995 Annual
as of July 28, 1996 among Registrant, the Report on Form
banks Party Hereto and Bank of Montreal, 10-K
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(j) Second Amendment to Credit Agreement Dated1996 Annual
as of July 1, 1996 among Registrant, the Report on Form
banks Party Hereto and Bank of Montreal, 10-K
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(k) Third Amendment to Credit Agreement Dated X
as of June 10, 1997 among Registrant, the
banks Party Hereto and Bank of Montreal,
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(l) Copies of instruments defining the rights
of holders of long-term debt not required
to be filed herewith or incorporated
herein by reference will be furnished to
the Commission upon request.
10(a) Annual Management Incentive Plan, as 1990 Annual
amended through December 21, 1990 (1). Report on Form
10-K
10(b) Executive Severance Agreements (1). X
46<PAGE>
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
10(c) Corporate Severance Agreements (1). 1989 Annual
Report on Form
10-K.
10(d) Revised definition of Change of Control 1995 Annual
adopted by the Board of Directors amendingReport on Form
the definition included in the Executive 10-K
Severance Agreement listed in Exhibits
10(b) and 10(c).
10(e) Severance Agreement with Joseph Fogliano, 1995 Annual
former Executive Vice President and Report on Form
President North American Appliance Group 10-K
(1).
10(f) 1989 Non-Employee Directors Stock Option Exhibit A to
Plan (1). Registrant's
Proxy Statement
dated March 18,
1990.
10(g) 1986 Stock Option Plan for Executives and Exhibit A to
Key Employees (1). Registrant's
Proxy Statement
dated March 14,
1986.
10(h) 1992 Stock Option Plan for Executives and Exhibit A to
Key Employees (1). Registrant's
Proxy Statement
dated March 16,
1992.
10(i) 1991 Stock Incentive Award Plan for Key Exhibit A to
Executives (1). Registrant's
Proxy Statement
dated March 15,
1991.
10(j) Directors Deferred Compensation Plan (1). Amendment No. 1
on Form 8 dated
April 5, 1990
to 1989 Annual
Report on Form
10-K.
10(k) 1996 Employee Stock Incentive Plan (1). Exhibit A to
Registrant's
Proxy Statement
dated March 20,
1996.
47<PAGE>
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
10(l) 1988 Capital Accumulation Plan for Key Amendment No. 1
Employees (1). (Superseded by Deferred on Form 8 dated
Compensation Plan, as amended and April 5, 1990
restated effective January 1, 1997) to 1989 Annual
Report on Form
10-K.
10(m) Maytag Deferred Compensation Plan, as 1995 Annual
amended and restated effective January 1, Report on Form
1996. 10-K
10(n) Directors Retirement Plan (1). Amendment No. 1
on Form 8 dated
April 5, 1990
to 1989 Annual
Report on Form
10-K.
12 Ratio of Earnings to Fixed Charges. X
21 List of Subsidiaries of the Registrant. X
23 Consent of Ernst & Young LLP. X
27 (a) Financial Data Schedule - Twelve Months X
Ended December 31, 1997.
27 (b) Financial Data Schedule - Restated Twelve X
Months Ended December 31, 1996 and 1995.
48<PAGE>
<TABLE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Maytag Corporation
Thousands of Dollars
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
DESCRIPTION Balance at Deductions-- Balance at End
Beginning Charged to Charged to Describe of Period
of Period Costs and Other
Expenses Accounts--
Describe
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful $13,790 $31,134 $ 8,825 <F1> $36,386
accounts receivable 1 <F2>
(288)<F3>
$13,790 $31,134 $ 8,538 $36,386
Year ended December 31, 1996:
Allowance for doubtful $12,540 $14,152 $14,169 <F1> $13,790
accounts receivable 2 <F2>
(1,269)<F4>
$12,540 $14,152 $12,902 $13,790
Year ended December 31, 1995:
Allowance for doubtful $20,037 $16,630 $19,387 <F1> $12,540
accounts receivable (183)<F2>
4,923 <F5>
$20,037 $16,630 $24,127 $12,540
<FN>
<F1> - Uncollectible accounts written off
<F2> - Effect of foreign currency translation
<F3> - Resulting from acquisition of G.S. Blodgett Corporation in October 1997.
<F4> - Resulting from acquistion of the Company's China joint venture in September 1996.
<F5> - Rseulting from divestiture of the Company's European Operations in June 1995.
</TABLE>
49<PAGE>
MAYTAG CORPORATION
Exhibit 3(d)
Certificate of Amendment to Certificate of Designations of Series A Junior
Participating Preferred Stock of Registrant.<PAGE>
State of Delaware
Office of the Secretary of State
_____________________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "MAYTAG CORPORATION", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF MARCH,
A.D. 1998, AT 11:30 O'CLOCK A.M.
________________________________________
Edward J. Freel, Secretary of State
0188426 8100 AUTHENTICATION: 8970170
981097223 DATE: 03-13-98
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
MAYTAG CORPORATION
_________________________
Pursuant to Section 242 of the General
Corporation law of the State of Delaware
_________________________
We, the undersigned, Leonard Hadley and E. James Bennett, the Chairman
and Chief Executive Officer and Secretary, respectively, of Maytag Corporation,
a Delaware Corporation (the "Corporation"), DO HEREBY CERTIFY:
FIRST: that pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Restated Certificate of Incorporation of the
Corporation, the Board of Directors adopted a resolution creating a series of
one million (1,000,000) shares of Preferred Stock, par value $1.00 per share, of
the Corporation designated as Series A Junior Participating Preferred Stock,
which resolution was set forth in a Certificate of Designations of Series A
Junior Participating Preferred Stock (the "Certificate") filed with the
Secretary of State of the State of Delaware;
SECOND: that pursuant to Section 242 of the General Corporation Law of
the State of Delaware, that the following resolutions to amend the Certificate
were duly adopted by the Board of Directors of the Corporation at a meeting duly
called and held on February 12, 1998:
"RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors for the Corporation in accordance with the provisions of its
Restated Certificate of Incorporation, the Board of Directors hereby resolves to
increase the number of shares constituting the series of Preferred Stock of the
Corporation designated as Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Junior Preferred Stock"), as set forth in the
Certificate of Amendment to Certificate of Designations comprising Exhibit A
hereto and incorporated herein by reference;
RESOLVED FURTHER, that the Board of Directors of the Corporation hereby
amends Section 1 of the Certificate of Designations of the Junior Preferred
Stock to read in its entirety as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock"
(the "Series A Preferred Stock") and the number of shares constituting
the Series A Preferred Stock shall be 4,000,000. Such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of
shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants
or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock."
IN WITNESS WHEREOF, this Certificate has been signed by the Chairman and
Chief Executive Officer and attested to by the Secretary of Maytag Corporation
<PAGE>
this 12th day of February, 1998.
By: ______________________________
Name: Leonard Hadley
Title: Chairman and Chief
Executive Officer
By:_______________________________
Name: E. James Bennett
Title: Secretary<PAGE>
MAYTAG CORPORATION
Exhibit 4(k)
Third Amendment to Credit Agreement dated as of July 10, 1997 among
Registrant, the banks Party Hereto and Bank of Montreal, Chicago Branch as
Agent and Royal Bank of Canada as Co-Agent.
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement ("the Amendment") dated as of
June 10, 1997 by and among Maytag Corporation ("the Borrower"), the Banks listed
below, and Bank of Montreal as Agent;
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Co-Agent and the Agent have heretofore
executed and delivered a Credit Agreement dated as of July 28, 1995 (as amended
through the Second Amendment thereto dated as of July 1, 1996, the "Credit
Agreement"); and
WHEREAS, the Borrower, the Banks and the Agent desire to amend the Credit
Agreement to revise the definition of Consolidated Net Worth and to make certain
other changes as set forth herein;
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, the Borrower, the Banks and the Agent hereby agree as
follows:
1. The definitions of "Consolidated Net Worth" and "Wholly-Owned"
contained in Section 5 of the Credit Agreement are hereby amended in their
entirety to read as follows:
"Consolidated Net Worth" means the aggregate amount of the
Borrower s and its Subsidiaries shareholders equity and minority
interests as determined from the consolidated balance sheet of the
Borrower and its Subsidiaries prepared in accordance with GAAP;
provided, however, that Consolidated Net Worth shall not be increased
or reduced on account of foreign currency translations.
"Wholly-Owned" when used in connection with any Subsidiary of the
Borrower means a Subsidiary of which all of the issued and outstanding
shares of stock (other than directors qualifying shares as required by
law) or other equity interests are owned by the Borrower and/or one or
more of its Wholly-Owned Subsidiaries.
2. Section 6.2 of the Credit Agreement is hereby amended in its entirety
to read as follows:
Section 6.2. "Subsidiaries." As of the date hereof, the only
Subsidiaries of the Borrower are designated in Exhibit B hereto; each
Subsidiary is duly organized and validly existing in good standing
under the laws of the jurisdiction in which it was incorporated or
organized, as the case may be, has full and adequate power to carry on
its business as now conducted, and is duly licensed or qualified and in
good standing in each jurisdiction in which the nature of the business
transacted by it or the nature of the Property owned or leased by it
makes such licensing or qualification necessary, except where the
<PAGE>
failure to be so licensed or qualified and in good standing would not
have a material adverse effect on the financial condition or Property,
business or operations of the Borrower and the Consolidated
Subsidiaries taken as a whole. Exhibit B hereto, as from time to time
updated pursuant to Section 8.5(e), correctly sets forth, as to each
Subsidiary required to be listed thereon, whether or not it is a
Consolidated Subsidiary, the jurisdiction of its incorporation or
organization, as the case may be, the percentage of issued and
outstanding shares of each class of its capital stock or other equity
interests owned by the Borrower and the Subsidiaries and, if such
percentage is not 100% (excluding directors qualifying shares as
required by law or nominal ownership by other shareholders required by
local law for a non-U.S. Subsidiary), a description of each class of
its authorized capital stock and other equity interests and the number
of shares of each class issued and outstanding. All of the issued and
outstanding shares of capital stock and other equity interests of each
Subsidiary which are owned by the Borrower or a Subsidiary are validly
issued and outstanding and fully paid and nonassessable and all such
shares and other equity interests indicated in Exhibit B as owned by
the Borrower or a Subsidiary are owned, beneficially and of record, by
the Borrower or such Subsidiary, free of any Lien.
3. Section 8.1 of the Credit Agreement is hereby amended by deleting the
word "corporate" appearing in the second line thereof.
4. Section 8.8 of the Credit Agreement is hereby amended by (i) deleting
the "." appearing at the end thereof and inserting in its place ";and" and
(ii) inserting new subsection (d) immediately after subsection (c) as follows:
(d) except as permitted in subsection (c) hereof, will not
dissolve or liquidate any Consolidated Subsidiary unless all of the
assets (minus, in the case of a liquidation or dissolution of a
Consolidated Subsidiary that is not a Wholly-Owned Subsidiary, the
assets allocable to other Persons holding an interest in such
Consolidated Subsidiary) of such dissolved or liquidated Consolidated
Subsidiary are concurrently transferred to the Borrower or a
Wholly-Owned Subsidiary.
5. The Borrower represents and warrants to each Bank that (a) each of the
representations and warranties set forth in Section 6 of the Credit Agreement,
as amended hereby, is true and correct on and as of the date of this Amendment
(except that any such representation or warranty that expressly relates solely
to an earlier date need only be true and correct as of such date) as if made on
and as of the date of this Amendment and as if each reference therein to the
2<PAGE>
Credit Agreement referred to the Credit Agreement as amended hereby, (b) no
Default or Event of Default has occurred and is continuing and (c) without
limiting the effect of the foregoing, the Borrower s execution, delivery and
performance of this Amendment has been duly authorized, and this Amendment has
been executed and delivered by a duly authorized officer of the Borrower.
6. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which shall constitute one and the same
instrument. This Amendment shall become effective on the date hereof upon the
Agent's receipt of counterparts hereof executed by the Borrower and the Required
Banks. Except as specifically amended and modified hereby, all of the terms and
conditions of the Credit Agreement shall remain unchanged and in full force and
effect. No reference to this Amendment need be made in any document making
reference to the Credit Agreement, any such reference to the Credit Agreement
(including any such reference herein, unless the context otherwise requires) to
be deemed to be a reference to the Credit Agreement as amended hereby. All
capitalized terms used herein without definition shall have the same meanings
herein as they have in the Credit Agreement. This Amendment shall be construed
and governed by and in accordance with the laws of the State of Illinois.
Dated as of the date first above written.
MAYTAG CORPORATION
By s/s David Urbani
Name David Urbani
Title Vice President & Treasurer
BANK OF MONTREAL, CHICAGO BRANCH,
in its individual capacity as a Bank
and as Agent
By s/s Mary V. Roney
Name Mary V. Roney
Title Director
3<PAGE>
ROYAL BANK OF CANADA, in its individual
capacity as a Bank and as Co-Agent
By s/s Molly Drennan
Name Molly Drennan
Title Senior Manager Corporate Banking
THE FIRST NATIONAL BANK OF CHICAGO
By s/s Jason D. White
Name Jason D. White
Title Corporate Banking Officier
THE FUJI BANK, LIMITED
By s/s Peter L. Chinnici
Name Peter L. Chinnici
Title Joint General Manager
4<PAGE>
KEYBANK NATIONAL ASSOCIATION
By s/s Frank J. Jancar
Name Frank J. Jancar
Title Vice President
PNC BANK, NATIONAL ASSOCIATION
By s/s Gregory T. Gaschler
Name Gregory T. Gaschler
Title Vice President
THE SUMITOMO BANK, LIMITED, CHICAGO
BRANCH
By s/s John H. Kemper
Name John Kemper
Title Sr. Vice President
5<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By s/s S. Battinelli
Name Salvatore Battinelli
Title Vice President Credit Department
By s/s C. Ruhland
Name Catherine Ruhland
Title Vice President
MERCANTILE BANK OF ST. LOUIS, N.A.
By s/s Joseph L. Sooter, Jr.
Name Joseph L. Sooter, Jr
Title Vice President
FIRST AMERICAN NATIONAL BANK
By s/s Kathryn A. Brothers
Name Kathryn A. Brothers
Title Vice President
6<PAGE>
INSTITUTO BANCARIO SAN PAOLO DI TORINO
SPA
By
Name
Title
7<PAGE>
MAYTAG CORPORATION
Exhibit 10(b)
Executive Severance Agreements.<PAGE>
The following executives are covered under this severance agreement:
Kent Baker
Bill Beer
Larry Blanford
Ron Caldwell
Terry Carlson
Bob Downing
Jerome Davis
John Dupuy
Ed Graham
Len Hadley
Greg Jordan
Keith Minton
Carl Moe
Jon Nicholas
Charles Peters
Jerry Pribanic
Dave Urbani
Lloyd Ward
Ed Wojciechowski
Steven Wood
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is made the ___ day of ________, 199_, by and between Maytag
Corporation, a Delaware corporation (the "Company"), and ____________________
(the "Executive").
RECITALS
A. The Board of Directors of the Company has approved the Company en-
tering into severance agreements with such executives of the Company and its
subsidiaries as is determined by the Chairman and Chief Executive Officer.
B. Should the Company receive or learn of any proposal by a third person
about a possible business combination with the Company or the acquisition of its
equity securities, the Board considers it imperative that the Company be able to
rely upon the Executive to continue in his or her position. This to the end
that the Company be able to receive and rely upon the Executive's advice
concerning the best interests of the Company and its stockholders, without
concern that person might be distracted by the personal uncertainties and risks
created by such a proposal.
C. Should the Company receive any such proposals, in addition to the
Executive's regular duties, he or she may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
AGREEMENT
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of that person's advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Company, and to induce the Executive to remain in the employ
of the Company, and for other good and valuable consideration, the Company and
the Executive agree that the Executive Severance Agreement described above be
amended and restated in its entirety as follows:
A. Should a third person, in order to effect a change of control (as
defined), begin a tender or exchange offer, circulate a proxy to stockholders or
take other steps, the Executive agrees that he or she will not voluntarily leave
the employ of the Company, and will render the services contemplated in the
recitals to this agreement, until the third person has abandoned or terminated
his efforts to effect a change of control or until a change of control has
occurred.
B. Should the Executive's employment with the Company or its subsidiaries
terminate for any reason (either voluntary or involuntary, other than because of
death, disability or normal retirement) within three (3) years after a change of
control of the Company the following will be provided:
1. "Lump Sum Cash Payment." On or before the Executive's last day of
employment with the Company or its subsidiaries, or as soon thereafter as
possible, the Company will pay to the Executive as compensation for services
rendered, a lump sum cash amount (subject to the usual withholding taxes) equal
to (A) three times the sum of (1) the Executive's annual salary at the rate in
effect immediately prior to the change of control and (2) the maximum annual
1<PAGE>
incentive bonus opportunity provided by the Plan and any discretionary bonus
declared for the year in which the change of control occurred, or the preceding
year if not established plus (B) an amount equal to the compensation (at the
Executive's rate of pay in effect immediately prior to the change of control)
payable for any period for which the Executive could have, immediately prior to
the date of his termination of employment, been on vacation and received such
compensation, for unused and accrued vacation benefits determined under the
Company's vacation pay plan or program covering the Executive immediately prior
to the change of control. If the time from the Executive's last day of
employment with the Company or its subsidiaries to the Executive's 65th birthday
is less than 36 months, there shall be a proportionate reduction of the payment
computed under clause (A) of the preceding sentence.
2. "Salaried and Supplemental Executive Retirement Plans." The Execu-
tive shall be paid a monthly retirement benefit, in addition to any benefits
received under the Salaried Retirement Plans maintained by the Company or its
subsidiaries, including The Maytag Corporation Salaried Retirement Plan and any
Supplemental Executive Retirement Plan, such benefit to commence on the first to
occur of (a) the commencement of payment of benefits under the Maytag
Corporation Salaried Retirement Plan or (b) attainment of age 65, but not prior
to three (3) years following the date of termination of employment or age 65,
whichever first occurs, such benefit to be an amount equal to the excess of (i)
the aggregate benefits under such Salaried Retirement Plans to which the
Executive would be entitled if he or she remained employed by the Company or its
subsidiaries, for an additional period of three (3) years or until his or her
65th birthday, whichever is earlier, at the rate of annual compensation
specified herein; over (ii) the benefits to which the Executive is actually
entitled under such Salaried Retirement Plans.
3. "Life, Dental, Vision, Health and Long Term Disability Coverage." The
Executive's participation in, and entitlement to, benefits under: (i) the life
insurance plan of the Company; (ii) all the health insurance plan or plans of
the Company or its subsidiaries, including but not limited to those providing
major medical and hospitalization benefits, dental benefits and vision benefits;
and (iii) the Company's long-term disability plan or plans; as all such plans
existed immediately prior to the change of control shall continue as though he
or she remained employed by the Corporation or its subsidiaries for an
additional period of three (3) years or until the obtainment of such coverages
with another employer, whichever is earlier. To the extent such participation
or entitlement is not possible for any reason whatsoever, equivalent benefits
shall be provided.
4. Participation in Employee Benefit Plans. After termination of em-
ployment, the Executive shall continue to participate in the Salaried Retirement
Plans as contemplated above. The Executive's participation in any other
savings, capital accumulation, retirement, incentive compensation, profit
sharing, stock option, and/or stock appreciation rights plans of the Company or
any of its subsidiaries shall continue only through the last day of his or her
employment. Any terminating distributions and/or vested rights under such
plans shall be governed by the terms of those respective plans. Furthermore,
the Executive's participation in any insurance plans of the Company and rights
to any other fringe benefits shall, except as otherwise specifically provided in
such plans or Company policy, terminate as of the close of the Executive's last
day of employment, except to the extent specifically provided to the contrary in
this agreement.
5. "Incentive Plans." In addition to the payments required by paragraph
1 of this Section, the Company shall pay to the Executive as compensation for
2<PAGE>
services rendered cash in an amount equal to the maximum amount which could be
payable to the Executive under any and all incentive compensation plans in which
the Executive is a participant or under which the Executive holds any
outstanding award as of the day prior to the change of control. To the extent
that any such award is represented by restricted shares of stock of the Company,
the Executive's such cash payment shall include an amount equal to the aggregate
value of such shares determined as of the day of the change of control. Any
payment due pursuant to this paragraph 5 shall be paid at the same time as the
amount payable pursuant to paragraph 1 of this Section.
6. "Reimbursement for Loss on Sale of Principal Residence." If on the
date of the change of control the Executive shall own a private residence within
Jasper County, Iowa (the "Executive's residence"), the Executive shall be paid
an amount equal to the excess, if any, of the amount by which the greater of (i)
the "aggregate purchase price" (as defined below) of the Executive's residence
and (ii) the "change of control market value" (as defined below) of the
Executive's residence, over the amount realized by the Executive upon the sale
of such residence. Any amount payable to the Executive under this agreement
shall be paid to the Executive on the date on which the Executive's residence is
sold in a bona fide transaction with an unrelated party. Notwithstanding the
foregoing, if the Executive's residence shall not be sold within 6 months after
the date on which the Executive's residence is first offered for sale, the
Company shall purchase the Executive's residence from the Executive for a cash
amount equal to the "change of control market value" of the Executive's
residence. For purposes of this paragraph, the "aggregate purchase price" of
the Executive's residence shall be the sum of the amount paid therefor plus the
cost of any significant repairs such as the cost of siding, or roof repair or
maintenance, incurred within the 5 year period ending on the date on which a
change of control occurs, plus the cost of any improvements to such residence
made by the Executive, the "amount realized" upon the sale of such residence
shall be the net amount, after deduction for brokers' fees, title charges,
transfer taxes and similar items, realized by the Executive upon the sale of the
Executive residence and "change of control market value" shall mean the value of
the Executive's residence on the date on which the change of control occurred,
as determined by an independent appraiser selected by the Executive. The fees
and expenses of such appraiser shall be paid by the Company.
7. "Excise Tax-Additional Payment." (a) Notwithstanding anything in this
agreement or any written or unwritten policy of the Company or its subsidiaries
to the contrary, (i) if it shall be determined that any payment or distribution
by the Company or its subsidiaries to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this agreement, any other agreement between the Company or its subsidiaries and
the Executive or otherwise (a "Payment"), would be subject to the excise tax
imposed by section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code") or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), or (ii) if the Executive shall
otherwise become obligated to pay the Excise Tax in respect of a Payment, then
the Company shall pay to the Executive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payment.
3<PAGE>
(b) All determinations and computations required to be made under this
paragraph B5, including whether a Gross-Up Payment is required under clause (ii)
of paragraph B7(a) above, and the amount of any Gross-Up Payment, shall be made
by the Company's regularly engaged independent certified public accountants (the
"Accounting Firm"). The Company shall cause the Accounting Firm to provide
detailed supporting calculations both to the Company and the Executive within 15
business days after such determination or computation is requested by the
Executive. Any initial Gross-Up Payment determined pursuant to this paragraph
B7 shall be paid by the Company or the subsidiary to the Executive within 5 days
of the receipt of the Accounting Firm's determination. A determination that no
Excise Tax is payable by the Executive shall not be valid or binding unless
accompanied by a written opinion of the Accounting Firm to the Executive that
the Executive has substantial authority not to report any Excise Tax on his
federal income tax return. Any determination by the Accounting Firm shall be
binding upon the Company, its subsidiaries and the Executive, except to the
extent the Executive becomes obligated to pay an Excise Tax in respect of a
Payment. In the event that the Company or the subsidiary exhausts or waives its
remedies pursuant to subparagraph 7B(c) and the Executive thereafter shall
become obligated to make a payment of any Excise Tax, and if the amount thereof
shall exceed the amount, if any, of any Excise Tax computed by the Accounting
Firm pursuant to this subparagraph (b) in respect to which an initial Gross-Up
Payment was made to the Executive, the Accounting Firm shall within 15 days
after Notice thereof determine the amount of such excess Excise Tax and the
amount of the additional Gross-Up Payment to the Executive. All expenses and
fees of the Accounting Firm incurred by reason of this paragraph B7 shall be
paid by the Company.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty-day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested
relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected
by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
4<PAGE>
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this subparagraph B7(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company or the
subsidiary shall determine; PROVIDED, HOWEVER, that if the Company or the
subsidiary directs the Executive to pay such claim and sue for a refund, the
Company or the subsidiary shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and FURTHER
PROVIDED, that any extension of the statue of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, control of the contest by the Company or the subsidiary shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company or the subsidiary pursuant to subparagraph B7(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to compliance with the requirements of paragraph B7 by the Company or
the subsidiary) promptly pay to the Company or the subsidiary the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company or the subsidiary pursuant to subparagraph B7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall off-set,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
C. Definitions.
1. "Change of Control." For purposes of this Agreement, "change of
control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition by
the Company, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company or (iii) any acquisition by any corporation pursuant to a
5<PAGE>
transaction which complies with clauses (i), (ii) and (iii) of subsection (c)
below; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of a least a majority of the directors then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
2. "Subsidiary". For purposes of this agreement, a "Subsidiary" shall
mean any domestic or foreign corporation at least 20% of whose shares normally
entitled to vote in electing directors is owned directly or indirectly by the
Company or by other subsidiaries.
D. General Provisions.
1. "No Guaranty of Employment." Nothing in this agreement shall be deemed
to entitle the Executive to continued employment with the Company or its sub-
sidiaries, and the rights of the Company to terminate the employment of the
Executive shall continue as fully as if this agreement were not in effect,
PROVIDED that any such termination of employment within three (3) years fol-
6<PAGE>
lowing a change of control shall entitle the Executive to the benefits herein
provided.
2. "Confidentiality." The Executive shall retain in confidence any confi-
dential information known to him concerning the Company and its business so long
as such information is not publicly disclosed.
3. "Payment Obligation Absolute." The Company's obligation to pay the
Executive the compensation and to make the arrangements provided herein shall be
absolute and unconditional and shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against him, her or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
The Company waives all rights which it may now have or may hereafter have
conferred upon it, by statute or otherwise, to terminate, cancel or rescind this
agreement in whole or in part. Each and every payment made hereunder by the
Company shall be final and the Company shall not seek to recover all or any part
of such payment from the Executive or from whoever may be entitled thereto, for
any reason whatsoever.
4. "Indemnification." If litigation shall be brought to enforce or inter-
pret any provision contained herein, the Company hereby indemnifies the Execu-
tive for his or her reasonable attorney's fees and disbursements incurred in
such litigation, and hereby agrees to pay prejudgment interest on any money
judgment obtained by the Executive calculated by using the prevailing prime
interest rate on the date that payment(s) to him or her should have been made
under this agreement.
5. "Successors". This agreement shall be binding upon and inure to the
benefit of the Executive and his or her estate, and the Company and any suc-
cessor of the Company, but neither this agreement nor any rights arising here-
under may be assigned or pledged by the Executive.
6. "Severability." Any provision in this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7. "Controlling Law". This agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this agreement on the date
set out above.
MAYTAG CORPORATION
By ___________________________
Leonard A. Hadley, CEO
___________________________
, Executive
7<PAGE>
The following executives are covered under this severance agreement:
Tom Briatico
Rick Foltz
David McConnaughey
Richard Mosher
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
THIS AGREEMENT is made the ____ day of _____, 199_, by and between Maytag
Corporation, a Delaware corporation (the "Company"), and _______ (the
"Executive").
RECITALS
A. The Board of Directors of the Company has approved the Company en-
tering into severance agreements with such executives of the Company and its
subsidiaries as is determined by the Chairman and Chief Executive Officer.
B. Should the Company receive or learn of any proposal by a third person
about a possible business combination with the Company or the acquisition of its
equity securities, the Board considers it imperative that the Company be able to
rely upon the Executive to continue in his or her position. This to the end
that the Company be able to receive and rely upon the Executive's advice
concerning the best interests of the Company and its stockholders, without
concern that person might be distracted by the personal uncertainties and risks
created by such a proposal.
C. Should the Company receive any such proposals, in addition to the
Executive's regular duties, he or she may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
AGREEMENT
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of that person's advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Company, and to induce the Executive to remain in the employ
of the Company, and for other good and valuable consideration, the Company and
the Executive agree that the Executive Severance Agreement described above be
amended and restated in its entirety as follows:
A. Should a third person, in order to effect a change of control (as
defined), begin a tender or exchange offer, circulate a proxy to stockholders or
take other steps, the Executive agrees that he or she will not voluntarily leave
the employ of the Company, and will render the services contemplated in the
recitals to this agreement, until the third person has abandoned or terminated
his efforts to effect a change of control or until a change of control has
occurred.
B. Should the Executive's employment with the Company or its subsidiaries
terminate for any reason (either voluntary or involuntary, other than because of
death, disability or normal retirement) within two (2) years after a change of
control of the Company the following will be provided:
1. "Lump Sum Cash Payment." On or before the Executive's last day of
employment with the Company or its subsidiaries, or as soon thereafter as
possible, the Company will pay to the Executive as compensation for services
rendered, a lump sum cash amount (subject to the usual withholding taxes) equal
to (A) two times the sum of (1) the Executive's annual salary at the rate in
effect immediately prior to the change of control and (2) the maximum annual
1<PAGE>
incentive bonus opportunity provided by the Plan and any discretionary bonus
declared for the year in which the change of control occurred, or the preceding
year if not established plus (B) an amount equal to the compensation (at the
Executive's rate of pay in effect immediately prior to the change of control)
payable for any period for which the Executive could have, immediately prior to
the date of his termination of employment, been on vacation and received such
compensation, for unused and accrued vacation benefits determined under the
Company's vacation pay plan or program covering the Executive immediately prior
to the change of control. If the time from the Executive's last day of
employment with the Company or its subsidiaries to the Executive's 65th birthday
is less than 24 months, there shall be a proportionate reduction of the payment
computed under clause (A) of the preceding sentence.
2. "Salaried and Supplemental Executive Retirement Plans." The Executive
shall be paid a monthly retirement benefit, in addition to any benefits received
u n der the Salaried Retirement Plans maintained by the Company or its
subsidiaries, including The Maytag Corporation Salaried Retirement Plan and any
Supplemental Executive Retirement Plan, such benefit to commence on the first to
occur of (a) the commencement of payment of benefits under the Maytag
Corporation Salaried Retirement Plan or (b) attainment of age 65, but not prior
to two (2) years following the date of termination of employment or age 65,
whichever first occurs, such benefit to be an amount equal to the excess of (i)
the aggregate benefits under such Salaried Retirement Plans to which the
Executive would be entitled if he or she remained employed by the Company or its
subsidiaries, for an additional period of two (2) years or until his or her
65th birthday, whichever is earlier, at the rate of annual compensation
specified herein; over (ii) the benefits to which the Executive is actually
entitled under such Salaried Retirement Plans.
3. "Life, Dental, Vision, Health and Long Term Disability Coverage." The
Executive's participation in, and entitlement to, benefits under: (i) the life
insurance plan of the Company; (ii) all the health insurance plan or plans of
the Company or its subsidiaries, including but not limited to those providing
major medical and hospitalization benefits, dental benefits and vision benefits;
and (iii) the Company's long-term disability plan or plans; as all such plans
existed immediately prior to the change of control shall continue as though he
or she remained employed by the Corporation or its subsidiaries for an
additional period of two (2) years or until the obtainment of such coverages
with another employer, whichever is earlier. To the extent such participation
or entitlement is not possible for any reason whatsoever, equivalent benefits
shall be provided.
4. "Participation in Employee Benefit Plans." After termination of em-
ployment, the Executive shall continue to participate in the Salaried Retirement
Plans as contemplated above. The Executive's participation in any other
savings, capital accumulation, retirement, incentive compensation, profit
sharing, stock option, and/or stock appreciation rights plans of the Company or
any of its subsidiaries shall continue only through the last day of his or her
employment. Any terminating distributions and/or vested rights under such
plans shall be governed by the terms of those respective plans. Furthermore,
the Executive's participation in any insurance plans of the Company and rights
to any other fringe benefits shall, except as otherwise specifically provided in
such plans or Company policy, terminate as of the close of the Executive's last
day of employment, except to the extent specifically provided to the contrary in
this agreement.
5. "Incentive Plans." In addition to the payments required by paragraph
1 of this Section, the Company shall pay to the Executive as compensation for
2<PAGE>
services rendered cash in an amount equal to the maximum amount which could be
payable to the Executive under any and all incentive compensation plans in which
the Executive is a participant or under which the Executive holds any
outstanding award as of the day prior to the change of control. To the extent
that any such award is represented by restricted shares of stock of the Company,
the Executive's such cash payment shall include an amount equal to the aggregate
value of such shares determined as of the day of the change of control. Any
payment due pursuant to this paragraph 5 shall be paid at the same time as the
amount payable pursuant to paragraph 1 of this Section.
6. "Reimbursement for Loss on Sale of Principal Residence." If on the
date of the change of control the Executive shall own a private residence within
Jasper County, Iowa (the "Executive's residence"), the Executive shall be paid
an amount equal to the excess, if any, of the amount by which the greater of (i)
the "aggregate purchase price" (as defined below) of the Executive's residence
and (ii) the "change of control market value" (as defined below) of the
Executive's residence, over the amount realized by the Executive upon the sale
of such residence. Any amount payable to the Executive under this agreement
shall be paid to the Executive on the date on which the Executive's residence is
sold in a bona fide transaction with an unrelated party. Notwithstanding the
foregoing, if the Executive's residence shall not be sold within 6 months after
the date on which the Executive's residence is first offered for sale, the
Company shall purchase the Executive's residence from the Executive for a cash
amount equal to the "change of control market value" of the Executive's
residence. For purposes of this paragraph, the "aggregate purchase price" of
the Executive's residence shall be the sum of the amount paid therefor plus the
cost of any significant repairs such as the cost of siding, or roof repair or
maintenance, incurred within the 5 year period ending on the date on which a
change of control occurs, plus the cost of any improvements to such residence
made by the Executive, the "amount realized" upon the sale of such residence
shall be the net amount, after deduction for brokers' fees, title charges,
transfer taxes and similar items, realized by the Executive upon the sale of the
Executive residence and "change of control market value" shall mean the value of
the Executive's residence on the date on which the change of control occurred,
as determined by an independent appraiser selected by the Executive. The fees
and expenses of such appraiser shall be paid by the Company.
7. "Excise Tax-Additional Payment." (a) Notwithstanding anything in this
agreement or any written or unwritten policy of the Company or its subsidiaries
to the contrary, (i) if it shall be determined that any payment or distribution
by the Company or its subsidiaries to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this agreement, any other agreement between the Company or its subsidiaries and
the Executive or otherwise (a "Payment"), would be subject to the excise tax
imposed by section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code") or any interest or penalties with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), or (ii) if the Executive shall
otherwise become obligated to pay the Excise Tax in respect of a Payment, then
the Company shall pay to the Executive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
such Payment.
3<PAGE>
(b) All determinations and computations required to be made under this
section B7, including whether a Gross-Up Payment is required under clause (ii)
of paragraph B7(a) above, and the amount of any Gross-Up Payment, shall be made
by the Company's regularly engaged independent certified public accountants (the
"Accounting Firm"). The Company shall cause the Accounting Firm to provide
detailed supporting calculations both to the Company and the Executive within 15
business days after such determination or computation is requested by the
Executive. Any initial Gross-Up Payment determined pursuant to this paragraph
B7 shall be paid by the Company or the subsidiary to the Executive within 5 days
of the receipt of the Accounting Firm's determination. A determination that no
Excise Tax is payable by the Executive shall not be valid or binding unless
accompanied by a written opinion of the Accounting Firm to the Executive that
the Executive has substantial authority not to report any Excise Tax on his
federal income tax return. Any determination by the Accounting Firm shall be
binding upon the Company, its subsidiaries and the Executive, except to the
extent the Executive becomes obligated to pay an Excise Tax in respect of a
Payment. In the event that the Company or the subsidiary exhausts or waives its
remedies pursuant to subparagraph B7(c) and the Executive thereafter shall
become obligated to make a payment of any Excise Tax, and if the amount thereof
shall exceed the amount, if any, of any Excise Tax computed by the Accounting
Firm pursuant to this subparagraph (b) in respect to which an initial Gross-Up
Payment was made to the Executive, the Accounting Firm shall within 15 days
after Notice thereof determine the amount of such excess Excise Tax and the
amount of the additional Gross-Up Payment to the Executive. All expenses and
fees of the Accounting Firm incurred by reason of this paragraph B7 shall be
paid by the Company.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the thirty-day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested
relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
4<PAGE>
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this subparagraph B7(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company or the
subsidiary shall determine; PROVIDED, HOWEVER, that if the Company or the
subsidiary directs the Executive to pay such claim and sue for a refund, the
Company or the subsidiary shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and FURTHER
PROVIDED, that any extension of the statue of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, control of the contest by the Company or the subsidiary shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company or the subsidiary pursuant to subparagraph B7(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to compliance with the requirements of paragraph B7 by the Company or
the subsidiary) promptly pay to the Company or the subsidiary the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company or the subsidiary pursuant to subparagraph B7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall off-set,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
h
C. Definitions.
1. "Change of Control." For purposes of this Agreement, "change of
control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition by
the Company, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company or (iii) any acquisition by any corporation pursuant to a
5<PAGE>
transaction which complies with clauses (i), (ii) and (iii) of subsection (c)
below; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of a least a majority of the directors then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
2. "Subsidiary." For purposes of this agreement, a "Subsidiary" shall
mean any domestic or foreign corporation at least 20% of whose shares normally
entitled to vote in electing directors is owned directly or indirectly by the
Company or by other subsidiaries.
D. General Provisions.
1. "No Guaranty of Employment." Nothing in this agreement shall be deemed
to entitle the Executive to continued employment with the Company or its sub-
sidiaries, and the rights of the Company to terminate the employment of the
Executive shall continue as fully as if this agreement were not in effect,
6<PAGE>
PROVIDED that any such termination of employment within two (2) years following
a change of control shall entitle the Executive to the benefits herein provided.
2. "Confidentiality". The Executive shall retain in confidence any confi-
dential information known to him concerning the Company and its business so long
as such information is not publicly disclosed.
3. "Payment Obligation Absolute." The Company's obligation to pay the
Executive the compensation and to make the arrangements provided herein shall be
absolute and unconditional and shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against him, her or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or demand.
The Company waives all rights which it may now have or may hereafter have
conferred upon it, by statute or otherwise, to terminate, cancel or rescind this
agreement in whole or in part. Each and every payment made hereunder by the
Company shall be final and the Company shall not seek to recover all or any part
of such payment from the Executive or from whoever may be entitled thereto, for
any reason whatsoever.
4. "Indemnification." If litigation shall be brought to enforce or inter-
pret any provision contained herein, the Company hereby indemnifies the Execu-
tive for his or her reasonable attorney's fees and disbursements incurred in
such litigation, and hereby agrees to pay prejudgment interest on any money
judgment obtained by the Executive calculated by using the prevailing prime
interest rate on the date that payment(s) to him or her should have been made
under this agreement.
5. "Successors." This agreement shall be binding upon and inure to the
benefit of the Executive and his or her estate, and the Company and any suc-
cessor of the Company, but neither this agreement nor any rights arising here-
under may be assigned or pledged by the Executive.
6. "Severability". Any provision in this agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7. "Controlling Law." This agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this agreement on the date
set out above.
MAYTAG CORPORATION
By ___________________________
Leonard A. Hadley, CEO
___________________________
, Executive
7<PAGE>
MAYTAG CORPORATION
Exhibit 12
Ratio of Earnings to Fixed Charges
<PAGE>
MAYTAG CORPORATION
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
(Amounts in thousands of dollars except ratios)
Year Ended December 31
1997 1996 1995 1994 1993
Consolidated pretax
income from
continuing
operations before
minority interest,
extraordinary item
and cumulative
effect of accounting
changes $ 300,555 $ 228,237 $ 59,804 $ 241,337 $ 89,870
Interest expense 58,995 43,006 52,087 74,077 75,364
Depreciation of
capitalized interest 2,530 1,553 1,695 1,772 1,546
Interest portion of
rental expense 6,989 6,448 8,789 10,722 10,480
Earnings $ 369,069 $ 279,244 $ 122,375 $ 327,908 $ 177,260
Interest expense $ 58,995 $ 43,006 $ 52,087 $ 74,077 $ 75,364
Interest capitalized 4,191 8,905 2,534 547 1,484
Interest portion of
rental expense 6,989 6,448 8,789 10,722 10,480
Fixed charges $ 70,175 $ 58,359 $ 85,346 $ 85,346 $ 87,328
Ratio of earnings to
fixed charges 5.26 4.78 1.93 3.84 2.03
<PAGE>
MAYTAG CORPORATION
Exhibit 21
List of Subsidiaries of the Registrant
<PAGE>
MAYTAG CORPORATION
Exhibit 21
List of Subsidiaries of the Registrant
The following schedule lists the subsidiaries of Maytag Corporation, a Delaware
corporation, as of December 31, 1997.
State or Country
Corporate Name of Organization
Maytag Appliances Sales Company Delaware
D.N. Holdings, Inc. Delaware
Dixie-Narco, Inc. West Virginia
Blodgett Holdings, Inc. Delaware
G.S. Blodgett Corporation Vermont
G.S. Blodgett International Limited Barbados
Pitco Frialator, Inc. New Hampshire
Frialator International Limited England
MagiKitch'n Inc. Pennsylvania
Cloverleaf Properties, Inc. Vermont
Maytag Foreign Sales Corporation Virgin Islands
The Hoover Company Delaware
The Hoover Company (Sales) Delaware
Maytag International, Inc. Delaware
Maharashtra Investment, Inc. Delaware
Hoover Mexicana S.A. de C.V. Mexico
Hoover Holdings Inc. Delaware
Juver Industrial S.A. de C.V. Mexico
Maytag International Limited United Kingdom
Maytag Limited Canada
Maytag Worldwide N.V. The Netherlands Antilles
AERA LIMITED Hong Kong
AERA (Hong Kong) PTE LTD Singapore
Maytag International Investments, Inc. Delaware
Maytag I.I., Inc. Delaware
Maytag International Investments B.V. Netherlands
Hefei Rongshida Co. Ltd. (50.5%) China
Anvil Technologies LLC (33.77%) Delaware
NOTE: Ownership in subsidiaries is 100% unless otherwise indicated.
Other subsidiaries in the aggregate would not constitute a significant
subsidiary.<PAGE>
MAYTAG CORPORATION
Exhibit 23
Consent of Ernst & Young LLP
<PAGE>
Consent of Independent Auditors
Shareowners and Board of Directors
Maytag Corporation
We consent to the incorporation by reference in Registration Statement
Number 33-8249, Registration Statement Number 33-8248, Registration
Statement Number 33-6378, Registration Statement Number 33-22228, and
Registration Statement Number 33-26620 on Forms S-8; and Registration
Statement Number 33-35219 on Form S-3 of Maytag Corporation and in the
related Prospectuses of our report dated February 3, 1998, with respect to
the consolidated financial statements and schedule of Maytag Corporation
included in this Annual Report (Form 10-K) for the year ended December 31,
1997.
Ernst & Young LLP
Chicago, Illinois
March 25, 1998
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 27,543 141,214
<SECURITIES> 0 0
<RECEIVABLES> 476,672 429,997
<ALLOWANCES> 13,790 12,540
<INVENTORY> 327,136 265,119
<CURRENT-ASSETS> 904,959 910,134
<PP&E> 1,655,646 1,411,926
<DEPRECIATION> 803,761 710,791
<TOTAL-ASSETS> 2,329,940 2,125,066
<CURRENT-LIABILITIES> 570,011 366,703
<BONDS> 488,537 536,579
0 0
0 0
<COMMON> 146,438 146,438
<OTHER-SE> 427,552 490,913
<TOTAL-LIABILITY-AND-EQUITY> 2,329,940 2,125,066
<SALES> 3,001,656 3,039,524
<TOTAL-REVENUES> 3,001,656 3,039,524
<CGS> 2,180,213 2,250,616
<TOTAL-COSTS> 2,180,213 2,250,616
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 14,152 16,630
<INTEREST-EXPENSE> 43,006 52,087
<INCOME-PRETAX> 228,237 59,804
<INCOME-TAX> 89,000 74,800
<INCOME-CONTINUING> 139,237 (14,996)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (1,548) (5,480)
<CHANGES> 0 0
<NET-INCOME> 136,429 (20,476)
<EPS-PRIMARY> 1.34 (0.19)
<EPS-DILUTED> 1.33 (0.19)
</TABLE>
