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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, 1998
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
Commission file number 1-655
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 1, 1999 was
$4,888,467,050. The number of shares outstanding of the registrant's common
stock (par value $1.25) as of the close of business on March 1, 1999 was
89,083,682.
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 13, 1999 have
been incorporated by reference.
1
MAYTAG CORPORATION
1998 ANNUAL REPORT ON FORM 10-K CONTENTS
Item Page
PART I:
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business - Home Appliances . . . . . . . . . . . . . . . . . . . 3
Business - Commercial Appliances . . . . . . . . . . . . . . . . 4
Business - International Appliances . . . . . . . . . . . . . . 5
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote of Security Holders . . . . . . 7
Executive Officers of the Registrant . . . . . . . . . . . . . . 7
PART II:
5. Market for the Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 10
7A. Quantitative and Qualitative Disclosures About Market Risk . . . 18
8. Financial Statements and Supplementary Data . . . . . . . . . . 18
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 47
PART III:
10. Directors and Executive Officers of the Registrant . . . . . . . 47
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 47
12. Security Ownership of Certain Beneficial Owners and Management . 48
13. Certain Relationships and Related Transactions . . . . . . . . . 48
PART IV:
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 48
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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PART I
Item 1. Business.
Maytag Corporation (the "Company") was organized as a Delaware corporation in
1925. The Company operates in three business segments: home appliances,
commercial appliances and international appliances. Financial and other
information relating to these reportable business segments is included in Part
II, Item 7, Pages 10-13, and Item 8, Pages 44-46.
HOME APPLIANCES
The home appliances segment represented 85.6 percent of consolidated net sales
in 1998.
The operations of the Company's home appliances segment manufacture major
appliances (laundry products, dishwashers, refrigerators, cooking appliances)
and floor care products. These products are primarily sold to major national
retailers and independent retail dealers in North America and targeted
international markets. These products are sold primarily under the Maytag,
Hoover, Jenn-Air and Magic Chef brand names. Included in this segment is Maytag
International, Inc., the Company's international marketing subsidiary, which
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 third quarter of 1998, Maytag Corporation announced
an agreement with Sears Canada Inc. to begin selling Maytag brand major home
appliances in Sears Canada stores in October 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.
A portion of the Company's operations and sales is 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
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.
3
The Company's home appliance business is generally not considered seasonal.
A portion of the Company's accounts receivable is concentrated among major
national retailers. A significant loss of business with any of these national
retailers could have an adverse impact on the Company's ongoing operations.
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 appliances market is highly competitive with the two principal
competitors being larger than the Company. The Company is focused on growth
through product innovation that supports superior product performance in the
Company's premium brands. The Company also uses brand image, product quality,
customer service, advertising and warranty as 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 43. Most of the research and development
expenditures relate to the home appliances segment.
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 presently does not 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 43-44.
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 is in compliance with those existing standards
where it does business and intends to be in compliance with these various
standards where it does business, which affect the entire appliance industry, as
they become effective.
The number of employees of the Company in the home appliances segment as of
January 31, 1999 was 17,235.
COMMERCIAL APPLIANCES
The commercial appliances segment represented 11.2 percent of consolidated net
sales in 1998.
The operations of the Company's commercial appliances segment manufacture
commercial cooking and vending equipment. These products are primarily sold to
distributors, soft drink bottlers, restaurant chains and dealers in North
America and targeted international markets. These products are sold primarily
under the Dixie-Narco, Blodgett and Pitco Frialator brand names.
4
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. Additional
information regarding this acquisition is included in Part II, Item 8, Page 28-
29.
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 are considered seasonal to the extent that the
Company normally experiences lower vending equipment sales in the fourth quarter
compared to other quarters.
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 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.
The Company uses brand image, product quality, product innovation, customer
service, warranty and price 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 43.
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 January 31, 1999 was 2,510.
INTERNATIONAL APPLIANCES
The international appliances segment represented 3.2 percent of consolidated net
sales in 1998.
The international appliances segment consists of the Company's 50.5 percent
owned joint venture in China, Rongshida-Maytag, which manufactures and
distributes laundry products and refrigerators. These products are primarily
sold to department stores and distributors in China under the RSD brand name.
5
In 1996, the Company invested $35 million ($29.6 million, net of cash acquired)
to acquire its 50.5 percent ownership in Rongshida-Maytag. The Company also
committed additional cash investments of approximately $35 million, of which $7
million, $19 million and $9 million were contributed in 1998, 1997 and 1996,
respectively. The Company's joint venture partner also committed additional
cash investments of approximately $35 million, of which $7 million, $19 million
and $9 million were contributed in 1998, 1997 and 1996, respectively. For more
information regarding this acquisition, see Part II, Item 8, pages 28-29.
In the fourth quarter of 1998, Rongshida-Maytag acquired all of the outstanding
shares of Three-Gorges, a manufacturer of home laundry products in China. This
business produces and markets home laundry equipment and has annual sales of
approximately $15 million. In connection with the purchase, Rongshida-Maytag
assumed $8 million in notes payable and long-term debt. The operations of Three
Gorges have been merged into Rongshida-Maytag. For more information regarding
this acquisition, see Part II, Item 8, page 28-29.
Rongshida-Maytag is subject to the risks involved with international operations
including, but not limited to, economic conditions and international relations
in the geographic areas where Rongshida-Maytag's operations exist or products
are sold, governmental restrictions and changes in currency values.
Rongshida-Maytag uses steel and plastic as the basic raw material in its
manufacturing processes. These materials are supplied primarily from suppliers
in Asian countries.
Rongshida-Maytag holds a number of patents which are important in the
manufacture of its products. Rongshida-Maytag also holds the trademark
registrations of RSD.
Rongshida-Maytag's business is seasonal to the extent the first six months of
the year normally experience higher sales than the second half of the year.
Rongshida-Maytag is not dependent upon a single customer or a few customers.
The international appliance market in which Rongshida-Maytag competes is highly
competitive with approximately six principal competitors. Rongshida-Maytag uses
extensive distribution channels, low manufacturing costs, product quality, and
customer service 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,
including those for Rongshida-Maytag, are included in Part II, Item 8, page 43.
The number of employees of Rongshida-Maytag as of January 31, 1999 was 4,193.
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 two other North American manufacturing facilities in
Mexico.
Major offices and manufacturing facilities in the United States related to the
commercial appliances segment are located in: Williston, South Carolina;
6
Burlington, Vermont; and Bow, New Hampshire.
Major offices and manufacturing facilities related to the international
appliances segment are located in Hefei and Chongqing, China.
The facilities for the home appliances, commerical appliances and international
appliances segments are well maintained, suitably equipped and in good operating
condition. The facilities used had sufficient capacity to meet production needs
in 1998, and the Company expects that such capacity will be adequate for planned
production in 1999. The Company's major capital projects and planned capital
expenditures for 1999 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 36.
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 44.
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 1998 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:
First
Became
Name Office Held an Officer Age
Leonard A. Hadley Chairman and
Chief Executive Officer 1979 64
Lloyd D. Ward President and Chief Operating
Officer 1996 50
Gerald J. Pribanic Executive Vice President and Chief
Financial Officer 1996 55
William L. Beer President, Maytag Appliances 1998 46
Robert W. Downing President, Dixie-Narco, Inc. 1996 62
Keith G. Minton President, The Hoover Company 1998 51
Senior Vice President, General
Edward H. Graham Counsel and Assistant Secretary 1990 63
John M. Dupuy Vice President, Strategic Planning 1996 42
7
Jon O. Nicholas Vice President, Human Resources 1993 59
David D. Urbani Vice President and Treasurer 1995 53
Steven H. Wood Vice President, Financial Reporting
and Audit 1996 41
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 13, 1999 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
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Dividends
Sale Price of Common Shares Per Share
1998 1997 1998 1997
Quarter High Low High Low
First $50 3/8 $35 7/16 $23 3/4 $19 3/4 $.16 $.16
Second 55 3/4 47 1/2 27 3/4 20 1/8 .16 .16
Third 52 3/4 41 1/2 34 5/16 26 3/16 .18 .16
Fourth 64 1/2 39 5/8 37 1/2 30 7/16 .18 .16
The principal U.S. market in which the Company's common stock is traded is the
New York Stock Exchange. As of March 1, 1999, the Company had 34,396
shareowners of record.
8
Item 6. Selected Financial Data.
Dollars in thousands
except per share data 1998(1) 01997 (2) 1996 (3) 1995 (4) 1994(5)
Net sales $4,069,290 $3,407,911 $3,001,656 $3,039,524 $3,372,515
Gross profit 1,181,627 936,288 821,443 788,908 876,450
Percent of sales 29.0% 27.5% 27.4% 26.0% 26.0%
Operating income $ 522,738 $ 358,273 $ 269,079 $ 288,234 $ 322,768
Percent of sales 12.8% 10.5% 9.0% 9.5% 9.6%
Income (loss) from
continuing operations $ 286,510 $ 183,490 $ 137,977 $ (14,996)$ 151,137
Percent of sales 7.0% 5.4% 4.6% (.5%) 4.5%
Basic earnings
(loss) per share $ 3.12 $ 1.90 $ 1.36 $ (0.14)$ 1.42
Diluted earnings
(loss) per share 3.05 1.87 1.35 (0.14) 1.41
Dividends paid per
share 0.68 0.64 0.56 0.515 0.50
Basic weighted-average
shares outstanding 91,941 96,565 101,727 106,734 106,485
Diluted weighted-
average shares
outstanding 93,973 98,055 102,466 107,486 106,957
Working capital $ 178,165 $ 368,079 $ 334,948 $ 543,431 $ 595,703
Depreciation of
property, plant and
equipment 135,519 127,497 101,912 102,572 110,044
Capital expenditures 161,251 229,561 219,902 152,914 84,136
Total assets 2,587,663 2,514,154 2,329,940 2,125,066 2,504,327
Long-term debt, less
current portion 446,505 549,524 488,537 536,579 663,205
Total debt to
capitalization 58.0% 52.1% 51.2% 45.9% 50.7%
(1) Excludes the extraordinary loss on the early retirement of debt.
(2) 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.
(3) 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
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.
(4) 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.
9
(5) 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
COMPARISON OF 1998 WITH 1997
The Company has three reportable segments: home appliances, commercial
appliances and international appliances. (See further discussion and financial
information about the Company's reportable segments in "Segment Reporting"
section of the Notes to Consolidated Financial Statements.)
Net Sales: The Company's consolidated net sales for 1998 increased 19 percent
compared to 1997. Net sales in 1998 included sales of G.S. Blodgett Corporation
("Blodgett"), a manufacturer of commercial cooking equipment, which was acquired
by the Company on October 1, 1997. Excluding Blodgett, the Company's net sales
increased 16 percent in 1998 compared to 1997.
Home appliances net sales increased 15 percent in 1998 compared to 1997.
Net sales were up from the prior year due to the introduction of new products,
including new lines of Maytag Neptune laundry products, Maytag refrigerators,
Maytag cooking products, Hoover upright vacuum cleaners and Hoover upright deep
carpet cleaners. In addition, net sales were up from the prior year due to the
volume associated with shipments to Sears, Roebuck and Co. in connection with
the Company's agreement to begin selling the full line of Maytag brand major
appliances through Sears stores in the U.S. beginning in February 1998. The
Company's net sales also benefited from the significant volume growth in
industry shipments of major appliances in 1998 compared to 1997.
Net sales of commercial appliances were up 84 percent from 1997. This net
sales increase was primarily driven by a significant increase in the sales
volume of Dixie-Narco enhanced capacity venders introduced in 1997 and the
inclusion of Blodgett's results for a full year. Excluding Blodgett, net sales
increased 48 percent from 1997.
International appliances net sales increased 5 percent in 1998 compared to
1997. The sales increase was primarily attributable to higher unit volume
partially offset by price reductions on selected models in response to
competitive conditions in China.
Gross Profit: The Company's consolidated gross profit as a percent of sales
increased to 29 percent in 1998 from 27.5 percent in 1997.
Home appliances gross margins increased in 1998 compared to 1997, due to
the increase in sales volume, favorable brand and product sales mix, lower raw
material costs and the absence of production start-up costs associated with the
Company's new line of refrigerators which were incurred in 1997.
Commercial appliances gross margins increased in 1998 compared to 1997, due
to the increase in sales volume, partially offset by inefficiencies from the
reorganization of manufacturing operations at Blodgett.
International appliances gross margins decreased in 1998 compared to 1997
primarily from the decrease in selling prices on selected models.
The Company realized slightly lower raw material prices in 1998 compared to
1997 and expects raw material prices in 1999 to be approximately the same to
slightly lower than 1998 levels.
10
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were 16.2 percent of sales in 1998 compared to 17
percent of sales in the same period in 1997. The decrease as a percent of sales
was primarily due to the operating leverage obtained on fixed expenses with the
increase in net sales despite the increase in expenses incurred in 1998 compared
to 1997.
Operating Income: Consolidated operating income increased 46 percent to $523
million, or 12.8 percent of sales, compared to $358 million, or 10.5 percent of
sales in 1997.
Home appliances operating income increased 44 percent in 1998 compared to
1997. Operating margin for 1998 was 14.5 percent of sales compared to 11.6
percent of sales in 1997. The increase in operating margin was due to the
increase in gross profit margins and decrease in selling, general and
administrative expenses as a percent of sales discussed above.
Commercial appliances operating income, which includes Blodgett for all of
1998, increased 156 percent in 1998 compared to 1997. Operating margin for 1998
was 10.9 percent of sales compared to 7.8 percent of sales in 1997. The
increase in operating margins was primarily due to the increase in gross profit
margins described above.
International appliances operating income decreased 49 percent in 1998
compared to 1997. Operating margin for 1998 was 4.6 percent of sales compared
to 9.4 percent of sales in 1997. The decrease in operating margins was due to
the decrease in gross profit margins discussed above and an increase in selling,
general and administrative expense due to both spending increases and an
additional provision for accounts receivable. There are many uncertainties
associated with the economic environment in China and the entire Asian region
which may adversely impact future operations.
Interest Expense: Interest expense increased 6 percent in 1998 compared to 1997
primarily due to lower capitalized interest. The Company's higher average
borrowings were offset by lower interest rates.
Income Taxes: The effective tax rate for 1998 was 37.4 percent compared to 36.5
percent in 1997. The increase in the effective tax rate was primarily due to
1997 including a $2 million one-time benefit from the resolution of certain
Internal Revenue Service issues as well as a reduced benefit in 1998 from
Rongshida-Maytag's tax holiday in China due to lower income before taxes. These
increases in the 1998 effective tax rate were partially offset by other tax
initiatives.
Extraordinary Item: In 1998, the Company retired $71.1 million of long-term
debt at a cost of $5.9 million after-tax. In 1997, the Company retired $61.8
million of long-term debt at a cost of $3.2 million after-tax.
Net Income: Net income for 1998 was $281 million, or $2.99 diluted earnings per
share, compared to net income of $180 million, or $1.84 diluted earnings per
share in 1997. Net income and diluted earnings per share were impacted by
special charges for the early retirement of debt in both years. The after-tax
charges for the early retirement of debt were $5.9 million and $3.2 million for
1998 and 1997, respectively.
Excluding these special charges in both years, income for 1998 would have
been $287 million, or $3.05 diluted earnings per share, compared to $183
million, or $1.87 diluted earnings per share for 1997. The increase in net
income was primarily due to the increase in operating income. The increase in
diluted earnings per share was due to the increase in net income and the
positive impact of $0.15 per share from the Company's share repurchase program.
(See discussion of the share repurchase program in "Liquidity and Capital
11
Resources" section of this Management's Discussion and Analysis.)
Comparison of 1997 with 1996
Net Sales: The Company's consolidated net sales for 1997 increased 14 percent
compared to 1996. Net sales in 1997 included a full year of sales of 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 Blodgett which was acquired by the Company on October 1, 1997.
Excluding the impact of these acquisitions, the Company's net sales increased 10
percent in 1997 compared to 1996.
Home appliances net sales increased 9 percent in 1997 compared to 1996.
Net sales of major appliances were up from the previous year primarily due to
the introduction of a newly designed line of Maytag 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.
Net sales of commercial appliances were up 54 percent from 1996. Excluding
Blodgett, net sales increased 34 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 was 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 in 1997 from 27.4 percent in 1996.
Home appliances gross margins increased in 1997 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.
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.
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 accounts receivable.
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.)
The Company incurred $10.5 million of additional restructuring costs during
12
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 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 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 Consolidated Statements of Income.
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, a lower tax rate for Rongshida-Maytag as a
result of its qualification for a tax holiday in China in 1997 and a $2 million
one-time benefit in 1997 from the resolution of certain Internal Revenue Service
issues.
Extraordinary Item: In 1997, the Company retired $61.8 million of long-term
debt at a cost of $3.2 million after-tax. In 1996, the Company retired $17.5
million of long-term debt at a cost of $1.5 million after-tax.
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.)
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
13
presented in the Consolidated Statements of Cash Flows.
Net Cash Provided by Operating Activities: Cash flow provided by operating
activities primarily consists of net income adjusted for certain non-cash items,
changes in working capital items, changes in pension assets and liabilities, and
changes in the liability for postretirement benefits. Certain non-cash items
include depreciation and amortization and deferred income taxes. Working
capital items consists primarily of accounts receivable, inventories, other
current assets and other current liabilities.
Net cash provided by operating activities in 1998 increased from 1997 as a
result of an increase in net income and a decrease in working capital.
A portion of the Company's accounts receivable is concentrated among major
national retailers. A significant loss of business with any of these national
retailers could have an adverse impact on the Company's ongoing operations.
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 1998 were $161 million compared to $230 million in
1997. The lower capital spending was due to the completion of several major
capital projects in 1997. Planned capital expenditures for 1999 are
approximately $190 million.
In 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 $35 million ($29.6 million, net of cash
acquired) to acquire a 50.5 percent ownership in Rongshida-Maytag, a
manufacturer of home appliances in China. The Company also committed additional
cash investments of approximately $35 million, of which $7 million, $19 million
and $9 million were contributed in 1998, 1997 and 1996, respectively. The
results of its operations have been included in the consolidated financial
statements since the date of acquisition. The Company's joint venture partner
also committed additional cash investments of approximately $35 million, of
which $7 million, $19 million and $9 million were contributed in 1998, 1997 and
1996, respectively.
Total Financing Activities: Dividend payments on the Company's common stock in
1998 were $62.6 million, or $.68 per share, compared to $61.7 million, or $.64
per share in 1997.
In 1997, the Company's board of directors authorized the repurchase of up
to 15 million additional shares beyond the previous share repurchase
authorizations totalling 15.8 million shares. Under these authorizations, the
Company has repurchased 22.1 million shares at a cost of $675 million, which
includes 6.3 million shares purchased at a cost of $318 million during 1998. As
of December 31, 1998, of the 8.7 million shares which may be repurchased under
then existing board authorization, the Company is committed to purchase 4
million shares under put options contracts, if such options are exercised. (See
discussion of these put option contracts below.) The Company plans to continue
the repurchase of shares over a non-specified period of time.
During the first quarter of 1998, the Company amended the forward stock
purchase agreement associated with the repurchase of 4 million shares by the
Company during 1997. The future contingent purchase price adjustment included
14
in the forward stock purchase agreement was amended to provide for settlement
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 March 24, 1998 rather than as of August 20, 1997. The net cost of the
amendment was $64 million. During the third quarter of 1998, the Company
further amended the forward stock purchase agreement to establish the future
settlement price on 1 million of the total 4 million shares. 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.
In connection with the share repurchase program, the Company sells put
options which give 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 1998 and 1997, the Company received $30
million and $10 million, respectively, in premium proceeds from the sale of put
options. As of December 31, 1998, there were put options outstanding for 4
million shares with strike prices ranging from $43.25 to $56.838 (the weighted-
average strike price was $51.92).
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 Consolidated Balance Sheets. The income attributable to the
noncontrolling interest is reflected in Minority interest in the Consolidated
Statements of Income.
Any funding requirements for future investing and financing activities in
excess of cash on hand and generated from operations are planned to be
supplemented by borrowings. (See discussion of long-term debt issuances in
"Long-Term Debt" section of the Notes to Consolidated Financial Statements.)
The Company's commercial paper program is supported by a credit agreement with a
consortium of banks which provides revolving credit facilities totalling $400
million. This agreement expires June 29, 2001 and includes covenants for
interest coverage and leverage, with which the Company was in compliance at
December 31, 1998.
Market Risks
The Company is exposed to foreign currency exchange risk inherent in its
anticipated sales and assets and liabilities denominated in foreign currencies.
To mitigate the short-term effects of changes in exchange rates on the Company's
foreign currency denominated export sales, the Company enters into foreign
currency forward and option contracts. The Company's policy is to hedge a
portion of its anticipated foreign currency denominated export sales
transactions, which are primarily denominated in Canadian dollars, for periods
not exceeding twelve months.
At December 31, 1998, the result of a uniform 10 percent strengthening of
the U.S. dollar relative to the foreign currencies in which the Company's sales
are denominated would result in a decrease in net income of approximately $3
million for the year ended December 31, 1999. The Company's sensitivity
analysis of the effects of changes in foreign currency exchange rates does not
15
factor in potential changes in sales levels or local currency prices.
The Company also is exposed to interest rate risk in the Company's debt and
the commodity price risk inherent in the Company's purchase of certain
commodities used in the manufacture of its products. The Company has performed
sensitivity analyses assuming a hypothetical adverse movement in interest rates
and commodity prices. These analyses indicated that such market movements would
not have a material effect on the Company's financial position or results of
operations.
Year 2000
The much publicized "Year 2000 problem," affecting most companies, arises
because many existing computer programs use only the last two digits to refer to
a year. Therefore, these computer programs do not properly recognize a year
that begins with "20" instead of the familiar "19." If not corrected, these
computer applications could fail or create erroneous results. The global extent
of the potential impact of the Year 2000 problem is not yet known, and if not
timely corrected, it could affect the economy and the Company. The Company uses
computer information systems and manufacturing equipment which may be affected.
It also relies on suppliers and customers who are also dependent on systems and
equipment which use date dependent software.
In 1996, the Company began its effort for the conversion or replacement of
North American computer information systems which did not properly address the
Year 2000. This effort involved both plans for creating replacement systems for
those computer information systems which were developed internally as well as
obtaining versions of software purchased from third parties which are Year 2000
ready. The Company estimates that this effort is approximately 85 percent
complete as of December 31, 1998. The Company essentially has converted or
replaced its critical computer information systems for its North American
business operations. The remaining effort primarily relates to the conversion
or replacement of Blodgett's computer information systems and other non-critical
computer information systems which the Company expects to complete by mid-1999.
In mid-1997, the Company began to review the manufacturing equipment used
in the Company s North American operations as well as the systems related to the
infrastructure of the North American manufacturing and office facilities. The
Company is continuing to inventory and verify Year 2000 readiness of computer
controlled manufacturing equipment and computer controls for the North American
manufacturing and office facilities. The Company estimates that this effort is
approximately 75 percent complete as of December 31, 1998. The Company expects
to complete the remediation efforts of its production equipment and systems
related to its infrastructure for its North American business operations by mid-
1999.
In 1997, the Company also began to assess the Year 2000 problem remediation
efforts of third parties in North America who have material relationships with
the Company including, but not limited to: providers of services such as
utilities, suppliers of raw materials and customers where there is a significant
business relationship. However, there is no assurance that the Company will not
be affected by the Year 2000 problems of other organizations.
Rongshida-Maytag, the Company's joint venture in China, is currently
reviewing the implications of the Year 2000 problem on computer information
systems and equipment used in the manufacture of its products or facilities.
The remediation effort required for the computer information systems and
equipment for Rongshida-Maytag has not yet been identified.
The costs associated with the Company's Year 2000 remediation are being
expensed as incurred, are not material to the performance of the Company for
previous periods and are not expected to be material relative to the future
performance of the Company. The Company estimates it has spent approximately
$12 million to date on the Year 2000 issue and expects to spend not more than
16
$20 million in total on the Year 2000 issue. As previously identified, the
Company utilizes software which was acquired from third parties. The Company
has maintenance agreements with certain of its software vendors which, in return
for annual contractual payments, enable it to obtain new software releases,
including versions which are Year 2000 ready.
If the Company is unsuccessful, or if the remediation efforts of its key
suppliers or customers are unsuccessful with regard to Year 2000 remediation,
there may be a material adverse impact on the Company's financial position and
results of operations. If the Company's Year 2000 remediation effort is not
successful, the most likely worst case scenario is that the Company will be
unable to manufacture and distribute its products. The Company is unable to
estimate the financial impact of Year 2000 issues because it cannot predict the
magnitude or time length of potential Year 2000 business interruptions. The
Company s contingency plan continues to be under development and includes such
precautionary measures as an anticipated increased level of inventory to
minimize the potential disruption in the Company s ability to manufacture and
distribute products.
While the Company expects its Year 2000 issues to be remedied successfully,
it cannot guarantee that Year 2000 issues, including those of third parties,
will not have an adverse effect on the Company's consolidated financial position
or results of operations.
Contingencies
The Company has contingent liabilities arising in the normal course of business,
including pending litigation, environmental remediation, taxes and other claims.
(See discussion of these contingent liabilities in "Commitments and
Contingencies" section of the Notes to Consolidated Financial Statements.)
Subsequent Events
In February 1999, the Company's board of directors authorized the repurchase of
up to 10 million additional shares beyond the previous share repurchase
authorizations totaling 30.8 million shares. The Company plans to continue the
repurchase of shares over a non-specified period of time. (See discussion of
previous share repurchase authorizations in "Liquidity and Capital Resources"
section of this Management's Discussion and Analysis.)
In the first quarter of 1999, the Company acquired all of the outstanding
shares of Jade Range, a manufacturer of commercial ranges and refrigerators and
residential ranges for approximately $20 million in cash and stock. This
business has annual sales of approximately $20 million. The acquisition will be
accounted for as a purchase and the results of its operations will be included
in the consolidated financial statements from the date of acquisition.
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 are identified by their use of terms such as "expects," "intends,"
"may impact," "plans" or "should." 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
17
capacity; competitive factors, such as price competition and new product
introductions; significant loss of business from a major national retailer; the
ability of the Company and customers and suppliers to become Year 2000 ready in
a timely manner; 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Quantitative and qualitative disclosures about market risk are discussed in
"Market Risks" section of the Management's Discussion and Analysis (Part II,
Item 7, pages 15-16)
Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Auditors . . . . . . . . . . . . . . 19
Consolidated Statements of Income--Years Ended
December 31, 1998, 1997, and 1996 . . . . . . . . . . . . 20
Consolidated Balance Sheets--
December 31, 1998 and 1997 . . . . . . . . . . . . . . . 21
Consolidated Statements of Shareowners' Equity--Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 23
Consolidated Statements of Comprehensive Income--
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 24
Consolidated Statements of Cash Flows--Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . 26
Quarterly Results of Operations--Years 1998 and 1997 . . . 47
18
Report of Independent Auditors
Shareowners and Board of Directors
Maytag Corporation
We have audited the accompanying consolidated balance sheets of Maytag
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, comprehensive income, shareowners' equity,
and cash flows for each of three years in the period ended December 31, 1998.
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, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
February 2, 1999
19
Consolidated Statements of Income
Year Ended December 31
In thousands except per share data 1998 1997 1996
Net sales $4,069,290 $3,407,911 $3,001,656
Cost of sales 2,887,663 2,471,623 2,180,213
Gross profit 1,181,627 936,288 821,443
Selling, general and administrative
expenses 658,889 578,015 512,364
Restructuring charge 40,000
Operating income 522,738 358,273 269,079
Interest expense (62,765) (58,995) (43,006)
Other - net 10,912 1,277 2,164
Income before income taxes, minority
interest and extraordinary item 470,885 300,555 228,237
Income taxes 176,100 109,800 89,000
Income before minority interest and
extraordinary item 294,785 190,755 139,237
Minority interest (8,275) (7,265) (1,260)
Income before extraordinary item 286,510 183,490 137,977
Extraordinary item - loss on early
retirement of debt (5,900) (3,200) (1,548)
Net income $ 280,610 $ 180,290 $ 136,429
Basic earnings (loss) per common share:
Income before extraordinary item $ 3.12 $ 1.90 $ 1.36
Extraordinary item - loss on early
retirement of debt (0.06) (0.03) (0.02)
Net income 3.05 1.87 1.34
Diluted earnings (loss) per common share:
Income before extraordinary item $ 3.05 $ 1.87 $ 1.35
Extraordinary item - loss on early
retirement of debt (0.06) (0.03) (0.02)
Net income 2.99 1.84 1.33
See notes to consolidated financial statements.
20
Consolidated Balance Sheets
December 31
In thousands except share data 1998 1997
Assets
Current assets
Cash and cash equivalents $ 28,642 $ 27,991
Accounts receivable, less allowance for doubtful
accounts (1998--$22,305; 1997--$36,386) 472,979 473,741
Inventories 383,753 350,209
Deferred income taxes 39,014 46,073
Other current assets 44,474 36,703
Total current assets 968,862 934,717
Noncurrent assets
Deferred income taxes 120,273 118,931
Prepaid pension cost 1,399 2,160
Intangible pension asset 62,811 33,819
Other intangibles, less allowance for amortization
(1998--$98,106; 1997--$85,071) 424,312 433,595
Other noncurrent assets 44,412 49,660
Total noncurrent assets 653,207 638,165
Property, plant and equipment
Land 19,317 19,597
Buildings and improvements 333,032 309,960
Machinery and equipment 1,499,872 1,427,276
Construction in progress 102,042 59,376
1,954,263 1,816,209
Less accumulated depreciation 988,669 874,937
Total property, plant and equipment 965,594 941,272
Total assets $2,587,663 $2,514,154
See notes to consolidated financial statements.
21
December 31
In thousands except share data 1998 1997
Liabilities and Shareowners' Equity
Current liabilities
Notes payable $ 112,898 $ 112,843
Accounts payable 279,086 221,417
Compensation to employees 81,836 62,758
Accrued liabilities 176,701 161,344
Current portion of long-term debt 140,176 8,276
Total current liabilities 790,697 566,638
Noncurrent liabilities
Deferred income taxes 21,191 23,666
Long-term debt, less current portion 446,505 549,524
Postretirement benefit liability 460,599 454,390
Accrued pension cost 69,660 31,308
Other noncurrent liabilities 117,392 99,096
Total noncurrent liabilities 1,115,347 1,157,984
Minority interest 174,055 173,723
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 467,192 494,646
Retained earnings 760,115 542,118
Cost of common stock in treasury (1998--27,932,506
shares; 1997--22,465,256 shares) (805,802) (508,115)
Employee stock plans (45,331) (48,416)
Accumulated other comprehensive income (15,048) (10,862)
Total shareowners' equity 507,564 615,809
Total liabilities and shareowners' equity $2,587,663 $2,514,154
See notes to consolidated financial statements.
22
Consolidated Statements of Shareowners' Equity
December 31
In thousands 1998 1997 1996
Common stock
Balance at beginning of year $ 146,438 $ 146,438 $ 146,438
Balance at end of year 146,438 146,438 146,438
Additional paid-in capital
Balance at beginning of year 494,646 471,158 472,602
Stock issued under stock option plans (5,596) (7,375) (2,324)
Stock issued under restricted stock
awards, net 1,426 (86) (176)
Additional ESOP shares issued 308 (139) (264)
Tax benefit of ESOP dividends and stock
options 9,994 6,640 1,320
Forward stock purchase contract premium 14,592
Forward stock purchase contract
amendment (63,782)
Put option premiums 30,196 9,856
Balance at end of year 467,192 494,646 471,158
Retained earnings
Balance at beginning of year 542,118 423,552 344,346
Net income 280,610 180,290 136,429
Dividends on common stock (62,613) (61,724) (57,223)
Balance at end of year 760,115 542,118 423,552
Treasury stock
Balance at beginning of year (508,115) (405,035) (255,663)
Purchase of common stock for treasury (318,139) (138,051) (164,439)
Stock issued under stock option plans 18,779 29,309 8,435
Stock issued under restricted stock
awards, net 1,226 3,212 3,951
Additional ESOP shares issued 447 2,450 2,681
Balance at end of year (805,802) (508,115) (405,035)
Employee stock plans
Balance at beginning of year (48,416) (55,204) (57,319)
Stock issued under restricted stock
awards, net (445) 7 310
ESOP shares allocated 3,530 6,781 1,805
Balance at end of year (45,331) (48,416) (55,204)
Accumulated other comprehensive income
Minimum pension liability adjustment
Balance at beginning of year (107) (5,656)
Adjustment for the year 107 5,549
Balance at end of year (107)
Unrealized losses on securities
Balance at beginning of year (3,605)
Adjustment for the year (1,257) (3,605)
Balance at end of year (4,862) (3,605)
Foreign currency translation
Balance at beginning of year (7,257) (6,812) (7,397)
Translation adjustments (2,929) (445) 585
Balance at end of year (10,186) (7,257) (6,812)
Accumulated other comprehensive income
balance at beginning of year (10,862) (6,919) (13,053)
Total adjustments for the year (4,186) (3,943) 6,134
Accumulated other comprehensive
income balance at end of year (15,048) (10,862) (6,919)
Total shareowners' equity $ 507,564 $ 615,809 $ 573,990
See notes to consolidated financial statements.
23
Consolidated Statements of Comprehensive Income
Year Ended December 31
In thousands 1998 1997 1996
Net income $ 280,610 $ 180,290 $ 136,429
Other comprehensive income items, net of
income taxes
Unrealized losses on securities (1,257) (3,605)
Minimum pension liability adjustment 107 5,549
Foreign currency translation (2,929) (445) 585
Total other comprehensive income (4,186) (3,943) 6,134
Comprehensive income $ 276,424 $ 176,347 $ 142,563
See notes to consolidated financial statements.
24
Consolidated Statements of Cash Flows
Year Ended December 31
In thousands 1998 1997 1996
Operating activities
Net income $ 280,610 $ 180,290 $ 136,429
Adjustments to reconcile net income to
net cash provided by operating
activities:
Extraordinary item - loss on early
retirement of debt 5,900 3,200 1,548
Minority interest 8,275 7,265 1,260
Depreciation and amortization 148,554 138,163 111,279
Deferred income taxes 3,242 (7,956) (15,341)
Changes in working capital items
exclusive of business acquisitions:
Accounts receivable 1,502 4,631 (14,234)
Inventories (28,015) (5,393) (41,158)
Other current assets (13,475) 2,281 15,124
Other current liabilities 93,257 4,047 37,899
Restructuring charge, net of cash
expenditures (2,560) (4,869) 26,735
Pension assets and liabilities 10,121 18,124 (12,129)
Postretirement benefit liability 6,209 5,952 18,937
Other - net 26,258 11,930 (1,456)
Net cash provided by operating
activities 539,878 357,665 264,893
Investing activities
Capital expenditures (161,251) (229,561) (219,902)
Investment in securities (10,015)
Business acquisitions, net of cash
acquired (148,283) (29,625)
Total investing activities (161,251) (387,859) (249,527)
Financing activities
Proceeds from issuance of notes payable 14,687 60,493 34,094
Repayment of notes payable (20,880) (3,142)
Proceeds from issuance of long-term debt 102,922 133,015 26,536
Repayment of long-term debt (75,743) (124,123) (20,500)
Debt repurchase premiums (5,900) (3,200) (1,548)
Stock repurchases (318,139) (138,051) (164,439)
Forward stock purchase amendment (63,782)
Stock options exercised and other common
stock transactions 52,643 52,308 6,795
Dividends (70,537) (65,243) (57,223)
Proceeds from sale of LLC member
interest 100,000
Investment by joint venture partner 6,900 18,975 8,625
Proceeds from interest rate swaps 38,038
Total financing activities (377,829) 31,032 (129,622)
Effect of exchange rates on cash (147) (390) 585
Increase (decrease) in cash and
cash equivalents 651 448 (113,671)
Cash and cash equivalents at beginning
of year 27,991 27,543 141,214
Cash and cash equivalents at end of year $ 28,642 $ 27,991 $ 27,543
See notes to consolidated financial statements.
25
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
> 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 are recorded in
accumulated other comprehensive income in 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 in
conformity with generally accepted accounting principles 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 and Cash Equivalents: Highly liquid investments with a maturity of three
months or less when purchased are considered by the Company to be cash
equivalents.
> 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 80 percent and 86 percent of the Company's inventories at December
31, 1998 and 1997, respectively. Costs for other inventories have been
determined principally by the first-in, first-out (FIFO) method.
> Income Taxes: Income taxes are accounted for using the asset and liability
approach in accordance with FASB Statement No. 109, "Accounting for Income
Taxes." 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 is not expected to 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 five to 20 years for machinery and equipment.
> 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.
26
> 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 uses foreign exchange forward and option
contracts to manage certain foreign currency exchange rate risks associated with
its international operations. The outstanding contracts are marked to market
each period with the gains and losses included in income.
The Company has interest rate swap contracts outstanding which are marked
to market each period with the gains and losses included in income.
The Company has a forward stock purchase contract outstanding in its own
shares which allows the Company to determine whether the contract is settled in
cash or shares. As such, the contract is considered an equity instrument and
changes in fair value are not recognized in the Company's financial statements.
If the Company determines to settle the contract in cash, the amount of cash
paid or received would be reported as a reduction of, or an addition to, paid-in
capital.
The Company has put option contracts outstanding in its own shares which
allow the Company to determine whether the contracts are settled in cash or
shares. As such, the contracts are considered equity instruments and changes in
fair value are not recognized in the Company's financial statements. The
premiums received from the sale of put options are recorded as an addition to
paid-in capital. If the Company determines to settle the contracts in cash, the
amount of cash paid would be reported as a reduction of paid-in capital.
> 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 Per Common Share: Basic and diluted earnings per share is calculated
in accordance with FASB Statement No. 128, "Earnings Per Share." Basic EPS is
computed by dividing net income 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, such as stock options, into common
stock. All EPS amounts for all periods have been presented, and where
necessary, restated to conform to Statement 128 requirements.
> Comprehensive Income: In 1998, the Company adopted FASB Statement No. 130,
"Reporting Comprehensive Income." Statement 130 establishes new rules for the
reporting and displaying of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company s net income or
shareowners equity. Statement 130 requires unrealized losses on the Company s
available-for-sale securities, minimum pension liability adjustments and foreign
currency translation adjustments to be included in accumulated other
comprehensive income, which prior to adoption were reported separately in
shareowners equity. Prior year financial statements have been reclassified and
Consolidated Statements of Comprehensive Income have been added to conform to
the requirements of Statement 130.
> Impact of Recently Issued Accounting Standards: In June 1998, the FASB issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
27
Activities." The Company expects to adopt the new Statement effective January
1, 2000. Statement 133 will require the Company to recognize all derivatives on
the consolidated balance sheet at fair value. The Company does not anticipate
that the adoption of Statement 133 will have a significant effect on its results
of operations or financial position.
Business Acquisitions
In the fourth quarter of 1998, Rongshida-Maytag acquired all of the outstanding
shares of Three-Gorges, a manufacturer of home laundry products in China. This
business produces and markets home laundry equipment and has annual sales of
approximately $15 million. In connection with the purchase, Rongshida-Maytag
assumed $8 million in notes payable and long-term debt. This acquisition has
been accounted for as a purchase, and the results of its operations have been
included in the consolidated financial statements since the date of acquisition.
The excess of purchase price (assumed notes payable and long-term debt) over the
fair values of net assets acquired was approximately $2 million and has been
recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and
is being amortized on a straight-line basis over 40 years.
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
the 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 its operations 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 Consolidated Balance Sheets and is being amortized on a straight-line
basis over 40 years.
In the third quarter of 1996, the Company invested $35 million ($29.6
million, net of cash acquired) to acquire a 50.5 percent ownership in Rongshida-
Maytag, a manufacturer of home appliances in China. The Company also committed
additional cash investments of approximately $35 million, of which $7 million,
$19 million and $9 million was contributed in 1998, 1997 and 1996, respectively.
This acquisition has been accounted for as a purchase, and the results of its
operations 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 $33 million and has been recorded as Other
intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized
on a straight-line basis over 40 years.
Assuming the 1998 and 1997 acquisitions had occurred January 1, 1997,
consolidated net sales would have been $4.1 billion for 1998 and $3.5 billion
for 1997. Consolidated pro forma income and earnings per share would not have
been materially different from the reported amounts for 1998 and 1997. Assuming
the 1997 and 1996 acquisitions 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 acquisitions had been effective at
the beginning of January 1, 1997 and January 1, 1996, respectively.
Restructuring Charge
28
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.
The $40 million restructuring charge was comprised of cash expenditures of
$22 million, primarily related to severance, and non-cash charges of $18
million, primarily related to write-offs of property, plant and equipment.
During 1998, the Company incurred $3 million of costs which were primarily cash
expenditures charged to the restructuring reserve. During 1997, the Company
incurred $18 million of costs, of which $5 million were cash expenditures
charged to the restructuring reserve. During 1996, the Company incurred $18
million of costs, of which $13 million were cash expenditures charged to the
restructuring reserve. The remaining costs to be incurred are holding costs
associated with the Indianapolis, Indiana plant pending the sale of the facility
by the Company.
Inventories
Inventories consisted of the following:
December 31
In thousands 1998 1997
Raw materials $ 69,039 $ 74,436
Work in process 66,578 64,838
Finished goods 317,331 284,195
Supplies 8,856 8,130
Total FIFO cost 461,804 431,599
Less excess of FIFO cost over LIFO 78,051 81,390
Inventories $ 383,753 $ 350,209
29
Income Taxes
Deferred income taxes reflect the expected future tax consequences of temporary
differences between the book carrying amounts and the tax basis of assets and
liabilities.
Deferred tax assets and liabilities consisted of the following:
December 31
In thousands 1998 1997
Deferred tax assets (liabilities):
Book/tax basis differences $ (63,940) $ (54,301)
Postretirement benefit liability 180,349 177,823
Product warranty/liability accruals 30,092 23,715
Pensions and other employee benefits 20,879 13,567
Advertising and sales promotion accruals 9,868 11,400
Interest rate swaps 11,620 13,838
Other - net (4,805) 1,072
184,063 187,114
Less valuation allowance for deferred tax assets 45,967 45,776
Net deferred tax assets $ 138,096 $ 141,338
Recognized in Consolidated Balance Sheets:
Deferred tax assets - current $ 39,014 $ 46,073
Deferred tax assets - noncurrent 120,273 118,931
Deferred tax liabilities - noncurrent (21,191) (23,666)
Net deferred tax assets $ 138,096 $ 141,338
Income before income taxes, minority interest and extraordinary item
consisted of the following:
Year Ended December 31
In thousands 1998 1997 1996
United States $ 469,061 $ 287,498 $ 216,248
Non-United States 1,824 13,057 11,989
$ 470,885 $ 300,555 $ 228,237
Components of the provision (benefit) for income taxes consisted of
the following:
Year Ended December 31
In thousands 1998 1997 1996
Current provision (benefit):
Federal $ 157,900 $ 86,300 $ 99,500
State 21,500 11,200 19,200
Non-United States (100) 2,200 4,100
179,300 99,700 122,800
Deferred provision (benefit):
Federal (2,800) 8,400 (29,000)
State (400) 1,700 (5,500)
Non-United States 700
(3,200) 10,100 (33,800)
Provision for income taxes $ 176,100 $ 109,800 $ 89,000
30
The reconciliation of the United States federal statutory tax rate to
the Company's effective tax rate consisted of the following:
Year Ended December 31
1998 1997 1996
U.S. statutory rate applied to income
before minority interest and
extraordinary item 35.0% 35.0% 35.0%
Increase (reduction) resulting from:
Utilization of capital loss
carryforward (9.6) (6.1)
Deferred tax asset valuation
allowance 9.6 4.3
Amortization of goodwill 0.9 1.1 1.4
Difference due to minority interest (0.7) (0.8)
State income taxes, net of federal
tax benefit 2.9 2.8 3.9
Tax credits arising outside the
United States (0.4)
Other - net (0.7) (1.6) 0.9
Effective tax rate 37.4% 36.5% 39.0%
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 $14 million at
December 31, 1998), 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 eliminated substantially
by available tax credits arising from taxes paid outside the United States.
Income taxes paid, net of refunds received, during 1998, 1997 and 1996 were
$154 million, $107 million and $102 million, respectively.
The tax effects of the components of comprehensive income, unrealized
losses on securities and foreign currency translation adjustments, were recorded
as deferred tax assets with a corresponding valuation allowance. The Company
believes the realization of unrealized losses on securities and foreign currency
translation adjustments would be classified as capital losses for tax purposes
and no capital gain would be available to the Company to utilize the losses.
Notes Payable
Notes payable at December 31, 1998 consisted of notes payable to foreign banks
of $59.8 million and commercial paper borrowings of $53.1 million. The weighted
average interest rate on all notes payable to foreign banks and commercial paper
borrowings was 7.0 percent at December 31, 1998. Notes payable at December 31,
1997 consisted of notes payable to foreign banks of $38.9 million and commercial
paper borrowings of $73.9 million. The weighted average interest rate on all
notes payable to foreign banks and commercial paper borrowings was 7.4 percent
at December 31, 1997.
The Company's commercial paper program is supported by a credit agreement
with a consortium of banks which provides revolving credit facilities totalling
$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, 1998.
31
Long-Term Debt
Long-term debt consisted of the following:
December 31
In thousands 1998 1997
Notes payable with interest payable semiannually:
Due May 15, 2002 at 9.75% $ 125,358 $ 147,425
Due July 15, 1999 at 8.875% 116,820 148,550
Medium-term notes, maturing from 2000 to 2010, from
5.30% to 9.03% with interest payable semiannually 125,230 126,500
Medium-term notes, maturing from 1999 to 2009, with
interest adjusted each quarter based on LIBOR and
payable quarterly 160,000 75,000
Employee stock ownership plan notes payable
semiannually through July 2, 2004 at 5.13% 42,360 45,890
Other 16,913 14,435
586,681 557,800
Less current portion of long-term debt 140,176 8,276
Long-term debt $ 446,505 $ 549,524
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 to below investment
grade.
Interest paid during 1998, 1997 and 1996 was $64 million, $65.1 million and
$51.1 million, respectively. When applicable, the Company capitalizes interest
incurred on funds used to construct property, plant and equipment. Interest
capitalized during 1997 and 1996 was $4.2 million and $8.9 million,
respectively. Interest capitalized during 1998 was not significant.
The aggregate maturities of long-term debt in each of the next five years
and thereafter are as follows (in thousands): 1999--$140,176; 2000--$95,444;
2001--$24,508; 2002--$133,489; 2003--$43,290; thereafter--$149,774.
In 1998, the Company issued a $16 million medium-term note with a fixed
interest rate of 5.30 percent due September 29, 2000. The Company also issued a
$70 million medium-term note with a floating rate based on LIBOR with the
interest rate reset quarterly due May 10, 2000. The Company also issued a $15
million medium-term note with a floating rate based on LIBOR due December 3,
1999. The three-month LIBOR rate as of December 31, 1998 was 5.07 percent.
In 1998, the Company made early retirements of debt of $71.1 million at an
after-tax cost of $5.9 million (net of income tax benefit of $3.5 million).
Included in this amount was $22.1 million of the 9.75 percent notes due May 15,
2002, $31.7 million of the 8.875 percent notes due July 15, 1999 and $17.3
million of medium-term notes.
In 1997, the Company issued a $75 million medium-term note maturing in 2009
which has an interest rate 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 reissued
$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).
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
32
million of 7.22 percent medium-term notes maturing in 2006.
The 1998, 1997 and 1996 charges for the early retirement of debt have been
reflected in the Consolidated Statements of Income as extraordinary items.
Accrued Liabilities
Accrued liabilities consisted of the following:
December 31
In thousands 1998 1997
Warranties $ 46,162 $ 37,732
Advertising and sales promotion 59,036 42,227
Other 71,503 81,385
Accrued liabilities $ 176,701 $ 161,344
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.
The reconciliation of the beginning and ending balances of the projected
benefit obligation, reconciliation of the beginning and ending balances of the
fair value of plan assets, funded status of plans and amounts recognized in the
Consolidated Balance Sheets consisted of the following:
December 31
In thousands 1998 1997
Change in projected benefit
obligation:
Benefit obligation at beginning
of year $ 983,705 $ 905,031
Service cost 22,223 19,628
Interest cost 69,615 66,550
Amendments 18,977
Actuarial loss 65,333 36,652
Acquisition 18,556
Benefits paid (65,362) (62,364)
Curtailments/settlements 431
Other (foreign currency) (638) (348)
Benefit obligation at end of year 1,094,284 983,705
Change in plan assets:
Fair value of plan assets at
beginning of year 892,326 798,575
Actual return of plan assets 106,479 133,420
Acquisition 18,877
Employer contribution 13,905 4,233
Benefits paid (65,362) (62,364)
Other (foreign currency) (733) (415)
Fair value of plan assets at end
of year 946,615 892,326
Funded status of plan (147,669) (91,379)
Unrecognized actuarial loss 69,915 38,357
Unrecognized prior service cost 83,460 74,039
Unrecognized transition assets (11,156) (16,346)
33
Net amount recognized $ (5,450) $ 4,671
Amounts recognized in the
Consolidated Balance Sheets
consisted of:
Prepaid pension cost $ 1,399 $ 2,160
Intangible pension asset 62,811 33,819
Accrued pension cost (69,660) (31,308)
Net pension asset (liability) $ (5,450) $ 4,671
Assumptions used in determining net periodic pension cost for the plans in
the United States consisted of the following:
1998 1997 1996
Discount rates 7.25% 7.50% 7.50%
Rates of increase in compensation levels 5.00% 5.00% 5.00%
Expected long-term rate of return on assets 9.50% 9.50% 9.50%
For the valuation of projected benefit obligation at December 31, 1998 set
forth in the table above, and for determining net periodic pension cost in 1999,
the discount rate was decreased to 6.75 percent and the rate of compensation was
decreased to 4.5 percent. Assumptions for plans outside the United States are
comparable to the above in all periods.
The components of net periodic pension cost consisted of the following:
Year Ended December 31
In thousands 1998 1997 1996
Components of net periodic pension
cost:
Service cost $ 22,223 $ 19,628 $ 19,637
Interest cost 69,615 66,550 63,828
Expected return on plan assets (74,979) (70,301) (67,316)
Amortization of transition assets (4,798) (5,097) (5,050)
Amortization of prior service
cost 10,059 10,078 9,709
Recognized actuarial loss 867 794 1,465
Curtailments/settlements 936 387 2,694
Net periodic pension cost $ 23,923 $ 22,039 $ 24,967
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $1,085,044, $1,006,848 and $937,283, respectively,
as of December 31, 1998, and $954,300, $891,378 and $860,207, respectively, as
of December 31, 1997.
The Company acquired all of the outstanding shares of G.S. Blodgett
Corporation on October 1, 1997, including its pension plans. The Company
consolidated G.S. Blodgett Corporation's pension plans with its existing plans
in 1998. (See discussion of this acquisition in "Business Acquisitions" section
of the Notes to Consolidated Financial Statements.)
The Company amended its pension plans in 1998 to include several benefit
improvements for plans covering salaried and hourly employees.
34
Postretirement Benefits
The Company provides postretirement health care and life insurance benefits for
certain employee groups in the U.S. 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.
The reconciliation of the beginning and ending balances of the accumulated
benefit obligation, reconciliation of the beginning and ending balances of the
fair value of plan assets, funded status of plans and amounts recognized in the
Consolidated Balance Sheets consisted of the following:
December 31
In thousands 1998 1997
Change in accumulated benefit
obligation:
Benefit obligation at beginning
of year $ 381,690 $ 377,489
Service cost 12,895 12,491
Interest cost 26,613 26,588
Actuarial loss (gain) 25,590 (13,470)
Benefits paid (22,544) (21,408)
Benefit obligation at end of year 424,244 381,690
Change in plan assets:
Fair value of plan assets at
beginning of year -- --
Employer contribution 22,544 21,408
Benefits paid (22,544) (21,408)
Fair value of plan assets at end
of year -- --
Funded status of plan (424,244) (381,690)
Unrecognized actuarial gain (26,491) (53,861)
Unrecognized prior service cost (9,864) (18,839)
Postretirement benefit liability $ (460,599) $ (454,390)
Assumptions used in determining net periodic postretirement benefit cost
consisted of the following:
1998 1997 1996
Health care cost trend rates(1):
Current year 6.50% 7.00% 8.50%
Decreasing gradually to the year 2001 and
remaining thereafter 5.00% 5.00% 6.00%
Discount rates 7.25% 7.50% 7.50%
(1) Weighted-average annual assumed rate of increase in the per capita cost of
covered benefits.
For the valuation of accumulated benefit obligation at December 31, 1998
set forth in the table above, and for determining net postretirement benefit
costs in 1999, the discount rate was decreased to 6.75 percent and the health
care cost trend rates were assumed to be 6.0 percent for 1999 decreasing
gradually to 5.0 percent in the year 2001 and remaining thereafter.
The components of net periodic postretirement cost consisted of the
following:
35
Year Ended December 31
In thousands 1998 1997 1996
Components of net periodic
postretirement cost:
Service cost $ 12,895 $ 12,491 $ 15,453
Interest cost 26,613 26,588 28,498
Amortization of prior service
cost (8,975) (10,168) (8,130)
Recognized actuarial gain (1,780) (1,550)
Net periodic postretirement cost $ 28,753 $ 27,361 $ 35,821
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage change in assumed
health care cost trend rates effect consisted of the following:
1-Percentage- 1-Percentage-
Point Point
In thousands Increase Decrease
Effect on total of
postretirement service
and interest cost
components $ 5,895 $ (5,148)
Effect on postretirement
benefit obligation 45,606 (41,194)
Leases
The Company leases buildings, machinery, equipment and automobiles under
operating leases. Rental expense for operating leases amounted to $25.9
million, $23.3 million and $22.1 million for 1998, 1997 and 1996, respectively.
Future minimum lease payments for operating leases as of December 31,
1998 consisted of the following:
Year Ending In thousands
1999 $ 13,573
2000 10,585
2001 6,785
2002 5,157
2003 4,561
Thereafter 4,847
Total minimum lease payments $ 45,508
Financial Instruments
The Company's foreign currency exchange rate risk includes anticipated sales and
assets and liabilities denominated in currencies other than the U.S. dollar.
The Company uses foreign exchange forward and option contracts to manage certain
foreign currency exchange rate risks associated with its international
operations. The counterparties to the contracts are high credit quality
international financial institutions. During 1998, 1997 and 1996, the Company
used foreign exchange forward 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. Gains and losses recognized from these
contracts were not significant. As of December 31, 1998, the Company had open
foreign currency forward contracts for the exchange of Canadian dollars, all
having maturities less than twelve months, in the amount of U.S. $70.4 million.
The fair market value of these contracts, which is estimated by using the
applicable spot or forward rates, was not significant. Open contracts as of
December 31, 1997 were not significant.
36
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 related to the
interest rate swaps. The net losses of $2.6 million are reflected in Other-net
in the Consolidated Statements of Income. 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 Consolidated Statements of
Income. In 1998, the Company incurred $7.5 million of interest expense in
payment on the exchange position of these swap transactions. Additionally, the
Company recognized unrealized gains of $5.6 million which are reflected in
Other-net in the Consolidated Statements of Income.
As of December 31, 1998, the Company had five swap transactions outstanding
with a total notional amount of $80.1 million which mature by 2003. The fair
value of the swap positions of $29.7 million at December 31, 1998 and $35.3
million at December 31, 1997 is reflected in Other noncurrent liabilities in the
Consolidated Balance Sheets. 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, 1998 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.
Financial instruments which subject the Company to concentrations of credit
risk primarily consist of accounts receivable from customers. The majority of
the Company s sales are derived from the home appliances segment which sells
predominantly to retailers. These retail customers range from major national
retailers to independent retail dealers and distributors. 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.
The Company used various assumptions and methods in estimating fair value
disclosures for financial instruments. The carrying amounts of cash and cash
equivalents, accounts receivable and notes payable approximated their fair value
due to the short maturity of these instruments. The fair values of long-term
debt were estimated based on quoted market prices, if available, or quoted
market prices of comparable instruments. The fair values of interest rate
swaps, the forward stock purchase contract and put option contracts were
estimated based on amounts the Company would pay to terminate the contracts at
the reporting date.
The carrying amounts and fair values of the Company's financial
instruments, consisted of the following:
37
December 31, 1998 December 31, 1997
Carrying Fair Carrying Fair
In thousands Amount Value Amount Value
Cash and cash equivalents $ 28,642 $ 28,642 $ 27,991$ 27,991
Accounts receivable 472,979 472,979 473,741 473,741
Notes payable 112,898 112,898 112,843 112,843
Long-term debt 586,681 620,230 557,800 594,255
Interest rate swaps 29,665 29,665 35,280 35,280
Forward stock purchase
contract 64,520 53,042
Put option contracts 4,054 1,090
For additional disclosures regarding the Company's notes payable, see Notes
Payable section in the Notes to Consolidated Financial Statements. For
additional disclosures regarding the Company's long-term debt, see Long-Term
Debt section in the Notes to Consolidated Financial Statements. 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.
Minority Interest
In 1996, the Company invested approximately $35 million and committed additional
cash investments of approximately $35 million to acquire 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 $7 million, $19 million and $9 million were
contributed in 1998, 1997 and 1996, respectively. The results of this majority-
owned joint venture in China are included in the Company's consolidated
financial statements. The noncontrolling interest attributable to the joint
venture as of December 31, 1998 and 1997 was $74 million and $73.7 million,
respectively, and is reflected in Minority interest in the Consolidated Balance
Sheets. The income attributable to the noncontrolling interest in the joint
venture in 1998, 1997 and 1996 was $0.8 million, $4 million and $1.3 million,
respectively, and is reflected in Minority interest in the Consolidated
Statements of Income.
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 noncontrolling,
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 of $100 million as of December
31, 1998 and 1997 is reflected in Minority interest in the Consolidated Balance
Sheets. The income attributable to the noncontrolling interest in 1998 and 1997
was $7.5 million and $3.3 million, respectively, and is reflected in Minority
interest in the Consolidated Statements of Income.
Stock Plans
The 1996 Employee Stock Incentive Plan provides that the Company may grant to
eligible employees stock options, restricted stock and other incentive awards.
Up to 6.5 million shares of common stock may be granted under the plan, of which
no more than 2.5 million shares may be granted as restricted stock. The vesting
period and terms of stock options granted are established by the Compensation
Committee of the board of directors. Generally, the options become exercisable
38
three years after the date of grant and have a maximum term of 10 years. There
are stock options and restricted stock outstanding that were granted under
previous plans with terms similar 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 and generally have a maximum term of five years.
In the event of a change of Company control, all outstanding stock options
become immediately exercisable under the above described plans. There were
2,404,563 and 3,384,284 shares available for future stock grants at December 31,
1998 and 1997, respectively.
The Company has elected to follow APB 25, "Accounting for Stock Issued to
Employees," and recognizes no compensation expense for stock options as the
option price under the plan equals the fair market value of the underlying stock
at the date of grant. 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.
The Company's weighted-average assumptions consisted of the following:
1998 1997 1996
Risk-free interest rate 5.08% 5.85% 6.03%
Dividend yield 1.13% 1.75% 2.80%
Stock price volatility factor 0.25 0.25 0.24
Weighted-average expected life (years) 5 5 5
Weighted-average fair value of options
granted $13.09 $8.67 $4.61
For purposes of pro forma disclosures, the estimated fair value of
options granted is amortized to expense over the options' vesting period. The
pro forma effect on net income is not representative of the pro forma effect on
net income in future years because grants made in 1996 and later years have an
increasing vesting period.
The Company's pro forma information consisted of the following:
In thousands except per share data 1998 1997 1996
Net income - as reported $280,610 $180,290 $136,429
Net income - pro forma 275,672 178,159 132,558
Basic earnings per share - as reported 3.05 1.87 1.34
Diluted earnings per share - as reported 2.99 1.84 1.33
Basic earnings per share - pro forma 3.00 1.84 1.30
Diluted earnings per share - pro forma 2.93 1.82 1.29
Stock option activity consisted of the following:
39
Average Option
Price Shares
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
Granted 46.39 912,195
Exercised 17.14 (755,083)
Exchanged for SAR 16.83 (520)
Canceled or expired 20.91 (75,180)
Outstanding December 31, 1998 $ 26.03 5,304,051
Exercisable options
December 31, 1996 $ 16.58 3,494,501
December 31, 1997 16.87 2,185,229
December 31, 1998 17.77 1,523,060
Information with respect to stock options outstanding and stock options
exercisable as of December 31, 1998 consisted of the following:
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$10.94-$16.88 583,955 4.4 $15.18 583,955 $15.18
$17.63-$24.63 2,630,405 7.4 18.91 906,105 18.20
$31.56-$42.88 1,208,441 8.9 31.81
$46.34-$51.91 881,250 9.5 46.55 33,000 51.91
5,304,051 1,523,060
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 a SAR outstanding were 69,465 at December
31, 1998, 122,850 at December 31, 1997 and 234,680 at December 31, 1996.
The Company issues restricted stock and stock units to certain executives
that vest over a three-year period based on achievement of pre-established
financial objectives. Restricted stock is paid out in shares and the stock
units are paid out in cash. Restricted stock shares outstanding at December 31,
1998, 1997 and 1996 were 311,960, 409,634 and 462,253, respectively. Restricted
stock units outstanding at December 31, 1998, 1997 and 1996 were 217,186,
289,272 and 283,600, respectively. The expense for the anticipated restricted
stock and stock unit payout is amortized over the three-year vesting period and
was $11.8 million, $7.6 million and $4.8 million in 1998, 1997 and 1996,
respectively. The number of shares of restricted stock issued in 1998 was
76,230 with a fair value at date of grant of $2.8 million. The number of stock
units issued in 1998 was 50,827 with a fair value at date of grant of $1.9
million.
40
Employee Stock Ownership Plan
The Company established an Employee Stock Option Plan (ESOP), and a related
trust issued debt and used the proceeds to acquire shares of the Company's stock
for future allocation to ESOP participants. ESOP participants generally consist
of all U.S. employees except a select group covered by a collective bargaining
agreement. The Company guarantees the ESOP debt and reflects it in the
Consolidated Balance Sheets as Long-term debt with a related amount shown in the
Shareowners' equity section as part of Employee stock plans. Dividends
earned on the allocated and unallocated ESOP shares are used to service the
debt. The Company is obligated to make annual contributions to the ESOP trust
to the extent the dividends earned on the shares are less than the debt service
requirements. As the debt is repaid, shares are released and allocated to plan
participants based on the ratio of the current year debt service payment to the
total debt service payments over the life of the loan. If the shares released
are less than the shares earned by the employees, the Company contributes
additional shares to the ESOP trust to meet the shortfall. All shares held by
the ESOP trust are considered outstanding for earnings per share computations
and dividends earned on the shares are recorded as a reduction of retained
earnings.
The ESOP shares held in trust consisted of the following:
December 31
1998 1997
Original shares held in trust:
Released and allocated 1,700,757 1,460,105
Unreleased shares (fair value; 1998--$71,985,029;
1997--$50,904,572) 1,156,386 1,397,038
2,857,143 2,857,143
Additional shares contributed and allocated 666,295 666,158
Shares withdrawn (514,211) (428,227)
Total shares held in trust 3,009,227 3,095,074
The components of the total contribution to the ESOP trust consisted of the
following:
Year Ended December 31
In thousands 1998 1997 1996
Debt service requirement $ 9,325 $ 9,831 $ 8,005
Dividends earned on ESOP shares (2,086) (1,960) (1,550)
Cash contribution to ESOP trust 7,239 7,871 6,455
FMV of additional shares contributed 6 726 2,312
Total contribution to ESOP trust $ 7,245 $ 8,597 $ 8,767
The components of expense recognized by the Company for the ESOP
contribution consisted of the following:
Year Ended December 31
In thousands 1998 1997 1996
Contribution classified as interest
expense $ 2,265 $ 4,636 $ 4,991
Contribution classified as compensation
expense 4,980 3,961 3,776
Total expense for the ESOP contribution $ 7,245 $ 8,597 $ 8,767
41
Shareowners' Equity
The share activity of the Company's common stock consisted of the following:
December 31
In thousands 1998 1997 1996
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 (22,465) (19,106) (11,745)
Purchase of common stock for treasury (6,300) (5,000) (8,056)
Stock issued under stock option plans 760 1,374 390
Stock issued under restricted stock
awards, net 52 151 182
Additional ESOP shares issued 20 116 123
Balance at end of period (27,933) (22,465) (19,106)
In 1997, the Company's board of directors authorized the repurchase of up
to 15 million additional shares beyond the previous share repurchase
authorizations totalling 15.8 million shares. Under these authorizations, the
Company has repurchased 22.1 million shares at a cost of $675 million. As of
December 31, 1998, of the 8.7 million shares which may be repurchased under then
existing board authorization, the Company is committed to purchase 4 million
shares under put options contracts, if such options are exercised. (See
discussion of these put option contracts below.) The Company plans to continue
the repurchase of shares over a non-specified period of time.
During the first quarter of 1998, the Company amended the forward stock
purchase agreement associated with the repurchase of 4 million shares by the
Company during 1997. The future contingent purchase price adjustment included
in the forward stock purchase agreement was amended to provide for settlement
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 March 24, 1998 rather than as of August 20, 1997. The net cost of the
amendment was $64 million. During the third quarter of 1998, the Company
further amended the forward stock purchase agreement to establish the future
settlement price on 1 million of the total 4 million shares. 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.
In connection with the share repurchase program, the Company sells put
options which give 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 1998 and 1997, the Company received $30
million and $10 million, respectively, in premium proceeds from the sale of put
options. As of December 31, 1998, there were put options outstanding for 4
million shares with strike prices ranging from $43.25 to $56.838 (the weighted-
average strike price was $51.92).
Pursuant to a Shareholder Rights Plan approved by the Company in 1998, 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 $165. 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
42
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, 2008.
Supplementary Expense Information
Advertising costs and research and development expenses consisted of the
following:
Year Ended December 31
In thousands 1998 1997 1996
Advertising costs $ 168,483 $ 143,334 $ 138,141
Research and development expenses 59,468 50,201 48,927
Earnings Per Share
The computation of basic and diluted earnings per share consisted of the
following:
Year Ended December 31
In thousands except per share data 1998 1997 1996
Numerator:
Income before extraordinary item $ 286,510 $ 183,490 $ 137,977
Extraordinary item - loss on early
retirement of debt (5,900) (3,200) (1,548)
Numerator for basic and diluted
earnings per share - net income $ 280,610 $ 180,290 $ 136,429
Denominator:
Denominator for basic earnings per
share - weighted-average shares 91,941 96,565 101,727
Effect of dilutive securities:
Stock option plans 1,731 940 434
Restricted stock awards 196 190 305
Forward stock purchase contract 105 360
Dilutive potential common shares 2,032 1,490 739
Denominator for diluted earnings per
share - adjusted weighted-average
shares 93,973 98,055 102,466
Basic earnings per share $ 3.05 $ 1.87 $ 1.34
Diluted earnings per share $ 2.99 $ 1.84 $ 1.33
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.
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
also has 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.
43
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 undiscounted obligation of
approximately $8 million for future environmental costs may change in the near
term, the Company believes the outcome of these matters will not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows. The accrual for environmental liabilities is reflected in Other
noncurrent liabilities in the Consolidated Balance Sheets.
Commitments and Contingencies
The Company has contingent liabilities arising in the normal course of business,
including pending litigation, environmental remediation, taxes and other claims.
The Company believes the outcome of these matters will not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.
At December 31, 1998, the Company has outstanding commitments for capital
expenditures of $22 million.
Segment Reporting
The Company has three reportable segments: home appliances, commercial
appliances and international appliances. The operations of the Company's home
appliances segment manufacture major appliances (laundry products, dishwashers,
refrigerators, cooking appliances) and floor care products. These products are
primarily sold to major national retailers and independent retail dealers in
North America and targeted international markets.
The operations of the Company's commercial appliances segment manufacture
commercial cooking and vending equipment. These products are primarily sold to
distributors, soft drink bottlers, restaurant chains and dealers in North
America and targeted international markets.
The international appliances segment consists of the Company's 50.5 percent
owned joint venture in China, Rongshida-Maytag, which manufactures laundry
products and refrigerators. These products are primarily sold to department
stores and distributors in China.
The Company's reportable segments are distinguished by the nature of
products manufactured and sold and types of customers. The Company's home
appliances segment has been further defined based on distinct geographical
locations.
The Company evaluates performance and allocates resources to reportable
segments primarily based on operating income. The accounting policies of the
reportable segments are the same as those described in the summary of
significant policies except that the Company allocates pension expense
associated with its pension plan to each reportable segment while recording the
pension assets and liabilities at corporate. In addition, the Company records
its federal and state deferred tax assets and liabilities at corporate.
Intersegment sales are not significant.
Financial information for the Company's reportable segments consisted of
the following:
44
Year Ended December 31
In thousands 1998 1997 1996
Net sales
Home appliances $3,482,842 $3,035,593 $2,798,907
Commercial appliances 458,008 249,416 162,301
International appliances 128,440 122,902 40,448
Consolidated total $4,069,290 $3,407,911 $3,001,656
Operating income
Home appliances $ 505,110 $ 351,665 $ 276,945
Commercial appliances 49,769 19,437 10,731
International appliances 5,939 11,605 3,802
Total for reportable segments 560,818 382,707 291,478
Corporate (38,080) (24,434) (22,399)
Consolidated total $ 522,738 $ 358,273 $ 269,079
Capital expenditures
Home appliances $ 126,019 $ 174,622 $ 216,321
Commercial appliances 9,044 7,412 2,694
International appliances 21,817 32,884 576
Total for reportable segments 156,880 214,918 219,591
Corporate 4,371 14,643 311
Consolidated total $ 161,251 $ 229,561 $ 219,902
Depreciation and amortization
Home appliances $ 129,712 $ 125,125 $ 104,768
Commercial appliances 9,781 5,666 3,820
International appliances 7,533 6,410 1,412
Total for reportable segments 147,026 137,201 110,000
Corporate 1,528 962 1,278
Consolidated total $ 148,554 $ 138,163 $ 111,278
Total assets
Home appliances $1,736,396 $1,753,109 $1,730,795
Commercial appliances 266,750 250,440 91,886
International appliances 255,361 220,089 189,362
Total for reportable segments 2,258,507 2,223,638 2,012,043
Corporate 329,156 290,516 317,897
Consolidated total $2,587,663 $2,514,154 $2,329,940
In 1996, the Company's home appliances segment recorded a restructuring
charge of $40 million. For additional disclosures regarding the Restructuring
Charge, see Restructuring Charge section in the Notes to Consolidated Financial
Statements.
Corporate assets includes such items as deferred tax assets, intangible
pension asset and other assets.
The reconciliation of segment profit to consolidated income before income
taxes and minority interest consisted of the following:
Year Ended December 31
In thousands 1998 1997 1996
Total operating income for reportable
segments $ 560,818 $ 382,707 $ 291,478
General corporate (38,080) (24,434) (22,399)
Interest expense (62,765) (58,995) (43,006)
Other - net 10,912 1,277 2,164
Consolidated income before income
taxes and minority interest $ 470,885 $ 300,555 $ 228,237
Financial information related to the Company's operations by geographic
area consisted of the following:
45
Year Ended December 31
In thousands 1998 1997 1996
Net sales
United States $3,601,790 $2,983,574 $2,674,127
China 128,440 122,902 40,448
Other foreign countries 339,060 301,435 287,081
Consolidated total $4,069,290 $3,407,911 $3,001,656
December 31
In thousands 1998 1997 1996
Long-lived assets
United States $ 867,425 $ 866,316 $ 804,770
China 90,080 67,964 40,616
Other foreign countries 8,089 6,992 6,499
Consolidated total $ 965,594 $ 941,272 $ 851,885
Net sales are attributed to countries based on the location of customers.
Long-lived assets consist of total property, plant and equipment.
46
Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations consisted of the following:
December September June March
In thousands except per share data 31 30 30 31
1998
Net sales $ 972,003 $1,035,202 $1,021,699 $1,040,386
Gross profit 291,791 298,817 287,118 303,901
Income before extraordinary item 68,816 77,440 67,987 72,267
Basic earnings per share 0.77 0.85 0.73 0.77
Diluted earnings per share 0.75 0.84 0.71 0.75
Net income 66,416 73,940 67,987 72,267
Basic earnings per share 0.74 0.82 0.73 0.77
Diluted earnings per share 0.72 0.80 0.71 0.75
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
In the third quarter of 1998, the Company made early retirements of debt of
$50.5 million at an after-tax cost of $3.5 million. In the fourth quarter of
1998, the Company made early retirements of debt of $20.6 million at an after-
tax cost of $2.4 million. These charges for the early retirement of debt have
been reflected in the Consolidated Statements of Income as extraordinary items.
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. In the fourth quarter of 1997, the Company
made early retirements of debt of $61.8 million at an after-tax cost of $3.2
million. The charge for the early retirement of debt has been reflected in the
Consolidated Statements of Income as an extraordinary item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
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 13 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
47
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 50.
(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 51 through 54.
(b) There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 1998.
(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 51
through 54.
(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 50.
48
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)
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.
Gerald J. Pribanic Steven H. Wood
Executive Vice President and Vice President Financial Reporting
Chief Financial Officer and Audit and Chief Accounting Officer
Barbara R. Allen Howard L. Clark, Jr.
Director Director
Lester Crown Wayland R. Hicks
Director Director
Bernard G. Rethore W. Ann Reynolds
Director Director
Neele E. Stearns, Jr. Fred G. Steingraber
Director Director
Carole J. Uhrich
Director
Date: March 17, 1999
49
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, 1998
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
Consolidated Statements of Income--Years Ended
December 31, 1998, 1997, and 1996 . . . . . . . . . . . . . 20
Consolidated Balance Sheets--
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . 21
Consolidated Statements of Shareowners' Equity--Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 23
Consolidated Statements of Comprehensive Income--
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 24
Consolidated Statements of Cash Flows--Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . 26
Quarterly Results of Operations--Years 1998 and 1997 . . . . 47
The following consolidated financial statement schedule of Maytag Corporation
and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts . . .. . . . . 55
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.
50
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
Registrant. Form 10-K.
3(c) Certificate of Increase of Authorized 1988 Annual
Number of Shares of Series A Junior Report on
Participating Preferred Stock of Form 10-K.
Registrant.
3(d) Certificate of Amendment to Certificate of1997 Annual
Designations of Series A Junior Report on
Participating Preferred Stock of Form 10-K
Registrant.
3(e) By-Laws of Registrant, as amended through X
November 12, 1998.
4(a) Rights Agreement dated as of February 12, Form 8-A
1998 between Registrant and Harris Trust dated
and Savings Bank. February 12,
1998, Exhibit
1.
4(b) Letter to Shareholders dated February 12, Current
1998 relating to the adoption of a Report on
shareholders rights plan with attachments.Form 8-K
dated
February 12,
1998, Exhibit
1.
4(c) Indenture dated as of June 15, 1987 Quarterly
between Registrant and The First National Report on
Bank of Chicago. Form 10-Q for
the quarter
ended June
30, 1987.
51
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
4(d) First Supplemental Indenture dated as of Current
September 1, 1989 between Registrant and Report on
The First National Bank of Chicago. Form 8-K
dated
September 28,
1989, Exhibit
4.3.
4(e) Second Supplemental Indenture dated as of Current
November 15, 1990 between Registrant and Report on
The First National Bank of Chicago. Form 8-K
dated
November 29,
1990.
4(f) Third Supplemental Indenture dated as of Current
August 20, 1996 between Registrant and Report on
The First National Bank of Chicago. Form 8-K
dated August
20, 1996.
4(g) U.S. $400,000,000 Credit Agreement Dated 1995 Annual
as of July 28, 1996 among Registrant, the Report on
banks Party Hereto and Bank of Montreal, Form 10-K
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(h) Second Amendment to Credit Agreement Dated1996 Annual
as of July 1, 1996 among Registrant, the Report on
banks Party Hereto and Bank of Montreal, Form 10-K
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(i) Third Amendment to Credit Agreement Dated 1997 Annual
as of June 10, 1997 among Registrant, the Report on
banks Party Hereto and Bank of Montreal, Form 10-K
Chicago Branch as Agent and Royal Bank of
Canada as Co-Agent.
4(j) 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) Change of Control Agreements (1). X
10(c) Corporate Severance Agreements (1). 1989 Annual
Report on
Form 10-K.
52
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
10(d) Revised definition of Change of Control 1995 Annual
adopted by the Board of Directors amendingReport on
the definition included in the Corporate Form 10-K
Severance Agreements listed in Exhibit
10(c).
10(e) 1989 Non-Employee Directors Stock Option Exhibit A to
Plan (1). Registrant's
Proxy
Statement
dated March
18, 1990.
10(f) 1986 Stock Option Plan for Executives and Exhibit A to
Key Employees (1). Registrant's
Proxy
Statement
dated March
14, 1986.
10(g) 1992 Stock Option Plan for Executives and Exhibit A to
Key Employees (1). Registrant's
Proxy
Statement
dated March
16, 1992.
10(h) 1991 Stock Incentive Award Plan for Key Exhibit A to
Executives (1). Registrant's
Proxy
Statement
dated March
15, 1991.
10(i) Directors Deferred Compensation Plan (1). Amendment No.
1 on Form 8
dated April
5, 1990 to
1989 Annual
Report on
Form 10-K.
10(j) 1996 Employee Stock Incentive Plan (1). Exhibit A to
Registrant's
Proxy
Statement
dated March
20, 1996.
53
Incorporated Filed with
Exhibit Herein by Electronic
Number Description of Document Reference to Submission
10(k) 1988 Capital Accumulation Plan for Key Amendment No.
Employees (1). (Superseded by Deferred 1 on Form 8
Compensation Plan, as amended and restateddated April
effective January 1, 1997) 5, 1990 to
1989 Annual
Report on
Form 10-K.
10(l) Maytag Deferred Compensation Plan, as 1995 Annual
amended and restated effective January 1, Report on
1996. Form 10-K
10(m) Directors Retirement Plan (1). Amendment No.
1 on Form 8
dated April
5, 1990 to
1989 Annual
Report on
Form 10-K.
10(n) 1998 Non-Employee Directors' Stock Option Exhibit A to
Plan (1). Registrant's
Proxy
Statement
dated April
2, 1998.
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, 1998.
27 (b) Financial Data Schedule - Restated Twelve X
Months Ended December 31, 1997.
54
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Maytag Corporation
Thousands of Dollars
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
Year ended December 31, 1998:
Allowance for doubtful $ 36,386 $ 14,807 $ 29,743 (1) $ 22,305
accounts receivable 73 (2)
(928)(3)
$ 36,386 $ 14,807 $ 28,888 $ 22,305
Year ended December 31, 1997:
Allowance for doubtful $ 13,790 $ 26,212 (4) $ 3,903 (1)(4) $ 36,386
accounts receivable 1 (2)
(288)(5)
$ 13,790 $ 26,212 $ 3,616 $ 36,386
Year ended December 31, 1996:
Allowance for doubtful $ 12,540 $ 14,152 $ 14,169 (1) $ 13,790
accounts receivable 2 (2)
(1,269)(6)
$ 12,540 $ 14,152 $ 12,902 $ 13,790
Note 1 - Uncollectible accounts written off
Note 2 - Effect of foreign currency translation
Note 3 - Resulting from acquisition of Three Gorges in the fourth quarter of 1998.
Note 4 - These amounts have been reclassified to conform to 1998 presentation.
Note 5 - Resulting from acquisition of G.S. Blodgett Corporation in October 1997.
Note 6 - Resulting from acquistion of the Company's China joint venture in the fourth quarter of 1996.
55