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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.
Commission file number 1-3932
WHIRLPOOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-1490038
(State of incorporation) (I.R.S. Employer Identification No.)
2000 M-63
Benton Harbor, Michigan 49022-2692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 616/923-5000
The registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
-------
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date:
Class of common stock Shares outstanding at June 30, 2002
--------------------- -----------------------------------
Common stock, par value $1 per share 68,183,150
QUARTERLY REPORT ON FORM 10-Q
WHIRLPOOL CORPORATION
Quarter Ended June 30, 2002
INDEX OF INFORMATION INCLUDED IN REPORT
Page
----
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements
of Earnings 3
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements
of Changes in Equity 5
Consolidated Condensed Statements
of Cash Flows 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 16
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
2
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THE PERIOD ENDED JUNE 30
(millions of dollars except share and dividend data)
Three Months Ended Six Months Ended
---------------------------------------------
2002 2001 2002 2001
------------ -------- --------- -------
Net sales $ 2,737 $ 2,585 $ 5,311 $ 5,101
EXPENSES:
Cost of products sold 2,103 1,989 4,085 3,948
Selling and administrative 432 405 838 810
Intangible amortization 1 7 2 14
Restructuring costs 13 14 14 62
------------ ------- --------- -------
2,549 2,415 4,939 4,834
------------ ------- --------- -------
OPERATING PROFIT 188 170 372 267
OTHER INCOME (EXPENSE):
Interest and sundry income (expense) (11) (7) (31) (11)
Interest expense (35) (43) (69) (87)
------------ ------- --------- -------
EARNINGS BEFORE INCOME TAXES
AND OTHER ITEMS 142 120 272 169
Income taxes 51 43 95 61
------------ ------- --------- -------
EARNINGS BEFORE EQUITY EARNINGS
AND MINORITY INTERESTS 91 77 177 108
Equity in earnings (loss) of affiliated companies (25) 2 (24) 3
Minority interests (3) (5) (5) (4)
------------- -------- --------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 63 74 148 107
Loss from discontinued operations, net of tax - (21) - (21)
Cumulative effect of change in accounting principle, net of tax - - (613) 8
------------ ------- --------- -------
NET EARNINGS (LOSS) $ 63 $ 53 $ (465) $ 94
============ ======= ========= =======
Per share of common stock:
Basic earnings from continuing operations $ .93 $ 1.12 $ 2.18 $ 1.61
Loss from discontinued operations, net of tax - (.32) - (.32)
Cumulative effect of change in accounting principle, net of tax - - (9.05) .12
------------- -------- --------- --------
Basic net earnings (loss) $ .93 $ .80 $ (6.87) $ 1.41
============= ======== ========= ========
Diluted earnings from continuing operations $ .91 $ 1.10 $ 2.12 $ 1.59
Loss from discontinued operations, net of tax - (.32) - (.32)
Cumulative effect of change in accounting principle, net of tax - - (8.80) .12
------------- -------- --------- --------
Diluted net earnings (loss) $ .91 $ .78 $ (6.68) $ 1.39
============= ======== ========= ========
Dividends declared $ .34 $ .34 $ .68 $ .68
============= ======== ========= ========
Weighted-average shares outstanding (millions):
Basic 68.1 66.5 67.7 66.4
Fully diluted 70.1 67.7 69.6 67.3
See notes to consolidated condensed financial statements.
3
CONSOLIDATED CONDENSED BALANCE SHEETS
WHIRLPOOL CORPORATION
(millions of dollars)
(Unaudited)
June 30 December 31
2002 2001
----------- -------------
ASSETS
Current Assets
- --------------
Cash and equivalents $ 139 $ 316
Trade receivables, less allowances of
(2002: $81 ;2001: $93) 1,760 1,515
Inventories 1,166 1,110
Prepaid expenses 80 59
Deferred income taxes 90 176
Other current assets 150 135
------- -------
Total Current Assets 3,385 3,311
------- -------
Other Assets
- ------------
Investment in affiliated companies 93 117
Goodwill, net 72 685
Deferred income taxes 347 354
Prepaid pension costs 226 208
Other 223 240
------- -------
961 1,604
------- -------
Property, Plant and Equipment
- -----------------------------
Land 64 56
Buildings 931 886
Machinery and equipment 4,426 4,372
Accumulated depreciation (3,406) (3,262)
------- -------
2,015 2,052
------- -------
Total Assets $ 6,361 $ 6,967
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Notes payable $ 419 $ 148
Accounts payable 1,382 1,427
Employee compensation 229 252
Deferred income taxes 126 102
Accrued expenses 646 623
Restructuring costs 78 77
Accrued product recalls 22 239
Other current liabilities 110 195
Current maturities of long-term debt 215 19
------- -------
Total Current Liabilities 3,227 3,082
------- -------
Other Liabilities
- -----------------
Deferred income taxes 180 177
Postemployment benefits 640 623
Product warranty 51 45
Other liabilities 210 160
Long-term debt 1,087 1,295
------- -------
2,168 2,300
------- -------
Minority Interests 89 127
Stockholders' Equity
- --------------------
Common stock 87 86
Paid-in capital 563 480
Retained earnings 1,959 2,470
Accumulated other comprehensive income (loss) (816) (697)
Treasury stock - at cost (916) (881)
------- -------
Total Stockholders' Equity 877 1,458
------- -------
Total Liabilities and Stockholders' Equity $ 6,361 $ 6,967
======= =======
See notes to consolidated condensed financial statements.
4
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
WHIRLPOOL CORPORATION
FOR THE PERIODS ENDED JUNE 30
(millions of dollars)
Three Months Ended
--------------------------------------------------------------------------------------------------
Accumulated
Other
Retained Comprehensive Treasury Stock /
Total Earnings Income (Loss) Common Stock Paid-in-Capital
------------------ ------------------ ------------------ ------------------ ------------------
Beginning balance $ 1,586 $ 2,558 $ (618) $ 84 $ (438)
Comprehensive income (loss)
Net income 53 53
Cumulative effect of change
in accounting principle, net
of tax
Unrealized loss on derivative
instruments (8) (8)
Other, principally foreign
currency items (58) (58)
------------------ ------------------
Comprehensive income (loss) (13) (66)
------------------ ------------------
Common stock issued, net of
treasury shares 18 18
Dividends declared on common
stock (23) (23)
------------------ ------------------ ------------------ ------------------ ------------------
Ending balance, June 30, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420)
================== ================== ================== ================== ==================
Beginning balance $ 865 $ 1,919 $ (772) $ 87 $ (369)
Comprehensive income (loss)
Net income 63 63
Unrealized loss on derivative
instruments (4) (4)
Other, principally foreign
currency items (40) (40)
------------------ ------------------
Comprehensive income (loss) 19 (44)
------------------ ------------------
Treasury shares purchased, net
of shares issued
Common stock issued under stock
plans 16 16
Dividends declared on common
stock (23) (23)
------------------ ------------------ ------------------ ------------------ ------------------
Ending balance, June 30, 2002 $ 877 $ 1,959 $ (816) $ 87 $ (353)
================== ================== ================== ================== ==================
Six Months Ended
--------------------------------------------------------------------------------------------------
Accumulated
Other
Retained Comprehensive Treasury Stock /
Total Earnings Income (Loss) Common Stock Paid-in-Capital
------------------ ------------------ ------------------ ------------------ ------------------
Beginning balance $ 1,684 $ 2,539 $ (495) $ 84 $ (444)
Comprehensive income (loss)
Net income 94 94
Cumulative effect of change
in accounting principle, net
of tax (11) (11)
Unrealized loss on derivative
instruments (6) (6)
Other, principally foreign
currency items (172) (172)
------------------ ------------------
Comprehensive income (loss) (95) (189)
------------------ ------------------
Common stock issued, net of
treasury shares 24 24
Dividends declared on common
stock (45) (45)
------------------ ------------------ ------------------ ------------------ ------------------
Ending balance, June 30, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420)
================== ================== ================== ================== ==================
Beginning balance $ 1,458 $ 2,470 $ (697) $ 86 $ (401)
Comprehensive income (loss)
Net income (465) (465)
Unrealized loss on derivative
instruments (3) (3)
Other, principally foreign
currency items (116) (116)
------------------ ------------------
Comprehensive income (loss) (584) (119)
------------------ ------------------
Treasury shares purchased, net
of shares issued (35) (35)
Common stock issued under stock
plans 84 1 83
Dividends declared on common
stock (46) (46)
------------------ ------------------ ------------------ ------------------ ------------------
Ending balance, June 30, 2002 $ 877 $ 1,959 $ (816) $ 87 $ (353)
================== ================== ================== ================== ==================
See notes to consolidated condensed financial statements
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
WHIRLPOOL CORPORATION
FOR SIX MONTHS ENDED JUNE 30
(millions of dollars)
2002 2001
-------------- -------------
OPERATING ACTIVITIES
Net earnings (loss) $ (465) $ 94
Cumulative effect of a change in accounting principle 613 (8)
Equity in net earnings of affiliated companies,
less dividends received 24 (3)
Loss on disposition of assets 8 20
Loss on discontinued operations - 21
Depreciation and amortization 188 199
Changes in assets and liabilities, net of business acquisition:
Trade receivables (198) 9
Inventories (32) (19)
Accounts payable (81) (21)
Product recalls (217) -
Restructuring charges, net of cash paid (10) 23
Taxes deferred and payable, net 86 36
Tax paid on cross currency interest rate swap gain (86) -
Other - net 14 (10)
------------- ------------
Cash Provided By (Used In) Operating Activities $ (156) $ 341
------------- ------------
INVESTING ACTIVITIES
Net additions to properties $ (117) $ (118)
Acquisitions of businesses, less cash acquired (27) -
------------- ------------
Cash Used In Investing Activities $ (144) $ (118)
------------- ------------
FINANCING ACTIVITIES
Net proceeds (repayments) of short-term borrowings $ 232 $ (108)
Proceeds of long-term debt 13 6
Repayments of long-term debt (57) (32)
Dividends paid (46) (68)
Purchase of treasury stock (46) -
Redemption of WFC preferred stock (25) -
Common stock issued under stock plans 84 24
Other (28) (3)
------------- ------------
Cash Provided By (Used In) Financing Activities $ 127 $ (181)
------------- ------------
Effect of Exchange Rate Changes on Cash and Equivalents $ (4) $ (3)
------------- ------------
Increase (Decrease) in Cash and Equivalents $ (177) $ 39
Cash and Equivalents at Beginning of Period 316 114
------------- ------------
Cash and Equivalents at End of Period $ 139 $ 153
============= ============
See notes to consolidated condensed financial statements
6
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION AND SUMMARY OF PRINCIPAL
ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and applicable
rules of Regulation S-X. Accordingly, they do not include all information or
footnotes required by generally accepted accounting principles for complete
financial statements. Management believes the financial statements include all
normal recurring accrual adjustments necessary for a fair presentation.
Operating results for the three and six months ended June 30, 2002 do not
necessarily indicate the results that may be expected for the full year. For
further information, refer to the consolidated financial statements and notes
thereto included in the company's annual report for the year ended December 31,
2001.
Certain amounts in the prior period financial statements have been reclassified
to conform with the current period presentation.
Diluted net earnings per share of common stock include the dilutive effect of
stock and put options. Approximately 25,000 stock options were excluded from the
current quarter's earnings per diluted share calculation because their exercise
prices rendered them anti-dilutive to this calculation.
NOTE B--ACQUISITIONS
On June 5, 2002, the company acquired 95% of the shares of Polar S.A. (Polar), a
leading major home appliance manufacturer in Poland. The results of Polar's
operations have been included in the consolidated financial statements since
that date, however, they did not have a material impact on the current period's
results.
The aggregate purchase price was $27 million in cash plus outstanding debt at
the time of acquisition, which totaled $19 million. The operations of Polar have
been included in the company's European operating segment.
7
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C--SUBSEQUENT EVENTS
On July 3, 2002, the company acquired the remaining 51% ownership in Vitromatic
S.A. de C.V. (Vitromatic), an appliance manufacturer and distributor in Mexico.
The aggregate purchase price was $148 million in cash plus outstanding debt at
the time of acquisition, which totaled $146 million. Vitromatic's operations,
which will be consolidated with the North American operating segment's results
as of the acquisition date, would have increased the company's consolidated
sales by approximately $400 million for the fiscal year ended December 31, 2001.
NOTE D--NEW ACCOUNTING STANDARDS
The company adopted the non-amortization provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002, which resulted in a $6 million increase in the second quarter's
net earnings and an $11 million increase to the first six month's net earnings.
This provision of the statement is expected to increase full-year net earnings
by approximately $24 million.
As an additional step in the SFAS 142 implementation process, there is a
transitional period from the effective date of adoption for the company to
perform an initial assessment of its reporting units to determine whether there
is any indication that the goodwill carrying value may be impaired. This
assessment is made by comparing the fair value of each reporting unit, as
determined in accordance with the new rule, to its book value. To the extent
that impairment is indicated (fair value is less than book value), companies
must determine the amount of goodwill impairment within individual reporting
units. Any impairment charge resulting from the adoption of SFAS No. 142 is
recorded as a cumulative effect of a change in accounting principle retroactive
to January 1, 2002. In future years, a goodwill impairment review must be
conducted at least annually at the reporting unit level, and any such impairment
recorded as a charge to operating earnings.
The company completed the transitional impairment review of its reporting units
during the second quarter and recorded a non-cash after-tax charge of $613
million or $8.84 per diluted share. This charge has been recorded as a
cumulative effect of a change in accounting principle retroactive to January 1,
2002 and therefore reduced the previously reported first quarter 2002 net
earnings of $1.21 per diluted share to a net loss of $7.63 per diluted share.
The following table summarizes the impairment charges by reporting segment as
well as the changes in the carrying amount of goodwill for the period ended June
30, 2002:
8
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(millions of dollars)
Goodwill Impairment Goodwill
Reporting Segment at 1/1/02 Charge at 6/30/02
- ------------------------------------- ----------- -----------
North America $ 68 $ - $ 68
Europe 367 (367) -
Latin America 64 (60) 4
Asia 186 (186) -
------------ ----------- -----------
Total $ 685 $ (613) $ 72
============ =========== ===========
The goodwill in Europe was related primarily to the company's acquisition in
1989 (53%) and 1991 (47%) of the major appliance business of Philips Electronics
N.V. The Latin American goodwill was mainly generated by the company's majority
ownership expansion in 1997 of its Brazilian affiliates. Within the Asian
business segment, the majority of goodwill arose in 1995 due to the acquisition
of a majority interest in Kelvinator of India, Ltd. and expansion into China.
The company determined the fair value of each reporting unit using a discounted
cash flow approach taking into consideration projections based on the individual
characteristics of the reporting units, historical trends and market multiples
for comparable businesses. The resulting impairment is primarily attributable to
a change in the evaluation criteria for goodwill utilized under previous
accounting guidance, to the fair value approach stipulated in SFAS No. 142.
External factors such as increased regional competition and global economic
conditions have also negatively impacted the value of these acquisitions.
9
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following table provides comparative earnings and earnings per share had the
non-amortization provisions of SFAS No. 142 been adopted for all periods
presented:
Three Months Ended June 30 Six Months Ended June 30
------------------------------ -----------------------------
(millions of dollars, except per share data) 2002 2001 2002 2001
----------- ----------- ----------- -----------
Reported net income (loss) $ 63 $ 53 $ (465) $ 94
Goodwill amortization - 6 - 11
----------- ----------- ----------- -----------
Adjusted net income (loss) $ 63 $ 59 $ (465) $ 105
=========== =========== =========== ===========
Basic earnings per share:
Reported net income (loss) $ .93 $ .80 $ (6.87) $ 1.41
Goodwill amortization - .09 - .17
----------- ----------- ----------- -----------
Adjusted net income (loss) $ .93 $ .89 $ (6.87) $ 1.58
=========== =========== =========== ===========
Diluted earnings per share:
Reported net income (loss) $ .91 $ .78 $ (6.68) $ 1.39
Goodwill amortization - .08 - .17
----------- ----------- ----------- -----------
Adjusted net income (loss) $ .91 $ .86 $ (6.68) $ 1.56
=========== =========== =========== ===========
As of June 30, 2002, the company had $11 million of indefinite-lived intangible
assets (trademarks). The company also had $6 million of other intangible assets
that will continue to be amortized over their remaining useful lives ranging
from 18 to 28 months. These other intangible asset amounts are included in Other
Assets in the company's balance sheets.
On January 1, 2002, the company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." There was no impact to the
company's operating results or financial position related to the adoption of
this standard.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial
accounting for and reporting of costs and obligations associated with the
retirement of tangible long-lived assets. This statement will become effective
for the company on January 1, 2003. The company has not yet determined the
effect the adoption of this standard will have on its consolidated financial
position or its results of operations.
On January 1, 2001, the company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No.
138. The company recorded the effect of the transition to these new accounting
requirements as a change in accounting principle. The transition adjustment to
adopt SFAS No. 133 resulted in $8 million of income, net of tax, from the
cumulative effect of a change in accounting principle, and an $11 million
decrease, net of tax, in stockholders' equity in the company's financial
statements for the quarter ended March 31, 2001.
10
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E--DISCONTINUED OPERATIONS
During the second quarter of 2001, the company wrote off its investment in a
securitized aircraft lease portfolio that was owned by the company's previously
discontinued finance company, Whirlpool Financial Corporation (WFC). The
write-off, due primarily to the softening aircraft leasing industry, resulted in
a pre-tax loss from discontinued operations of $35 million ($21 million
after-tax).
NOTE F--INVENTORIES
Inventories consist of the following:
June 30 December 31
2002 2001
----------- -----------
(millions of dollars)
Finished products $ 1,036 $ 949
Raw materials and work in process 266 297
----------- -----------
Total FIFO cost 1,302 1,246
Less excess of FIFO cost
over LIFO cost 136 136
----------- -----------
$ 1,166 $ 1,110
=========== ===========
11
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE G--RESTRUCTURING AND RELATED CHARGES
Restructuring
The current year-to-date results included $11 million pre-tax in restructuring
charges for termination costs. As of June 30, 2002, an additional 800 employees
had left the company since December 31, 2001. The majority of these employee
terminations were related to prior announcements under the company's
restructuring program. The prior year's results through June 30 included $62
million pre-tax in restructuring charges.
Related Charges
The current year-to-date results included $23 million pre-tax of restructuring
related charges that were recorded primarily in the cost of goods sold section
within operating profit. Included in this total were $6 million for a building
write-down and accelerated depreciation, and $17 million in other cash costs,
primarily relocation and concurrent operating costs. The prior year's results
through June 30 included $29 million pre-tax of restructuring related charges.
Details of the 2002 restructuring liability through June 30 were as follows:
Beginning Charge Cash Ending
(millions of dollars) Balance to Earnings Paid Non-cash Translation Acquisitions Balance
------------ ------------- ---------- ------------ ------------ -------------- -----------
Restructuring
Termination costs $ 75 $ 11 $(17) $ - $ - $ - $ 69
Non-employee exit costs 4 3 (7) - - - -
Translation impact (2) - - - 4 - 2
Polar acquisition - - - - - 7 7
Related Charges
Asset write-down - 6 - (6) - - -
Various cash costs - 17 (17) - - - -
------------ ------------- ---------- ------------ ------------ -------------- -----------
Total $ 77 $ 37 $(41) $ (6) $ 4 $ 7 $ 78
============ ============= ========== ============ ============ ============== ===========
NOTE H--ASSET IMPAIRMENT
The current period results were reduced by $22 million after-tax for an
impairment charge related to the company's investments in a European business.
The company acquired its initial investment in this entity with its purchase of
the appliance operations of Philips Electronics N.V. in 1989. Continued
deterioration in the German marketplace led to over-capacity in the wood cabinet
industry, which resulted in the business revising its estimated future cash
flows. These circumstances prompted the company to conduct an impairment review,
resulting in the above charge.
12
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I--RELATED PARTY TRANSACTIONS
In February, 2002, the company repurchased 700,000 shares of its common stock
from the company's U.S. pension plan at a total cost of $46 million. The shares
were repurchased from the pension plan at an average cost of $66.32 per share,
which was based upon an average of the high and low market prices on the date of
purchase.
NOTE J--CONTINGENCIES
The company is involved in various legal actions arising in the normal course of
business. Management, after taking into consideration legal counsel's evaluation
of such actions, is of the opinion that the outcome of these matters will not
have a material adverse effect on the company's financial position.
The company is a party to certain financial guarantees and standby letters of
credit with risk not reflected on the balance sheet. The only significant
arrangement in place at June 30, 2002 and December 31, 2001 is in its Brazilian
subsidiary. As a standard business practice the subsidiary guarantees customer
lines of credit at commercial banks following its normal credit policies. As of
June 30, 2002 and December 31, 2001, these amounts totaled $75 million and $124
million, respectively. The company currently believes the risk of loss to be
minimal.
13
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE K--GEOGRAPHIC SEGMENTS
The company identifies operating segments based upon geographical regions of
operations because each operating segment manufactures home appliances and
related components, but serves strategically different markets.
The company's chief operating decision maker reviews each operating segment's
performance based upon operating profit, excluding one-time charges such as
restructuring and related charges. These charges are included in operating
profit on a consolidated basis and included in the Other and (Eliminations)
column in the table below. For the quarter and year-to-date periods ended June
30, 2002, the operating segments recorded total restructuring and related
charges as follows: North America $10 and $17 million, Europe $10 and $13
million, Latin America $2 and $2 million, Asia $2 and $3 million and Corporate
$2 and $2 million. Refer to Note G, presented earlier, for a discussion of
restructuring and related charges.
(millions of dollars)
Three Months North Latin Other and
Ended June 30 America Europe America Asia (Eliminations) Consolidated
- --------------------------------------------------------------------------------------------------
Net sales
2002 $ 1,838 $ 507 $ 318 $ 110 $ (36) $ 2,737
2001 $ 1,661 $ 483 $ 379 $ 106 $ (44) $ 2,585
Intersegment sales
2002 $ 18 $ 40 $ 34 $ 11 $ (103) $ -
2001 $ 21 $ 12 $ 42 $ 15 $ (90) $ -
Intangible amortization
2002 $ - $ - $ - $ - $ 1 $ 1
2001 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7
Depreciation
2002 $ 49 $ 18 $ 22 $ 4 $ 1 $ 94
2001 $ 47 $ 17 $ 22 $ 3 $ 1 $ 90
Operating profit (loss)
2002 $ 210 $ 20 $ 14 $ 8 $ (64) $ 188
2001 $ 176 $ 4 $ 35 $ 6 $ (51) $ 170
Total assets
2002 $ 2,827 $ 2,310 $ 1,078 $ 671 $ (525) $ 6,361
December 31, 2001 $ 2,591 $ 2,067 $ 1,339 $ 653 $ 317 $ 6,967
Capital expenditures
2002 $ 22 $ 12 $ 22 $ 4 $ 3 $ 63
2001 $ 27 $ 15 $ 16 $ 2 $ - $ 60
14
WHIRLPOOL CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(millions of dollars)
Six Months North Latin Other and
Ended June 30 America Europe America Asia (Eliminations) Consolidated
- ---------------------------------------------------------------------------------------------------
Net sales
2002 $ 3,556 $ 982 $ 650 $ 195 $ (72) $ 5,311
2001 $ 3,198 $ 996 $ 791 $ 194 $ (78) $ 5,101
Intersegment sales
2002 $ 35 $ 71 $ 70 $ 21 $ (197) $ -
2001 $ 40 $ 22 $ 75 $ 31 $ (168) $ -
Intangible amortization
2002 $ - $ - $ - $ - $ 2 $ 2
2001 $ 2 $ 6 $ 2 $ 2 $ 2 $ 14
Depreciation
2002 $ 95 $ 34 $ 45 $ 8 $ 4 $ 186
2001 $ 94 $ 33 $ 47 $ 7 $ 4 $ 185
Operating profit (loss)
2002 $ 414 $ 30 $ 39 $ 12 $ (123) $ 372
2001 $ 346 $ 9 $ 63 $ 10 $ (161) $ 267
Total assets
2002 $ 2,827 $ 2,310 $ 1,078 $ 671 $ (525) $ 6,361
December 31, 2001 $ 2,591 $ 2,067 $ 1,339 $ 653 $ 317 $ 6,967
Capital expenditures
2002 $ 34 $ 24 $ 37 $ 5 $ 17 $ 117
2001 $ 56 $ 26 $ 31 $ 4 $ 1 $ 118
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The statements of earnings summarize operating results for the three and six
month periods ended June 30, 2002 and 2001. This section of Management's
Discussion highlights the main factors affecting the changes in operating
results.
Net Sales
The total number of units sold increased 5% for the quarter and year-to-date
comparisons. Excluding the impact of currency fluctuations around the world, net
sales would have increased 6% and 5% over the comparable periods. The table
below provides a breakdown of net sales by region.
2nd Quarter Year-to-date
--------------------- -------------------
(millions of dollars) 2002 2001 Change 2002 2001 Change
--------- --------- -------- --------- --------- --------
Net Sales:
North America $ 1,838 $ 1,661 10.7% $ 3,556 $ 3,198 11.2%
Europe 507 483 5.0 982 996 (1.4)
Latin America 318 379 (16.1) 650 791 (17.8)
Asia 110 106 3.8 195 194 0.5
Other/eliminations (36) (44) - (72) (78) -
--------- --------- --------- ---------
Consolidated $ 2,737 $ 2,585 5.9% $ 5,311 $ 5,101 4.1%
========= ========= ======== ========= ========= ========
Regional trends were as follows:
- - North American unit volume increased 11% and 12% for the quarter and
year-to-date periods. The U.S. appliance industry volume increased 10% for
the quarter. The increased net sales reflected higher volumes within the
portfolio of branded products and continued strength in consumer spending.
- - European unit volumes increased slightly for the quarterly comparison and
were essentially level on a year-to-date basis. European industry shipments
declined approximately 2% for the quarter. Net sales were up 5% for the
quarter due to a strengthening currency and higher volume and down slightly
for the year-to-date comparison. Net sales were up 2% for the quarter
excluding the impact of currency fluctuations.
- - Latin American unit volumes were down 21% for the quarter and 18%
year-to-date due to continuing economic pressures and market volatility
within the region. Appliance industry shipments were down an estimated 20%
on a year-to-date basis. The lower volume and currency fluctuations
combined to more than offset improved pricing in the quarter.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
- - Asia's unit volumes increased 12% and 10% for the quarter and year-to-date
periods. The higher volumes combined to offset currency fluctuations and
challenging economic and industry environments in the region.
For the full year 2002, appliance industry shipments are expected to be up 6-7%
in North America, down 1-2% in Europe, down 10% in Latin America and flat in
Asia.
Gross Margin
The gross margin percentage improved slightly for both the quarter and
year-to-date periods. Manufacturing productivity gains in North America, strong
productivity gains and improved product mix in Europe and lower restructuring
related charges combined to offset lower Befiex tax credits in Latin America,
which are discussed further under "Other Matters", and lower pension credits in
North America.
Selling and Administrative
Selling and administrative expenses as a percent of net sales were slightly
higher for the quarter but were lower on a year-to-date basis. Benefits from the
company's restructuring program and higher sales combined to offset increased
advertising spending and corporate overhead expenses for both periods.
Other Income and Expense
Interest and Sundry Income (Expense) was $4 million and $20 million unfavorable
for the quarter and year-to-date periods. The quarter and year-to-date results
reflect higher foreign currency costs and lower interest income. Reduced overall
borrowings and the lower interest rate environment combined to reduce interest
expense by $8 million and $18 million for the quarter and year-to-date periods.
Income Taxes
The consolidated effective income tax rate was 36% for the quarter and 35%
year-to-date versus rates of 36% for the year ago periods. The lower
year-to-date effective tax rate was due to the income mix amongst the various
reporting segments offsetting lower Befiex tax credits.
Earnings
The tables below reconcile the company's net earnings and net earnings per
diluted share to core earnings and core earnings per diluted share for the three
and six month periods ended June 30. Core earnings represent a measure of
operating results which is not recognized under Generally Accepted Accounting
Principles; however, the company believes that it does provide the reader of the
financial statements with relevant information regarding ongoing operations. The
differences between reported net earnings and core earnings are presented in the
table on an after-tax basis and reference the related note to the accompanying
consolidated condensed financial statements:
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Three Months Ended
-----------------------------------------------
2002 2001
----------------------- -----------------------
(millions of dollars, except per share data) Earnings EPS Earnings EPS
---------- ---------- ---------- ---------
Net earnings $ 63 $ 0.91 $ 53 $ 0.78
Adjustments to net earnings:
Restructuring and related charges (note G) 19 0.26 14 0.20
Write-off of equity interest and advances (note H) 22 0.31 - -
Loss from discontinued operations (note E) - - 21 0.32
---------- ---------- ---------- ---------
Total adjustments to net earnings 41 0.57 35 0.52
---------- ---------- ---------- ---------
Core earnings $ 104 $ 1.48 $ 88 $ 1.30
========== ========== ========== =========
Six Months Ended
-----------------------------------------------
2002 2001
----------------------- -----------------------
(millions of dollars, except per share data) Earnings EPS Earnings EPS
---------- ---------- ---------- ---------
Net earnings (loss) $ (465) $ (6.68) $ 94 $ 1.39
Adjustments to net earnings (loss):
Restructuring and related charges (note G) 26 0.38 55 0.81
Write-off of equity interest and advances (note H) 22 0.31 - -
Loss from discontinued operations (note E) - - 21 0.32
Adoption of new accounting standards (note D) 613 8.80 (8) (0.12)
---------- ---------- ---------- ---------
Total adjustments to net earnings (loss) 661 9.49 68 1.01
---------- ---------- ---------- ---------
Core earnings $ 196 $ 2.81 $ 162 $ 2.40
========== ========== ========== =========
The current period results were reduced by $22 million after-tax, as identified
in the table above, for an impairment charge related to the company's
investments in a European business. The company acquired its initial investment
in this entity with its purchase of the appliance operations of Philips
Electronics N.V. in 1989. Continued deterioration in the German marketplace led
to over-capacity in the wood cabinet industry, which resulted in the business
revising its estimated future cash flows. These circumstances prompted the
company to conduct an impairment review, resulting in the above charge.
The current period results were also affected by the elimination of goodwill
amortization, in accordance with SFAS No. 142. Adoption of the new standard
added approximately $6 million for the quarter and $11 million year-to-date,
after-tax, or $0.08 and $0.17 for both core and net earnings. The current year
benefit attributable to the elimination of goodwill amortization was mostly
offset by lower pension credits. Pension credits in the current year were
negatively impacted by a reduction in the discount rate, resulting from a
declining interest rate environment, and lower expected returns on pension plan
assets.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
CASH FLOWS
The statements of cash flows reflect the changes in cash and equivalents for the
six months ended June 30, 2002 and 2001 by classifying transactions into three
major categories: operating, investing and financing activities.
Operating Activities
The company's main source of liquidity is cash from operating activities
consisting of net earnings from operations adjusted for non-cash operating items
such as depreciation and changes in operating assets and liabilities such as
receivables, inventories and payables.
Cash used by operating activities in the first six months of 2002 was $156
million compared to $341 million provided in 2001. The decline from the prior
year was due to reduced net working capital cash flows, product recall costs and
taxes paid on a gain associated with the sale of a portfolio of cross-currency
interest rate swaps during the fourth quarter of 2001.
Investing Activities
The principal recurring investing activities are property additions. Net
property additions for the first half were $117 million in 2002 versus $118
million in the 2001 period. These expenditures are primarily for equipment and
tooling related to product improvements, more efficient production methods, and
replacement for normal wear and tear.
Financing Activities
Dividends to shareholders totaled $46 million for the first half of 2002 versus
$68 million in 2001. During the first quarter of 2001, both the fourth quarter
2000 dividend and the first quarter 2001 dividend were paid.
Also affecting the company's financing cash flows were $46 million in treasury
stock purchases, discussed further under "Financial Condition and Liquidity,"
and $25 million related to the redemption of preferred stock of the company's
discontinued financing company, Whirlpool Financial Corporation. These cash
outflows were substantially offset by $81 million in proceeds from the exercise
of company stock options during 2002.
The company's borrowings, adjusted for currency fluctuations, increased $188
million from year-end. The increase, primarily in short-term notes payable, was
due to seasonal working capital needs.
FINANCIAL CONDITION AND LIQUIDITY
The financial position of the company remains strong as evidenced by the June
30, 2002 balance sheet. The company's total assets are $6.4 billion and
stockholders' equity is $0.9 billion versus the June 30, 2001 totals of $6.8
billion and $1.6 billion, respectively. The write-down of $613
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
million in goodwill assets as of January 1, 2002 is the primary reason for the
change in both total assets and equity. The company's total assets and
stockholders' equity at December 31, 2001 were $7.0 billion and $1.5 billion,
respectively.
On February 15, 2000, the company announced that its Board of Directors approved
an extension of the company's stock repurchase program to $1 billion. The
additional $750 million share repurchase authorization extended the previously
authorized $250 million repurchase program which was announced March 1, 1999.
The shares are purchased in the open market and through privately negotiated
sales as the company deems appropriate. The company has purchased 12.7 million
shares at a cost of $684 million under this stock repurchase program, of which
0.7 million shares or $46 million were purchased in 2002. The 2002 shares were
repurchased from the company's U.S. pension plan at an average cost of $66.32
per share, which was based upon an average of the high and low market prices on
the date of purchase.
The overall debt to invested capital ratio of 64.0% at June 30, 2002 was up from
52.0% at June 30, 2001 and 48.0% at December 31, 2001. The increase from
year-end is due primarily to the reduction in equity for the goodwill
write-down. Excluding this adjustment, the June 30, 2002 debt to invested
capital ratio would have been 52.8%. The company's debt continues to be rated
investment grade by Moody's Investors Service Inc., Standard and Poor's, and
Fitch Ratings.
On July 3, 2001, the company issued 300 million euro denominated 5.875% Notes
due 2006. The notes are general obligations of the company and the proceeds were
used for general corporate purposes.
The company maintains an $800 million five-year committed credit agreement
through June 2006 and a committed $400 million 364-day credit agreement through
May 2003 that provide backup liquidity. As of June 30, 2002, there were no
borrowings under these agreements, which represent the company's total committed
credit lines.
The company has external sources of capital available and believes it has
adequate financial resources and liquidity to meet anticipated business needs
and to fund future growth opportunities.
OTHER MATTERS
During the third and fourth quarters of 2001, the company recorded $295 million
of charges related to two separate product recalls. As of December 31, 2001, the
remaining liability balance was $239 million, which was reduced by cash payments
of $217 million during the first half of 2002. The company's estimated liability
for product recall expenses is affected by several factors such as customer
contact rate, consumer options, field repair costs, inventory repair costs,
extended warranty costs, communication structure and other miscellaneous costs
such as legal, logistics and consulting. There have been no significant
adjustments to any assumptions during the first half of 2002, and management
currently believes the remaining $22 million liability is adequate to cover the
remaining costs associated with these recalls. The company believes these recall
initiatives will be completed by the end of 2002.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
In December 1996, Multibras and Empresa Brasileira de Compressores S.A.
(Embraco), Brazilian subsidiaries, obtained a favorable decision with respect to
additional export incentives in connection with the Brazilian government's
export incentive program (Befiex). This decision also recognized the right to
utilize these credits as an offset against current Brazilian federal excise tax
on domestic sales. The company's remaining available credits were approximately
$315 million as of December 31, 2001, of which $9 million and $22 million were
recognized in the 2002 quarter and year-to-date periods compared with $12
million and $29 million in the year ago periods. The company expects to
recognize approximately $40 million for the full year 2002, while any
recognition of further amounts in subsequent years is dependent upon
governmental action and the interpretation of Brazilian laws by the Brazilian
courts governing the use of these credits.
In December, 2000 the company announced a global restructuring plan that when
fully implemented is currently expected to result in pre-tax charges of between
$300 and $350 million and an annualized savings of over $200 million. The plan
is expected to eliminate approximately 6,000 positions worldwide and the final
phases will be announced over the remainder of 2002. For the initiatives
announced through June 30, 2002, the company expects to eliminate approximately
5,700 employees of which 4,500 had left the company through June 30, 2002. The
reduction in positions due to restructuring has been partially offset by an
increase in the number of employees in other areas of the company. The company
expects to realize approximately $147 million in annualized benefits from the
initiatives to date. The company expects to utilize cash on hand and cash
generated from operations to fund the remaining restructuring initiatives.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Management's
Discussion and Analysis and other sections of this report may contain
forward-looking statements that reflect our current views with respect to future
events and financial performance.
Certain statements contained in this annual report and other written and oral
statements made from time to time by the company do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of terminology such as
"anticipate," "believe," "estimate," "expect," "intend," "may," "could,"
"possible," "plan," "project," "will," "forecast," and similar words or
expressions. The company's forward-looking statements generally relate to its
growth strategies, financial results, product development, and sales efforts.
These forward-looking statements should be considered with the understanding
that such statements involve a variety of risks and uncertainties, known and
unknown, and may be affected by inaccurate assumptions. Consequently, no
forward-looking statement can be guaranteed and actual results may vary
materially.
Many factors could cause actual results to differ materially from the company's
forward-looking statements. Among these factors are: (1) competitive pressure to
reduce prices; (2) the ability to gain or maintain market share in an intensely
competitive global market; (3) the success of our global strategy to develop
brand differentiation and brand loyalty; (4) our ability to control
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
operating and selling costs and to maintain profit margins during industry
downturns; (5) gaining or losing a major trade partner; (6) currency exchange
rate fluctuations in Latin America, Europe, and Asia that could affect our
consolidated balance sheet and income statement; (7) our ability to continue to
recognize Befiex credits as described in more detail in the "Other Matters"
section within Management's Discussion and Analysis; (8) the effectiveness of
the series of restructuring actions the company anticipates taking through 2002;
and (9) social, economic, and political volatility, including potential
terrorist activity, in the North American, Latin American, European and Asian
economies.
The company undertakes no obligation to update any forward-looking statement,
and investors are advised to review disclosures by the company in our filings
with the Securities and Exchange Commission. It is not possible to foresee or
identify all factors that could cause actual results to differ from expected or
historic results. Therefore, investors should not consider the foregoing factors
to be an exhaustive statement of all risks, uncertainties, or factors that could
potentially cause actual results to differ.
22
PART II. OTHER INFORMATION
WHIRLPOOL CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 2002
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on April 16, 2002. At the meeting,
the following items were voted on by shareholders:
a. Messrs. Jeff M. Fettig, James M. Kilts, Miles L. Marsh and Paul G. Stern
were each elected to a term to expire in 2005.
Nominee For Against Withheld
------- --- ------- --------
Jeff M. Fettig 59,381,716 0 409,188
James M. Kilts 59,384,449 0 406,455
Miles L. Marsh 58,765,573 0 1,025,331
Paul G. Stern 58,763,253 0 1,027,651
Messrs. Cain, Gilmour, DiCamillo, Langbo, Smith and Whitwam and Ms. Stoney and
Ms. Hempel each have terms of office as directors that continued after the 2002
Annual Meeting.
b. The Whirlpool Corporation 2002 Omnibus Stock and Incentive Plan was
approved.
For Against Abstentions
--- ------- -----------
54,329,135 4,952,669 509,100
Item 6. Exhibits and Reports on Form 8-K
a. The following are included herein:
(10) Material Contracts - Long-Term Credit Agreement dated as of June 1,
2001 among Whirlpool Corporation, Whirlpool Europe B.V., Certain
Financial Institutions and Bank of America, N.A. as Administrative
Agent and Citibank, N.A. as Syndication Agent, ABN AMRO Bank, N.V.,
Fleet National Bank and The Chase Manhattan Bank, as Documentation
Agents, Banc of America Securities LLC and Salomon Smith Barney
Inc., Co-Lead Arrangers and Joint Book Managers
23
b. The registrant filed the following Current Reports on Form 8-K for the
quarterly period ended June 30, 2002.
A Current Report on Form 8-K dated April 17, 2002 pursuant to Item 5, "Other
Events," to announce the Company's earnings for the first quarter 2002.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHIRLPOOL CORPORATION
(Registrant)
By /s/ Mark Brown
-------------------------
Mark E. Brown
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
July 29, 2002
25