SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001. Commission file number 1-3932 WHIRLPOOL CORPORATION (Exact name of registrant as specified in its charter) Delaware 38-1490038 (State of incorporation) (I.R.S. Employer Identification No.) 2000 M-63 Benton Harbor, Michigan 49022-2692 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 616/923-5000 The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ -------- Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class of common stock Shares outstanding at March 31, 2001 --------------------- ------------------------------------ Common stock, par value $1 per share 66,599,779 PAGE 1 OF 19
QUARTERLY REPORT ON FORM 10-Q WHIRLPOOL CORPORATION Quarter Ended March 31, 2001 INDEX OF INFORMATION INCLUDED IN REPORT Page ---- PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Earnings 3 Consolidated Condensed Balance Sheets 4 Consolidated Condensed Statements of Changes in Equity 5 Consolidated Condensed Statements of Cash Flows 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 19 2
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) WHIRLPOOL CORPORATION FOR THE PERIOD ENDED MARCH 31 (millions of dollars except share and dividend data) <TABLE> <CAPTION> Three Months Ended ------------------ 2001 2000 ------ ------ <S> <C> <C> Net sales $2,517 $2,590 EXPENSES: Cost of products sold 1,959 1,942 Selling and administrative 406 405 Intangible amortization 7 8 Restructuring costs 48 - ------ ------ 2,420 2,355 ------ ------ OPERATING PROFIT 97 235 OTHER INCOME (EXPENSE): Interest and sundry income (expense) (5) (9) Interest expense (44) (38) ------ ------ EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 48 188 Income taxes 17 71 ------ ------ EARNINGS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 31 117 Equity in earnings of affiliated companies 1 (2) Minority interests 1 (3) ------ ------ EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 33 112 Cumulative effect of change in accounting principle, net of tax 8 - ------ ------ NET EARNINGS $ 41 $ 112 ====== ====== Per share of common stock: Basic earnings before cumulative effect of change in accounting principle $ .49 $ 1.53 ------ ------ Cumulative effect of change in accounting principle $ .13 $ - ------ ------ Basic net earnings $ .62 $ 1.53 ====== ====== Diluted earnings before cumulative effect of change in accounting principle $ .49 $ 1.52 ------ ------ Cumulative effect of change in accounting principle $ .12 $ - ------ ------ Diluted net earnings $ .61 $ 1.52 ====== ====== Dividends declared $ .34 $ .34 ====== ====== Weighted-average shares outstanding (millions): Basic 66.3 73.5 ====== ====== Fully diluted 66.9 74.1 ====== ====== </TABLE> See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED BALANCE SHEETS WHIRLPOOL CORPORATION (millions of dollars) <TABLE> <CAPTION> (Unaudited) March 31 December 31 2001 2000 ----------- ----------- <S> <C> <C> ASSETS Current Assets - -------------- Cash and equivalents $ 177 $ 114 Trade receivables, less allowances of (2001: $94; 2000: $103) 1,640 1,748 Inventories 1,127 1,119 Prepaid expenses and other 201 206 Deferred income taxes 27 50 ----------- ----------- Total Current Assets 3,172 3,237 Other Assets - ------------ Investment in affiliated companies 113 113 Intangibles, net 731 762 Deferred income taxes 226 253 Derivative financial instruments 232 0 Other 418 403 ----------- ----------- 1,720 1,531 Property, Plant and Equipment - ----------------------------- Land 59 64 Buildings 784 838 Machinery and equipment 4,261 4,374 Accumulated depreciation (3,099) (3,142) ----------- ----------- 2,005 2,134 ----------- ----------- Total Assets $ 6,897 $ 6,902 =========== =========== </TABLE> <TABLE> <CAPTION> (Unaudited) March 31 December 31 2001 2000 ----------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - ------------------- Notes payable $ 1,050 $ 961 Accounts payable 1,121 1,257 Employee compensation 242 256 Accrued expenses 768 795 Restructuring costs 40 5 Current maturities of long-term debt 18 29 ----------- ----------- Total Current Liabilities 3,239 3,303 Other Liabilities - ----------------- Deferred income taxes 157 175 Postemployment benefits 628 630 Other liabilities 144 168 Long-term debt 1,005 795 ----------- ----------- 1,934 1,768 Minority Interests 138 147 Stockholders' Equity - -------------------- Common stock 84 84 Paid-in capital 398 393 Retained earnings 2,558 2,539 Unearned restricted stock (8) (11) Accumulated other comprehensive income (618) (495) Treasury stock - at cost (828) (826) ----------- ----------- Total Stockholders' Equity 1,586 1,684 ----------- ----------- Total Liabilities and Stockholders' Equity $ 6,897 $ 6,902 =========== =========== </TABLE> See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY WHIRLPOOL CORPORATION FOR THE PERIOD ENDED MARCH 31 (millions of dollars) <TABLE> <CAPTION> Accumulated Other Retained Comprehensive Treasury Stock/ Total Earnings Income Common Stock Paid-in-Capital ------ -------- ------------- ------------ --------------- <S> <C> <C> <C> <C> <C> Beginning balance, January 1, 2000 $1,867 $ 2,268 $ (443) $ 84 $ (42) Comprehensive income Net income 112 112 Foreign currency items, net of tax 25 25 ------ Comprehensive income 137 ------ Common stock issued, net of treasury shares (79) (79) Dividends declared on common stock (26) (26) ------ -------- ------------- ------------ --------------- Ending balance, March 31, 2000 $1,899 $ 2,354 $ (418) $ 84 $ (121) ====== ======== ============= ============ =============== Beginning balance, January 1, 2001 $1,684 $ 2,539 $ (495) $ 84 $ (444) Comprehensive income Net income 41 41 Cumulative effect of change in accounting principle (11) (11) Net gain on derivative instruments 2 2 Foreign currency items, net of tax (114) (114) ------ Comprehensive income (82) ------ Common stock issued, net of treasury shares 6 6 Dividends declared on common stock (22) (22) ------ -------- ------------- ------------ --------------- Ending balance, March 31, 2001 $1,586 $ 2,558 $ (618) $ 84 $ (438) ====== ======== ============= ============ =============== </TABLE> See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) WHIRLPOOL CORPORATION FOR THREE MONTHS ENDED MARCH 31 (millions of dollars) <TABLE> <CAPTION> 2001 2000 ------- ------- <S> <C> <C> OPERATING ACTIVITIES Net earnings $ 41 $ 112 Depreciation 95 94 Deferred income taxes (6) 38 Equity in net earnings of affiliated companies, less dividends received (1) 2 Provision for doubtful accounts 4 - Amortization of goodwill 7 8 Restructuring charges, net of cash paid 35 (16) Minority interests (1) 3 Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables 50 (135) Inventories (32) (181) Accounts payable (94) 111 Other - net (24) (119) ------- ------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 74 $ (83) ------- ------- INVESTING ACTIVITIES Net additions to properties $ (58) $ (77) Acquisitions of businesses, less cash acquired - (283) ------- ------- CASH USED IN INVESTING ACTIVITIES $ (58) $ (360) ------- ------- FINANCING ACTIVITIES Proceeds of short-term borrowings $ 7,814 $ 6,243 Repayments of short-term borrowings (7,705) (5,629) Proceeds of long-term debt 3 3 Repayments of long-term debt (21) (157) Dividends (45) (26) Purchase of treasury stock - (98) Other 1 21 ------- ------- CASH PROVIDED BY FINANCING ACTIVITIES 47 357 ------- ------- INCREASE/(DECREASE) IN CASH AND EQUIVALENTS $ 63 $ (86) Cash and equivalents at beginning of year 114 261 ------- ------- CASH AND EQUIVALENTS AT END OF PERIOD $ 177 $ 175 ======= ======= </TABLE> See notes to consolidated condensed financial statements.
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 months ended March 31, 2001 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, 2000. Diluted net earnings per share of common stock include the dilutive effect of stock and put options. NOTE B--NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138, which established new accounting and reporting standards for derivative instruments. These rules require that all derivative instruments be reported in the consolidated financial statements at fair value. The fair value for all derivative contracts is included in other assets or other liabilities and will be recorded each period in earnings or other comprehensive income, depending on whether the derivative is designated and effective as part of a hedged transaction, and on the type of hedge transaction. Gains or losses on derivative instruments reported in other comprehensive income must be reclassified as earnings in the period in which earnings are affected by the underlying hedged item, and the ineffective portion of all hedges is recognized in other income (expense) in the statements of earnings in the current period. These new standards may result in additional volatility in reported earnings, other comprehensive income and accumulated other comprehensive income. These rules became effective for the company on January 1, 2001. 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 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. The company is exposed to market risk from changes in foreign currency exchange rates, domestic and foreign interest rates, and commodity prices, which can impact its operating results and overall financial condition. The company manages its exposure to these market risks through its operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. 7
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The company enters into foreign currency forward exchange contracts with maturities of up to eighteen months in order to manage exposure related to certain foreign currency commitments and foreign currency denominated balance sheet positions, forecasted foreign currency denominated expenditures and certain intercompany financing and royalty agreements. The company also uses commodity futures contracts with maturities up to 24 months to hedge the price risk on a portion of raw material purchases used in the manufacturing process. The company does not enter into derivative financial instruments for trading purposes. Foreign currency forward exchange contracts and commodity contracts which have been designated and are effective as hedges of firm commitments or anticipated transactions are treated as cash flow hedges for accounting purposes. The effective portion of unrealized gains and losses related to these contracts is deferred in accumulated other comprehensive income and recognized in income when the hedged transaction affects earnings, and the ineffective portion of these hedges is recognized in current period earnings. Ineffectiveness related to the company's cash flow hedges was not material to the company's results for the current period and the company estimates that $5.3 million of unrealized gains will be reclassified into earnings within the next twelve months. The company recognized $200 thousand in net gains during the current period related to amounts that were reported in accumulated comprehensive income at the beginning of the period. Foreign currency forward exchange contracts, which are not designated as hedges, are marked-to-market and unrealized gains and losses included in the current period net income as a component of other income (expense). The company manages a portfolio of domestic and cross currency interest rate swaps that effectively convert U.S. Dollar (USD) denominated debt into that of various European currencies. Through May 15, 2000, such local currency denominated debt served as an effective hedge against the company's European cash flows and net assets. On May 15, 2000, the company undesignated these contracts as hedges of the net investment in its European operations and entered into offsetting Euro denominated currency swaps, effectively locking in an approximate $221 million positive position on the previously referenced cross currency interest rate swaps which effectively eliminated any material gain or loss on this group of contracts due to changes in European currencies. The $221 million positive cash position will be realized as the contracts mature in 2002 and 2004. These contracts are not designated as hedges and therefore are marked-to-market each period through earnings as a component of interest expense with unrealized gains (losses) on the May 2000 swap contracts substantially offsetting unrealized (losses) gains on the original swap portfolio. In September 2000, the company entered into additional domestic interest rate swaps, which effectively neutralized any potential interest rate impact from an existing portfolio of domestic interest rate swaps. These contracts are not designated as hedges and are therefore marked-to-market each period through earnings as a component of interest expense with unrealized gains (losses) on the September 2000 swap contracts offsetting unrealized (losses) gains on the original swap portfolio. 8
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE C--BUSINESS ACQUISITIONS & DISPOSITIONS On January 7, 2000, the company completed its tender offer for the outstanding publicly traded shares in Brazil of its subsidiaries Brasmotor S.A. (Brasmotor) and Multibras S.A. Eletrodomesticos (Multibras). In completing the offer, the company purchased additional shares of Brasmotor and Multibras for $283 million. With this additional investment, the company's equity interest in its Brazilian subsidiaries increased from approximately 55% to approximately 87%. NOTE D--INVENTORIES Inventories consist of the following: <TABLE> <CAPTION> March 31 December 2001 2000 -------- --------- <S> <C> <C> (millions of dollars) Finished products $ 1,003 $ 1,013 Raw materials and work in process 292 257 -------- --------- Total FIFO cost 1,295 1,270 Less excess of FIFO cost over LIFO cost 168 151 -------- --------- $ 1,127 $ 1,119 ======== ========= </TABLE> NOTE E--RESTRUCTURING AND OTHER SPECIAL CHARGES Restructuring In December, 2000, the company announced a global restructuring plan. In January 2001, the company announced the first phase of the restructuring activity, which resulted in a pre-tax restructuring charge of $48 million in the first quarter, which was identified as a separate component of operating profit. The restructuring charge included $39 million in termination benefits and $9 million in non-employee exit costs. These charges relate primarily to the closing of a refrigeration plant in the company's Latin American region, a parts packing facility in the North American region and a plastic components facility in the Asian region. The majority of employees in this phase represent hourly personnel at the identified facilities. The company expects to eliminate approximately 2,300 employees of which 200 had left the company through March 31, 2001. Other Special Charges Also included in the first phase of the company's restructuring program were $22 million pre-tax, of restructuring related charges which were primarily recorded in the cost of products sold section within operating profit. Included in this total were $12 million in write-downs of various fixed assets, primarily buildings that will not be used in the 9
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) company's business activities in its Latin American region. The company also wrote off $8 million in various assets in its Asian region which was primarily made up of equipment no longer to be used in its business activities. Details of the first quarter's restructuring and related charges was as follows: <TABLE> <CAPTION> Three Months Charge Accrual at Ended March 31 to Earnings Cash Paid Non-cash March 31, 2001 - --------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Restructuring Termination costs $ 39 $ 8 $ - $ 31 Non-employee exit costs $ 9 $ - $ - $ 9 Asset Write-offs Miscellaneous buildings $ 11 $ - $ 11 $ - Miscellaneous equipment $ 11 $ - $ 11 $ - ---- --- ---- ---- Total 70 8 22 40 ==== === ==== ==== </TABLE> NOTE F--CONTINGENCIES The company is involved in various legal actions arising in the normal course of business. Management, after taking into consideration legal counsel's evaluation of such actions, is of the opinion that the outcome of these matters will not have a material adverse effect on the company's financial position. The company is a party to certain financial instruments with off-balance-sheet risk which are entered into in the normal course of business. These instruments consist of financial guarantees, repurchase agreements and letters of credit. The company's exposure to credit loss in the event of nonperformance by the debtors varies amongst these agreements. The company uses the same credit policies in making commitments and conditional obligations as it does for on- balance-sheet instruments. Collateral or other security is generally required to support financial instruments with off-balance-sheet risk. At March 31, 2001, the company had $96 million in guarantees of customer lines of credit at commercial banks. 10
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE G--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-ended March 31, 2001, the operating segments recorded total restructuring and related charges as follows; North America $5 million, Europe $8 million, Latin America $47 million, Asia $8 million and Corporate $2 million. Refer to Note E, presented earlier, for a discussion of restructuring and other special charges. <TABLE> <CAPTION> (millions of dollars) Three Months North Latin Other and Ended March 31 America Europe America Asia (Eliminations) Consolidated - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Sales 2001 $ 1,537 $ 513 $ 412 $ 88 $ (33) $ 2,517 2000 $ 1,556 $ 569 $ 416 $ 88 $ (39) $ 2,590 Intangible amortization 2001 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7 2000 $ 1 $ 4 $ 1 $ 1 $ 1 $ 8 Depreciation 2001 $ 47 $ 16 $ 25 $ 4 $ 3 $ 95 2000 $ 40 $ 19 $ 25 $ 5 $ 5 $ 94 Operating profit (loss) 2001 $ 170 $ 4 $ 28 $ 4 $ (109) $ 97 2000 $ 205 $ 39 $ 26 $ 3 $ (38) $ 235 Total assets 2001 $ 2,636 $1,737 $ 1,453 $676 $ 395 $ 6,897 December 31, 2000 $ 2,624 $1,948 $ 1,600 $704 $ 26 $ 6,902 Capital expenditures 2001 $ 28 $ 10 $ 15 $ 2 $ 3 $ 58 2000 $ 30 $ 16 $ 23 $ 1 $ 7 $ 77 </TABLE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The statements of earnings summarize operating results for the three months ended March 31, 2001 and 2000. All comparisons are to 2000, unless otherwise noted. This section of Management's Discussion highlights the main factors affecting the changes in operating results. Net Sales - --------- Net sales decreased 3% and totaled $2.5 billion for the first quarter of 2001. Excluding currency fluctuations around the world, net sales were level with 2000. North American unit volumes were down 3% in the first quarter, in an industry that was down 10%. North America net sales, however, were down 1% reflecting an improved product mix. North American industry shipments are expected to be down 2% for the full year. European unit volumes were down 1% in a slowing appliance industry. European net sales decreased 10% due primarily to the impact of currency fluctuations. Excluding the impact of currency fluctuations, European net sales decreased 3%. European industry shipments are expected to be up two percent for the full year. Units sold increased 3% in Latin America. Latin America net sales decreased 1% due to the impact of currency fluctuations. Excluding currency fluctuations, Latin America net sales increased 5%. Latin American industry shipments are expected to be up 5% to 8% for the full year. Asia unit volumes increased 7% despite a slowing appliance industry in India and other Asia Pacific markets. Asia net sales decreased slightly, reflecting the impact of currency fluctuations. Excluding currency fluctuations, Asia's net sales increased 6%. Asian industry shipments are expected to increase 5% for the full year. Gross Margin - ------------ Gross margin percentage declined by 2.1 percentage points, excluding the impact of $20 million in special charges for asset write-offs related to the company's restructuring program which were classified in cost of products sold. Pricing pressures in North America and Europe, higher material costs in Europe, and increased sales allowances in Latin America offset company-wide productivity improvements and the lower effective excise tax rate in Brazil due to the recognition of Befiex tax credits, which are discussed further under "Financial Condition and Other Matters." Selling, General and Administrative - ----------------------------------- Selling, general and administrative expenses as a percent of net sales increased 0.5 percentage points as expenses were level on lower sales volume. The North America ratio improved due to the benefits from cost containment efforts. Europe's ratio increased 0.3 percentage points due to lower sales offsetting cost containment efforts and the Latin America ratio increased 2.6 percentage points due primarily to investments in growth initiatives and a change in classification of customer freight rebills into revenue and out of selling, general and administrative expenses. Other Income and Expense - ------------------------ 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Interest and sundry income (expense) was $4 million favorable compared to the first quarter of 2000 as lower miscellaneous expense levels offset lower interest income. The lower interest income was due to reduced short-term investments primarily in Latin America. Interest expense increased $6 million due to higher average balances in short-term borrowings. Income Taxes - ------------ The effective income tax rate for 2001 was 35.7 percent versus the effective rate for 2000 of 38.0 percent. The lower effective tax rate was due to the Befiex credits utilized during the quarter, which are nontaxable, and various tax strategies, combining to offset additional minimum taxes required in Europe. Net Earnings - ------------ Core earnings for the quarter, which excluded restructuring and related charges of $40 million, after-tax and minority interests (refer to Note E to the accompanying consolidated condensed financial statements for a discussion of restructuring and other special charges), and a one-time gain related to the implementation of SFAS No. 133 of $8 million, after-tax, were $73 million or $1.10 per diluted share versus $112 million or $1.52 per diluted share in 2000. Reported first quarter net earnings were $41 million or $0.61 per diluted share. CASH FLOWS The statements of cash flows reflect the changes in cash and cash equivalents for the three months ended March 31, 2001 and 2000 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 provided by operating activities in the first three months of 2001 was $74 million compared to $83 million used in 2000. The quarter's improvement over the prior year was mainly in working capital as changes in inventories and accounts receivable offset a decrease in accounts payable. Investing Activities - -------------------- The principal recurring investing activities are property additions. Net property additions for the first three months were $58 million in 2001 as compared to $77 million in 2000. These 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION expenditures are primarily for equipment and tooling related to product improvements, more efficient production methods, and replacement for normal wear and tear. Refer to Note C to the accompanying consolidated condensed financial statements for a discussion of business dispositions and acquisitions. Financing Activities - -------------------- Dividends to shareholders totaled $45 million for the first quarter of 2001 versus $26 million for 2000. The increase was due to the timing of funding for the fourth quarter 2000 payment more than offsetting a reduction in outstanding shares due to the repurchase program. The company's borrowings, net of short term investments and adjusted for currency fluctuations, increased $91 million from year end primarily in short term notes payable. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the March 31, 2001 balance sheet. The company's total assets are $6.9 billion and stockholders' equity is $1.6 billion versus the March 2000 totals of $7.0 billion and $1.9 billion, respectively. The decrease in stockholders' equity was due primarily to $329 million of treasury stock purchases and a $192 million reduction due to translation offsetting net earnings retention of $208 million. The company's total assets and stockholders' equity at December 31, 2000 were $6.9 billion and $1.7 billion, respectively. The lower equity from year-end was due to translation offsetting net earnings retention. 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 11.3 million shares at a cost of $594 million under the program, none of which were repurchased in 2001. The overall debt to invested capital ratio of 54.6 percent at March 31, 2001 was up from 45.6 percent at March 31, 2000 and up from 49.4 percent at December 31, 2000. The increase from year-end is due primarily to the increase in long-term debt from the reclassification of a $221 million positive cash position on previously held net investment hedges, from a contra debt account to other long- term assets on the balance sheet and lower equity. The long-term debt adjustment was in accordance with the adoption of Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's, and Fitch IBCA. 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. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 between $225 and $250 million. The plan is expected to eliminate approximately 6,000 positions worldwide and will be announced in phases over each quarter in 2001 as plans are finalized. In January 2001, the company announced the first phase of the restructuring activity, which resulted in a pre-tax charge of $70 million ($48 million restructuring charge and $22 million of restructuring related charges) in the first quarter. These actions are expected to produce savings of about $35 million in 2001, increasing to approximately $50 million on an annualized basis. 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). These incentives were worth approximately $420 million as of December 31, 2000. The company recognized $52 million (Whirlpool's share after minority interest was $49 million) in Befiex credits in 2000 as a reduction of current excise taxes payable and therefore an increase in net sales. The company recognized $17 million of such credits during the first quarter of 2001. EURO CURRENCY CONVERSION On January 1, 1999, eleven member nations of the European Union began the conversion to a common currency, the "euro." The company has significant manufacturing operations and sales in these countries. The introduction of the euro has eliminated transaction gains and losses within participating countries and there currently has not been any significant impact on operating results from the change to the euro. Internal computer system and business processes are being changed to accommodate the new currency and the company established a cross-functional team, guided by an executive-level steering committee, to address these issues. The company estimates that all of the euro countries will be converted in various steps to the euro currency by the end of 2001. The total cost of the euro conversion program will be approximately $3 million. 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. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION These forward-looking statements should be considered with the understanding that such statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. Many factors could cause actual results to differ materially from the company's forward-looking statements. Among these factors are: (1) competitive pressure to reduce prices; (2) the ability to gain or maintain market share in an intensely competitive global market; (3) the success of our global strategy to develop brand differentiation and brand loyalty; (4) our ability to control operating and selling costs and to maintain profit margins during industry downturns; (5) the success of our Brazilian businesses operating in a challenging and volatile environment; (6) continuation of our strong relationship with Sears, Roebuck and Co. in North America which accounted for approximately 20% of our consolidated net sales of $10.3 billion in 2000; (7) currency exchange rate fluctuations in Latin America, Europe, and Asia that could affect our consolidated balance sheet and income statement; (8) social, economic, and political volatility in developing markets; (9) worsening of the economic downturn in North America; (10) changes in North America's consumer preferences regarding how appliances are purchased; and (11) the effectiveness of the series of restructuring actions the company anticipates taking through 2002. The company undertakes no obligation to update every forward-looking statement, and investors are advised to review disclosures by the company in our filings with the Securities and Exchange Commission. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. Therefore, investors should not consider the foregoing factors to be an exhaustive statement of all risks, uncertainties, or factors that could potentially cause actual results to differ. 16
PART II. OTHER INFORMATION -------------------------- WHIRLPOOL CORPORATION AND SUBSIDIARIES Quarter Ended March 31, 2001 Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- a. The following are included herein: (99) Computation of the ratios of earnings to fixed charges b. The registrant filed the following Current Reports on Form 8-K for the quarterly period ended March 31, 2001. A Current Report on Form 8-K dated January 24, 2001 pursuant to Item 5, "Other Events," to announce the Company's earnings for the fourth quarter and full year 2000. A Current Report on Form 8-K dated January 31, 2001 pursuant to Item 5, "Other Events," to announce the first phase of its previously announced worldwide restructuring plan. The Company anticipates the first phase of the restructuring will result in the elimination of approximately 2,000 positions worldwide. The company expects that this phase of the restructuring will result in a first quarter charge of approximately $75 million and will produce savings of about $35 million in 2001, increasing to about $50 million annually. A Current Report on Form 8-K dated March 14, 2001 pursuant to Item 5, "Other Events," to announce the promotion of Michael A. Todman to Executive Vice President, North American Region. On March 16, 2001, the registrant received the resignation of Bengt G. Engstrom, Executive Vice President, Whirlpool Europe, as an officer of the Company effective immediately. A Current Report on Form 8-K dated March 28, 2001 pursuant to Item 5, "Other Events," to announce the Company expected to report first quarter 2001 earnings of between $.96 and $1.00. 17
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) May 14, 2001 18