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, 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 June 30, 2001 --------------------- ----------------------------------- Common stock, par value $1 per share 66,904,815 PAGE 1 OF 21
QUARTERLY REPORT ON FORM 10-Q WHIRLPOOL CORPORATION Quarter Ended June 30, 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 13 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 PERIODS ENDED JUNE 30 (millions of dollars except share and dividend data) <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------ ------------------ 2001 2000 2001 2000 ------ ------ ------ ------ <S> <C> <C> <C> <C> Net sales $2,585 $2,586 $5,101 $5,176 EXPENSES: Cost of products sold 1,989 1,958 3,948 3,900 Selling and administrative 405 389 810 794 Intangible amortization 7 7 14 15 Restructuring costs 14 - 62 - ------ ------ ------ ------ 2,415 2,354 4,834 4,709 ------ ------ ------ ------ OPERATING PROFIT 170 232 267 467 OTHER INCOME(EXPENSE): Interest and sundry income (expense) (7) (4) (11) (14) Interest expense (43) (46) (87) (83) ------ ------ ------ ------ EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND OTHER ITEMS 120 182 169 370 Income taxes 43 63 61 135 ------ ------ ------ ------ EARNINGS FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 77 119 108 235 Equity in earnings of affiliated companies 2 7 3 6 Minority interests (5) (5) (4) (8) ------ ------ ------ ------ EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 74 121 107 233 Loss from discontinued operations, net of tax (21) (21) Cumulative effect of change in accounting principle, net of tax - - 8 - ------ ------ ------ ------ NET EARNINGS $ 53 $ 121 $ 94 $ 233 ====== ====== ====== ====== Per share of common stock: Basic earnings from continuing operations $ 1.12 $ 1.68 $ 1.61 $ 3.20 Loss from discontinued operations, net of tax (0.32) - (0.32) - Cumulative effect of change in accounting principle, net of tax - - 0.12 - ------ ------ ------ ------ Basic net earnings $ .80 $ 1.68 $ 1.41 $ 3.20 ====== ====== ====== ====== Diluted earnings from continuing operations $ 1.10 $ 1.66 $ 1.59 $ 3.18 Loss from discontinued operations, net of tax (0.32) - (0.32) - Cumulative effect of change in accounting principle, net of tax - - 0.12 - ------ ------ ------ ------ Diluted net earnings $ .78 $ 1.66 $ 1.39 $ 3.18 ====== ====== ====== ====== Dividends declared $ .34 $ .34 $ .68 $ .68 ====== ====== ====== ====== Weighted-average shares outstanding (millions): Basic 66.5 72.1 66.4 72.8 Fully diluted 67.7 72.9 67.3 73.4 </TABLE> See notes to consolidated condensed financial statements. 3
CONSOLIDATED CONDENSED BALANCE SHEETS WHIRLPOOL CORPORATION (millions of dollars) (Unaudited) June 30 December 31 2001 2000 --------------- ---------------- ASSETS Current Assets - -------------- Cash and equivalents $ 153 $ 114 Trade receivables, less allowances of (2001: $91; 2000: $103) 1,648 1,748 Inventories 1,099 1,119 Prepaid expenses and other 225 206 Deferred income taxes 31 50 --------------- ---------------- Total Current Assets 3,156 3,237 Other Assets - ------------ Investment in affiliated companies 114 113 Intangibles, net 710 762 Deferred income taxes 219 253 Derivative financial instruments 230 - Other 392 403 --------------- ---------------- 1,665 1,531 Property, Plant and Equipment - ----------------------------- Land 58 64 Buildings 789 838 Machinery and equipment 4,221 4,374 Accumulated depreciation (3,128) (3,142) --------------- ---------------- 1,940 2,134 --------------- ---------------- Total Assets $ 6,761 $ 6,902 =============== ================ (Unaudited) June 30 December 31 2001 2000 --------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - ------------------- Notes payable $ 828 $ 961 Accounts payable 1,174 1,257 Employee compensation 239 256 Accrued expenses 841 795 Restructuring costs 26 5 Current maturities of long-term debt 17 29 --------------- ---------------- Total Current Liabilities 3,125 3,303 Other Liabilities - ----------------- Deferred income taxes 156 175 Postemployment benefits 631 630 Other liabilities 146 168 Long-term debt 1,000 795 --------------- ---------------- 1,933 1,768 Minority Interests 135 147 Stockholders' Equity - -------------------- Common stock 84 84 Paid-in capital 414 393 Retained earnings 2,588 2,539 Unearned restricted stock (6) (11) Accumulated other comprehensive income (684) (495) Treasury stock - at cost (828) (826) --------------- ---------------- Total Stockholders' Equity 1,568 1,684 --------------- ---------------- Total Liabilities and Stockholders' Equity $ 6,761 $ 6,902 =============== ================ See notes to consolidated condensed financial statements. 4
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY WHIRLPOOL CORPORATION FOR THE PERIOD ENDED JUNE 30 (millions of dollars) <TABLE> <CAPTION> Second Quarter ------------------------------------------------------------------ Accumulated Other Treasury Retained Comprehensive Common Stock/Paid- Total Earnings Income Stock in-Capital --------- ---------- ------------- -------- ----------- <S> <C> <C> <C> <C> <C> Beginning balance, 2000 $ 1,898 $ 2,354 $ (418) $ 84 $ (122) Comprehensive income Net income 121 121 Foreign currency items, net of tax (20) (19) --------- Comprehensive income 101 ========= Common stock issued (122) (123) Dividends declared on common stock (24) (24) --------- --------- -------- ------ -------- Ending balance, June 30, 2000 $ 1,853 $ 2,451 $ (437) $ 84 $ (245) ========= ========= ======== ====== ======== Beginning balance, 2001 $ 1,586 $ 2,558 $ (618) $ 84 $ (438) Comprehensive income Net income 53 53 Cumulative effect of change in accounting principle - Net loss on derivative instruments, net of tax (8) (8) Foreign currency items, net of tax (58) (58) --------- Comprehensive income (13) ========= Common stock issued 18 18 Dividends declared on common stock (23) (23) --------- --------- -------- ------ -------- Ending balance, June 30, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420) ========= ========= ======== ====== ======== <CAPTION> Year-to-Date ------------------------------------------------------------------ Accumulated Other Treasury Retained Comprehensive Common Stock/Paid- Total Earnings Income Stock in-Capital --------- ---------- ------------- -------- ----------- <S> <C> <C> <C> <C> <C> Beginning balance, 2000 $ 1,867 $ 2,268 $ (443) $ 84 $ (42) Comprehensive income Net income 233 233 Foreign currency items, net of tax 6 6 --------- Comprehensive income 239 ========= Common stock issued (203) (203) Dividends declared on common stock (50) (50) --------- --------- -------- ------ -------- Ending balance, June 30, 2000 $ 1,853 $ 2,451 $ (437) $ 84 $ (245) ========= ========= ======== ====== ======== Beginning balance, 2001 $ 1,684 $ 2,539 $ (495) $ 84 $ (444) Comprehensive income Net income 94 94 Cumulative effect of change in accounting principle (11) (11) Net loss on derivative instruments, net of tax (6) (6) Foreign currency items, net of tax (172) (172) --------- Comprehensive income (95) ========= Common stock issued 24 24 Dividends declared on common stock (45) (45) --------- --------- -------- ------ -------- Ending balance, June 30, 2001 $ 1,568 $ 2,588 $ (684) $ 84 $ (420) ========= ========= ======== ====== ======== </TABLE> 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) <TABLE> <CAPTION> 2001 2000 -------- -------- <S> <C> <C> OPERATING ACTIVITIES Net earnings $ 94 $ 233 Depreciation 185 203 Amortization of goodwill 14 15 Provision for doubtful accounts 10 2 Equity in net earnings of affiliated companies, less dividends received (3) (6) Loss on discontinued operations 21 -- Restructuring charges, net of cash paid 23 (29) Minority interests 4 8 Deferred income taxes (9) 23 Change in working capital: Trade receivables 9 (195) Inventories (19) (260) Accounts payable (21) 62 Changes in other assets and liabilities: Payroll and other compensation (7) (63) Current taxes payable 45 9 Other - net (5) (83) -------- -------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 341 $ (81) -------- -------- INVESTING ACTIVITIES Net additions to properties $ (118) $ (162) Acquisitions of businesses, less cash acquired -- (283) -------- -------- CASH USED IN INVESTING ACTIVITIES $ (118) $ (445) -------- -------- FINANCING ACTIVITIES Proceeds of short-term borrowings $ 17,969 $ 14,005 Repayments of short-term borrowings (18,077) (13,260) Proceeds of long-term debt 6 336 Repayments of long-term debt (32) (413) Dividends (68) (50) Purchase of treasury stock -- (228) Other 18 34 -------- -------- CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (184) 424 -------- -------- INCREASE / (DECREASE) IN CASH AND EQUIVALENTS $ 39 $ (102) Cash and equivalents at beginning of year 114 261 -------- -------- CASH AND EQUIVALENTS AT END OF PERIOD $ 153 $ 159 ======== ======== </TABLE> 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 six months ended June 30, 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 On January 1, 2001, the company adopted the provisions of FASB No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, and recorded the impact 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. 7
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) In June 2001, the company entered into interest rate swaps which effectively neutralize interest rate fluctuations on $100 million of the company's floating rate obligations. These contracts are designated and effective as hedges of anticipated cash payments and 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. 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--DISCONTINUED OPERATIONS During the second quarter of 2001, the company wrote off its investment in a securitized aircraft lease portfolio which was owned by the company's previously discontinued finance company, Whirlpool Financial Corporation. 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 E--SUBSEQUENT EVENTS On July 3, 2001, the company completed the issuance of 300 million euro denominated 5.875% Notes due 2006. The notes are general obligations of the company and the proceeds are expected to be used for general corporate purposes, including but not limited to refinancing outstanding debt. 8
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE F--INVENTORIES Inventories consist of the following: June 30 December 31 2001 2000 ------------ ----------- (millions of dollars) Finished products $ 975 $ 956 Raw materials and work in process 268 314 ------------ ----------- Total FIFO cost 1,243 1,270 Less excess of FIFO cost over LIFO cost 144 151 ------------ ----------- $ 1,099 $ 1,119 ============ =========== NOTE G--RESTRUCTURING AND OTHER SPECIAL CHARGES Restructuring In December, 2000, the company announced a global restructuring plan. Through June 30, 2001, the company announced phases of the restructuring activity that have resulted in pre-tax restructuring charges of $62 million, which was identified as a separate component of operating profit. The restructuring charges included $50 million in termination benefits and $12 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 to date represent hourly personnel at the identified facilities. The company expects to eliminate approximately 3,000 employees of which 1,500 had left the company through June 30, 2001. Other Special Charges Also included in the company's restructuring activity to date were $29 million pre-tax, of restructuring related charges recorded primarily as cost of products sold. Included in this total were $12 million in write-downs of various fixed assets, primarily buildings that will not be used in the company's business activities in its Latin American region. The company also wrote off $15 million in various assets in its European and Asian regions which was primarily made up of equipment no longer to be used in its business activities. 9
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Details of the year-to-date restructuring and related charges was as follows: <TABLE> <CAPTION> Six Months Beginning Charge Accrual at Ended June 30, 2001 Balance to Earnings Cash Paid Non-cash Translation 30-Jun-01 - ---------------------------------------------------------------------------------------------------------- (millions of dollars) <S> <C> <C> <C> <C> <C> <C> Restructuring Termination costs $ 5 50 $ (34) $ - $ 21 Non-employee exit costs 12 (5) - 7 Translation impact (2) (2) Asset Write-offs Miscellaneous buildings 12 - (12) - Inventory 2 - (2) Miscellaneous equipment 15 - (15) - --------- ----------- --------- -------- ------------ ---------- Total $ 5 91 $ (39) $ (29) (2) $ 26 ========= =========== ========= ======== ============ ========== </TABLE> NOTE H--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 June 30, 2001, the company had $104 million in guarantees of customer lines of credit at commercial banks. 10
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE I--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 tables below. For the quarter and year-to-date amounts through June 30, 2001, the operating segments recorded total restructuring and related charges as follows; North America $10 and $15 million, Europe $9 and $17 million, Latin America $0 and $47 million, Asia $1 and $9 million and Corporate $1 and $3 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 June 30 America Europe America Asia (Eliminations) Consolidated - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Sales 2001 $ 1,661 $ 483 $ 379 $ 106 $ (44) $ 2,585 2000 $ 1,589 $ 524 $ 401 $ 115 $ (43) $ 2,586 Intangible amortization 2001 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7 2000 $ 1 $ 3 $ 1 $ 1 $ 1 $ 7 Depreciation 2001 $ 47 $ 17 $ 22 $ 3 $ 1 $ 90 2000 $ 46 $ 20 $ 29 $ 3 $ 11 $ 109 Operating profit (loss) 2001 $ 176 $ 4 $ 35 $ 6 $ (51) $ 170 2000 $ 195 $ 38 $ 25 $ 6 $ (32) $ 232 Capital expenditures 2001 $ 27 $ 15 $ 16 $ 2 $ - $ 60 2000 $ 39 $ 15 $ 16 $ 3 $ 12 $ 85 Total assets June 30, 2001 $ 2,690 $ 1,825 $ 1,353 $ 679 $ 214 $ 6,761 December 31, 2000 $ 2,624 $ 1,948 $ 1,600 $ 704 $ 26 $ 6,902 </TABLE> 11
WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) <TABLE> <CAPTION> (millions of dollars) Six Months North Latin Other and Ended June 30 America Europe America Asia (Eliminations) Consolidated - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Sales 2001 $ 3,198 $ 996 $ 791 $ 194 $ (78) $ 5,101 2000 $ 3,145 $ 1,093 $ 817 $ 204 $ (83) $ 5,176 Intangible amortization 2001 $ 2 $ 6 $ 2 $ 2 $ 2 $ 14 2000 $ 2 $ 7 $ 1 $ 3 $ 2 $ 15 Depreciation 2001 $ 94 $ 33 $ 47 $ 7 $ 4 $ 185 2000 $ 86 $ 39 $ 54 $ 8 $ 16 $ 203 Operating profit (loss) 2001 $ 346 $ 9 $ 63 $ 10 $ (161) $ 267 2000 $ 400 $ 77 $ 51 $ 9 $ (70) $ 467 Capital expenditures 2001 $ 56 $ 26 $ 31 $ 4 $ 1 $ 118 2000 $ 69 $ 31 $ 39 $ 4 $ 19 $ 162 Total assets June 30, 2001 $ 2,690 $ 1,825 $ 1,353 $ 679 $ 214 $ 6,761 December 31, 2000 $ 2,624 $ 1,948 $ 1,600 $ 704 $ 26 $ 6,902 </TABLE> 12
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, 2001 and 2000. 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 2% and 1% for the quarter and year-to-date comparisons. Consolidated net sales were level with the year ago quarter and down 1% versus the comparable year-to-date period. Excluding the impact of currency fluctuations around the world, net sales would have increased 4% and 2% over the comparable periods. The table below provides a breakdown of sales by region. 2nd Quarter Year-to-date ------------------- -------------------------- (millions of dollars) 2001 2000 Change 2001 2000 Change -------- -------- ------ -------- -------- ------ Net Sales: North America $ 1,661 $ 1,589 4.5% $ 3,198 $ 3,145 1.7% Europe 483 524 (7.8) 996 1,093 (8.9) Latin America 379 401 (5.5) 791 817 (3.2) Asia 106 115 (7.8) 194 204 (4.9) Other/eliminations (44) (43) - (78) (83) - -------- -------- -------- -------- Consolidated $ 2,585 $ 2,586 (0.0)% $ 5,101 $ 5,176 (1.4)% ======== ======== ===== ======== ======== ====== Regional trends were as follows: - - North American unit sales increased 3% for the quarter in an industry that was down approximately 5%. Year-to-date unit shipments were level while the industry declined approximately 8%. The increased net sales reflected an improved product mix over 2000 for both the quarter and year-to-date periods. North American industry shipments are currently expected to be down 3% for the full year. - - European unit volumes remained level year-over-year for both the quarter and year-to-date periods in a slowing appliance industry. The decline in net sales is primarily due to the impact of currency fluctuations. Excluding this impact, net sales were down 2% versus the comparable 2000 periods. European industry shipments are currently expected to be flat to up 2% for the full year. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - - Latin American unit volumes were up 4% for the quarter and year-to-periods while net sales were lower for the comparable periods as the impact of currency and price competition offset the increased unit volumes. Excluding the impact of currency fluctuations, net sales increased 8% for both comparative periods, respectively. Latin American industry shipments are currently expected to be down approximately 3% for the full year. - - Asia's unit volumes increased 1% and 3% for the quarter and year-to-date periods despite a slowing appliance industry in India and other Asia Pacific markets. Asia net sales decreased, however, reflecting currency impact and price competition. Gross Margin Gross margin percentage declined by 1.0 percentage points and 1.6 percentage points for the quarter and year-to-date comparisons, excluding the impact of $6 million and $26 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 globally and higher material costs in Europe offset company-wide productivity improvements and a lower effective excise tax rate in Brazil. Selling and Administrative Selling and administrative expenses as a percent of net sales increased 0.7 percentage points for the quarter and 0.6 percentage points year-to-date. The North American ratios improved over the prior year as benefits from cost containment efforts more than offset increased spending for new product launches. The European ratios increased for the quarter and year-to-date periods as lower sales more than offset cost containment efforts. The Latin American ratios increased for both period comparisons due to investments in growth initiatives and the required change in classification of customer freight recovery into revenue and out of selling and administrative expenses. Other Income and Expense Interest and sundry income (expense) was $3 million unfavorable quarter-over-quarter mainly due to lower interest income. Interest and sundry income was $3 million favorable for the year-to-date comparison as lower miscellaneous costs offset $7 million in reduced interest income. The lower interest income for both period comparisons was due to reduced short-term investments primarily in Latin America. Interest expense decreased $3 million for the quarter, but increased $4 million for the year-to-date comparisons due to higher average balances in short-term borrowings during the first quarter. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Income Taxes The consolidated effective income tax rate was 36% for the quarter and year-to-date periods versus rates of 35% and 37%, respectively, for the year ago periods. The lower effective tax rate for the year-to-date period was due to Befiex credits utilized in 2001, which are nontaxable, and various tax strategies, combining to offset minimum taxes required in Europe. Earnings Core earnings for the second quarter, which excluded restructuring and related charges of $14 million, after-tax and minority interests (refer to Note G to the accompanying consolidated condensed financial statements for a discussion of restructuring and other special charges) and a $21 million loss, after-tax on discontinued operations (refer to Note D to the accompanying consolidated condensed financial statements for a discussion of discontinued operations), were $88 million or $1.30 per diluted share versus $121 million or $1.66 per diluted share in 2000. Reported second quarter net earnings were $53 million or $0.78 per diluted share. Core earnings for the year-to-date period, which excluded restructuring and related charges of $55 million, after-tax and minority interests, a $21 million loss, after-tax, on discontinued operations and a one-time gain related to the implementation of SFAS No. 133 of $8 million, after-tax, were $162 million or $2.40 per diluted share versus $233 million or $3.18 per diluted share in 2000. Reported year-to-date net earnings were $94 million or $1.39 per diluted share. 15
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, 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 six months of 2001 was $341 million compared to $81 million used in 2000. The improvement over the prior year was due to changes in inventories and accounts receivable offsetting a decrease in accounts payable and lower net earnings. Investing Activities The principal recurring investing activities are property additions. Net property additions for the first half were $118 million in 2001 down from $162 million in the 2000 period. These 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 financial statements for a discussion of business dispositions and acquisitions. Financing Activities Dividends to shareholders totaled $68 million for the first half of 2001 versus $50 million in 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, adjusted for currency fluctuations, decreased $134 million from year end as cash provided by operating activities was used to reduce short term notes payable. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the June 30, 2001 balance sheet. The company's total assets are $6.8 billion and stockholders' equity is $1.6 billion versus the June 30, 2000 totals of $7.0 billion and $1.9 billion, respectively. The decrease in stockholders' equity versus a year ago was due primarily to $203 million of treasury stock purchases in the second half of 2000 and a $230 million reduction due to translation offsetting net earnings retention of $137 million. The company's total assets and stockholders' equity at 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION December 31, 2000 were $6.9 billion and $1.7 billion, respectively. The lower equity from year-end was due to $172 million of translation offsetting $49 million of 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 52.0 percent at June 30, 2001 was up from 48.7 percent at June 30, 2000 and up from 49.4 percent at December 31, 2000. The increase from year-end is due primarily to lower stockholders' equity as described above and 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. 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, Duff & Phelps. 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. 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 $12 million and $29 million for the quarter and year-to-date periods of 2001, respectively. Due to the company's U.S. pension plan funding policy and higher than expected returns on plan assets in recent years, the company has recorded pension credits in its operating profit during 2000 and 2001. These credits have approximated $15 million per quarter for all of 2000 and 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. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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. 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 volatile environment currently facing energy shortages; (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) continuing uncertainty in the North American, Latin American and European economies; (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. 18
PART II. OTHER INFORMATION WHIRLPOOL CORPORATION AND SUBSIDIARIES Quarter Ended June 30, 2001 Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- The Annual Meeting of Stockholders was held on April 17, 2001. At the meeting, the following items were voted on by shareholders: a. Messrs. Herman Cain, Allan D. Gilmour, and David R. Whitwam and Ms. Janice D. Stoney were each elected to a term to expire in 2004 Nominee For Against Abstentions ------- --- ------- ----------- Herman Cain 56,023,914 0 794,861 Allan D. Gilmour 55,991,100 0 827,675 Janice D. Stoney 56,019,082 0 799,693 David R. Whitwam 55,960,814 0 857,961 Messrs. DiCamillo, Fettig, Kilts, Langbo, Marsh, Smith, and Stern and Ms. Hempel each have terms of office as directors that continued after the 2001 Annual Meeting. 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 June 30, 2001. A Current Report on Form 8-K dated April 18, 2001 pursuant to Item 5, "Other Events," to announce the Company's earnings for the first quarter 2001. 19
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 19, 2001 20