-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQCrBiFYNvhn05F4ZOV+6+w7LSjR7DIYYBHP5xkFIXgvIfCK3DMKviWXhVZrXLyL gy0XvjJUUb85vmX+mGZerQ== 0000950131-98-001851.txt : 19980323 0000950131-98-001851.hdr.sgml : 19980323 ACCESSION NUMBER: 0000950131-98-001851 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: CSX FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHIRLPOOL CORP /DE/ CENTRAL INDEX KEY: 0000106640 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD APPLIANCES [3630] IRS NUMBER: 381490038 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03932 FILM NUMBER: 98570015 BUSINESS ADDRESS: STREET 1: WHIRLPOOL CNTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 BUSINESS PHONE: 6169235000 MAIL ADDRESS: STREET 1: WHIRLPOOL CTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022-2692 FORMER COMPANY: FORMER CONFORMED NAME: WHIRLPOOL SEEGER CORP DATE OF NAME CHANGE: 19710824 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 1-3932 WHIRLPOOL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 38-1490038 DELAWARE (I.R.S. EMPLOYER IDENTIFICATION (STATE OF INCORPORATION) NO.) 2000 NORTH M-63, BENTON HARBOR, MICHIGAN 49022-2692 (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (616) 923-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF CLASS ON WHICH REGISTERED - -------------- --------------------- Common stock, par value $1.00 per share Chicago Stock Exchange New York Stock Exchange 7 3/4% Debentures due 2016 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K X . The aggregate market value of the voting stock of the registrant held by stockholders not including voting stock held by directors and elected officers of the registrant and certain employee plans of the registrant (the exclusion of such shares shall not be deemed an admission by the registrant that any such person is an affiliate of the registrant) on March 2, 1998, was $4,889,641,109. On March 2, 1998, the registrant had 75,740,288 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated herein by reference into the Part of the Form 10-K indicated:
PART OF FORM 10-K INTO DOCUMENT WHICH INCORPORATED -------- ---------------------- The Company's annual report to stockholders for the year ended December 31, 1997 Parts I, II and IV The Company's proxy statement for the 1998 annual meeting of stockholders (SEC File No. 1-3932) Part III
EXHIBIT INDEX ON PAGE: ** TOTAL NUMBER OF PAGES: *** - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL Whirlpool Corporation, the leading worldwide manufacturer and marketer of major home appliances, was incorporated in 1955 under the laws of Delaware as the successor to a business that traces its origin to 1898. As used herein, and except where the context otherwise requires, the term "Company" includes Whirlpool Corporation and its consolidated subsidiaries. All currency figures are in U.S. dollars. RECENT DEVELOPMENTS Global Restructuring: On September 18, 1997, the Company announced and began executing an extensive global restructuring plan that is intended to strengthen its global business operations. Key features of the restructuring plan are described below. 1) Sale of Whirlpool Financial Corporation assets: The Company sold the bulk of the assets of its financial services subsidiary, Whirlpool Financial Corporation ("WFC"). WFC provided inventory and consumer financing services to the appliance, consumer electronics, lawn & garden, home heating & air conditioning, and music industries. On September 17, 1997, the Company reached a definitive agreement to sell the majority of WFC's assets in a series of transactions to Transamerica Distribution Finance Corporation ("TDF"), subject to TDF obtaining appropriate government approvals. During the fourth quarter, Whirlpool completed the sale of certain inventory floor planning financing assets and international factoring assets to TDF for approximately $927 million. In January 1998, the Company sold to TDF certain remaining international assets and consumer financing receivable assets for approximately $370 million. Under an ongoing strategic partnership, TDF will continue to provide financing services to Whirlpool's trade partners and customers. In separate transactions during the fourth quarter of 1997, the Company sold certain consumer financing receivables for $98 million and entered into an agreement to sell a portion of WFC's aerospace portfolio for approximately $168 million. In the first two months of 1998, the Company completed the sale of approximately $144 million of the aerospace assets to be sold. 2) Latin America acquisition: On November 3, 1997, Whirlpool purchased approximately 33 percent of the voting shares, as well as certain non-voting shares, of Brasmotor S.A., the Company's long-time Brazilian partner. The purchase price of the shares was approximately $217 million. Combined with the Company's existing holdings, the shares give Whirlpool a controlling interest of approximately 66 percent of the voting shares of Brasmotor. Brasmotor is the parent company of Multibras S.A. Eletrodomesticos ("Multibras"), an appliance company with sales of approximately $1.6 billion and the leading market share position in Latin America, and Empresa Brasileira de Compressores S.A. ("Embraco"), the world's second largest hermetic compressor manufacturer with sales of approximately $790 million. 3) Change cost structure: On September 18, 1997, the Company announced plans to eliminate approximately 4,700 positions throughout North America, Europe, and Asia during the next 3 years. The workforce reductions will be realized through the consolidation of various manufacturing, service, and support activities and facilities. On January 13, 1998, the Company announced further restructuring plans to improve efficiency and productivity in its Latin American operations. The Latin American restructuring should be largely completed during the first half of 1998, 1 and will ultimately result in the elimination of about 3,200 positions which represents approximately 25% of the Brazilian appliance company's workforce. The Company took a pre-tax charge of approximately $343 million against 1997 earnings for the restructuring plans. When fully implemented by 2000, the reductions are expected to result in an annualized savings of approximately $200 million. 4) Refine Asian strategy: The Company began executing a series of actions intended to improve the cost structure and performance of its Asian operations. On December 1, 1997, the Company agreed to sell its interest in Beijing Whirlpool Snowflake Electric Appliance Co. Ltd., its Chinese joint venture that manufactures refrigerators, to its joint venture partner for approximately $2 million. On December 15, 1997, the Company agreed to purchase an increased stake in Whirlpool Narcissus Shanghai Co. Ltd., its Chinese joint venture that manufactures washing machines, for approximately $12 million. The Company has received governmental approval for both of these transactions. As previously announced, the Company continues to explore alternatives, including sale or strategic alliance, with respect to Shenzhen Whirlpool Raybo Air Conditioner Industrial Co. Ltd., its joint venture that manufactures air conditioners. In a further effort to reduce regional costs, the Company began consolidating most of the Asian support activities into the global network. Other Recent Developments: In December 1996, a Brazilian federal court issued a favorable ruling relating to export incentive claims submitted by Multibras and Embraco under a Brazilian government sponsored program. In April 1997, Multibras and Embraco submitted tax credit claims of approximately $440 million relating to certain exports between July 1988 and December 1996. The court must render a final decision on the amount, timing, and payment method of any final award. The Company has not recognized any income relating to the claims relating to pre- 1997 sales because the timing and payment amount of such claims are uncertain. Whirlpool completed construction of a new factory in Pune, India which produces a line of no-frost refrigerators for the Indian market. The plant is the first in India dedicated to CFC-free production of refrigerator products. Pre-production activities were completed and limited production activities began in December 1997. FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Company operates predominantly in the business segment classified as Major Home Appliances. Prior to the sale of WFC assets, the Company also operated in the Financial Services business segment. During 1997, the Company's U.S. operations sold product into Canada, Mexico, Latin America, Asia, Europe, Africa, and the Middle East. However, export sales by the Company's U.S. operations were less than 10 percent of gross revenues. For certain other financial information concerning the Company's business segments and foreign and domestic operations, see Notes 1 and 15 of the Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders (the "Annual Report"), which information is incorporated herein by reference. PRODUCTS AND SERVICES The Company manufactures and markets a full line of major home appliances and related products for home and commercial use. The Company's principal products are as follows: Major Home Appliances: Home laundry appliances: automatic and semi-automatic washers; automatic dryers; coin-operated laundry machines; and stacked washer-dryer units. 2 Home refrigeration and room air conditioning equipment: refrigerator- freezers; upright and chest freezers; room air conditioners; dehumidifiers; residential, commercial, and component ice makers; compact refrigerators; and wine coolers. Home cooking appliances: free-standing and set-in ranges; built-in ovens and surface cooking units; microwave ovens; countertop cooking units; and range hoods. Small household appliances: stand mixers; hand mixers; food processors; blenders; and toasters. Other home appliances, products and services: dishwashers; residential trash compactors; food waste disposers; hot water dispensers; water filtration products; oil radiators; water heaters; kitchen sinks; component parts, replacement parts, repair services and warranty contracts; and product kits. Components: Hermetic compressors: Embraco supplies hermetic compressors to the leading manufacturers of refrigeration systems worldwide, including Whirlpool Corporation and Multibras. Plastic components: Multibras da Amazonia manufactures television cabinets and other injection-molded plastic components, primarily for the brown-goods industry. The Company purchases a portion of its product requirements from other manufacturers for resale by the Company. The Company purchases some of its requirements of automatic washers, washer/dryers, twin-tub washers, automatic dryers, dishwashers, free-standing ranges, ovens, cooktops, air conditioners, dehumidifiers, refrigerators, freezers, microwave ovens & trim kits, and hand mixers, and all of its requirements of certain cooking products, range hoods, food waste disposers, wine coolers, food processors, and certain other miscellaneous products from other manufacturers for resale by the Company. The following table sets forth information regarding the total revenue contributed by each class of similar products which accounted for 10 percent or more of the Company's consolidated revenue in 1997, 1996, and 1995:
YEAR ENDED DECEMBER 31 (MILLIONS OF DOLLARS) PERCENT 1997 1996 1995 -------------------------------------------- ------- ------ ------ ------ Major Home Appliances Home Laundry Appliances......................... 31% $2,704 $2,699 $2,593 Home Refrigeration and Room Air Conditioning Equipment...................................... 34% $2,913 $3,078 $3,017 Home Cooking Appliances......................... 17% $1,434 $1,379 $1,321 Other Home Appliances and Appliance Components.. 18% $1,566 $1,367 $1,232 ---- ------ ------ ------ Net Sales..................................... 100% $8,617 $8,523 $8,163 ==== ====== ====== ======
The Company has been the principal supplier of home laundry appliances to Sears, Roebuck and Co. ("Sears") for over 80 years. The Company is also the principal supplier to Sears of residential trash compactors, and a major supplier to Sears of dishwashers and home refrigeration equipment. The Company also supplies Sears with certain other products for which the Company is not currently a major supplier. Sales of such other products to Sears are not significant to the Company's business. The Company supplies products to Sears for sale under Sears' KENMORE and SEARS brand names. Sears has also been a major outlet for the Company's WHIRLPOOL and KITCHENAID brand names since 1989. Major home appliances are marketed and distributed in the United States under the WHIRLPOOL, KITCHENAID, ROPER, ESTATE, CHAMBERS, and COOLERATOR brand names through Company-owned sales branches primarily to retailers, buying groups, and builders. KITCHENAID portable appliances are sold to retailers either directly or through an independent representative organization. The Company sells product to the builder trade both directly and through contract distributors. Major home appliances are manufactured and/or distributed in Canada under the INGLIS, ADMIRAL, SPEED QUEEN, WHIRLPOOL, ESTATE, ROPER, and KITCHENAID brand names. Refrigerator- 3 freezers, laundry products, room air conditioners, residential trash compactors, residential and component ice makers, cooking products, dishwashers, and other products are sold in limited quantities by the Company to other manufacturers and retailers for resale in North America under their respective brand names. In Europe, Whirlpool Europe markets and distributes its major home appliances under the WHIRLPOOL, BAUKNECHT, IGNIS, ALGOR, and LADEN brand names. In certain Eastern European countries, products bearing the WHIRLPOOL and IGNIS brand names are sold through independent distributors. Whirlpool Europe also has Company-owned sales subsidiaries in Hungary, Poland, the Czech Republic, Slovakia, Greece, Romania, Bulgaria, Latvia, Estonia, Lithuania, and Morocco, and a representative office in Russia. Whirlpool Europe owns a subsidiary in South Africa through which it markets products under the WHIRLPOOL and KIC brand names. Whirlpool Europe also sells products carrying the WHIRLPOOL, BAUKNECHT, IGNIS, ALGOR, and FIDES brand names to the Company's wholly-owned sales companies in Asia and Latin America and to independent distributors and dealers in Africa and the Middle East. In Asia, the Company markets and distributes its major home appliances through three operating regions: the Greater China region, based in Hong Kong, which includes the Peoples Republic of China, Taiwan, and Hong Kong; the South Asia region, based in Delhi, which includes India, Pakistan and other surrounding markets; and the Asia Pacific Sales Region, which reports operationally into Whirlpool Europe, and which includes Southeast Asia, Japan, Korea, the Philippines, Thailand, Australia, and New Zealand. The Company markets and sells its products in Asia under the WHIRLPOOL, KITCHENAID, IGNIS, BAUKNECHT, and NARCISSUS brand names, as well as under the SMC and RAYBO brand names (owned by its joint venture partners and used under license.) By early 1997, the Company had discontinued its previous licensed use of the KELVINATOR OF INDIA name, the KELVINATOR brand, and the TVS brand. The Company also discontinued its use of the SNOWFLAKE brand in 1997. In Latin America, the Company markets and distributes its major home appliances through regional networks under the WHIRLPOOL, BRASTEMP, CONSUL, and ESLABON DE LUJO brand names. Appliance sales and distribution in Brazil, Argentina, Bolivia, Chile, Paraguay, Uruguay, and Peru are managed through subsidiaries owned by Multibras, the Company's Brazilian subsidiary, and through independent distributors. Appliance sales and distribution in Central American countries, the Caribbean, Venezuela, and Ecuador are managed through Whirlpool sales subsidiaries which are part of Whirlpool's North America Region and through independent distributors. In Colombia, the Company operates a sales branch which sells and distributes products for the Colombian market. COMPETITION The major home appliance business is highly competitive. The Company believes that, in terms of units sold annually, it is the largest United States manufacturer of home laundry appliances and one of the largest United States manufacturers of home refrigeration and room air conditioning equipment, dishwashers, and cooking products. The Company estimates that during 1997 with respect to U.S. manufacturers, there were approximately five manufacturers of home laundry appliances, ten manufacturers of room air conditioning equipment, five manufacturers of home refrigeration equipment, five manufacturers of dishwashers, and five manufacturers of cooking products. Competition in the North American major home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. The Company believes that Whirlpool Europe, in terms of units sold annually, is one of the three largest manufacturers and marketers of major home appliance products in Europe. The Company estimates that during 1997 there were approximately 35 European manufacturers of major home appliances, the majority of which manufacture a limited range of products for a specific geographic region. In recent years, there has been significant merger and acquisition activity as manufacturers seek to broaden product lines and expand geographic markets, and the Company believes that this trend will continue. The Company believes that, with Whirlpool 4 Europe, it is in a favorable position relative to its competitors because it has an experienced European sales network, balanced sales throughout the European market under well-recognized brand names, manufacturing facilities located in different countries, and the ability to customize its products to meet the specific needs of diverse consumer groups. Competition in the European major home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. With respect to microwave ovens, Western European manufacturers face competition from manufacturers in Asia, primarily Japan, China and South Korea. In Asia, the major domestic appliance market is characterized by rapid growth and is dominated primarily by Asian diversified industrial manufacturers whose significant size and scope of operations enable them to achieve economies of scale. The Company estimates that during 1997 there were approximately 50 manufacturers of major home appliances competing in the Asian market. Competition in the Asian home appliance business is based on a wide variety of factors including principally local production capabilities, product features, price, product quality, and performance. The Company believes that it is well-positioned in the Latin American appliance market due to its ability to offer a broad range of products under well-recognized brand names such as WHIRLPOOL, BRASTEMP, CONSUL, and ESLABON DE LUJO to meet the specific requirements of consumers in the region. The Company estimates that during 1997 there were approximately 65 manufacturers of home appliances in the region. Competition in the Latin American home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. In Latin America there are trends toward privatization of government-owned businesses and a liberalization of investment and trade restrictions. In addition, the Company exports products to the Latin American market under the WHIRLPOOL brand name. As a result of its global expansion, the Company believes it may have a competitive advantage by reason of its ability to leverage engineering capabilities across regions, transfer best practices, and economically purchase raw materials and component parts in large volumes. EMPLOYEES The Company and its consolidated subsidiaries had approximately 61,000 employees as of December 31, 1997. OTHER INFORMATION On November 3, 1997, the Company acquired a controlling equity interest in Brasmotor S.A., the Company's long-time partner in Latin America and the parent company of certain Latin American manufacturers of major home appliances and components (Multibras and Embraco). As a result of its acquisition, the Company now includes Brasmotor in its consolidated financial statements rather than as an equity interest. The Company has a minority equity interest in a Mexican manufacturer of home appliances and components. In China, the Company has majority interests in joint venture companies that manufacture air conditioners, microwave ovens, and automatic washing machines for sale and distribution in their home countries and for export. The Company also has a minority equity interest in China in a compressor manufacturing joint venture between its Brazilian subsidiary and a company in China which manufactures refrigeration products. The Company received final government approval of its exit from its Chinese joint venture company that manufactures refrigeration products. The Company continues to consider alternatives, including possible sale or strategic alliance, for its Chinese joint venture company that manufactures air conditioning products. In India, the Company has a majority interest in a company that produces refrigeration products and washing machines for the Indian market and for export to the rest of Asia. The Company also has a minority equity interest in a Taiwanese marketer and distributor of home appliances. The company has a significant minority equity interest in a major manufacturer of kitchen furniture in Germany which is also a major trade customer of the Company. In addition, the Company furnishes engineering, manufacturing and marketing assistance to certain foreign manufacturers of home laundry and refrigeration equipment and other major home appliances for negotiated fees. 5 The Company's interests outside the United States and Western Europe are subject to risks which may be greater than or in addition to those risks which are currently present in the United States and Western Europe. Such risks may include: high inflation; the need for governmental approval of and restrictions on certain financial and other corporate transactions and new or continued business operations; the convertibility of local currencies; government price controls; restrictions on the remittance of dividends, interest, royalties, and other payments; restrictions on imports and exports; duties; political and economic developments and instability; the possibility of expropriation; uncertainty as to the enforceability of commercial rights and trademarks; and various types of local participation in ownership. In Brazil, the Company's subsidiaries were profitable in 1997 despite a decrease in consumer demand versus 1996. These results are due in part to successful efforts to control cost and boost productivity. However, issues such as unemployment, increasing interest rates, limited consumer credit, and exchange rate changes continue to affect consumer purchasing power and the appliance industry as a whole. The recent instability of Asian currencies may adversely affect the Company's performance in certain Asian markets, primarily due to the reduced profitability of import product sales and decreased consumer confidence. Economic growth in the region may be adversely affected through 1998 and beyond. The Company's exposure to such risks was reduced as a result of its recent restructuring activities. The Company is generally not dependent upon any one source for raw materials or purchased components essential to its business. In those areas where a single supplier is used, alternative sources are generally available and can be developed within the normal manufacturing environment, although some unanticipated costs may be incurred in transitioning to a new supplier where a prior single supplier is abruptly terminated. While there are pricing pressures on some materials and significant demand for certain components, it is believed that such raw materials and components will be available in adequate quantities to meet anticipated production schedules. Patents presently owned by the Company are considered, in the aggregate, to be important to the conduct of the Company's business. The Company is licensed under a number of patents, none of which individually is considered material to its business. The Company is the owner of a number of trademarks and the U.S. and foreign registrations thereof. The most important for its North American operations are the trademarks WHIRLPOOL, KITCHENAID, the KITCHENAID Mixer Shape, ROPER, and INGLIS. Whirlpool Europe, through its subsidiaries, is also the owner of a number of trademarks and the foreign registrations thereof. The most important trademarks owned by Whirlpool Europe are BAUKNECHT, IGNIS, and LADEN. The most important trademark for the Company's European, Asian and Latin American operations is WHIRLPOOL. The most important trademark licensed to the Company's subsidiaries is the trademark PHILIPS and the PHILIPS shield emblem, which can be used exclusively on major home appliances by such subsidiaries until July 31, 1998. In the event of a change in control of the Company, Philips ("Philips") has the option to terminate the use by the Company's subsidiaries of the trademark PHILIPS and the PHILIPS shield emblem. Pursuant to the agreement whereby the Company purchased most of Whirlpool Europe's business from Philips, except for certain limited exceptions and subject to certain phase-out provisions, neither Philips nor any subsidiary of Philips may engage directly or indirectly in the major domestic appliance business anywhere in the world until July 31, 1998. The Company believes that its business, in the aggregate, is not seasonal. Certain of its products, however, sell more heavily in some seasons than in others. For example, air conditioners typically sell more heavily during summer months. Where appropriate, the Company manages its regional manufacturing operations and product inventories to address seasonal variations in demand. Backlogs of the Company's products are filled and renewed relatively frequently in each year and are not significant in relation to the Company's annual sales. However, with respect to Asia, marked seasonality of certain product sales, combined with less efficient modes of distribution in that region, can result in significant inventory backlogs. 6 Expenditures for Company-sponsored research and engineering activities relating to the development of new products and the improvement of existing products are included in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report, which is incorporated herein by reference. Customer-sponsored research activities relating to the development of new products, services or techniques, or the improvement of existing products, services, or techniques are not material. The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect or enhance the environment, many of which require federal, state or other governmental licenses and permits with regard to wastewater discharges, air emissions, and hazardous waste management. These laws are continually changing and, as a general matter, are becoming more restrictive. The Company's policy is to seek to comply with all such laws and regulations. The Company believes that it is in compliance in all material respects with all presently applicable federal, state, local, and other provisions relating to environmental protection in the countries in which it has manufacturing operations. Capital expenditures and expenses attributable to compliance with such provisions worldwide amounted to approximately $58 million in 1995, $50 million in 1996, and $48 million in 1997. The Company anticipates that such capital expenditures and expenses will aggregate approximately $57 million in 1998. Much of the decrease from 1995 to 1997 is attributable to the phase-out of chloroflourocarbons ("CFCs") and is associated with the elimination of taxes on CFC's (CFC's were eliminated from the Company's products in the United States prior to December 31, 1995). The anticipated increase from 1997 to 1998 is associated with investments related to the phase-out of CFC's in South America. The Company is using a global environmental management process to assist in achieving its goals of producing environmentally compatible products, better integrating environmental considerations into the Company's product design and employee training, and improving the Company's ability to monitor its management of environmental, health, and safety affairs. The entire United States home appliance industry, including the Company, must contend with the adoption of stricter governmental energy and environmental standards to be phased in over the next several years. These include the general phase-out of CFCs used in refrigeration and energy standards rulemakings for other selected major appliances produced by the Company. Enactment of federal energy standards is uncertain at this time due to funding and rulemaking restrictions being considered for the Department of Energy by the U.S. Congress. Compliance with these various standards as they become effective will require some product redesign. As in the United States, Whirlpool Europe is also dealing with anticipated regulations and rules regarding improved efficiency and energy usage for its products. The Company believes it is well positioned to field products that comply with these anticipated regulations. In most Asian and Latin American countries, the Company has until 2010 to eliminate CFCs from its products. Whirlpool's Asian operations are also well positioned to meet anticipated efficiency and energy usage regulations. The Company has been notified by state and federal environmental protection agencies of its possible involvement in a number of so-called "Superfund" sites in the United States. However, the Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising out of the resolution of these matters or the resolution of any other known governmental proceeding regarding environmental protection matters. The Company has completed environmental assessments of its European facilities acquired as a result of the Company's purchase of the Major Domestic Appliance division of Philips. The Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising out of the resolution of these matters. The Company has also evaluated several recently acquired facilities in China and India. The Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition from the environmental condition of these facilities. The Company does not anticipate any material adverse effect on its operations or performance as a result of the Year 2000 computer software issue. The Company is evaluating its products for Year 2000 compliance and does not anticipate that any significant problems will be experienced due to the Year 2000 issue. Key internal computer systems have been evaluated for Year 2000 compliance and regional remediation plans have been 7 completed. Work is underway to replace or upgrade key internal systems to ensure they remain operational up to and beyond December 31, 1999. The Company anticipates that Year 2000 remediation projects will be successfully completed according to plan and that the costs of such projects will not be material to the Company. In an effort to enhance productivity and business systems performance, the Company is implementing an integrated business software package to replace and consolidate many of its existing stand-alone systems. In certain Latin American and European countries, implementation of the new system is expected to be completed prior to the end of 1999, while implementation in North America is scheduled to occur over the next 3 years. The following table sets forth the names of the Company's executive officers at December 31, 1997, the positions and offices with the Company held by them at such date, the year they first became officers, and their ages at December 31, 1997:
FIRST BECAME NAME OFFICE AN OFFICER AGE ---- ------ ------------ --- David R. Director, Chairman of the Board and 1983 55 Whitwam Chief Executive Officer William D. 1984 57 Marohn Director and Vice Chairman of the Board Ralph F. Senior Executive Vice President and 1988 48 Hake Chief Financial Officer Jeff M. Executive Vice President and 1993 40 Fettig President, Whirlpool Europe Robert D. Executive Vice President and 1992 49 Hall President, Whirlpool Asia Ronald L. Executive Vice President and 1991 54 Kerber Chief Technology Officer Paulo F.M. 1997 51 Periquito Executive Vice President, Latin American Region Michael D. 1997 49 Thieneman Executive Vice President, North American Region
Each of the executive officers named above was elected to serve in the office indicated until the first meeting of the Board of Directors following the annual meeting of stockholders in 1998 and until his successor is chosen and qualified or until his earlier resignation or removal. Each of the executive officers of the Company has held the position set forth in the table above or has served the Company in various executive or administrative capacities for at least the past five years, except for:
NAME COMPANY/POSITION PERIOD ---- ---------------- ------ Paulo March, 1996 through present F.M. Multibras S.A. Periquito Chief Executive Officer ALCOA Latin America 1981 through March, 1996 Executive Vice President and Chief Operating Officer (last title held)
ITEM 2. PROPERTIES. The principal executive offices of Whirlpool Corporation are located in Benton Harbor, Michigan. At December 31, 1997, the principal manufacturing and service operations of the Company were carried on at 48 locations worldwide, 36 of which are located in 12 countries outside the United States. The Company occupied a total of approximately 37 million square feet devoted to manufacturing, service, administrative offices, warehouse, distribution and sales space. Over 10.5 million square feet of such space is occupied under lease. In general, all such facilities are well maintained, suitably equipped and in good operating condition. In 1997, a new manufacturing plant was opened in Pune, India and began limited operations in December. 8 ITEM 3. LEGAL PROCEEDINGS. As of, and during the quarter ended, December 31, 1997, there were no material pending legal proceedings to which the Company or any of its subsidiaries was a party or to which any of their property was subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders in the fourth quarter of 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the New York Stock Exchange, the Chicago Stock Exchange, and the London Stock Exchange. At March 2, 1998, the number of holders of record of the Company's common stock was approximately 14,468. High and low sales prices (as reported on the New York Stock Exchange composite tape) and cash dividends declared and paid for the Company's common stock for each quarter during the years 1996 and 1997 are set forth in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report, which is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The selected financial data for the five years ended December 31, 1997 with respect to the following line items shown under the "Eleven Year Consolidated Statistical Review" in the Annual Report is incorporated herein by reference and made a part of this report: Total revenues; earnings from continuing operations before accounting change; earnings from continuing operations before accounting change per share of common stock; dividends paid per share of common stock; total assets; and long-term debt. See the material incorporated herein by reference in response to Item 7 of this report for a discussion of the effects on such data of business combinations and other acquisitions, disposition and restructuring activity, restructuring costs, accounting changes, and earnings of foreign affiliates. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Management's Discussion and Analysis of Results of Operations and Financial Condition in the Annual Report is incorporated herein by reference and made a part of this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company in the Annual Report are incorporated herein by reference and made a part of this report. Supplementary financial information regarding quarterly results of operations (unaudited) for the years ended December 31, 1997 and 1996 is set forth in Note 16 of the Notes to Consolidated Financial Statements. For a list of financial statements and schedules filed as part of this report, see the "Index to Financial Statements and Financial Statement Schedule(s)" beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to directors of the Company is incorporated herein by reference to the information under the caption "Directors and Nominees for Election as Directors" in the Company's proxy statement for the 1998 annual meeting of stockholders (SEC File No. 1-3932) (the "Proxy Statement"). Information with respect to executive officers of the Company is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION. Information with respect to compensation of executive officers and directors of the Company is incorporated herein by reference to the information under the captions "Executive Compensation" and "Compensation of Directors" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to security ownership by the only person(s) known to the Company to beneficially own more than 5 percent of the Company's stock and by each director of the Company and all directors and elected officers of the Company as a group is incorporated herein by reference to the information under the caption "Security Ownership" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to certain transactions with executive officers and directors of the Company and others is incorporated herein by reference to the information under the caption "Certain Transactions" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report: 1. The financial statements listed in the "Index to Financial Statements and Financial Statement Schedules." 2. The financial statement schedule listed in the "Index to Financial Statements and Financial Statement Schedules." 3. The exhibits listed in the "Index to Exhibits." (b) Reports on Form 8-K filed during the fourth quarter of 1997. 1. A Current Report on Form 8-K for October 15, 1997 pursuant to Item 5-- "Other Events" announced the Company's third quarter 1997 earnings, and the Company's sale of certain assets of Whirlpool Financial Corporation ("WFC") to Transamerica Distribution Finance Corporation ("TDF"). 2. A Current Report on Form 8-K for November 1, 1997 pursuant to Item 2-- "Acquisition or Disposition of Assets" announced the sale of certain additional WFC assets to TDF, and pursuant to Item 5--"Other Events" announced the acquisition of approximately 33% of the voting shares of Brasmotor S.A. Included were an unaudited pro forma condensed balance sheet as of September 30, 1997 and unaudited pro forma condensed statements of earnings for the year ended December 31, 1996 and for the nine months ended September 30, 1997. 3. A Current Report on Form 8-K for December 1, 1997 pursuant to Item 5-- "Other Events" announced the resignation of Eileen A. Kamerick as Vice President and Treasurer, and the naming of Brian F. Peters as her successor, and the resignation of Daniel Miller, Executive Vice President, Whirlpool Latin America. 10 4. A Current Report on Form 8-K for December 9, 1997 pursuant to Item 5-- "Other Events" announced the resignation of John P. Cunningham as Executive Vice President and Chief Financial Officer and the naming of Ralph F. Hake as his successor. (c) Exhibits. 1. The following exhibits are included herein: (11) Computation of per share earnings. (12) Computation of the ratios of earnings to fixed charges. (27) Financial Data Schedule. 2. The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. 11 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Whirlpool Corporation (Registrant) /s/ Ralph F. Hake By: _________________________________ Ralph F. Hake (Principal Financial Officer) Senior Executive Vice President of Operations and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- David R. Whitwam* Director, Chairman of the ____________________________________ Board and Chief Executive David R. Whitwam Officer (Principal Executive Officer) William D. Marohn* Director, and Vice Chairman ____________________________________ of the Board William D. Marohn Ralph F. Hake* Senior Executive Vice ____________________________________ President Ralph F. Hake of Operations and Chief Financial Officer (Principal Financial Officer) Mark E. Brown* Vice President and ____________________________________ Controller (Principal Mark E. Brown Accounting Officer) Robert A. Burnett* Director ____________________________________ Robert A. Burnett Herman Cain* Director March 20, 1998 ____________________________________ Herman Cain Gary T. DiCamillo* Director ____________________________________ Gary T. DiCamillo H. Miguel Etchenique* Director ____________________________________ H. Miguel Etchenique Allan D. Gilmour* Director ____________________________________ Allan D. Gilmour Kathleen J. Hempel* Director ____________________________________ Kathleen J. Hempel
12
SIGNATURE TITLE DATE --------- ----- ---- Arnold G. Langbo* Director ____________________________________ Arnold G. Langbo Miles L. Marsh* Director ____________________________________ Miles L. Marsh Philip L. Smith* Director March 20, 1998 ____________________________________ Philip L. Smith Paul G. Stern* Director ____________________________________ Paul G. Stern Janice D. Stoney* Director ____________________________________ Janice D. Stoney
/s/ Daniel F. Hopp *By: __________________________ Daniel F. Hopp Attorney-in-Fact 13 ANNUAL REPORT ON FORM 10-K ITEMS 14(A) (1) AND (2) AND 14(D) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE(S) YEAR ENDED DECEMBER 31, 1997 WHIRLPOOL CORPORATION AND CONSOLIDATED SUBSIDIARIES The following consolidated financial statements of the registrant and its consolidated subsidiaries, set forth in the Annual Report, are incorporated herein by reference in Item 8: Consolidated balance sheets--December 31, 1997 and 1996 Consolidated statements of earnings--Three years ended December 31, 1997 Consolidated statements of cash flows--Three years ended December 31, 1997 Notes to consolidated financial statements The following reports of independent auditors and consolidated financial statement schedules of the registrant and its consolidated subsidiaries are submitted herewith in response to Items 14(a) (2) and 14(d):
PAGE ---- Report of Ernst & Young L.L.P., Independent Auditors................... F-2 Reports of Price Waterhouse, Independent Auditors...................... F-3 Schedule II--Valuation and Qualifying Accounts......................... F-9 The following exhibits are included herein: Exhibit 11--Statement Re: Computation of Earnings Per Share............ F-10 Exhibit 12--Ratio of Earnings to Fixed Charges......................... F-11
Individual financial statements of the registrant's affiliated foreign companies, accounted for by the equity method, have been omitted since no such company individually constitutes a significant subsidiary. Summarized financial information relating to the affiliated companies is set forth in Note 5 of the Notes to Consolidated Financial Statements incorporated by reference herein. Certain schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 [LETTERHEAD OF ERNST & YOUNG LLP] Report Of Independent Auditors The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited the accompanying consolidated balance sheets of Whirlpool Corporation as of December 31, 1997 and 1996, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Brasmotor S.A. and its consolidated subsidiaries, which statements reflect total assets of $2,200 million and $2,100 million as of December 31, 1997 and 1996, respectively and net earnings of $41 million and $120 million for the years ended December 31, 1997 and 1996, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for Brasmotor S.A. and its consolidated subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young L.L.P. Chicago, Illinois January 26, 1998 F-2 Report of Independent Accountants January 23, 1998 To the Board of Directors and Stockholders Brasmotor S.A. 1 We have audited the consolidated balance sheets of Brasmotor S.A. and its subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars (not presented herein). Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 23, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Whirlpool Argentina S.A., which statements reflect total assets of US$ 119,549 thousand and US$ 98,444 thousand as of December 31, 1997 and 1996, respectively and net earnings of US$ 9,487 thousand and US$ 4,710 thousand for the years ended December 31, 1997 and 1996, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for Whirlpool Argentina S.A., is based solely on the reports of the other auditors. 2 We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. F-3 January 23, 1998 Brasmotor S.A. Page 2 3 As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Brasmotor S.A. and its subsidiaries to be included in Whirlpool's consolidated financial statements. Brazil has a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Brasmotor S.A. and its Brazilian subsidiaries, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, on the bases stated in Note 1. 4 In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. /s/ Price Waterhouse F-4 Report of Independent Accountants January 23, 1998 To the Board of Directors and Stockholders Empresa Brasileira de Compressores S.A. - EMBRACO 1 We have audited the consolidated balance sheets of Empresa Brasileira de Compressores S.A. - EMBRACO and its subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars (not presented herein). Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 23, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 2 We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. F-5 January 23, 1998 Empresa Brasileira de Compressores S.A. - EMBRACO Page 2 3 As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Empresa Brasileira de Compressores S.A. - EMBRACO and its subsidiaries to be included in Whirlpool's consolidated financial statements. Brazil has a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Empresa Brasileira de Compressores S.A. - EMBRACO and its Brazilian subsidiaries, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, on the bases stated in Note 1. 4 In our opinion, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. /s/ Price Waterhouse F-6 Report of Independent Accountants January 23, 1998 To the Board of Directors and Stockholders Multibras S.A. Eletrodomesticos 1 We have audited the consolidated balance sheets of Multibras S.A. Eletrodomesticos and its subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars (not presented herein). Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 23, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Whirlpool Argentina S.A. , which statements reflect total assets of US$ 119,549 thousand as of December 31, 1997 and net earnings of US$ 9,487 thousand for the year ended December 31, 1997. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Whirlpool Argentina S.A. is based solely on the report of the other auditors. 2 We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. F-7 January 23, 1998 Multibras S.A. Eletrodomesticos Page 2 3 As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Multibras S.A. Eletrodomesticos and its subsidiaries to be included in Whirlpool's consolidated financial statements. Brazil has a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Multibras S.A. Eletrodomesticos and its Brazilian subsidiaries, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, on the bases stated in Note 1. 4 In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. /s/ Price Waterhouse F-8 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS WHIRLPOOL CORPORATION AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995 (MILLIONS OF DOLLARS)
COL. A COL. B COL. C COL. D COL. E ------ --------- ------------------ ----------- ------- ADDITIONS ------------------ ------- (1) (2) BALANCE CHARGED CHARGED BALANCE AT TO COSTS TO OTHER AT END BEGINNING AND ACCOUNTS/ DEDUCTIONS- OF DESCRIPTION OF PERIOD EXPENSES OTHER DESCRIBE PERIOD ----------- --------- -------- --------- ----------- ------- Year Ended December 31, 1997: Allowances for doubtful accounts-- trade receivables.... $ 45 $ 34 $55(A) $ 0(B) $134 ==== ===== === ==== ==== Allowances for doubtful accounts-- financing receivables and leases........... $ 50 $ 125 $ 0 $ 85(C) $ 90 ==== ===== === ==== ==== Accrued expenses-- restructuring costs.. $ 32 $ 343 $ 5(D) $168(E) $212 ==== ===== === ==== ==== Year Ended December 31, 1996: Allowances for doubtful accounts-- trade receivables.... $ 39 $ 15 $ 9(B) $ 45 ==== ===== ==== ==== Allowances for doubtful accounts-- financing receivables and leases........... $ 42 $ 48 $ 40(C) $ 50 ==== ===== ==== ==== Accrued expenses-- restructuring costs.. $ 70 $ 30 $ 68(E) $ 32 ==== ===== ==== ==== Year Ended December 31, 1995: Allowances for doubtful accounts-- trade receivables.... $ 38 $ 16 $ 15(B) $ 39 ==== ===== ==== ==== Allowances for doubtful accounts-- financing receivables and leases........... $ 46 $ 34 $ 38(C) $ 42 ==== ===== ==== ==== Accrued expenses-- restructuring costs.. $175 $ -- $105(E) $ 70 ==== ===== ==== ====
- -------- Note A--The amount represents the allowance for doubtful accounts balance on the balance sheet of Brasmotor S.A. at the time of consolidation in 1997. Note B--The amounts represent accounts charged off, less recoveries of $15 in 1997, $7 in 1996, and $5 in 1995, and translation adjustments. Note C--The amounts represent accounts charged off, less recoveries of $4 in 1997, and $3 in 1996 and 1995. Note D--The amount represents the restructuring provision on the balance sheet of Brasmotor S.A. at the time of consolidation in 1997. Note E--Includes cash payments for employee severance and related costs, lease terminations, facility dispositions and other cash costs; write-down of facilities, equipment and other assets; and translation adjustments. F-9 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE WHIRLPOOL CORPORATION AND SUBSIDIARIES (ALL AMOUNTS IN MILLIONS EXCEPT EARNINGS PER SHARE)
1997 1996 1995 ------ ------ ------ Basic: Average Shares Outstanding............................. 74.7 74.3 73.9 Earnings (Loss): Continuing Operations................................ $(46.4) $140.9 $195.5 Discontinued Operations.............................. 31.6 14.9 13.9 ------ ------ ------ Net Earnings (Loss).................................... $(14.8) $155.8 $209.4 ====== ====== ====== Earnings (Loss) Per Share from Continuing Operations... $(0.62) $ 1.90 $ 2.64 Net Earnings (Loss) Per Share.......................... $(0.20) $ 2.10 $ 2.83 ====== ====== ====== Diluted: Average Shares Outstanding............................. 74.7 74.3 73.9 Treasury Stock Method (a): Stock Options........................................ -- 0.7 0.7 Assumed Conversion of Debt............................. -- 2.2 2.2 ------ ------ ------ Average Shares Outstanding............................... 74.7 77.2 76.8 ====== ====== ====== Earnings (Loss) from Continuing Operations............. $(46.4) $140.9 $195.5 Interest Expense, net of tax........................... -- 4.5 4.2 ------ ------ ------ Diluted Earnings (Loss) from Continuing Operations..... $(46.4) $145.4 $199.7 ====== ====== ====== Diluted Earnings (Loss) Per Share from Continuing Opeations............................................. $(0.62) $ 1.88 $ 2.60 ====== ====== ====== Net Earnings (Loss).................................... $(14.8) $155.8 $209.4 Interest Expense, net of tax........................... -- 4.5 4.2 ------ ------ ------ Diluted Net Earnings (Loss)............................ $(14.8) $160.3 $213.6 ====== ====== ====== Diluted Net Earnings (Loss) Per Share.................. $(0.20) $ 2.08 $ 2.78 ====== ====== ======
- -------- (a) Using the average market price per share of stock for the period; effect of stock options precipitates an anti-dilutive calculation in 1997, and therefore not included; convertible debt retired in 1997. F-10 EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $(171) $(7) $ (178) Portion of rents representative of the interest factor........................................ 20 1 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ Adjusted income................................ $ 17 $77 $ 94 ===== === ====== FIXED CHARGES - ------------- Portion of rents representative of the interest factor........................................ $ 20 $ 1 $ 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ $ 188 $84 $ 272 ===== === ====== Ratio of earnings to fixed charges............. 0.1 0.9 0.3 ===== === ======
F-11 EXHIBIT 12 - RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $(171) $(7) $ (178) Portion of rents representative of the interest factor........................................ 20 1 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ Adjusted income................................ $ 17 $77 $ 94 ===== === ====== FIXED CHARGES - ------------- Portion of rents representative of the interest factor........................................ $ 20 $ 1 $ 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ $ 188 $84 $ 272 ===== === ====== Ratio of earnings to fixed charges............. 0.1 0.9 0.3 ===== === ======
F-12 ANNUAL REPORT ON FORM 10-K ITEMS 14(A)(3) AND 14(C) INDEX TO EXHIBITS YEAR ENDED DECEMBER 31, 1997 The following exhibits are submitted herewith or incorporated herein by reference in response to Items 14(a)(3) and 14(c):
NUMBER AND SEQUENTIAL DESCRIPTION PAGE OF EXHIBIT NUMBERS* ----------- ---------- 3(i) Restated Certificate of Incorporation of the Com- pany [Incorporated by reference from Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 3(ii) Amended and Restated By-laws of the Company as amended February 17, 1998. 4 The registrant hereby agrees to furnish to the Securities and Exchange Commission, upon request, the instruments defining the rights of holders of each issue of long-term debt of the registrant and its subsidiaries. 10(iii) (a) Whirlpool Retirement Benefits Restoration Plan (as amended January 1, 1992) [Incorporated by reference from Exhibit 10(iii)(a) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1993] 10(iii) (b) 1979 Stock Option Plan (as amended April 28, 1987) [Incorporated by reference from Exhibit 10(iii)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (c) Whirlpool Supplemental Executive Retirement Plan (as amended and restated effective December 31, 1993) [Incorporated by reference from Exhibit 10(iii)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (d) Resolution adopted on December 12, 1989 by the Board of Directors of the Company adopting a com- pensation schedule, life insurance program and retirement benefit program for eligible Direc- tors. [Incorporated by reference from Exhibit 10(iii)(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (e) Resolution adopted on December 8, 1992 by the Board of Directors of the Company adopting a Flexible Compensation Program for the Corpora- tion's nonemployee directors. [Incorporated by reference from Exhibit 10(iii)(e) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1993] 10(iii) (f) Whirlpool Corporation Deferred Compensation Plan for Directors (as amended effective January 1, 1992 and April 20, 1993) [Incorporated by refer- ence from Exhibit 10(iii)(f) to the Company's An- nual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (g) Form of Agreement providing for severance bene- fits for certain executive officers [Incorporated by reference from Exhibit 10(iii)(g) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1993] 10(iii) (h) Whirlpool Corporation 1989 Omnibus Stock and In- centive Plan (as amended June 20, 1995) [Incorpo- rated by reference from Exhibit 10(iii)(r) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1995]
E-1
NUMBER AND SEQUENTIAL DESCRIPTION PAGE OF EXHIBIT NUMBERS* ----------- ---------- 10(iii) (i) Whirlpool Corporation Restricted Stock Value Pro- gram (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(i) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1993] 10(iii) (j) Whirlpool Executive Stock Appreciation and Per- formance Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (k) Whirlpool Corporation Nonemployee Director Stock Ownership Plan (as amended February 20, 1996, ef- fective April 16, 1996) [Incorporated by refer- ence from Exhibit B to the Company's proxy state- ment for the 1996 annual meeting of stockholders] 10(iii) (l) Whirlpool 401(k) Plan (as amended and restated April 1, 1993) [Incorporated by reference from Exhibit 10(iii)(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (m) Whirlpool Performance Excellence Plan (as amended January 1, 1992 and February 15, 1994) [Incorpo- rated by reference from Exhibit 10(iii)(m) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1993] 10(iii) (n) Whirlpool Corporation Executive Deferred Savings Plan (as amended effective January 1, 1992) [In- corporated by reference from Exhibit 10(iii)(n) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (o) Whirlpool Corporation Executive Officer Bonus Plan (Effective as of January 1, 1994) [Incorpo- rated by reference from Exhibit 10(iii)(o) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1994] 10(iii) (p) Whirlpool Corporation Charitable Award Contribu- tion and Additional Life Insurance Plan for Di- rectors (Effective April 20, 1993) [Incorporated by reference from Exhibit 10(iii)(p) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1994] 10(iii) (q) Whirlpool Corporation Career Stock Grant Program (Pursuant to the 1989 Whirlpool Corporation Omni- bus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(q) to the Company's Annual Report on Form 10-K for the fis- cal year ended December 31, 1995] 10(iii) (r) Whirlpool Corporation 1996 Omnibus Stock and In- centive Plan (Effective April 25, 1996) [Incorpo- rated by reference from Exhibit A to the Company's proxy statement for the 1996 annual meeting of stockholders] 11 Statement Re: Computation of Earnings per share 12 Statement Re: Computation of the Ratios of Earn- ings to Fixed Charges 13 Management's Discussion and Analysis and Consoli- dated Financial Statements contained in Annual Report to Stockholders for the year ended Decem- ber 31, 1997 21 List of Subsidiaries 23(ii) (a) Consent of Ernst & Young 23(ii) (b) Consent of Price Waterhouse 24 Powers of Attorney 27 Financial Data Schedule
- -------- * This information appears only in the manually signed originals of the Form 10-K and conformed copies with exhibits. E-2 EX-3.(II) 2 AMENDED AND RESTATED BY-LAWS AS AMENDED 2/17/98 B Y - L A W S O F W H I R L P O O L C O R P O R A T I O N (As Amended February 17, 1998) ARTICLE I --------- OFFICES SECTION 1. Registered Office. The registered office of Whirlpool Corporation (the "Corporation") shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the registered agent in charge thereof is The Corporation Trust Company. SECTION 2. Additional Offices. The Corporation may also have offices at such other places within or without the State of Delaware as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II ---------- MEETINGS OF STOCKHOLDERS SECTION 1. Place of Holding Meetings. The annual meeting of stockholders for the election of directors shall be held at such place, within or without the State of Delaware, as may from time to time be fixed by the board of directors. Subject to the provisions of Section 4 of this Article II, each meeting of stockholders for any other purpose may be held at such place, within or without the State of Delaware, as shall be fixed by the board of directors. SECTION 2. Annual Meetings; Election of Directors. The annual meeting of stockholders for the election of directors shall be held on the third Tuesday in April, or such other date and time as may be determined by the board of directors. Any other proper business may also be transacted at the annual meeting. SECTION 3. Stockholders' List. At least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be prepared by or for the Secretary. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, at the place where the meeting is to be held, -1- and shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 4. Special Meetings. Special meetings of the stockholders for any purpose or purposes, except as otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chairman of the Board, any Vice Chairman, or the President and shall be called by the Chairman of the Board, any Vice Chairman, or the President or the Secretary at the request in writing of a majority of the directors in office or pursuant to a resolution adopted by the board of directors. Such request or resolution shall state the place, date and hour and the purpose or purposes of the proposed meeting. No business shall be transacted at any special meeting except that referred to in the notice thereof. SECTION 5. Notice of Meetings. A written or printed notice stating the place, date and hour of the meeting and, in case of a special meeting or whenever required by statute, by the certificate of incorporation, or by these by-laws, further stating the purpose or purposes for which the meeting is called, shall be given by the Secretary to each stockholder entitled to vote thereat by delivering such notice to him personally or by mailing it, postage prepaid, addressed to him at his address as it appears on statute, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting. An affidavit of the Secretary or an Assistant Secretary or of a transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. SECTION 6. Quorum. The holders of at least fifty percent (50%) of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, then the holders of a majority of the shares of capital stock present in person or represented by proxy and entitled to vote thereat shall have power to adjourn the meeting from time to time, without notice or call other than by announcement at the meeting of the time and place of the holding of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 7. Voting. When a quorum is present at any meeting, any question properly brought before such meeting shall be decided by the vote of the holders of a majority of the voting power of the stock present in person or represented by proxy and entitled to vote thereon, unless the question is one upon which a different vote is required by provision of statute, the certificate of incorporation or these by-laws, in which case such provision shall govern and control the decision of such question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may, by an instrument in writing subscribed by such stockholder, authorize another person or persons to act for such stockholder by proxy, but no such -2- proxy instrument shall be voted or acted upon after three years from its date unless such instrument provides for a longer period. SECTION 8. Inspectors of Election. At any election of directors, the chairman of the meeting may, and upon request of the holders of ten percent (10%) or more of the stock present and entitled to vote at such election shall, appoint two inspectors of election who shall subscribe an oath or affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability and who shall canvass the votes and make and sign a certificate of the result thereof. No candidate for the office of director shall be appointed as such inspector. SECTION 9. Conduct of Stockholders' Meetings. The meetings of the stockholders shall be presided over by the Chairman of the Board, or if he is not present, by a Vice Chairman or the President, or if none of such officers is present, by a Vice President designated by the board of directors, or if none of such officers is present, by a chairman to be elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings or, if he is not present, an Assistant Secretary designated by the chairman of the meeting shall so act; if neither the Secretary nor an Assistant Secretary is present, then a secretary shall be appointed by the chairman of the meeting. The order of business shall be as determined by the chairman of the meeting. SECTION 10. Validity of Proxies; Ballots, etc. At every meeting of the stockholders, all proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless inspectors of election shall have been appointed by the chairman of the meeting, in which event such inspectors of election shall decide all such questions. SECTION 11. Nominations and Qualifications of Directors. Subject to the rights of holders of Preferred Stock, nominations for the election of directors may be made by the board of directors or a stockholder entitled to vote generally in the election of directors. For a nomination or nominations to be properly made by any stockholder entitled to vote generally in the election of directors, written notice of such stockholder's intent to make such nomination or nominations must be given, either by personal delivery or by registered or certified United States mail, postage prepaid, to the Secretary of the Corporation (and must be received by the Secretary) not later than (i) with respect to an election to be had at an annual meeting of stockholders to be held on the third Tuesday in April, ninety (90) days in advance of such meeting, and (ii) with respect to an election to be had at an annual meeting to be held on a day other than the third Tuesday in April or to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the -3- nomination or nominations are to be made by the stockholders; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the then current proxy rules of the Securities and Exchange Commission, if the nominee were to be nominated by the Board; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. SECTION 12. Advance Notice of Stockholder Proposals. Subject to the rights of holders of Preferred Stock, at an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting by the board of directors or by any stockholder of the Corporation entitled to vote generally in the election of directors who complies with the requirements of this Section 12 and as shall otherwise be proper subjects for stockholder action and shall be properly introduced at the meeting. For a proposal or proposals to be properly brought before an annual meeting by any stockholder entitled to vote generally in the election of directors, written notice of such stockholder's intent to make such proposal or proposals must be given, either by personal delivery or by registered or certified United States mail, postage prepaid, to the Secretary of the Corporation (and must be received by the Secretary) not later than (i) with respect to an annual meeting of stockholders to be held on the third Tuesday in April, ninety (90) days in advance of such meeting, and (ii) with respect to an annual meeting to be held on a day other than the third Tuesday in April, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal; (c) the class and number of shares of the Corporation's stock which are beneficially owned by the stockholder on the date of such notice; and (d) any financial interest of the stockholder in such proposal. The chairman of the meeting shall determine whether the requirements of this Section 12 have been met with respect to any stockholder proposal. If the chairman of the meeting determines that a stockholder proposal was not made in accordance with the terms of this Section 12, he or she shall so declare at the meeting and any such proposal shall not be acted upon at the meeting. At a special meeting of stockholders, only such business shall be acted upon as shall have been set forth in the notice relating to the meeting or as shall constitute matters incident to the conduct of the meeting as the chairman of the meeting shall determine to be appropriate. ARTICLE III ----------- DIRECTORS -4- SECTION 1. General Powers. The property and business of the Corporation shall be managed by its board of directors, which shall possess all the powers of the Corporation except as may be otherwise provided by statute or by the certificate of incorporation or by these by-laws. The board of directors may hold its meetings, establish corporate offices and agencies, and keep the books and records of the Corporation at such places either within or without the State of Delaware as it may from time to time determine. SECTION 2. Election of Directors; Terms of Office. At all meetings of the stockholders for the election of directors at which a quorum is present, the persons who were nominated in accordance with Section 11 of Article II of these by-laws and receive the greatest number of votes shall be elected as directors. Commencing at the annual meeting of stockholders held in 1986, the board of directors shall be divided into three classes, and shall have terms of office, as provided in Article FIFTH of the Certificate. SECTION 3. Regular Meetings. An annual meeting of the board of directors may be held immediately after and at the same place as the annual meeting of stockholders and no notice of such meetings shall be necessary if a quorum be present, or the time and place of such meeting may instead be fixed by action of the board of directors and notice of the meeting given pursuant to Section 5 of this Article III. Such annual meeting shall constitute a regular meeting of the board of directors. Other regular meetings of the board of directors (so designated in the resolution fixing the dates thereof) may be held either within or without the State of Delaware on such dates as may be fixed from time to time by resolution of the board. SECTION 4. Special Meetings. Special meetings of the board of directors may be called by the Chairman of the Board, any Vice Chairman, or the President and shall be called by the Chairman of the Board, any Vice Chairman, or the President or Secretary at the request in writing of a majority of the directors in office, and the person or persons so calling or requesting the calling of any special meeting of the board of directors shall in such call or request fix the date, hour and place, within or without the State of Delaware, for holding any such special meeting. SECTION 5. Notice of Meetings. Notice of any meeting of the board of directors (except where no notice is required under Section 3 of this Article III) shall be given to each director by mail on or before the second day (excluding Sundays and legal holidays) next preceding the day of the meeting or by telegraph, cable, telecopier or telex, or personally in writing, on or before the first day next preceding the day of the meeting. SECTION 6. Number of Directors. The number of directors which shall constitute the whole board of directors of the Corporation shall be not less than seven nor more than fifteen; provided that at all times a majority of the directors shall be persons who are not employed by the Corporation or any of its subsidiaries unless a proviso is waived by a majority of directors who are not so employed present at a meeting at which it is determined that such waiver is in the best interest of the Corporation. Within such limits the number of directors shall be as fixed at any meeting of the board of directors by resolution adopted by a majority of the directors then in office; provided, however, that no decrease in the number of directors constituting the whole board shall -5- shorten the term of any incumbent director. Vacancies created by an increase in the number of directors may be filled as provided in Section 10 of this Article III. SECTION 7. Quorum. The presence at any meeting of the board of directors of a majority of the number of directors then in office shall constitute a quorum for the transaction of business except as otherwise provided in Section 10 of this Article III. SECTION 8. Voting. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors unless by provision of statute, the certificate of incorporation or these by- laws the vote of a different number of directors is required, in which case such provision shall govern. SECTION 9. Resignation. Any director or member of a committee of directors may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chairman of the Board, any Vice Chairman, President or Secretary. Except as hereinafter provided, the acceptance of a resignation shall not be necessary to make it effective. When there is a change in the principal occupation of a director from that in which he or she was engaged when elected to the board, such director shall promptly give notice of the change and submit a resignation from the board and all committees for consideration by the Chairman. The Chairman, with the approval of the full board, may elect to accept or reject such resignation. Directors who are full-time employees of the Corporation or one of its subsidiaries must promptly resign from the board and all committees whenever their term of employment ends for any reason, including but not limited to retirement; the effective date of such resignation to be not later than the last day of employment. The requirement that a director submit a resignation due to a change in occupation or due to the termination of employment with the Corporation or one of its subsidiaries may be waived by a majority of all other directors present at a meeting of directors at which it is determined that such waiver is in the best interest of the Corporation. SECTION 10. Filling of Vacancies. Subject to the rights of holders of Preferred Stock, in the event of a vacancy in the board of directors or any newly created directorship resulting from any increase in the number of directors or any vacancy in any committee of directors, a majority of the directors, excluding any directors who shall theretofore have resigned effective as of a future date, may, although less than a quorum, appoint any person to fill such vacancy upon the occurrence thereof (such person to hold office for the unexpired term of such office), or to fill such newly created directorship (such person to serve for the term for the class of directors of which such director is a member), and until such director's successor shall have been elected or qualified or until such director's earlier death, resignation, or removal from office. SECTION 11. Ratification by Stockholders. Any contract, transaction or act of the Corporation or of the board of directors or of any committee thereof or of any officer of the Corporation which shall be ratified at any annual meeting of stockholders or at any special meeting thereof called for such purpose by the holders of a majority of the voting power of the then outstanding stock of the Corporation shall be as valid and binding upon the Corporation and all of its stockholders as though ratified by every stockholder of the Corporation. -6- SECTION 12. Compensation of Directors. Directors and members of any committee of directors, other than those who shall be officers or employees of the Corporation or of a subsidiary thereof, shall be entitled to receive for their services as such directors or members either an annual fee or a fixed fee, or both, for attendance at meetings of the board or such committee, in such amounts as may be provided from time to time by resolution of the board, in addition to which directors and committee members shall be entitled to receive reimbursement for their expenses of attendance at meetings of the board or such committee; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV ---------- COMMITTEES SECTION 1. Appointment; Powers. The board of directors by resolution adopted by a majority of the whole board, may, (by provision of these by-laws or otherwise) designate one or more committees of the board, each committee to consist of such number of directors, in no event less than two, and to have such powers of affairs of the Corporation as the board may determine and specify in such a resolution. The board of directors may at any time, by resolution similarly adopted, change the number, members or powers of any such committee, fill vacancies, or discharge any such committee. SECTION 2. Procedures; Meetings; Quorum. To the extent any such action is not taken by the board of directors, each committee may choose its own chairman and secretary, fix its own rules of procedure, and meet at such times and at such place or places as may be provided by such rules. At every meeting of each committee, the presence of a majority of all the members thereof shall be necessary to constitute a quorum and the affirmative vote of a majority of the members present shall be necessary to decide any question before the committee. SECTION 3. Human Resources Committee. The Human Resources Committee shall consist of such directors of the Corporation who are not officers or employees of the Corporation or of any subsidiary as shall be appointed from time to time by the board of directors. The Human Resources Committee shall make determinations and awards pursuant to any bonus or incentive plans of the Corporation, determine salaries to be paid to officers of the Corporation, the terms and conditions of their employment, the allotment of shares to officers and other employees under any stock option plan of the Corporation, and shall also make such other determinations as the Committee deems proper relating to remuneration or benefits to be paid to officers of the Corporation. At each meeting of the board of directors a report shall be made to the board respecting such determinations made by the Committee subsequent to the next preceding meeting of the board, and each such determination so made and reported shall be final unless, at said meeting, the same shall be revoked or modified by action of the board. In addition, the Chairman of the Board shall review with the Committee from time to time plans for the development, training and utilization of the management resources of the Corporation. On such occasions, the Human Resources Committee -7- shall act in an advisory capacity to the Chief Executive Officer in respect of the foregoing. The Human Resources Committee shall have and perform such other and additional duties as from time to time may be prescribed by the board of directors. SECTION 4. Finance Committee. The Finance Committee shall consist of such directors of the Corporation, a majority of whom are not officers or employees of the Corporation or of any subsidiary, as shall be appointed from time to time by the board of directors. The Finance Committee shall consider and make recommendations to the board of directors as to such financial matters concerning the Corporation as shall be referred to it by the board of directors, or the Chairman of the Board, or which the Committee may consider on its own initiative, and perform such additional duties as from time to time may be prescribed by the board of directors. SECTION 5. Audit Committee. The Audit Committee shall consist of at least three (3) but not more than five (5) directors of the Corporation, who are not officers or employees of the Corporation or of any subsidiary, as shall be appointed from time to time by the board of directors. The Audit Committee shall (i) consider and make recommendations to the board of directors as to such auditing matters concerning the Corporation as shall be referred to it by the board of directors, or the Chairman of the Board, or which the Committee may consider on its own initiative; (ii) each year recommend to the board of directors, for appointment by the board, independent auditors of the Corporation and its wholly-owned subsidiaries, respectively, for such year, to audit the financial statements of the Corporation and such subsidiaries, and to perform such other duties as the board may prescribe; (iii) have authority, to the extent considered desirable by the Committee, to examine into and make recommendations to the board of directors in respect of (a) the general scope and results of the audit conducted by the independent auditors; (b) the internal controls, systems and processes maintained by the Corporation to protect assets and manage risks; (c) legal, regulatory, compliance or similar matters that may have a material impact on the Corporation's financial position, and (d) the appointment, replacement, reassignment or dismissal of the director of internal audit; and (iv) perform such additional duties as from time to time may be prescribed by the board of directors. The Audit Committee shall have the power to conduct or authorize investigations into any matters within the Committee's scope of responsibilities and, in connection therewith, may retain independent counsel, accountants or others to assist it. SECTION 6. Corporate Governance Committee. The Corporate Governance Committee shall consist of at least three (3) but not more than five (5) directors of the Corporation who are not officers or employees of the Corporation or of any subsidiary, as shall be appointed from time to time by the board of directors. The Corporate Governance Committee shall (i) in consultation with the Chairman of the Board, consider and make recommendations to the full board of directors concerning the number and accountability of board committees, committee assignments and committee membership rotation practices, (ii) establish qualifications, desired backgrounds and selection criteria for nominees to the board of directors, (iii) recommend to the full board of directors nominees for board membership, (iv) on an annual basis, conduct an evaluation of the effectiveness of the full board of directors (but not of individual members) and the effectiveness of overall governance practrices and guidelines, based on input from all board members, and (v) perform such additional duties as from time to time may be prescribed by the board of directors. -8- ARTICLE V --------- OFFICERS SECTION 1. Officers. The officers of the Corporation shall be a Chairman of the Board, one or more Vice Chairmen, a President, one or more Vice Presidents, a Treasurer, a Controller, and a Secretary, all of whom shall be elected by the board of directors. Any two or more offices, except those of President and Secretary, may be held by the same person. In addition, the Chairman of the Board may designate as Vice Presidents any number of individuals responsible for major operations or functions of the Corporation. Each such Vice President designated as a Senior Officer or member of the Chairman's Council, as evidenced by a listing maintained by the Corporate Secretary, shall have all the authority with respect to such individual's area of responsibility as is conferred upon a Vice President elected by the board of directors. The board of directors may appoint one or more Assistant Treasurers, one or more Assistant Controllers, one or more Assistant Secretaries, and such other assistant officers as the board may deem necessary, who shall have such authority and shall perform such duties as from time to time may be prescribed by the board of directors. Subject to Section 9 of this Article V, each officer and assistant officer elected or appointed by the board of directors or designated by the Chairman shall hold office until the next annual meeting of the board of directors and until his successor shall be chosen. SECTION 2. The Chairman of the Board. The Chairman of the Board shall be a director. If so designated by the board of directors, he shall be the chief executive officer of the Corporation and shall have general direction over the affairs of the Corporation, subject to the control and direction of the board of directors. He shall, when present, preside as chairman at all meetings of the stockholders and of the board of directors. He may call meetings of the board of directors whenever he deems it advisable. In the absence or incapacity of the President to act, he shall perform all duties and functions and exercise all the powers of the President. Unless otherwise provided by the board of directors, he may execute and deliver bonds, notes, contracts, agreements or other obligations or instruments in the name of the Corporation, and with the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, may execute and deliver all certificates for shares of the capital stock or other securities of the Corporation and any warrants evidencing the right to subscribe to shares of the capital stock of the Corporation. The Chairman of the Board shall have such other powers and perform such other duties as from time to time may be assigned to him by the board of directors. SECTION 3. Vice Chairman. Each Vice Chairman shall be a director. He shall have such powers and shall perform such duties as may be assigned to him by the board of directors or by the Chairman of the Board, or elsewhere in these by- laws. SECTION 4. The President. The President shall be a director. If so designated by the board of directors, he shall be the chief executive officer of the Corporation and shall have general direc- -9- tion over the affairs of the Corporation, subject to the control and direction of the Chairman of the Board and the board of directors. He shall have general charge, control and supervision over the administration and operations of the Corporation, subject to the control and direction of the board of directors and the Chairman of the Board. He shall keep the Chairman of the Board fully informed concerning the business of the Corporation under his supervision. In the absence or incapacity of the Chairman of the Board, a Vice Chairman or the President shall preside at meetings of the stockholders and of the board of directors and shall perform all duties and functions and exercise all the powers of the Chairman of the Board. Unless otherwise provided by the board of directors, the President may execute and deliver bonds, notes, contracts, agreements or other obligations or instruments in the name of the Corporation, and with the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, may execute and deliver all certificates for shares of the capital stock or other securities of the Corporation and any warrants evidencing the right to subscribe to shares of the capital stock of the Corporation. In general, the President shall have and perform all powers and duties incident to the office of a president of a corporation and such other powers and duties as from time to time may be assigned to him by the board of directors or the Chairman of the Board. SECTION 5. Vice President. In the absence or incapacity of the Chairman of the Board, any Vice Chairman, or the President, a Vice President designated by the Chairman of the Board or by the board of directors shall have and perform all the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall have such other powers and shall perform such other duties as may be assigned to him by the board of directors or by the Chairman of the Board, any Vice Chairman, or the President. SECTION 6. Treasurer. The Treasurer shall have responsibility for the custody and safekeeping of all funds and securities of the Corporation; he shall obtain and maintain appropriate insurance for the benefit of the Corporation; he shall be responsible for determining credit policies of the Corporation, for administration of such policies, and collection of monies due the Corporation in accordance therewith; he may sign with the Chairman of the Board, any Vice Chairman, or the President any or all certificates for shares of the capital stock or other securities of the Corporation and any warrants evidencing the right to subscribe to shares of the capital stock of the Corporation; and in general he shall have and perform all of the other powers and duties incident to the office of treasurer and such other powers and duties as may be assigned to him by the board of directors or the Chairman of the Board, any Vice Chairman, or the President. SECTION 7. The Controller. The Controller shall be the chief accounting officer of the Corporation, shall maintain adequate records of its assets, liabilities and transactions, shall see that adequate audits thereof are currently and regularly made, and shall be in charge of its books of account and its accounting and financial statements and records, operating reports, budgets, statistics, and estimates and projections. He shall be responsible for the development and maintenance of inventory control records and the taking and costing of physical inventories; for the initiation, preparation and issuance of standard practices relating to all accounting matters and procedures, and the coordination of accounting systems throughout the Corporation and its subsidiaries; and for the analysis and interpretation of significant data to develop trends and cost comparisons, which shall be made available to the Corporation's management together with his -10- conclusions therefrom. He shall maintain adequate records of authorized appropriations and determine that all sums expended pursuant thereto are accounted for, and shall be responsible for the preparation and filing of tax returns and all matters relating to taxes. The Controller shall have such other powers and perform such other duties as may from time to time be assigned to him by the board of directors or the Chairman of the Board, any Vice Chairman, or the President. SECTION 8. The Secretary. The Secretary shall keep or cause to be kept the minutes of all meetings of the stockholders and of the board of directors; shall see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; shall be custodian of the minute books, stock ledger, and similar corporate records and of the seal of the Corporation and see that the seal is affixed to all documents the execution and delivery of which on behalf of the Corporation under its seal are duly authorized in accordance with the provisions of these by-laws; shall keep or cause to be kept a stock ledger of the Corporation containing a complete list of stockholders, the post office address of each stockholder, and the number of shares registered in the name of each stockholder; may sign with the Chairman of the Board, any Vice Chairman, or the President any and all certificates for shares of the capital stock or other securities of the Corporation and any warrants evidencing the right to subscribe to shares of the capital stock of the Corporation; and in general the Secretary shall have and perform all powers and duties incident to the office of the secretary and such other powers and duties as may, from time to time, be assigned to him by the board of directors or the Chairman of the Board, any Vice Chairman, or the President. SECTION 9. Removal of Officers. Any officer elected or appointed by the board of directors may be removed, either with or without cause, by the vote of a majority of the directors then in office at any meeting of the board of directors. Any Vice President designated by the Chairman of the Board may be removed, either with or without cause, by written designation from the Chairman delivered to the Corporate Secretary. SECTION 10. Filling of Vacancies. If a vacancy shall exist in the office of any officer or assistant officer of the Corporation, the board of directors may elect or appoint any person to fill such vacancy, such person to hold office (subject to Section 9 of this Article V) until the next annual meeting of the board of directors and until his successor shall be chosen and qualified. ARTICLE VI ---------- CAPITAL STOCK SECTION 1. Transfer of Shares. The shares of stock of the Corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives or pursuant to the unclaimed property laws of the various states and upon such transfer the old certificates shall be surrendered to the Corporation by the delivery thereof to the Secretary or the transfer agent for said shares of stock, or to such other person as the board of directors may designate, by whom such old certificates shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer. -11- SECTION 2. Lost or Destroyed Certificates. The board of directors may determine the conditions upon which a new certificate of stock may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in the board's discretion, require the owner of such certificate or his legal representative to give bond, with such surety, if any, as the board shall deem appropriate, sufficient to indemnify the Corporation and each transfer agent and registrar, against any claim which may arise by reason of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 3. Unclaimed Property Laws. The officers of the Corporation who are authorized to issue or cause the issuance of duplicate stock certificates pursuant to Section 2 of this Article VI are hereby authorized to issue or cause the issuance of duplicate stock certificates, without cancellation of the original certificates, as may be required in respect of compliance with the unclaimed property laws of any state. ARTICLE VII ----------- CORPORATE SEAL The board of directors shall authorize and establish a corporate seal containing the name of the Corporation, the words "Corporate Seal" and "Delaware", and otherwise in such form as shall be approved by the board of directors. ARTICLE VIII ------------ MISCELLANEOUS PROVISIONS SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be the calendar year. SECTION 2. Notice. Any notice required, (i) if given by mail, shall be deemed to have been given upon the deposit thereof in a post office box, postage prepaid, or (ii) if given by telegraph or cable, shall be deemed to have been given upon delivery thereof to the telegraph or cable company for transmission, or (iii) if the person entitled to notice has facilities for the receipt of telecopies or telex, shall be deemed to have been given upon transmission of the notice by such means; and in any instance the notice shall be addressed to the person entitled thereto at such person's last known address according to the records of the Corporation. SECTION 3. Voting Upon Stocks. Unless otherwise ordered by the board of directors, the Chairman of the Board, any Vice Chairman, or the President shall have full power and authority in behalf of the Corporation to attend and to act and to vote at any meeting of stockholders of any corporation in which the Corporation may hold stock, and also to execute and deliver for and on behalf of the Corporation proxies in respect of such meetings, and at any such meeting the Chairman of the Board, any Vice Chairman, or the President or the individual or individuals named -12- in the proxy executed by the Chairman of the Board, any Vice Chairman, or the President in respect of such meeting shall possess and may exercise any and all the rights and powers incident to the ownership of such stock and which, as the owner thereof, the Corporation might have possessed and exercised if present. The board of directors, by resolution, from time to time may confer like powers upon any other person or persons, which powers may be general or confined to specific instances. SECTION 4. Action Without Meeting. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceeding of the board or committee. ARTICLE IX ---------- AMENDMENTS The board of directors shall have full power to alter, amend or repeal these by- laws or any provision thereof, or to adopt new by-laws, at any regular meeting as part of the general business of such meeting, or at a special meeting called for the purpose. By-laws adopted, altered or amended by the board of directors may be altered, amended or repealed by the stockholders. Notwithstanding the preceding sentence, and subject to the rights of holders of Preferred Stock, any action of the stockholders to adopt, amend, alter or repeal the by-laws shall require the affirmative vote of at least eighty percent (80%) of the holders of common stock of the Corporation. * * * * * * * * * -13- EX-11 3 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE WHIRLPOOL CORPORATION AND SUBSIDIARIES (ALL AMOUNTS IN MILLIONS EXCEPT EARNINGS PER SHARE)
1997 1996 1995 ------ ------ ------ Basic: Average Shares Outstanding............................. 74.7 74.3 73.9 Earnings (Loss): Continuing Operations................................ $(46.4) $140.9 $195.5 Discontinued Operations.............................. 31.6 14.9 13.9 ------ ------ ------ Net Earnings (Loss).................................... $(14.8) $155.8 $209.4 ====== ====== ====== Earnings (Loss) Per Share from Continuing Operations... $(0.62) $ 1.90 $ 2.64 Net Earnings (Loss) Per Share.......................... $(0.20) $ 2.10 $ 2.83 ====== ====== ====== Diluted: Average Shares Outstanding............................. 74.7 74.3 73.9 Treasury Stock Method (a): Stock Options........................................ -- 0.7 0.7 Assumed Conversion of Debt............................. -- 2.2 2.2 ------ ------ ------ Average Shares Outstanding............................... 74.7 77.2 76.8 ====== ====== ====== Earnings (Loss) from Continuing Operations............. $(46.4) $140.9 $195.5 Interest Expense, net of tax........................... -- 4.5 4.2 ------ ------ ------ Diluted Earnings (Loss) from Continuing Operations..... $(46.4) $145.4 $199.7 ====== ====== ====== Diluted Earnings (Loss) Per Share from Continuing Opeations............................................. $(0.62) $ 1.88 $ 2.60 ====== ====== ====== Net Earnings (Loss).................................... $(14.8) $155.8 $209.4 Interest Expense, net of tax........................... -- 4.5 4.2 ------ ------ ------ Diluted Net Earnings (Loss)............................ $(14.8) $160.3 $213.6 ====== ====== ====== Diluted Net Earnings (Loss) Per Share.................. $(0.20) $ 2.08 $ 2.78 ====== ====== ======
- -------- (a) Using the average market price per share of stock for the period; effect of stock options precipitates an anti-dilutive calculation in 1997, and therefore not included; convertible debt retired in 1997. EX-12 4 STATEMENT RE: COMPUTATION OF RATIOS OF EARNINGS EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $(171) $(7) $ (178) Portion of rents representative of the interest factor........................................ 20 1 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ Adjusted income................................ $ 17 $77 $ 94 ===== === ====== FIXED CHARGES - ------------- Portion of rents representative of the interest factor........................................ $ 20 $ 1 $ 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ $ 188 $84 $ 272 ===== === ====== Ratio of earnings to fixed charges............. 0.1 0.9 0.3 ===== === ======
EXHIBIT 12 - RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $(171) $(7) $ (178) Portion of rents representative of the interest factor........................................ 20 1 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ Adjusted income................................ $ 17 $77 $ 94 ===== === ====== FIXED CHARGES - ------------- Portion of rents representative of the interest factor........................................ $ 20 $ 1 $ 21 Interest on indebtedness....................... 167 77 244 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 6 6 ----- --- ------ $ 188 $84 $ 272 ===== === ====== Ratio of earnings to fixed charges............. 0.1 0.9 0.3 ===== === ======
EX-13 5 MANAGEMENT'S DISCUSSION AND ANALYSIS MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The consolidated statements of earnings summarize operating results for the last three years. This section of Management's Discussion and Analysis highlights the main factors affecting changes in operating results during the three-year period. The accompanying financial statements include the company's investment in Whirlpool Financial Corporation (WFC) on a discontinued basis and the company's investment in its Brazilian subsidiary, Brasmotor S.A., on a consolidated basis for the last two months of 1997. Prior to the consolidation, the Brazilian operations were accounted for on an equity basis. Prior to the fourth quarter of 1997, the company's Brazilian operations were reported on a one month lag. In the fourth quarter, this one month reporting lag was eliminated and the Brazilian results for the year ended December 31, 1997 included activity for 13 months. The effect of eliminating the one month lag increased net earnings $5 million, excluding non-recurring items. Net Sales - --------- Net sales were $8.6 billion in 1997 including two months of sales related to consolidating Brasmotor, an increase of 1% over 1996. Excluding currency fluctuations and the consolidation of Brasmotor, net sales were down 1% year- over-year. North American unit volumes were up 1% over 1996, in an industry that was up less than 1%. North American sales were down 1% compared to 1996, due to competitive pricing partially offset by increased volume and favorable product mix. North American industry shipments are expected to be down slightly in 1998. European unit volumes were up 4% over 1996 while the industry was up nearly 4%. European sales were down 6% compared to 1996; however, excluding the effect of currency fluctuations, sales were up more than 8% year-over-year. Sales growth in Europe, in local currency, reflects stabilization of the trend of declining price realization that affected the industry for the last three years. European industry shipment growth is expected to be up 2% in 1998. Net sales were $8.5 billion in 1996, an increase of 4% over 1995. Excluding currency fluctuations, net sales were up 5% year-over-year due to the impact of increased volume, partially offset by unfavorable brand and product mix. North American unit volumes were up 2% over 1995 in an industry that was up nearly 5%. North American sales were up 4% due to a combination of higher pricing and volume and improved product mix. European unit volumes were up 11% over 1995 while the industry was down nearly 2%. European sales were up 3% compared to 1995 and were up 5% excluding currency fluctuations. Partially offsetting the impact of volume increases on sales growth were unfavorable brand and product mix, as consumer preference continued the trend toward lower-priced brands and products, without any substantial price increases during the year. 1 MANAGEMENT'S DISCUSSION AND ANALYSIS Expenses - -------- Gross margin percentage improved by 1% in 1997 compared to 1996. North American gross margin percentage improved principally due to manufacturing efficiencies, effective cost control management and reduced material costs, partially offset by price deterioration. Price realization combined with improved product mix, effective cost control management and reduced material costs have improved the European gross margin percentage 2% compared to the prior year. Gross margin percentage on product sales deteriorated 1% in 1996 compared to 1995 as the North American margin improvement of 1%, stemming from improved product mix and higher pricing, was more than offset by a 5% European margin deterioration. European margins reflect customers shifting to lower margin brands and products, unfavorable currency fluctuations, delays in achieving cost targets on new products and stagnant pricing in the marketplace. Selling and administrative expenses, excluding non-recurring items, as a percent of net sales were flat in 1997 compared to 1996. The North American and European percentages were both essentially flat with the prior year. Selling and administrative expenses as a percent of net sales decreased slightly in 1996 compared to 1995. The expense percentage in North America decreased slightly, while the European expense percentage declined 1% in 1996 primarily due to reduced selling costs and tight control over other spending. Europe also benefited from cost reductions stemming from restructuring efforts executed during 1995. Restructuring costs of $343 million in 1997 were incurred to better align the company's cost structure within the global home-appliance marketplace. The restructurings are expected to result in annual savings of about $200 million when fully implemented by the year 2000. Refer to Note 10 to the accompanying consolidated financial statements. Restructuring costs of $30 million in 1996 improved the company's long-term cost competitiveness and profitability in the North American refrigeration market and in Asia, with annual cost savings of $37 million when fully implemented. Refer to Note 10 to the accompanying consolidated financial statements. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS Other Income and Expense - ------------------------ Interest and sundry expense for 1997, including the Brasmotor consolidation, was down compared to 1996. Excluding the impact of consolidating Brasmotor, interest and sundry expense was flat with 1996 and 1995. Interest expense for 1997 was up compared to 1996 due to the Brasmotor consolidation. Excluding the impact of consolidating Brasmotor, interest expense was flat in 1997. Interest expense for 1996 increased significantly from the prior year due to higher borrowing levels (Refer to Cash Flows - Financing Activities) and higher interest rates. Income Taxes - ------------ The effective tax rate for continuing operations, excluding non-recurring items, was 44% in 1997 compared to 62% in 1996 and 42% in 1995. The lower effective tax rate in 1997 compared to 1996 is due to the diminished impact of permanent items resulting from higher pretax earnings, the impact of consolidating Brasmotor, as well as certain tax loss benefits. The increase in the provision in 1996 compared to 1995 is primarily due to higher unbenefited losses in Asia, the relatively larger impact permanent items had on the effective tax rate due to lower net earnings, and an unfavorable mix of pretax earnings and losses by country, partially offset by tax credits relating to prior years. Earnings/(Loss) from Continuing Operations before Equity Earnings and Other - --------------------------------------------------------------------------- Items - ----- Earnings/(loss) from continuing operations before equity earnings and minority interests were $(162) million, $30 million and $124 million in 1997, 1996 and 1995. Excluding the impact of non-recurring items, earnings before equity earnings and minority interests were $129 million, $49 million and $124 million in 1997, 1996 and 1995. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS Equity in Affiliated Companies - ------------------------------- Equity earnings were $67 million, $93 million and $72 million in 1997, 1996 and 1995. The company's Brazilian affiliates contributed 1997 earnings of $78 million (excluding non-recurring items), $92 million and $70 million in 1996 and 1995. The 1997 decline reflects a slowdown in the previously robust growth in the Brazilian appliance industry partially offset by $34 million of Befiex and other tax benefits for 1997. The Befiex benefit, which is a government export incentive, is scheduled to expire mid 1998. Results in 1996 and 1995 reflected significant growth in the Brazil appliance industry. Results in 1995 were also favorably affected by certain non-recurring tax benefits, including $17 million of excise tax credits and the consequences of the May 1994 merger of two of the Brazilian affiliates, Brastemp S.A. and Consul S.A., into a new entity, Multibras S.A. The merger resulted in operating efficiencies as an outcome of consolidating selling and administrative functions, improving utilization of prior year tax losses and more flexibly managing brands and products. The company's Mexican affiliate equity earnings were $5 million in 1997 compared to equity losses of $3 million in 1996 and break-even equity earnings in 1995. This 1997 performance resulted from higher shipment volumes as the appliance industry was up over 30% and lower financing costs triggered by a refinancing at the end of the second quarter in 1996. 1996 was down compared to 1995 due primarily to lower foreign currency exchange gains. Economic volatility and changes in government economic policy (including those affecting exchange rates and tariffs) continue to affect consumer purchasing power and the appliance industry as a whole in Mexico, Brazil and the entire Latin American region. Discontinued Operations - ----------------------- The discontinued operations results include a pretax charge in 1997 of $36 million (after-tax $22 million) to reduce the carrying value of certain retained WFC aerospace assets. Non-Recurring Items and Net Earnings - ------------------------------------ In 1997, the company recorded the following non-recurring items; an after-tax restructuring charge of $232 million or $3.07 per diluted share, special operating charges of $62 million or $.83 per diluted share and gain on business dispositions of $42 million or $.55 per diluted share. In 1996, the company recorded an after-tax restructuring charge of $19 million or $.25 per diluted share. Absent non-recurring restructuring, operating charges and business dispositions, net earnings were $238 million, $175 million and $209 million in 1997, 1996 and 1995. Corresponding diluted earnings per share were $3.15, $2.32 and $2.78 in 1997, 1996 and 1995. Corresponding basic earnings per share were $3.18, $2.35 and $2.83 in 1997, 1996 and 1995. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS CASH FLOWS The statements of cash flows from continuing operations reflect the changes in cash and equivalents for the last three years 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 was $593 million, $545 million and $377 million in 1997, 1996 and 1995. The increase in 1997 from the prior year is primarily due to favorable performance in inventory, accounts payable and other operating accounts, excluding the impact of the Brasmotor consolidation. The increase in 1996 from the prior year is primarily due to favorable changes in working capital and other operating accounts and lower restructuring spending, partially offset by lower earnings. Investing Activities - -------------------- The principal recurring investing activities are property additions. Net property additions for continuing operations were $378 million, $336 million and $483 million in 1997, 1996 and 1995. These expenditures were primarily for equipment and tooling related to product improvements, more efficient production methods and equipment replacement for normal wear and tear. In 1997, the company began construction of a new $86 million facility in Pune, India to manufacture no-frost refrigerators for the South Asia appliance market. The facility is expected to begin commercial production in the first quarter of 1998. Refer to Note 2 to the accompanying consolidated financial statements for discussion of business dispositions and acquisitions during the last three years. Financing Activities - -------------------- Dividends to shareholders totaled $102 million, $101 million and $100 million in 1997, 1996 and 1995. The company's net borrowings decreased by $1,069 million in 1997, excluding currency translation and $132 million of borrowings net of cash assumed in acquisitions, resulting primarily from proceeds related to the WFC asset sales. The 1997 borrowing activities for continuing operations included the first quarter repayment of $113 million of outstanding subordinated zero-coupon convertible notes, financed through the issuance of additional commercial paper. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS The company's net borrowings increased by $171 million in 1996, excluding currency translation and $25 million of borrowings assumed in acquisitions, primarily to fund property additions and origination of financing receivables. The increase included a $244 million issuance of 7 3/4% debentures maturing in 2016. The company's net borrowings increased by $758 million in 1995, excluding currency translation and $50 million of borrowings assumed in acquisitions, primarily to fund property additions, origination of financing receivables and Asian acquisitions. FINANCIAL CONDITION AND OTHER MATTERS The financial position of the company remains strong as evidenced by the December 31, 1997 balance sheet. The company's total assets are $8.3 billion and stockholders' equity is $1.8 billion. The overall debt to invested capital ratio net of cash (debt ratio) of 42.1% was down from 58.6% in 1996 due to the sale of the WFC financing business and the consolidation of Brasmotor. The appliance business debt to invested capital ratio of 38.5% was down from 42.6% in 1996 due to the consolidation of Brasmotor. The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's and Duff & Phelps. 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. Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading purposes. Derivative financial instruments are entered into with a diversified group of investment grade counterparties to reduce the company's exposure to nonperformance on such instruments. The company manages a portfolio of domestic and cross currency interest rate swaps which serve to effectively convert U.S. Dollar (USD) denominated debt into that of various European currencies. Such local currency denominated debt serves as an effective hedge against the European cash flows and net assets that exist today and which are generated by the European business over time. (Refer to Notes 1 and 7 for the accounting treatment for, and a detailed description of, these instruments.) Domestic and cross-currency interest rate swaps in this portfolio are sensitive to changes in foreign currency exchange rates and interest rates. As of December 31, 1997, a ten percent appreciation of the USD versus the European currencies alone would have resulted in an incremental unrealized gain on these contracts of $73 million. The converse event would have resulted in an incremental unrealized loss on these contracts of $86 million. As of December 31, 1997, ten percent favorable shifts in interest rates alone to each swap would have resulted in an incremental unrealized gain of $23 million. The converse events would have resulted in an incremental unrealized loss of $27 million. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS The company uses foreign currency forward contracts and options from time to time to hedge the price risk associated with firmly committed and forecasted cross-border payments and receipts related to its ongoing business and operational financing activities. The value of these contracts moves in a direction opposite to that of the transaction being hedged, thus eliminating the price risk associated with changes in market prices. Foreign currency contracts are sensitive to changes in foreign currency exchange rates. At December 31, 1997, ten percent unfavorable exchange rate movements in the company's portfolio of foreign currency forward contracts would have resulted in an incremental unrealized loss of $68 million while ten percent favorable shifts would have resulted in an incremental unrealized gain of $64 million. Consistent with the use of these contracts, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions. The company had no foreign currency options outstanding at December 31, 1997. The company manages a portfolio of domestic interest rate swap contracts which serve to effectively convert long-term, fixed rate USD-denominated debt into floating rate LIBOR-based debt. The company also uses commodity swap contracts to hedge the price risk associated with firmly committed and forecasted commodities purchases which are not hedged by contractual means directly with suppliers. As of December 31, 1997, a ten percent increase or decrease in interest rates or copper and zinc prices would not have resulted in a material gain or loss. Brasmotor's long term debt carries a floating interest rate which periodically reprices driving the carrying value to approximate the fair value. As of December 31, 1997, a ten percent increase or decrease in interest rates would not have resulted in a material gain or loss. The company's sensitivity analysis reflects the effects of changes in market risk but does not factor in potential business risks. 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 such as new products, acquisitions and joint ventures. The company has taken actions to understand the nature and extent of the work required to make its global infrastructure Year 2000 compliant. The company began work a few years ago to prepare its financial, information and other computer-based systems for the Year 2000. The company continues to evaluate the estimated costs associated with these efforts. While these efforts will involve additional costs, the company believes it will be able to manage its total Year 2000 transition without any material adverse effect on its business operations. Additionally, in an effort to enhance productivity and business systems performance, the company has begun the process of investing in the development of improved global business processes through Enterprise Resource Planning (ERP). ERP involves the implementation of a commercially-available, enterprise- wide business software package. The company expects ERP to drive benefits through improved communications to better integrate manufacturing, finance, customer management and distribution applications. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS BUSINESS UNIT SALES AND OPERATING PROFIT The following data is presented as supplemental information: Net Sales by Business Unit were as follows:
Year ended December 31 (millions of dollars) 1997 1996 Increase/(Decrease) ------ ------ ------------------- North America $5,263 $5,310 $ (47) (1)% Europe 2,343 2,494 (151) (6) Asia 400 461 (61) (13) Latin America 624 268 356 133 Other (13) (10) (3) (30) ------ ------ ----- --- Total $8,617 $8,523 $ 94 1% ====== ====== ===== ===
Operating Profit by Business Unit was as follows:
Year ended December 31 (millions of dollars) 1997 1996 Increase/(Decrease) ------ ------ ------------------- North America $ 546 $ 537 $ 9 2% Europe 54 (13) 67 N/M Asia (62) (70) 8 11 Latin America 28 12 16 133 Restructuring charge (343) (30) (313) N/M Special operating charge (53) - (53) N/M Other (159) (158) (1) (1) ------ ------ ----- --- Total $ 11 $ 278 $(267) (96)% ====== ====== ===== ===
For commentary regarding performance in North America, Europe, restructuring charge and special operating charge refer to "Results of Operations" and Note 10 to the accompanying consolidated financial statements. Latin American sales and operating profit include the Brazilian operations on a consolidated basis for the last two months of 1997. "Other" consists of corporate expenses and eliminations. The significant increase in Latin American sales and operating profit over 1996 was driven by the consolidation of Brasmotor for the last two months of 1997. The activities of the Brazilian affiliates for the balance of the year are included in equity in affiliated companies and discussed in "Results of Operations." In December 1996, a favorable decision was obtained by Multibras S.A. Eletrodomesticos (Multibras) and Empresa Brasileira de Compressores S.A. (Embraco) with respect to additional export incentives in connection with a Brazilian government export incentive program (Befiex). In 8 MANAGEMENT'S DISCUSSION AND ANALYSIS April 1997, Multibras and Embraco submitted tax-credit claims for about $440 million relating to the favorable decision for exports from July 1988 through December 1996. The Brazilian court must render a final decision on the amount, timing and the payment method of any final award. The company has not recognized any income relating to the claims involving sales prior to 1997 because the timing and payment amount of such claims are uncertain. Sales decreased in Asia versus 1996 due to the economic slowdown affecting much of the region. Operating profit improved as compared to the prior year as cost structure initiatives and significantly reduced administrative spending offset the sales shortfalls. Operating profit is expected to be about break even in 1998 but could be negatively affected by economic conditions in the region. 9 WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Year Ended December 31 (millions of dollars except per share data)
1997 1996 1995 ------ ------ ------ Net sales $8,617 $8,523 $8,163 EXPENSES Cost of products sold 6,604 6,623 6,245 Selling and administrative 1,625 1,557 1,521 Intangible amortization 34 35 31 Restructuring costs 343 30 - ------ ------ ------ 8,606 8,245 7,797 ------ ------ ------ OPERATING PROFIT 11 278 366 OTHER INCOME (EXPENSE) Interest and sundry (14) (23) (23) Interest expense (168) (155) (129) ------ ------ ------ EARNINGS (LOSS) BEFORE INCOME TAXES AND OTHER ITEMS (171) 100 214 Income taxes (benefit) (9) 70 90 ------ ------ ------ EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS (162) 30 124 Equity in affiliated companies 67 93 72 Minority interests 49 18 (1) ------ ------ ------ EARNINGS (LOSS) FROM CONTINUING OPERATIONS (46) 141 195 Earnings (loss) from discontinued operations (less applicable taxes) (11) 15 14 Gain on disposal from discontinued operations (less applicable taxes) 42 - - ------ ------ ------ NET EARNINGS (LOSS) $ (15) $ 156 $ 209 ====== ====== ====== Per share of common stock: Basic Earnings (loss) from continuing operations $(0.62) $ 1.90 $ 2.64 Basic Net earnings (loss) $(0.20) $ 2.10 $ 2.83 ====== ====== ====== Diluted Earnings (loss) from continuing operations $(0.62) $ 1.88 $ 2.60 Diluted Net earnings (loss) $(0.20) $ 2.08 $ 2.78 ====== ====== ====== Cash dividends $ 1.36 $ 1.36 $ 1.36 ====== ====== ======
See notes to consolidated financial statements 10 CONSOLIDATED BALANCE SHEETS WHIRLPOOL CORPORATION
December 31 (million of dollars) 1997 1996 ------- ------- ASSETS Current Assets - -------------- Cash and equivalents $ 578 $ 129 Trade receivables, less allowances of $156 in 1997 and $45 in 1996 1,565 966 Financing receivables and leases, less allowances - 1,400 Inventories 1,170 1,034 Prepaid expenses and other 191 188 Deferred income taxes 215 95 Net assets of discontinued operations 562 - ------- ------- Total Current Assets 4,281 3,812 Other Assets - ------------ Investment in affiliated companies 100 513 Financing receivables and leases, less allowances - 705 Intangibles, net 916 870 Deferred income taxes 220 152 Other 378 165 ------- ------- 1,614 2,405 Property, Plant and Equipment - ----------------------------- Land 92 93 Buildings 969 731 Machinery and equipment 4,201 3,015 Accumulated depreciation (2,887) (2,041) ------- ------- 2,375 1,798 ------- ------- Total Assets $ 8,270 $ 8,015 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 ------ ------ Current Liabilities - ------------------- Notes payable $1,332 $2,038 Accounts payable 987 983 Employee compensation 265 226 Accrued expenses 858 624 Restructuring costs 212 32 Current maturities of long-term debt 22 119 ------ ------ Total Current Liabilities 3,676 4,022 Other Liabilities - ----------------- Deferred income taxes 190 206 Postemployment benefits 598 563 Other liabilities 188 161 Long-term debt 1,074 955 ------ ------ 2,050 1,885 Minority Interests 773 182 Stockholders' Equity - -------------------- Common stock, $1 par value: 250 million shares authorized 82 81 Paid-in capital 280 246 Retained earnings 1,801 1,918 Unearned restricted stock (6) (7) Cumulative translation adjustments (149) (76) Treasury stock - 6 million shares at cost in 1997 and 1996 (237) (236) ------ ------ Total Stockholders' Equity 1,771 1,926 ------ ------ Total Liabilities and Stockholders' Equity $8,270 $8,015 ====== ======
See notes to consolidated financial statements 11 WHIRLPOOL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 (millions of dollars)
1997 1996 1995 ------ ---- ----- OPERATING ACTIVITIES Net earnings (loss) $ (15) $156 $ 209 Depreciation 322 318 282 Deferred income taxes (208) (32) 44 Equity in net earnings of affiliated companies, less dividends received (51) (84) (58) Gain on business dispositions (70) - - Provision for doubtful accounts 89 52 43 Amortization of goodwill 34 35 30 Restructuring charges, net of cash paid 267 (42) (119) Minority interests (49) (18) 1 Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables (145) 58 23 Inventories 177 (7) (111) Accounts payable 20 (21) 70 Other - net 222 130 (37) ----- ---- ----- CASH PROVIDED BY OPERATING ACTIVITIES $ 593 $545 $ 377 ===== ==== =====
1997 1996 1995 -------- -------- -------- INVESTING ACTIVITIES Net additions to properties $ (378) $ (336) $ (483) Net change in financing receivables and leases 706 265 256 Net assets of discontinued operations (562) - - Acquisitions of businesses, less cash acquired 179 (27) (157) Net increase (decrease) in investment in and advances to affiliated companies 13 15 (40) Business dispositions 1,038 - 26 Other (8) (32) (25) -------- -------- -------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 988 (645) (935) FINANCING ACTIVITIES Proceeds of short-term borrowings 31,479 24,911 16,493 Repayments of short-term borrowings (32,439) (24,847) (15,744) Proceeds of long-term debt 102 316 130 Repayments of long-term debt (211) (209) (121) Repayments of non-recourse debt (8) (13) (10) Dividends (102) (101) (100) Purchase of treasury stock - - (35) Proceeds from the sale of preferred stock - 25 - Other 47 (2) 22 -------- -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (1,132) 80 635 -------- -------- -------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS 449 (20) 77 Cash and equivalents at beginning of year 129 149 72 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR $ 578 $ 129 $ 149 ======== ======== ========
See notes to consolidated financial statements 12 WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES Nature of Operations: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. The company manufactures in 13 countries on five continents and markets products to distributors and retailers in about 140 countries. Principles of Consolidation: The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliated companies are accounted for by the equity method. All intercompany transactions have been eliminated upon consolidation. In November 1997, the company increased its voting ownership in its Brazilian affiliate, Brasmotor S.A., from 33% to 66% (Refer to Note 2). As a result, the Brazilian operations are consolidated as of November 1, 1997. Prior to that date, the Brazilian operations were accounted for on an equity basis. Discontinued Operations: In the third quarter 1997, the company discontinued its financial services business; as a result, prior year amounts on the statement of earnings have been restated to reflect this business as a discontinued operation. Balance sheet and cash flow amounts would not have been materially different and have not been restated. Use of Estimates: Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition: Sales are recorded when product is shipped to distributors or directly to retailers. Cash and Equivalents: All highly liquid debt instruments purchased with a maturity of three months or less are considered cash equivalents. Inventories: Inventories are stated at first-in, first-out (FIFO) cost, except U.S. production inventories which are stated at last-in, first-out (LIFO) cost and Brazilian inventories which are stated at average cost. Costs do not exceed realizable values. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation of plant and equipment is computed using the straight-line method based on the estimated useful lives of the assets. Intangibles: The cost of business acquisitions in excess of net tangible assets acquired is amortized on a straight-line basis principally over 40 years. Non- compete agreements are amortized on a straight-line basis over the terms of the agreements. Accumulated amortization totaled $211 million and $191 million at December 31, 1997 and 1996. Should circumstances indicate the potential impairment of goodwill, the company would compare the carrying amount against related estimated undiscounted future cash flows to determine if a write-down to market value or discounted cash flow value is required. Research and Development Costs: Research and development costs are charged to expense as incurred. Such costs were $181 million, $197 million and $180 million in 1997, 1996 and 1995. Advertising Costs: Advertising costs are charged to expense as incurred. Such costs from continuing operations were $155 million, $142 million and $148 million in 1997, 1996 and 1995. -13- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Foreign Currency Translation: The functional currency for the company's international subsidiaries and affiliates is the local currency except for selected Latin American subsidiaries (including Brazil) which have been considered hyperinflationary and have been remeasured to U.S. dollars. Effective January 1, 1998, Brazil is no longer considered to be hyperinflationary and the local currency will be considered the functional currency. -14- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES--CONTINUED Derivative Financial Instruments: The company uses derivative financial instruments to manage the economic impact of fluctuations in interest rates, foreign currency exchange rate and commodity prices. To achieve this, the company enters into interest rate and cross currency interest rate swaps, foreign currency, forward contracts and options, and commodity swaps. The company's hedging strategy for the foreign currency exchange risk associated with its investment in Europe is based on projected foreign currency cash flows over periods up to ten years. The company uses interest rate and cross currency interest rate swaps to effectively convert a portion of the company's U.S. dollar denominated debt into various European currencies. The company's investment in Europe and the foreign currency portion of these cross currency interest rate swaps are revalued in dollar terms each period to reflect current foreign currency exchange rates with gains and losses recorded in the equity section of the balance sheet. To the extent that the notional amounts of these contracts exceed the company's investment in Europe, the related mark-to-market gains and losses are reflected currently in earnings. The net translation loss recognized in other income, including the gains and losses from those contracts not qualifying as hedges, was $8 million, $14 million and $16 million in 1997, 1996 and 1995. The amounts receivable from or payable to counterparties to the swaps, offsetting the gains and losses recorded in equity or earnings, are recorded in long-term debt. The company also uses domestic interest rate swaps to manage the duration and interest rate characteristics of its outstanding debt. The interest component of the swaps, which overlay a portion of the company's interest payments on outstanding debt, is not carried at fair value in the financial statements. The interest differential paid or received is recognized as an adjustment to interest expense. Gains and losses on the interest component of terminated swaps are deferred in noncurrent liabilities and amortized as an adjustment to interest expense over the remaining term of the original swap. In the event of early extinguishment of debt, any realized or unrealized gains or losses from related swaps would be recognized in income concurrent with the extinguishment. The company also uses foreign currency forward contracts to hedge payments due on cross currency interest rate swaps and intercompany loans and, along with foreign currency options, to hedge material purchases, intercompany shipments and other commitments. In addition, the company hedges a portion of its contractual requirements of certain commodities with commodity swaps. These contracts are not carried at fair value in the financial statements as the related gains and losses are recognized in the same period and classified in the same manner as the underlying transactions. Any gains and losses on terminated contracts are deferred in current liabilities until the underlying transactions occur. -15- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF PRINCIPAL ACCOUNTING POLICIES--CONTINUED The company deals only with investment-grade counterparties to these contracts and monitors its overall credit risk and exposure to individual counterparties. The company does not anticipate nonperformance by any counterparties. The amount of the exposure is generally the unrealized gains in such contracts. The company does not require, nor does it post, collateral or security on such contracts. Net Earnings Per Common Share: In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of common stock equivalents such as stock options. Diluted earnings per share amounts assume, if dilutive, the exercise of options and vesting of restricted stock using the treasury stock method. Earnings per share amounts, for all periods, have been presented, and where appropriate, restated to conform to Statement 128 requirements. The following table provides the computation of basic and diluted earnings (loss) per share:
December 31 (millions of dollars, except per share data) 1997 1996 1995 ------------------------------------- Numerator - --------- Net earnings (loss): Continuing operations $ (46) $ 141 $ 195 Discontinuing operations 31 15 14 ------ ----- ----- Numerator for basic earnings (loss) per share (15) 156 209 Effect of dilutive securities: Convertible debt - 4 4 ------ ----- ----- Numerator for diluted earnings (loss) per share $ (15) $ 160 $ 213 ====== ===== ===== Denominator - ----------- For basic earnings (loss) per share- weighted-average shares outstanding 74.7 74.3 73.9 Effect of dilutive securities: Employee stock options - 0.7 0.7 Convertible debt - 2.2 2.2 ------ ----- ----- Dilutive potential common shares - 2.9 2.9 Denominator for diluted earnings (loss) per share 74.7 77.2 76.8 ====== ===== ===== Basic earnings (loss) from continuing operations $(0.62) $1.90 $2.64 Basic earnings (loss) (0.20) 2.10 2.83 ====== ===== ===== Diluted earnings (loss) from continuing operation (0.62) 1.88 2.60 Diluted earnings (loss) (0.20) 2.08 2.78 ====== ===== =====
-16- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) BUSINESS ACQUISITIONS AND DISPOSITIONS In January 1998, the company increased its majority ownership interest in Whirlpool Narcissus Co., its Chinese joint venture that manufactures washing machines, for approximately $12 million pending government approval. In November 1997, the company completed the purchase of approximately 33% of the voting shares, as well as preferred, or non-voting shares of the company's Brazilian affiliate, Brasmotor S.A., for $217 million. The shares, combined with the existing holdings, give the company a controlling interest of approximately 66% of the voting shares of Brasmotor. Brasmotor is the parent company of Multibras S.A. Eletrodomesticos, which has appliance sales of $1.6 billion and the leading market share position in Latin America, and Embraco, the world's second largest hermetic compressor manufacturer with annual sales of approximately $790 million. In September 1997, the company reached a definitive agreement to sell the inventory, consumer, and international financing businesses of WFC to Transamerica Distribution Finance Corporation (TDF) (Refer to Note 3). In August 1997, the company sold its majority interest in its Argentine business to Multibras S.A. Eletrodomesticos, in a share for share exchange of Whirlpool Argentina shares for additional shares in Multibras, slightly increasing the company's ownership stake in Multibras. No gain or loss was recognized by the company on this transaction. Whirlpool Argentina's annual sales and earnings are not significant to the company's consolidated results of operations. In September 1996, the company acquired 100% of Gentech Trading (Pty.) Ltd., a South African company, for about $27 million - $2 million of cash and $25 million of assumed debt. Renamed Whirlpool South Africa, the company manufactures refrigerators and markets manufactured and imported appliances under the Whirlpool and local KIC brand names. Gentech annual sales were about $100 million for its fiscal year 1995. In May 1996, two of the company's majority-owned subsidiaries in India, Kelvinator of India (KOI) and Whirlpool Washing Machines Limited (WWML), were merged and renamed Whirlpool of India (WOI). As part of the merger plan, the company purchased an additional interest in WWML for $12 million in April 1996, resulting in a 56% interest in the combined entity, WOI. In 1995, the company acquired a majority interest in Shunde SMC Microwave Products Co., Ltd., a Chinese manufacturer and marketer of microwave ovens, for about $90 million in cash. The company also acquired a majority interest in KOI, a manufacturer and marketer of refrigerators, for about $116 million in cash. The company invested $16 million for a majority interest in Whirlpool Narcissus (Shanghai) Co. Ltd., a new Chinese joint venture, to produce washing machines. The above acquisitions have been accounted for as purchases and their operating results have been consolidated with the company's results since the dates of acquisition. The proforma consolidated operating results reflecting these acquisitions for the full year would not have been materially different from reported amounts. -17- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) DISCONTINUED OPERATIONS During the third quarter of 1997, the company discontinued its financing operations and adopted a plan to dispose of most of the assets of Whirlpool Financial Corporation (WFC). The company recorded a pretax gain of $70 million ($42 million after-tax) related to the transaction. In September 1997, the company reached a definitive agreement to sell the majority of WFC's assets in a series of transactions to Transamerica Distribution Finance Corporation (TDF). During the fourth quarter of 1997, the company completed the sale of certain inventory floor planning financing assets and international factoring assets to TDF for approximately $927 million. In January 1998, the company sold to TDF additional international assets and consumer financing receivable assets for approximately $370 million. The company expects to record a pretax gain of approximately $22 million in the first quarter of 1998 related to the completion of the TDF transactions. Under an ongoing strategic partnership, TDF will continue to provide financing services to the company's trade partners and customers. In separate transactions during the fourth quarter of 1997, the company sold certain consumer financing receivables for $98 million and entered into an agreement to sell a portion of WFC's aerospace financing business for $168 million, of which $144 million was sold in the first two months of 1998. A $36 million operating charge ($22 million after-tax) was recorded in the third quarter of 1997 to provide an additional reserve for certain retained WFC aerospace assets. Gross financing receivables and leases at December 31, 1997 and 1996 were $331 million and $2,128 million, respectively. Unearned income, estimated residual value and allowances related to these leases were $(55) million and $(23) million, respectively. Deferred income tax liabilities relating to financing leases were $127 million and $123 million at December 31, 1997 and 1996. Interest and discount charges are recognized in revenues using the effective yield method. Lease income is recorded in decreasing amounts over the term of the lease contract, resulting in a level rate of return on the net investment in the lease. Origination fees and related costs are deferred and amortized as yield adjustments over the life of the related receivable or lease. The allowance for losses is maintained at estimated amounts necessary to cover losses on all finance and leasing receivables based on management's assessment of various factors including loss experience and review of problem accounts. Net losses on financing receivables and leases were $35 million (excluding operating charge), $40 million and $39 million in 1997, 1996 and 1995. Financing receivables of $109 million, $108 million and $112 million are considered impaired under Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" at December 31, 1997 and 1996. Specific allowances for losses on these receivables total $65 million, $29 million and $19 million at December 31, 1997 and 1996. WFC recognized $5 million, $9 million and $12 million of interest income in 1997, 1996 and 1995 on these receivables. -18- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) INVENTORIES
December 31 (millions of dollars) 1997 1996 ------------------- Finished products $ 1,015 $ 991 Work in process 69 59 Raw materials 304 213 ------- ------- Total FIFO cost 1,388 1,263 Less excess of FIFO cost over LIFO cost 218 229 ------- ------- $ 1,170 $ 1,034 ======= =======
LIFO inventories represent approximately 24% and 39% of total inventories at December 31, 1997 and 1996. -19- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) AFFILIATED COMPANIES The company has a 49% direct voting interest in a Mexican company (Vitromatic, S.A. de C.V.) and direct voting interests ranging from 10% to 40% in several other international companies principally engaged in the manufacture and sale of major home appliances or related component parts. Prior to consolidation of the company's Brazilian subsidiary for the last two months of 1997 (Refer to Note 1), results were reflected as equity earnings of affiliated companies. The company's share of Brazilian results for 1997 was $78 million excluding restructuring and operating charges and $64 million including restructuring and operating charges. Equity in the net earnings (loss) of affiliated companies, net of related taxes, is as follows:
(millions of dollars) 1997 1996 1995 ------------------------------------ Brazilian affiliates $ 60 $ 92 $ 70 Mexican affiliate 5 (3) - Other 2 4 2 -------- -------- -------- Total equity earnings $ 67 $ 93 $ 72 ======== ======== ========
Combined condensed financial information for all affiliated operating companies (excluding Brazil in 1997) follows:
December 31 (millions of dollars) 1997 1996 ---------------------- Current assets $ 275 $ 1,365 Other assets 372 1,090 -------- -------- $ 647 $ 2,455 ======== ======== Current liabilities $ 303 $ 795 Other liabilities 160 380 Stockholders' equity 184 1,280 -------- -------- $ 647 $ 2,455 ======== ========
-20- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) AFFILIATED COMPANIES--CONTINUED (millions of dollars) 1997 1996 1995 ----------------------------------- Net sales $ 937 $ 3,112 $ 2,772 Cost of products sold $ 596 $ 2,323 $ 2,122 Net earnings $ 17 $ 265 $ 192 Dividends and fees paid to Whirlpool by affiliates $ 5 $ 20 $ 20
-21- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) FINANCING ARRANGEMENTS The company has unused credit lines of approximately $2.5 billion, including $800 million expiring in 2002 and the remainder expiring in 1998. Generally, the banks are compensated for their credit lines by a fee and do not require formal compensating balances. Notes payable consist of the following:
December 31 (millions of dollars) 1997 1996 -------------------- Payable to banks $ 558 $ 263 Commercial paper 752 1,761 Other 22 14 ------- ------- $ 1,332 $ 2,038 ======= =======
The reduction of notes payable in 1997 from 1996 reflects a decrease in WFC commercial paper (Refer to Note 3) net of an increase in notes payable to banks resulting from the consolidation of Brasmotor S.A. (Refer to Note 2). The weighted average interest rate on notes payable was 7.37% and 6.34% at December 31, 1997 and 1996. Although the majority of its operating assets have been divested, WFC remains a legal entity with preferred stock arrangements as follows:
Mandatory Number Face Annual Redemption Date of of Shares Value Dividend Date Issuance --------- ----- -------- ---------- -------- Series A 400,000 $100 $5.55 9/1/1998 8/31/1993 Series B 350,000 $100 $6.55 9/1/2008 8/31/1993 Series C 250,000 $100 $6.09 2/1/2002 12/27/1996
The preferred stockholders are entitled to vote together on a share-for-share basis with WFC's common stockholder. Preferred stock dividends are payable quarterly. At its option, WFC may redeem the Series B at any time on or after September 1, 2003 or at any earlier date for Series C. The redemption price for each series is $100 per share plus any accrued unpaid dividends and the applicable redemption premium if redeemed early. Commencing September 1, 2003, WFC must pay $1,750,000 per year to a sinking fund for the benefit of the Series B preferred stockholders, with a final payment of $26,250,000 due on or before September 1, 2008. There are no sinking fund requirements for the Series A or Series C preferred stock. -22- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) FINANCING ARRANGEMENTS--CONTINUED The company and WFC are parties to a support agreement. Pursuant to the agreement, if at the close of any quarter WFC's net earnings available for fixed charges (as defined) for the preceding twelve months is less than a stipulated amount, the company is required to make a cash payment to WFC equal to the insufficiency within 60 days of the end of the quarter. The support agreement may be terminated by either WFC or the company upon 30 days notice provided that certain conditions are met. The company has also agreed to maintain ownership of at least 70% of WFC's voting stock. In January 1997, the company paid $113 million to call the outstanding subordinated zero coupon convertible notes resulting in an insignificant loss on extinguishment. The call payment was financed through issuance of additional commercial paper. At redemption, an aggregate principal amount of $372 million was converted into 2.7 million shares of the company's common stock.
Long-term debt consists of the following: Interest December 31 (millions of dollars) Maturity Rate 1997 1996 ------------- ------------ ------------------------ Debentures 2008 and 2016 7.8 and 9.1% $ 368 $ 368 Senior notes 2000 and 2003 9.0 and 9.5 400 400 Medium term notes 1999 to 2006 8.7 to 9.1 25 25 Subordinated convertible notes - 113 Mortgage notes 1998 to 2012 6.3 to 6.6 65 67 Other 238 101 -------- -------- 1,096 1,074 Less current maturities 22 119 -------- -------- $ 1,074 $ 955 ======== ========
Annual maturities of long-term debt in the next five years are $22 million, $180 million, $264 million, $51 million and $14 million. The company paid interest, including a portion recorded as discontinued operations, on short-term and long-term debt totaling $242 million, $228 million and $232 million in 1997, 1996 and 1995. -23- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used in estimating fair values of financial instruments: Cash and Equivalents and Notes Payable: The carrying amounts approximate fair values. Long-term Debt and WFC Preferred Stock: The fair values are estimated using discounted cash flow analyses based on incremental borrowing or dividend yield rates for similar types of borrowing or equity arrangements. The WFC preferred stock carrying amount approximates fair value. Derivative Financial Instruments: The fair values of interest rate swaps, cross currency interest rate swaps, foreign currency forward contracts and option collars and commodity swaps are based on quoted market prices. -24- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED The carrying amounts and fair values of financial instruments for which the fair value does not approximate the liability carrying amount are as follow:
1997 1996 ---------------------------- ----------------------------- Carrying Fair Carrying Fair December 31 (millions of dollars) Amount Value Amount Value ---------- ---------- ------------ ---------- Long-term debt (including current portion) $ 1,174 $ 1,280 $ 1,053 $ 1,118 Derivative financial instruments (notional amounts indicated): Hedges of net investment in Europe including converted debt: Interest rate and cross currency interest rate swaps ($1,390 million in 1997; $1,506 million in 1996) (78) (42) 21 110 Foreign currency forward contracts ($7 million in 1997; $1 million in 1996) - - - - Domestic interest rate swaps ($240 million in 1997; $240 million in 1996) - (4) - (1) Transaction hedges: Foreign currency forward contracts ($736 million in 1997; $950 million in 1996) - (2) - - Foreign currency options ($- million in 1997; $- million in 1996 - - - - Hedges with commodity swaps ($19 million in 1997; $35 million in 1996) - 1 - - WFC interest rate and cross currency swaps ($30 million in 1997; $44 million in 1996) - - - - --------- --------- --------- --------- Total long-term debt $ 1,096 $ 1,233 $ 1,074 $ 1,227 ========= ========= ========= =========
-25- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED At December 31, 1997, interest rate and cross currency interest rate swaps effectively convert $876 million of U.S. dollar denominated debt into European currency denominations ($468 million - German marks, $319 million - French francs, $39 million - Swiss francs and $50 million - British pounds). About 38% of this converted debt has floating rates and 62% has fixed rates. Floating rates received range from LIBOR less .9% to LIBOR, and floating rates paid range from local currency LIBOR to local currency LIBOR plus 3.25%. Fixed rates received range from 3.55% to 7.20%, and fixed rates paid range from 5.13% to 9.25%. The swaps mature within nine years. At December 31, 1997, domestic interest rate swaps effectively convert $240 million of fixed rate debt into floating rate debt. Fixed rates received range from 6.99% to 7.21%. Floating rates paid are LIBOR. The domestic interest rate swaps mature within five years. At December 31, 1997, WFC interest rate swaps effectively convert $26 million of floating rate debt into fixed rate debt as well as converting $4 million of U.S. dollar denominated debt into Canadian currency denomination. Floating rates received are based on LIBOR or commercial paper rates, and fixed rates paid range from 6.33% to 8.83%. The WFC swaps mature within four years. Foreign currency forward contracts mature within one day to two years and involve principally European and North American currencies. Copper and zinc commodity swaps mature within two years. -26- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) STOCKHOLDERS' EQUITY In addition to its common stock, the company has 10 million authorized shares of preferred stock (par value $1 per share), none of which is outstanding. Consolidated retained earnings at December 31, 1997 included $20 million of equity in undistributed net earnings of affiliated companies. The cumulative translation component of stockholders' equity represents the effect of translating net assets of the company's international subsidiaries offset by related hedging activity net of tax. Conversion of notes, stock option transactions and restricted stock grants account for the changes in paid- in capital. One Preferred Stock Purchase Right (Rights) is outstanding for each share of common stock. The Rights, which expire May 23, 1998, will become exercisable 10 days after a person or group either becomes the beneficial owner of 20% or more of the common stock or commences a tender or exchange offer that would result in such person or group beneficially owning 25% or more of the outstanding common stock. Each Right entitles the holder to purchase from the company one newly issued unit consisting of one one-hundredth of a share of Series A Participating Cumulative Preferred Stock at an exercise price of $100, subject to adjustment. If (i) any person or group becomes the beneficial owner of 25% or more of Whirlpool common stock, or (ii) the company is the surviving corporation in a merger with a 20% or more stockholder and its common stock is not changed or converted, or (iii) a 20% or more stockholder engages in certain self-dealing transactions with the company, then each Right not owned by such person will entitle the holder to purchase, at the Rights' then current exercise price, shares of the company's common stock having a value of twice the Rights' then current exercise price. In addition, if the company is involved in a merger in which its common stock is converted or sells 50% or more of its assets, each Right will entitle its holder to purchase for the exercise price shares of common stock of the acquiring successor company having a value of twice the Rights' then current exercise price. The company will be entitled to redeem the Rights in whole, but not in part, at $.05 per Right at any time prior to the expiration of a 10 day period (subject to extension) following public announcement of the existence of a 20% holder or of a 25% or more tender offer. Until such time as the Rights become exercisable, the Rights have no voting or dividend privileges and are attached to, and do not trade separately from, the common stock. At December 31, 1997, one million preferred shares were reserved for future exercise of Stock Purchase Rights. -27- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND INCENTIVE PLANS The company's stock option and incentive plan permits the grant of stock options and other stock awards covering up to 9.4 million shares to key employees of the company and its subsidiaries, of which 1.9 million shares are available for grant at December 31, 1997. The plan authorizes the grant of both incentive and nonqualified stock options and, further, authorizes the grant of stock appreciation rights and related supplemental cash payments independently of or with respect to options granted or outstanding. Stock options generally have 10 year terms, and vest and become fully exercisable over a two to three year period after date of grant. An Executive Stock Appreciation and Performance Program (ESAP), a Restricted Stock Value Program (RSVP) and a Career Stock Program (CSP) have been established under the plan. Performance awards under ESAP and RSVP are generally earned over multiyear time periods upon the achievement of certain performance objectives or upon a change in control of the company. CSP awards are earned at specified dates during a participant's career with the company or upon change in control of the company. ESAP awards are payable in cash, common stock, or a combination thereof when earned. RSVP grants restricted shares which may not be sold, transferred or encumbered until the restrictions lapse. CSP grants phantom stock awards which are redeemable for shares of the company's common stock upon the recipient's retirement after attaining age 60 and are subject to certain noncompetition provisions. Outstanding restricted and phantom shares totaled 882,400 with a weighted- average grant-date fair value of $46.07 per share at December 31, 1997 and 984,400 with a weighted-average grant-date fair value of $46.84 per share at December 31, 1996. Expenses under the plan were $21 million, $3 million and $5 million in 1997, 1996 and 1995. Under the Nonemployee Director Stock Ownership Plan, each nonemployee director is automatically granted 400 shares of common stock annually and is eligible for a stock option grant of 600 shares if the company's earnings meet a prescribed earnings formula. This plan provides for the grant of up to 200,000 shares as either stock or stock options, of which 143,000 shares are available for grant at December 31, 1997. The stock options vest and become exercisable six months after date of grant. There were no significant expenses under this plan for 1997, 1996 or 1995. The company maintains an employee stock option plan (PartnerShare) that grants substantially all full-time U.S. employees a fixed number of stock options that vest over a three year period and may be exercised over a 10 year period. PartnerShare authorizes the grant of up to 2.5 million shares of which 500,000 shares are available for grant at December 31, 1997. Stock option and incentive plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Generally, no compensation expense is recognized for stock options with exercise prices equal to the market value of the underlying shares of stock at the date of grant. Compensation expense is recognized for ESAP, RSVP and CSP awards based on the market value of the underlying shares of stock when the number of shares is determinable. -28- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND INCENTIVE PLANS--CONTINUED Had the company elected to adopt recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," under which stock options are accounted for at estimated fair value, proforma net earnings (loss) and diluted net earnings (loss) per share would be as follows:
December 31 (millions of dollars) 1997 1996 1995 ------------------------------------- Net earnings (loss) $ (15) $ 156 $ 209 As reported (21) 153 209 Proforma Diluted net earnings (loss) per share As reported $ (0.20) $ 2.08 $ 2.78 Proforma (0.28) 2.04 2.77
The fair value of stock options used to compute proforma net earnings (loss) and earnings (loss) per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following assumptions: expected volatility factor of .183; dividend yield of 2.4%; risk- free interest rate of 5.5% and a weighted-average expected option life of 5 years. The effects of proforma disclosures of applying SFAS No. 123 are not likely to be representative of the effects of such disclosures in future years. Statement No. 123 is applicable only to options granted subsequent to December 15, 1994, therefore the full proforma effect is not reflected in the years presented. -29- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND INCENTIVE PLANS--CONTINUED A summary of stock option information follows:
1997 1996 1995 ---------------------------------------------------------------------------------- Weighted- Weighted- Weighted- December 31 Average Average Average (thousands of shares, Number Exercise Number Exercise Number Exercise except per share data) of Shares Price of Shares Price of Shares Price --------- -------- --------- --------- --------- --------- Outstanding at January 1 4,127 $ 46.31 3,397 $ 43.99 3,214 $ 39.96 Granted 1,360 45.78 1,282 50.62 723 55.75 Exercised (842) 39.83 (331) 34.06 (427) 32.65 Canceled or expired (415) 50.12 (221) 53.99 (113) 47.62 --------- --------- --------- Outstanding at December 31 4,230 $ 47.06 4,127 $ 46.31 3,397 $ 43.99 ========= ======== ========= ========= ========= ========= Exercisable at December 31 2,308 $ 46.43 2,438 $ 42.43 2,307 $ 38.60 ========= ======== ========= ========= ========= ========= Fair Value of options granted during the year $ 9.26 $ 10.24 $ 11.28 ======== ========= =========
Of the outstanding options at December 31, 1997, 885,000 shares granted prior to 1993 (all of which are exercisable) have exercise prices ranging from $24.75 to $37.50 and a weighted-average remaining contractual life of 3.4 years, while 4,385,000 shares granted subsequent to 1992 (of which 1,423,000 shares are currently exercisable at a weighted-average exercise price of $53.69) have exercise prices ranging from $45.75 to $55.81 and a weighted-average remaining contractual life of 8.3 years. -30- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) RESTRUCTURING AND OTHER SPECIAL CHARGES Restructuring costs in 1997 and 1996 consist of the following:
December 31 (millions of dollars) 1997 1996 ------------ Cash costs: Employee severance and related payments $198 $ 9 Lease termination, facility disposition and other costs 46 3 ---- --- Total cash costs 244 12 Noncash costs: Loss on disposal of facilities and equipment 57 - Other asset write-downs 42 18 ---- --- Total non-cash costs 99 18 ---- --- $343 $30 ==== ===
During 1997, the company incurred restructuring costs of $343 million to better align the company's cost structure within the global home-appliance marketplace. Pretax restructuring charges of $172 million, $101 million, $35 million, $25 million and $10 million relate to the company's European, Asian, Latin American, Corporate and North American operations. The restructuring charge includes the elimination of about 7,900 global positions between 1997 and 2000. About 25% of the cash costs were paid in 1997, with the remainder to be paid in 1998 and 1999. The impact of 1997 restructuring costs after-tax and minority interest was $232 million or $3.07 per diluted share. In 1997, the company also recognized special charges of $62 million ($53 million of which affected operating profit), principally due to the adjustment of the carrying value of receivables and inventory, primarily in Europe and Asia. The impact of 1997 special operating charges on continuing operations after-tax and minority interest was $40 million or $.54 per diluted share. In addition, discontinued operations results include a pretax charge of $36 million, after- tax charge of $22 million or $.29 per diluted share to provide a reserve for certain WFC aerospace assets. In 1996, restructuring costs relate to streamlining a North American refrigerator manufacturing operation in order to achieve greater efficiencies and lower manufacturing costs for specific refrigerator models, transferring Asian research and engineering operations from the regional center to the manufacturing locations and relocating the Whirlpool Asian headquarters. Pretax charges of $18 million and $12 million relate to the company's North American and Asian operations and involve the termination of about 850 employees. About 50% of the cash costs were paid in 1996, with the remainder paid in 1997. Total 1996 after-tax charges were $19 million or $.25 per diluted share. -31- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) INCOME TAXES Income tax provisions from continuing operations are as follows:
Year ended December 31 (millions of dollars) 1997 1996 1995 ---------------------------------- Current: Federal $ 78 $ 72 $ 37 State and local $ 20 $ 17 $ 4 Foreign $ 26 $ 7 $ 24 --------- --------- -------- 124 96 65 Deferred: Federal $ (27) $ (7) $ 26 State and local $ (3) $ 1 $ 7 Foreign $ (103) $ (20) $ (8) --------- --------- -------- (133) (26) 25 --------- --------- -------- $ (9) $ 70 $ 90 ========= ========= ========
Inclusive of discontinued operations (Refer to Note 3) provisions for income taxes were $(12) million, $81 million and $100 million for 1997, 1996 and 1995, respectively. Domestic and foreign earnings (loss) before income taxes and other items from continuing operations are as follows:
Year ended December 31 (millions of dollars) 1997 1996 1995 ---------------------------------- Domestic $ 288 $ 288 $ 199 Foreign (459) (188) 15 --------- --------- -------- $ (171) $ 100 $ 214 ========= ========= ========
Earnings (loss) before income taxes and other items, including discontinued operations (Refer to Note 3), were $(178) million, $130 million and $242 million for 1997, 1996 and 1995, respectively. -32- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) INCOME TAXES--CONTINUED Reconciliations between the U.S. federal statutory income tax rate and the consolidated effective income tax (benefit) rate for earnings before income taxes and other items for continuing operations are as follows:
Year ended December 31 1997 1996 1995 -------------------------- U.S. federal statutory rate (35.0)% 35.0% 35.0% Impact of restructuring charge 18.2 (0.5) -- State and local taxes, net of federal tax benefit 8.8 12.4 4.0 Nondeductible goodwill amortization 2.3 9.9 4.9 Settlement of prior year taxes -- -- (5.1) Excess foreign taxes (benefits) (4.0) (5.8) 4.5 Net benefits from unrecognized prior year deferred tax assets and carryfowards (5.1) (6.2) (7.7) Unbenefited operation losses 10.9 23.2 3.2 Nondeductible interest -- 4.3 1.9 Research tax credits (0.6) (9.0) (0.9) Other items (0.5) 6.8 2.4 ----- ---- ---- Effective income tax (benefit) rate (5.0)% 70.1% 42.2% ===== ==== ====
Inclusive of discontinued operations, the effective income tax (benefit) rate was (6.9)%, 61.9% and 41.3% for 1997, 1996 and 1995, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. -33- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) INCOME TAXES --CONTINUED Significant components of the company's deferred tax liabilities and assets are as follows:
December 31 (millions of dollars) 1997 1996 ----------------- Deferred tax liabilities: Property, plant and equipment $ 166 $ 162 Financial services leveraged leases 126 123 Other 23 38 ------- ------- Total deferred tax liabilities 315 323 Deferred tax assets: Postretirement obligation 161 151 Reserves 17 20 Restructuring costs 68 20 Product warranty accrual 20 20 Receivable and inventory allowances 97 2 Prepaid expenses 11 9 Loss carryforwards 125 88 Employee compensation 35 21 Other 24 27 ------- ------- Total deferred tax assets 558 358 Valuation allowances for deferred tax assets (25) (30) ------- ------- Deferred tax assets, net of valuation allowances 533 328 ------- ------- Net deferred tax assets $ 218 $ 5 ------- -------
The company has recorded valuation allowances to reflect the estimated amount of net operating loss carryforwards, restructuring costs and other deferred tax assets which may not be realized. The company provides deferred taxes on the undistributed earnings of foreign subsidiaries and affiliates to the extent such earnings are expected to be remitted. Generally, earnings have been remitted only when no significant net tax liability would have been incurred. No provision has been made for U.S. or foreign taxes that may result from future remittances of the undistributed earnings ($442 million at December 31, 1997) of foreign subsidiaries and affiliates expected to be reinvested indefinitely. Determination of the deferred income tax liability on these unremitted earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs. The company paid income taxes of $23 million in 1997 and $102 million in both 1996 and 1995. At December 31, 1997, the company has foreign net operating loss carryforwards of $330 million which are primarily nonexpiring. -34- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) PENSION PLANS The company maintains both contributory and noncontributory defined benefit pension plans covering substantially all North American and Brazilian employees and certain European employees. Benefits are based primarily on compensation during a specified period before retirement or specified amounts for each year of service. The company's present funding policy is to generally make the minimum annual contribution required by applicable regulations. Assets held by the plans consist primarily of listed common stocks and bonds, government securities, investments in trust funds, bank deposits and other investments. In 1997, the company recognized settlement gains, net of termination benefit cost, of $12 million. These related to the sale of the WFC inventory and consumer financing businesses and a voluntary retirement program offered to certain other North American employees. The WFC retirement plan was merged into the Whirlpool Salaried Retirement Plan during the fourth quarter of 1997. Pension cost, excluding the net gains described above, includes the following components:
December 31 (millions of dollars) 1997 1996 1995 ------------------------- Service cost - benefits earned during the year $ 41 $ 40 $ 36 Interest cost on projected benefit obligation 84 80 77 Actual return on plan assets (204) (157) (267) Net deferral/amortization 99 50 164 ------- ------ ------ $ 20 $ 13 $ 10 ======= ====== ======
Assumptions used in accounting for defined benefit pension plans are as follows:
December 31 1997 1996 1995 ------------------------------- Discount rate 6.0-9.0% 6.5-9.0% 7.0-9.0% Rate of compensation level increase 2.5-9.0% 2.5-6.0% 3.5-6.5% Expected long-term rate of return on plan assets 4.5-9.5% 6.5-9.5% 6.5-9.5%
-35- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) PENSION PLANS--CONTINUED The funded status of the pension plans is as follows:
Plans Whose Assets Plans Whose Exceed Accumulated Accumulated Benefits Benefits Exceed Plan Assets ------------------- -------------------- December 31 (millions of dollars) 1997 1996 1995 1995 -------- -------- -------- -------- Projected benefit obligation $ (943) $ (913) $ (312) $ (144) Plan assets at fair value 1,312 1,259 140 63 -------- -------- -------- -------- Plan assets in excess of (less than) projected benefit obligation 369 346 (172) (81) Unrecognized prior service cost 69 47 14 7 Unrecognized net experience gain (369) (342) 4 4 Unrecognized net obligation, net of amortization (15) (20) 48 (1) Additional minimum liability -- -- (7) (5) -------- -------- -------- -------- Pension asset (liability) included in other assets (postemployment benefits) $ 54 $ 31 $ (113) $ (76) ======== ======== ======== ========
The accumulated benefit obligation, which is included in the projected benefit obligation, represents the actuarial present value of benefits attributed to employee service and compensation levels to date. The accumulated benefit obligation was $1,054 million and $919 million at December 31, 1997 and 1996. The vested portion was $932 million and $812 million at December 31, 1997 and 1996. The U.S. pension plans provide that in the event of a plan termination within five years following a change in control of the company, any assets held by the plans in excess of the amounts needed to fund accrued benefits would be used to provide additional benefits to plan participants. A change in control generally means one not approved by the incumbent board of directors, including an acquisition of 25% or more of the voting power of the company's outstanding stock or a change in a majority of the incumbent board. Certain European subsidiaries maintain termination indemnity and special severance plans. The cost of these plans, determined in accordance with local government specifications, was $15 million and $12 million in 1996 and 1995. The costs in 1997 were immaterial due to a lower termination rate than prior years. The company maintains a 401(k) defined contribution plan covering substantially all U.S. employees. Company matching contributions for domestic hourly and certain other employees under the plan, based on the company's annual operating results and the level of individual participant's contributions, amounted to $6 million, $7 million and $5 million in 1997, 1996 and 1995. -36- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) POSTRETIREMENT BENEFIT PLANS The company currently sponsors a defined benefit health-care plan that provides postretirement medical benefits to full time U.S. employees who have worked 5 years and attained age 55 while in service with the company. The plan is currently noncontributory and contains cost-sharing features such as deductibles, coinsurance and a lifetime maximum. The company does not fund the plan. No significant postretirement benefits are provided by the company to non-U.S. employees. The components of the annual postretirement benefit costs are as follows:
December 31 (millions of dollars) 1997 1996 1995 ---------------------- Service cost $10 $11 $10 Interest cost 29 28 26 --- --- --- $39 $39 $36 === === ===
The components of the postretirement obligation are as follows:
December 31 (millions of dollars) 1997 1996 --------------- Accumulated postretirement benefit obligation Retirees $200 $181 Fully eligible active participants 78 87 Other active plan participants 110 114 ---- ---- Total 388 382 Unrecognized gain (loss) 14 (1) ---- ---- Postretirement obligation $402 $381 ==== ====
The assumed health-care trend rate decreases gradually from 8% in 1997 to 7% in 1998 and 1999 and finally to 6% in 2000 and future years. Increasing the health-care trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $28 million and increase the annual postretirement benefit cost for 1997 by $3 million. Discount rates of 7.75% and 8.0% were used to determine the accumulated postretirement benefit obligation at December 31, 1997 and 1996. -37- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) 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 is the contractual amount of the financial instruments. 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 credit risk. At December 31, 1997 the company had $212 million in receivables subject to recourse provisions with TDF (Refer to Note 3). -38- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) BUSINESS SEGMENT INFORMATION Geographic Segments
North Other and Major Home (millions of dollars) America Europe Eliminations Appliances ------- ------ ------------ ---------- Net sales 1997 $5,382 $2,431 $ 804 $8,617 1996 $5,441 $2,592 $ 490 $8,523 1995 $5,093 $2,502 $ 568 $8,163 Operating profit (loss) 1997 $ 347 $ (145) $ (191) $ 11 1996 $ 380 $ (17) $ (85) $ 278 1995 $ 314 $ 90 $ 38 $ 366 Identifiable assets 1997 $2,084 $1,624 $3,984 $7,692 1996 $2,080 $1,951 $2,135 $6,166 1995 $2,171 $2,084 $1,913 $6,168 Depreciation expense 1997 $ 171 $ 110 $ 18 $ 299 1996 $ 164 $ 107 $ 20 $ 291 1995 $ 140 $ 105 $ 8 $ 253 Net capital expenditures 1997 $ 140 $ 84 $ 151 $ 375 1996 $ 160 $ 103 $ 70 $ 333 1995 $ 262 $ 186 $ 29 $ 477
The "Other and Eliminations" column includes $1,714 million in 1997 for Brazilian identifiable assets. -39- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) BUSINESS SEGMENT INFORMATION--CONTINUED Identifiable assets are those assets directly associated with the respective operating activities. Corporate assets which consist principally of cash, investments, prepaid expenses, intangibles, deferred income taxes and property and equipment related to corporate activities are included as other. Substantially all of the company's trade receivables are from distributors and retailers. Sales activity with Sears, Roebuck and Co., a North American major home appliance retailer, represented 20%, 21% and 20% of consolidated net sales in 1997, 1996 and 1995. Related receivables were 16%, 25% and 14% of consolidated trade receivables for December 31, 1997, 1996 and 1995. -40- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) *
Three Months Ended ------------------------------------------------------- (millions of dollars,a except per share data) December 31 September 30 June 30 March 31 ----------- ------------ ------- -------- 1997 Net sales $2,510 $2,043 $2,074 $1,990 Cost of products sold $1,887 $1,593 $1,588 $1,536 Earnings (loss) from continuing operations $ 50 $ (200) $ 61 $ 43 Net earnings (loss) $ 92 $ (218) $ 65 $ 46 Per share of common stock: Basic earnings (loss) from continuing operations $ .67 $(2.68) $ .82 $ .57 Basic net earnings (loss) $ 1.24 $(2.93) $ .87 $ .62 Diluted earnings (loss) from continuting operations $ .66 $(2.68) $ .81 $ .57 Diluted net earnings (loss) $ 1.22 $(2.93) $ .86 $ .62 Dividends paid $ .34 $ .34 $ .34 $ .34 Stock price: High $ 66 15/16 $ 69 1/2 $ 55 1/4 $ 52 1/2 Low $ 51 7/8 $ 48 $ 45 1/4 $ 46 Close $ 55 $ 66 5/16 $ 54 9/16 $ 47 5/8
Restructuring and other special charges described in Note 10 reduced third and fourth quarter earnings from continuing operations by $258 million and $14 million, respectively. Discontinued operations include a third quarter after-tax charge of $22 million to provide a reserve for certain WFC assets and a $42 million after-tax gain in the fourth quarter for the sale of WFC assets (Refer to Note 3). Fourth quarter 1997 included two months of consolidated Brazilian results, $5 million relating to the elimination of the Brazil one month lag in reporting equity earnings and $8 million related to the pension settlement gain (Refer to Note 12). -41- WHIRLPOOL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)*--CONTINUED
Three Months Ended ---------------------------------------------------------- (millions of dollars, except per share data) December 31 September 30 June 30 March 31 ------------ ------------ ------------ ------------ 1996 Net sales $ 2,126 $ 2,155 $ 2,229 $ 2,013 Cost of products sold $ 1,644 $ 1,679 $ 1,737 $ 1,563 Earnings from continuing operations $ 40 $ 19 $ 48 $ 34 Net earnings $ 45 $ 21 $ 52 $ 38 Per share of common stock: Basic earnings from continuing operations $ .54 $ .26 $ .64 $ .46 Basic net earnings $ .60 $ .28 $ .71 $ .51 Diluted earnings from continuing operations $ .53 $ .26 $ .63 $ .46 Diluted net earnings $ .59 $ .28 $ .70 $ .51 Dividends paid $ .34 $ .34 $ .34 $ .34 Stock price: High $ 50 7/8 $ 53 1/8 $ 61 3/8 $ 59 1/2 Low $ 44 1/4 $ 47 7/8 $ 48 $ 50 1/8 Close $ 46 5/8 $ 50 5/8 $ 49 5/8 $ 55 1/4
Restructuring initiatives described in Note 10 reduced third quarter net earnings by $19 million or $.25 per diluted share. * The 1996 and first three quarters of 1997 earnings per share amounts have been restated to reflect WFC as a discontinued operation and to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." As a result of the company's 1997 full year net loss, diluted earnings per share on a year-to- date basis does not equal the sum of the individual quarters' diluted earnings per share. -42- Report of Ernst & Young LLP, Independent Auditors - -------------------------------------------------------------------------------- The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited the accompanying consolidated balance sheets of Whirlpool Corporation as of December 31, 1997 and 1996, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Brasmotor S.A. and its consolidated subsidiaries, whose statements reflect total assets of $2,200 million and $2,100 million as of December 31, 1997 and 1996, respectively and net earnings of $41 million and $120 million for the years ended December 31, 1997 and 1996, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for Brasmotor S.A. and its consolidated subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Ernst & Young LLP Chicago, Illinois January 26, 1998 Report by Management on the Consolidated Financial Statements - -------------------------------------------------------------------------------- The management of whirlpool Corporation has prepared the accompanying financial statements. The financial statements have been audited by Ernst & Young, independent auditors, whose report, based upon their audits and the reports of other independent auditors, expresses the opinion that these financial statements present fairly the consolidated financial position, results of operations and cash flows of Whirlpool and subsidiaries in accordance with generally accepted accounting principles. Their audits are conducted in conformity with generally accepted auditing standards. The financial statements were prepared from the company's accounting records, books and accounts which, in reasonable detail, accurately and fairly reflect all material transactions. The company maintains a system of internal controls designed to provide reasonable assurance that the company's accounting records, books and accounts are accurate and that transactions are properly recorded in the company's books and records, and the company's assets are maintained and accounted for, in accordance with management's authorizations. The company's accounting records, policies and internal controls are regularly reviewed by an internal audit staff. The audit committee of the board of directors of the company, which is composed of four directors who are not employed by the company, considers and makes recommendations to the board of directors as to accounting and auditing matters concerning the company, including recommending for appointment by the board the firm of independent auditors engaged on an annual basis to audit the financial statements of Whirlpool and its majority-owned subsidiaries. The audit committee meets with the independent auditors at least three times each year to review the scope of the audit, the results of the audit and such recommendations as may be made by said auditors with respect to the company's accounting methods and system of internal controls. /s/Ralph F. Hake Ralph F. Hake Senior Executive Vice President and Chief Financial Officer February 10, 1998 43
CONSOLIDATED OPERATIONS 1997 1996 1995 1994 1993 1992 - ----------------------- ------- -------- -------- ------- -------- -------- Net sales $ 8,617 $ 8,523 $ 8,163 $ 7,949 $ 7,368 $ 7,097 - ------------------------------------------------------------------------------------------------------------------------------------ Operating profit (1) $ 11 $ 278 $ 366 $ 370 $ 504 $ 447 Earnings (loss) from continuing operations before income taxes and other items $ (171) $ 100 $ 214 $ 269 $ 418 $ 334 Earnings (loss) from continuing operations $ (46) $ 141 $ 195 $ 147 $ 257 $ 179 Earnings (loss) from discontinued operations (2) $ 31 $ 15 $ 14 $ 11 $ (28) $ 26 Net earnings (loss) (3) $ (15) $ 156 $ 209 $ 158 $ 51 $ 205 - ------------------------------------------------------------------------------------------------------------------------------------ Net capital expenditures $ 378 $ 336 $ 483 $ 418 $ 309 $ 288 Depreciation $ 322 $ 318 $ 282 $ 246 $ 241 $ 275 Dividends $ 102 $ 101 $ 100 $ 90 $ 85 $ 77 - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED FINANCIAL POSITION - ------------------------------- Current assets $ 4,281 $ 3,812 $ 3,541 $ 3,078 $ 2,708 $ 2,740 Current liabilities $ 3,676 $ 4,022 $ 3,829 $ 2,988 $ 2,763 $ 2,887 Working capital $ 605 $ (210) $ (288) $ 90 $ (55) $ (147) Property, plant and equipment-net $ 2,375 $ 1,798 $ 1,779 $ 1,440 $ 1,319 $ 1,325 Total assets $ 8,270 $ 8,015 $ 7,800 $ 6,655 $ 6,047 $ 6,118 Long-term debt $ 1,074 $ 955 $ 983 $ 885 $ 840 $ 1,215 Stockholders' equity $ 1,771 $ 1,926 $ 1,877 $ 1,723 $ 1,648 $ 1,600 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE DATA - -------------- Basic earnings (loss) from continuing operations before accounting change $(0.62) $ 1.90 $ 2.64 $ 1.98 $ 3.60 $ 2.55 Diluted earnings (loss) from continuing operations before accounting change $(0.62) $ 1.88 $ 2.60 $ 1.95 $ 3.47 $ 2.46 Diluted net earnings (loss) (3) $(0.20) $ 2.08 $ 2.78 $ 2.10 $ 0.71 $ 2.81 Dividends $ 1.36 $ 1.36 $ 1.36 $ 1.22 $ 1.19 $ 1.10 Book value $23.71 $ 25.93 $ 25.40 $ 23.21 $ 23.17 $ 22.91 Closing Stock Price - NYSE $ 55 $ 46 5/8 $ 53 1/4 $ 50 1/4 $ 66 1/2 $ 44 5/8 - ------------------------------------------------------------------------------------------------------------------------------------
(millions of dollars except share and employee data)
CONSOLIDATED OPERATIONS 1991 1990 1989 1988 1987 - ----------------------- ------- ------- ------- ------- ------- Net sales $ 6,550 $ 6,424 $ 6,138 $ 4,306 $ 4,104 - ----------------------------------------------------------------------------------------------------------------- Operating profit (1) $ 353 $ 300 $ 377 $ 227 $ 283 Earnings (loss) from continuing operations before income taxes and other items $ 256 $ 177 $ 281 $ 210 $ 265 Earnings (loss) from continuing operations $ 139 $ 45 $ 169 $ 146 $ 173 Earnings (loss) from discontinued operations (2) $ 31 $ 27 $ 18 $ (52) $ 8 Net earnings (loss) (3) $ 170 $ 72 $ 187 $ 94 $ 192 - ----------------------------------------------------------------------------------------------------------------- Net capital expenditures $ 287 $ 265 $ 208 $ 166 $ 223 Depreciation $ 233 $ 247 $ 222 $ 143 $ 133 Dividends $ 76 $ 76 $ 76 $ 76 $ 79 - ----------------------------------------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL POSITION - ------------------------------- Current assets $ 2,920 $ 2,900 $ 2,889 $ 1,827 $ 1,690 Current liabilities $ 2,931 $ 2,651 $ 2,251 $ 1,374 $ 1,246 Working capital (11) $ 249 $ 638 $ 453 $ 444 Property, plant and equipment-net $ 1,400 $ 1,349 $ 1,288 $ 820 $ 779 Total assets $ 6,445 $ 5,614 $ 5,354 $ 3,410 $ 3,137 Long-term debt $ 1,528 $ 874 $ 982 $ 474 $ 367 Stockholders' equity $ 1,515 $ 1,424 $ 1,421 $ 1,321 $ 1,304 - ----------------------------------------------------------------------------------------------------------------- PER SHARE DATA - -------------- Basic earnings (loss) from continuing operations before accounting change $ 2.00 $ 0.65 $ 2.44 $ 2.11 $ 2.41 Diluted earnings (loss) from continuing operations before accounting change $ 1.98 $ 0.65 $ 2.44 $ 2.10 $ 2.41 Diluted net earnings (loss) (3) $ 2.41 $ 1.04 $ 2.70 $ 1.36 $ 2.67 Dividends $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.10 Book value $ 21.78 $ 20.51 $ 20.49 $ 19.06 $ 18.83 Closing Stock Price - NYSE $ 38 7/8 $ 23 1/2 $ 33 $ 24 3/4 $ 24 3/8 - -----------------------------------------------------------------------------------------------------------------
44
1997 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- KEY RATIOS (4) - ---------- Operating profit margin 0.1% 3.3% 4.5% 4.7% 6.8% 6.3% Pre-tax margin (5) (2.0)% 1.2% 2.6% 3.4% 5.7% 4.7% Net margin (6) (0.5)% 1.7% 2.4% 1.8% 3.5% 2.5% Return on average stockholders' equity (7) (0.8)% 8.2% 11.6% 9.4% 14.2% 13.1% Return on average total assets (8) (0.7)% 1.8% 3.0% 2.8% 4.0% 3.3% Current assets to current liabilities 1.2 0.9 0.9 1.0 1.0 0.9 Total debt-appliance business as a percent of invested capital (9) 38.5% 42.6% 43.3% 34.4% 31.6% 41.7% Price earnings ratio -- 22.4 19.2 23.9 21.2 15.9 Interest coverage (10) 0.7 2.4 3.1 4.0 5.0 3.4 - ------------------------------------------------------------------------------------------------------------------------------ OTHER DATA - ---------- Number of common shares outstanding (in thousands): Average - on a diluted basis 74,697 77,178 76,812 77,588 76,013 75,661 Year-end 75,262 74,415 74,081 73,845 73,068 70,027 Number of stockholders (year-end) 10,171 11,033 11,686 11,821 11,438 11,724 Number of employees (year-end) 61,370 48,163 45,435 39,016 39,590 38,520 Total return to shareholders (five year annualized) (11) 6.8% 6.3% 20.8% 12.0% 25.8% 17.0% 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- KEY RATIOS (4) - ---------- Operating profit margin 5.4% 4.7% 6.1% 5.3% 6.9% Pre-tax margin (5) 3.9% 2.8% 4.6% 4.9% 6.5% Net margin (6) 2.1% 0.7% 2.8% 3.4% 4.2% Return on average stockholders' equity (7) 11.6% 5.1% 13.7% 7.2% 13.6% Return on average total assets (8) 2.9% 1.4% 4.9% 2.9% 6.0% Current assets to current liabilities 1.0 1.1 1.3 1.3 1.4 Total debt-appliance business as a percent of invested capital (9) 46.1% 37.6% 39.2% 20.5% 19.3% Price earnings ratio 16.1 22.6 12.2 18.2 9.7 Interest coverage (10) 2.9 2.0 3.6 6.2 13.6 - ------------------------------------------------------------------------------------------------------------------------------ OTHER DATA - ---------- Number of common shares outstanding (in thousands): Average - on a diluted basis 72,581 69,595 69,461 69,435 71,911 Year-end 69,640 69,465 69,382 69,289 69,232 Number of stockholders (year-end) 12,032 12,542 12,454 12,521 12,128 Number of employees (year-end) 37,886 36,157 39,411 29,110 30,301 Total return to shareholders (five year annualized) (11) 6.7% 2.8% 11.3% 4.4% 6.2%
(1) Restructuring and special operating charges were $405 million in 1997, $30 million in 1996, and $250 million in 1994. See Note 10. (2) The Company's financial services business was discontinued in 1997 and the kitchen cabinet business was discontinued in 1988. (3) Includes cumulative effect of accounting changes: 1993-Accounting for postretirement benefits other than pensions of ($180) million or ($2.42) per diluted share and 1987 - Accounting for income taxes of $11 million or $0.15 per diluted share. (4) Excluding non-recurring items, selected 1997 Key Ratios would be as follows: a) Operating profit margin 4.7%, b) Pre-tax margin 2.7%, c) Net margin 2.6%, d) Return on average stockholders' equity 12.0%, e) Return on average total assets 2.7%, and f) Interest coverage 3.0%. (5) Earnings from continuing operations before income taxes and other items, as a percent of sales. (6) Earnings from continuing operations before accounting change, as a percent of sales. (7) Net earnings before accounting change divided by average stockholders' equity. (8) Net earnings before accounting change, plus minority interest divided by average total assets. (9) Debt less cash and equivalents divided by debt, stockholders' equity and minority interests less cash and equivalents. (10) Ratio of earnings from continuing operations (before income taxes, accounting change and interest expense) to interest expense. (11) Stock appreciation plus reinvested dividends. 45 EX-21 6 LIST OF SUBSIDIARIES Subsidiaries ------------
Subsidiary and Name Jurisdiction In Under Which It Does Business Which Organized - ---------------------------- --------------- Whirlpool Europe B.V. The Netherlands Whirlpool Properties, Inc. Michigan Whirlpool Financial Corporation Delaware Brasmotor S.A. Brazil
The names of the Company's other subsidiaries are omitted because, considered in the aggregate as a single subsidiary, such subsidiaries would not constitute a significant subsidiary as of December 31, 1997. EX-23.(II).(A) 7 CONSENT OF ERNST & YOUNG [LETTERHEAD OF ERNST & YOUNG LLP] Consent of Ernst & Young LLP The Board of Directors Whirlpool Corporation - -------------------------------------------------------------------------------- Benton Harbor, Michigan We consent to the incorporation by reference in Registration Statement Nos. 33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33-40249, 33-43823, 333-02827 and 333-02825 of Whirlpool Corporation and Registration Statement Nos. 33-26680 and 33-53196 of Whirlpool Corporation and Whirlpool Savings Plan of our report dated January 26, 1998, with respect to the consolidated financial statements and schedule of Whirlpool Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ Ernst & Young LLP Chicago, Illinois March 17, 1998 EX-23.(II).(B) 8 CONSENT OF PRICE WATERHOUSE Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement nos. 33-34490, 333-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33- 40249, 33-43823, 33-02827 and 333-02825 of Whirlpool Corporation and Registration Statement nos. 33-26680 and 33-53196 of Whirlpool Corporation and Whirlpool Savings Plan of our reports dated January 23, 1998 with respect to the consolidated financial statements of Brasmotor S.A. and its subsidiaries, Multibras S.A. Eletrodomesticos and its subsidiaries and Empresa Brasileira de Compressores S.A. - EMBRACO and its subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ Price Waterhouse Price Waterhouse Auditores Independentes Sao Paulo, Brazil March 18, 1998 EX-24 9 POWERS OF ATTORNEY POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of WHIRLPOOL CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), does hereby constitute and appoint DAVID R. WHITWAM, WILLIAM D. MAROHN, RALPH F. HAKE, and DANIEL F. HOPP, with full power to each of them to act alone, as the true and lawful attorneys and agents of the undersigned, with full power of substitution and resubstitution to each of said attorneys, to execute, file or deliver any and all instruments and to do all acts and things which said attorneys and agents, or any of them, deem advisable to enable the Corporation to comply with the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under said Securities Exchange Act of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his or her name as a director or officer, or both, of the Corporation, as indicated below opposite his or her signature, to the Annual Report on Form 10-K, or any amendment, post-effective amendment, or papers supplemental thereto to be filed in respect of said Annual Report; and each of the undersigned does hereby fully ratify and confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents, as of the 17th day of February, 1998. Name Title /s/ David R. Whitwam - --------------------------- Director, Chairman of the Board and David R. Whitwam Chief Executive Officer (Principal Executive Officer) /s/ William D. Marohn - --------------------------- Director and Vice Chairman William D. Marohn /s/ Ralph F. Hake - --------------------------- Senior Executive Vice President of Operations Ralph F. Hake and Chief Financial Officer (Principal Financial Officer) /s/ Mark E. Brown - --------------------------- Vice President and Controller Mark E. Brown (Principal Accounting Officer) /s/ Robert A. Burnett - ------------------------ Robert A. Burnett Director /s/ Herman Cain - ------------------------ Herman Cain Director /s/ Gary T. DiCamillo - ------------------------ Gary T. DiCamillo Director /s/ H. Miguel Etchenique - ------------------------ H. Miguel Etchenique Director /s/ Allan D. Gilmour - ------------------------ Allan D. Gilmour Director /s/ Kathleen J. Hempel - ------------------------ Kathleen J. Hempel Director /s/ Arnold G. Langbo - ------------------------ Arnold G. Langbo Director /s/ Miles L. Marsh - ------------------------ Miles L. Marsh Director /s/ Philip L. Smith - ------------------------ Philip L. Smith Director /s/ Paul G. Stern - ------------------------ Paul G. Stern Director /s/ Janice D. Stoney - ------------------------ Janice D. Stoney Director
EX-27 10 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 1997 10-K Whirlpool Corp. and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 578 0 1565 156 1170 4281 5262 2887 8270 3676 1074 0 0 82 1689 8270 8617 8617 6604 8229 377 160 168 (171) (9) (46) 31 0 0 (15) (.20) (.20)
EX-27.2 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 1996 10-K Whirlpool Corp. and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 129 0 2,366 58 1,034 3,812 3,839 2,041 8,015 4,022 955 0 0 81 1,845 8,015 8,523 8,523 6,623 8,180 65 63 155 100 70 141 15 0 0 156 2.10 2.08 Restated from prior submission
EX-27.3 12 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 1995 10-K Whirlpool Corp. and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 149 0 2,117 81 1,029 3,541 3,662 1,883 7,800 3,829 983 0 0 81 1,796 7,800 8,163 8,163 6,245 7,766 31 50 129 214 90 195 14 0 0 209 2.83 2.78 Restated from prior submission
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