-----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, S0yf8uP0JwFLmDnO6xGAl9uTtJZu6/mZFD4rGS9WU7qHPejw618PKeoUeAr3u1Nm eaFi9suMCw4Um4PorzsUIw== 0000063541-00-000006.txt : 20000323 0000063541-00-000006.hdr.sgml : 20000323 ACCESSION NUMBER: 0000063541-00-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAYTAG CORP CENTRAL INDEX KEY: 0000063541 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD APPLIANCES [3630] IRS NUMBER: 420401785 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00655 FILM NUMBER: 575162 BUSINESS ADDRESS: STREET 1: 403 W 4TH ST N CITY: NEWTON STATE: IA ZIP: 50208 BUSINESS PHONE: 5157928000 MAIL ADDRESS: STREET 1: 403 W. 4TH STREET NW CITY: NEWTON STATE: IA ZIP: 50208 FORMER COMPANY: FORMER CONFORMED NAME: MAYTAG CO DATE OF NAME CHANGE: 19870602 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999 or ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to _________________ Commission file number 1-655 MAYTAG CORPORATION A Delaware Corporation I.R.S. Employer Identification No. 42-0401785 403 West Fourth Street North, Newton, Iowa 50208 Registrant's telephone number, including area code: 515-792-7000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $1.25 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of the voting stock (common stock) held by non- affiliates of the registrant as of the close of business on March 1, 2000 was $2,127,729,962. The number of shares outstanding of the registrant's common stock (par value $1.25) as of the close of business on March 1, 2000 was 79,541,307. DOCUMENTS INCORPORATED BY REFERENCE As noted in Part III of this Form 10-K, portions of the registrant's proxy statement for its annual meeting of shareholders to be held May 11, 2000 have been incorporated by reference. 1 MAYTAG CORPORATION 1999 ANNUAL REPORT ON FORM 10-K CONTENTS Item Page PART I: 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Business - Home Appliances . . . . . . . . . . . . . . . . . . . 3 Business - Commercial Appliances . . . . . . . . . . . . . . . . 5 Business - International Appliances . . . . . . . . . . . . . . 6 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 8 4. Submission of Matters to a Vote of Security Holders . . . . . . 8 Executive Officers of the Registrant . . . . . . . . . . . . . . 8 PART II: 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . .10 7A. Quantitative and Qualitative Disclosures About Market Risk . . .18 8. Financial Statements and Supplementary Data . . . . . . . . . .18 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . .48 PART III: 10. Directors and Executive Officers of the Registrant . . . . . . .48 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . .48 12. Security Ownership of Certain Beneficial Owners and Management .49 13. Certain Relationships and Related Transactions . . . . . . . . .49 PART IV: 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.49 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . .50 2 PART I Item 1. Business. Maytag Corporation is a leading producer of home and commercial appliances. It's products are sold to customers throughout North America and international markets. Maytag also is the majority owner in a joint venture in China, Rongshida-Maytag, that produces washing machines and refrigerators primarily for the Chinese market. Maytag was organized as a Delaware corporation in 1925. Maytag is among the top three major appliance companies in the North American market, offering consumers a full line of washers, dryers, dishwashers, refrigerators and ranges distributed through large and small retailers across the U.S. and Canada. In floor care, Maytag owns the Hoover brand, which is the market leader in North America and the brand with the highest consumer recognition and buying preference in floor care. In commercial laundry, Maytag brand has been a presence since the 1950s. Today, Maytag washers and dryers sold to the commercial laundry market have gained an overall market share stronger than Maytag brand at retail. In commercial cooking appliances, Maytag owns Blodgett Corporation, one of the premier and oldest names in commercial appliances. Blodgett is a leading manufacturer of ovens, fryers, charbroilers and grills for the food service industry, serving customers such as McDonald's, KFC, Pizza Hut, and major hotel and restaurant chains. In 1999, Maytag acquired Jade Range, a leading manufacturer of premium- priced commercial ranges and refrigerators, and commercial-style ranges for the residential market. Maytag also owns the Dixie-Narco brand, one of the original brand names in the vending machine industry and today the leading manufacturer of soft drink can and bottle vending machines in the United States. Dixie-Narco venders are sold primarily to major soft drink bottlers such as Coca-Cola and Pepsico. Since 1994, Maytag has made significant annual capital investments that have led directly to demonstrable and superior product innovations in its strongest brands. Superior product performance reinforces brand positioning; product and brand positioning drive average pricing and distribution. The Company operates in three business segments: home appliances, commercial appliances and international appliances. Financial and other information relating to these reportable business segments is included in Part II, Item 7, Pages 10-14, and Item 8, Pages 45-47. HOME APPLIANCES The home appliances segment represented 85.7 percent of consolidated net sales in 1999. The operations of the Company's home appliances segment manufacture major appliances (laundry products, dishwashers, refrigerators, cooking appliances) and floor care products. These products are primarily sold to major national retailers and independent retail dealers in North America and targeted international markets. These products are sold primarily under the Maytag, Hoover, Jenn-Air and Magic Chef brand names. Included in this segment is Maytag International, Inc., the Company's international marketing subsidiary, which administers the sale of home appliances and licensing of certain home appliance brands in markets outside the United States and Canada. 3 During the fourth quarter of 1997, the Company announced an agreement with Sears, Roebuck and Co. to begin selling the full line of Maytag brand major appliances through Sears stores throughout the U.S. The major appliances were available in all Sears full line and authorized dealers stores beginning in February 1998. During the third quarter of 1998, Maytag Corporation announced an agreement with Sears Canada Inc. to begin selling Maytag brand major home appliances in Sears Canada stores in October 1998. A portion of the Company's operations and sales is outside the United States. The risks involved in foreign operations vary from country to country and include tariffs, trade restrictions, changes in currency values, economic conditions and international relations. The Company uses basic raw materials such as steel, copper, aluminum, rubber and plastic in its manufacturing process in addition to purchased motors, compressors, timers, valves and other components. These materials are supplied by established sources and the Company anticipates that such sources will, in general, be able to meet its future requirements. The Company holds a number of patents which are important in the manufacture of its products. The Company also holds a number of trademark registrations of which the most important are ADMIRAL, HOOVER, JENN-AIR, MAGIC CHEF, MAYTAG and the associated corporate symbols. The Company's home appliance business is generally not considered seasonal. A portion of the Company's accounts receivable is concentrated among major retailers. A significant loss of business with any of these national retailers could have an adverse impact on the Company's ongoing operations. The dollar amount of backlog orders of the Company is not considered significant for home appliances in relation to the total annual dollar volume of sales. Because it is the Company's practice to maintain a level of inventory sufficient to cover anticipated shipments and since orders are generally shipped upon receipt, a large backlog would be unusual. The home appliances market is highly competitive with the two principal competitors being larger than the Company. The Company is focused on growth through product innovation that supports superior product performance in the Company's premium brands. The Company also uses brand image, product quality, customer service, advertising and warranty as methods of competition. Expenditures for company-sponsored research and development activities relating to the development of new products and the improvement of existing products are included in Part II, Item 8, page 44. Most of the research and development expenditures relate to the home appliances segment. Although the Company has manufacturing sites with environmental concerns, compliance with laws and regulations regarding the discharge of materials into the environment or relating to the protection of the environment has not had a significant effect on capital expenditures, earnings or the Company's competitive position. The Company has been identified as one of a group of potentially responsible parties by state and federal environmental protection agencies in remedial activities related to various "superfund" sites in the United States. The Company presently does not anticipate any significant adverse effect upon the Company's earnings or financial condition arising from resolution of these 4 matters. Additional information regarding environmental remediation is included in Part II, Item 8, Page 44-45. The Company is subject to changes in government mandated energy and environmental standards regarding appliances which may become effective over the next several years. The Company is in compliance with those existing standards where it does business and intends to be in compliance with these various standards where it does business, which affect the entire appliance industry, as they become effective. The number of employees of the Company in the home appliances segment as of December 31, 1999 was 17,816. COMMERCIAL APPLIANCES The commercial appliances segment represented 11.4 percent of consolidated net sales in 1999. The operations of the Company's commercial appliances segment manufacture commercial cooking and vending equipment. These products are primarily sold to distributors, soft drink bottlers, restaurant chains and dealers in North America and targeted international markets. These products are sold primarily under the Dixie-Narco, Blodgett and Pitco Frialator brand names. Effective January 1, 1999, Maytag acquired all of the outstanding shares of Jade, a manufacturer of commercial ranges, and refrigerators and residential ranges for $19.2 million. In connection with the purchase, Maytag retired debt and incurred transaction costs of $3.6 million and issued 289 thousand shares of Maytag common stock at a value of $15.6 million. Additional information regarding this acquisition is included in Part II, Item 8, Page 28-29. In the fourth quarter of 1997, the Company acquired all of the outstanding shares of G.S. Blodgett Corporation, a manufacturer of commercial ovens, fryers and charbroilers for the food service industry, for $96.4 million. In connection with the purchase, the Company also incurred transaction costs of $4.2 million and retired debt of approximately $53.2 million. Additional information regarding this acquisition is included in Part II, Item 8, Page 28-29. The Company uses steel as a basic raw material in its manufacturing processes in addition to purchased motors, compressors and other components. These materials are supplied by established sources and the Company anticipates that such sources will, in general, be able to meet its future requirements. The Company holds a number of patents which are important in the manufacture of its products. The Company also holds a numbers of trademark registrations of which the most important are DIXIE-NARCO, BLODGETT, PITCO FRIALATOR, JADE and the associated corporate symbols. Commercial appliance sales are considered seasonal to the extent that the Company normally experiences lower vending equipment sales in the fourth quarter compared to other quarters. 5 Within the commercial appliances segment, the Company's vending equipment sales are dependent upon a few major soft drink suppliers. Therefore, the loss of one or more of these customers could have a significant adverse effect on the commercial appliances segment. The dollar amount of backlog orders of the Company is not considered significant for commercial appliances in relation to the total annual dollar volume of sales. Because it is the Company's practice to maintain a level of inventory sufficient to cover shipments and since orders are generally shipped upon receipt, a large backlog would be unusual. The Company uses brand image, product quality, product innovation, customer service, warranty and price as its principal methods of competition. Expenditures for company-sponsored research and development activities relating to the development of new products and the improvement of existing products are included in Part II, Item 8, page 44. Although the Company has manufacturing sites with environmental concerns, compliance with laws and regulations regarding the discharge of materials into the environment or relating to the protection of the environment has not had a significant effect on capital expenditures, earnings or the Company's competitive position. The number of employees of the Company in the commercial appliances segment as of December 31, 1999 was 2,470. INTERNATIONAL APPLIANCES The international appliances segment represented 2.9 percent of consolidated net sales in 1999. The international appliances segment consists of the Company's 50.5 percent owned joint venture in China, Rongshida-Maytag, which manufactures and distributes laundry products and refrigerators. These products are primarily sold to department stores and distributors in China under the RSD brand name. In 1996, the Company invested $35 million ($29.6 million, net of cash acquired) to acquire its 50.5 percent ownership in Rongshida-Maytag. The Company also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. The Company's joint venture partner also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. For more information regarding this acquisition, see Part II, Item 8, pages 28-29. In the fourth quarter of 1998, Rongshida-Maytag acquired all of the outstanding shares of Three-Gorges, a manufacturer of home laundry products in China. This business produces and markets home laundry equipment and has annual sales of approximately $15 million. In connection with the purchase, Rongshida-Maytag assumed $8 million in notes payable and long-term debt. The operations of Three Gorges have been merged into Rongshida-Maytag. For more information regarding this acquisition, see Part II, Item 8, page 28-29. 6 Rongshida-Maytag is subject to the risks involved with international operations including, but not limited to, economic conditions and international relations in the geographic areas where Rongshida-Maytag's operations exist or products are sold, governmental restrictions and changes in currency values. Rongshida-Maytag uses steel and plastic as the basic raw material in its manufacturing processes. These materials are supplied primarily from suppliers in Asian countries. Rongshida-Maytag holds a number of patents which are important in the manufacture of its products. Rongshida-Maytag also holds the trademark registrations of RSD. Rongshida-Maytag's business is seasonal to the extent the first six months of the year normally experience higher sales than the second half of the year. Rongshida-Maytag is not dependent upon a single customer or a few customers. The international appliance market in which Rongshida-Maytag competes is highly competitive with approximately six principal competitors. Rongshida-Maytag uses extensive distribution channels, low manufacturing costs, product quality, and customer service as its principal methods of competition. Expenditures for company-sponsored research and development activities relating to the development of new products and the improvement of existing products, including those for Rongshida-Maytag, are included in Part II, Item 8, page 44. The number of employees of Rongshida-Maytag as of December 31, 1999 was 4,735. Item 2. Properties. The Company's corporate headquarters are located in Newton, Iowa. Major offices and manufacturing facilities in the United States related to the home appliances segment are located in: Newton, Iowa; Galesburg, Illinois; Cleveland, Tennessee; Jackson, Tennessee; Milan, Tennessee; Herrin, Illinois; North Canton, Ohio; and El Paso, Texas. In addition to manufacturing facilities in the United States, the Company has two other North American manufacturing facilities in Mexico. Major offices and manufacturing facilities in the United States related to the commercial appliances segment are located in: Williston, South Carolina; Burlington, Vermont; and Bow, New Hampshire. Major offices and manufacturing facilities related to the international appliances segment are located in Hefei and Chongqing, China. The facilities for the home appliances, commerical appliances and international appliances segments are well maintained, suitably equipped and in good operating condition. The facilities used had sufficient capacity to meet production needs in 1999, and the Company expects that such capacity will be adequate for planned production in 2000. The Company's major capital projects and planned capital expenditures for 2000 are described in Part II, Item 7, Page 17. The Company also owns or leases sales offices in many large metropolitan areas throughout the United States and Canada. Lease commitments are included in Part II, Item 8, Page 36. 7 Item 3. Legal Proceedings. The Company is involved in contractual disputes, environmental, administrative and legal proceedings and investigations of various types. Although any litigation, proceeding or investigation has an element of uncertainty, the Company believes that the outcome of any proceeding, lawsuit or claim which is pending or threatened, or all of them combined, will not have a significant adverse effect on its consolidated financial position. The Company's contingent liabilities are discussed in Part II, Item 8, Page 45. Item 4. Submission of Matters to a Vote of Security Holders. The Company did not submit any matters to a vote of security holders during the fourth quarter of 1999 through a solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth the names of all executive officers of the Company, the offices held by them, the year they first became an executive officer of the Company and their ages: First Became Name Office Held an Officer Age Lloyd D. Ward Chairman and Chief Executive Officer 1996 51 Gerald J. Pribanic Executive Vice President and Chief Financial Officer 1996 56 Larry J. Blanford President, Worldwide Solutions 1999 46 William L. Beer President, Major Appliance 1998 47 Division, Home Solutions Jerome L. Davis President, Commercial Solutions 1999 44 Keith G. Minton President, Floor Care Division, 1998 52 Home Solutions Edward H. Graham Senior Vice President, General 1990 64 (retired January 17, Counsel and Secretary 2000) John M. Dupuy Vice President, General Manager of Emerging Solutions & CIO 1996 43 Jon O. Nicholas Vice President, Human Resources 1993 60 David D. Urbani Vice President and Treasurer 1995 54 Steven H. Wood Vice President, Financial Reporting and Audit 1996 42 The executive officers were elected to serve in the indicated office until the organizational meeting of the Board of Directors following the annual meeting of shareholders on May 11, 2000 or until their successors are elected. 8 Each of the executive officers has served the Company in various executive or administrative positions for at least five years except for: Name Company/Position Period Lloyd D. Ward PepsiCo, Inc. - President, Central Division, Frito-Lay, Inc. 1992-1996 John M. Dupuy A. T. Kearney - Principal Consultant 1993-1995 Booz, Allen & Hamilton - Principal Consultant 1985-1993 Jerome L. Davis PepsiCo, Inc. - Vice President National Accounts, Frito-Lay, Inc. 1992-1998 Larry J. Blanford Schuller Corporation, Vice President Marketing and North American Accounts 1988-1997 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Dividends Sale Price of Common Shares Per Share 1999 1998 1999 1998 Quarter High Low High Low First $66 $52 7/8 $50 3/8 $35 7/16 $.18 $.16 Second 74 13/16 59 9/16 55 3/4 47 1/2 .18 .16 Third 74 1/4 33 3/16 52 3/4 41 1/2 .18 .18 Fourth 50 1/4 31 1/4 64 1/2 39 5/8 .18 .18 The principal U.S. market in which the Company's common stock is traded is the New York Stock Exchange. As of March 1, 1999, the Company had 28,974 shareowners of record. Item 6. Selected Financial Data Dollars in thousands, except per share data 1999(1) 1998 (2) 1997 (3) 1996 (4) 1995(5) Net sales $4,323,673 $4,069,290 $3,407,911 $3,001,656 $3,039,524 Gross profit 1,251,420 1,181,627 936,288 821,443 788,908 Percent of sales 28.9% 29.0% 27.5% 27.4% 26.0% Operating income 575,493 $ 522,738 $ 358,273 $ 269,079 $ 288,234 Percent of sales 13.3% 12.8% 10.5% 9.0% 9.5% Income (loss) from continuing operations $ 328,528 $ 286,510 $ 183,490 $ 137,977 $ (14,996) Percent of sales 7.6% 7.0% 5.4% 4.6% (.5%) Basic earnings per share $ 3.80 $ 3.12 $ 1.90 $ 1.36 $ (0.14) Diluted earnings per share 3.66 3.05 1.87 1.35 (0.14) Dividends paid per share 0.72 0.68 0.64 0.56 0.515 Basic weighted-average shares outstanding 86,443 91,941 96,565 101,727 106,734 9 Diluted weighted- average shares outstanding 89,731 93,973 98,055 102,466 107,486 Working capital $ 168,493 $ 178,165 $ 368,079 $ 334,948 $ 543,431 Depreciation of property, plant and equipment 133,493 135,519 127,497 101,912 102,572 Capital expenditures 147,306 161,251 229,561 219,902 152,914 Total assets 2,636,487 2,587,663 2,514,154 2,329,940 2,125,066 Long-term debt, less current portion 337,764 446,505 549,524 488,537 536,579 Total debt to capitalization 60.0% 58.0% 52.1% 51.2% 45.9% (1) Net sales include $20 million of sales from the Company's acquisition of Jade, a manufacturer of commercial ranges and refrigerators and residential ranges in the first quarter of 1999. (2) Excludes the extraordinary loss on the early retirement of debt. (3) Net sales include $31.3 million of sales from the Company's acquisition of G.S. Blodgett Corporation, a commercial cooking equipment manufacturer in the fourth quarter of 1997. Excludes the extraordinary loss on the early retirement of debt. (4) Net sales include $40.4 million of sales from the Company's acquisition of a 50.5 percent ownership in a joint venture of home appliances in China in the third quarter of 1996. Operating profit includes a $40 million charge for the restructuring of the Company's major home appliance business. The after-tax charge for this restructuring of $24.4 million is included in income (loss) from continuing operations. Excludes the extraordinary loss on the early retirement of debt. (5) Net sales include $181.2 million made by the Company's European Operations which was sold effective June 30, 1995. Income (loss) from continuing operations includes a $135.4 million after-tax loss on the sale of the Company's European Operations; a $9.9 million after-tax charge to settle a lawsuit relating to the closing of the former Dixie-Narco plant in Ranson, West Virginia; a $3.6 million after-tax loss on the sale of the Eastlake Operation; and a $10.8 million after-tax loss arising from a guarantee of indebtedness relating to the sale of one its manufacturing plants in 1992. Excludes the extraordinary loss on the early retirement of debt. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Comparison of 1999 with 1998 Maytag Corporation ("Maytag") has three reportable segments: home appliances, commercial appliances and international appliances. (See discussion and financial information about Maytag s reportable segments in "Segment Reporting" section of the Notes to Consolidated Financial Statements.) Net Sales: Consolidated net sales for 1999 were $4.3 billion, an increase of 6 percent from 1998. Net sales of home appliances, which include major appliances and floor care products, increased 6 percent in 1999 compared to 1998. The net sales increase was due primarily to increased sales of Maytag Atlantis, Maytag Neptune, Maytag 10 and Jenn-Air refrigerators, Maytag Gemini, Maytag Performa brand products, Hoover upright vacuum cleaners and Hoover upright deep carpet cleaners, partially offset by a decrease in sales of Magic Chef brand products. Net sales also benefited from favorable economic conditions that contributed to strong growth in industry shipments of major appliances and floor care products in 1999 compared to 1998. Net sales of commercial appliances, which include vending and foodservice equipment, increased 7 percent in 1999 compared to 1998. The full year 1999 net sales included sales of Jade Products Company ("Jade"), a manufacturer of premium commercial ranges and refrigeration units and commercial-style residential ranges and outdoor grills acquired by Maytag effective January 1, 1999. Excluding Jade, 1999 net sales increased 3 percent from 1998. Net sales of international appliances, which consists of Maytag s 50.5 percent-owned joint venture in China ("Rongshida-Maytag"), decreased 2 percent in 1999 compared to 1998. The net sales decrease was attributable to lower unit sales and lower selling prices of home laundry products, partially offset by sales of the new line of refrigerators and the acquisition of another washer manufacturer in China in the fourth quarter of 1998. Gross Profit: Consolidated gross profit as a percent of sales of 28.9 percent in 1999 was essentially the same as the 29.0 percent of sales realized in 1998. Favorable sales mix and lower raw material costs were offset by an increase in warranty and research and development costs. Selling, General and Administrative Expenses: Consolidated selling, general and administrative expenses were 15.6 percent of sales in 1999 compared to 16.2 percent of sales in 1998 as a result of lower bad debt and stock based related compensation expense and leverage obtained on fixed expenses with the increase in net sales. Operating Income: Consolidated operating income for 1999 increased 10 percent to $575 million, or 13.3 percent of sales, compared to $523 million, or 12.8 percent of sales, in 1998. Home appliances operating income increased 11 percent in 1999 compared to 1998. Operating margin for 1999 was 15.2 percent of sales compared to 14.5 percent of sales in 1998. The increase in operating margin was due primarily to the decrease in selling, general and administrative expenses as a percent of sales discussed above. Commercial appliances operating income increased 17 percent in 1999 compared to 1998. Operating margin for 1999 was 11.9 percent of sales compared to 10.9 percent of sales in 1998. The increase in operating margin was due primarily to favorable product mix and operating efficiencies partially offset by an increase in research and development expenses. International appliances reported an operating loss of $3 million in 1999 compared to operating income of $6 million in 1998. The decrease in operating income was due to the decrease in net sales described above and an increase in provisions related to uncollectible accounts receivable and losses on inventories. The economic environment in China and the Asian region continues to adversely impact the operations of Rongshida-Maytag. Inventory levels of Rongshida-Maytag continue at higher than planned levels. Interest Expense: Interest expense decreased 6 percent in 1999 compared to 1998 as higher average borrowings were more than offset by lower interest rates. Income Taxes: The effective tax rate was 36.8 percent in 1999, which was slightly lower that the 37.4 percent effective tax rate in 1998. The decrease was primarily due to tax savings related to export sales and credits associated with research and development expenses. 11 Minority Interest: In 1999, minority interest of $7.2 million consisted of the income attributable to the noncontrolling interests of Anvil Technologies LLC of $7.5 million and Maytag Capital Trusts ("Maytag Trusts") of $3.7 million and the loss attributable to the noncontrolling interest of Rongshida-Maytag of $4 million. In 1998, minority interest of $8.3 million consisted of the income attributable to the noncontrolling interests of Anvil Technologies LLC of $7.5 million and Rongshida-Maytag of $0.8 million. (See discussion of Maytag Trusts in the "Liquidity and Capital Resources" section of this Management s Discussion and Analysis.) Extraordinary Item: In 1998, the Company retired $71.1 million of long-term debt at a cost of $5.9 million after-tax, or $0.06 per share. Net Income: Net income in 1999 was $329 million compared to net income of $281 million in 1998. Net income in 1998 included a $5.9 million after-tax charge for the early retirement of debt. Excluding the special charge, net income was $287 million in 1998. The increase in net income was primarily due to the increase in operating income. Diluted earnings per share amounted to $3.66 per share in 1999 compared to $2.99 per share in 1998. Excluding the special charge described above, diluted earnings per share in 1998 was $3.05. The increase in diluted earnings per share in 1999 compared to 1998 was due to the increase in net income and the positive effect of $0.23 from the Company's share repurchase program due to lower shares outstanding. (See discussion of the share repurchase program in "Liquidity and Capital Resources" section of this Management's Discussion and Analysis.) COMPARISON OF 1998 WITH 1997 Net Sales: Maytag's consolidated net sales for 1998 increased 19 percent compared to 1997. Net sales in 1998 included sales of G.S. Blodgett Corporation ("Blodgett"), a manufacturer of commercial cooking equipment, which was acquired by Maytag on October 1, 1997. Excluding Blodgett, Maytag's net sales increased 16 percent in 1998 compared to 1997. Home appliances net sales increased 15 percent in 1998 compared to 1997. Net sales were up from the prior year due to the introduction of new products, including new lines of Maytag Neptune laundry products, Maytag refrigerators, Maytag cooking products, Hoover upright vacuum cleaners and Hoover upright deep carpet cleaners. In addition, net sales were up from the prior year due to the volume associated with shipments to Sears, Roebuck and Co. in connection with Maytag's agreement to begin selling the full line of Maytag brand major appliances through Sears stores in the U.S. beginning in February 1998. Maytag's net sales also benefited from the significant volume growth in industry shipments of major appliances in 1998 compared to 1997. Net sales of commercial appliances were up 84 percent from 1997. This net sales increase was primarily driven by a significant increase in the sales volume of Dixie-Narco enhanced capacity venders introduced in 1997 and the inclusion of Blodgett's results for a full year. Excluding Blodgett, net sales increased 48 percent from 1997. International appliances net sales increased 5 percent in 1998 compared to 1997. The sales increase was primarily attributable to higher unit volume partially offset by price reductions on selected models in response to competitive conditions in China. Gross Profit: Maytag's consolidated gross profit as a percent of sales increased to 29 percent in 1998 from 27.5 percent in 1997. 12 Home appliances gross margins increased in 1998 compared to 1997, due to the increase in sales volume, favorable brand and product sales mix, lower raw material costs and the absence of production start-up costs associated with Maytag's new line of refrigerators which were incurred in 1997. Commercial appliances gross margins increased in 1998 compared to 1997, due to the increase in sales volume, partially offset by inefficiencies from the reorganization of manufacturing operations at Blodgett. International appliances gross margins decreased in 1998 compared to 1997 primarily from the decrease in selling prices on selected models. Selling, General and Administrative Expenses: Selling, general and administrative expenses were 16.2 percent of sales in 1998 compared to 17 percent of sales in the same period in 1997 as sales growth outpaced the increase in spending for selling, general and administrative expenses. Operating Income: Consolidated operating income increased 46 percent to $523 million, or 12.8 percent of sales, compared to $358 million, or 10.5 percent of sales in 1997. Home appliances operating income increased 44 percent in 1998 compared to 1997. Operating margin for 1998 was 14.5 percent of sales compared to 11.6 percent of sales in 1997. The increase in operating margin was due to the increase in gross profit margins and decrease in selling, general and administrative expenses as a percent of sales discussed above. Commercial appliances operating income, which includes Blodgett for all of 1998, increased 156 percent in 1998 compared to 1997. Operating margin for 1998 was 10.9 percent of sales compared to 7.8 percent of sales in 1997. The increase in operating margins was due primarily to the increase in gross profit margins described above. International appliances operating income decreased 49 percent in 1998 compared to 1997. Operating margin for 1998 was 4.6 percent of sales compared to 9.4 percent of sales in 1997. The decrease in operating margins was due to the decrease in gross profit margins discussed above and an increase in selling, general and administrative expense due to both spending increases and additional provisions for uncollectible accounts receivable. Interest Expense: Interest expense increased 6 percent in 1998 compared to 1997 primarily due to lower capitalized interest. Maytag's higher average borrowings were offset by lower interest rates. Income Taxes: The effective tax rate for 1998 was 37.4 percent compared to 36.5 percent in 1997. The increase in the effective tax rate was due primarily to 1997 including a $2 million one-time benefit from the resolution of certain Internal Revenue Service issues as well as a reduced benefit in 1998 from Rongshida-Maytag's tax holiday in China due to lower income before taxes. These increases in the 1998 effective tax rate were partially offset by other tax initiatives. Extraordinary Item: In 1998, Maytag retired long-term debt totalling $71.1 million at a cost of $5.9 million after-tax. In 1997, Maytag retired $61.8 million of long-term debt at a cost of $3.2 million after-tax. Net Income: Net income for 1998 was $281 million, or $2.99 diluted earnings per share, compared to net income of $180 million, or $1.84 diluted earnings per share in 1997. Net income and diluted earnings per share were impacted by special charges for the early retirement of debt in both years. The after-tax charges for the early retirement of debt were $5.9 million and $3.2 million for 1998 and 1997, respectively. Excluding these special charges in both years, income for 1998 would have 13 been $287 million, or $3.05 diluted earnings per share, compared to $183 million, or $1.87 diluted earnings per share for 1997. The increase in net income was primarily due to the increase in operating income. The increase in diluted earnings per share in 1998 compared to 1997 was due to the increase in net income and the positive effect of $0.15 from Maytag's share repurchase program due to lower shares outstanding. Liquidity and Capital Resources Maytag s primary sources of liquidity are cash provided by operating activities and borrowings. Detailed information on Maytag s cash flows is presented in the Consolidated Statements of Cash Flows. Net Cash Provided by Operating Activities: Cash flow provided by operating activities consists primarily of net income adjusted for certain non-cash items, changes in working capital items, changes in pension assets and liabilities and postretirement benefits. Non-cash items include depreciation and amortization and deferred income taxes. Working capital items consists primarily of accounts receivable, inventories, other current assets and other current liabilities. Net cash provided by operating activities decreased due primarily to cash used for working capital in 1999 compared to 1998, partially offset by the increase in net income. A portion of Maytag s accounts receivable is concentrated among major national retailers. A significant loss of business with any of these retailers could have an adverse impact on Maytag s ongoing operations. Total Investing Activities: Maytag continually invests in its businesses for new product designs, cost reduction programs, replacement of equipment, capacity expansion and government mandated product requirements. Capital expenditures in 1999 were $147 million compared to $161 million in 1998. Effective January 1, 1999, Maytag acquired all of the outstanding shares of Jade for approximately $19.2 million. In connection with the purchase, Maytag retired debt and incurred transaction costs of $3.6 million and issued approximately 289 thousand shares of Maytag common stock at a value of $15.6 million. The acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. Total Financing Activities: Dividend payments on Maytag s common stock in 1999 were $62 million, or $0.72 per share, compared to $63 million, or $0.68 per share in 1998. In the third and fourth quarters of 1999, Maytag together with two newly established business trusts, issued units comprised of (a) a preferred security of each Maytag Trust which provides for a 6.85 and 6.3 percent per annum distribution, respectively and (b) a purchase contract requiring the unitholder to purchase shares of Maytag common stock from Maytag on November 15, 2002 and June 30, 2002, respectively. An outside investor purchased the units for a noncontrolling interest in the Maytag Trusts in the aggregate for $200 million. The Maytag Trusts used the proceeds from the sale of the units, in addition to $6 million aggregate capital contributions from Maytag, to purchase $103 million of 6.85 percent Maytag debentures due November 15, 2004 and $103 million of 6.3 percent Maytag debentures due June 30, 2004. The terms of the debentures parallel the terms of the preferred securities issued by the Maytag Trusts. The applicable distribution rate on the preferred securities of the Maytag Trust that remain outstanding after November 15, 2002 and June 30, 2002, respectively, will be reset to reflect changes in the market for such securities. Under the purchase contract, Maytag will pay the holder contract adjustment payments at a 14 rate of 4.265 percent and 3.359 percent of the stated amount of units per annum, respectively. Under the purchase contract, Maytag will issue shares of Maytag common stock for a total purchase price of $200 million. The maximum number of shares Maytag will be required to deliver to the holder, for the cumulative purchase price of $200 million is approximately 4.4 million shares, reflecting a minimum issuance price of $45 per share. If the share price is above $45 per share at the time of settlement, Maytag will issue fewer shares in exchange for the purchase price of $200 million. The Company s objective in this transaction is to raise low-cost, equity funds. For financial reporting purposes, the results of the trusts (other than those which are eliminated in consolidation) are included in the Company's consolidated financial statements. The outside investor s noncontrolling interest in the Maytag Trust of $200 million is reflected in "Company obligated manditorily redeemable preferred capital securities of subsidiary trust holding solely the Company's debentures" in the Consolidated Balance Sheets. The income attributable to such noncontrolling interest is reflected in Minority interest in the Consolidated Statements of Income. During 1999, Maytag's Board of Directors authorized the repurchase of up to 20 million additional shares beyond the previous authorizations commencing in 1995 totalling 30.8 million shares. During 1999, Maytag repurchased 7.5 million shares associated with the share repurchase program at a cost of $410 million. As of December 31, 1999, of the 21.2 million shares which may be repurchased under the existing board authorizations, Maytag is contingently obligated to purchase 8.6 million shares under put options contracts, if such options are exercised. (See discussion of these put option contracts below.) In addition, in the fourth quarter of 1999, Maytag entered into forward stock purchase agreements to repurchase three million shares of Maytag stock in the first quarter of 2000 at an average price of $48. (See discussion of these forward contracts below.) During the third quarter of 1999, Maytag amended the forward stock purchase agreement entered into during 1997 to repurchase four million shares at a net cost of $21 million. Maytag previously amended this forward stock purchase agreement during the first quarter of 1998 at a net cost of $64 million. The forward stock purchase contract allowed Maytag to determine the method of settlement. In the first quarter of 2000, Maytag settled the contract before its maturity date at a cost of approximately $10 million. Maytag s objective in this transaction was to reduce the average price of repurchased shares. In connection with the share repurchase program, the Company has sold and in the future may sell put options which give the purchaser the right to sell shares of the Company's common stock to the Company at specified prices upon exercise of the options on the designated expiration date. The put option contracts allow the Company to determine the method of settlement. The Company's objective in selling put options is to reduce the average price of repurchased shares. In 1999 and 1998, the Company received $45 million and $30 million, respectively, in premium proceeds from the sale of put options. As of December 31, 1999, there were 8.6 million put options outstanding with strike prices ranging from $37.00 to $73.06 (the weighted-average strike price was $53.89). Of the 8.6 million put options outstanding, 3.1 million expire in 2000 with an average strike price of $66, 1.1 million expire in 2001 with an average strike price of $54 and 4.4 million expire in 2002 with an average strike price of $45. In the fourth quarter of 1999, Maytag entered into forward stock purchase agreements to repurchase three million shares of Maytag stock in the first quarter of 2000 at an average price of $48. These forward stock purchase contracts allow the Company to determine the method of settlement. The Company's objective in these contracts is to reduce the average price of repurchased shares. The fair market value of these contracts was not significant as of December 31, 1999. 15 Any funding requirements for future investing and financing activities in excess of cash on hand and generated from operations will be supplemented by borrowings. Maytag s commercial paper program is supported by a credit agreement with a consortium of banks which provides revolving credit facilities totaling $400 million. This agreement expires June 29, 2001 and includes covenants for interest coverage and leverage which Maytag was in compliance with at December 31, 1999. In April 1999, a shelf registration statement filed with the Securities and Exchange Commission became effective, providing Maytag the ability to issue an aggregate of $400 million of debt securities of which $360 million was available as of December 31, 1999. Maytag expects to issue these securities over a non-specified period of time and expects to use the net proceeds from the sale of the securities for general corporate purposes, including the funding of share repurchases (including obligations under forward contracts and put options as discussed above), capital expenditures, working capital, repayment or reduction of long-term and short-term debt and the financing of acquisitions. Maytag explores and may periodically implement arrangements to adjust its obligations under various stock repurchase arrangements, including the arrangements described above. Market Risks Maytag is exposed to foreign currency exchange risk related to its transactions, assets and liabilities denominated in foreign currencies. To manage certain foreign exchange exposures, Maytag enters into foreign currency forward and option contracts. Maytag s policy is to hedge a portion of its anticipated foreign currency denominated export sales transactions, which are denominated primarily in Canadian dollars, for periods not exceeding twelve months. At December 31, 1999, the result of a uniform 10 percent strengthening of the U.S. dollar relative to the foreign currencies in which Maytag's sales are denominated would result in a decrease in net income of approximately $6 million for the year ended December 31, 2000. This sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in potential changes in sales levels or local currency prices. Maytag also is exposed to commodity price risk related to Maytag's purchase of selected commodities used in the manufacture of its products. To reduce the effect of changing raw material prices for select commodities, Maytag has entered into long-term contracts and commodity swap agreements with terms not exceeding two years, to hedge a portion of its anticipated raw material purchases on selected commodities. At December 31, 1999, the result of a uniform 10 percent increase in the price of commodities covered by commodity swap agreements would result in no significant decrease in net income for the year ended December 31, 2000 Maytag also is exposed to interest rate risk in the portfolio of Maytag s debt. The Company uses interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. The swaps involve the exchange of fixed and variable rate payments without exchanging the notional principal amount. At December 31, 1999, the result of a uniform 10 percent increase in interest rates would result in a decrease in net income of approximately $2 million for the year ended December 31, 2000. Year 2000 Issue Update The Company did not experience any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant 16 impact to its ongoing business as a result of the "Year 2000 issue." However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. The Company believes that any such problems are likely to be minor and correctable. In addition, the Company could still be negatively affected if its customers or suppliers are adversely affected by the Year 2000 or similar issues. The Company is currently not aware of any significant Year 2000 or similar problems that have arisen for its customers or suppliers. The Company expended $18 million on Year 2000 readiness efforts from 1996 to 1999. These efforts included replacing some outdated, noncompliant hardware and noncompliant software as well as identifying and remediating Year 2000 problems. Contingencies Maytag has contingent liabilities arising in the normal course of business or from operations which have been discontinued or divested. (See discussion of these contingent liabilities in "Contingencies" section of the Notes to Consolidated Financial Statements.) Outlook During the first half of 2000, Maytag expects revenue to be sustained from new products introduced in 1999 partially offset by a significant decrease in vending equipment sales as a result of a major customer curtailing purchases. The decrease in vending equipment sales is expected to last at least through the first half and may continue to impact the business for most of 2000. During the second half of the year, Maytag expects revenue growth from new product introductions in floor care, cooking, dishwashing, foodservice and refrigeration. Maytag expects raw material prices in the United States in 2000 to increase compared to 1999 levels. However, the impact to Maytag's results will be mitigated by Maytag's long-term commodity contracts and commodity swap agreements on selected commodities. (See discussion of the commodity swap agreements in "Market Risks" section of this Management's Discussion and Analysis.) Maytag expects gross profit in 2000 to be affected by an increase in warranty expense as well as an increase in research and development expense as it continues to invest in future product development. Maytag plans to invest approximately $190 million in capital expenditures in 2000. Forward-Looking Statements This Management s Discussion and Analysis contains statements which are not historical facts and are considered "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of the terms: "expects," "intends," "may impact," "plans," "should" or similar terms. These forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from expected results. These risks and uncertainties include, but are not limited to, the following: business conditions and growth of industries in which Maytag competes, including changes in economic conditions in the geographic areas where Maytag s operations exist or products are sold; timing, start-up and customer acceptance of newly designed products; shortages of manufacturing capacity; competitive factors, such as price competition and new product introductions; significant loss of business from a major national 17 retailer; the cost and availability of raw materials and purchased components; progress on capital projects; the impact of business acquisitions or dispositions; the costs of complying with governmental regulations; level of share repurchases; litigation and other risk factors. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Quantitative and qualitative disclosures about market risk are discussed in "Market Risks" section of the Management's Discussion and Analysis (Part II, Item 7, pages 17) Item 8. Financial Statements and Supplementary Data. Page Report of Independent Auditors . . . . . . . . . . . . . . 19 Consolidated Statements of Income--Years Ended December 31, 1999, 1998, and 1997 . . . . . . . . . . . . 20 Consolidated Balance Sheets-- December 31, 1999 and 1998 . . . . . . . . . . . . . . . 21 Consolidated Statements of Shareowners' Equity--Years Ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . 23 Consolidated Statements of Comprehensive Income-- December 31, 1999, 1998 and 1997 . . . . . . . . . . . . 24 Consolidated Statements of Cash Flows--Years Ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . 25 Notes to Consolidated Financial Statements . . . . . . . . 26 Quarterly Results of Operations--Years 1999 and 1998 . . . 48 18 Report of Independent Auditors Shareowners and Board of Directors Maytag Corporation We have audited the accompanying consolidated balance sheets of Maytag Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, shareowners' equity, and cash flows for each of three years in the period ended December 31, 1999. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and related schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and related schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maytag Corporation and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Chicago, Illinois January 25, 2000 19 Consolidated Statements of Income Year Ended December 31 In thousands, except per share data 1999 1998 1997 Net sales $4,323,673 $4,069,290 $3,407,911 Cost of sales 3,072,253 2,887,663 2,471,623 Gross profit 1,251,420 1,181,627 936,288 Selling, general and administrative expenses 675,927 658,889 578,015 Operating income 575,493 522,738 358,273 Interest expense (59,259) (62,765) (58,995) Other - net 14,617 10,912 1,277 Income before income taxes, minority interest and extraordinary item 530,851 470,885 300,555 Income taxes 195,100 176,100 109,800 Income before minority interest and extraordinary item 335,751 294,785 190,755 Minority interests (7,223) (8,275) (7,265) Income before extraordinary item 328,528 286,510 183,490 Extraordinary item - loss on early retirement of debt (5,900) (3,200) Net income $ 328,528 $ 280,610 $ 180,290 Basic earnings (loss) per common share: Income before extraordinary item $ 3.80 $ 3.12 $ 1.90 Extraordinary item - loss on early retirement of debt (0.06) (0.03) Net income 3.80 3.05 1.87 Diluted earnings (loss) per common share: Income before extraordinary item $ 3.66 $ 3.05 $ 1.87 Extraordinary item - loss on early retirement of debt (0.06) (0.03) Net income 3.66 2.99 1.84 See notes to consolidated financial statements. 20 Consolidated Balance Sheets December 31 In thousands, except share data 1999 1998 Assets Current assets Cash and cash equivalents $ 28,815 $ 28,642 Accounts receivable, less allowance for doubtful accounts (1999--$22,327; 1998--$22,305) 494,747 472,979 Inventories 404,120 383,753 Deferred income taxes 35,484 39,014 Other current assets 58,350 44,474 Total current assets 1,021,516 968,862 Noncurrent assets Deferred income taxes 106,600 120,273 Prepaid pension cost 1,487 1,399 Intangible pension asset 48,668 62,811 Other intangibles, less allowance for amortization (1999--$112,006; 1998--$98,106) 427,212 424,312 Other noncurrent assets 54,896 44,412 Total noncurrent assets 638,863 653,207 Property, plant and equipment Land 19,660 19,317 Buildings and improvements 349,369 333,032 Machinery and equipment 1,622,764 1,499,872 Construction in progress 74,057 102,042 2,065,850 1,954,263 Less accumulated depreciation 1,089,742 988,669 Total property, plant and equipment 976,108 965,594 Total assets $2,636,487 $2,587,663 See notes to consolidated financial statements. 21 December 31 In thousands, except share data 1999 1998 Liabilities and Shareowners' Equity Current liabilities Notes payable $ 133,041 $ 112,898 Accounts payable 277,780 279,086 Compensation to employees 77,655 81,836 Accrued liabilities 194,074 176,701 Current portion of long-term debt 170,473 140,176 Total current liabilities 853,023 790,697 Noncurrent liabilities Deferred income taxes 22,842 21,191 Long-term debt, less current portion 337,764 446,505 Postretirement benefit liability 467,386 460,599 Accrued pension cost 56,528 69,660 Other noncurrent liabilities 101,776 117,392 Total noncurrent liabilities 986,296 1,115,347 Company obligated manditorily redeemable preferred capital securities of subsidiary trust holding solely the Company's debentures 200,000 Minority interests 169,788 174,055 Shareowners' equity Preferred stock: Authorized--24,000,000 shares (par value $1.00) Issued--none Common stock: Authorized--200,000,000 shares (par value $1.25) Issued--117,150,593 shares, including shares in treasury 146,438 146,438 Additional paid-in capital 503,346 467,192 Retained earnings 1,026,288 760,115 Cost of common stock in treasury (1999--34,626,316 shares; 1998--27,932,506 shares) (1,190,894) (805,802) Employee stock plans (38,836) (45,331) Accumulated other comprehensive income (18,962) (15,048) Total shareowners' equity 427,380 507,564 Total liabilities and shareowners' equity $ 2,636,487 $2,587,663 See notes to consolidated financial statements. 22 Consolidated Statements of Shareowners' Equity December 31 In thousands 1999 1998 1997 Common stock Balance at beginning of year $ 146,438 $ 146,438 $ 146,438 Balance at end of year 146,438 146,438 146,438 Additional paid-in capital Balance at beginning of year 467,192 494,646 471,158 Stock issued under stock option plans (4,667) (5,596) (7,375) Stock issued under restricted stock awards, net 2,530 1,426 (86) Additional ESOP shares issued 308 (139) Tax benefit of employee stock plans 7,657 9,994 6,640 Forward stock purchase contract premium 14,592 Forward stock purchase contract amendment (21,298) (63,782) Put option premiums 44,823 30,196 9,856 Stock issued in business acquisition 7,109 Balance at end of year 503,346 467,192 494,646 Retained earnings Balance at beginning of year 760,115 542,118 423,552 Net income 328,528 280,610 180,290 Dividends on common stock (62,355) (62,613) (61,724) Balance at end of year 1,026,288 760,115 542,118 Treasury stock Balance at beginning of year (805,802) (508,115) (405,035) Purchase of common stock for treasury (409,500) (318,139) (138,051) Stock issued under stock option plans 13,812 18,779 29,309 Stock issued under restricted stock awards, net 2,086 1,226 3,212 Additional ESOP shares issued 447 2,450 Stock issued in business acquisition 8,510 Balance at end of year (1,190,894) (805,802) (508,115) Employee stock plans Balance at beginning of year (45,331) (48,416) (55,204) Stock issued under restricted stock awards, net (565) (445) 7 ESOP shares allocated 7,060 3,530 6,781 Balance at end of year (38,836) (45,331) (48,416) Accumulated other comprehensive income Minimum pension liability adjustment Balance at beginning of year (107) Adjustment for the year (4,430) 107 Balance at end of year (4,430) Unrealized losses on securities Balance at beginning of year (4,862) (3,605) Unrealized loss for the year (671) (1,257) (3,605) Balance at end of year (5,533) (4,862) (3,605) Foreign currency translation Balance at beginning of year (10,186) (7,257) (6,812) Translation adjustments 1,187 (2,929) (445) Balance at end of year (8,999) (10,186) (7,257) Balance at beginning of year (15,048) (10,862) (6,919) Total adjustments for the year (3,914) (4,186) (3,943) Balance at end of year (18,962) (15,048) (10,862) Total shareowners' equity $ 427,380 $ 507,564 $ 615,809 See notes to consolidated financial statements. 23 Consolidated Statements of Comprehensive Income Year Ended December 31 In thousands 1999 1998 1997 Net income $ 328,528 $ 280,610 $ 180,290 Other comprehensive income items, net of income taxes Unrealized losses on securities (671) (1,257) (3,605) Minimum pension liability adjustment (4,430) 107 Foreign currency translation 1,187 (2,929) (445) Total other comprehensive (loss) (3,914) (4,186) (3,943) Comprehensive income $ 324,614 $ 276,424 $ 176,347 See notes to consolidated financial statements. 24 Consolidated Statements of Cash Flows Year Ended December 31 In thousands 1999 1998 1997 Operating activities Net income $ 328,528 $ 280,610 $ 180,290 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item - loss on early retirement of debt 5,900 3,200 Minority interest 7,223 8,275 7,265 Depreciation 133,493 135,519 127,497 Amortization 13,900 13,035 10,666 Deferred income taxes 18,854 3,242 (7,956) Changes in working capital items exclusive of business acquisitions: Accounts receivable (19,834) 1,502 4,631 Inventories (17,867) (28,015) (5,393) Other current assets (13,855) (13,475) 2,281 Other current liabilities 20,817 90,697 (822) Pension assets and liabilities (3,506) 10,121 18,124 Postretirement benefit liability 6,787 6,209 5,952 Other - net (12,723) 26,258 11,930 Net cash provided by operating activities 461,817 539,878 357,665 Investing activities Capital expenditures (147,306) (161,251) (229,561) Investment in securities (10,000) (10,015) Business acquisitions, net of cash acquired (3,551) (148,283) Total investing activities (160,857) (161,251) (387,859) Financing activities Proceeds from issuance of notes payable 24,845 14,687 60,493 Repayment of notes payable (4,702) (20,880) (3,142) Proceeds from issuance of long-term debt 66,174 102,922 133,015 Repayment of long-term debt (144,618) (75,743) (124,123) Debt repurchase premiums (5,900) (3,200) Stock repurchases (409,500) (318,139) (138,051) Forward stock purchase amendment (21,298) (63,782) Stock options exercised and other common stock transactions 16,031 22,447 42,452 Put option premiums 44,823 30,196 9,856 Dividends on common stock (62,355) (62,613) (61,724) Dividends on minority interest (10,929) (7,924) (3,519) Proceeds from sale of LLC member interest 100,000 Investment by joint venture partner 6,900 18,975 Issuance of mandatorily redeemable preferred capital securities 200,000 Total financing activities (301,529) (377,829) 31,032 Effect of exchange rates on cash 742 (147) (390) Increase in cash and cash equivalents 173 651 448 Cash and cash equivalents at beginning of year 28,642 27,991 27,543 Cash and cash equivalents at end of year $ 28,815 $ 28,642 $ 27,991 See notes to consolidated financial statements. 25 Notes to Consolidated Financial Statements Summary of Significant Accounting Policies > Principles of Consolidation: The consolidated financial statements include the accounts and transactions of the Company and its wholly-owned and majority- owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Exchange rate fluctuations from translating the financial statements of subsidiaries located outside the United States into U.S. dollars are recorded in accumulated other comprehensive income in shareowners' equity. All other foreign exchange gains and losses are included in income. > Reclassifications: Certain previously reported amounts have been reclassified to conform with the current period presentation. > Use of Estimates: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. > Cash and Cash Equivalents: Highly liquid investments with a maturity of three months or less when purchased are considered by the Company to be cash equivalents. > Inventories: Inventories are stated at the lower of cost or market. Inventory costs are determined by the last-in, first-out (LIFO) method for approximately 77 percent and 80 percent of the Company's inventories at December 31, 1999 and 1998, respectively. Costs for other inventories have been determined principally by the first-in, first-out (FIFO) method. > Income Taxes: Income taxes are accounted for using the asset and liability approach in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Such approach results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. > Intangibles: Intangibles principally represent goodwill, which is the cost of business acquisitions in excess of the fair value of identifiable net tangible assets acquired. Goodwill is amortized over 20 to 40 years using the straight- line method and the carrying value is reviewed for impairment annually. If this review indicates that it is probable that the projected future undiscounted cash flows of the acquired assets were less than the carrying value of the goodwill, the Company's carrying value of the goodwill will be reduced. > Property, Plant and Equipment: Property, plant and equipment is stated on the basis of cost. Depreciation expense is calculated principally on the straight- line method to amortize the cost of the assets over their estimated economic useful lives. The estimated useful lives are 15 to 45 years for buildings and improvements and five to 20 years for machinery and equipment. > Environmental Expenditures: The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. 26 > Revenue Recognition and Product Warranty Costs: Revenue from sales of products is generally recognized upon shipment to customers. Estimated product warranty costs are recorded at the time of sale and periodically adjusted to reflect actual experience. > Advertising and Sales Promotion: All costs associated with advertising and promoting products are expensed in the period incurred. > Financial Instruments: The Company uses foreign exchange forward and option contracts to manage certain foreign currency exchange rate risks associated with its international operations. The outstanding contracts are marked to market each period with the gains and losses included in income. The Company has a trading program of interest rate swap contracts outstanding which are marked to market each period with the gains and losses included in income. The Company uses interest rate swaps to adjust the proportion of total debt that is subject to variable and fixed interest rates. Payments made or received are recognized as an adjustment to interest expense. The Company uses commodity swap agreements for hedging purposes to reduce the effect of changing raw material prices. Gains and losses on the swap agreements are deferred until settlement and recorded as a component of cost of goods sold when settled. The Company has forward stock purchase contracts outstanding in its own shares which require a net cash settlement. As such, the contracts are considered assets or liabilities and changes in fair value are recognized in the Company's financial statements each period with the gains and losses included in income. The Company also has forward stock purchase contracts outstanding in its own shares which allow the Company to determine the method of settlement. As such, the contracts are considered equity instruments and changes in fair value are not recognized in the Company's financial statements. If the Company determines to settle the contracts in cash, the amount of cash paid or received would be reported as a reduction of, or an addition to, paid-in capital. The Company has put option contracts outstanding in its own shares which allow the Company to determine whether the contracts are settled in cash or shares. As such, the contracts are considered equity instruments and changes in fair value are not recognized in the Company's financial statements. The premiums received from the sale of put options are recorded as an addition to paid-in capital. If the Company determines to settle the contracts in cash, the amount of cash paid would be reported as a reduction of paid-in capital. > Stock-Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its employee stock options and awards. Under APB 25, no compensation expense is recognized when the exercise price of options equals the fair value (market price) of the underlying stock on the date of grant. > Earnings Per Common Share: Basic and diluted earnings per share is calculated in accordance with FASB Statement No. 128, "Earnings Per Share." Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities, such as stock options and put options, into common stock. 27 > Comprehensive Income: Comprehensive Income is calculated in accordance with FASB Statement No. 130, "Reporting Comprehensive Income." Statement 130 requires unrealized losses on the Company s available-for-sale securities, minimum pension liability adjustments and foreign currency translation adjustments to be included in accumulated other comprehensive income as a component of shareowners equity. > Impact of Recently Issued Accounting Standards: In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company expects to adopt the new Statement effective January 1, 2001. Statement 133 will require the Company to recognize all derivatives on the consolidated balance sheet at fair value. The Company does not anticipate that the adoption of Statement 133 will have a significant effect on its results of operations or financial position. Business Acquisitions Effective January 1, 1999, Maytag acquired all of the outstanding shares of Jade, a manufacturer of commercial ranges, and refrigerators and residential ranges for $19.2 million. In connection with the purchase, Maytag retired debt and incurred transaction costs of $3.6 million and issued 289 thousand shares of Maytag common stock at a value of $15.6 million. The acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price over the fair values of net assets acquired was approximately $17 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 20 years. In the fourth quarter of 1998, Rongshida-Maytag acquired all of the outstanding shares of Three-Gorges, a manufacturer of home laundry products in China. This business produces and markets home laundry equipment and has annual sales of approximately $15 million. In connection with the purchase, Rongshida- Maytag assumed $8 million in notes payable and long-term debt. This acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price (consisting only of assumed notes payable and long-term debt) over the fair values of net assets acquired was approximately $2 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. On October 1, 1997, the Company acquired all of the outstanding shares of G.S. Blodgett Corporation, a manufacturer of commercial ovens, fryers and charbroilers for the food service industry, for $96.4 million. In connection with the purchase, the Company also incurred transaction costs of $4.2 million and retired debt of approximately $53.2 million. As a result, the total cost of the business acquired was $148.3 million, net of cash acquired of $5.5 million. The Company funded this acquisition through cash provided by operating activities and borrowings. This business, which had annual sales of approximately $135 million, produces and markets commercial cooking equipment primarily under the Blodgett and Pitco Frialator brands. This acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price over the fair values of net assets acquired was approximately $120 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. 28 Consolidated pro forma net sales, income and earnings per share would not have been materially different from the reported amounts for 1999 and 1998. Such unaudited pro forma amounts are not indicative of what the actual consolidated results of operations might have been if the acquisitions had been effective at the beginning of January 1, 1999 and January 1, 1998, respectively. Inventories Inventories consisted of the following: December 31 In thousands 1999 1998 Raw materials $ 66,731 $ 69,039 Work in process 72,162 66,578 Finished goods 335,844 317,331 Supplies 9,615 8,856 Total FIFO cost 484,352 461,804 Less excess of FIFO cost over LIFO 80,232 78,051 Inventories $ 404,120 $ 383,753 Income Taxes Deferred income taxes reflect the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities consisted of the following: December 31 In thousands 1999 1998 Deferred tax assets (liabilities): Property, plant and equipment $ (65,088) $ (63,940) Postretirement benefit liability 178,015 180,349 Product warranty/liability accruals 36,381 30,092 Pensions and other employee benefits 4,385 20,879 Advertising and sales promotion accruals 10,426 9,868 Interest rate swaps 9,023 11,620 Other - net (8,543) (4,805) 164,599 184,063 Less valuation allowance for deferred tax assets 45,357 45,967 Net deferred tax assets $ 119,242 $ 138,096 Recognized in Consolidated Balance Sheets: Deferred tax assets - current $ 35,484 $ 39,014 Deferred tax assets - noncurrent 106,600 120,273 Deferred tax liabilities - noncurrent (22,842) (21,191) Net deferred tax assets $ 119,242 $ 138,096 Components of the provision (benefit) for income taxes consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Current provision (benefit): Federal $ 161,400 $ 157,900 $ 86,300 State 13,200 21,500 11,200 Non-United States (1,400) (100) 2,200 173,200 179,300 99,700 Deferred provision (benefit): Federal 12,800 (2,800) 8,400 State 9,200 (400) 1,700 Non-United States (100) 21,900 (3,200) 10,100 Provision for income taxes $ 195,100 $ 176,100 $ 109,800 29 The reconciliation of the United States federal statutory tax rate to the Company's effective tax rate consisted of the following: Year Ended December 31 1999 1998 1997 U.S. statutory rate applied to income before income taxes, minority interest and extraordinary item 35.0% 35.0% 35.0% Increase (reduction) resulting from: Utilization of capital loss carryforward (9.6) Deferred tax asset valuation allowance 9.6 Amortization of goodwill 0.9 0.9 1.1 Difference due to minority interest (0.8) (0.7) (0.8) State income taxes, net of federal tax benefit 2.7 2.9 2.8 Other - net (1.0) (0.7) (1.6) Effective tax rate 36.8% 37.4% 36.5% Since the Company plans to continue to finance expansion and operating requirements of subsidiaries outside the United States through reinvestment of the undistributed earnings of these subsidiaries (approximately $9 million at December 31, 1999), taxes which would result from distribution have only been provided on the portion of such earnings estimated to be distributed in the future. If such earnings were distributed beyond the amount for which taxes have been provided, additional taxes payable would be eliminated substantially by available tax credits arising from taxes paid outside the United States. Income taxes paid, net of refunds received, during 1999, 1998 and 1997 were $170 million, $154 million and $107 million, respectively. The tax effect of the minimum pension liability adjustment component of comprehensive income was $2.6 million in 1999. The tax effects of the unrealized losses on securities and foreign currency translation adjustment components of comprehensive income were recorded as deferred tax assets with a corresponding valuation allowance. The Company believes the realization of unrealized losses on securities and foreign currency translation adjustments would be classified as capital losses for tax purposes and no capital gain would be available to the Company to utilize the losses. Notes Payable Notes payable at December 31, 1999 consisted of notes payable to foreign banks of $55.1 million and commercial paper borrowings of $77.9 million. The weighted average interest rate on all notes payable to foreign banks and commercial paper borrowings was 6.0 percent at December 31, 1999. Notes payable at December 31, 1998 consisted of notes payable to foreign banks of $59.8 million and commercial paper borrowings of $53.1 million. The weighted average interest rate on all notes payable to foreign banks and commercial paper borrowings was 7.0 percent at December 31, 1998. The Company's commercial paper program is supported by a credit agreement with a consortium of banks which provides revolving credit facilities totalling $400 million. This agreement expires June 29, 2001 and includes covenants for interest coverage and leverage which the Company was in compliance with at December 31, 1999. 30 Long-Term Debt Long-term debt consisted of the following: December 31 In thousands 1999 1998 Notes payable with interest payable semiannually: Due May 15, 2002 at 9.75% $ 125,358 $ 125,358 Due July 15, 1999 at 8.875% 116,820 Medium-term notes, maturing from 2000 to 2010, from 5.30% to 9.03% with interest payable semiannually 149,230 125,230 Medium-term notes, maturing from 2000 to 2001, with interest adjusted each quarter based on LIBOR and payable quarterly 185,000 160,000 Employee stock ownership plan notes payable semiannually through July 2, 2004 at 5.13% 35,300 42,360 Other 13,349 16,913 508,237 586,681 Less current portion of long-term debt 170,473 140,176 Long-term debt $ 337,764 $ 446,505 The $125.4 million of notes payable and $84.2 million of the medium-term notes grant the holders the right to require the Company to repurchase all or any portion of their notes at 100 percent of the principal amount thereof, together with accrued interest, following the occurrence of both a change of Company control and a credit rating decline to below investment grade. Interest paid during 1999, 1998 and 1997 was $63.1 million, $64 million and $65.1 million, respectively. When applicable, the Company capitalizes interest incurred on funds used to construct property, plant and equipment. Interest capitalized during 1997 was $4.2 million. Interest capitalized during 1999 and 1998 was not significant. The aggregate maturities of long-term debt in each of the next five years and thereafter are as follows (in thousands): 2000--$170,473; 2001--$64,534; 2002--$133,542; 2003--$43,276; 2004--$25,327; thereafter--$71,085. In 1999, the Company issued a $24 million medium-term note with a fixed interest rate of 6 percent due January 26, 2009. The Company also entered into an interest rate swap contract to exchange the interest rate payments associated with this medium-term note to variable rate payments based on LIBOR. For additional disclosures regarding the Company's interest rate swap contracts. (See "Financial Instruments" section in the Notes to Consolidated Financial Statements.) The Company also issued a $40 million medium-term note with a floating interest rate based on LIBOR with the interest rate reset quarterly due September 17, 2001. As of December 31, 1999, the floating interest rates based on LIBOR for the $185 million medium-term notes ranged from 6.20 percent to 6.81 percent. In 1998, the Company issued a $16 million medium-term note with a fixed interest rate of 5.30 percent due September 29, 2000. The Company also issued a $70 million medium-term note with a floating rate based on LIBOR with the interest rate reset quarterly due May 10, 2000. The Company also issued a $15 million medium-term note with a floating rate based on LIBOR due December 3, 1999. In 1998, the Company made early retirements of debt totalling $71.1 million at an after-tax cost of $5.9 million (net of income tax benefit of $3.5 million). Included in this amount was $22.1 million of the 9.75 percent notes due May 15, 2002, $31.7 million of the 8.875 percent notes due July 15, 1999 and $17.3 million of medium-term notes. In 1997, the Company issued a $75 million medium-term note maturing in 2009 which has an interest rate based on three month LIBOR through November 1999. In 1999, the Company modified the agreement to establish a maturity date of February 15, 2000 and reset the interest rate to 6.81 percent based on three 31 month LIBOR. The Company has the option to extend the maturity of the note, subject to a reset of the interest rate, for three month terms after February 15, 2000. In 1997, the Company also reissued $49.3 million of 5.13 percent employee stock ownership plan notes. In 1997, the Company made early retirements of debt of $61.8 million at an after-tax cost of $3.2 million (net of income tax benefit of $2.0 million). Included in this amount was $12.5 million of the 9.75 percent notes due May 15, 2002 and $49.3 million of 9.35 percent employee stock ownership plan notes. The 1998 and 1997 charges for the early retirement of debt have been reflected in the Consolidated Statements of Income as extraordinary items. Accrued Liabilities Accrued liabilities consisted of the following: December 31 In thousands 1999 1998 Warranties $ 62,459 $ 46,162 Advertising and sales promotion 51,377 59,036 Other 80,238 71,503 Accrued liabilities $ 194,074 $ 176,701 Pension Benefits The Company provides noncontributory defined benefit pension plans for most employees. Plans covering salaried and management employees generally provide pension benefits that are based on an average of the employee's earnings and credited service. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company's funding policy for the plans is to contribute amounts sufficient to meet the minimum funding requirement of the Employee Retirement Income Security Act of 1974, plus any additional amounts which the Company may determine to be appropriate. The reconciliation of the beginning and ending balances of the projected benefit obligation, reconciliation of the beginning and ending balances of the fair value of plan assets, funded status of plans and amounts recognized in the Consolidated Balance Sheets consisted of the following: December 31 In thousands 1999 1998 Change in projected benefit obligation: Benefit obligation at beginning of year $ 1,094,284 $ 983,705 Service cost 27,044 22,223 Interest cost 74,406 69,615 Amendments 16,442 18,977 Actuarial loss 24,013 65,333 Benefits paid (69,918) (65,362) Curtailments/settlements 116 431 Other (foreign currency) 562 (638) Benefit obligation at end of year 1,166,949 1,094,284 32 Change in plan assets: Fair value of plan assets at beginning of year 946,615 892,326 Actual return of plan assets 117,272 106,479 Employer contribution 38,529 13,905 Benefits paid (69,918) (65,362) Other (foreign currency) 599 (733) Fair value of plan assets at end of year 1,033,097 946,615 Funded status of plan (133,852) (147,669) Unrecognized actuarial loss 53,009 69,915 Unrecognized prior service cost 87,431 83,460 Unrecognized transition assets (5,957) (11,156) Net amount recognized $ 631 $ (5,450) Amounts recognized in the Consolidated Balance Sheets consisted of: Prepaid pension cost $ 1,487 $ 1,399 Intangible pension asset 48,668 62,811 Accrued pension cost (56,528) (69,660) Accumulated other comprehensive income 7,004 Net pension asset (liability) $ 631 $ (5,450) Assumptions used in determining net periodic pension cost for the plans in the United States consisted of the following: 1999 1998 1997 Discount rates 6.75% 7.25% 7.50% Rates of increase in compensation levels 4.50% 5.00% 5.00% Expected long-term rate of return on assets 9.50% 9.50% 9.50% For the valuation of projected benefit obligation at December 31, 1999 set forth in the table above, and for determining net periodic pension cost in 2000, the discount rate was increased to 7.75 percent and the rate of compensation was increased to 5.25 percent. Assumptions for plans outside the United States are comparable to the above in all periods. The actuarial loss in the projected benefit obligation in 1999 was primarily due to changes in assumptions for mortality rates, retirement ages and rates of increases in compensation levels partially offset by the actuarial gain from the increase in the discount rate used for the valuation of the projected benefit obligation at December 31, 1999. The actuarial loss in the projected benefit obligation in 1998 was due primarily to the decrease in the discount rate used for the valuation of the projected benefit obligation at December 31, 1998 partially offset by the change in assumption for the rates of increases in compensation levels. The Company amended its pension plans in 1999 and 1998 to include several benefit improvements for plans covering salaried and hourly employees. 33 The components of net periodic pension cost consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Components of net periodic pension cost: Service cost $ 27,044 $ 22,223 $ 19,628 Interest cost 74,406 69,615 66,550 Expected return on plan assets (80,513) (74,979) (70,301) Amortization of transition assets (5,214) (4,798) (5,097) Amortization of prior service cost 12,507 10,059 10,078 Recognized actuarial loss 4,189 867 794 Curtailments/settlements 116 936 387 Net periodic pension cost $ 32,535 $ 23,923 $ 22,039 The recognized actuarial loss in 1999 reflects differences between actual experience and actuarial assumptions primarily for rates of compensation increases and retirement ages. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $1,157,410, $1,078,711 and $1,022,275, respectively, as of December 31, 1999, and $1,085,044, $1,006,848 and $937,283, respectively, as of December 31, 1998. Postretirement Benefits The Company provides postretirement health care and life insurance benefits for certain employee groups in the U.S. Most of the postretirement plans are contributory and contain certain other cost sharing features such as deductibles and coinsurance. The plans are unfunded. Employees do not vest and these benefits are subject to change. Death benefits for certain retired employees are funded as part of, and paid out of, pension plans. The reconciliation of the beginning and ending balances of the accumulated benefit obligation, reconciliation of the beginning and ending balances of the fair value of plan assets, funded status of plans and amounts recognized in the Consolidated Balance Sheets consisted of the following: December 31 In thousands 1999 1998 Change in accumulated benefit obligation: Benefit obligation at beginning of year $ 424,244 $ 381,690 Service cost 14,390 12,895 Interest cost 27,282 26,613 Actuarial loss (gain) (13,837) 25,590 Benefits paid (27,255) (22,544) Benefit obligation at end of year 424,824 424,244 Change in plan assets: Fair value of plan assets at beginning of year -- -- Employer contribution 27,255 22,544 Benefits paid (27,255) (22,544) Fair value of plan assets at end of year -- -- 34 Funded status of plan (424,824) (424,244) Unrecognized actuarial gain (40,392) (26,491) Unrecognized prior service cost (2,170) (9,864) Postretirement benefit liability $ -467386 $ -460599 Assumptions used in determining net periodic postretirement benefit cost consisted of the following: 1999 1998 1997 Health care cost trend rates(1): Current year 6.00% 6.50% 7.00% Decreasing gradually to the year 2001 and remaining thereafter 5.00% 5.00% 5.00% Discount rates 6.75% 7.25% 7.50% (1) Weighted-average annual assumed rate of increase in the per capita cost of covered benefits. For the valuation of accumulated benefit obligation at December 31, 1999 set forth in the table above, and for determining net postretirement benefit costs in 2000, the discount rate was increased to 7.75 percent and the health care cost trend rates were assumed to be 5.5 percent for 2000 decreasing gradually to 5.0 percent in the year 2001 and remaining thereafter. The actuarial gain in the projected benefit obligation in 1999 was primarily due to the increase in the discount rate used for the valuation of the projected benefit obligation at December 31, 1999. The actuarial loss in the projected benefit obligation in 1998 was primarily due to the decrease in the discount rate used for the valuation of the projected benefit obligation at December 31, 1998. The components of net periodic postretirement cost consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Components of net periodic postretirement cost: Service cost $ 14,390 $ 12,895 $ 12,491 Interest cost 27,282 26,613 26,588 Amortization of prior service cost (7,629) (8,975) (10,168) Recognized actuarial gain (1,780) (1,550) Net periodic postretirement $ 34,043 $ 28,753 $ 27,361 cost The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage change in assumed health care cost trend rates effect consisted of the following: 1-Percentage- 1-Percentage- Point Point In thousands Increase Decrease Effect on total of postretirement service and interest cost components $ 6,531 (5,687) Effect on postretirement benefit obligation 47,070 (42,355) 35 Leases The Company leases buildings, machinery, equipment and automobiles under operating leases. Rental expense for operating leases amounted to $25.8 million, $25.9 million and $23.3 million for 1999, 1998 and 1997, respectively. Future minimum lease payments for operating leases as of December 31, 1999 consisted of the following: Year Ending In thousands 2000 $ 14,407 2001 10,592 2002 8,524 2003 7,669 2004 4,314 Thereafter 10,875 Total minimum lease payments $ 56,381 Financial Instruments The Company uses foreign exchange forward and option contracts to manage certain foreign exchange exposure to transactions, assets and liabilities that are subject to risk from foreign currency rate changes. The counterparties to the contracts are high credit quality international financial institutions. During 1999, 1998 and 1997, the Company used foreign exchange forward and option contracts for the exchange of Canadian dollars to U.S. dollars to hedge the sale of appliances manufactured in the U.S. and sold to Canadian customers. Gains and losses recognized from these contracts were not significant. As of December 31, 1999 and 1998, the Company had open foreign currency forward contracts for the exchange of Canadian dollars, all having maturities less than twelve months, in the amount of U.S. $68.4 million and U.S. $70.4 million, respectively. In 1999, the Company entered into commodity swap agreements for hedging purposes to reduce the effect of changing raw material prices. Gains and losses on the swap agreements are deferred until settlement and recorded as a component of cost of goods sold when settled. The notional amounts of the commodity swap agreements are based on anticipated raw material purchases and expire during 2000 and 2001. Gains and losses recognized from these contracts were not significant. The Company has a trading program of interest rate swaps which it marks to market each period. The swap transactions involve the exchange of Canadian variable interest and fixed interest rate instruments. The counterparty is a single financial institution of the highest credit quality. All swaps are executed under an International Swap and Derivatives Association, Inc. (ISDA) master netting agreement. The Company had five swap transactions outstanding which mature by 2003 with a total notional amount of $74.1 million as of December 31, 1999 and 80.1 million as of December 31, 1998. The fair value of the swap positions of $23.7 million at December 31, 1999 and $29.7 million at December 31, 1998 is reflected in Other noncurrent liabilities in the Consolidated Balance Sheets. The value of these individual swaps is dependent upon movements in the Canadian and U.S. interest rates. As the portfolio of interest rate swaps outstanding at December 31, 1999 is configured, there would be no measurable impact on the net market value of the swap transactions outstanding with any future changes in interest rates. In 1999, 1998 and 1997 the Company incurred $7.5 million, $7.5 million and $7.6 million, respectively of net interest expense in payment on the exchange position of these swap transactions. Additionally, in 1999, 1998 and 1997 the Company recognized mark to market gains of $6 million, $5.6 million and $5.4 million, repectively which are reflected in Other-net in the Consolidated Statements of Income. In 1999, the Company entered into interest rate swap contracts to adjust 36 the proportion of total debt that is subject to variable and fixed interest rates. The swaps involve the exchange of fixed and variable rate payments without exchanging the notional principal amount. At December 31, 1999, the Company had outstanding interest rate swap agreements with notional amounts totalling $124 million. Under these agreements, the Company receives weighted average fixed interest rates of 6.24 percent and pays floating interest rates based on three month LIBOR rates, or a weighted average interest rate of 6.05 percent, as of December 31, 1999. The net interest expense associated with the interest rate swap contracts was not significant. Financial instruments which subject the Company to concentrations of credit risk primarily consist of accounts receivable from customers. The majority of the Company s sales are derived from the home appliances segment which sells predominantly to retailers. These retail customers range from major national retailers to independent retail dealers and distributors. In some instances, the Company retains a security interest in the product sold to customers. In addition, the Company insures a certain portion of the accounts receivable. While the Company has experienced losses in collection of accounts receivables due to business failures in the retail environment, the assessed credit risk for existing accounts receivable is provided for in the allowance for doubtful accounts. The Company used various assumptions and methods in estimating fair value disclosures for financial instruments. The carrying amounts of cash and cash equivalents, accounts receivable and notes payable approximated their fair value due to the short maturity of these instruments. The fair values of long-term debt were estimated based on quoted market prices, if available, or quoted market prices of comparable instruments. The fair values of interest rate swaps, foreign currency contracts, commodity swaps, forward stock purchase contracts and put option contracts were estimated based on amounts the Company would pay to terminate the contracts at the reporting date. The carrying amounts and fair values of the Company's financial instruments, consisted of the following: December 31, 1999 December 31, 1998 Carrying Fair Carrying Fair In thousands Amount Value Amount Value Cash and cash equivalents $ 28,815 $ 28,815 $ 28,642 $ 28,642 Accounts receivable 494,747 494,747 472,979 472,979 Notes payable (133,041) (133,041) (112,898) (112,898) Long-term debt (508,237) (516,942) (586,681) (620,230) Interest rate swaps - trading (23,692) (23,692) (29,665) (29,665) Interest rate swaps - non-trading (1,337) Foreign currency contracts (483) (483) 305 305 Commodity swap contracts 2,432 Forward stock purchase contracts (Company settlement choice) (9,595) (64,520) Forward stock purchase contracts (Net cash settlement) 2,570 2,570 Put option contracts (80,845) (4,054) 37 For additional disclosures regarding the Company's notes payable, see Notes Payable section in the Notes to Consolidated Financial Statements. For additional disclosures regarding the Company's long-term debt, see Long-Term Debt section in the Notes to Consolidated Financial Statements. For additional disclosures regarding the Company's forward stock purchase contracts and put option contracts, see Shareowners' Equity section in the Notes to Consolidated Financial Statements. Company Obligated Manditorily Redeemable Preferred Capital Securities of Subsidiary Trust Holding Solely the Company's Debentures and Minority Interest In the third and fourth quarters of 1999, Maytag together with two newly established business trusts, issued units comprised of (a) a preferred security of each Maytag Trusts which provides for a 6.85 and 6.3 percent per annum distribution, respectively and (b) a purchase contract requiring the unitholder to purchase shares of Maytag common stock from Maytag on November 15, 2002 and June 30, 2002, respectively. An outside investor purchased the units for a noncontrolling interest in the Maytag Trusts in the aggregate for $200 million. The Maytag Trusts used the proceeds from the sale of the units, in addition to $6 million aggregate capital contributions from Maytag, to purchase $103 million of 6.85 percent Maytag debentures due November 15, 2004 and $103 million of 6.3 percent Maytag debentures due June 30, 2004. The terms of the debentures parallel the terms of the preferred securities issued by the Maytag Trusts. The applicable distribution rate on the preferred securities of the Maytag Trusts that remain outstanding after November 15, 2002 and June 30, 2002, respectively, will be reset to reflect changes in the market for such securities. Under the purchase contracts, Maytag will pay the holder contract adjustment payments at a rate of 4.265 percent and 3.359 percent of the stated amount of units per annum, respectively. Under the purchase contract Maytag will issue shares of Maytag common stock for a total purchase price of $200 million. The maximum number of shares Maytag will be required to deliver to the holder, for the cumulative purchase price of $200 million is approximately 4.4 million shares, reflecting a minimum issuance price of $45 per share. If the share price is above $45 per share at the time of settlement, Maytag will issue fewer shares in exchange for the purchase price of $200 million. The Company s objective in this transaction is to raise low-cost, equity funds. For financial reporting purposes, the results of the trusts (other than those which are eliminated in consolidation) are included in the Company's consolidated financial statements. The outside investor s noncontrolling interest in the Maytag Trust of $200 million is reflected in "Company obligated manditorily redeemable preferred capital securities of subsidiary trust holding solely the Company's debentures" in the Consolidated Balance Sheets. The income attributable to such noncontrolling interest is reflected in Minority Interest in the Consolidated Statements of Income. In the third quarter of 1997, the Company and a wholly-owned subsidiary of the Company contributed intellectual property and know-how with an appraised value of $100 million and other assets with a market value of $54 million to Anvil Technologies LLC ("LLC"), a newly formed Delaware limited liability company. An outside investor purchased from the Company a noncontrolling, member interest in the LLC for $100 million. The Company's objective in this transaction was to raise low-cost, equity funds. For financial reporting purposes, the results of the LLC (other than those which are eliminated in consolidation) are included in the Company's consolidated financial statements. In 1996, the Company invested approximately $35 million and committed additional cash investments of approximately $35 million to acquire a 50.5 percent ownership in Rongshida-Maytag, a manufacturer of home appliances in China. The Company's joint venture partner also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and 38 $9 million were contributed in 1998, 1997 and 1996, respectively. The results of this majority-owned joint venture in China are included in the Company's consolidated financial statements. The (income)/loss attributable to the noncontrolling interest reflected in Minority interest in the Consolidated Statements of Income consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Rongshida-Maytag $ 4,027 $ (827)$ (3,991) Maytag Trusts (3,791) Anvil Technologies LLC (7,459) (7,448) (3,274) Minority interest $ (7,223)$ (8,275)$ (7,265) The outside investors' noncontrolling interest reflected in Minority interest in the Consolidated Balance Sheets consisted of the following: Year Ended December 31 In thousands 1999 1998 Rongshida-Maytag $ 69,742 $ 74,035 Anvil Technologies LLC 100,046 100,020 Minority interest $ 169,788 $ 174,055 Stock Plans The 1996 Employee Stock Incentive Plan provides that the Company may grant to eligible employees stock options, restricted stock and other incentive awards. Up to 6.5 million shares of common stock may be granted under the plan, of which no more than 2.5 million shares may be granted as restricted stock. The vesting period and terms of stock options granted are established by the Compensation Committee of the Board of Directors. Generally, the options become exercisable three years after the date of grant and have a maximum term of 10 years. There are stock options and restricted stock outstanding that were granted under previous plans with terms similar to the 1996 plan. In 1998, the shareowners approved the 1998 Non-Employee Directors' Stock Option Plan which replaced the 1989 Non-Employee Directors Stock Option Plan. The plan authorizes the issuance of up to 500,000 shares of Common stock to the Company's non-employee directors. Stock options under this plan are immediately exercisable upon grant and generally have a maximum term of five years. In the event of a change of Company control, all outstanding stock options become immediately exercisable under the above described plans. There were 821,212 and 2,404,563 shares available for future stock grants at December 31, 1999 and 1998, respectively. The Company has elected to follow APB 25, "Accounting for Stock Issued to Employees," and recognizes no compensation expense for stock options as the option price under the plan equals the fair market value of the underlying stock at the date of grant. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these stock options was estimated at the date of grant using a Black- Scholes option pricing model. 39 The Company's weighted-average assumptions consisted of the following: 1999 1998 1997 Risk-free interest rate 6.04% 5.08% 5.85% Dividend yield 1.50% 1.13% 1.75% Stock price volatility factor 0.25 0.25 0.25 Weighted-average expected life (years) 5 5 5 Weighted-average fair value of options granted $13.31 $13.09 $8.67 For purposes of pro forma disclosures, the estimated fair value of options granted is amortized to expense over the options' vesting period. The pro forma effect on net income is not representative of the pro forma effect on net income in future years because grants made in 1996 and later years have an increasing vesting period. The Company's pro forma information consisted of the following: In thousands except per share data 1999 1998 1997 Net income - as reported $328,528 $280,610 $180,290 Net income - pro forma 321,090 275,672 178,159 Basic earnings per share - as reported 3.80 3.05 1.87 Diluted earnings per share - as reported 3.66 2.99 1.84 Basic earnings per share - pro forma 3.71 3.00 1.84 Diluted earnings per share - pro forma 3.58 2.93 1.82 Stock option activity consisted of the following: Average Option Price Shares Outstanding December 31, 1996 $ 17.54 5,396,371 Granted 30.87 1,284,460 Exercised 16.44 (1,424,657) Exchanged for SAR 16.46 (3,305) Canceled or expired 18.04 (30,230) Outstanding December 31, 1997 21.12 5,222,639 Granted 46.39 912,195 Exercised 17.14 (755,083) Exchanged for SAR 16.83 (520) Canceled or expired 20.91 (75,180) Outstanding December 31, 1998 26.03 5,304,051 Granted 46.08 2,043,952 Exercised 19.62 (437,400) Exchanged for SAR 15.80 (1,440) Canceled or expired 26.27 (71,700) Outstanding December 31, 1999 $ 32.44 6,837,463 Exercisable options December 31, 1997 $ 16.87 2,185,229 December 31, 1998 17.77 1,523,060 December 31, 1999 19.30 2,847,772 40 Information with respect to stock options outstanding and stock options exercisable as of December 31, 1999 consisted of the following: Options Outstanding Options Exercisable Weighted Weighted Weighted Range of Average Average Average Exercise Number Remaining Exercise Number Exercise Prices Outstanding Life Price Exercisable Price $10.94-$16.88 463,107 3.5 $15.25 463,107 $15.25 $17.63-$31.56 3,465,005 6.9 23.11 2,321,665 18.95 $42.88-$46.34 2,807,634 9.4 45.77 $51.91-$70.94 101,717 5.9 60.11 63,000 61.87 6,837,463 2,847,772 Some stock options were granted with stock appreciation rights (SAR) which entitle the employee to surrender the right to receive up to one-half of the shares covered by the option and to receive a cash payment equal to the difference between the stock option price and the market value of the shares being surrendered. Stock options with a SAR outstanding were 41,285 at December 31, 1999, 69,465 at December 31, 1998 and 122,850 at December 31, 1997. The Company issues restricted stock and stock units to certain executives that vest over a three-year period based on achievement of pre-established financial objectives. Restricted stock is paid out in shares and the stock units are paid out in cash. Restricted stock shares outstanding at December 31, 1999, 1998 and 1997 were 253,290, 311,960 and 409,634, respectively. Restricted stock units outstanding at December 31, 1999, 1998 and 1997 were 175,016, 217,186 and 289,272, respectively. The expense for the anticipated restricted stock and stock unit payout is amortized over the three-year vesting period and was $8.2 million, $11.8 million and $7.6 million in 1999, 1998 and 1997, respectively. The number of shares of restricted stock issued in 1999 was 54,863 with a fair value at date of grant of $3.4 million. The number of stock units issued in 1999 was 36,578 with a fair value at date of grant of $2.3 million. Employee Stock Ownership Plan The Company established an Employee Stock Option Plan (ESOP), and a related trust issued debt and used the proceeds to acquire shares of the Company's stock for future allocation to ESOP participants. ESOP participants generally consist of all U.S. employees except certain groups covered by a collective bargaining agreement. The Company guarantees the ESOP debt and reflects it in the Consolidated Balance Sheets as Long-term debt with a related amount shown in the Shareowners' equity section as part of Employee stock plans. Dividends earned on the allocated and unallocated ESOP shares are used to service the debt. The Company is obligated to make annual contributions to the ESOP trust to the extent the dividends earned on the shares are less than the debt service requirements. As the debt is repaid, shares are released and allocated to plan participants based on the ratio of the current year debt service payment to the total debt service payments over the life of the loan. If the shares released are less than the shares earned by the employees, the Company contributes additional shares to the ESOP trust to meet the shortfall. All shares held by the ESOP trust are considered outstanding for earnings per share computations and dividends earned on the shares are recorded as a reduction of retained earnings. 41 The ESOP shares held in trust consisted of the following: December 31 1999 1998 Original shares held in trust: Released and allocated 1,932,055 1,700,757 Unreleased shares (fair value; 1999--$44,404,224; 1998--$71,985,029) 925,088 1,156,386 2,857,143 2,857,143 Additional shares contributed and allocated 666,295 666,295 Shares withdrawn (597,530) (514,211) Total shares held in trust 2,925,908 3,009,227 The components of the total contribution to the ESOP trust consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Debt service requirement $ 8,963 $ 9,325 $ 9,831 Dividends earned on ESOP shares (2,150) (2,086) (1,960) Cash contribution to ESOP trust 6,813 7,239 7,871 Fair market value of additional shares contributed 6 726 Total contribution to ESOP trust $ 6,813 $ 7,245 $ 8,597 The components of expense recognized by the Company for the ESOP contribution consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Contribution classified as interest expense $ 1,903 $ 2,265 $ 4,636 Contribution classified as compensation expense 4,910 4,980 3,961 Total expense for the ESOP contribution $ 6,813 $ 7,245 $ 8,597 Shareowners' Equity The share activity of the Company's common stock consisted of the following: December 31 In thousands 1999 1998 1997 Common stock Balance at beginning of period 117,151 117,151 117,151 Balance at end of period 117,151 117,151 117,151 Treasury stock Balance at beginning of period (27,933) (22,465) (19,106) Purchase of common stock for treasury (7,500) (6,300) (5,000) Stock issued under stock option plans 448 760 1,374 Stock issued under restricted stock awards, net 70 52 151 Additional ESOP shares issued 20 116 Stock issued in business acquisition 289 Balance at end of period (34,626) (27,933) (22,465) During 1999, Maytag's board of directors authorized the repurchase of up to 20 million additional shares beyond the previous authorizations commencing in 1995 totalling 30.8 million shares. During 1999, Maytag repurchased 7.5 million shares associated with the share repurchase program at a cost of $410 million. As of December 31, 1999, of the 21.2 million shares which may be repurchased under the existing board authorizations, Maytag is contingently obligated to purchase 8.6 million shares under put options contracts, if such options are 42 exercised. (See discussion of these put option contracts below.) In addition, in the fourth quarter of 1999, Maytag entered into forward stock purchase agreements to repurchase three million shares of Maytag stock. (See discussion of these forward contracts below.) During the third quarter of 1999, Maytag amended the forward stock purchase agreement entered into during 1997 to repurchase four million shares at a net cost of $21 million. As a result of this amendment, the ultimate settlement cost at the settlement date of August 2002 is approximately $10 million. Maytag previously amended this forward stock purchase agreement during the first quarter of 1998 at a net cost of $64 million. The forward stock purchase contract allows Maytag to determine the method of settlement. Maytag s objective in this transaction is to reduce the average price of repurchased shares. In the fourth quarter of 1999, Maytag entered into forward stock purchase agreements to repurchase three million shares of Maytag stock in the first quarter of 2000 at an average price of $48. These forward stock purchase contracts allow the Company to determine the method of settlement. The Company's objective in these contracts is to reduce the average price of repurchased shares. The fair market value of these contracts was not significant as of December 31, 1999. In connection with the share repurchase program, the Company sells put options which give the purchaser the right to sell shares of the Company's common stock to the Company at specified prices upon exercise of the options on the designated expiration date. The put option contracts allow the Company to determine the method of settlement. The Company's objective in selling put options is to reduce the average price of repurchased shares. In 1999 and 1998, the Company received $45 million and $30 million, respectively, in premium proceeds from the sale of put options. As of December 31, 1999, there were 8.6 million put options outstanding with strike prices ranging from $37.00 to $73.06 (the weighted-average strike price was $53.89). Of the 8.6 million put options outstanding, 3.1 million expire in 2000 with an average strike price of $66, 1.1 million expire in 2001 with an average strike price of $54 and 4.4 million expire in 2002 with an average stike price of $45. In the fourth quarter of 1999, Maytag entered into forward stock purchase agreements to repurchase 300 thousand shares of Maytag stock in the first quarter of 2000 and 2001 at an average price of $39. These forward stock purchase contracts require a net cash settlement. The Company's objective in these contracts is to offset the impact of fluctuations in stock-based compensation that result from changes in the market price of Maytag stock. The gains or losses associated with these contracts are recorded in Other-net in the Consolidated Statements of Income. Pursuant to a Shareholder Rights Plan approved by the Company in 1998, each share of common stock carries with it one Right. Until exercisable, the Rights will not be transferable apart from the Company's common stock. When exercisable, each Right will entitle its holder to purchase one one-hundredth of a share of preferred stock of the Company at a price of $165. The Rights will only become exercisable if a person or group acquires 20 percent (which may be reduced to not less than 10 percent at the discretion of the board of directors) or more of the Company's common stock. In the event the Company is acquired in a merger or 50 percent or more of its consolidated assets or earnings power are sold, each Right entitles the holder to purchase common stock of either the surviving or acquired company at one-half its market price. The Rights may be redeemed in whole by the Company at a purchase price of $.01 per Right. The preferred shares will be entitled to 100 times the aggregate per share dividend payable on the Company's common stock and to 100 votes on all matters submitted to a vote of shareowners. The Rights expire May 2, 2008. 43 Supplementary Expense Information Advertising costs and research and development expenses consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Advertising costs $ 170,037 $ 168,483 $ 143,334 Research and development expenses 66,430 59,468 50,201 Earnings Per Share The computation of basic and diluted earnings per share consisted of the following: Year Ended December 31 In thousands except per share data 1999 1998 1997 Numerator: Income before extraordinary item $ 328,528 $ 286,510 $ 183,490 Extraordinary item - loss on early retirement of debt (5,900) (3,200) Numerator for basic and diluted earnings per share - net income $ 328,528 $ 280,610 $ 180,290 Denominator: Denominator for basic earnings per share - weighted-average shares 86,443 91,941 96,565 Effect of dilutive securities: Stock option plans 1,687 1,731 940 Restricted stock awards 170 196 190 Put options 872 Forward stock purchase contract 559 105 360 Potential dilutive common shares 3,288 2,032 1,490 Denominator for diluted earnings per share - adjusted weighted-average shares 89,731 93,973 98,055 Basic earnings per share $ 3.80 $ 3.05 $ 1.87 Diluted earnings per share $ 3.66 $ 2.99 $ 1.84 For additional disclosures regarding stock option plans and restricted stock awards, see "Stock Plans" section in the Notes to Consolidated Financial Statements. For additional disclosures regarding the Company's put options and forward stock purchase contract, see "Shareowners' Equity" section in the Notes to Consolidated Financial Statements. Environmental Remediation The operations of the Company are subject to various federal, state and local laws and regulations intended to protect the environment including regulations related to air and water quality and waste handling and disposal. The Company also has received notices from the U.S. Environmental Protection Agency, state agencies and/or private parties seeking contribution, that it has been identified as a "potentially responsible party" (PRP), under the Comprehensive Environmental Response, Compensation and Liability Act, and may be required to share in the cost of cleanup with respect to such sites. The Company s ultimate liability in connection with those sites may depend on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability and the remediation methods and technology to be used. The Company also has responsibility, subject to specific contractual terms, for environmental claims for assets or businesses which have previously been sold. While it is possible the Company s estimated undiscounted obligation of approximately $11 million for future environmental costs may change in the near 44 term, the Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. The accrual for environmental liabilities is reflected in Other noncurrent liabilities in the Consolidated Balance Sheets. Commitments and Contingencies The Company has contingent liabilities arising in the normal course of business, including pending litigation, environmental remediation, taxes and other claims. The Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. At December 31, 1999, the Company has outstanding commitments for capital expenditures of $36 million. Segment Reporting The Company has three reportable segments: home appliances, commercial appliances and international appliances. The operations of the Company's home appliances segment manufacture major appliances (laundry products, dishwashers, refrigerators, cooking appliances) and floor care products. These products are sold primarily to major national retailers and independent retail dealers in North America and targeted international markets. The operations of the Company's commercial appliances segment manufacture commercial cooking and vending equipment. These products are sold primarily sold to distributors, soft drink bottlers, restaurant chains and dealers in North America and targeted international markets. The international appliances segment consists of the Company's 50.5 percent owned joint venture in China, Rongshida-Maytag, which manufactures laundry products and refrigerators. These products are primarily sold to department stores and distributors in China. The Company's reportable segments are distinguished by the nature of products manufactured and sold and types of customers. The Company's home appliances segment has been further defined based on distinct geographical locations. The Company evaluates performance and allocates resources to reportable segments primarily based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant policies except that the Company allocates pension expense associated with its pension plan to each reportable segment while recording the pension assets and liabilities at corporate. In addition, the Company records its federal and state deferred tax assets and liabilities at corporate. Intersegment sales are not significant. 45 Financial information for the Company's reportable segments consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Net sales Home appliances $3,706,357 $3,482,842 $3,035,593 Commercial appliances 490,916 458,008 249,416 International appliances 126,400 128,440 122,902 Consolidated total $4,323,673 $4,069,290 $3,407,911 Operating income Home appliances $ 562,288 $ 505,110 $ 351,665 Commercial appliances 58,209 49,769 19,437 International appliances (3,313) 5,939 11,605 Total for reportable segments 617,184 560,818 382,707 Corporate (41,691) (38,080) (24,434) Consolidated total $ 575,493 $ 522,738 $ 358,273 Capital expenditures Home appliances $ 117,765 $ 126,019 $ 174,622 Commercial appliances 6,574 9,044 7,412 International appliances 8,961 21,817 32,884 Total for reportable segments 133,300 156,880 214,918 Corporate 14,006 4,371 14,643 Consolidated total $ 147,306 $ 161,251 $ 229,561 Depreciation and amortization Home appliances $ 124,792 $ 129,712 $ 125,125 Commercial appliances 11,366 9,781 5,666 International appliances 9,337 7,533 6,410 Total for reportable segments 145,495 147,026 137,201 Corporate 1,898 1,528 962 Consolidated total $ 147,393 $ 148,554 $ 138,163 Total assets Home appliances $1,792,185 $1,736,396 $1,753,109 Commercial appliances 272,506 266,750 250,440 International appliances 249,581 255,361 220,089 Total for reportable segments 2,314,272 2,258,507 2,223,638 Corporate 322,215 329,156 290,516 Consolidated total $2,636,487 $2,587,663 $2,514,154 Corporate assets includes such items as deferred tax assets, intangible pension assets and other assets. The reconciliation of segment profit to consolidated income before income taxes and minority interest consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Total operating income for reportable segments $ 617,184 $ 560,818 $ 382,707 Corporate (41,691) (38,080) (24,434) Interest expense (59,259) (62,765) (58,995) Other - net 14,617 10,912 1,277 Consolidated income before income taxes, minority interest and extraordinary item $ 530,851 $ 470,885 $ 300,555 46 Financial information related to the Company's operations by geographic area consisted of the following: Year Ended December 31 In thousands 1999 1998 1997 Net sales United States $3,831,608 $3,601,790 $2,983,574 China 126,400 128,440 122,902 Other foreign countries 365,665 339,060 301,435 Consolidated total $4,323,673 $4,069,290 $3,407,911 December 31 In thousands 1999 1998 1997 Long-lived assets United States $ 876,290 $ 867,425 $ 866,316 China 90,413 90,080 67,964 Other foreign countries 9,405 8,089 6,992 Consolidated total $ 976,108 $ 965,594 $ 941,272 Net sales are attributed to countries based on the location of customers. Long-lived assets consist of total property, plant and equipment. 47 Quarterly Results of Operations (Unaudited) The unaudited quarterly results of operations consisted of the following: December September June March In thousands except per share data 31 30 30 31 1999 Net sales $1,062,966 $1,069,132 $1,085,389 $1,106,186 Gross profit 303,954 297,371 322,758 327,337 Net income 71,536 81,774 88,202 87,016 Basic earnings per share 0.86 0.95 1.00 0.98 Diluted earnings per share 0.82 0.92 0.97 0.95 1998 Net sales $972,003 $1,035,202 $1,021,699 $1,040,386 Gross profit 291,791 298,817 287,118 303,901 Income before extraordinary item 68,816 77,440 67,987 72,267 Basic earnings per share 0.77 0.85 0.73 0.77 Diluted earnings per share 0.75 0.84 0.71 0.75 Net income 66,416 73,940 67,987 72,267 Basic earnings per share 0.74 0.82 0.73 0.77 Diluted earnings per share 0.72 0.80 0.71 0.75 In the first quarter of 1999, the Company acquired Jade, a manufacturer of commercial ranges and refrigerators and residential ranges. The results of this operation are consolidated in the Company's financial statements beginning January 1, 1999. In the third quarter of 1998, the Company made early retirements of debt of $50.5 million at an after-tax cost of $3.5 million. In the fourth quarter of 1998, the Company made early retirements of debt of $20.6 million at an after- tax cost of $2.4 million. These charges for the early retirement of debt have been reflected in the Consolidated Statements of Income as extraordinary items. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None PART III Item 10. Directors and Executive Officers of the Registrant. Information concerning directors and officers on pages 2 through 9 of the Proxy Statement of the Company is incorporated herein by reference. Additional information concerning executive officers of the Company is included under "Executive Officers of the Registrant" included in Part I, Item 4. Item 11. Executive Compensation. Information concerning executive compensation on pages 20 through 30 of the Proxy Statement, is incorporated herein by reference; provided that the information contained in the Proxy Statement under the heading "Compensation Committee Report on Executive Compensation" is specifically not incorporated herein by reference. Information concerning director compensation on page 7-8 of the Proxy Statement is incorporated herein by reference, provided that the information contained in the Proxy Statement under the headings "Shareholder Return Performance" and "Other Matters" is specifically not incorporated herein by reference. 48 Item 12. Security Ownership of Certain Beneficial Owners and Management. The security ownership of certain beneficial owners and management is incorporated herein by reference from pages 5 through 7 of the Proxy Statement. Item 13. Certain Relationships and Related Transactions. Information concerning certain relationships and related transactions is incorporated herein by reference from pages 2 through 4 of the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) and (2) The response to this portion of Item 14 is submitted as a separate section of this report in the "List of Financial Statements and Financial Statement Schedules" on page 51. (3) The response to this portion of Item 14 is submitted as a separate section of this report in the "List of Exhibits" on pages 52 through 55. (b) The Company filed a Form 8-K dated November 18, 1999 that announced the resignation of its Chief Financial Officer and other changes in staff to fill out its senior team. (c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report in the "List of Exhibits" on pages 52 through 55. (d) Financial Statement Schedules--The response to this portion of Item 14 is submitted as a separate section of this report in the "List of Financial Statements and Financial Statement Schedules" on page 51. 49 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MAYTAG CORPORATION (Registrant) s/s Lloyd D. Ward Lloyd D. Ward Chairman and Chief Executive Officer Director Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. s/s G. J. Pribanic s/s Steven H. Wood Gerald J. Pribanic Steven H. Wood Executive Vice President and Vice President Financial Reporting Chief Financial Officer and Audit and Chief Accounting Officer s/s Barbara Allen s/s Howard L. Clark Barbara R. Allen Howard L. Clark, Jr. Director Director s/s Lester Crown s/s Wayland R. Hicks Lester Crown Wayland R. Hicks Director Director s/s William T. Kerr s/s Bernard G. Rethore William T. Kerr Bernard G. Rethore Director Director s/s W. Ann Reynolds s/s Neele E. Stearns W. Ann Reynolds Neele E. Stearns, Jr. Director Director s/s Fred G. Steingraber s/s Carole J. Uhrich Fred G. Steingraber Carole J. Uhrich Director Director Date: 50 ANNUAL REPORT ON FORM 10-K Item 14(a)(1), (2) and (3), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES LIST OF EXHIBITS FINANCIAL STATEMENT SCHEDULES Year Ended December 31, 1999 MAYTAG CORPORATION NEWTON, IOWA FORM 10-K--ITEM 14(a)(1), (2) AND ITEM 14(d) MAYTAG CORPORATION LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements and supplementary data of Maytag Corporation and subsidiaries are included in Part II, Item 8: Page Consolidated Statements of Income--Years Ended December 31, 1999, 1998, and 1997 . . . . . . . . . . . . . 20 Consolidated Balance Sheets-- December 31, 1999 and 1998 . . . . . . . . . . . . . . . . 21 Consolidated Statements of Shareowners' Equity--Years Ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . 23 Consolidated Statements of Comprehensive Income-- December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . 24 Consolidated Statements of Cash Flows--Years Ended December 31, 1999, 1998 and 1997 . . . . . . . . . . . . . 25 Notes to Consolidated Financial Statements . . . . . . . . . 26 Quarterly Results of Operations--Years 1999 and 1998 . . . . 48 The following consolidated financial statement schedule of Maytag Corporation and subsidiaries is included in Item 14(d): Schedule II Valuation and Qualifying Accounts . . . . . . 56 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 51 FORM 10-K--ITEM 14(a) (3) AND ITEM 14(c) MAYTAG CORPORATION LIST OF EXHIBITS The following exhibits are filed herewith or incorporated by reference. Items indicated by (1) are considered a compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 3(a) Restated Certificate of Incorporation of 1993 Annual Registrant. Report on Form 10-K 3(b) Certificate of Designations of Series A 1988 Annual Junior Participating Preferred Stock of Report on Registrant. Form 10-K. 3(c) Certificate of Increase of Authorized 1988 Annual Number of Shares of Series A Junior Report on Participating Preferred Stock of Form 10-K. Registrant. 3(d) Certificate of Amendment to Certificate of1997 Annual Designations of Series A Junior Report on Participating Preferred Stock of Form 10-K Registrant. 3(e) By-Laws of Registrant, as amended through 1998 Annual November 12, 1998. Report on Form 10-K 4(a) Rights Agreement dated as of February 12, Form 8-A 1998 between Registrant and Harris Trust dated and Savings Bank. February 12, 1998, Exhibit 1. 4(b) Letter to Shareholders dated February 12, Current 1998 relating to the adoption of a Report on shareholders rights plan with attachments.Form 8-K dated February 12, 1998, Exhibit 1. 4(c) Indenture dated as of June 15, 1987 Quarterly between Registrant and The First National Report on Bank of Chicago. Form 10-Q for the quarter ended June 30, 1987. 52 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 4(d) First Supplemental Indenture dated as of Current September 1, 1989 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated September 28, 1989, Exhibit 4.3. 4(e) Second Supplemental Indenture dated as of Current November 15, 1990 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated November 29, 1990. 4(f) Third Supplemental Indenture dated as of Current August 20, 1996 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated August 20, 1996. 4(g) U.S. $400,000,000 Credit Agreement Dated 1995 Annual as of July 28, 1996 among Registrant, the Report on banks Party Hereto and Bank of Montreal, Form 10-K Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(h) Second Amendment to Credit Agreement Dated1996 Annual as of July 1, 1996 among Registrant, the Report on banks Party Hereto and Bank of Montreal, Form 10-K Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(i) Third Amendment to Credit Agreement Dated 1997 Annual as of June 10, 1997 among Registrant, the Report on banks Party Hereto and Bank of Montreal, Form 10-K Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(j) Fourth Amendment to Credit Agreement Dated as of April 26, 1999 among Registrant, the banks Party Hereto and Bank of Montreal, X Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(k) Copies of instruments defining the rights of holders of long-term debt not required to be filed herewith or incorporated herein by reference will be furnished to the Commission upon request. 10(a) Annual Management Incentive Plan, as 1990 Annual amended through December 21, 1990 (1). Report on Form 10-K 53 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 10(b) Change of Control Agreements (1). X 10(c) Corporate Severance Agreements (1). 1989 Annual Report on Form 10-K. 10(d) Revised definition of Change of Control 1995 Annual adopted by the Board of Directors amendingReport on the definition included in the Corporate Form 10-K Severance Agreements listed in Exhibit 10(c). 10(e) 1989 Non-Employee Directors Stock Option Exhibit A to Plan (1). Registrant's Proxy Statement dated March 18, 1990. 10(f) 1986 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 14, 1986. 10(g) 1992 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 16, 1992. 10(h) 1991 Stock Incentive Award Plan for Key Exhibit A to Executives (1). Registrant's Proxy Statement dated March 15, 1991. 10(i) Directors Deferred Compensation Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K. 10(j) 1996 Employee Stock Incentive Plan (1). Exhibit A to Registrant's Proxy Statement dated March 20, 1996. 54 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 10(k) 1988 Capital Accumulation Plan for Key Amendment No. Employees (1). (Superseded by Deferred 1 on Form 8 Compensation Plan, as amended and restateddated April effective January 1, 1997) 5, 1990 to 1989 Annual Report on Form 10-K. 10(l) Maytag Deferred Compensation Plan, as 1995 Annual amended and restated effective January 1, Report on 1996. Form 10-K 10(m) Directors Retirement Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K. 10(n) 1998 Non-Employee Directors' Stock Option Exhibit A to Plan (1). Registrant's Proxy Statement dated April 2, 1998. 12 Ratio of Earnings to Fixed Charges. X 21 List of Subsidiaries of the Registrant. X 23 Consent of Ernst & Young LLP. X 27 Financial Data Schedule - Twelve Months X Ended December 31, 1999. 55
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Maytag Corporation Thousands of Dollars COL. A COL. B COL. C COL. D COL. E ADDITIONS DESCRIPTION Balance at Deductions-- Balance at End Beginning Charged to Charged to Describe of Period of Period Costs and Other Expenses Accounts-- Describe Year ended December 31, 1999: Allowance for doubtful $ 22,305 $ 6,075 $ 6,163 (1) $ 22,327 accounts receivable (35)(2) (75)(3) $ 22,305 $ 6,075 $ 6,053 $ 22,327 Year ended December 31, 1998: Allowance for doubtful $ 36,386 $ 14,807 $ 29,743 (1) $ 22,305 accounts receivable 73 (2) (928)(4) $ 36,386 $ 14,807 $ 28,888 $ 22,305 Year ended December 31, 1997: Allowance for doubtful $ 13,790 $ 26,212 (5) $ 3,903 (1)(5) $ 36,386 accounts receivable 1 (2) (288)(6) $ 13,790 $ 26,212 $ 3,616 $ 36,386 Note 1 - Uncollectible accounts written off Note 2 - Effect of foreign currency translation Note 3 - Resulting from acquisition of Jade effective January 1, 1999. Note 4 - Resulting from acquisition of Three Gorges in the fourth quarter of 1998. Note 5 - These amounts have been reclassified to conform to 1998 presentation. Note 6 - Resulting from acquisition of G.S. Blodgett Corporation in October 1997.
56 57 EX-4.J 2 FOURTH AMENDMENT TO CREDIT AGREEMENT MAYTAG CORPORATION Exhibit 4(j) Fourth Amendment to Credit Agreement Dated as of April 26, 1999 among Registrant, the banks Party Hereto and Bank of Montreal, Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. Fourth Amendment to Credit Agreement This Fourth Amendment to Credit Agreement (the Amendment) dated as of April 26, 1999 by and among Maytag Corporation (the Borrower), the Banks listed below, and Bank of Montreal as Agent; w i t n e s s e t h: Whereas, the Borrower, the Banks, the Co-Agent and the Agent have heretofore executed and delivered a Credit Agreement dated as of July 28, 1995 (as amended through the Third Amendment thereto dated as of June 10, 1997, the Credit Agreement); and whereas, the Borrower, the Banks and the Agent desire to amend the Credit Agreement as set forth herein; Now, Therefore, for good and valuable consideration the receipt of which is hereby acknowledged, the Borrower, the Banks and the Agent hereby agree as follows: 1. The definition of Eurocurrency Margin contained in Section 1.2(b) of the Credit Agreement is hereby amended in its entirety to read as follows: Eurocurrency Margin means for each Eurocurrency Loan: (i) 0.170% per annum for any day Level I Status exists, (ii) 0.300% per annum for any day Level II Status exists, (iii) 0.375% per annum for any day Level III Status exists, (iv) 0.625% per annum for any day Level IV Status exists and (v) 1.125% per annum for any day Level V Status exists. 2. The first sentence of Section 3.1 of the Credit Agreement is hereby amended in its entirety to read as follows: The Borrower shall pay to the Agent for the ratable account of the Banks, based on their Commitments, a facility fee (computed on the basis of a year of 365 or 366 days, as the case may be, and the actual number of days elapsed) on the average daily amount of the Commitments hereunder (whether used or unused) at a rate of (i) 0.085% per annum for each day Level I Status exists, (ii) 0.100% per annum for each day Level II Status exists, (iii) 0.125% per annum for each day Level III Status exists, (iv) 0.250% per annum for each day Level IV Status exists, and (v) 0.350% per annum for each day Level V Status exists. 3. Section 3.2 of the Credit Agreement is hereby amended by deleting the phrase 1/10th of 1% (0.10%) per annum appearing in the third and fourth lines thereof and inserting in its place: 1/8th of 1% (0.125%) per annum. 4. Section 8.6 of the Credit Agreement is hereby amended by deleting the number 0.60 at the end thereof and inserting in its place the number 0.65. 5. Section 8.7 of the Credit Agreement is hereby amended by deleting the ratio 2.5 to 1.0 at the end thereof and inserting in its place the ratio 3.5 to 1.0. 6. The Borrower represents and warrants to each Bank that (a) each of the representations and warranties set forth in Section 6 of the Credit Agreement, as amended hereby, is true and correct on and as of the date of this Amendment (except that any such representation or warranty that expressly relates solely to an earlier date need only be true and correct as of such date) as if made on and as of the date of this Amendment and as if each reference therein to the Credit Agreement referred to the Credit Agreement as amended hereby, (b) no Default or Event of Default has occurred and is continuing and (c) without limiting the effect of the foregoing, the Borrower s execution, delivery and performance of this Amendment has been duly authorized, and this Amendment has been executed and delivered by a duly authorized officer of the Borrower. 7. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed shall be an original but all of which shall constitute one and the same instrument. This Amendment shall become effective on the date hereof upon the Agent s receipt of counterparts hereof executed by the Borrower and the Required Banks. Except as specifically amended and modified hereby, all of the terms and conditions of the Credit Agreement shall remain unchanged and in full force and effect. No reference to this Amendment need be made in any document making reference to the Credit Agreement, any such reference to the Credit Agreement (including any such reference herein, unless the context otherwise requires) to be deemed to be a reference to the Credit Agreement as amended hereby. All capitalized terms used herein without definition shall have the same meanings herein as they have in the Credit Agreement. This Amendment shall be construed and governed by and in accordance with the laws of the State of Illinois. Dated as of the date first above written. Maytag Corporation By Name Title Bank of Montreal, Chicago Branch, in its individual capacity as a Bank and as Agent By Name Title Royal Bank of Canada, in its individual capacity as a Bank and as Co-Agent By Name Title The First National Bank of Chicago By Name Title The Fuji Bank, Limited By Name Title KeyBank National Association By Name Title PNC Bank, National Association By Name Title The Sumitomo Bank, Limited, Chicago Branch By Name Title Westdeutsche Landesbank Girozentrale, New York Branch By Name Title Mercantile Bank of St. Louis, N.A. By Name Title First American National Bank By Name Title Istituto Bancario San Paolo Di Torino Istituto Mobiliare Italiano Spa By Name Title Banca di Roma, Chicago Branch By Name Title EX-10.B 3 EXECUTIVE SEVERANCE AGREEMENT - 3YR MAYTAG CORPORATION Exhibit 10(b) Executive Severance Agreements. The following executives are covered under this severance agreement: Lloyd Ward Jerry Pribanic Ed Graham John Dupuy Jon Nicholas Dave Urbani Bill Beer Larry Blanford Ron Caldwell Kent Baker Keith Minton Bob Downing Glenn Kelsey Change of Control Agreement THIS AGREEMENT is made this _____________ day of _____________, 1998 (the "Effective Date"), by and between Maytag Corporation, a Delaware corporation (the "Company"), and ---------- (the "Executive"), and shall continue in effect for three full calendar years (through the year 2001 (the Initial Term ). The Initial Term of this agreement automatically shall be extended for one additional year on the first anniversary of the Effective Date, and then again on each anniversary thereafter (each such one-year period following the Initial Term a "Successive Period"). In the event that a "Change of Control" of the Company occurs (as such term is hereinafter defined) during the Initial Term or any Successive Period, upon the effective date of such Change of Control, the term of this agreement shall automatically and irrevocably be renewed for a period of thirty-six (36) full calendar months from the effective date of such Change of Control. This agreement shall thereafter automatically terminate following the thirty-six (36) month Change-of-Control renewal period. Further, this agreement shall be assigned to, and shall be assumed by the purchaser in such Change of Control, as further provided herein in paragraph D5 of the section titled "Agreements." RECITALS A. The Board of Directors of the Company has approved the Company entering into severance agreements with such executives of the Company and its subsidiaries as is determined by the Chairman and Chief Executive Officer. B. Should the Company receive or learn of any proposal by a third person about a possible business combination with the Company or the acquisition of its equity securities, the Board considers it imperative that the Company be able to rely upon the Executive to continue in his or her position. This to the end that the Company be able to receive and rely upon the Executive's advice concerning the best interests of the Company and its stockholders, without concern that person might be distracted by the personal uncertainties and risks created by such a proposal. C. Should the Company receive any such proposals, in addition to the Executive's regular duties, he or she may be called upon to assist in the assessment of such proposals, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate. AGREEMENT NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of that person's advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree that the Executive Severance Agreement described above be amended and restated in its entirety as follows: A. Should a third person, in order to effect a change of control (as defined), begin a tender or exchange offer, circulate a proxy to stockholders or take other steps, the Executive agrees that he or she will not voluntarily leave the employ of the Company, and will render the services contemplated in the recitals to this agreement, until the third person has abandoned or terminated his efforts to effect a change of control or until a change of control has occurred. B. Should the Executive's employment with the Company or its subsidiaries terminate for any reason (either voluntary or involuntary), other than because of death, disability, Cause, or Normal Retirement within three (3) years after a change of control of the Company, or in the event a successor company refuses to accept its obligations under this agreement as required by paragraph D5 herein, the following will be provided: 1. Lump Sum Cash Payment. On or before the Executive's last day of employment with the Company or its subsidiaries, or as soon thereafter as possible, the Company will pay to the Executive as compensation for services rendered, a lump sum cash amount (subject to the usual withholding taxes) equal to (A) three times the sum of (1) the Executive's annual salary at the rate in effect immediately prior to the change of control and (2) the then-current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control) plus (B) an amount equal to the compensation (at the Executive's rate of pay in effect immediately prior to the change of control) payable for any period for which the Executive could have, immediately prior to the date of his termination of employment, been on vacation and received such compensation, for unused and accrued vacation benefits determined under the Company's vacation pay plan or program covering the Executive immediately prior to the change of control. 2. Salaried and Supplemental Executive Retirement Plans. The Executive shall be paid a monthly retirement benefit, in addition to any benefits received under the Salaried Retirement Plans maintained by the Company or its subsidiaries, including The Maytag Corporation Salaried Retirement Plan and any Supplemental Executive Retirement Plan, such benefit to commence on the first to occur of (a) the commencement of payment of benefits under the Maytag Corporation Salaried Retirement Plan or (b) attainment of age 65, but not prior to three (3) years following the date of termination of employment or age 65, whichever first occurs, such benefit to be an amount equal to the excess of (i) the aggregate benefits under such Salaried Retirement Plans to which the Executive would be entitled if he or she remained employed by the Company or its subsidiaries, for an additional period of three (3) years, at the rate of annual compensation specified herein; over (ii) the benefits to which the Executive is actually entitled under such Salaried Retirement Plans. The source of payment of these benefits shall be the general assets of the Company unless the payment of such amounts is otherwise permissible from the corresponding qualified plan trust without violating any governmental regulations or statutes. 3. Life, Dental, Vision, Health and Long-Term Disability Coverage. The Executive's participation in, and entitlement to, benefits under: (i) the life insurance plan of the Company; (ii) all the health insurance plan or plans of the Company or its subsidiaries, including but not limited to those providing major medical and hospitalization benefits, dental benefits and vision benefits; and (iii) the Company's long-term disability plan or plans; as all such plans existed immediately prior to the change of control shall continue as though he or she remained employed by the Corporation or its subsidiaries for an additional period of three (3) years. The applicable COBRA health insurance benefit continuation period shall begin at the end of this three (3) year period. To the extent such participation or entitlement is not possible for any reason whatsoever, equivalent benefits shall be provided. The providing of these benefits by the Company shall be discontinued prior to the end of the three (3) year continuation period in the event that the Executive becomes covered under the insurance programs of a subsequent employer and, with respect to all health insurance plans, provided that such subsequent employer's health insurance plans do not contain any exclusion or limitation with respect to any preexisting condition of the Executive or the Executive's eligible dependents. For purposes of enforcing this offset provision, the Executive shall have a duty to inform the Company as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment. The Executive shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same. 4. Participation in Employee Benefit Plans. Unless otherwise provided, the Executive's participation in any other savings, capital accumulation, retirement, incentive compensation, profit sharing, stock option, and/or stock appreciation rights plans of the Company or any of its subsidiaries shall continue only through the last day of his or her employment. Any terminating distributions and/or vested rights under such plans shall be governed by the terms of those respective plans. Furthermore, the Executive's participation in any insurance plans of the Company and rights to any other fringe benefits shall, except as otherwise specifically provided in such plans or Company policy, terminate as of the close of the Executive's last day of employment, except to the extent specifically provided to the contrary in this agreement. 5. Incentive Plans. In addition to the payments required by paragraph 1 of this Section, the Company shall pay to the Executive as compensation for services rendered cash in an amount equal to the then-current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs, adjusted on a pro rata basis based on the number of days the Executive was actually employed during such bonus plan year (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control). In the case of long-term stock incentive awards represented by restricted shares of stock of the Company, made to Executive under the Maytag Corporation Employee Stock Incentive Plan (any prior plan, or successor plan) in lieu of stock under such stock incentive awards the Executive shall receive a cash payment equal to the aggregate value of the maximum number of shares for which the Executive holds outstanding awards, with share value determined at the closing price as of the date of the change of control. Any payment due pursuant to this paragraph 5 shall be paid at the same time as the amounts payable pursuant to paragraph 1 of this Section. 6. Excise Tax-Additional Payment. (a) Notwithstanding anything in this agreement or any written or unwritten policy of the Company or its subsidiaries to the contrary, (i) if it shall be determined that any payment or distribution by the Company or its subsidiaries to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this agreement, any other agreement between the Company or its subsidiaries and the Executive or otherwise (a "Payment"), would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or (ii) if the Executive shall otherwise become obligated to pay the Excise Tax in respect of a Payment, then the Company shall pay to the Executive an additional payment in an amount to cover the full cost of any Excise Tax and the Executive's state and federal income and employment taxes on this additional payment (cumulatively, the "Gross-Up Payment"). (b) All determinations and computations required to be made under this section B6, including whether a Gross-Up Payment is required under clause (ii) of paragraph B6(a) above, and the amount of any Gross-Up Payment, shall be made by the Company's regularly engaged independent certified public accountants (the "Accounting Firm"). The Company shall cause the Accounting Firm to provide detailed supporting calculations both to the Company and the Executive within 15 business days after such determination or computation is requested by the Executive. Any initial Gross-Up Payment determined pursuant to this paragraph B6 shall be paid by the Company or the subsidiary to the Executive within 5 days of the receipt of the Accounting Firm's determination. A determination that no Excise Tax is payable by the Executive shall not be valid or binding unless accompanied by a written opinion of the Accounting Firm to the Executive that the Executive has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company, its subsidiaries and the Executive, except to the extent the Executive becomes obligated to pay an Excise Tax in respect of a Payment. In the event that the Company or the subsidiary exhausts or waives its remedies pursuant to subparagraph B6(c) and the Executive thereafter shall become obligated to make a payment of any Excise Tax, and if the amount thereof shall exceed the amount, if any, of any Excise Tax computed by the Accounting Firm pursuant to this subparagraph (b) in respect to which an initial Gross-Up Payment was made to the Executive, the Accounting Firm shall within 15 days after Notice thereof determine the amount of such excess Excise Tax and the amount of the additional Gross-Up Payment to the Executive. All expenses and fees of the Accounting Firm incurred by reason of this paragraph B6 shall be paid by the Company. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph B6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company or the subsidiary shall determine; provided, however, that if the Company or the subsidiary directs the Executive to pay such claim and sue for a refund, the Company or the subsidiary shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided, that any extension of the statue of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, control of the contest by the Company or the subsidiary shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to compliance with the requirements of paragraph B6 by the Company or the subsidiary) promptly pay to the Company or the subsidiary the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall off-set, to the extent thereof, the amount of Gross-Up Payment required to be paid. C. Definitions. 1. "Cause." For purposes of this agreement, Cause shall be determined by the Board of Directors, in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (a) A demonstrably willful and deliberate act or failure to act by the Executive (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith, without reasonable belief that such action or inaction is in the best interests of the Company, which causes actual material financial injury to the Company and which act or inaction is not remedied within fifteen (15) business days of written notice from the Company; or (b) The Executive's conviction for committing an act of fraud, embezzlement, theft, or any other act constituting a felony involving moral turpitude or causing material harm, financial or otherwise, to the Company. 2. Change of Control. For purposes of this agreement, "change of control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock ) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below; or (b) Individuals who, as of the date hereof, constitute the Board (the Incumbent Board ) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of a least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Normal Retirement. For purposes of this agreement, "Normal Retirement" shall have the same meaning as provided in the Maytag Corporation Salaried Retirement Plan; provided, however, that "Normal Retirement" shall not include terminations of the Executive by the Company without Cause. 4. Subsidiary. For purposes of this agreement, a "Subsidiary" shall mean any domestic or foreign corporation at least 20% of whose shares normally entitled to vote in electing directors is owned directly or indirectly by the Company or by other subsidiaries. D. General Provisions. 1. No Guaranty of Employment. Nothing in this agreement shall be deemed to entitle the Executive to continued employment with the Company or its subsidiaries, and the rights of the Company to terminate the employment of the Executive shall continue as fully as if this agreement were not in effect, provided that any such termination of employment within three (3) years following a change of control shall entitle the Executive to the benefits herein provided. 2. Confidentiality. The Executive shall retain in confidence any confidential information known to him concerning the Company and its business so long as such information is not publicly disclosed. 3. Payment Obligation Absolute. The Company's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against him, her or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final and the Company shall not seek to recover all or any part of such payment from the Executive or from whoever may be entitled thereto, for any reason whatsoever. In the event that the cash payment due the Executive under Paragraph B1 or B5 herein is not paid to the Executive within thirty (30) calendar days of the Executive's employment termination, such amount due shall accrue interest (compounded monthly) beginning on the date of employment termination at a rate equal to the prevailing Prime Rate as determined by Harris Bank of Chicago, or the Company's then-current primary banking institution. Further, to the extent this additional amount would be subject to the Excise Tax, the Company shall pay to the Executive a Gross-Up Payment, as such terms are described in Paragraph B6 herein. 4. Dispute Resolution. (a) The Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in good faith by the Executive as a result of the Company's refusal to provide the benefits to which the Executive becomes entitled under this agreement, or as a result of the Company's (or any third party's) contesting the validity, enforceability, or interpretation of the agreement, or as a result of any conflict between the parties pertaining to this agreement. (b) The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his or her job with the Company, in accordance with the rules of the American Arbitration Association then in effect. The Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and the Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company. 5. Successors. This agreement shall be binding upon and inure to the benefit of the Executive and his or her estate, and the Company and any successor of the Company, but neither this agreement nor any rights arising hereunder may be assigned or pledged by the Executive. 6. Severability. Any provision in this agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7. Entire Agreement. With respect to the subject matter hereof, this agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto and contains the entire understanding of the Company and the Executive. 8. Controlling Law. This agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have executed this agreement on the date set out above. MAYTAG CORPORATION By_____________________ Chairman & CEO Leonard A. Hadley EX-10.B 4 EXECUTIVE SEVERANCE AGREEMENT - 2YR MAYTAG CORPORATION Exhibit 10(b) Change of Control Agreements. The following executives are covered under this Change of Control agreement: Steven H. Wood Terry A. Carlson Arthur B. Learmonth Jerome L. Davis Thomas A. Briatico Fredrick P. Foltz Victor Lawrence Change of Control Agreement THIS AGREEMENT is made this ___________ day of ____________, 1998 (the "Effective Date"), by and between Maytag Corporation, a Delaware corporation (the "Company"), and ______ (the "Executive"), and shall continue in effect for two full calendar years (through the year 2000) (the "Initial Term"). The Initial Term of this agreement automatically shall be extended for one additional year on the first anniversary of the Effective Date, and then again on each anniversary thereafter (each such one-year period following the Initial Term a "Successive Period"). In the event that a "Change of Control" of the Company occurs (as such term is hereinafter defined) during the Initial Term or any Successive Period, upon the effective date of such Change of Control, the term of this agreement shall automatically and irrevocably be renewed for a period of twenty-four (24) full calendar months from the effective date of such Change of Control. This agreement shall thereafter automatically terminate following the twenty-four (24) month Change-of-Control renewal period. Further, this agreement shall be assigned to, and shall be assumed by the purchaser in such Change of Control, as further provided herein in paragraph D5 of the section titled "Agreements." RECITALS A. The Board of Directors of the Company has approved the Company entering into severance agreements with such executives of the Company and its subsidiaries as is determined by the Chairman and Chief Executive Officer. B. Should the Company receive or learn of any proposal by a third person about a possible business combination with the Company or the acquisition of its equity securities, the Board considers it imperative that the Company be able to rely upon the Executive to continue in his or her position. This to the end that the Company be able to receive and rely upon the Executive's advice concerning the best interests of the Company and its stockholders, without concern that person might be distracted by the personal uncertainties and risks created by such a proposal. C. Should the Company receive any such proposals, in addition to the Executive's regular duties, he or she may be called upon to assist in the assessment of such proposals, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate. AGREEMENT NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of that person's advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree that the Executive Severance Agreement described above be amended and restated in its entirety as follows: A. Should a third person, in order to effect a change of control (as defined), begin a tender or exchange offer, circulate a proxy to stockholders or take other steps, the Executive agrees that he or she will not voluntarily leave the employ of the Company, and will render the services contemplated in the recitals to this agreement, until the third person has abandoned or terminated his efforts to effect a change of control or until a change of control has occurred. B. Should the Executive's employment with the Company or its subsidiaries terminate for any reason (either voluntary or involuntary), other than because of death, disability, Cause, or Normal Retirement within two (2) years after a change of control of the Company, or in the event a successor company refuses to accept its obligations under this agreement as required by paragraph D5 herein, the following will be provided: 1. Lump Sum Cash Payment. On or before the Executive's last day of employment with the Company or its subsidiaries, or as soon thereafter as possible, the Company will pay to the Executive as compensation for services rendered, a lump sum cash amount (subject to the usual withholding taxes) equal to (A) two times the sum of (1) the Executive's annual salary at the rate in effect immediately prior to the change of control and (2) the then-current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control) plus (B) an amount equal to the compensation (at the Executive's rate of pay in effect immediately prior to the change of control) payable for any period for which the Executive could have, immediately prior to the date of his termination of employment, been on vacation and received such compensation, for unused and accrued vacation benefits determined under the Company's vacation pay plan or program covering the Executive immediately prior to the change of control. 2. Salaried and Supplemental Executive Retirement Plans. The Executive shall be paid a monthly retirement benefit, in addition to any benefits received under the Salaried Retirement Plans maintained by the Company or its subsidiaries, including The Maytag Corporation Salaried Retirement Plan and any Supplemental Executive Retirement Plan, such benefit to commence on the first to occur of (a) the commencement of payment of benefits under the Maytag Corporation Salaried Retirement Plan or (b) attainment of age 65, but not prior to two (2) years following the date of termination of employment or age 65, whichever first occurs, such benefit to be an amount equal to the excess of (i) the aggregate benefits under such Salaried Retirement Plans to which the Executive would be entitled if he or she remained employed by the Company or its subsidiaries, for an additional period of two (2) years, at the rate of annual compensation specified herein; over (ii) the benefits to which the Executive is actually entitled under such Salaried Retirement Plans. The source of payment of these benefits shall be the general assets of the Company unless the payment of such amounts is otherwise permissible from the corresponding qualified plan trust without violating any governmental regulations or statutes. 3. Life, Dental, Vision, Health and Long-Term Disability Coverage. The Executive's participation in, and entitlement to, benefits under: (i) the life insurance plan of the Company; (ii) all the health insurance plan or plans of the Company or its subsidiaries, including but not limited to those providing major medical and hospitalization benefits, dental benefits and vision benefits; and (iii) the Company's long-term disability plan or plans; as all such plans existed immediately prior to the change of control shall continue as though he or she remained employed by the Corporation or its subsidiaries for an additional period of two (2) years. The applicable COBRA health insurance benefit continuation period shall begin at the end of this two (2) year period. To the extent such participation or entitlement is not possible for any reason whatsoever, equivalent benefits shall be provided. The providing of these benefits by the Company shall be discontinued prior to the end of the two (2) year continuation period in the event that the Executive becomes covered under the insurance programs of a subsequent employer and, with respect to all health insurance plans, provided that such subsequent employer's health insurance plans do not contain any exclusion or limitation with respect to any preexisting condition of the Executive or the Executive's eligible dependents. For purposes of enforcing this offset provision, the Executive shall have a duty to inform the Company as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment. The Executive shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same. 4. Participation in Employee Benefit Plans. Unless otherwise provided, the Executive's participation in any other savings, capital accumulation, retirement, incentive compensation, profit sharing, stock option, and/or stock appreciation rights plans of the Company or any of its subsidiaries shall continue only through the last day of his or her employment. Any terminating distributions and/or vested rights under such plans shall be governed by the terms of those respective plans. Furthermore, the Executive's participation in any insurance plans of the Company and rights to any other fringe benefits shall, except as otherwise specifically provided in such plans or Company policy, terminate as of the close of the Executive's last day of employment, except to the extent specifically provided to the contrary in this agreement. 5. Incentive Plans. In addition to the payments required by paragraph 1 of this Section, the Company shall pay to the Executive as compensation for services rendered cash in an amount equal to the then- current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs, adjusted on a pro rata basis based on the number of days the Executive was actually employed during such bonus plan year (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control). In the case of long-term stock incentive awards represented by restricted shares of stock of the Company, made to Executive under the Maytag Corporation Employee Stock Incentive Plan (any prior plan, or successor plan) in lieu of stock under such stock incentive awards the Executive shall receive a cash payment equal to the aggregate value of the maximum number of shares for which the Executive holds outstanding awards, with share value determined at the closing price as of the date of the change of control. Any payment due pursuant to this paragraph 5 shall be paid at the same time as the amounts payable pursuant to paragraph 1 of this Section. 6. Excise Tax-Additional Payment. (a) Notwithstanding anything in this agreement or any written or unwritten policy of the Company or its subsidiaries to the contrary, (i) if it shall be determined that any payment or distribution by the Company or its subsidiaries to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this agreement, any other agreement between the Company or its subsidiaries and the Executive or otherwise (a "Payment"), would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or (ii) if the Executive shall otherwise become obligated to pay the Excise Tax in respect of a Payment, then the Company shall pay to the Executive an additional payment in an amount to cover the full cost of any Excise Tax and the Executive's state and federal income and employment taxes on this additional payment (cumulatively, the "Gross- Up Payment"). (b) All determinations and computations required to be made under this section B6, including whether a Gross-Up Payment is required under clause (ii) of paragraph B6(a) above, and the amount of any Gross-Up Payment, shall be made by the Company's regularly engaged independent certified public accountants (the "Accounting Firm"). The Company shall cause the Accounting Firm to provide detailed supporting calculations both to the Company and the Executive within 15 business days after such determination or computation is requested by the Executive. Any initial Gross-Up Payment determined pursuant to this paragraph B6 shall be paid by the Company or the subsidiary to the Executive within 5 days of the receipt of the Accounting Firm's determination. A determination that no Excise Tax is payable by the Executive shall not be valid or binding unless accompanied by a written opinion of the Accounting Firm to the Executive that the Executive has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company, its subsidiaries and the Executive, except to the extent the Executive becomes obligated to pay an Excise Tax in respect of a Payment. In the event that the Company or the subsidiary exhausts or waives its remedies pursuant to subparagraph B6(c) and the Executive thereafter shall become obligated to make a payment of any Excise Tax, and if the amount thereof shall exceed the amount, if any, of any Excise Tax computed by the Accounting Firm pursuant to this subparagraph (b) in respect to which an initial Gross-Up Payment was made to the Executive, the Accounting Firm shall within 15 days after Notice thereof determine the amount of such excess Excise Tax and the amount of the additional Gross-Up Payment to the Executive. All expenses and fees of the Accounting Firm incurred by reason of this paragraph B6 shall be paid by the Company. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty- day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph B6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company or the subsidiary shall determine; provided, however, that if the Company or the subsidiary directs the Executive to pay such claim and sue for a refund, the Company or the subsidiary shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided, that any extension of the statue of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, control of the contest by the Company or the subsidiary shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d)If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to compliance with the requirements of paragraph B6 by the Company or the subsidiary) promptly pay to the Company or the subsidiary the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall off-set, to the extent thereof, the amount of Gross-Up Payment required to be paid. C.Definitions. 1. "Cause." For purposes of this agreement, Cause shall be determined by the Board of Directors, in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (a) A demonstrably willful and deliberate act or failure to act by the Executive (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith, without reasonable belief that such action or inaction is in the best interests of the Company, which causes actual material financial injury to the Company and which act or inaction is not remedied within fifteen (15) business days of written notice from the Company; or (b) The Executive's conviction for committing an act of fraud, embezzlement, theft, or any other act constituting a felony involving moral turpitude or causing material harm, financial or otherwise, to the Company. 2. Change of Control. For purposes of this agreement, "change of control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of a least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Normal Retirement. For purposes of this agreement, "Normal Retirement" shall have the same meaning as provided in the Maytag Corporation Salaried Retirement Plan; provided, however, that "Normal Retirement" shall not include terminations of the Executive by the Company without Cause. 4. Subsidiary. For purposes of this agreement, a Subsidiary shall mean any domestic or foreign corporation at least 20% of whose shares normally entitled to vote in electing directors is owned directly or indirectly by the Company or by other subsidiaries. D. General Provisions. 1. No Guaranty of Employment. Nothing in this agreement shall be deemed to entitle the Executive to continued employment with the Company or its subsidiaries, and the rights of the Company to terminate the employment of the Executive shall continue as fully as if this agreement were not in effect, provided that any such termination of employment within two (2) years following a change of control shall entitle the Executive to the benefits herein provided. 2. Confidentiality. The Executive shall retain in confidence any confidential information known to him concerning the Company and its business so long as such information is not publicly disclosed. 3. Payment Obligation Absolute. The Company's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against him, her or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final and the Company shall not seek to recover all or any part of such payment from the Executive or from whoever may be entitled thereto, for any reason whatsoever. In the event that the cash payment due the Executive under Paragraph B1 or B5 herein is not paid to the Executive within thirty (30) calendar days of the Executive's employment termination, such amount due shall accrue interest (compounded monthly) beginning on the date of employment termination at a rate equal to the prevailing Prime Rate as determined by Harris Bank of Chicago, or the Company's then-current primary banking institution. Further, to the extent this additional amount would be subject to the Excise Tax, the Company shall pay to the Executive a Gross-Up Payment, as such terms are described in Paragraph B6 herein. 4. Dispute Resolution. (a) The Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in good faith by the Executive as a result of the Company's refusal to provide the benefits to which the Executive becomes entitled under this agreement, or as a result of the Company's (or any third party's) contesting the validity, enforceability, or interpretation of the agreement, or as a result of any conflict between the parties pertaining to this agreement. (b) The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his or her job with the Company, in accordance with the rules of the American Arbitration Association then in effect. The Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and the Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company. 5. Successors. This agreement shall be binding upon and inure to the benefit of the Executive and his or her estate, and the Company and any successor of the Company, but neither this agreement nor any rights arising hereunder may be assigned or pledged by the Executive. 6. Severability. Any provision in this agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7. Entire Agreement. With respect to the subject matter hereof, this agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto and contains the entire understanding of the Company and the Executive. 8. Controlling Law. This agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have executed this agreement on the date set out above. MAYTAG CORPORATION By Chairman & C.E.O. Leonard A. Hadley EX-12 5 RATIO OF EARNINGS TO FIXED EXPENSES MAYTAG CORPORATION Exhibit 12 Ratio of Earnings to Fixed Charges. MAYTAG CORPORATION Exhibit 12 Computation of Ratio of Earnings to Fixed Charges (Amounts in thousands of dollars except ratios) Year Ended December 31 1999 1998 1997 1996 1995 Consolidated pretax income from continuing operations before minority interest and extraordinary item $ 530,851 $ 470,885 $ 300,555 $ 228,237 $ 59,804 Interest expense 59,259 62,765 58,995 43,006 52,087 Depreciation of capitalized interest 2,750 2,952 2,530 1,553 1,695 Interest portion of rental expense 7,740 7,764 6,989 6,448 8,789 Earnings $ 600,600 $ 544,366 $ 369,069 $ 279,244 $ 122,375 Interest expense $ 59,259 $ 62,765 $ 58,995 $ 43,006 $ 52,087 Interest capitalized 72 17 4,191 8,905 2,534 Interest portion of rental expense 7,740 7,764 6,989 6,448 8,789 Fixed charges $ 67,071 $ 70,546 $ 70,175 $ 58,359 $ 63,410 Ratio of earnings to fixed charges 8.95 7.72 5.26 4.78 1.93 EX-21 6 LIST OF SUBSIDIARIES MAYTAG CORPORATION Exhibit 21 List of Subsidiaries of the Registrant. MAYTAG CORPORATION Exhibit 21 List of Subsidiaries of the Registrant The following schedule lists the subsidiaries of Maytag Corporation, a Delaware corporation, as of December 31, 1999. State or Country Corporate Name of Organization Maytag Appliances Sales Company Delaware Maytag Holdings, Inc. Delaware Dixie-Narco, Inc. Delaware Blodgett Holdings, Inc. Delaware G.S. Blodgett Corporation Vermont G.S. Blodgett International Limited Barbados Pitco Frialator, Inc. New Hampshire Frialator International Limited England MagiKitch'n Inc. Pennsylvania Cloverleaf Properties, Inc. Vermont Jade Products Company Delaware Maytag Foreign Sales Corporation Virgin Islands The Hoover Company Delaware The Hoover Company (Sales) Delaware Maytag International, Inc. Delaware Maharashtra Investment, Inc. Delaware Hoover Mexicana S.A. de C.V. Mexico Hoover Holdings Inc. Delaware Juver Industrial S.A. de C.V. Mexico Maytag Limited Canada Maytag Worldwide N.V. The Netherlands Antilles AERA LIMITED Hong Kong AERA (Hong Kong) PTE LTD Singapore Maytag International Investments, Inc. Delaware Maytag I.I., Inc. Delaware Maytag International Investments B.V. Netherlands Hefei Rongshida Co. Ltd. (50.5%) China Chongqing General Washing Machine Factory China Anvil Technologies LLC (33.77%) Delaware Maytag Capital Trust (2.91%) Delaware Maytag Capital Trust II (2.91%) Delaware NOTE: Ownership in subsidiaries is 100% unless otherwise indicated. Other subsidiaries in the aggregate would not constitute a significant subsidiary. EX-23 7 CONSENT OF INDEPENT AUDITORS MAYTAG CORPORATION Exhibit 23 Consent of Independent Auditors. Consent of Independent Auditors Shareowners and Board of Directors Maytag Corporation We consent to the incorporation by reference in Registration Statement Number 33-8249, Registration Statement Number 33-8248, Registration Statement Number 33-6378, Registration Statement Number 33-22228, and Registration Statement Number 33-26620 on Forms S-8; and Registration Statement Number 33-35219 on Form S-3 of Maytag Corporation and in the related Prospectuses of our report dated January 25, 2000, with respect to the consolidated financial statements and schedule of Maytag Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1999. Ernst & Young LLP Chicago, Illinois March 21, 2000 EX-27 8 FDS
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 28,815 0 517,074 22,327 404,120 1,021,516 2,065,850 1,089,742 2,636,487 853,023 337,764 0 0 146,438 280,942 2,636,487 4,323,673 4,323,673 3,072,253 3,072,253 0 6,075 59,259 530,851 195,100 335,751 0 0 0 328,528 3.80 3.66
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