-----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, SX2zzkEncmFE1qquypXk+CQh01soKUO0LlDV30lJqPbg58nvs/561sprPiYBJUJe 5Yr9dNECPnSrJ0TE7UzvJQ== 0000063541-97-000002.txt : 19970508 0000063541-97-000002.hdr.sgml : 19970508 ACCESSION NUMBER: 0000063541-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAYTAG CORP CENTRAL INDEX KEY: 0000063541 STANDARD INDUSTRIAL CLASSIFICATION: 3630 IRS NUMBER: 420401785 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00655 FILM NUMBER: 97563499 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, 1996 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 17, 1997 was $2,070,947,400. The number of shares outstanding of the registrant's Common Stock (par value $1.25) as of the close of business on March 17, 1997 was 98,033,013. 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 15, 1997 have been incorporated by reference. 1 MAYTAG CORPORATION 1996 ANNUAL REPORT ON FORM 10-K CONTENTS Item Page PART I: 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Business - Home Appliances . . . . . . . . . . . . . . . . . . . 3 Business - Vending Equipment . . . . . . . . . . . . . . . . . . 5 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6 4. Submission of Matters to a Vote of Security Holders . . . . . . 6 Executive Officers of the Registrant . . . . . . . . . . . . . . 7 PART II: 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 9 8. Financial Statements and Supplementary Data . . . . . . . . . . 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 38 PART III: 10. Directors and Executive Officers of the Registrant . . . . . . . 38 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 39 12. Security Ownership of Certain Beneficial Owners and Management . 39 13. Certain Relationships and Related Transactions . . . . . . . . . 39 PART IV: 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 2 PART I Item 1. Business. Maytag Corporation (the "Company") was organized as a Delaware corporation in 1925. The Company operates in two business segments: home appliances and vending equipment. Financial and other information relating to industry segment and geographic data is included in Part II, Item 7, Pages 9-13, and Item 8, Pages 36 and 37. HOME APPLIANCES The home appliances segment represented 94.6 percent of consolidated net sales in 1996. The Company, through its various business units, manufactures, distributes and services a broad line of home appliances including laundry equipment, dishwashers, refrigerators, cooking appliances, vacuum cleaners and extractors. The Company's home appliance brands include Maytag, Jenn-Air, Magic Chef, Admiral and Hoover. Maytag International, Inc., the Company's international marketing subsidiary, handles the sales of appliances and licensing of certain home appliance brands in markets outside the United States and Canada. The Company markets its home appliances to major United States and certain international markets, including the replacement market, the commercial laundry market, the new home and apartment builder market, the recreational vehicle market, the private label market and the household/commercial floor care market. Products are primarily sold to major retailers, independent dealers and distributors. During the first quarter of 1996 the Company announced the restructuring of its major appliance operations in an effort to strengthen its position in the industry and to deliver improved results to both customers and shareowners. This included the consolidation of two separate organizational units into a single operation responsible for all activities associated with the manufacture and distribution of the Company's brands of major appliances and the closing of a cooking products plant in Indianapolis, Indiana, with transfer of that production to an existing plant in Cleveland, Tennessee. In the third quarter of 1996 the Company invested approximately $35 million and committed additional investments of $35 million for a 50.5 percent ownership in a joint venture with a manufacturer of appliances in China. In the second quarter of 1995 the Company sold its home appliance operations in Europe ("European Operations") and in the fourth quarter of 1994 the Company sold its home appliance operations in Australia and New Zealand ("Australian Operations"). Additional information regarding this acquisition and these divestitures is included in Part II, Item 7, Pages 12 and 14; and Item 8, Pages 24 and 25. During 1997, the Company expects to introduce new products and newly designed products resulting from major capital projects. The Company's major capital projects and planned capital expenditures for 1997 are described in Part II, Item 7, Page 14. 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. Geographic information is included in Part II, Item 8, Page 37. 3 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 not seasonal. The Company is not dependent upon a single home appliance customer or a few customers. Therefore, the loss of any one customer would not have a material adverse effect on its business. 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 appliance market is highly competitive with the principal competitors being larger than the Company. Competitive pressures make price increases difficult to implement. The Company uses brand image, product quality, product innovation, customer service, advertising and warranty 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 35. Although the Company has many 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 material 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 does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising from resolution of these matters. The Company continues to progress on major capital projects implemented to address the stricter governmental energy and environmental standards regarding appliances which may become effective over the next several years. The Company intends to be in compliance with these various standards, which affect the entire appliance industry, as they become effective. The number of employees of the Company within the home appliances segment as of February 22, 1997 was 19,463. 4 VENDING EQUIPMENT The vending equipment segment represented 5.4 percent of consolidated net sales in 1996. The Company manufactures, through its Dixie-Narco subsidiary, a variety of bottle and can vending equipment and glass front merchandisers. The products are sold worldwide primarily to soft drink bottlers and vending equipment distributors. In the fourth quarter of 1995, the Company sold the business and assets of a Dixie-Narco manufacturing operation in Eastlake, Ohio ("Eastlake Operation"). The Eastlake Operation designed and manufactured currency validators and electronic components used in the gaming and vending industries. Dixie-Narco's headquarters and vending machine manufacturing facility in Williston, South Carolina, were not affected by this business disposition. Additional information regarding this divestiture is included in Part II, Item 7, Page 12. 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 holds a DIXIE-NARCO trademark registration and its associated corporate symbol. Vending equipment sales, though stronger in the first six months of the year, are considered by the Company to be essentially nonseasonal. The Company's vending equipment segment is dependent upon a few major soft drink suppliers. Therefore, the loss of one or more of these customers could have a material significant adverse effect on this segment. The Company manufactures and sells its vending machines and glass front merchandisers in competition with a small number of other manufacturers and is the major manufacturer of such equipment. The principal methods of competition utilized by the vending equipment segment are product quality, customer service, warranty and price. The dollar amount of backlog orders of the Company is not considered significant for vending equipment 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. 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 material effect on capital expenditures, earnings or the Company's competitive position. The number of employees of the Company within the vending equipment segment as of February 22, 1997 was 1,080. 5 Item 2. Properties. The Company's corporate headquarters is 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 three other North American manufacturing facilities, one in Canada and two in Mexico. In the third quarter of 1996 the Company invested approximately $35 million and committed additional investments of $35 million for a 50.5 percent ownership in a joint venture with a manufacturer of appliances in China. In the second quarter of 1995 the Company sold its European Operations and in the fourth quarter of 1994 the Company sold its Australian Operations. Additional information regarding this acquisition and these divestitures is included in Part II, Item 7, Pages 12 and 14; and Item 8, Pages 24 and 25. During 1996 the Company phased out production at its Indianapolis, Indiana cooking products facility and consolidated the manufacturing of all cooking products at its larger cooking products plant in Cleveland, Tennessee. The office and manufacturing facility related to the vending equipment segment is located in Williston, South Carolina. In the fourth quarter of 1995, the Company sold its Eastlake Operation. Additional information regarding this divestiture is included in Part II, Item 7, Page 12. The manufacturing facilities for both segments are well maintained, suitably equipped and in good operating condition. The facilities used had sufficient capacity to meet production needs in 1996, and the Company expects that such capacity will be adequate for planned production in 1997. The Company's major capital projects and planned capital expenditures for 1997 are described in Part II, Item 7, Page 14. 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 32. 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 material adverse effect on its consolidated financial position. The Company's contingent liabilities are discussed in Part II, Item 8, Pages 35 and 36. 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 1996 through a solicitation of proxies or otherwise. 6 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 officer of the Company and their ages: First Became Name Office Held an Officer Age Leonard A. Hadley Chairman and Chief Executive Officer 1979 62 Lloyd D. Ward Executive Vice President, President Maytag Appliances 1996 48 Gerald J. Pribanic Executive Vice President and Chief Financial Officer 1996 53 Brian A. Girdlestone President, The Hoover Company 1996 63 Robert W. Downing President, Dixie-Narco, Inc. 1996 60 Edward H. Graham Senior Vice President, General Counsel and Assistant Secretary 1990 61 John M. Dupuy Vice President, Strategic Planning 1996 40 Jon O. Nicholas Vice President, Human Resources, Maytag Appliances 1993 57 David D. Urbani Vice President and Treasurer 1995 51 Steven H. Wood Vice President, Financial Reporting and Audit 1996 39 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 15, 1997 or until their successors are elected. 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 1985-1993 Consultant David D. Urbani Air Products and Chemicals, Inc. - Assistant Treasurer 1984-1994 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. 1996 1995 1996 1995 Quarter High Low High Low First $21 7/8 $18 5/8 $17 1/8 $14 1/2 $.14 $.125 Second 22 7/8 18 3/4 17 5/8 15 3/8 .14 .125 Third 21 1/2 17 1/2 18 1/8 15 1/4 .14 .125 Fourth 21 1/4 18 7/8 21 1/2 17 3/8 .14 .14 The principal U.S. market in which the Company's common stock is traded is the New York Stock Exchange. As of March 17, 1997, the Company had 28,442 shareowners of record. Item 6. Selected Financial Data. Dollars in thousands except per share data 1996(1) 1995 (2) 1994 (3) 1993 (4) 1992 (5) Net sales $3,001,656 $3,039,524 $3,372,515 $2,987,054 $3,041,223 Gross profit 821,443 788,908 876,450 724,112 701,817 Percent to sales 27.4% 26.0% 26.0% 24.2% 23.1% Operating profit $ 269,079 $ 288,234 $ 322,768 $ 158,878 $ 78,567 Percent to sales 9.0% 9.5% 9.6% 5.3% 2.6% Income (loss) from continuing operations $ 137,977 $ (14,996)$ 151,137 $ 51,270 $ (8,354) Percent to sales 4.6% (.5%) 4.5% 1.7% (.3%) Per share $ 1.36 $ (0.14)$ 1.42 $ 0.48 $ (0.08) Dividends paid per share 0.56 0.515 0.50 0.50 0.50 Average shares outstanding 101,727 107,062 106,795 106,252 106,077 Working capital $ 334,948 $ 543,431 $ 595,703 $ 406,181 $ 452,626 Depreciation of property, plant and equipment 101,912 102,572 110,044 102,459 94,032 Additions to property, plant and equipment 219,902 152,914 84,136 99,300 129,891 Total assets 2,329,940 2,125,066 2,504,327 2,469,498 2,501,490 Long-term debt 488,537 536,579 663,205 724,695 789,232 Total debt to capitalization 51.2% 45.9% 50.7% 60.6% 58.7% (1) Net sales include $40.4 million of sales from the Company's acquisition of a 50.5 percent ownership in a joint venture of 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. (2) 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 8 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. (3) Net sales include $399 million made by the Company's European Operations which was sold effective June 30, 1995 and $142 million made by the Company's Australian Operations which was sold effective December 31, 1994. Income (loss) from continuing operations includes a $20 million one-time tax benefit associated with European operating losses and reorganization costs and a $16.4 million after-tax loss from the sale of the Company's Australian Operations. Excludes the cumulative effect of an accounting change. (4) Net sales include $390.8 million made by the Company's European Operations which was sold effective June 30, 1995 and $127.9 million made by the Company's Australian Operations which was sold effective December 31, 1994. Operating profit includes $60.4 million in charges ($50 million in a special charge) for costs associated with two Hoover Europe "free flights" promotion programs. The $30 million after-tax charge for the $50 million special charge is included in income (loss) from continuing operations. (5) Net sales include $501.9 million made by the Company's European Operations which was sold effective June 30, 1995 and $131.8 million made by the Company's Australian Operations which was sold effective December 31, 1994. Operating profit includes a $95 million pretax charge relating to the reorganization of the North American and European business units. The after-tax charge for this restructuring of $73.8 million is included in income (loss) from continuing operations. Excludes the cumulative effect of accounting changes. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Comparison of 1996 with 1995 The Company operates in two business segments, home appliances and vending equipment. Operations of the home appliances segment represented 94.6 percent of net sales in 1996 and 93.6 percent of net sales in 1995. NET SALES: The Company's consolidated net sales decreased 1.2 percent in 1996 compared to 1995. Net sales in 1996 include four months of sales totaling $40.4 million of the Company's China joint venture (See discussion of this investment in "Liquidity and Capital Resources" section of this Management's Discussion and Analysis.) Net sales in 1995 include six months of sales of $181.2 million of the Company's home appliance operations in Europe ("European Operations") which were sold effective June 30, 1995. Excluding sales of the China joint venture and the European Operations, the Company's net sales increased 3.6 percent in 1996 compared to 1995. Sales of the North American home appliances segment, which includes major appliances and floor care products, increased 5.1 percent from 1995. Sales of floor care products increased over the prior year due largely to increased sales of new floor care products as well as increased sales of existing products. New floor care products sales have resulted in significant year over year increases based in part on the Hoover brand upright extractor which was previously the only product of this unique design in the market. A major competitor entered the upright extractor market in the third quarter of 1996 and at least one other competitor is expected to enter this market during 1997. The Company believes that the potential negative impact of this competition may be mitigated by the expansion of the market for products of this type. Sales by the Company of 9 major appliances were approximately the same as the previous year and its overall market share in major appliances for 1996 was consistent with year-ago levels. Shipments in the U.S. major appliance industry in 1996 were at record levels. The industry's trade association projects 1997 shipments of major appliances to be approximately the same as 1996 levels. Vending equipment sales were down 16.6 percent from 1995. Sales decreased 9.4 percent compared to last year after excluding sales totaling $15.6 million in 1995 made by a Dixie-Narco manufacturing operation in Ohio ("Eastlake Operation") sold in December 1995. The decrease in sales is a result of an unexpected shift in domestic customer demand for venders which handle certain large soft drink packages. This shift led to significant design and tooling changes which resulted in Dixie-Narco being unable to efficiently produce this type of vender in sufficient volume during 1996. The Company has taken action to remedy this situation and believes that it will be able to meet the market demand for these venders in 1997. In addition to this decline in domestic vender sales, export sales of glass front merchandisers were down from the previous year primarily due to the loss of one customer, BAESA. (See reference to this customer in "Contingencies" section of this Management's Discussion and Analysis.) GROSS PROFIT: Gross profit as a percent of sales in 1996 increased to 27.4 percent of sales from 26.0 percent of sales in 1995. The increase in gross margin performance is due to the divestiture of the lower margin European Operations in 1995 as well as the factors described below. Gross margins increased in the North American home appliances segment primarily as a result of lower raw material prices and more favorable brand and product sales mix. These improvements were partially offset by an increase in distribution costs related to a transition to regional distribution centers. The increased distribution costs are expected to continue in future periods. Vending equipment gross margins decreased due to lower production volumes and an increase in manufacturing costs associated with the production of the newly designed venders discussed previously. The lower raw material prices the Company experienced in 1996 compared to 1995 resulted in approximately $17 million of additional gross profit for the year. The Company expects raw material prices in 1997 to be approximately the same as 1996 levels. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses increased to 17.1 percent of sales in 1996 from 16.5 percent of sales in 1995. The increase is primarily due to an increase in advertising and sales promotion spending related to new product introductions and to respond to competitive market conditions. RESTRUCTURING CHARGE: During the first quarter of 1996 the Company announced the restructuring of its major appliance operations in an effort to strengthen its position in the industry and to deliver improved results to both customers and shareowners. This included the consolidation of two separate organizational units into a single operation responsible for all activities associated with the manufacture and distribution of the Company's brands of major appliances and the closing of a cooking products plant in Indianapolis, Indiana, with transfer of that production to an existing plant in Cleveland, Tennessee. As a result of these actions the Company recorded a one-time restructuring charge of $40 million, or $24.4 million after-tax, in the first quarter of 1996. This charge is primarily related to the costs associated with the consolidation of cooking products manufacturing and consolidation of activities of the two separate organizational units. The Company incurred $10.5 million of additional restructuring costs 10 during 1996, not included in the one-time restructuring charge. The additional costs were charged to operations as incurred. OPERATING INCOME: Operating income for 1996 was 9.0 percent of sales compared to 9.5 percent of sales in 1995. However, excluding the $40 million restructuring charge, operating income in 1996 was 10.3 percent of sales. This is consistent with operating income for 1995 of 10.3 percent of sales excluding the European Operations. Operating income for the North American home appliances segment in 1996, excluding the $40 million restructuring charge, increased 4.6 percent from 1995. Operating income as a percent of sales was 11.3 percent in 1996 which is approximately the same as the 11.4 percent realized in 1995. Vending equipment operating income decreased 54.3 percent in 1996 compared to 1995. The decrease in operating income is due to the decrease in gross profit discussed previously. INTEREST EXPENSE: Interest expense decreased 17.4 percent from 1995 primarily as a result of the debt reduction during 1995 and over $6 million of higher capitalized interest related to capital spending in 1996 compared to 1995. INCOME TAXES: The effective tax rate for 1996 was 39 percent compared to 40 percent in 1995 when excluding amounts relating to the loss on the sale of the European Operations. (See discussion of Income Taxes in "Comparison of 1995 with 1994" section of this Management's Discussion and Analysis.) This decrease is primarily due to the realization of capital gains and the related adjustments to the valuation allowances recorded against deferred tax assets. EXTRAORDINARY ITEM: In 1996 the Company retired $17.5 million of long-term debt at a cost of $1.5 million after-tax, or $.02 per share. In 1995, the Company retired $116.5 million of long-term debt at a cost of $5.5 million after-tax, or $.05 per share. NET INCOME (LOSS): Net income for 1996 was $136.4 million, or $1.34 per share, compared to a net loss of $20.5 million, or $.19 per share in 1995. The increase in net income is primarily due to the amount of special items charged to income in 1995 compared to 1996. Special items in 1995 totaled $165.2 million after-tax compared to $25.9 million after-tax in 1996. Special items in 1995 included a $135.4 million after-tax loss on the sale of the European Operations, a $3.6 million after-tax loss on the sale of the Eastlake Operation, a $9.9 million after-tax charge related to a Dixie-Narco plant closing settlement, a $10.8 million after-tax charge arising from a guarantee of indebtedness relating to the sale of one of the Company's manufacturing facilities in 1992 and the $5.5 million extraordinary item from the early retirement of debt. Special items in 1996 included the $24.4 million after-tax restructuring charge and the $1.5 million extraordinary item from the early retirement of debt. Excluding special items, income for 1996 would have been $162.4 million, or $1.60 per share, compared to income for 1995 of $144.7 million, or $1.35 per share. This increase is primarily due to an increase in operating income, lower interest expense and the lower effective tax rate. In addition, earnings per share in 1996 was favorably impacted by $.08 per share from the Company's share repurchase program. (See discussion of the share repurchase program in "Liquidity and Capital Resources" section of this Management's Discussion and Analysis.) 11 Comparison of 1995 with 1994 Operations of the home appliance segment represented 93.6 percent of net sales in 1995 and 94.3 percent of net sales in 1994. NET SALES: The Company's consolidated net sales decreased 9.9 percent in 1995 compared to 1994. However, net sales were up 0.9 percent after excluding sales of the Australian Operations and the European Operations sold in 1994 and 1995, respectively. Effective December 31, 1994, the Company sold its home appliance operations in Australia and New Zealand ("Australian Operations") which had sales of $142 million in 1994. Similarly, net sales in 1995 and 1994 include sales of $181.2 million and $399 million, respectively, by the Company's European Operations which were sold effective June 30, 1995. Sales by the North American home appliances segment increased 0.9 percent from 1994. The segment's performance in 1995 was consistent with overall U.S. industry performance for comparable product categories with the Company's market share remaining relatively unchanged. Shipments in the U.S. major appliance industry in 1995 were slightly below the record shipment levels in 1994 due to downward inventory adjustments by dealers and a slowdown in general economic conditions. Vending equipment sales increased 1.5 percent due to growth in demand for the Company's core soft drink vending machines and glass front merchandisers. GROSS PROFIT: Gross profit as a percent of sales in 1995 remained consistent with 1994 at 26.0 percent of sales. Margins in the North American home appliances segment decreased due to increases in material costs that could not be passed on to customers because of competitive conditions. Vending equipment margins increased due to the implementation of cost improvement projects. Consolidated gross profit margins remained flat as the impact of the increase in material costs was offset by divestitures of the lower margin Australian Operations and European Operations. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses remained relatively consistent at 16.5 percent of sales in 1995 compared to 16.4 percent of sales in 1994. OPERATING INCOME: Operating income for 1995 totaled $288.2 million or 9.5 percent of sales compared to $322.8 million or 9.6 percent of sales in 1994. Excluding the Australian and European Operations in 1995 and 1994, operating income totaled $295.4 million in 1995 or 10.3 percent of sales compared to $309.8 million or 10.9 percent of sales in 1994. INTEREST EXPENSE: Interest expense decreased 29.7 percent from 1994 due to debt reduction from proceeds of the sale of the Australian and European Operations and from cash provided by operations. LOSS ON BUSINESS DISPOSITIONS: In 1995 and 1994 the Company divested several under-performing businesses to improve shareowner value. In the fourth quarter of 1994, the Company sold its Australian Operations for $82.1 million in cash. The pretax loss from the sale was $13.1 million and resulted in an after-tax loss of $16.4 million. In the second quarter of 1995, the Company sold its European Operations for $164.3 million in cash. The pretax loss from the sale was $140.8 million and resulted in an after-tax loss of $135.4 million or $1.27 per share. In the fourth quarter of 1995, the Company sold the business and assets of the Eastlake Operation. The pretax loss from the sale was $6 million and resulted in an after-tax loss of $3.6 million or $.03 per share. SETTLEMENT OF LAWSUIT: In the third quarter of 1995, the Company recorded a 12 $16.5 million charge to settle a lawsuit relating to the 1991 closing of a Dixie-Narco plant in Ranson, West Virginia. The after-tax charge was $9.9 million or $.09 per share. LOSS ON GUARANTEE OF INDEBTEDNESS: In the fourth quarter of 1995, the Company recorded an $18 million charge arising from a guarantee of indebtedness relating to the sale of one of its manufacturing facilities in 1992. The after-tax charge was $10.8 million or $.10 per share. INCOME TAXES: The significant fluctuation in the relationship of income taxes to income before taxes is due largely to valuation allowances established against deferred tax assets relating to capital loss carryforwards from the loss on the sale of the European Operations. Excluding amounts relating to the loss on the sale of the European Operations, the effective tax rate was 40 percent in 1995. In 1994 the Company recorded a $20 million tax benefit associated with European operating losses and reorganization costs. This benefit was partially offset by the tax expense arising from the sale of the Australian Operations. Excluding these special items the effective tax rate was 42 percent in 1994. The decrease in the effective tax rate from 42 percent in 1994 to 40 percent in 1995 is primarily due to an increase in tax benefits from export sales from the United States. ACCOUNTING CHANGE: In 1994 the Company adopted FASB Statement No. 112, "Employers' Accounting for Postemployment Benefits." The new rules required recognition of a liability for certain disability and severance benefits to former or inactive employees. The cumulative effect of this accounting change in 1994 was $3.2 million after-tax or $.03 per share. NET INCOME (LOSS): The Company reported a net loss for 1995 of $20.5 million, or $.19 per share, compared to reported net income of $147.9 million, or $1.39 per share in 1995. The decrease is primarily due to the special items in 1995 compared to 1994. Special items in 1995 include the $135.4 million after-tax loss on the sale of the European Operations, the $3.6 million after-tax loss on the sale of the Eastlake Operation, the $9.9 million after-tax charge related to a Dixie-Narco plant closing settlement, the $10.8 million after-tax charge arising from a guarantee of indebtedness relating to the sale of one of the Company's manufacturing facilities in 1992 and the $5.5 million extraordinary item from the early retirement of debt. Special items in 1994 include a $16.4 million after-tax loss on sale of the Australian Operations, a $20 million tax benefit associated with European operating losses and reorganization costs and a $3.2 million cumulative effect of accounting change. Excluding special items in 1995 and 1994, income for 1995 would have been $144.7 million, or $1.35 per share, compared to $147.6 million, or $1.38 per share in 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash provided by operating activities and borrowings. Detailed information on the Company's cash flows is presented in the Statements of Consolidated Cash Flows. NET CASH PROVIDED BY OPERATING ACTIVITIES: Cash flow generated from operating activities consists of net income (loss) adjusted for certain non-cash items, changes in working capital, and changes in pension assets and liabilities and postretirement benefits. Non-cash items include depreciation and amortization, the restructuring charge and deferred income taxes. Working capital consists primarily of accounts receivable, inventories, other current assets and other current liabilities. 13 Net cash provided by operating activities in 1996 decreased from 1995 primarily due to an additional $40 million pension contribution made in 1996 and an increase in working capital, partially offset by a smaller increase in net deferred tax assets. TOTAL INVESTING ACTIVITIES: In the third quarter of 1996, the Company invested approximately $35 million, net of $5.2 million of cash acquired, and committed additional investments of approximately $35 million for a 50.5 percent ownership in a joint venture with a manufacturer of appliances in China. The results of this joint venture are consolidated in the Company s financial statements. The Company continually invests in its businesses for new product designs, cost reduction programs, replacement of equipment, capacity expansion and governmentally mandated product requirements. Capital expenditures in 1996 were $211.5 million compared to $148.3 million in 1995. The higher capital spending is due to several major capital projects that the Company continues to implement. These projects include a new high efficiency clothes washer for both commercial and household use and a complete redesign of the Company's refrigerator product lines. Planned capital expenditures for 1997 are approximately $245 million and primarily relate to the continuation of the projects described above in addition to other previously announced projects. These projects include the addition of a newly designed line of Hoover upright floor care products and the establishment of a refrigeration products facility by the China joint venture. Capital spending in 1996 and planned capital spending in 1997 include approximately $9 million and $8 million, respectively, of interest expense capitalized as a result of the major projects discussed previously. TOTAL FINANCING ACTIVITIES: Dividend payments for 1996 amounted to $57.2 million, or $.56 per share, compared to $55.4 million, or $.515 per share in 1995. During 1996 the Company completed its stock repurchase program to buy 10.8 million shares of the Company's outstanding Common stock. The cost of the 8.1 million shares repurchased in 1996 was $164.4 million. In the fourth quarter of 1996, the Company announced plans to expand this program to buy an additional 5 million shares over a non-specified period of time. The Company initiated a trading program of interest rate swaps which it marks to market each period. Due to the volatility in the Canadian interest rate market in 1996 the Company realized $38 million of gains which were offset by mark to market unrealized losses of $40.6 million. 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, 1996 is configured, there would be no measurable impact on the net market value of all swap transactions outstanding with any future changes in interest rates. As discussed previously, the Company retired $17.5 million of 9.75 percent notes of long-term debt at a cost of $1.5 million after-tax. During 1996 the Company also issued $25 million of 7.22 percent medium-term notes maturing in 2006. In addition, the Company obtained $34.1 million of short-term borrowings to finance its investing and financing activities. The Company expects interest expense to increase in 1997 as a result of increased short-term financing and from interest expense of the China joint venture. Any funding requirements for future investing and financing activities in excess of cash on hand and generated from future operations will be supplemented by borrowings. The Company'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 the Company was in compliance with at December 31, 1996. 14 CONTINGENCIES A soft drink bottler, Buenos Aires Embotelladora Inc. ("BAESA"), previously announced it was unable to pay amounts due on various bank loans totaling approximately $500 million and was exploring alternatives with its lenders to restructure its debt. BAESA has negotiated a standstill agreement with its lenders which provides for payment of 30 percent of the interest which will accrue and suspension of principal payments until March 31, 1997. The Company had guaranteed bank loans of BAESA in the amount of $19.8 million used to finance the purchases of vending equipment from Dixie-Narco. The Company purchased a guaranteed loan in the amount of $14.3 million from one of the banks prior to December 31, 1996 and remained contingently liable on its guarantees for the remaining bank loans of $5.5 million. Dixie-Narco also has receivables owed by the customer totaling $1.8 million. Subsequent to December 31, 1996 the Company reached an agreement to sell the $14.3 million loan and its obligations and rights under the loan guarantees to a financial institution at a discount and without recourse to the Company. The sale of these items will not have a significant adverse effect on the Company's consolidated financial position. The Company has other 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 and Disclosure of Certain Risks and Uncertainties" section of the Notes to Consolidated Financial Statements.) Item 8. Financial Statements and Supplementary Data. Page Report of Independent Auditors . . . . . . . . . . . . . . 16 Statements of Consolidated Income (Loss)--Years Ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . 17 Statements of Consolidated Financial Condition-- December 31, 1996 and 1995 . . . . . . . . . . . . . . . 18 Statements of Consolidated Shareowners' Equity--Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 20 Statements of Consolidated Cash Flows--Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . 22 Notes to Consolidated Financial Statements . . . . . . . . 23 Quarterly Results of Operations--Years 1996 and 1995 . . . 38 15 Report of Independent Auditors Shareowners and Board of Directors Maytag Corporation We have audited the accompanying statements of consolidated financial condition of Maytag Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income (loss), shareowners' equity and cash flows for each of three years in the period ended December 31, 1996. Our audits 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe 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, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statement taken as a whole, presents fairly in all material respects the information set forth therein. s/sErnst & Young LLP Chicago, Illinois January 28, 1997 16 Statements of Consolidated Income (Loss) Year Ended December 31 In thousands except per share data 1996 1995 1994 Net sales $3,001,656 $3,039,524 $3,372,515 Cost of sales 2,180,213 2,250,616 2,496,065 Gross profit 821,443 788,908 876,450 Selling, general and administrative expenses 512,364 500,674 553,682 Restructuring charge 40,000 Operating income 269,079 288,234 322,768 Interest expense (43,006) (52,087) (74,077) Loss on business dispositions (146,785) (13,088) Settlement of lawsuit (16,500) Loss on guarantee of indebtedness (18,000) Other--net 2,164 4,942 5,734 Income before income taxes, minority interest, extraordinary item and cumulative effect of accounting change 228,237 59,804 241,337 Income taxes 89,000 74,800 90,200 Income (loss) before minority interest, extraordinary item and cumulative effect of accounting change 139,237 (14,996) 151,137 Minority interest (1,260) Income (loss) before extraordinary item and cumulative effect of accounting change 137,977 (14,996) 151,137 Extraordinary item - loss on early retirement of debt (1,548) (5,480) Cumulative effect of accounting change (3,190) Net income (loss) $ 136,429 $ (20,476) $ 147,947 Earnings (loss) per common share: Income (loss) before extraordinary item and cumulative effect of accounting change $ 1.36 $ (0.14) $ 1.42 Extraordinary item - loss on early retirement of debt $ (0.02) $ (0.05) Cumulative effect of accounting change $ (0.03) Net income (loss) $ 1.34 $ (0.19) $ 1.39 See notes to consolidated financial statements. 17 Statements of Consolidated Financial Condition December 31 In thousands except share data 1996 1995 Assets Current assets Cash and cash equivalents $ 27,543 $ 141,214 Accounts receivable, less allowance for doubtful accounts--(1996--$13,790; 1995--$12,540) 462,882 417,457 Inventories 327,136 265,119 Deferred income taxes 30,266 42,785 Other current assets 57,132 43,559 Total current assets 904,959 910,134 Noncurrent assets Deferred income taxes 131,159 91,610 Pension investments 1,441 1,489 Intangible pension asset 70,511 91,291 Other intangibles, less allowance for amortization-- (1996--$74,375; 1995--$65,039) 322,436 300,086 Other noncurrent assets 47,549 29,321 Total noncurrent assets 573,096 513,797 Property, plant and equipment Land 20,734 24,246 Buildings and improvements 296,786 260,394 Machinery and equipment 1,253,803 1,030,233 Construction in progress 84,323 97,053 1,655,646 1,411,926 Less allowance for depreciation 803,761 710,791 Total property, plant and equipment 851,885 701,135 Total assets $2,329,940 $2,125,066 18 December 31 In thousands except share data 1996 1995 Liabilities and Shareowners' Equity Current liabilities Notes payable $ 55,489 $ Accounts payable 206,397 142,676 Compensation to employees 64,104 61,644 Accrued liabilities 180,726 156,041 Income taxes payable 4,209 3,141 Current maturities of long-term debt 59,086 3,201 Total current liabilities 570,011 366,703 Noncurrent liabilities Deferred income taxes 27,012 14,367 Long-term debt 488,537 536,579 Postretirement benefits other than pensions 447,415 428,478 Pension liability 50,377 88,883 Other noncurrent liabilities 102,621 52,705 Total noncurrent liabilities 1,115,962 1,121,012 Minority interest 69,977 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 471,158 472,602 Retained earnings 423,552 344,346 Cost of Common stock in treasury (1996--19,106,012 shares; 1995--11,745,395 shares) (405,035) (255,663) Employee stock plans (55,204) (57,319) Minimum pension liability adjustment (107) (5,656) Foreign currency translation (6,812) (7,397) Total shareowners' equity 573,990 637,351 Total liabilities and shareowners' equity $2,329,940 $2,125,066 See notes to consolidated financial statements. 19 Statements of Consolidated Shareowners' Equity
Common Stock Additional Treasury Stock Employee Pension Foreign Paid-In Retained Stock Liability Currency In thousands Shares Amount Capital Earnings Shares Amount Plans Adjustment Translation Balance at December 31, 1993 117,151 $146,438 $480,067 $325,823 (10,431) ($232,510) ($62,342)$ ($70,695) Net income 147,947 Cash dividends (53,596) Stock issued under employee stock plans (1,760) 207 4,635 Stock awards: Granted (1,045) 243 5,397 (4,352) Earned or canceled 413 (65) (1,457) 4,284 Conversion of subordinated debentures (985) 137 3,063 ESOP: Issued (493) 95 2,127 Allocated 1,594 Tax benefit of ESOP dividends and stock options 956 Translation adjustments related to business disposition 13,089 Translation adjustments 25,114 Balance at December 31, 1994 117,151 146,438 477,153 420,174 (9,814) (218,745) (60,816) (32,492) Net loss (20,476) Cash dividends (55,352) Stock issued under employee stock plans (2,301) 339 7,295 Stock awards: Granted (1,539) 212 4,713 (3,173) Earned or canceled 672 (108) (2,408) 4,949 Purchase of Common stock for treasury (2,744) (54,775) Conversion of subordinated debentures (1,941) 272 6,071 ESOP: Issued (629) 98 2,186 Allocated 1,721 Tax benefit of ESOP dividends and stock options 1,187 Minimum pension liability adjustment (5,656) Translation adjustments related to business disposition 19,887 Translation adjustments 5,208 20 Balance at December 117,151 146,438 472,602 344,346 (11,745) (255,663) (57,319) (5,656) (7,397) 31, 1995 Net income 136,429 Cash dividends (57,223) Stock issued under employee stock plans (2,324) 390 8,435 Stock awards: Granted (303) 205 4,462 (2,669) Earned or canceled 127 (23) (511) 2,979 Purchase of Common stock for treasury (8,056) (164,439) ESOP: Issued (264) 123 2,681 Allocated 1,805 Tax benefit of ESOP dividends and stock options 1,320 Minimum pension liability adjustment 5,549 Translation adjustments 585 Balance at December 31, 1996 117,151 $146,438 $471,158 $423,552 (19,106) ($405,035) ($55,204) ($107) ($6,812)
See notes to consolidated financial statements. 21 Statements of Consolidated Cash Flows Year Ended December 31 In thousands 1996 1995 1994 Operating activities Net income (loss) $ 136,429 $ (20,476) $ 147,947 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary item - early retirement of debt 1,548 5,480 Cumulative effect of accounting change 3,190 Minority interest 1,260 Loss on business dispositions 146,785 13,088 Depreciation and amortization 111,279 111,861 119,358 Deferred income taxes (15,341) (42,036) (10,058) Restructuring charge 40,000 Changes in working capital items exclusive of business dispositions and investment in joint venture: Accounts receivable (14,234) 60,156 (53,074) Inventories (41,158) 13,248 24,503 Other current assets 15,124 5,548 (2,537) Other current liabilities 28,956 4,624 43,387 Restructuring reserves (17,755) (903) (26,686) "Free flights" promotion reserve (388) (26,709) Pension assets and liabilities (12,129) 17,735 14,089 Postretirement benefits 18,937 15,702 21,197 Other--net (5,413) 2,643 1,667 Net cash provided by operating activities 247,503 319,979 269,362 Investing activities Capital expenditures (211,455) (148,349) (79,024) Investment in joint venture (net of cash acquired of $5,174) (29,625) Proceeds from business dispositions (net of cash in businesses sold of $15,783 in 1995 and $2,650 in 1994) 148,497 79,428 Total investing activities (241,080) 148 404 Financing activities Proceeds from issuance of notes payable 34,094 18,921 19,562 Repayment of notes payable (48,729) (137,696) Proceeds from issuance of long-term debt 26,536 Repayment of long-term debt (20,500) (163,609) (36,001) Debt repurchase premiums (1,548) (5,480) Stock repurchases (164,439) (54,775) Stock options exercised and other Common stock transactions 15,738 16,801 12,377 Dividends (57,223) (55,352) (53,596) Investment by joint venture partner 8,625 Proceeds from interest rate swaps 38,038 Total financing activities (120,679) (292,223) (195,354) Effect of exchange rates on cash 585 2,907 4,261 (Decrease) increase in cash and cash equivalents (113,671) 30,811 78,673 Cash and cash equivalents at beginning of year 141,214 110,403 31,730 Cash and cash equivalents at end of year $ 27,543 $ 141,214 $ 110,403 See notes to consolidated financial statements. 22 Notes to Consolidated Financial Statements Summary of Significant Accounting Policies Organization: Home Appliances - the Company, through its various business units, manufactures, distributes and services a broad line of home appliances including laundry equipment, dishwashers, refrigerators, cooking appliances, vacuum cleaners and extractors. The Company markets its home appliances primarily to major United States markets, including the replacement market, the commercial laundry market, the new home and apartment builder market, the recreational vehicle market, the private label market and the household/commercial floor care market. Products are primarily sold to major retailers, independent dealers and distributors. Vending Equipment - the Company manufactures, through its Dixie-Narco subsidiary, a variety of bottle and can vending equipment and glass front merchandisers. The products are sold worldwide primarily to soft drink bottlers and vending equipment distributors. 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 and exchange gains and losses from designated intercompany foreign currency transactions are recorded in a separate component of 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 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 Equivalents: Highly liquid investments with a maturity of 90 days 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 91 percent and 96 percent of the Company's inventories at December 31, 1996 and 1995, 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. 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 of businesses acquired. Goodwill is amortized over 40 years using the straight-line method and the carrying value is reviewed annually. If this review indicates that goodwill will not be recoverable based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill will be reduced by the estimated shortfall of cash flows. 23 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 5 to 20 years for machinery and equipment. Short and Long-Term Debt: The carrying amounts of the Company's borrowings under its short-term revolving credit agreements approximate their fair value. The fair values of the Company's long-term debt are estimated based on quoted market prices of comparable instruments. 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 enters into forward foreign exchange contracts to hedge exposures related to foreign currency transactions. Gains and losses on hedges of firm identifiable commitments are recognized in the same period in which the underlying transaction is recorded. Gains and losses on other contracts are marked to market each period and the gains and losses are included in income. The Company enters into interest rate swap contracts which it marks to market each period with the gains and losses included in income. 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 (Loss) Per Common Share: Earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Business Acquisition In the third quarter of 1996 the Company invested approximately $35 million and committed additional investments of $35 million for a 50.5 percent ownership in a joint venture with a manufacturer of appliances in China. The Company accounted for this investment as a purchase which resulted in an increase in intangibles of $31.7 million. The results of this China joint venture are consolidated in the Company s financial statements. Business Dispositions In the second quarter of 1995 the Company sold its home appliance operations in Europe ( European Operations ) for $164.3 million in cash. The pretax loss from the sale was $140.8 million and resulted in an after-tax loss of $135.4 million. In the fourth quarter of 1995, the Company sold the business and assets of a Dixie-Narco manufacturing operation in Eastlake, Ohio ( Eastlake Operations ). The pretax loss from the sale was $6 million and resulted in an after-tax loss of $3.6 million. In the fourth quarter of 1994, the Company sold its home appliance operations in Australia and New Zealand ( Australian Operations ) for $82.1 million in cash. The pretax loss on the sale was $13.1 million and resulted in an after-tax loss of $16.4 million. See Industry Segment and 24 Geographic Information for financial information related to these businesses. Restructuring Charge During the first quarter of 1996 the Company announced the restructuring of its major appliance operations in an effort to strengthen its position in the industry and to deliver improved results to both customers and shareowners. This included the consolidation of two separate organizational units into a single operation responsible for all activities associated with the manufacture and distribution of the Company's brands of major appliances and the closing of a cooking products plant in Indianapolis, Indiana, with transfer of that production to an existing plant in Cleveland, Tennessee. As a result of these actions the Company recorded a one-time restructuring charge of $40 million, or $24.4 million after-tax, in the first quarter of 1996. This charge is primarily related to the costs associated with the consolidation of cooking products manufacturing activities and consolidation of activities of the two separate organizational units. Of this $40 million restructuring charge it is estimated that cash expenditures of approximately $24 million primarily related to severance are expected to be incurred. The non-cash charges of approximately $16 million are primarily related to write-offs of property, plant and equipment. During 1996 the Company incurred approximately $18 million of costs, of which approximately $12 million were cash expenditures that were charged to the $40 million reserve established for this restructuring. Other Expenses In the third quarter of 1995 the Company recorded a $16.5 million charge to settle a lawsuit relating to the 1991 closing of a former Dixie-Narco plant in Ranson, West Virginia. In the fourth quarter of 1995 the Company recorded an $18 million charge arising from a guarantee of indebtedness relating to the sale of one of its manufacturing facilities in 1992. The obligation was settled and paid in 1996. Inventories December 31 In thousands 1996 1995 Raw materials $ 53,319 $ 30,046 Work in process 45,406 44,371 Finished goods 222,954 185,338 Supplies 5,457 5,364 $ 327,136 $ 265,119 If the FIFO method of inventory accounting, which approximates current cost, had been used for all inventories, they would have been $79.5 million and $82.1 million higher than reported at December 31, 1996 and 1995, respectively. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 25 Significant components of the Company's deferred tax assets and liabilities are as follows: December 31 In thousands 1996 1995 Deferred tax assets (liabilities): Tax over book depreciation $ (84,448) $ (93,173) Postretirement benefit obligation 174,044 167,783 Product warranty/liability accruals 21,221 22,473 Pensions and other employee benefits 6,199 11,112 Capital loss carryforward 22,226 37,876 Restructuring reserve 8,653 Interest rate swaps 15,813 Other 3,200 13,493 166,908 159,564 Less valuation allowance for deferred tax assets 32,495 40,492 Net deferred tax assets $ 134,413 $ 119,072 Recognized in statements of consolidated financial condition: Deferred tax assets--current $ 30,266 $ 42,785 Deferred tax liabilities--current (956) Deferred tax assets--noncurrent 131,159 91,610 Deferred tax liabilities--noncurrent (27,012) (14,367) Net deferred tax assets $ 134,413 $ 119,072 At December 31, 1996 the Company has available for tax purposes approximately $1 million of net operating loss carryforwards outside the United States which expire in various years through 2005. The Company also has a capital loss carryforward available in the United States of $64 million which expires in the year 2000. Income before income taxes, minority interest, extraordinary item and cumulative effect of accounting change consists of the following: Year Ended December 31 In thousands 1996 1995 1994 United States $ 216,248 $ 65,041 $ 230,320 Non-United States 11,989 (5,237) 11,017 $ 228,237 $ 59,804 $ 241,337 Significant components of the provision for income taxes are as follows: Year Ended December 31 In thousands 1996 1995 1994 Current provision: Federal $ 99,500 $ 81,200 $ 78,200 State 19,200 16,400 16,400 Non-United States 4,100 1,100 12,900 122,800 98,700 107,500 Deferred provision: Federal (29,000) (19,900) (9,400) State (5,500) (5,200) (2,500) Non-United States 700 1,200 (5,400) (33,800) (23,900) (17,300) Provision for income taxes $ 89,000 $ 74,800 $ 90,200 26 Significant items impacting the effective income tax rate are as follows: Year Ended December 31 In thousands 1996 1995 1994 Income before minority interest, extraordinary item and cumulative effect of accounting change computed at the statutory United States income tax rate $ 79,900 $ 20,900 $ 84,500 Increase (reduction) resulting from: Utilization of capital loss carryforward (14,000) Deferred tax asset valuation allowance 9,800 Tax benefit associated with European operating losses and reorganization costs (20,000) Non-United States losses with no tax benefit 100 400 5,800 Goodwill amortization 3,200 3,200 3,200 Effect of business disposition 46,000 7,800 State income taxes, net of federal tax benefit 8,900 7,300 9,000 Tax credits arising outside the United States (1,000) (1,200) (600) Other-net 2,100 (1,800) 500 Provision for income taxes $ 89,000 $ 74,800 $ 90,200 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 $8 million at December 31, 1996), 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 substantially eliminated by available tax credits arising from taxes paid outside the United States. Income taxes paid, net of refunds received, during 1996, 1995 and 1994 were $102 million, $123 million, and $103 million, respectively. Notes Payable Notes payable at December 31, 1996 consisted of notes payable to banks of $30.5 million and commercial paper borrowings of $25 million. The Company's commercial paper program is supported by a credit agreement totaling $400 million which expires on June 29, 2001. Subject to certain exceptions, the credit agreement requires the Company to be within certain quarterly levels of maximum leverage and minimum interest coverage. At December 31, 1996 the Company was in compliance with all covenants. The weighted average interest rate on all notes payable and commercial paper borrowings was 8.5 percent at December 31, 1996. There were no short-term notes payable and commercial paper borrowings at December 31, 1995. 27 Long-Term Debt Long-term debt consisted of the following: December 31 In thousands 1996 1995 Notes payable with interest payable semiannually: Due May 15, 2002 at 9.75% $ 159,925 $ 177,425 Due July 15, 1999 at 8.875% 148,550 148,550 Due July 1, 1997 at 8.875% 53,741 53,741 Medium-term notes, maturing from 2001 to 2010, from 7.22% to 9.03% with interest payable semiannually 126,500 101,500 Employee stock ownership plan notes payable semiannually through July 2, 2004 at 9.35% 52,671 55,373 Other 6,236 3,191 547,623 539,780 Less current maturities of long-term debt 59,086 3,201 Long-term debt $ 488,537 $ 536,579 The 9.75 percent notes, the 8.875 percent notes due in 1999 and 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. The fair value of the Company's long-term debt, based on public quotes if available, exceeded the amount recorded in the statements of consolidated financial condition at December 31, 1996 and 1995 by $46.9 million and $68.1 million, respectively. Interest paid during 1996, 1995 and 1994 was $51.1 million, $60.3 million, and $75.2 million, respectively. The Company capitalizes interest incurred on funds used to construct property, plant and equipment. Interest capitalized during 1996, 1995 and 1994 was $8.9 million, $2.5 million, and $0.6 million, respectively. The aggregate maturities of long-term debt in each of the next five years and thereafter is as follows (in thousands): 1997-$59,086; 1998-$5,350; 1999- $154,563; 2000-$6,123; 2001-$7,151; thereafter-$315,350. In 1996 the Company retired $17.5 million of the 9.75 percent notes due May 15, 2002. As a result of this early retirement the Company recorded an after- tax charge of $1.5 million (net of income tax benefit of $1.0 million). In 1996 the Company also issued an additional $25 million of 7.22 percent medium- term notes maturing in 2006. In 1995 the Company retired $116.5 million of long-term debt. Included in this amount was $22.6 million of the 9.75 percent notes due May 15, 2002, $26.4 million of the 8.875 percent notes due July 15, 1999, $46.3 million of the 8.875 percent notes due July 1, 1997 and $21.2 million of medium- term notes ranging in maturities from November 15, 2001 to February 23, 2010. As a result of these early retirements, the Company recorded an after-tax charge of $5.5 million (net of income tax benefit of $3.6 million). The 1996 and 1995 charges have been reflected in the statements of consolidated income (loss) as extraordinary items. Accrued Liabilities December 31 In thousands 1996 1995 Warranties $ 33,881 $ 31,035 Advertising and sales promotion 42,899 28,297 Other 103,946 96,709 $ 180,726 $ 156,041 28 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. In 1996, 1995 and 1994 the Company made contributions to the plans of $42.3 million, $1.6 million and $1.7 million, respectively. A summary of the components of net periodic pension cost for the plans is as follows: Year Ended December 31 In thousands 1996 1995 1994 Service cost--benefits earned during the period $ 19,637 $ 20,358 $ 28,550 Interest cost on projected benefit obligation 63,828 80,163 94,148 Actual return on plan assets (96,929) (170,847) 559 Net amortization and deferral 38,431 88,782 (108,079) Net periodic pension cost $ 24,967 $ 18,456 $ 15,178 Assumptions used in determining net periodic pension cost for the plans in the United States were: 1996 1995 1994 Discount rates 7.5% 8.5% 7.5% Rates of increase in compensation levels 5.0% 6.0% 5.0% Expected long-term rate of return on assets 9.5% 9.5% 9.5% For the valuation of pension obligations at the end of 1996 set forth in the table below, and for determining pension expense in 1997, the discount rate and rate of compensation increase remained at 7.5 percent and 5.0 percent, respectively. Assumptions for plans outside the United States are comparable to the above in all periods. As of December 31, 1996 approximately 97 percent of the plan assets are invested in listed stocks and bonds. The balance is invested in real estate and short term investments. The plan in the United States provides that in the event of a change of Company control and plan termination any excess funding may be used only to provide pension benefits or to fund retirees' health care benefits. The use of all pension assets for anything other than providing employee benefits is either limited by legal restrictions or subject to severe taxation. 29 The following table sets forth the funded status and amounts recognized in the Statements of Consolidated Financial Condition for the Company's defined benefit pension plans: December 31, 1996 December 31, 1995 Plans in Plans in Plans in Plans in Which Which Which Which Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits In thousands Benefits Exceed Assets BenefitsExceed Assets Actuarial present value of benefit obligation: Vested benefit obligation $ (8,695) $ (758,171) $ (8,096) $ (721,880) Accumulated benefit obligation $ (8,697) $ (837,891) $ (8,099) $ (803,468) Projected benefit obligation $ (9,206) $ (895,825) $ (8,781) $ (855,017) Plan assets at fair value 10,769 787,806 9,934 714,818 Projected benefit obligation less than (in excess of) plan assets 1,563 (108,019) 1,153 (140,199) Unrecognized net (gain) loss (453) 71,728 5 83,828 Unrecognized prior service cost 613 77,708 604 90,670 Unrecognized net transition asset (282) (21,176) (273) (26,235) Net pension asset $ 1,441 $ 20,241 $ 1,489 $ 8,064 Recognized in the statements of consolidated financial condition Pension investment (liability) $ 1,441 $ (50,377) $ 1,489 $ (88,883) Intangible pension asset 70,511 91,291 Reduction of shareowners' equity 107 5,656 Net pension asset $ 1,441 $ 20,241 $ 1,489 $ 8,064 FASB Statement No. 87 "Employers' Accounting For Pensions" requires the Company to recognize a minimum pension liability equal to the amount by which the actuarial present value of the accumulated benefit obligation exceeds the fair value of plan's assets. In 1996 and 1995 the Company recorded $70.6 million and $96.9 million, respectively, to recognize the minimum pension liability. A corresponding amount is required to be recognized as an intangible asset to the extent of the unrecognized prior service cost and unrecognized net transition obligation on an individual plan basis. Any excess of the minimum pension liability above the intangible asset is recorded as a separate component and reduction of shareowners' equity. In 1996 the Company recorded an intangible asset of $70.5 million and a reduction in shareowners' equity of $0.1 million. In 1995 an intangible asset of $91.2 million and a reduction of shareowners' equity of $5.7 million was recorded in the Company's Statements of Consolidated Financial Condition. 30 Postretirement Benefits Other Than Pensions and Other Employee Benefits In addition to providing pension benefits, the Company provides postretirement health care and life insurance benefits for certain employee groups in the United States. 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. A summary of the components of net periodic postretirement benefit cost is as follows: Year Ended December 31 In thousands 1996 1995 1994 Service cost $ 15,453 $ 12,876 $ 15,440 Interest cost 28,498 27,911 29,448 Net amortization and deferral (8,130) (8,147) (5,957) Net periodic postretirement benefit cost $ 35,821 $ 32,640 $ 38,931 Assumptions used in determining net periodic postretirement benefit cost were: 1996 1995 1994 Health care cost trend rates(1): Current year 8.5% 9.0% 13.0% Decreasing gradually to in the year 2001 and thereafter 6.0% 6.0% 6.0% Discount rates 7.5% 8.5% 7.5% (1) Weighted-average annual assumed rate of increase in the per capita cost of covered benefits. For the valuation of the accumulated benefit obligation at December 31, 1996 and for determining postretirement benefit costs in 1997, the health care cost trend rates were decreased to 7.0 percent for 1997 decreasing gradually to 5.0 percent in the year 2001 and 5.0 percent each year thereafter. The discount rate remained at 7.5 percent. The health care cost trend rate assumption has a significant impact on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by $41.6 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996 by $5.7 million. The following table presents the status of the plans reconciled with amounts recognized in the Statements of Consolidated Financial Condition for the Company's postretirement benefits. December 31 In thousands 1996 1995 Accumulated postretirement benefit obligation: Retirees $ 243,900 $ 259,421 Fully eligible active plan participants 41,063 42,698 Other active plan participants 92,526 92,557 377,489 394,676 Unamortized prior service cost 28,778 37,235 Unrecognized net gain (loss) 41,148 (3,433) Postretirement benefit liability recognized in the statements of consolidated financial condition $ 447,415 $ 428,478 31 In the first quarter of 1994 the Company adopted FASB Statement No. 112, "Employers' Accounting for Postemployment Benefits." The new rules require recognition of a liability for certain disability and severance benefits to former or inactive employees. The cumulative effect of the accounting change was $3.2 million. The ongoing expenses associated with the adoption of this standard are not significant. Leases The Company leases buildings, machinery, equipment and automobiles under operating leases. Rental expense for operating leases amounted to $22.1 million, $20.6 million, and $24.4 million for 1996, 1995 and 1994. Minimum lease payments under leases expiring subsequent to December 31, 1996 are: Year Ending Thousands 1997 $ 12,317 1998 10,357 1999 7,507 2000 5,051 2001 3,889 Thereafter 7,145 Total minimum lease payments $ 46,266 Financial Instruments The Company enters into forward exchange contracts and options to hedge exposures from certain monetary assets and liabilities as well as firm commitments and anticipated foreign exchange transactions resulting from the export and import of products and supplies. Counterparties to these agreements are major international financial institutions. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual cash flows resulting from these transactions could be adversely affected by changes in exchange rates. At December 31, 1996 the Company had forward exchange contracts for the exchange of Canadian dollars, all having maturities of less than twelve months, in the amount of U.S. $50.0 million. The Company also had option contracts, with maturities of less than twelve months, to exchange Canadian dollars to U.S. dollars in the amount U.S. $15.8 million. Gains and losses recognized from these contracts in 1996 were not significant. The Company initiated 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. Due to the volatility in the Canadian interest rate market in 1996, the Company realized $38 million of gains which were offset by mark to market unrealized losses of $40.6 million. These net realized gains and unrealized losses totaling are reflected in Other-net in the Statement of Consolidated Income (Loss). As of December 31, 1996 the Company had five swap transactions outstanding with a total notional principal amount of $90.9 million which mature by 2003. The fair value of the swap positions at December 31, 1996 is reflected in Other noncurrent liabilities in the Statements of Consolidated Financial Condition. 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, 1996 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. 32 Stock Plans In 1996 the shareowners approved the 1996 Employee Stock Incentive Plan which replaced all other previous employee stock incentive plans. The plan provides that options and awards for not more than 6.5 million shares of the Common Stock of the Company can be granted to key employees. The option price under the plan is the fair market value at the date of grant. The vesting period and term of options granted are established by the Compensation Committee of the Board of Directors. In no instances is the term of the option more than ten years. Of the total 6.5 million shares authorized by this plan, not more than 2.5 million shares of the Common Stock of the Company can be granted as stock awards. Stock awards may contain such vesting and other requirements as the Compensation Committee may establish. The plan permits the Compensation Committee to grant other incentive awards on terms and conditions established by the Committee. Options and awards are outstanding for grants issued under previous plans with similar terms to the 1996 plan. The Maytag Corporation 1989 Non-Employee Directors Stock Option Plan authorizes the issuance of up to 250,000 shares of Common Stock to the Company's non-employee directors. Options under this plan are immediately exercisable upon grant. The following is a summary of stock option activity: Average Option Price Shares Outstanding December 31, 1993 $15.33 2,358,601 Granted 15.78 650,216 Exercised 13.66 (211,689) Exchanged for SAR 12.40 (6,610) Canceled or expired 17.10 (78,765) Outstanding December 31, 1994 15.53 2,711,753 Granted 17.62 1,745,420 Exercised 14.88 (352,320) Exchanged for SAR 14.21 (8,905) Canceled or expired 16.50 (130,650) Outstanding December 31, 1995 16.47 3,965,298 Granted 19.34 1,933,330 Exercised 15.09 (394,371) Exchanged for SAR 14.73 (4,610) Canceled or expired 19.68 (103,276) Outstanding December 31, 1996 $17.54 5,396,371 Some 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 option price and the market value of the shares being surrendered. Options with an SAR outstanding were 234,680 at December 31, 1996, 334,673 at December 31, 1995 and 412,423 at December 31, 1994. Options for 3,494,501 shares, 2,236,868 shares and 2,082,747 shares were exercisable at December 31, 1996, 1995 and 1994, respectively. In the event of a change of Company control, all stock options granted become immediately exercisable. Exercise prices for options outstanding as of December 31, 1996 ranged from $6.78 to $22.13. The weighted-average remaining contractual life of those options is 8.15 years. There were 4,751,430 and 507,334 shares available for future stock grants at December 31, 1996 and 1995, respectively. Incentive stock awards outstanding at December 31, 1996, 1995 and 1994 were 462,253, 740,045 and 636,664. The amount charged to expense for the anticipated payout was $4.8 million, $9.4 million and $6.2 million in 1996, 1995 and 1994, respectively. 33 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 options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.03 percent and 5.93 percent; dividend yields of 2.8 percent for both years; volatility factors of the expected market price of the Company's common stock of 0.24 for both years; and a weighted-average expected life of the option of 5 years. The weighted-average fair value of options was $4.61 for options granted in 1996 and $4.16 for options granted in 1995. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information): 1996 1995 Net earnings - as reported $136,429 $(20,476) Net earnings - pro forma $132,558 $(21,593) Earnings per share - as reported $1.34 $(0.19) Earnings per share - pro forma $1.30 $(0.20) The pro forma effect on net income for 1996 and 1995 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995 and an increased vesting period for grants made in 1996. Employee Stock Ownership Plan The Company has established a trust to administer a leveraged employee stock ownership plan (ESOP) within an existing employee savings plan. The Company has guaranteed the debt of the trust and will service the repayment of the debt, including interest, through the Company's employee savings plan contributions and from the quarterly dividends paid on stock held by the ESOP. The ESOP notes are collateralized by the Common stock owned by the ESOP trust. The Company makes annual contributions to the ESOP to the extent the dividends earned on the shares held are less than the debt service requirements. Dividends paid by the Company on stock held by the ESOP to service the debt totaled $1.5 million, $1.4 million and $1.4 million in 1996, 1995 and 1994. The Company also made contributions to the plan for loan payments of $6.5 million, $6.3 million and $5.9 million in 1996, 1995 and 1994. As the debt is repaid shares are released from collateral and allocated to active employees based on the proportion of debt service paid in the year. Accordingly, the loan outstanding is recorded as debt and the cost of shares pledged as collateral are reported as a reduction of Shareowners' Equity (employee stock plans). As the shares are released from collateral, the Company reports compensation expense based on the historical cost of the shares. The Company also expenses any additional contributions required if the shares released from collateral are less than the shares earned by the employees. All shares held by the ESOP are considered outstanding for earnings per share computations and dividends earned on the shares are recorded as a reduction of retained earnings. Compensation expense which is based on the shares released from collateral and the additional contribution of shares as required was $8.8 million, $8.3 million and $7.4 million in 1996, 1995 and 1994. Of these amounts, interest on the ESOP debt which is recognized as interest expense by the Company was $5.0 million, $5.2 million and $5.4 million in 1996, 1995 and 1994. 34 The ESOP shares as of December 31 were as follows: 1996 1995 Original shares held in trust: Released and allocated 1,229,910 1,053,087 Unreleased shares (fair value; 1996 - $32,748,064; 1995 - $36,632,134) 1,627,233 1,804,056 2,857,143 2,857,143 Additional shares contributed and allocated 646,560 530,977 Shares withdrawn (338,193) (222,759) Total shares held in trust 3,165,510 3,165,361 Shareowners' Equity Pursuant to a Shareholder Rights Plan approved by the Company in 1988, 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 $75. 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, 1998. Supplementary Expense Information Year Ended December 31 In thousands 1996 1995 1994 Advertising costs $ 137,865 $ 134,411 $ 153,233 Research and development expenses 47,996 47,013 45,926 Contingencies and Disclosure of Certain Risks and Uncertainties The Company made various warranties to the buyer in connection with the sale of its Australian Operations. In the fourth quarter of 1996 the buyer asserted several claims against the Company alleging breaches of a few of those warranties, including a claim for future product warranty costs which may be incurred associated with certain products manufactured prior to the date of sale. Based on the information currently available no estimate of the potential loss can be made at this time. A soft drink bottler, Buenos Aires Embotelladora Inc. ("BAESA"), previously announced it was unable to pay amounts due on various bank loans totaling approximately $500 million and was exploring alternatives with its lenders to restructure its debt. BAESA has negotiated a standstill agreement with its lenders which provides for payment of 30 percent of the interest which will accrue and suspension of principal payments until March 31, 1997. The Company had guaranteed bank loans of BAESA in the amount of $19.8 million used to finance the purchases of vending equipment from Dixie-Narco. The Company purchased a guaranteed loan in the amount of $14.3 million from one of the banks prior to December 31, 1996 and remains contingently liable on its guarantees for the remaining bank loans of $5.5 million. Dixie-Narco also has receivables owed by the customer totaling $1.8 million. The ultimate settlement on such loans is not expected to have a significant adverse effect on the Company's consolidated 35 financial position. In connection with the sale of the European Operations, the Company has made various warranties to the buyer, including the accuracy of tax net operating losses in the United Kingdom, and has agreed to indemnify the buyer for liabilities resulting from customer claims under the 1992 and 1993 "free flights" promotions in excess of the reserve balance at the time of sale. The resolution of these items is not expected to have a significant adverse effect on the Company's consolidated financial position. As announced in 1995 the Company conducted an in-home inspection program to eliminate a potential problem with a small electrical component in Maytag brand dishwashers. The majority of the costs have been incurred as the inspection has been completed for substantially all of the units identified for inspection. At December 31, 1996 the Company has outstanding commitments for capital expenditures of $70 million and unused letters of credit of $36.7 million. Other contingent liabilities arising in the normal course of business, including guarantees, repurchase agreements, pending litigation, environmental issues, taxes and other claims are not considered to be significant in relation to the Company's consolidated financial position. Industry Segment and Geographic Information Principal financial data by industry segment is as follows: In thousands 1996 1995 1994 Net sales Home appliances $2,839,355 $2,844,811 $3,180,766 Vending equipment 162,301 194,713 191,749 Total $3,001,656 $3,039,524 $3,372,515 Income before income taxes, minority interest, extraordinary item and cumulative effect of accounting change Home appliances $ 280,747 $ 295,806 $ 334,027 Vending equipment 10,731 23,466 21,866 General corporate (22,399) (31,038) (33,125) Operating income 269,079 288,234 322,768 Interest expense (43,006) (52,087) (74,077) Other (see statements of consolidated income/loss) 2,164 (176,343) (7,354) Total $ 228,237 $ 59,804 $ 241,337 Capital expenditures Home appliances $ 208,362 $ 140,549 $ 75,017 Vending equipment 2,714 3,998 1,902 General corporate 379 3,802 2,105 Total $ 211,455 $ 148,349 $ 79,024 Depreciation and amortization Home appliances $ 106,180 $ 105,271 $ 113,160 Vending equipment 3,820 4,307 4,434 General corporate 1,279 2,283 1,764 Total $ 111,279 $ 111,861 $ 119,358 Identifiable assets Home appliances $1,922,478 $1,593,538 $2,053,175 Vending equipment 91,886 94,299 98,109 General corporate 315,576 437,229 353,043 Total $2,329,940 $2,125,066 $2,504,327 36 Information about the Company's operations in different geographic locations is as follows: In thousands 1996 1995 1994 Net sales North America $2,961,208 $2,858,347 $2,831,583 Asia 40,448 Europe 181,177 398,966 Australia and New Zealand 141,966 Total $3,001,656 $3,039,524 $3,372,515 Income before income taxes, minority interest, extraordinary item and cumulative effect of accounting change North America $ 287,676 $ 326,451 $ 342,887 Asia 3,802 Europe (7,179) 420 Australia and New Zealand 12,586 General corporate (22,399) (31,038) (33,125) Operating income 269,079 288,234 322,768 Interest expense (43,006) (52,087) (74,077) Other (see statements of consolidated income/loss) 2,164 (176,343) (7,354) Total $ 228,237 $ 59,804 $ 241,337 Identifiable assets North America $1,825,002 $1,687,837 $1,768,629 Asia 189,362 Europe 382,655 General corporate 315,576 437,229 353,043 Total $2,329,940 $2,125,066 $2,504,327 Sales between affiliates of different geographic regions are not significant. The amount of exchange gain or loss included in operations in any of the years presented was not significant. In September 1996 the Company acquired a 50.5 percent ownership in a joint venture with a manufacturer of appliances in China. In June 1995 the Company sold its European Operations and in December 1994 the Company sold its Australian Operations. The general Corporate asset category includes items such as cash, deferred tax assets, pension investments and other assets. Prior to the quarter ended December 31, 1994 the Company's European subsidiaries were consolidated as of a date one month earlier than subsidiaries in the United States. In the fourth quarter of 1994 this one month reporting lag was eliminated and European results for the quarter ended December 31, 1994 include activity for four months. The effect of this change increased net sales by $25.2 million in the fourth quarter and the impact on income before income taxes and cumulative effect of accounting change was not significant. 37 Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations: December September June March In thousands except per share data 31 30 30 31 1996 Net sales $ 772,941 $ 742,850 $ 754,619 $ 731,246 Gross profit 206,713 205,088 207,215 202,427 Income before extraordinary item 35,338 42,178 44,343 16,118 Per average share 0.36 0.42 0.43 0.15 Net income 35,338 40,630 44,343 16,118 Per average share $ 0.36 $ 0.40 $ 0.43 $ 0.15 1995 Net sales $ 689,541 $ 726,371 $ 803,479 $ 820,133 Gross profit 179,721 187,630 200,333 221,224 Income (loss) before extraordinary item 16,616 30,003 (101,146) 39,531 Per average share 0.16 0.28 (0.95) 0.37 Net income (loss) 16,616 27,946 (104,569) 39,531 Per average share $ 0.16 $ 0.26 $ (0.98)$ 0.37 The quarter ended March 31, 1996 includes a $24.4 million after-tax charge for the restructuring of its major home appliance business. In the third quarter of 1996 the Company acquired a 50.5 percent ownership in a joint venture with a manufacturer of appliances in China. The results of this operation are consolidated in the Company's financial statements beginning in September 1996. Net sales from the joint venture of $10.0 and $30.4 million are included in the quarters ended September 30, 1996 and December 31, 1996, respectively. In the second quarter of 1995 the Company sold its European Operations. Net sales from the European Operations of $98.8 and $82.4 million are included in the quarters ended March 31, 1995 and June 30, 1995, respectively. The quarter ended June 30, 1995 includes a $135.4 million after-tax loss on the sale of the European Operations. The quarter ended September 30, 1995 includes a $9.9 million after-tax charge to settle a lawsuit relating to the 1991 closing of a former Dixie-Narco plant in Ranson, West Virginia. The quarter ended December 31, 1995 includes a $10.8 million after-tax loss arising from a guarantee of indebtedness relating to the sale of one of its manufacturing facilities in 1992 and a $3.6 million after-tax loss on the sale of the Eastlake Operation. 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 1 through 8 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. 38 Item 11. Executive Compensation. Information concerning executive compensation on pages 9 through 17 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 pages 18 and 19 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. 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 6 through 8 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 5 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 41. (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 42 through 45. (b) There were no reports on Form 8-K filed during the fourth quarter ended December 31, 1996. (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 42 through 45. (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 41. 39 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 Leonard A. Hadley ____________________________________ Leonard A. Hadley 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 Gerald J. Pribanic s/sSteven 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 Bernard G. Rethore s/s Neele E. Stearns _____________________________________ _____________________________________ Bernard G. Rethore 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: March 26, 1997 40 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, 1996 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 Statements of Consolidated Income (Loss)--Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . 17 Statements of Consolidated Financial Condition-- December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 18 Statements of Consolidated Shareowners' Equity--Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . 20 Statements of Consolidated Cash Flows--Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . 22 Notes to Consolidated Financial Statements . . . . . . . . . 23 Quarterly Results of Operations--Years 1996 and 1995 . . . . 38 The following consolidated financial statement schedule of Maytag Corporation and subsidiaries is included in Item 14(d): Schedule II Valuation and Qualifying Accounts . . . . . . . 46 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. 41 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) By-Laws of Registrant, as amended through 1993 Annual February 7, 1991. Report on Form 10-K 4(a) Rights Agreement dated as of May 2, 1988 Current between Registrant and The First National Report on Bank of Boston. Form 8-K dated May 5, 1988, Exhibit 1. 4(b) Amendment, dated as of September 24, 1990 Current to the Rights Agreement, dated as of May Report on 2, 1988 between the Registrant and The Form 8-K First National Bank of Boston. dated October 3, 1990, 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. 42 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, 1995 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 Dated X as of July 1, 1996 among Registrant, the banks Party Hereto and Bank of Montreal, Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(i) 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 10(b) Executive Severance 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 Executive Form 10-K Severance Agreement listed in Exhibits 10(b) and 10(c). 43 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 10(e) Severance Agreement with Joseph Fogliano, 1995 Annual former Executive Vice President and Report on President North American Appliance Group Form 10-K (1). 10(f) 1989 Non-Employee Directors Stock Option Exhibit A to Plan (1). Registrant's Proxy Statement dated March 18, 1990. 10(g) 1986 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 14, 1986. 10(h) 1992 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 16, 1992. 10(i) 1991 Stock Incentive Award Plan for Key Exhibit A to Executives (1). Registrant's Proxy Statement dated March 15, 1991. 10(j) Directors Deferred Compensation Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K. 10(k) 1996 Employee Stock Incentive Plan (1). Exhibit A to Registrant's Proxy Statement dated March 20, 1996. 44 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 10(l) 1988 Capital Accumulation Plan for Key Amendment No. Employees (1). (Superseded by Deferred 1 on Form 8 Compensation Plan, as amended and dated April restated effective January 1, 1996) 5, 1990 to 1989 Annual Report on Form 10-K. 10(m) Maytag Deferred Compensation Plan, as 1995 Annual amended and restated effective January 1, Report on 1996. Form 10-K 10(n) Directors Retirement Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K. 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 X 45
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, 1996: Allowance for doubtful $12,540 $14,152 $ 14,169 (1) $13,790 accounts receivable 2 (2) (1,269)(3) $12,540 $14,152 $ 12,902 $13,790 Year ended December 31, 1995: Allowance for doubtful $20,037 $16,630 $ 19,387 (1) $12,540 accounts receivable (183)(2) 4,923 (4) $20,037 $16,630 $ 24,127 $12,540 Year ended December 31, 1994: Allowance for doubtful $15,629 $12,412 $ 5,852 (1) $20,037 accounts receivable (551)(2) 2,703 (5) $15,629 $12,412 $ 8,004 $20,037 Note (1) - Uncollectible accounts written off Note (2) - Effect of foreign currency translation Note (3) - Resulting from acquistion of the Company's China joint venture in September 1996. Note (4) - Resulting from divestiture of the Company's European Operations in June 1995. Note (5) - Resulting from divestiture of the Company's Australian Operations in December 1994.
46 EX-4 2 AMENDMENT TO CREDIT AGREEMENT MAYTAG CORPORATION Exhibit 4(h) Second Amendment to Credit Agreement dated as of July 1, 1996 among Registrant, the banks Party Hereto and Bank of Montreal, Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment to Credit Agreement (the Amendment) dated as of July 1, 1996 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 heretofore amended, the "Credit Agreement"); and WHEREAS, the Borrower, the Banks and the Agent desire to amend the Agreement to revise the leverage limitation in Section 8.6, extend the Termination Date, and to provide for the possible elimination of a Bank's Commitment; 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 "Termination Date" in Section 5 of the Credit Agreement is hereby amended in its entirety to read as follows: "Termination Date" means June 29, 2001. 2. Section 8.6 of the Credit Agreement is hereby amended by deleting the number "0.55" at the end thereof and inserting in its place the number "0.60". 3. The parties understand that Toronto Dominion Texas (Texas), Inc. ("TD Bank") desires to transfer its $25,000,000 Commitment to another Person. Each Bank, the Borrower, and the Agent agree, however, that, if no such transfer is made by September 1, 1996 and TD Bank notifies the Agent between September 1 and September 30, 1996 that it desires its Commitment to be terminated effective on a date no later than September 30, 1996 (the "Withdrawal Date"), then, notwithstanding Section 2.6 or any other provision of the Credit Agreement, on such Withdrawal Date TD Bank's Commitment shall automatically terminate, the aggregate Commitments shall reduce by the amount of such terminated Commitment of TD Bank without any other Bank's Commitment being reduced, and the Borrower shall pay to TD Bank all amounts owing to it under the Credit Agreement other than accrued facility fees payable under Section 3.1 that are not then due, which shall be forwarded by the Agent to TD Bank when paid. 4. 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 1 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. 5. 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 each Bank. 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 s/s David Urbani Name David Urbani Title Vice President & Treasurer 2 BANK OF MONTREAL, CHICAGO BRANCH, in its individual capacity as a Bank and as Agent By s/s Lisa Donahue Name Lisa Donahue Title Director Royal Bank of Canada, in its individual capacity as a Bank and as Co-Agent By s/s Molly Drennen Name Molly Drennen Title Manager, Corporate Banking NBD Bank By s/s William R. Madden Name William R. Madden Title Senior Vice President SOCIETY NATIONAL BANK By s/s Frank J. Jancar Name Frank J. Jancar Title Vice President 3 THE FIRST NATIONAL BANK OF CHICAGO By s/s William R. Madden Name William R. Madden Title Senior Vice President THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH By s/s H. Iwami Name Hiroyuki Iwami Title Joint General Manager The Fuji Bank, Limited By s/s Peter L. Chinnici Name Peter L. Chinnici Title Joint General Manager PNC BANK, NATIONAL ASSOCIATION By s/s Karen C. Brogan Name Karen C. Brogan Title Commercial Banking Officer 4 TORONTO DOMINION (TEXAS), INC. By s/s Diane Bailey Name Diane Bailey Title Vice President Westdeutsche Landesbank Girozentrale, New York Branch By s/s J.M. Molly Name J.M. Molly Title Vice President By s/s C. D. Rockey Name C.D. Rockey Title Associate MERCANTILE BANK OF ST. LOUIS, N.A. By s/s Joseph L. Sooter,Jr. Name Joseph L. Sooter Jr. Title Vice President 5 EX-10 3 EXECUTIVE SEVERANCE AGREEMENT - 3YR MAYTAG CORPORATION Exhibit 10(b) Executive Severance Agreements. The following executives are covered under this severance agreement: Kent Baker Bill Beer Larry Blanford Ron Caldwell Bob Downing John Dupuy Brian Girdlestone Ed Graham Len Hadley Dick Haines Jerry Malone Keith Minton Carl Moe Jon Nicholas Jerry Pribanic Dave Urbani Lloyd Ward EXECUTIVE SEVERANCE AGREEMENT THIS AGREEMENT is made the ___ day of ________, 199_, by and between Maytag Corporation, a Delaware corporation (the "Company"), and ____________________ (the "Executive"). RECITALS A. The Board of Directors of the Company has approved the Company en- tering 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 or normal retirement) within three (3) years after a change of control of the Company 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 maximum annual 1 incentive bonus opportunity provided by the Plan and any discretionary bonus declared for the year in which the change of control occurred, or the preceding year if not established 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. If the time from the Executive's last day of employment with the Company or its subsidiaries to the Executive's 65th birthday is less than 36 months, there shall be a proportionate reduction of the payment computed under clause (A) of the preceding sentence. 2. "Salaried and Supplemental Executive Retirement Plans." The Execu- tive 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 or until his or her 65th birthday, whichever is earlier, at the rate of annual compensation specified herein; over (ii) the benefits to which the Executive is actually entitled under such Salaried Retirement Plans. 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 or until the obtainment of such coverages with another employer, whichever is earlier. To the extent such participation or entitlement is not possible for any reason whatsoever, equivalent benefits shall be provided. 4. Participation in Employee Benefit Plans. After termination of em- ployment, the Executive shall continue to participate in the Salaried Retirement Plans as contemplated above. 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 2 services rendered cash in an amount equal to the maximum amount which could be payable to the Executive under any and all incentive compensation plans in which the Executive is a participant or under which the Executive holds any outstanding award as of the day prior to the change of control. To the extent that any such award is represented by restricted shares of stock of the Company, the Executive's such cash payment shall include an amount equal to the aggregate value of such shares determined as of the day of the change of control. Any payment due pursuant to this paragraph 5 shall be paid at the same time as the amount payable pursuant to paragraph 1 of this Section. 6. "Reimbursement for Loss on Sale of Principal Residence." If on the date of the change of control the Executive shall own a private residence within Jasper County, Iowa (the "Executive's residence"), the Executive shall be paid an amount equal to the excess, if any, of the amount by which the greater of (i) the "aggregate purchase price" (as defined below) of the Executive's residence and (ii) the "change of control market value" (as defined below) of the Executive's residence, over the amount realized by the Executive upon the sale of such residence. Any amount payable to the Executive under this agreement shall be paid to the Executive on the date on which the Executive's residence is sold in a bona fide transaction with an unrelated party. Notwithstanding the foregoing, if the Executive's residence shall not be sold within 6 months after the date on which the Executive's residence is first offered for sale, the Company shall purchase the Executive's residence from the Executive for a cash amount equal to the "change of control market value" of the Executive's residence. For purposes of this paragraph, the "aggregate purchase price" of the Executive's residence shall be the sum of the amount paid therefor plus the cost of any significant repairs such as the cost of siding, or roof repair or maintenance, incurred within the 5 year period ending on the date on which a change of control occurs, plus the cost of any improvements to such residence made by the Executive, the "amount realized" upon the sale of such residence shall be the net amount, after deduction for brokers' fees, title charges, transfer taxes and similar items, realized by the Executive upon the sale of the Executive residence and "change of control market value" shall mean the value of the Executive's residence on the date on which the change of control occurred, as determined by an independent appraiser selected by the Executive. The fees and expenses of such appraiser shall be paid by the Company. 7. "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 (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon such Payment. 3 (b) All determinations and computations required to be made under this paragraph B5, including whether a Gross-Up Payment is required under clause (ii) of paragraph B7(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 B7 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 7B(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 B7 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 4 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 B7(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 B7(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 B7 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 B7(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. "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 5 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. 2. "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 sub- sidiaries, 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 fol- 6 lowing a change of control shall entitle the Executive to the benefits herein provided. 2. "Confidentiality." The Executive shall retain in confidence any confi- dential 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. The Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this agreement in whole or in part. 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. 4. "Indemnification." If litigation shall be brought to enforce or inter- pret any provision contained herein, the Company hereby indemnifies the Execu- tive for his or her reasonable attorney's fees and disbursements incurred in such litigation, and hereby agrees to pay prejudgment interest on any money judgment obtained by the Executive calculated by using the prevailing prime interest rate on the date that payment(s) to him or her should have been made under this agreement. 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 suc- cessor of the Company, but neither this agreement nor any rights arising here- under 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. "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 ___________________________ Leonard A. Hadley, CEO ___________________________ , Executive 7 EX-10 4 EXECUTIVE SEVERANCE AGREEMENT - 2YR The following executives are covered under this severance agreement: Tom Briatico Terry Carlson Rick Foltz John Jansen Ed Wojciechowski Steve Wood EXECUTIVE SEVERANCE AGREEMENT THIS AGREEMENT is made the ____ day of _____, 199_, by and between Maytag Corporation, a Delaware corporation (the "Company"), and _______ (the "Executive"). RECITALS A. The Board of Directors of the Company has approved the Company en- tering 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 or normal retirement) within two (2) years after a change of control of the Company 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 maximum annual 1 incentive bonus opportunity provided by the Plan and any discretionary bonus declared for the year in which the change of control occurred, or the preceding year if not established 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. If the time from the Executive's last day of employment with the Company or its subsidiaries to the Executive's 65th birthday is less than 24 months, there shall be a proportionate reduction of the payment computed under clause (A) of the preceding sentence. 2. "Salaried and Supplemental Executive Retirement Plans." The Executive shall be paid a monthly retirement benefit, in addition to any benefits received u n der 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 or until his or her 65th birthday, whichever is earlier, at the rate of annual compensation specified herein; over (ii) the benefits to which the Executive is actually entitled under such Salaried Retirement Plans. 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 or until the obtainment of such coverages with another employer, whichever is earlier. To the extent such participation or entitlement is not possible for any reason whatsoever, equivalent benefits shall be provided. 4. "Participation in Employee Benefit Plans." After termination of em- ployment, the Executive shall continue to participate in the Salaried Retirement Plans as contemplated above. 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 2 services rendered cash in an amount equal to the maximum amount which could be payable to the Executive under any and all incentive compensation plans in which the Executive is a participant or under which the Executive holds any outstanding award as of the day prior to the change of control. To the extent that any such award is represented by restricted shares of stock of the Company, the Executive's such cash payment shall include an amount equal to the aggregate value of such shares determined as of the day of the change of control. Any payment due pursuant to this paragraph 5 shall be paid at the same time as the amount payable pursuant to paragraph 1 of this Section. 6. "Reimbursement for Loss on Sale of Principal Residence." If on the date of the change of control the Executive shall own a private residence within Jasper County, Iowa (the "Executive's residence"), the Executive shall be paid an amount equal to the excess, if any, of the amount by which the greater of (i) the "aggregate purchase price" (as defined below) of the Executive's residence and (ii) the "change of control market value" (as defined below) of the Executive's residence, over the amount realized by the Executive upon the sale of such residence. Any amount payable to the Executive under this agreement shall be paid to the Executive on the date on which the Executive's residence is sold in a bona fide transaction with an unrelated party. Notwithstanding the foregoing, if the Executive's residence shall not be sold within 6 months after the date on which the Executive's residence is first offered for sale, the Company shall purchase the Executive's residence from the Executive for a cash amount equal to the "change of control market value" of the Executive's residence. For purposes of this paragraph, the "aggregate purchase price" of the Executive's residence shall be the sum of the amount paid therefor plus the cost of any significant repairs such as the cost of siding, or roof repair or maintenance, incurred within the 5 year period ending on the date on which a change of control occurs, plus the cost of any improvements to such residence made by the Executive, the "amount realized" upon the sale of such residence shall be the net amount, after deduction for brokers' fees, title charges, transfer taxes and similar items, realized by the Executive upon the sale of the Executive residence and "change of control market value" shall mean the value of the Executive's residence on the date on which the change of control occurred, as determined by an independent appraiser selected by the Executive. The fees and expenses of such appraiser shall be paid by the Company. 7. "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 (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon such Payment. 3 (b) All determinations and computations required to be made under this section B7, including whether a Gross-Up Payment is required under clause (ii) of paragraph B7(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 B7 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 B7(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 B7 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 4 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 B7(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 B7(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 B7 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 B7(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. "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 5 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 " B usiness 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. 2. "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 sub- sidiaries, 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, 6 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 confi- dential 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. The Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this agreement in whole or in part. 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. 4. "Indemnification." If litigation shall be brought to enforce or inter- pret any provision contained herein, the Company hereby indemnifies the Execu- tive for his or her reasonable attorney's fees and disbursements incurred in such litigation, and hereby agrees to pay prejudgment interest on any money judgment obtained by the Executive calculated by using the prevailing prime interest rate on the date that payment(s) to him or her should have been made under this agreement. 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 suc- cessor of the Company, but neither this agreement nor any rights arising here- under 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. "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 ___________________________ Leonard A. Hadley, CEO ___________________________ , Executive 7 EX-12 5 RATIO OF EARNINGS TO FIXED EXPENSES MAYTAG CORPORATION Exhibit 12 Computation of 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 1996 1995 1994 1993 1992 Consolidated pretax income from continuing operations before minority interest extraordinary item and cumulative effect of accounting $ 228,237 $ 59,804 $ 241,337 $ 89,870 $ 7,546 changes Interest expense 43,006 52,087 74,077 75,364 75,004 Depreciation of capitalized 1,553 1,695 1,772 1,546 933 interest Interest portion of rental expense 6,448 8,789 10,722 10,480 11,264 Earnings $ 279,244 $ 122,375 $ 327,908 $ 177,260 $ 94,747 Interest expense $ 43,006 $ 52,087 $ 74,077 $ 75,364 $ 75,004 Interest capitalized 8,905 2,534 547 1,484 3,886 Interest portion of rental expense 6,448 8,789 10,722 10,480 11,264 Fixed charges $ 58,359 $ 85,346 $ 85,346 $ 87,328 $ 90,154 Ratio of earnings to fixed charges 4.78 1.93 3.84 2.03 1.05 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, 1996. State or Country Corporate Name of Organization D.N. Holdings, Inc. Delaware Dixie-Narco Inc. West Virginia 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 International Limited United Kingdom Maytag Ltd. Canada Maytag Worldwide N.V. The Netherlands Antilles AERA Limited Hong Kong Maytag International Investments, Inc. Delaware Maytag International Investments B.V. The Netherlands Antilles Hefei Rongshida Co. Ltd. (50.5%) China 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 28, 1997 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, 1996. s/sErnst & Young LLP Chicago, Illinois March 26, 1997 EX-27 8 FDS
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 27,543 0 476,672 13,790 327,136 904,959 1,655,646 803,761 2,329,940 570,011 488,537 0 0 146,438 427,552 2,329,940 3,001,656 3,001,656 2,180,213 2,180,213 0 14,152 43,006 228,237 89,000 139,237 0 (1,548) 0 136,429 1.34 1.34
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