-----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, URDyOtaDNraDU/lAKWvox1Rh4PvNN2cpEpiA7BzEnjieB5BqUpcMyRAv0noD9GYG AHcveDis04QwFDkfrPr0Ow== 0000063541-99-000012.txt : 19990318 0000063541-99-000012.hdr.sgml : 19990318 ACCESSION NUMBER: 0000063541-99-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAYTAG CORP CENTRAL INDEX KEY: 0000063541 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD APPLIANCES [3630] IRS NUMBER: 420401785 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00655 FILM NUMBER: 99566696 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, 1998 or ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to _________________ Commission file number 1-655 MAYTAG CORPORATION A Delaware Corporation I.R.S. Employer Identification No. 42-0401785 403 West Fourth Street North, Newton, Iowa 50208 Registrant's telephone number, including area code: 515-792-7000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $1.25 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of the voting stock (common stock) held by non- affiliates of the registrant as of the close of business on March 1, 1999 was $4,888,467,050. The number of shares outstanding of the registrant's common stock (par value $1.25) as of the close of business on March 1, 1999 was 89,083,682. 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 13, 1999 have been incorporated by reference. 1 MAYTAG CORPORATION 1998 ANNUAL REPORT ON FORM 10-K CONTENTS Item Page PART I: 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Business - Home Appliances . . . . . . . . . . . . . . . . . . . 3 Business - Commercial Appliances . . . . . . . . . . . . . . . . 4 Business - International Appliances . . . . . . . . . . . . . . 5 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 7 4. Submission of Matters to a Vote of Security Holders . . . . . . 7 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 . . . . . . . . . . . . . . . . . . . . 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10 7A. Quantitative and Qualitative Disclosures About Market Risk . . . 18 8. Financial Statements and Supplementary Data . . . . . . . . . . 18 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 47 PART III: 10. Directors and Executive Officers of the Registrant . . . . . . . 47 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 47 12. Security Ownership of Certain Beneficial Owners and Management . 48 13. Certain Relationships and Related Transactions . . . . . . . . . 48 PART IV: 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 48 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2 PART I Item 1. Business. Maytag Corporation (the "Company") was organized as a Delaware corporation in 1925. The Company operates in three business segments: home appliances, commercial appliances and international appliances. Financial and other information relating to these reportable business segments is included in Part II, Item 7, Pages 10-13, and Item 8, Pages 44-46. HOME APPLIANCES The home appliances segment represented 85.6 percent of consolidated net sales in 1998. The operations of the Company's home appliances segment manufacture major appliances (laundry products, dishwashers, refrigerators, cooking appliances) and floor care products. These products are primarily sold to major national retailers and independent retail dealers in North America and targeted international markets. These products are sold primarily under the Maytag, Hoover, Jenn-Air and Magic Chef brand names. Included in this segment is Maytag International, Inc., the Company's international marketing subsidiary, which administers the sale of home appliances and licensing of certain home appliance brands in markets outside the United States and Canada. During the fourth quarter of 1997, the Company announced an agreement with Sears, Roebuck and Co. to begin selling the full line of Maytag brand major appliances through Sears stores throughout the U.S. The major appliances were available in all Sears full line and authorized dealers stores beginning in February 1998. During the third quarter of 1998, Maytag Corporation announced an agreement with Sears Canada Inc. to begin selling Maytag brand major home appliances in Sears Canada stores in October 1998. 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 performance 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. A portion of the Company's operations and sales is outside the United States. The risks involved in foreign operations vary from country to country and include tariffs, trade restrictions, changes in currency values, economic conditions and international relations. The Company uses basic raw materials such as steel, copper, aluminum, rubber and plastic in its manufacturing process in addition to purchased motors, compressors, timers, valves and other components. These materials are supplied by established sources and the Company anticipates that such sources will, in general, be able to meet its future requirements. The Company holds a number of patents which are important in the manufacture of its products. The Company also holds a number of trademark registrations of which the most important are ADMIRAL, HOOVER, JENN-AIR, MAGIC CHEF, MAYTAG and the associated corporate symbols. 3 The Company's home appliance business is generally not considered seasonal. A portion of the Company's accounts receivable is concentrated among major national retailers. A significant loss of business with any of these national retailers could have an adverse impact on the Company's ongoing operations. The dollar amount of backlog orders of the Company is not considered significant for home appliances in relation to the total annual dollar volume of sales. Because it is the Company's practice to maintain a level of inventory sufficient to cover anticipated shipments and since orders are generally shipped upon receipt, a large backlog would be unusual. The home appliances market is highly competitive with the two principal competitors being larger than the Company. The Company is focused on growth through product innovation that supports superior product performance in the Company's premium brands. The Company also uses brand image, product quality, customer service, advertising and warranty as methods of competition. Expenditures for company-sponsored research and development activities relating to the development of new products and the improvement of existing products are included in Part II, Item 8, page 43. Most of the research and development expenditures relate to the home appliances segment. Although the Company has manufacturing sites with environmental concerns, compliance with laws and regulations regarding the discharge of materials into the environment or relating to the protection of the environment has not had a significant effect on capital expenditures, earnings or the Company's competitive position. The Company has been identified as one of a group of potentially responsible parties by state and federal environmental protection agencies in remedial activities related to various "superfund" sites in the United States. The Company presently does not anticipate any significant adverse effect upon the Company's earnings or financial condition arising from resolution of these matters. Additional information regarding environmental remediation is included in Part II, Item 8, Page 43-44. The Company is subject to changes in government mandated energy and environmental standards regarding appliances which may become effective over the next several years. The Company is in compliance with those existing standards where it does business and intends to be in compliance with these various standards where it does business, which affect the entire appliance industry, as they become effective. The number of employees of the Company in the home appliances segment as of January 31, 1999 was 17,235. COMMERCIAL APPLIANCES The commercial appliances segment represented 11.2 percent of consolidated net sales in 1998. The operations of the Company's commercial appliances segment manufacture commercial cooking and vending equipment. These products are primarily sold to distributors, soft drink bottlers, restaurant chains and dealers in North America and targeted international markets. These products are sold primarily under the Dixie-Narco, Blodgett and Pitco Frialator brand names. 4 In the fourth quarter of 1997, the Company acquired all of the outstanding shares of G.S. Blodgett Corporation, a manufacturer of commercial ovens, fryers and charbroilers for the food service industry, for $96.4 million. In connection with the purchase, the Company also incurred transaction costs of $4.2 million and retired debt of approximately $53.2 million. Additional information regarding this acquisition is included in Part II, Item 8, Page 28- 29. The Company uses steel as a basic raw material in its manufacturing processes in addition to purchased motors, compressors and other components. These materials are supplied by established sources and the Company anticipates that such sources will, in general, be able to meet its future requirements. The Company holds a number of patents which are important in the manufacture of its products. The Company also holds a numbers of trademark registrations of which the most important are DIXIE-NARCO, BLODGETT and PITCO FRIALATOR and the associated corporate symbols. Commercial appliance sales are considered seasonal to the extent that the Company normally experiences lower vending equipment sales in the fourth quarter compared to other quarters. Within the commercial appliances segment, the Company's vending equipment sales are dependent upon a few major soft drink suppliers. Therefore, the loss of one or more of these customers could have a significant adverse effect on the commercial appliances segment. The dollar amount of backlog orders of the Company is not considered significant for commercial appliances in relation to the total annual dollar volume of sales. Because it is the Company's practice to maintain a level of inventory sufficient to cover shipments and since orders are generally shipped upon receipt, a large backlog would be unusual. The Company uses brand image, product quality, product innovation, customer service, warranty and price as its principal methods of competition. Expenditures for company-sponsored research and development activities relating to the development of new products and the improvement of existing products are included in Part II, Item 8, page 43. Although the Company has manufacturing sites with environmental concerns, compliance with laws and regulations regarding the discharge of materials into the environment or relating to the protection of the environment has not had a significant effect on capital expenditures, earnings or the Company's competitive position. The number of employees of the Company in the commercial appliances segment as of January 31, 1999 was 2,510. INTERNATIONAL APPLIANCES The international appliances segment represented 3.2 percent of consolidated net sales in 1998. The international appliances segment consists of the Company's 50.5 percent owned joint venture in China, Rongshida-Maytag, which manufactures and distributes laundry products and refrigerators. These products are primarily sold to department stores and distributors in China under the RSD brand name. 5 In 1996, the Company invested $35 million ($29.6 million, net of cash acquired) to acquire its 50.5 percent ownership in Rongshida-Maytag. The Company also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. The Company's joint venture partner also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. For more information regarding this acquisition, see Part II, Item 8, pages 28-29. In the fourth quarter of 1998, Rongshida-Maytag acquired all of the outstanding shares of Three-Gorges, a manufacturer of home laundry products in China. This business produces and markets home laundry equipment and has annual sales of approximately $15 million. In connection with the purchase, Rongshida-Maytag assumed $8 million in notes payable and long-term debt. The operations of Three Gorges have been merged into Rongshida-Maytag. For more information regarding this acquisition, see Part II, Item 8, page 28-29. Rongshida-Maytag is subject to the risks involved with international operations including, but not limited to, economic conditions and international relations in the geographic areas where Rongshida-Maytag's operations exist or products are sold, governmental restrictions and changes in currency values. Rongshida-Maytag uses steel and plastic as the basic raw material in its manufacturing processes. These materials are supplied primarily from suppliers in Asian countries. Rongshida-Maytag holds a number of patents which are important in the manufacture of its products. Rongshida-Maytag also holds the trademark registrations of RSD. Rongshida-Maytag's business is seasonal to the extent the first six months of the year normally experience higher sales than the second half of the year. Rongshida-Maytag is not dependent upon a single customer or a few customers. The international appliance market in which Rongshida-Maytag competes is highly competitive with approximately six principal competitors. Rongshida-Maytag uses extensive distribution channels, low manufacturing costs, product quality, and customer service as its principal methods of competition. Expenditures for company-sponsored research and development activities relating to the development of new products and the improvement of existing products, including those for Rongshida-Maytag, are included in Part II, Item 8, page 43. The number of employees of Rongshida-Maytag as of January 31, 1999 was 4,193. Item 2. Properties. The Company's corporate headquarters are located in Newton, Iowa. Major offices and manufacturing facilities in the United States related to the home appliances segment are located in: Newton, Iowa; Galesburg, Illinois; Cleveland, Tennessee; Jackson, Tennessee; Milan, Tennessee; Herrin, Illinois; North Canton, Ohio; and El Paso, Texas. In addition to manufacturing facilities in the United States, the Company has two other North American manufacturing facilities in Mexico. Major offices and manufacturing facilities in the United States related to the commercial appliances segment are located in: Williston, South Carolina; 6 Burlington, Vermont; and Bow, New Hampshire. Major offices and manufacturing facilities related to the international appliances segment are located in Hefei and Chongqing, China. The facilities for the home appliances, commerical appliances and international appliances segments are well maintained, suitably equipped and in good operating condition. The facilities used had sufficient capacity to meet production needs in 1998, and the Company expects that such capacity will be adequate for planned production in 1999. The Company's major capital projects and planned capital expenditures for 1999 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 36. Item 3. Legal Proceedings. The Company is involved in contractual disputes, environmental, administrative and legal proceedings and investigations of various types. Although any litigation, proceeding or investigation has an element of uncertainty, the Company believes that the outcome of any proceeding, lawsuit or claim which is pending or threatened, or all of them combined, will not have a significant adverse effect on its consolidated financial position. The Company's contingent liabilities are discussed in Part II, Item 8, Page 44. 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 1998 through a solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth the names of all executive officers of the Company, the offices held by them, the year they first became an executive officer of the Company and their ages: First Became Name Office Held an Officer Age Leonard A. Hadley Chairman and Chief Executive Officer 1979 64 Lloyd D. Ward President and Chief Operating Officer 1996 50 Gerald J. Pribanic Executive Vice President and Chief Financial Officer 1996 55 William L. Beer President, Maytag Appliances 1998 46 Robert W. Downing President, Dixie-Narco, Inc. 1996 62 Keith G. Minton President, The Hoover Company 1998 51 Senior Vice President, General Edward H. Graham Counsel and Assistant Secretary 1990 63 John M. Dupuy Vice President, Strategic Planning 1996 42 7 Jon O. Nicholas Vice President, Human Resources 1993 59 David D. Urbani Vice President and Treasurer 1995 53 Steven H. Wood Vice President, Financial Reporting and Audit 1996 41 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 13, 1999 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 Consultant 1985-1993 David D. Urbani Air Products and Chemicals, Inc. - Assistant Treasurer 1984-1994 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Dividends Sale Price of Common Shares Per Share 1998 1997 1998 1997 Quarter High Low High Low First $50 3/8 $35 7/16 $23 3/4 $19 3/4 $.16 $.16 Second 55 3/4 47 1/2 27 3/4 20 1/8 .16 .16 Third 52 3/4 41 1/2 34 5/16 26 3/16 .18 .16 Fourth 64 1/2 39 5/8 37 1/2 30 7/16 .18 .16 The principal U.S. market in which the Company's common stock is traded is the New York Stock Exchange. As of March 1, 1999, the Company had 34,396 shareowners of record. 8 Item 6. Selected Financial Data. Dollars in thousands except per share data 1998(1) 01997 (2) 1996 (3) 1995 (4) 1994(5) Net sales $4,069,290 $3,407,911 $3,001,656 $3,039,524 $3,372,515 Gross profit 1,181,627 936,288 821,443 788,908 876,450 Percent of sales 29.0% 27.5% 27.4% 26.0% 26.0% Operating income $ 522,738 $ 358,273 $ 269,079 $ 288,234 $ 322,768 Percent of sales 12.8% 10.5% 9.0% 9.5% 9.6% Income (loss) from continuing operations $ 286,510 $ 183,490 $ 137,977 $ (14,996)$ 151,137 Percent of sales 7.0% 5.4% 4.6% (.5%) 4.5% Basic earnings (loss) per share $ 3.12 $ 1.90 $ 1.36 $ (0.14)$ 1.42 Diluted earnings (loss) per share 3.05 1.87 1.35 (0.14) 1.41 Dividends paid per share 0.68 0.64 0.56 0.515 0.50 Basic weighted-average shares outstanding 91,941 96,565 101,727 106,734 106,485 Diluted weighted- average shares outstanding 93,973 98,055 102,466 107,486 106,957 Working capital $ 178,165 $ 368,079 $ 334,948 $ 543,431 $ 595,703 Depreciation of property, plant and equipment 135,519 127,497 101,912 102,572 110,044 Capital expenditures 161,251 229,561 219,902 152,914 84,136 Total assets 2,587,663 2,514,154 2,329,940 2,125,066 2,504,327 Long-term debt, less current portion 446,505 549,524 488,537 536,579 663,205 Total debt to capitalization 58.0% 52.1% 51.2% 45.9% 50.7% (1) Excludes the extraordinary loss on the early retirement of debt. (2) Net sales include $31.3 million of sales from the Company's acquisition of G.S. Blodgett Corporation, a commercial cooking equipment manufacturer, in the fourth quarter of 1997. Excludes the extraordinary loss on the early retirement of debt. (3) Net sales include $40.4 million of sales from the Company's acquisition of a 50.5 percent ownership in a joint venture of home appliances in China in the third quarter of 1996. Operating profit includes a $40 million charge for the restructuring of the Company's major home appliance business. The after-tax charge for this restructuring of $24.4 million is included in income (loss) from continuing operations. Excludes the extraordinary loss on the early retirement of debt. (4) Net sales include $181.2 million made by the Company's European Operations which was sold effective June 30, 1995. Income (loss) from continuing operations includes a $135.4 million after-tax loss on the sale of the Company's European Operations; a $9.9 million after-tax charge to settle a lawsuit relating to the closing of the former Dixie-Narco plant in Ranson, West Virginia; a $3.6 million after-tax loss on the sale of the Eastlake Operation; and a $10.8 million after-tax loss arising from a guarantee of indebtedness relating to the sale of one its manufacturing plants in 1992. Excludes the extraordinary loss on the early retirement of debt. 9 (5) 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. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. COMPARISON OF 1998 WITH 1997 The Company has three reportable segments: home appliances, commercial appliances and international appliances. (See further discussion and financial information about the Company's reportable segments in "Segment Reporting" section of the Notes to Consolidated Financial Statements.) Net Sales: The Company's consolidated net sales for 1998 increased 19 percent compared to 1997. Net sales in 1998 included sales of G.S. Blodgett Corporation ("Blodgett"), a manufacturer of commercial cooking equipment, which was acquired by the Company on October 1, 1997. Excluding Blodgett, the Company's net sales increased 16 percent in 1998 compared to 1997. Home appliances net sales increased 15 percent in 1998 compared to 1997. Net sales were up from the prior year due to the introduction of new products, including new lines of Maytag Neptune laundry products, Maytag refrigerators, Maytag cooking products, Hoover upright vacuum cleaners and Hoover upright deep carpet cleaners. In addition, net sales were up from the prior year due to the volume associated with shipments to Sears, Roebuck and Co. in connection with the Company's agreement to begin selling the full line of Maytag brand major appliances through Sears stores in the U.S. beginning in February 1998. The Company's net sales also benefited from the significant volume growth in industry shipments of major appliances in 1998 compared to 1997. Net sales of commercial appliances were up 84 percent from 1997. This net sales increase was primarily driven by a significant increase in the sales volume of Dixie-Narco enhanced capacity venders introduced in 1997 and the inclusion of Blodgett's results for a full year. Excluding Blodgett, net sales increased 48 percent from 1997. International appliances net sales increased 5 percent in 1998 compared to 1997. The sales increase was primarily attributable to higher unit volume partially offset by price reductions on selected models in response to competitive conditions in China. Gross Profit: The Company's consolidated gross profit as a percent of sales increased to 29 percent in 1998 from 27.5 percent in 1997. Home appliances gross margins increased in 1998 compared to 1997, due to the increase in sales volume, favorable brand and product sales mix, lower raw material costs and the absence of production start-up costs associated with the Company's new line of refrigerators which were incurred in 1997. Commercial appliances gross margins increased in 1998 compared to 1997, due to the increase in sales volume, partially offset by inefficiencies from the reorganization of manufacturing operations at Blodgett. International appliances gross margins decreased in 1998 compared to 1997 primarily from the decrease in selling prices on selected models. The Company realized slightly lower raw material prices in 1998 compared to 1997 and expects raw material prices in 1999 to be approximately the same to slightly lower than 1998 levels. 10 Selling, General and Administrative Expenses: Selling, general and administrative expenses were 16.2 percent of sales in 1998 compared to 17 percent of sales in the same period in 1997. The decrease as a percent of sales was primarily due to the operating leverage obtained on fixed expenses with the increase in net sales despite the increase in expenses incurred in 1998 compared to 1997. Operating Income: Consolidated operating income increased 46 percent to $523 million, or 12.8 percent of sales, compared to $358 million, or 10.5 percent of sales in 1997. Home appliances operating income increased 44 percent in 1998 compared to 1997. Operating margin for 1998 was 14.5 percent of sales compared to 11.6 percent of sales in 1997. The increase in operating margin was due to the increase in gross profit margins and decrease in selling, general and administrative expenses as a percent of sales discussed above. Commercial appliances operating income, which includes Blodgett for all of 1998, increased 156 percent in 1998 compared to 1997. Operating margin for 1998 was 10.9 percent of sales compared to 7.8 percent of sales in 1997. The increase in operating margins was primarily due to the increase in gross profit margins described above. International appliances operating income decreased 49 percent in 1998 compared to 1997. Operating margin for 1998 was 4.6 percent of sales compared to 9.4 percent of sales in 1997. The decrease in operating margins was due to the decrease in gross profit margins discussed above and an increase in selling, general and administrative expense due to both spending increases and an additional provision for accounts receivable. There are many uncertainties associated with the economic environment in China and the entire Asian region which may adversely impact future operations. Interest Expense: Interest expense increased 6 percent in 1998 compared to 1997 primarily due to lower capitalized interest. The Company's higher average borrowings were offset by lower interest rates. Income Taxes: The effective tax rate for 1998 was 37.4 percent compared to 36.5 percent in 1997. The increase in the effective tax rate was primarily due to 1997 including a $2 million one-time benefit from the resolution of certain Internal Revenue Service issues as well as a reduced benefit in 1998 from Rongshida-Maytag's tax holiday in China due to lower income before taxes. These increases in the 1998 effective tax rate were partially offset by other tax initiatives. Extraordinary Item: In 1998, the Company retired $71.1 million of long-term debt at a cost of $5.9 million after-tax. In 1997, the Company retired $61.8 million of long-term debt at a cost of $3.2 million after-tax. Net Income: Net income for 1998 was $281 million, or $2.99 diluted earnings per share, compared to net income of $180 million, or $1.84 diluted earnings per share in 1997. Net income and diluted earnings per share were impacted by special charges for the early retirement of debt in both years. The after-tax charges for the early retirement of debt were $5.9 million and $3.2 million for 1998 and 1997, respectively. Excluding these special charges in both years, income for 1998 would have been $287 million, or $3.05 diluted earnings per share, compared to $183 million, or $1.87 diluted earnings per share for 1997. The increase in net income was primarily due to the increase in operating income. The increase in diluted earnings per share was due to the increase in net income and the positive impact of $0.15 per share from the Company's share repurchase program. (See discussion of the share repurchase program in "Liquidity and Capital 11 Resources" section of this Management's Discussion and Analysis.) Comparison of 1997 with 1996 Net Sales: The Company's consolidated net sales for 1997 increased 14 percent compared to 1996. Net sales in 1997 included a full year of sales of Rongshida- Maytag compared to four months of sales included in 1996 when the Company entered into the joint venture. In addition, net sales in 1997 included three months of Blodgett which was acquired by the Company on October 1, 1997. Excluding the impact of these acquisitions, the Company's net sales increased 10 percent in 1997 compared to 1996. Home appliances net sales increased 9 percent in 1997 compared to 1996. Net sales of major appliances were up from the previous year primarily due to the introduction of a newly designed line of Maytag Neptune laundry products, the redesigned line of Maytag top-mount refrigerators, strong sales of Performa by Maytag laundry products and an increase in sales of exports of major appliances partially offset by a decrease in private label sales. Net sales of floor care products were up from 1996 primarily due to the introduction of a newly designed line of Hoover upright vacuum cleaners and new models of Hoover upright deep carpet cleaners. Net sales of commercial appliances were up 54 percent from 1996. Excluding Blodgett, net sales increased 34 percent from 1996. The increase in sales was driven by a significant increase in domestic vender sales partially offset by a decrease in export vender sales and glass front merchandiser sales. The increase in domestic vender sales was due to the introduction of a new extended depth vender in addition to depressed sales volume in 1996 resulting from product transition difficulties. Gross Profit: The Company's consolidated gross profit as a percent of sales increased to 27.5 percent in 1997 from 27.4 percent in 1996. Home appliances gross margins increased in 1997 primarily due to favorable brand and product sales mix and manufacturing cost savings resulting from the 1996 restructuring of the Company's major appliance operations. (See discussion of the restructuring in "Restructuring Charge" section of this Management's Discussion and Analysis.) These increases in gross margins were partially offset by production start-up costs associated with the Company's redesigned line of top-mount refrigerators and an increase in distribution costs related to the transition to regional distribution centers. Commercial appliances gross margins increased in 1997 compared to 1996 due to the increase in production volume from the increase in net sales and the additional manufacturing start-up costs associated with the new Dixie-Narco extended depth vender incurred in 1996. Selling, General and Administrative Expenses: Consolidated selling, general and administrative expenses were 17 percent of sales in 1997 compared to 17.1 percent of sales in 1996. The decrease was driven by the operating leverage obtained on fixed expenses with the increase in sales in 1997 partially offset by additional advertising and sales promotion expenses to support new product introductions and from an increase in the provision for accounts receivable. Restructuring Charge: During the first quarter of 1996, the Company recorded a restructuring charge of $40 million, or $24.4 million after-tax, primarily related to the costs associated with the consolidation of activities and facilities related to the manufacture of cooking products and consolidation of activities of two separate major appliance organizational units. (See discussion of the restructuring in "Restructuring Charge" section of the Notes to Consolidated Financial Statements.) The Company incurred $10.5 million of additional restructuring costs during 12 1996, not included in the restructuring charge, which were charged to operations as incurred. Operating Income: The Company's consolidated operating income for 1997 was 10.5 percent of sales compared to 9 percent of sales in 1996. However, excluding the $40 million restructuring charge, operating income in 1996 was 10.3 percent of sales. Excluding the $40 million restructuring charge recorded in 1996, operating income for the home appliances segment was 11 percent higher in 1997 than 1996. Operating income for 1997 was 11.6 percent of sales compared to 11.3 percent of sales in 1996. The increase in operating margin is primarily due to the increase in gross profit margins discussed previously. Commercial appliances operating income increased to 7.8 percent of sales in 1997 compared to 6.6 percent of sales in 1996. Operating income increased from the previous year primarily due to the increase in gross profit discussed previously. Interest Expense: Interest expense increased 37 percent from 1996 due to an increase in short-term borrowings, interest expense related to Rongshida-Maytag, lower capitalized interest and interest expense associated with the Company's interest rate swap program. The interest rate swap interest expense is partially offset by marked to market unrealized gains which are reflected in Other-net in the Consolidated Statements of Income. Income Taxes: The effective tax rate for 1997 was 36.5 percent compared to 39 percent in 1996. The decrease is primarily due to savings from the Company's state and local tax initiatives, a lower tax rate for Rongshida-Maytag as a result of its qualification for a tax holiday in China in 1997 and a $2 million one-time benefit in 1997 from the resolution of certain Internal Revenue Service issues. Extraordinary Item: In 1997, the Company retired $61.8 million of long-term debt at a cost of $3.2 million after-tax. In 1996, the Company retired $17.5 million of long-term debt at a cost of $1.5 million after-tax. Net Income: Net income for 1997 was $180.3 million, or $1.84 diluted earnings per share, compared to net income of $136.4 million, or $1.33 diluted earnings per share in 1996. Net income and diluted earnings per share were impacted by special charges in both years. Special charges in 1997 included the $3.2 million after-tax charge for the early retirement of debt. Special charges in 1996 included the $24.4 million after-tax restructuring charge and the $1.5 million after-tax charge for the early retirement of debt. Excluding these special charges in both years, income for 1997 would have been $183.5 million, or $1.87 diluted earnings per share, compared to $162.4 million, or $1.58 diluted earnings per share for 1996. The increase in income is primarily due to the increase in operating income partially offset by the increase in interest expense. The increase in diluted earnings per share in 1997 compared to 1996, excluding special charges, was due to the increase in income and the positive impact of $0.12 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.) 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 13 presented in the Consolidated Statements of Cash Flows. Net Cash Provided by Operating Activities: Cash flow provided by operating activities primarily consists of net income adjusted for certain non-cash items, changes in working capital items, changes in pension assets and liabilities, and changes in the liability for postretirement benefits. Certain non-cash items include depreciation and amortization and deferred income taxes. Working capital items consists primarily of accounts receivable, inventories, other current assets and other current liabilities. Net cash provided by operating activities in 1998 increased from 1997 as a result of an increase in net income and a decrease in working capital. A portion of the Company's accounts receivable is concentrated among major national retailers. A significant loss of business with any of these national retailers could have an adverse impact on the Company's ongoing operations. Total Investing Activities: The Company continually invests in its businesses for new product designs, cost reduction programs, replacement of equipment, capacity expansion and government mandated product requirements. Capital expenditures in 1998 were $161 million compared to $230 million in 1997. The lower capital spending was due to the completion of several major capital projects in 1997. Planned capital expenditures for 1999 are approximately $190 million. In 1997, the Company acquired all of the outstanding shares of Blodgett, a manufacturer of commercial ovens, fryers and charbroilers for the food service industry, for $96.4 million. In connection with the purchase, the Company also incurred transaction costs of $4.2 million and retired debt of approximately $53.2 million. As a result, the total cost of business acquired was $148.3 million, net of cash acquired of $5.5 million. The Company funded this acquisition through cash provided by operating activities and borrowings. The results of the operations of the acquired business have been included in the consolidated financial statements since the date of acquisition. In 1996, the Company invested $35 million ($29.6 million, net of cash acquired) to acquire a 50.5 percent ownership in Rongshida-Maytag, a manufacturer of home appliances in China. The Company also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. The results of its operations have been included in the consolidated financial statements since the date of acquisition. The Company's joint venture partner also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. Total Financing Activities: Dividend payments on the Company's common stock in 1998 were $62.6 million, or $.68 per share, compared to $61.7 million, or $.64 per share in 1997. In 1997, the Company's board of directors authorized the repurchase of up to 15 million additional shares beyond the previous share repurchase authorizations totalling 15.8 million shares. Under these authorizations, the Company has repurchased 22.1 million shares at a cost of $675 million, which includes 6.3 million shares purchased at a cost of $318 million during 1998. As of December 31, 1998, of the 8.7 million shares which may be repurchased under then existing board authorization, the Company is committed to purchase 4 million shares under put options contracts, if such options are exercised. (See discussion of these put option contracts below.) The Company plans to continue the repurchase of shares over a non-specified period of time. During the first quarter of 1998, the Company amended the forward stock purchase agreement associated with the repurchase of 4 million shares by the Company during 1997. The future contingent purchase price adjustment included 14 in the forward stock purchase agreement was amended to provide for settlement based on the difference in the market price of the Company's common stock at the time of settlement compared to the market price of the Company's common stock as of March 24, 1998 rather than as of August 20, 1997. The net cost of the amendment was $64 million. During the third quarter of 1998, the Company further amended the forward stock purchase agreement to establish the future settlement price on 1 million of the total 4 million shares. The forward stock purchase contract allows the Company to determine the method of settlement. The Company's objective in this transaction is to reduce the average price of repurchased shares. In connection with the share repurchase program, the Company sells put options which give the purchaser the right to sell shares of the Company's common stock to the Company at specified prices upon exercise of the options. The put option contracts allow the Company to determine the method of settlement. The Company's objective in selling put options is to reduce the average price of repurchased shares. In 1998 and 1997, the Company received $30 million and $10 million, respectively, in premium proceeds from the sale of put options. As of December 31, 1998, there were put options outstanding for 4 million shares with strike prices ranging from $43.25 to $56.838 (the weighted- average strike price was $51.92). In the third quarter of 1997, the Company and a wholly-owned subsidiary of the Company contributed intellectual property and know-how with an appraised value of $100 million and other assets with a market value of $54 million to Anvil Technologies LLC ("LLC"), a newly formed Delaware limited liability company. An outside investor purchased from the Company a non-controlling, member interest in the LLC for $100 million. The Company's objective in this transaction was to raise low-cost, equity funds. For financial reporting purposes, the results of the LLC (other than those which are eliminated in consolidation) are included in the Company's consolidated financial statements. The outside investor's noncontrolling interest is reflected in Minority interest in the Consolidated Balance Sheets. The income attributable to the noncontrolling interest is reflected in Minority interest in the Consolidated Statements of Income. Any funding requirements for future investing and financing activities in excess of cash on hand and generated from operations are planned to be supplemented by borrowings. (See discussion of long-term debt issuances in "Long-Term Debt" section of the Notes to Consolidated Financial Statements.) The Company's commercial paper program is supported by a credit agreement with a consortium of banks which provides revolving credit facilities totalling $400 million. This agreement expires June 29, 2001 and includes covenants for interest coverage and leverage, with which the Company was in compliance at December 31, 1998. Market Risks The Company is exposed to foreign currency exchange risk inherent in its anticipated sales and assets and liabilities denominated in foreign currencies. To mitigate the short-term effects of changes in exchange rates on the Company's foreign currency denominated export sales, the Company enters into foreign currency forward and option contracts. The Company's policy is to hedge a portion of its anticipated foreign currency denominated export sales transactions, which are primarily denominated in Canadian dollars, for periods not exceeding twelve months. At December 31, 1998, the result of a uniform 10 percent strengthening of the U.S. dollar relative to the foreign currencies in which the Company's sales are denominated would result in a decrease in net income of approximately $3 million for the year ended December 31, 1999. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not 15 factor in potential changes in sales levels or local currency prices. The Company also is exposed to interest rate risk in the Company's debt and the commodity price risk inherent in the Company's purchase of certain commodities used in the manufacture of its products. The Company has performed sensitivity analyses assuming a hypothetical adverse movement in interest rates and commodity prices. These analyses indicated that such market movements would not have a material effect on the Company's financial position or results of operations. Year 2000 The much publicized "Year 2000 problem," affecting most companies, arises because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, these computer applications could fail or create erroneous results. The global extent of the potential impact of the Year 2000 problem is not yet known, and if not timely corrected, it could affect the economy and the Company. The Company uses computer information systems and manufacturing equipment which may be affected. It also relies on suppliers and customers who are also dependent on systems and equipment which use date dependent software. In 1996, the Company began its effort for the conversion or replacement of North American computer information systems which did not properly address the Year 2000. This effort involved both plans for creating replacement systems for those computer information systems which were developed internally as well as obtaining versions of software purchased from third parties which are Year 2000 ready. The Company estimates that this effort is approximately 85 percent complete as of December 31, 1998. The Company essentially has converted or replaced its critical computer information systems for its North American business operations. The remaining effort primarily relates to the conversion or replacement of Blodgett's computer information systems and other non-critical computer information systems which the Company expects to complete by mid-1999. In mid-1997, the Company began to review the manufacturing equipment used in the Company s North American operations as well as the systems related to the infrastructure of the North American manufacturing and office facilities. The Company is continuing to inventory and verify Year 2000 readiness of computer controlled manufacturing equipment and computer controls for the North American manufacturing and office facilities. The Company estimates that this effort is approximately 75 percent complete as of December 31, 1998. The Company expects to complete the remediation efforts of its production equipment and systems related to its infrastructure for its North American business operations by mid- 1999. In 1997, the Company also began to assess the Year 2000 problem remediation efforts of third parties in North America who have material relationships with the Company including, but not limited to: providers of services such as utilities, suppliers of raw materials and customers where there is a significant business relationship. However, there is no assurance that the Company will not be affected by the Year 2000 problems of other organizations. Rongshida-Maytag, the Company's joint venture in China, is currently reviewing the implications of the Year 2000 problem on computer information systems and equipment used in the manufacture of its products or facilities. The remediation effort required for the computer information systems and equipment for Rongshida-Maytag has not yet been identified. The costs associated with the Company's Year 2000 remediation are being expensed as incurred, are not material to the performance of the Company for previous periods and are not expected to be material relative to the future performance of the Company. The Company estimates it has spent approximately $12 million to date on the Year 2000 issue and expects to spend not more than 16 $20 million in total on the Year 2000 issue. As previously identified, the Company utilizes software which was acquired from third parties. The Company has maintenance agreements with certain of its software vendors which, in return for annual contractual payments, enable it to obtain new software releases, including versions which are Year 2000 ready. If the Company is unsuccessful, or if the remediation efforts of its key suppliers or customers are unsuccessful with regard to Year 2000 remediation, there may be a material adverse impact on the Company's financial position and results of operations. If the Company's Year 2000 remediation effort is not successful, the most likely worst case scenario is that the Company will be unable to manufacture and distribute its products. The Company is unable to estimate the financial impact of Year 2000 issues because it cannot predict the magnitude or time length of potential Year 2000 business interruptions. The Company s contingency plan continues to be under development and includes such precautionary measures as an anticipated increased level of inventory to minimize the potential disruption in the Company s ability to manufacture and distribute products. While the Company expects its Year 2000 issues to be remedied successfully, it cannot guarantee that Year 2000 issues, including those of third parties, will not have an adverse effect on the Company's consolidated financial position or results of operations. Contingencies The Company has contingent liabilities arising in the normal course of business, including pending litigation, environmental remediation, taxes and other claims. (See discussion of these contingent liabilities in "Commitments and Contingencies" section of the Notes to Consolidated Financial Statements.) Subsequent Events In February 1999, the Company's board of directors authorized the repurchase of up to 10 million additional shares beyond the previous share repurchase authorizations totaling 30.8 million shares. The Company plans to continue the repurchase of shares over a non-specified period of time. (See discussion of previous share repurchase authorizations in "Liquidity and Capital Resources" section of this Management's Discussion and Analysis.) In the first quarter of 1999, the Company acquired all of the outstanding shares of Jade Range, a manufacturer of commercial ranges and refrigerators and residential ranges for approximately $20 million in cash and stock. This business has annual sales of approximately $20 million. The acquisition will be accounted for as a purchase and the results of its operations will be included in the consolidated financial statements from the date of acquisition. Forward-Looking Statements This Management's Discussion and Analysis contains statements which are not historical facts and are considered "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms such as "expects," "intends," "may impact," "plans" or "should." These forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from expected results. These risks and uncertainties include, but are not limited to, the following: business conditions and growth of industries in which the Company competes, including changes in economic conditions in the geographic areas where the Company's operations exist or products are sold; timing and start-up of newly designed products; shortages of manufacturing 17 capacity; competitive factors, such as price competition and new product introductions; significant loss of business from a major national retailer; the ability of the Company and customers and suppliers to become Year 2000 ready in a timely manner; the cost and availability of raw materials and purchased components; progress on capital projects; the impact of business acquisitions or dispositions; the costs of complying with governmental regulations; level of share repurchases; litigation and other risk factors. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. Quantitative and qualitative disclosures about market risk are discussed in "Market Risks" section of the Management's Discussion and Analysis (Part II, Item 7, pages 15-16) Item 8. Financial Statements and Supplementary Data. Page Report of Independent Auditors . . . . . . . . . . . . . . 19 Consolidated Statements of Income--Years Ended December 31, 1998, 1997, and 1996 . . . . . . . . . . . . 20 Consolidated Balance Sheets-- December 31, 1998 and 1997 . . . . . . . . . . . . . . . 21 Consolidated Statements of Shareowners' Equity--Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 23 Consolidated Statements of Comprehensive Income-- December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 24 Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . 25 Notes to Consolidated Financial Statements . . . . . . . . 26 Quarterly Results of Operations--Years 1998 and 1997 . . . 47 18 Report of Independent Auditors Shareowners and Board of Directors Maytag Corporation We have audited the accompanying consolidated balance sheets of Maytag Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, comprehensive income, shareowners' equity, and cash flows for each of three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Chicago, Illinois February 2, 1999 19 Consolidated Statements of Income Year Ended December 31 In thousands except per share data 1998 1997 1996 Net sales $4,069,290 $3,407,911 $3,001,656 Cost of sales 2,887,663 2,471,623 2,180,213 Gross profit 1,181,627 936,288 821,443 Selling, general and administrative expenses 658,889 578,015 512,364 Restructuring charge 40,000 Operating income 522,738 358,273 269,079 Interest expense (62,765) (58,995) (43,006) Other - net 10,912 1,277 2,164 Income before income taxes, minority interest and extraordinary item 470,885 300,555 228,237 Income taxes 176,100 109,800 89,000 Income before minority interest and extraordinary item 294,785 190,755 139,237 Minority interest (8,275) (7,265) (1,260) Income before extraordinary item 286,510 183,490 137,977 Extraordinary item - loss on early retirement of debt (5,900) (3,200) (1,548) Net income $ 280,610 $ 180,290 $ 136,429 Basic earnings (loss) per common share: Income before extraordinary item $ 3.12 $ 1.90 $ 1.36 Extraordinary item - loss on early retirement of debt (0.06) (0.03) (0.02) Net income 3.05 1.87 1.34 Diluted earnings (loss) per common share: Income before extraordinary item $ 3.05 $ 1.87 $ 1.35 Extraordinary item - loss on early retirement of debt (0.06) (0.03) (0.02) Net income 2.99 1.84 1.33 See notes to consolidated financial statements. 20 Consolidated Balance Sheets December 31 In thousands except share data 1998 1997 Assets Current assets Cash and cash equivalents $ 28,642 $ 27,991 Accounts receivable, less allowance for doubtful accounts (1998--$22,305; 1997--$36,386) 472,979 473,741 Inventories 383,753 350,209 Deferred income taxes 39,014 46,073 Other current assets 44,474 36,703 Total current assets 968,862 934,717 Noncurrent assets Deferred income taxes 120,273 118,931 Prepaid pension cost 1,399 2,160 Intangible pension asset 62,811 33,819 Other intangibles, less allowance for amortization (1998--$98,106; 1997--$85,071) 424,312 433,595 Other noncurrent assets 44,412 49,660 Total noncurrent assets 653,207 638,165 Property, plant and equipment Land 19,317 19,597 Buildings and improvements 333,032 309,960 Machinery and equipment 1,499,872 1,427,276 Construction in progress 102,042 59,376 1,954,263 1,816,209 Less accumulated depreciation 988,669 874,937 Total property, plant and equipment 965,594 941,272 Total assets $2,587,663 $2,514,154 See notes to consolidated financial statements. 21 December 31 In thousands except share data 1998 1997 Liabilities and Shareowners' Equity Current liabilities Notes payable $ 112,898 $ 112,843 Accounts payable 279,086 221,417 Compensation to employees 81,836 62,758 Accrued liabilities 176,701 161,344 Current portion of long-term debt 140,176 8,276 Total current liabilities 790,697 566,638 Noncurrent liabilities Deferred income taxes 21,191 23,666 Long-term debt, less current portion 446,505 549,524 Postretirement benefit liability 460,599 454,390 Accrued pension cost 69,660 31,308 Other noncurrent liabilities 117,392 99,096 Total noncurrent liabilities 1,115,347 1,157,984 Minority interest 174,055 173,723 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 467,192 494,646 Retained earnings 760,115 542,118 Cost of common stock in treasury (1998--27,932,506 shares; 1997--22,465,256 shares) (805,802) (508,115) Employee stock plans (45,331) (48,416) Accumulated other comprehensive income (15,048) (10,862) Total shareowners' equity 507,564 615,809 Total liabilities and shareowners' equity $2,587,663 $2,514,154 See notes to consolidated financial statements. 22 Consolidated Statements of Shareowners' Equity December 31 In thousands 1998 1997 1996 Common stock Balance at beginning of year $ 146,438 $ 146,438 $ 146,438 Balance at end of year 146,438 146,438 146,438 Additional paid-in capital Balance at beginning of year 494,646 471,158 472,602 Stock issued under stock option plans (5,596) (7,375) (2,324) Stock issued under restricted stock awards, net 1,426 (86) (176) Additional ESOP shares issued 308 (139) (264) Tax benefit of ESOP dividends and stock options 9,994 6,640 1,320 Forward stock purchase contract premium 14,592 Forward stock purchase contract amendment (63,782) Put option premiums 30,196 9,856 Balance at end of year 467,192 494,646 471,158 Retained earnings Balance at beginning of year 542,118 423,552 344,346 Net income 280,610 180,290 136,429 Dividends on common stock (62,613) (61,724) (57,223) Balance at end of year 760,115 542,118 423,552 Treasury stock Balance at beginning of year (508,115) (405,035) (255,663) Purchase of common stock for treasury (318,139) (138,051) (164,439) Stock issued under stock option plans 18,779 29,309 8,435 Stock issued under restricted stock awards, net 1,226 3,212 3,951 Additional ESOP shares issued 447 2,450 2,681 Balance at end of year (805,802) (508,115) (405,035) Employee stock plans Balance at beginning of year (48,416) (55,204) (57,319) Stock issued under restricted stock awards, net (445) 7 310 ESOP shares allocated 3,530 6,781 1,805 Balance at end of year (45,331) (48,416) (55,204) Accumulated other comprehensive income Minimum pension liability adjustment Balance at beginning of year (107) (5,656) Adjustment for the year 107 5,549 Balance at end of year (107) Unrealized losses on securities Balance at beginning of year (3,605) Adjustment for the year (1,257) (3,605) Balance at end of year (4,862) (3,605) Foreign currency translation Balance at beginning of year (7,257) (6,812) (7,397) Translation adjustments (2,929) (445) 585 Balance at end of year (10,186) (7,257) (6,812) Accumulated other comprehensive income balance at beginning of year (10,862) (6,919) (13,053) Total adjustments for the year (4,186) (3,943) 6,134 Accumulated other comprehensive income balance at end of year (15,048) (10,862) (6,919) Total shareowners' equity $ 507,564 $ 615,809 $ 573,990 See notes to consolidated financial statements. 23 Consolidated Statements of Comprehensive Income Year Ended December 31 In thousands 1998 1997 1996 Net income $ 280,610 $ 180,290 $ 136,429 Other comprehensive income items, net of income taxes Unrealized losses on securities (1,257) (3,605) Minimum pension liability adjustment 107 5,549 Foreign currency translation (2,929) (445) 585 Total other comprehensive income (4,186) (3,943) 6,134 Comprehensive income $ 276,424 $ 176,347 $ 142,563 See notes to consolidated financial statements. 24 Consolidated Statements of Cash Flows Year Ended December 31 In thousands 1998 1997 1996 Operating activities Net income $ 280,610 $ 180,290 $ 136,429 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item - loss on early retirement of debt 5,900 3,200 1,548 Minority interest 8,275 7,265 1,260 Depreciation and amortization 148,554 138,163 111,279 Deferred income taxes 3,242 (7,956) (15,341) Changes in working capital items exclusive of business acquisitions: Accounts receivable 1,502 4,631 (14,234) Inventories (28,015) (5,393) (41,158) Other current assets (13,475) 2,281 15,124 Other current liabilities 93,257 4,047 37,899 Restructuring charge, net of cash expenditures (2,560) (4,869) 26,735 Pension assets and liabilities 10,121 18,124 (12,129) Postretirement benefit liability 6,209 5,952 18,937 Other - net 26,258 11,930 (1,456) Net cash provided by operating activities 539,878 357,665 264,893 Investing activities Capital expenditures (161,251) (229,561) (219,902) Investment in securities (10,015) Business acquisitions, net of cash acquired (148,283) (29,625) Total investing activities (161,251) (387,859) (249,527) Financing activities Proceeds from issuance of notes payable 14,687 60,493 34,094 Repayment of notes payable (20,880) (3,142) Proceeds from issuance of long-term debt 102,922 133,015 26,536 Repayment of long-term debt (75,743) (124,123) (20,500) Debt repurchase premiums (5,900) (3,200) (1,548) Stock repurchases (318,139) (138,051) (164,439) Forward stock purchase amendment (63,782) Stock options exercised and other common stock transactions 52,643 52,308 6,795 Dividends (70,537) (65,243) (57,223) Proceeds from sale of LLC member interest 100,000 Investment by joint venture partner 6,900 18,975 8,625 Proceeds from interest rate swaps 38,038 Total financing activities (377,829) 31,032 (129,622) Effect of exchange rates on cash (147) (390) 585 Increase (decrease) in cash and cash equivalents 651 448 (113,671) Cash and cash equivalents at beginning of year 27,991 27,543 141,214 Cash and cash equivalents at end of year $ 28,642 $ 27,991 $ 27,543 See notes to consolidated financial statements. 25 Notes to Consolidated Financial Statements Summary of Significant Accounting Policies > Principles of Consolidation: The consolidated financial statements include the accounts and transactions of the Company and its wholly-owned and majority- owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Exchange rate fluctuations from translating the financial statements of subsidiaries located outside the United States into U.S. dollars are recorded in accumulated other comprehensive income in shareowners' equity. All other foreign exchange gains and losses are included in income. > Reclassifications: Certain previously reported amounts have been reclassified to conform with the current period presentation. > Use of Estimates: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. > Cash and Cash Equivalents: Highly liquid investments with a maturity of three months or less when purchased are considered by the Company to be cash equivalents. > Inventories: Inventories are stated at the lower of cost or market. Inventory costs are determined by the last-in, first-out (LIFO) method for approximately 80 percent and 86 percent of the Company's inventories at December 31, 1998 and 1997, respectively. Costs for other inventories have been determined principally by the first-in, first-out (FIFO) method. > Income Taxes: Income taxes are accounted for using the asset and liability approach in accordance with FASB Statement No. 109, "Accounting for Income Taxes." Such approach results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. > Intangibles: Intangibles principally represent goodwill, which is the cost of business acquisitions in excess of the fair value of identifiable net tangible assets acquired. Goodwill is amortized over 40 years using the straight-line method and the carrying value is reviewed for impairment annually. If this review indicates that goodwill is not expected to 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. > Property, Plant and Equipment: Property, plant and equipment is stated on the basis of cost. Depreciation expense is calculated principally on the straight- line method to amortize the cost of the assets over their estimated economic useful lives. The estimated useful lives are 15 to 45 years for buildings and improvements and five to 20 years for machinery and equipment. > Environmental Expenditures: The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. 26 > Revenue Recognition and Product Warranty Costs: Revenue from sales of products is generally recognized upon shipment to customers. Estimated product warranty costs are recorded at the time of sale and periodically adjusted to reflect actual experience. > Advertising and Sales Promotion: All costs associated with advertising and promoting products are expensed in the period incurred. > Financial Instruments: The Company uses foreign exchange forward and option contracts to manage certain foreign currency exchange rate risks associated with its international operations. The outstanding contracts are marked to market each period with the gains and losses included in income. The Company has interest rate swap contracts outstanding which are marked to market each period with the gains and losses included in income. The Company has a forward stock purchase contract outstanding in its own shares which allows the Company to determine whether the contract is settled in cash or shares. As such, the contract is considered an equity instrument and changes in fair value are not recognized in the Company's financial statements. If the Company determines to settle the contract in cash, the amount of cash paid or received would be reported as a reduction of, or an addition to, paid-in capital. The Company has put option contracts outstanding in its own shares which allow the Company to determine whether the contracts are settled in cash or shares. As such, the contracts are considered equity instruments and changes in fair value are not recognized in the Company's financial statements. The premiums received from the sale of put options are recorded as an addition to paid-in capital. If the Company determines to settle the contracts in cash, the amount of cash paid would be reported as a reduction of paid-in capital. > Stock-Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its employee stock options and awards. Under APB 25, no compensation expense is recognized when the exercise price of options equals the fair value (market price) of the underlying stock on the date of grant. > Earnings Per Common Share: Basic and diluted earnings per share is calculated in accordance with FASB Statement No. 128, "Earnings Per Share." Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities, such as stock options, into common stock. All EPS amounts for all periods have been presented, and where necessary, restated to conform to Statement 128 requirements. > Comprehensive Income: In 1998, the Company adopted FASB Statement No. 130, "Reporting Comprehensive Income." Statement 130 establishes new rules for the reporting and displaying of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company s net income or shareowners equity. Statement 130 requires unrealized losses on the Company s available-for-sale securities, minimum pension liability adjustments and foreign currency translation adjustments to be included in accumulated other comprehensive income, which prior to adoption were reported separately in shareowners equity. Prior year financial statements have been reclassified and Consolidated Statements of Comprehensive Income have been added to conform to the requirements of Statement 130. > Impact of Recently Issued Accounting Standards: In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging 27 Activities." The Company expects to adopt the new Statement effective January 1, 2000. Statement 133 will require the Company to recognize all derivatives on the consolidated balance sheet at fair value. The Company does not anticipate that the adoption of Statement 133 will have a significant effect on its results of operations or financial position. Business Acquisitions In the fourth quarter of 1998, Rongshida-Maytag acquired all of the outstanding shares of Three-Gorges, a manufacturer of home laundry products in China. This business produces and markets home laundry equipment and has annual sales of approximately $15 million. In connection with the purchase, Rongshida-Maytag assumed $8 million in notes payable and long-term debt. This acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price (assumed notes payable and long-term debt) over the fair values of net assets acquired was approximately $2 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. On October 1, 1997, the Company acquired all of the outstanding shares of G.S. Blodgett Corporation, a manufacturer of commercial ovens, fryers and charbroilers for the food service industry, for $96.4 million. In connection with the purchase, the Company also incurred transaction costs of $4.2 million and retired debt of approximately $53.2 million. As a result, the total cost of the business acquired was $148.3 million, net of cash acquired of $5.5 million. The Company funded this acquisition through cash provided by operating activities and borrowings. This business, which has annual sales of approximately $135 million, produces and markets commercial cooking equipment primarily under the Blodgett and Pitco Frialator brands. This acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price over the fair values of net assets acquired was approximately $120 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. In the third quarter of 1996, the Company invested $35 million ($29.6 million, net of cash acquired) to acquire a 50.5 percent ownership in Rongshida- Maytag, a manufacturer of home appliances in China. The Company also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million was contributed in 1998, 1997 and 1996, respectively. This acquisition has been accounted for as a purchase, and the results of its operations have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price over the fair values of net assets acquired was approximately $33 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 40 years. Assuming the 1998 and 1997 acquisitions had occurred January 1, 1997, consolidated net sales would have been $4.1 billion for 1998 and $3.5 billion for 1997. Consolidated pro forma income and earnings per share would not have been materially different from the reported amounts for 1998 and 1997. Assuming the 1997 and 1996 acquisitions had occurred January 1, 1996, consolidated net sales would have been $3.5 billion for 1997 and $3.1 billion for 1996. Consolidated pro forma income and earnings per share would not have been materially different from the reported amounts for 1997 and 1996. Such unaudited pro forma amounts are not indicative of what the actual consolidated results of operations might have been if the acquisitions had been effective at the beginning of January 1, 1997 and January 1, 1996, respectively. Restructuring Charge 28 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 performance 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 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. The $40 million restructuring charge was comprised of cash expenditures of $22 million, primarily related to severance, and non-cash charges of $18 million, primarily related to write-offs of property, plant and equipment. During 1998, the Company incurred $3 million of costs which were primarily cash expenditures charged to the restructuring reserve. During 1997, the Company incurred $18 million of costs, of which $5 million were cash expenditures charged to the restructuring reserve. During 1996, the Company incurred $18 million of costs, of which $13 million were cash expenditures charged to the restructuring reserve. The remaining costs to be incurred are holding costs associated with the Indianapolis, Indiana plant pending the sale of the facility by the Company. Inventories Inventories consisted of the following: December 31 In thousands 1998 1997 Raw materials $ 69,039 $ 74,436 Work in process 66,578 64,838 Finished goods 317,331 284,195 Supplies 8,856 8,130 Total FIFO cost 461,804 431,599 Less excess of FIFO cost over LIFO 78,051 81,390 Inventories $ 383,753 $ 350,209 29 Income Taxes Deferred income taxes reflect the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities consisted of the following: December 31 In thousands 1998 1997 Deferred tax assets (liabilities): Book/tax basis differences $ (63,940) $ (54,301) Postretirement benefit liability 180,349 177,823 Product warranty/liability accruals 30,092 23,715 Pensions and other employee benefits 20,879 13,567 Advertising and sales promotion accruals 9,868 11,400 Interest rate swaps 11,620 13,838 Other - net (4,805) 1,072 184,063 187,114 Less valuation allowance for deferred tax assets 45,967 45,776 Net deferred tax assets $ 138,096 $ 141,338 Recognized in Consolidated Balance Sheets: Deferred tax assets - current $ 39,014 $ 46,073 Deferred tax assets - noncurrent 120,273 118,931 Deferred tax liabilities - noncurrent (21,191) (23,666) Net deferred tax assets $ 138,096 $ 141,338 Income before income taxes, minority interest and extraordinary item consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 United States $ 469,061 $ 287,498 $ 216,248 Non-United States 1,824 13,057 11,989 $ 470,885 $ 300,555 $ 228,237 Components of the provision (benefit) for income taxes consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 Current provision (benefit): Federal $ 157,900 $ 86,300 $ 99,500 State 21,500 11,200 19,200 Non-United States (100) 2,200 4,100 179,300 99,700 122,800 Deferred provision (benefit): Federal (2,800) 8,400 (29,000) State (400) 1,700 (5,500) Non-United States 700 (3,200) 10,100 (33,800) Provision for income taxes $ 176,100 $ 109,800 $ 89,000 30 The reconciliation of the United States federal statutory tax rate to the Company's effective tax rate consisted of the following: Year Ended December 31 1998 1997 1996 U.S. statutory rate applied to income before minority interest and extraordinary item 35.0% 35.0% 35.0% Increase (reduction) resulting from: Utilization of capital loss carryforward (9.6) (6.1) Deferred tax asset valuation allowance 9.6 4.3 Amortization of goodwill 0.9 1.1 1.4 Difference due to minority interest (0.7) (0.8) State income taxes, net of federal tax benefit 2.9 2.8 3.9 Tax credits arising outside the United States (0.4) Other - net (0.7) (1.6) 0.9 Effective tax rate 37.4% 36.5% 39.0% 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 $14 million at December 31, 1998), taxes which would result from distribution have only been provided on the portion of such earnings estimated to be distributed in the future. If such earnings were distributed beyond the amount for which taxes have been provided, additional taxes payable would be eliminated substantially by available tax credits arising from taxes paid outside the United States. Income taxes paid, net of refunds received, during 1998, 1997 and 1996 were $154 million, $107 million and $102 million, respectively. The tax effects of the components of comprehensive income, unrealized losses on securities and foreign currency translation adjustments, were recorded as deferred tax assets with a corresponding valuation allowance. The Company believes the realization of unrealized losses on securities and foreign currency translation adjustments would be classified as capital losses for tax purposes and no capital gain would be available to the Company to utilize the losses. Notes Payable Notes payable at December 31, 1998 consisted of notes payable to foreign banks of $59.8 million and commercial paper borrowings of $53.1 million. The weighted average interest rate on all notes payable to foreign banks and commercial paper borrowings was 7.0 percent at December 31, 1998. Notes payable at December 31, 1997 consisted of notes payable to foreign banks of $38.9 million and commercial paper borrowings of $73.9 million. The weighted average interest rate on all notes payable to foreign banks and commercial paper borrowings was 7.4 percent at December 31, 1997. The Company's commercial paper program is supported by a credit agreement with a consortium of banks which provides revolving credit facilities totalling $400 million. This agreement expires June 29, 2001 and includes covenants for interest coverage and leverage which the Company was in compliance with at December 31, 1998. 31 Long-Term Debt Long-term debt consisted of the following: December 31 In thousands 1998 1997 Notes payable with interest payable semiannually: Due May 15, 2002 at 9.75% $ 125,358 $ 147,425 Due July 15, 1999 at 8.875% 116,820 148,550 Medium-term notes, maturing from 2000 to 2010, from 5.30% to 9.03% with interest payable semiannually 125,230 126,500 Medium-term notes, maturing from 1999 to 2009, with interest adjusted each quarter based on LIBOR and payable quarterly 160,000 75,000 Employee stock ownership plan notes payable semiannually through July 2, 2004 at 5.13% 42,360 45,890 Other 16,913 14,435 586,681 557,800 Less current portion of long-term debt 140,176 8,276 Long-term debt $ 446,505 $ 549,524 The 9.75 percent notes due in 2002, 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 to below investment grade. Interest paid during 1998, 1997 and 1996 was $64 million, $65.1 million and $51.1 million, respectively. When applicable, the Company capitalizes interest incurred on funds used to construct property, plant and equipment. Interest capitalized during 1997 and 1996 was $4.2 million and $8.9 million, respectively. Interest capitalized during 1998 was not significant. The aggregate maturities of long-term debt in each of the next five years and thereafter are as follows (in thousands): 1999--$140,176; 2000--$95,444; 2001--$24,508; 2002--$133,489; 2003--$43,290; thereafter--$149,774. In 1998, the Company issued a $16 million medium-term note with a fixed interest rate of 5.30 percent due September 29, 2000. The Company also issued a $70 million medium-term note with a floating rate based on LIBOR with the interest rate reset quarterly due May 10, 2000. The Company also issued a $15 million medium-term note with a floating rate based on LIBOR due December 3, 1999. The three-month LIBOR rate as of December 31, 1998 was 5.07 percent. In 1998, the Company made early retirements of debt of $71.1 million at an after-tax cost of $5.9 million (net of income tax benefit of $3.5 million). Included in this amount was $22.1 million of the 9.75 percent notes due May 15, 2002, $31.7 million of the 8.875 percent notes due July 15, 1999 and $17.3 million of medium-term notes. In 1997, the Company issued a $75 million medium-term note maturing in 2009 which has an interest rate based on LIBOR through November 1999. In 1999, the interest rate for the remaining 10 years of the note will be established at the Company's then borrowing rate for 10-year notes based on the greater of the then current year treasury rate or 5.91 percent. In 1997, the Company also reissued $49.3 million of 5.13 percent employee stock ownership plan notes. In 1997, the Company made early retirements of debt of $61.8 million at an after-tax cost of $3.2 million (net of income tax benefit of $2.0 million). Included in this amount was $12.5 million of the 9.75 percent notes due May 15, 2002 and $49.3 million of 9.35 percent employee stock ownership plan notes. In 1996, the Company made early retirements of debt of $17.5 million of the 9.75 percent notes due May 15, 2002 at an after-tax cost of $1.5 million (net of income tax benefit of $1.0 million). In 1996, the Company also issued $25 32 million of 7.22 percent medium-term notes maturing in 2006. The 1998, 1997 and 1996 charges for the early retirement of debt have been reflected in the Consolidated Statements of Income as extraordinary items. Accrued Liabilities Accrued liabilities consisted of the following: December 31 In thousands 1998 1997 Warranties $ 46,162 $ 37,732 Advertising and sales promotion 59,036 42,227 Other 71,503 81,385 Accrued liabilities $ 176,701 $ 161,344 Pension Benefits The Company provides noncontributory defined benefit pension plans for most employees. Plans covering salaried and management employees generally provide pension benefits that are based on an average of the employee's earnings and credited service. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company's funding policy for the plans is to contribute amounts sufficient to meet the minimum funding requirement of the Employee Retirement Income Security Act of 1974, plus any additional amounts which the Company may determine to be appropriate. The reconciliation of the beginning and ending balances of the projected benefit obligation, reconciliation of the beginning and ending balances of the fair value of plan assets, funded status of plans and amounts recognized in the Consolidated Balance Sheets consisted of the following: December 31 In thousands 1998 1997 Change in projected benefit obligation: Benefit obligation at beginning of year $ 983,705 $ 905,031 Service cost 22,223 19,628 Interest cost 69,615 66,550 Amendments 18,977 Actuarial loss 65,333 36,652 Acquisition 18,556 Benefits paid (65,362) (62,364) Curtailments/settlements 431 Other (foreign currency) (638) (348) Benefit obligation at end of year 1,094,284 983,705 Change in plan assets: Fair value of plan assets at beginning of year 892,326 798,575 Actual return of plan assets 106,479 133,420 Acquisition 18,877 Employer contribution 13,905 4,233 Benefits paid (65,362) (62,364) Other (foreign currency) (733) (415) Fair value of plan assets at end of year 946,615 892,326 Funded status of plan (147,669) (91,379) Unrecognized actuarial loss 69,915 38,357 Unrecognized prior service cost 83,460 74,039 Unrecognized transition assets (11,156) (16,346) 33 Net amount recognized $ (5,450) $ 4,671 Amounts recognized in the Consolidated Balance Sheets consisted of: Prepaid pension cost $ 1,399 $ 2,160 Intangible pension asset 62,811 33,819 Accrued pension cost (69,660) (31,308) Net pension asset (liability) $ (5,450) $ 4,671 Assumptions used in determining net periodic pension cost for the plans in the United States consisted of the following: 1998 1997 1996 Discount rates 7.25% 7.50% 7.50% Rates of increase in compensation levels 5.00% 5.00% 5.00% Expected long-term rate of return on assets 9.50% 9.50% 9.50% For the valuation of projected benefit obligation at December 31, 1998 set forth in the table above, and for determining net periodic pension cost in 1999, the discount rate was decreased to 6.75 percent and the rate of compensation was decreased to 4.5 percent. Assumptions for plans outside the United States are comparable to the above in all periods. The components of net periodic pension cost consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 Components of net periodic pension cost: Service cost $ 22,223 $ 19,628 $ 19,637 Interest cost 69,615 66,550 63,828 Expected return on plan assets (74,979) (70,301) (67,316) Amortization of transition assets (4,798) (5,097) (5,050) Amortization of prior service cost 10,059 10,078 9,709 Recognized actuarial loss 867 794 1,465 Curtailments/settlements 936 387 2,694 Net periodic pension cost $ 23,923 $ 22,039 $ 24,967 The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $1,085,044, $1,006,848 and $937,283, respectively, as of December 31, 1998, and $954,300, $891,378 and $860,207, respectively, as of December 31, 1997. The Company acquired all of the outstanding shares of G.S. Blodgett Corporation on October 1, 1997, including its pension plans. The Company consolidated G.S. Blodgett Corporation's pension plans with its existing plans in 1998. (See discussion of this acquisition in "Business Acquisitions" section of the Notes to Consolidated Financial Statements.) The Company amended its pension plans in 1998 to include several benefit improvements for plans covering salaried and hourly employees. 34 Postretirement Benefits The Company provides postretirement health care and life insurance benefits for certain employee groups in the U.S. Most of the postretirement plans are contributory and contain certain other cost sharing features such as deductibles and coinsurance. The plans are unfunded. Employees do not vest and these benefits are subject to change. Death benefits for certain retired employees are funded as part of, and paid out of, pension plans. The reconciliation of the beginning and ending balances of the accumulated benefit obligation, reconciliation of the beginning and ending balances of the fair value of plan assets, funded status of plans and amounts recognized in the Consolidated Balance Sheets consisted of the following: December 31 In thousands 1998 1997 Change in accumulated benefit obligation: Benefit obligation at beginning of year $ 381,690 $ 377,489 Service cost 12,895 12,491 Interest cost 26,613 26,588 Actuarial loss (gain) 25,590 (13,470) Benefits paid (22,544) (21,408) Benefit obligation at end of year 424,244 381,690 Change in plan assets: Fair value of plan assets at beginning of year -- -- Employer contribution 22,544 21,408 Benefits paid (22,544) (21,408) Fair value of plan assets at end of year -- -- Funded status of plan (424,244) (381,690) Unrecognized actuarial gain (26,491) (53,861) Unrecognized prior service cost (9,864) (18,839) Postretirement benefit liability $ (460,599) $ (454,390) Assumptions used in determining net periodic postretirement benefit cost consisted of the following: 1998 1997 1996 Health care cost trend rates(1): Current year 6.50% 7.00% 8.50% Decreasing gradually to the year 2001 and remaining thereafter 5.00% 5.00% 6.00% Discount rates 7.25% 7.50% 7.50% (1) Weighted-average annual assumed rate of increase in the per capita cost of covered benefits. For the valuation of accumulated benefit obligation at December 31, 1998 set forth in the table above, and for determining net postretirement benefit costs in 1999, the discount rate was decreased to 6.75 percent and the health care cost trend rates were assumed to be 6.0 percent for 1999 decreasing gradually to 5.0 percent in the year 2001 and remaining thereafter. The components of net periodic postretirement cost consisted of the following: 35 Year Ended December 31 In thousands 1998 1997 1996 Components of net periodic postretirement cost: Service cost $ 12,895 $ 12,491 $ 15,453 Interest cost 26,613 26,588 28,498 Amortization of prior service cost (8,975) (10,168) (8,130) Recognized actuarial gain (1,780) (1,550) Net periodic postretirement cost $ 28,753 $ 27,361 $ 35,821 The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage change in assumed health care cost trend rates effect consisted of the following: 1-Percentage- 1-Percentage- Point Point In thousands Increase Decrease Effect on total of postretirement service and interest cost components $ 5,895 $ (5,148) Effect on postretirement benefit obligation 45,606 (41,194) Leases The Company leases buildings, machinery, equipment and automobiles under operating leases. Rental expense for operating leases amounted to $25.9 million, $23.3 million and $22.1 million for 1998, 1997 and 1996, respectively. Future minimum lease payments for operating leases as of December 31, 1998 consisted of the following: Year Ending In thousands 1999 $ 13,573 2000 10,585 2001 6,785 2002 5,157 2003 4,561 Thereafter 4,847 Total minimum lease payments $ 45,508 Financial Instruments The Company's foreign currency exchange rate risk includes anticipated sales and assets and liabilities denominated in currencies other than the U.S. dollar. The Company uses foreign exchange forward and option contracts to manage certain foreign currency exchange rate risks associated with its international operations. The counterparties to the contracts are high credit quality international financial institutions. During 1998, 1997 and 1996, the Company used foreign exchange forward and option contracts for the exchange of Canadian dollars to U.S. dollars to hedge the sale of appliances manufactured in the U.S. and sold to Canadian customers. Gains and losses recognized from these contracts were not significant. As of December 31, 1998, the Company had open foreign currency forward contracts for the exchange of Canadian dollars, all having maturities less than twelve months, in the amount of U.S. $70.4 million. The fair market value of these contracts, which is estimated by using the applicable spot or forward rates, was not significant. Open contracts as of December 31, 1997 were not significant. 36 In 1996, 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. In 1996, the Company realized $38 million of gains which were offset by unrealized losses of $40.6 million related to the interest rate swaps. The net losses of $2.6 million are reflected in Other-net in the Consolidated Statements of Income. In 1997, the Company incurred $7.6 million of interest expense in payment on the exchange position of these swap transactions. Additionally, the Company recognized unrealized gains of $5.4 million which are reflected in Other-net in the Consolidated Statements of Income. In 1998, the Company incurred $7.5 million of interest expense in payment on the exchange position of these swap transactions. Additionally, the Company recognized unrealized gains of $5.6 million which are reflected in Other-net in the Consolidated Statements of Income. As of December 31, 1998, the Company had five swap transactions outstanding with a total notional amount of $80.1 million which mature by 2003. The fair value of the swap positions of $29.7 million at December 31, 1998 and $35.3 million at December 31, 1997 is reflected in Other noncurrent liabilities in the Consolidated Balance Sheets. The value of these individual swaps is dependent upon movements in the Canadian and U.S. interest rates. As the portfolio of interest rate swaps outstanding at December 31, 1998 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. Financial instruments which subject the Company to concentrations of credit risk primarily consist of accounts receivable from customers. The majority of the Company s sales are derived from the home appliances segment which sells predominantly to retailers. These retail customers range from major national retailers to independent retail dealers and distributors. In some instances, the Company retains a security interest in the product sold to customers. While the Company has experienced losses in collection of accounts receivables due to business failures in the retail environment, the assessed credit risk for existing accounts receivable is provided for in the allowance for doubtful accounts. The Company used various assumptions and methods in estimating fair value disclosures for financial instruments. The carrying amounts of cash and cash equivalents, accounts receivable and notes payable approximated their fair value due to the short maturity of these instruments. The fair values of long-term debt were estimated based on quoted market prices, if available, or quoted market prices of comparable instruments. The fair values of interest rate swaps, the forward stock purchase contract and put option contracts were estimated based on amounts the Company would pay to terminate the contracts at the reporting date. The carrying amounts and fair values of the Company's financial instruments, consisted of the following: 37 December 31, 1998 December 31, 1997 Carrying Fair Carrying Fair In thousands Amount Value Amount Value Cash and cash equivalents $ 28,642 $ 28,642 $ 27,991$ 27,991 Accounts receivable 472,979 472,979 473,741 473,741 Notes payable 112,898 112,898 112,843 112,843 Long-term debt 586,681 620,230 557,800 594,255 Interest rate swaps 29,665 29,665 35,280 35,280 Forward stock purchase contract 64,520 53,042 Put option contracts 4,054 1,090 For additional disclosures regarding the Company's notes payable, see Notes Payable section in the Notes to Consolidated Financial Statements. For additional disclosures regarding the Company's long-term debt, see Long-Term Debt section in the Notes to Consolidated Financial Statements. For additional disclosures regarding the Company's forward stock purchase contract and put option contracts, see Shareowners' Equity section in the Notes to Consolidated Financial Statements. Minority Interest In 1996, the Company invested approximately $35 million and committed additional cash investments of approximately $35 million to acquire a 50.5 percent ownership in Rongshida-Maytag, a manufacturer of home appliances in China. The Company's joint venture partner also committed additional cash investments of approximately $35 million, of which $7 million, $19 million and $9 million were contributed in 1998, 1997 and 1996, respectively. The results of this majority- owned joint venture in China are included in the Company's consolidated financial statements. The noncontrolling interest attributable to the joint venture as of December 31, 1998 and 1997 was $74 million and $73.7 million, respectively, and is reflected in Minority interest in the Consolidated Balance Sheets. The income attributable to the noncontrolling interest in the joint venture in 1998, 1997 and 1996 was $0.8 million, $4 million and $1.3 million, respectively, and is reflected in Minority interest in the Consolidated Statements of Income. In the third quarter of 1997, the Company and a wholly-owned subsidiary of the Company contributed intellectual property and know-how with an appraised value of $100 million and other assets with a market value of $54 million to Anvil Technologies LLC ("LLC"), a newly formed Delaware limited liability company. An outside investor purchased from the Company a noncontrolling, member interest in the LLC for $100 million. The Company's objective in this transaction was to raise low-cost, equity funds. For financial reporting purposes, the results of the LLC (other than those which are eliminated in consolidation) are included in the Company's consolidated financial statements. The outside investor's noncontrolling interest of $100 million as of December 31, 1998 and 1997 is reflected in Minority interest in the Consolidated Balance Sheets. The income attributable to the noncontrolling interest in 1998 and 1997 was $7.5 million and $3.3 million, respectively, and is reflected in Minority interest in the Consolidated Statements of Income. Stock Plans The 1996 Employee Stock Incentive Plan provides that the Company may grant to eligible employees stock options, restricted stock and other incentive awards. Up to 6.5 million shares of common stock may be granted under the plan, of which no more than 2.5 million shares may be granted as restricted stock. The vesting period and terms of stock options granted are established by the Compensation Committee of the board of directors. Generally, the options become exercisable 38 three years after the date of grant and have a maximum term of 10 years. There are stock options and restricted stock outstanding that were granted under previous plans with terms similar to the 1996 plan. 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. Stock options under this plan are immediately exercisable upon grant and generally have a maximum term of five years. In the event of a change of Company control, all outstanding stock options become immediately exercisable under the above described plans. There were 2,404,563 and 3,384,284 shares available for future stock grants at December 31, 1998 and 1997, respectively. The Company has elected to follow APB 25, "Accounting for Stock Issued to Employees," and recognizes no compensation expense for stock options as the option price under the plan equals the fair market value of the underlying stock at the date of grant. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock-Based Compensation," and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these stock options was estimated at the date of grant using a Black- Scholes option pricing model. The Company's weighted-average assumptions consisted of the following: 1998 1997 1996 Risk-free interest rate 5.08% 5.85% 6.03% Dividend yield 1.13% 1.75% 2.80% Stock price volatility factor 0.25 0.25 0.24 Weighted-average expected life (years) 5 5 5 Weighted-average fair value of options granted $13.09 $8.67 $4.61 For purposes of pro forma disclosures, the estimated fair value of options granted is amortized to expense over the options' vesting period. The pro forma effect on net income is not representative of the pro forma effect on net income in future years because grants made in 1996 and later years have an increasing vesting period. The Company's pro forma information consisted of the following: In thousands except per share data 1998 1997 1996 Net income - as reported $280,610 $180,290 $136,429 Net income - pro forma 275,672 178,159 132,558 Basic earnings per share - as reported 3.05 1.87 1.34 Diluted earnings per share - as reported 2.99 1.84 1.33 Basic earnings per share - pro forma 3.00 1.84 1.30 Diluted earnings per share - pro forma 2.93 1.82 1.29 Stock option activity consisted of the following: 39 Average Option Price Shares 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 Granted 30.87 1,284,460 Exercised 16.44 (1,424,657) Exchanged for SAR 16.46 (3,305) Canceled or expired 18.04 (30,230) Outstanding December 31, 1997 21.12 5,222,639 Granted 46.39 912,195 Exercised 17.14 (755,083) Exchanged for SAR 16.83 (520) Canceled or expired 20.91 (75,180) Outstanding December 31, 1998 $ 26.03 5,304,051 Exercisable options December 31, 1996 $ 16.58 3,494,501 December 31, 1997 16.87 2,185,229 December 31, 1998 17.77 1,523,060 Information with respect to stock options outstanding and stock options exercisable as of December 31, 1998 consisted of the following: Options Outstanding Options Exercisable Weighted Weighted Weighted Range of Average Average Average Exercise Number Remaining Exercise Number Exercise Prices Outstanding Life Price Exercisable Price $10.94-$16.88 583,955 4.4 $15.18 583,955 $15.18 $17.63-$24.63 2,630,405 7.4 18.91 906,105 18.20 $31.56-$42.88 1,208,441 8.9 31.81 $46.34-$51.91 881,250 9.5 46.55 33,000 51.91 5,304,051 1,523,060 Some stock options were granted with stock appreciation rights (SAR) which entitle the employee to surrender the right to receive up to one-half of the shares covered by the option and to receive a cash payment equal to the difference between the stock option price and the market value of the shares being surrendered. Stock options with a SAR outstanding were 69,465 at December 31, 1998, 122,850 at December 31, 1997 and 234,680 at December 31, 1996. The Company issues restricted stock and stock units to certain executives that vest over a three-year period based on achievement of pre-established financial objectives. Restricted stock is paid out in shares and the stock units are paid out in cash. Restricted stock shares outstanding at December 31, 1998, 1997 and 1996 were 311,960, 409,634 and 462,253, respectively. Restricted stock units outstanding at December 31, 1998, 1997 and 1996 were 217,186, 289,272 and 283,600, respectively. The expense for the anticipated restricted stock and stock unit payout is amortized over the three-year vesting period and was $11.8 million, $7.6 million and $4.8 million in 1998, 1997 and 1996, respectively. The number of shares of restricted stock issued in 1998 was 76,230 with a fair value at date of grant of $2.8 million. The number of stock units issued in 1998 was 50,827 with a fair value at date of grant of $1.9 million. 40 Employee Stock Ownership Plan The Company established an Employee Stock Option Plan (ESOP), and a related trust issued debt and used the proceeds to acquire shares of the Company's stock for future allocation to ESOP participants. ESOP participants generally consist of all U.S. employees except a select group covered by a collective bargaining agreement. The Company guarantees the ESOP debt and reflects it in the Consolidated Balance Sheets as Long-term debt with a related amount shown in the Shareowners' equity section as part of Employee stock plans. Dividends earned on the allocated and unallocated ESOP shares are used to service the debt. The Company is obligated to make annual contributions to the ESOP trust to the extent the dividends earned on the shares are less than the debt service requirements. As the debt is repaid, shares are released and allocated to plan participants based on the ratio of the current year debt service payment to the total debt service payments over the life of the loan. If the shares released are less than the shares earned by the employees, the Company contributes additional shares to the ESOP trust to meet the shortfall. All shares held by the ESOP trust are considered outstanding for earnings per share computations and dividends earned on the shares are recorded as a reduction of retained earnings. The ESOP shares held in trust consisted of the following: December 31 1998 1997 Original shares held in trust: Released and allocated 1,700,757 1,460,105 Unreleased shares (fair value; 1998--$71,985,029; 1997--$50,904,572) 1,156,386 1,397,038 2,857,143 2,857,143 Additional shares contributed and allocated 666,295 666,158 Shares withdrawn (514,211) (428,227) Total shares held in trust 3,009,227 3,095,074 The components of the total contribution to the ESOP trust consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 Debt service requirement $ 9,325 $ 9,831 $ 8,005 Dividends earned on ESOP shares (2,086) (1,960) (1,550) Cash contribution to ESOP trust 7,239 7,871 6,455 FMV of additional shares contributed 6 726 2,312 Total contribution to ESOP trust $ 7,245 $ 8,597 $ 8,767 The components of expense recognized by the Company for the ESOP contribution consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 Contribution classified as interest expense $ 2,265 $ 4,636 $ 4,991 Contribution classified as compensation expense 4,980 3,961 3,776 Total expense for the ESOP contribution $ 7,245 $ 8,597 $ 8,767 41 Shareowners' Equity The share activity of the Company's common stock consisted of the following: December 31 In thousands 1998 1997 1996 Common stock Balance at beginning of period 117,151 117,151 117,151 Balance at end of period 117,151 117,151 117,151 Treasury stock Balance at beginning of period (22,465) (19,106) (11,745) Purchase of common stock for treasury (6,300) (5,000) (8,056) Stock issued under stock option plans 760 1,374 390 Stock issued under restricted stock awards, net 52 151 182 Additional ESOP shares issued 20 116 123 Balance at end of period (27,933) (22,465) (19,106) In 1997, the Company's board of directors authorized the repurchase of up to 15 million additional shares beyond the previous share repurchase authorizations totalling 15.8 million shares. Under these authorizations, the Company has repurchased 22.1 million shares at a cost of $675 million. As of December 31, 1998, of the 8.7 million shares which may be repurchased under then existing board authorization, the Company is committed to purchase 4 million shares under put options contracts, if such options are exercised. (See discussion of these put option contracts below.) The Company plans to continue the repurchase of shares over a non-specified period of time. During the first quarter of 1998, the Company amended the forward stock purchase agreement associated with the repurchase of 4 million shares by the Company during 1997. The future contingent purchase price adjustment included in the forward stock purchase agreement was amended to provide for settlement based on the difference in the market price of the Company's common stock at the time of settlement compared to the market price of the Company's common stock as of March 24, 1998 rather than as of August 20, 1997. The net cost of the amendment was $64 million. During the third quarter of 1998, the Company further amended the forward stock purchase agreement to establish the future settlement price on 1 million of the total 4 million shares. The forward stock purchase contract allows the Company to determine the method of settlement. The Company's objective in this transaction is to reduce the average price of repurchased shares. In connection with the share repurchase program, the Company sells put options which give the purchaser the right to sell shares of the Company's common stock to the Company at specified prices upon exercise of the options. The put option contracts allow the Company to determine the method of settlement. The Company's objective in selling put options is to reduce the average price of repurchased shares. In 1998 and 1997, the Company received $30 million and $10 million, respectively, in premium proceeds from the sale of put options. As of December 31, 1998, there were put options outstanding for 4 million shares with strike prices ranging from $43.25 to $56.838 (the weighted- average strike price was $51.92). Pursuant to a Shareholder Rights Plan approved by the Company in 1998, each share of common stock carries with it one Right. Until exercisable, the Rights will not be transferable apart from the Company's common stock. When exercisable, each Right will entitle its holder to purchase one one-hundredth of a share of preferred stock of the Company at a price of $165. The Rights will only become exercisable if a person or group acquires 20 percent (which may be reduced to not less than 10 percent at the discretion of the board of directors) or more of the Company's common stock. In the event the Company is acquired in a merger or 50 percent or more of its consolidated assets or earnings power are sold, each Right entitles the holder to purchase common stock of either the 42 surviving or acquired company at one-half its market price. The Rights may be redeemed in whole by the Company at a purchase price of $.01 per Right. The preferred shares will be entitled to 100 times the aggregate per share dividend payable on the Company's common stock and to 100 votes on all matters submitted to a vote of shareowners. The Rights expire May 2, 2008. Supplementary Expense Information Advertising costs and research and development expenses consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 Advertising costs $ 168,483 $ 143,334 $ 138,141 Research and development expenses 59,468 50,201 48,927 Earnings Per Share The computation of basic and diluted earnings per share consisted of the following: Year Ended December 31 In thousands except per share data 1998 1997 1996 Numerator: Income before extraordinary item $ 286,510 $ 183,490 $ 137,977 Extraordinary item - loss on early retirement of debt (5,900) (3,200) (1,548) Numerator for basic and diluted earnings per share - net income $ 280,610 $ 180,290 $ 136,429 Denominator: Denominator for basic earnings per share - weighted-average shares 91,941 96,565 101,727 Effect of dilutive securities: Stock option plans 1,731 940 434 Restricted stock awards 196 190 305 Forward stock purchase contract 105 360 Dilutive potential common shares 2,032 1,490 739 Denominator for diluted earnings per share - adjusted weighted-average shares 93,973 98,055 102,466 Basic earnings per share $ 3.05 $ 1.87 $ 1.34 Diluted earnings per share $ 2.99 $ 1.84 $ 1.33 For additional disclosures regarding stock option plans and restricted stock awards, see Stock Plans section in the Notes to Consolidated Financial Statements. For additional disclosures regarding the Company's forward stock purchase contract, see Shareowners' Equity section in the Notes to Consolidated Financial Statements. Environmental Remediation The operations of the Company are subject to various federal, state and local laws and regulations intended to protect the environment including regulations related to air and water quality and waste handling and disposal. The Company also has received notices from the U.S. Environmental Protection Agency, state agencies and/or private parties seeking contribution, that it has been identified as a "potentially responsible party" (PRP), under the Comprehensive Environmental Response, Compensation and Liability Act, and may be required to share in the cost of cleanup with respect to such sites. The Company s ultimate liability in connection with those sites may depend on many factors, including the volume of material contributed to the site, the number of other PRPs and their financial viability and the remediation methods and technology to be used. 43 The Company also has responsibility, subject to specific contractual terms, for environmental claims for assets or businesses which have previously been sold. While it is possible the Company s estimated undiscounted obligation of approximately $8 million for future environmental costs may change in the near term, the Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. The accrual for environmental liabilities is reflected in Other noncurrent liabilities in the Consolidated Balance Sheets. Commitments and Contingencies The Company has contingent liabilities arising in the normal course of business, including pending litigation, environmental remediation, taxes and other claims. The Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or cash flows. At December 31, 1998, the Company has outstanding commitments for capital expenditures of $22 million. Segment Reporting The Company has three reportable segments: home appliances, commercial appliances and international appliances. The operations of the Company's home appliances segment manufacture major appliances (laundry products, dishwashers, refrigerators, cooking appliances) and floor care products. These products are primarily sold to major national retailers and independent retail dealers in North America and targeted international markets. The operations of the Company's commercial appliances segment manufacture commercial cooking and vending equipment. These products are primarily sold to distributors, soft drink bottlers, restaurant chains and dealers in North America and targeted international markets. The international appliances segment consists of the Company's 50.5 percent owned joint venture in China, Rongshida-Maytag, which manufactures laundry products and refrigerators. These products are primarily sold to department stores and distributors in China. The Company's reportable segments are distinguished by the nature of products manufactured and sold and types of customers. The Company's home appliances segment has been further defined based on distinct geographical locations. The Company evaluates performance and allocates resources to reportable segments primarily based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant policies except that the Company allocates pension expense associated with its pension plan to each reportable segment while recording the pension assets and liabilities at corporate. In addition, the Company records its federal and state deferred tax assets and liabilities at corporate. Intersegment sales are not significant. Financial information for the Company's reportable segments consisted of the following: 44 Year Ended December 31 In thousands 1998 1997 1996 Net sales Home appliances $3,482,842 $3,035,593 $2,798,907 Commercial appliances 458,008 249,416 162,301 International appliances 128,440 122,902 40,448 Consolidated total $4,069,290 $3,407,911 $3,001,656 Operating income Home appliances $ 505,110 $ 351,665 $ 276,945 Commercial appliances 49,769 19,437 10,731 International appliances 5,939 11,605 3,802 Total for reportable segments 560,818 382,707 291,478 Corporate (38,080) (24,434) (22,399) Consolidated total $ 522,738 $ 358,273 $ 269,079 Capital expenditures Home appliances $ 126,019 $ 174,622 $ 216,321 Commercial appliances 9,044 7,412 2,694 International appliances 21,817 32,884 576 Total for reportable segments 156,880 214,918 219,591 Corporate 4,371 14,643 311 Consolidated total $ 161,251 $ 229,561 $ 219,902 Depreciation and amortization Home appliances $ 129,712 $ 125,125 $ 104,768 Commercial appliances 9,781 5,666 3,820 International appliances 7,533 6,410 1,412 Total for reportable segments 147,026 137,201 110,000 Corporate 1,528 962 1,278 Consolidated total $ 148,554 $ 138,163 $ 111,278 Total assets Home appliances $1,736,396 $1,753,109 $1,730,795 Commercial appliances 266,750 250,440 91,886 International appliances 255,361 220,089 189,362 Total for reportable segments 2,258,507 2,223,638 2,012,043 Corporate 329,156 290,516 317,897 Consolidated total $2,587,663 $2,514,154 $2,329,940 In 1996, the Company's home appliances segment recorded a restructuring charge of $40 million. For additional disclosures regarding the Restructuring Charge, see Restructuring Charge section in the Notes to Consolidated Financial Statements. Corporate assets includes such items as deferred tax assets, intangible pension asset and other assets. The reconciliation of segment profit to consolidated income before income taxes and minority interest consisted of the following: Year Ended December 31 In thousands 1998 1997 1996 Total operating income for reportable segments $ 560,818 $ 382,707 $ 291,478 General corporate (38,080) (24,434) (22,399) Interest expense (62,765) (58,995) (43,006) Other - net 10,912 1,277 2,164 Consolidated income before income taxes and minority interest $ 470,885 $ 300,555 $ 228,237 Financial information related to the Company's operations by geographic area consisted of the following: 45 Year Ended December 31 In thousands 1998 1997 1996 Net sales United States $3,601,790 $2,983,574 $2,674,127 China 128,440 122,902 40,448 Other foreign countries 339,060 301,435 287,081 Consolidated total $4,069,290 $3,407,911 $3,001,656 December 31 In thousands 1998 1997 1996 Long-lived assets United States $ 867,425 $ 866,316 $ 804,770 China 90,080 67,964 40,616 Other foreign countries 8,089 6,992 6,499 Consolidated total $ 965,594 $ 941,272 $ 851,885 Net sales are attributed to countries based on the location of customers. Long-lived assets consist of total property, plant and equipment. 46 Quarterly Results of Operations (Unaudited) The unaudited quarterly results of operations consisted of the following: December September June March In thousands except per share data 31 30 30 31 1998 Net sales $ 972,003 $1,035,202 $1,021,699 $1,040,386 Gross profit 291,791 298,817 287,118 303,901 Income before extraordinary item 68,816 77,440 67,987 72,267 Basic earnings per share 0.77 0.85 0.73 0.77 Diluted earnings per share 0.75 0.84 0.71 0.75 Net income 66,416 73,940 67,987 72,267 Basic earnings per share 0.74 0.82 0.73 0.77 Diluted earnings per share 0.72 0.80 0.71 0.75 1997 Net sales $ 945,097 $ 855,804 $ 814,541 $ 792,469 Gross profit 262,827 239,534 224,445 209,482 Income before extraordinary item 51,930 49,277 43,783 38,500 Basic earnings per share 0.55 0.51 0.45 0.39 Diluted earnings per share 0.54 0.50 0.44 0.39 Net income 48,730 49,277 43,783 38,500 Basic earnings per share 0.52 0.51 0.45 0.39 Diluted earnings per share 0.50 0.50 0.44 0.39 In the third quarter of 1998, the Company made early retirements of debt of $50.5 million at an after-tax cost of $3.5 million. In the fourth quarter of 1998, the Company made early retirements of debt of $20.6 million at an after- tax cost of $2.4 million. These charges for the early retirement of debt have been reflected in the Consolidated Statements of Income as extraordinary items. In the fourth quarter of 1997, the Company acquired G.S. Blodgett Corporation, a commercial cooking equipment manufacturer. The results of this operation are consolidated in the Company's financial statements beginning in October 1997. Net sales from the acquisition of $31.3 million are included in the quarter ended December 31, 1997. In the fourth quarter of 1997, the Company made early retirements of debt of $61.8 million at an after-tax cost of $3.2 million. The charge for the early retirement of debt has been reflected in the Consolidated Statements of Income as an extraordinary item. 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 7 of the Proxy Statement of the Company is incorporated herein by reference. Additional information concerning executive officers of the Company is included under "Executive Officers of the Registrant" included in Part I, Item 4. Item 11. Executive Compensation. Information concerning executive compensation on pages 13 through 22 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 47 herein by reference. Information concerning director compensation on page 8 of the Proxy Statement is incorporated herein by reference, provided that the information contained in the Proxy Statement under the headings "Shareholder Return Performance" and "Other Matters" is specifically not incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The security ownership of certain beneficial owners and management is incorporated herein by reference from pages 5 through 7 of the Proxy Statement. Item 13. Certain Relationships and Related Transactions. Information concerning certain relationships and related transactions is incorporated herein by reference from pages 1 through 4 of the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) and (2) The response to this portion of Item 14 is submitted as a separate section of this report in the "List of Financial Statements and Financial Statement Schedules" on page 50. (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 51 through 54. (b) There were no reports on Form 8-K filed during the fourth quarter ended December 31, 1998. (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 51 through 54. (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 50. 48 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) 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. Gerald J. Pribanic Steven H. Wood Executive Vice President and Vice President Financial Reporting Chief Financial Officer and Audit and Chief Accounting Officer Barbara R. Allen Howard L. Clark, Jr. Director Director Lester Crown Wayland R. Hicks Director Director Bernard G. Rethore W. Ann Reynolds Director Director Neele E. Stearns, Jr. Fred G. Steingraber Director Director Carole J. Uhrich Director Date: March 17, 1999 49 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, 1998 MAYTAG CORPORATION NEWTON, IOWA FORM 10-K--ITEM 14(a)(1), (2) AND ITEM 14(d) MAYTAG CORPORATION LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements and supplementary data of Maytag Corporation and subsidiaries are included in Part II, Item 8: Page Consolidated Statements of Income--Years Ended December 31, 1998, 1997, and 1996 . . . . . . . . . . . . . 20 Consolidated Balance Sheets-- December 31, 1998 and 1997 . . . . . . . . . . . . . . . . 21 Consolidated Statements of Shareowners' Equity--Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 23 Consolidated Statements of Comprehensive Income-- December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 24 Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . 25 Notes to Consolidated Financial Statements . . . . . . . . . 26 Quarterly Results of Operations--Years 1998 and 1997 . . . . 47 The following consolidated financial statement schedule of Maytag Corporation and subsidiaries is included in Item 14(d): Schedule II Valuation and Qualifying Accounts . . .. . . . . 55 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. 50 FORM 10-K--ITEM 14(a) (3) AND ITEM 14(c) MAYTAG CORPORATION LIST OF EXHIBITS The following exhibits are filed herewith or incorporated by reference. Items indicated by (1) are considered a compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 3(a) Restated Certificate of Incorporation of 1993 Annual Registrant. Report on Form 10-K 3(b) Certificate of Designations of Series A 1988 Annual Junior Participating Preferred Stock of Report on Registrant. Form 10-K. 3(c) Certificate of Increase of Authorized 1988 Annual Number of Shares of Series A Junior Report on Participating Preferred Stock of Form 10-K. Registrant. 3(d) Certificate of Amendment to Certificate of1997 Annual Designations of Series A Junior Report on Participating Preferred Stock of Form 10-K Registrant. 3(e) By-Laws of Registrant, as amended through X November 12, 1998. 4(a) Rights Agreement dated as of February 12, Form 8-A 1998 between Registrant and Harris Trust dated and Savings Bank. February 12, 1998, Exhibit 1. 4(b) Letter to Shareholders dated February 12, Current 1998 relating to the adoption of a Report on shareholders rights plan with attachments.Form 8-K dated February 12, 1998, Exhibit 1. 4(c) Indenture dated as of June 15, 1987 Quarterly between Registrant and The First National Report on Bank of Chicago. Form 10-Q for the quarter ended June 30, 1987. 51 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 4(d) First Supplemental Indenture dated as of Current September 1, 1989 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated September 28, 1989, Exhibit 4.3. 4(e) Second Supplemental Indenture dated as of Current November 15, 1990 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated November 29, 1990. 4(f) Third Supplemental Indenture dated as of Current August 20, 1996 between Registrant and Report on The First National Bank of Chicago. Form 8-K dated August 20, 1996. 4(g) U.S. $400,000,000 Credit Agreement Dated 1995 Annual as of July 28, 1996 among Registrant, the Report on banks Party Hereto and Bank of Montreal, Form 10-K Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(h) Second Amendment to Credit Agreement Dated1996 Annual as of July 1, 1996 among Registrant, the Report on banks Party Hereto and Bank of Montreal, Form 10-K Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(i) Third Amendment to Credit Agreement Dated 1997 Annual as of June 10, 1997 among Registrant, the Report on banks Party Hereto and Bank of Montreal, Form 10-K Chicago Branch as Agent and Royal Bank of Canada as Co-Agent. 4(j) 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) Change of Control Agreements (1). X 10(c) Corporate Severance Agreements (1). 1989 Annual Report on Form 10-K. 52 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 10(d) Revised definition of Change of Control 1995 Annual adopted by the Board of Directors amendingReport on the definition included in the Corporate Form 10-K Severance Agreements listed in Exhibit 10(c). 10(e) 1989 Non-Employee Directors Stock Option Exhibit A to Plan (1). Registrant's Proxy Statement dated March 18, 1990. 10(f) 1986 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 14, 1986. 10(g) 1992 Stock Option Plan for Executives and Exhibit A to Key Employees (1). Registrant's Proxy Statement dated March 16, 1992. 10(h) 1991 Stock Incentive Award Plan for Key Exhibit A to Executives (1). Registrant's Proxy Statement dated March 15, 1991. 10(i) Directors Deferred Compensation Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K. 10(j) 1996 Employee Stock Incentive Plan (1). Exhibit A to Registrant's Proxy Statement dated March 20, 1996. 53 Incorporated Filed with Exhibit Herein by Electronic Number Description of Document Reference to Submission 10(k) 1988 Capital Accumulation Plan for Key Amendment No. Employees (1). (Superseded by Deferred 1 on Form 8 Compensation Plan, as amended and restateddated April effective January 1, 1997) 5, 1990 to 1989 Annual Report on Form 10-K. 10(l) Maytag Deferred Compensation Plan, as 1995 Annual amended and restated effective January 1, Report on 1996. Form 10-K 10(m) Directors Retirement Plan (1). Amendment No. 1 on Form 8 dated April 5, 1990 to 1989 Annual Report on Form 10-K. 10(n) 1998 Non-Employee Directors' Stock Option Exhibit A to Plan (1). Registrant's Proxy Statement dated April 2, 1998. 12 Ratio of Earnings to Fixed Charges. X 21 List of Subsidiaries of the Registrant. X 23 Consent of Ernst & Young LLP. X 27 (a) Financial Data Schedule - Twelve Months X Ended December 31, 1998. 27 (b) Financial Data Schedule - Restated Twelve X Months Ended December 31, 1997. 54 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, 1998: Allowance for doubtful $ 36,386 $ 14,807 $ 29,743 (1) $ 22,305 accounts receivable 73 (2) (928)(3) $ 36,386 $ 14,807 $ 28,888 $ 22,305 Year ended December 31, 1997: Allowance for doubtful $ 13,790 $ 26,212 (4) $ 3,903 (1)(4) $ 36,386 accounts receivable 1 (2) (288)(5) $ 13,790 $ 26,212 $ 3,616 $ 36,386 Year ended December 31, 1996: Allowance for doubtful $ 12,540 $ 14,152 $ 14,169 (1) $ 13,790 accounts receivable 2 (2) (1,269)(6) $ 12,540 $ 14,152 $ 12,902 $ 13,790 Note 1 - Uncollectible accounts written off Note 2 - Effect of foreign currency translation Note 3 - Resulting from acquisition of Three Gorges in the fourth quarter of 1998. Note 4 - These amounts have been reclassified to conform to 1998 presentation. Note 5 - Resulting from acquisition of G.S. Blodgett Corporation in October 1997. Note 6 - Resulting from acquistion of the Company's China joint venture in the fourth quarter of 1996.
55 EX-3 2 BY-LAWS OF REGISTRANT MAYTAG CORPORATION Exhibit 3e By-Laws of the Registrant MAYTAG CORPORATION A Delaware Corporation BYLAWS Revised as of November 12, 1998 MAYTAG CORPORATION BYLAWS Offices 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the registered agent in charge thereof is the Corporation Trust Company. The corporation may also have an office in the City of Newton, Jasper County, State of Iowa, and also offices at such other places as the board of directors may from time to time appoint or the business of the corporation may require. Seal 2. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." Stockholders' Meetings 3. Meetings of the stockholders may be held at such place as shall be determined by resolution of the board of directors. 4. An annual meeting of the stockholders shall be held on such date and at such time and place as shall be fixed by resolution of the board of directors. Any previously scheduled annual or special meeting of the stockholders may be postponed by resolution of the board of directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. At the annual meeting the stockholders shall elect directors of the class for which the term expires on such date and shall transact such other business as may properly be brought before the meeting. Except as otherwise provided by statute or the Certificate of Incorporation, the only business which properly shall be conducted at any annual meeting of the stockholders shall (I) have been specified in the written notice of the meeting (or any supplement thereto) given as provided in Bylaw 7, (ii) be brought before the meeting by or at the direction of the Board of Directors or the officer of the corporation presiding at the meeting or (iii) have been specified in a written notice (a "Stockholder Meeting Notice") given to the corporation, in accordance with all of the following requirements, by or on behalf of any stockholder who is entitled to vote at such meeting. Each Stockholder Meeting Notice must be delivered - 2 - personally to, or be mailed to and received by, the secretary of the corporation at the principal executive offices of the corporation, in Newton, Iowa, not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, the Stockholder Meeting Notice to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. For purposes of these Bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended. Each Stockholder Meeting Notice shall set forth: (I) a description of each item of business proposed to be brought before the meeting and the reasons for conducting such business at the annual meeting; (ii) the name and record address of the stockholder proposing to bring such item of business before the meeting; (iii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such Stockholder Meeting Notice and; (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934 as amended. No business shall be brought before any annual meeting of stockholders of the corporation otherwise than as provided in this Bylaw 4; provided, however, that nothing contained in this Bylaw 4 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The officer of the corporation presiding at the annual meeting of stockholders shall, if the facts so warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Bylaw 4 and, if he should so determine, he should so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. 5. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. The officer of the corporation presiding at the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum present. Notice of the time or place of an adjourned meeting shall be given only as required by law. The stockholders present at a duly called meeting may continue to transact business until adjournment, notwithstanding the withdrawal of sufficient stockholders to constitute the remaining stockholders less than a quorum. At such adjourned meeting at which the requisite amount of voting stock shall be - 3 - represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 6. At each meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person or may authorize another person or persons to act for such stockholder as proxy by the methods provided in Section 212 of the General Corporation Law of the State of Delaware, as in effect from time to time. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the corporation. The vote for directors, and upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. 7. Written notice of the annual meeting shall be prepared and mailed by the corporation to each stockholder entitled to vote thereat at such address as appears on the stock book of the corporation at least ten and not more than sixty days prior to the meeting. 8. A complete list of the stockholders entitled to vote at the ensuing meeting, arranged in alphabetical order, with the address of each, and the number of voting shares held by each, shall be prepared by the secretary and filed in the office where the meeting is to be held, at least ten days before every meeting of stockholders, and shall, during the usual hours of business during such ten day period, and during the whole time of said meeting of stockholders, be open to the examination of any stockholder for any purpose germane to the meeting. 9. Special meetings of stockholders of the corporation may be called only by the board of directors pursuant to a resolution approved by a majority of the whole board of directors. Any previously scheduled annual or special meeting of the stockholders may be postponed by resolution of the board of directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. This Bylaw 9 may not be amended or rescinded except by the affirmative vote of the holders of at least two-thirds of the stock of the corporation issued and outstanding and entitled to vote, at any regular or special meeting of the stockholders if notice of the proposed alteration or amendment be contained in the notice of meeting. 10. Business transacted at all special meetings shall be confined to - 4 - the objects stated in the notice of the special meeting. Written notice of a special meeting of stockholders stating the time and place and object thereof shall be prepared and mailed by the corporation, postage prepaid, at least ten and not more than sixty days before such meeting, to each stockholder entitled to vote thereat at such address as appears on the books of the corporation. 11. The board of directors by resolution shall appoint one or more in- spectors, which inspector or inspectors may include individuals who serve the corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the corporation, to act at a meeting of stockholders and make a written report thereof. One or more persons may be designated by the board of directors as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the officer appointed to act or is able to act at a meeting of stockholders, the officer of the corporation presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The officer of the corporation presiding at the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting. Directors 12. The property and business of this corporation shall be managed by its board of directors. Except as otherwise provided in these Bylaws or by law, the directors of the corporation shall be elected at the annual meeting of stockholders in each year. The number of directors which shall constitute the whole board of directors shall be at least three and such number may be fixed from time to time by a majority of the whole board, or if the number is not so fixed, the number shall be eleven. The directors of the corporation shall be divided into three classes, each class to consist, as nearly as may be, of one-third of the number of directors then constituting the whole board of directors. At the 1977 Annual Meeting of Stockholders, (a) one-third of the number of directors shall be elected to serve until the 1978 Annual Meeting of Stockholders; (b) one-third of the number of directors shall be elected to serve until the 1979 Annual Meeting of Stockholders; and (c) one-third of the number of directors shall be elected to - 5 - serve until the 1980 Annual Meeting of Stockholders, and until their successors shall be duly elected and qualified. At each annual election of directors after the 1977 Annual Meeting of stockholders, the successors to the directors of each class whose term shall expire in that year shall be elected to hold office for a term of three years from the date of their election and until their successors shall be duly elected and qualified. In the case of any increase or decrease in the number of directors, the increase or decrease shall be distributed among the several classes as nearly equally as possible, as shall be determined by a majority of the whole board at the time of such increase or decrease. This Section 12 may not be amended or rescinded except by the affirmative vote of the holders of at least two-thirds of the stock of the corporation issued and outstanding and entitled to vote, at any regular or special meeting of the stockholders if notice of the proposed alteration or amendment be contained in the notice of the meeting. 13. The directors may hold their meetings and have one or more offices, and keep the books of the corporation outside of Delaware, at the office of the corporation in the city of Newton, Iowa, or at such other places as they may from time to time determine. 14. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by stockholders. 14A. Except as otherwise fixed pursuant to the Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the corporation, acting separately by class or series, to elect, under specified circumstances, directors at a meeting of stockholders, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at an annual meeting only if written notice of such stockholder's intent to make such nomination or nominations has been delivered personally to, or been mailed to and received by, the secretary of the corporation at the principal executive offices of the corporation in Newton, Iowa, not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Each such notice shall set forth: - 6 - (I) the name and record address of the stockholder who intends to make the nomination; (ii) the name, age, principal occupation or employment, business address and residence address of the person or persons to be nominated; (iii) the class and number of shares of stock held of record, owned beneficially and represented by Proxy by such stockholder and by the person or persons to be nominated as of the date of such notice; (iv) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (v) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder; (vi) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the Securities Exchange Act of 1934, as amended, and the proxy rules of the Securities and Exchange Commission; and (vii) the consent of each nominee to serve as a director of the corporation if so elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. Notwithstanding anything in the second sentence of this Bylaw 14A to the contrary, in the event that the number of directors to be elected to the board of directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors made by the corporation at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Bylaw 14A shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the corporation, in Newton, Iowa, not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. The officer of the corporation presiding at the annual meeting of stockholders shall, if the facts so warrant, determine that a nomination was not made in accordance with the provisions of this Bylaw 14A, and if he should so determine, he should so declare to the meeting and the defective nomination shall be disregarded. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the board of directors or (b) provided that the board of directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Bylaw 14A, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw 14A. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by the first paragraph of this Bylaw 14A shall be delivered to the secretary at the principal executive offices of the corporation not earlier than the - 7 - 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in these Bylaws. Notwithstanding the provisions of Bylaw 4 and this Bylaw 14A, a stockholder shall also comply with all applicable requirements of the Securities and Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in Bylaw 4 and this Bylaw 14A. Nothing in Bylaw 4 and this Bylaw 14A shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934, as amended. Executive Committee 15. There may be an executive committee of two or more directors designated by resolution passed by a majority of the whole board. Said committee may meet at stated times, or on notice to all by any of their own number. During the intervals between meetings of the board such committee shall advise with and aid the officers of the corporation in all matters concerning its interests and the management of its business, and generally perform such duties and exercise such powers as may be directed or delegated by the board of directors from time to time. The board may delegate to such committee authority to exercise all the powers of the board excepting power to amend the Bylaws, while the board is not in session. Vacancies in the membership of the committee shall be filled by the board of directors at a regular meeting or at a special meeting called for that purpose. 16. The executive committee shall keep regular minutes of its proceedings and report the same to the board when required. Compensation of Directors 17. Directors who as officers or employees of the corporation receive compensation from it shall not receive any stated compensation for their services as directors; but by resolution of the board reasonable compensation for attendance at board meetings may be allowed and paid. Directors who do not receive compensation from the corporation for employment with it in the capacity of an officer or employee shall be allowed and paid such stated compensation as may be fixed by the board of - 8 - directors; and such directors shall be reimbursed for expenses incurred in connection with the performance of their duties or services as director, the amount thereof to be allowed and paid by resolution of the board. Nothing herein contained shall be construed as precluding a director from serving the company in any other capacity and receiving compensation therefor. 18. Members of special or standing committees may be allowed and paid compensation for their services as such, and expenses incident thereto, in such amounts as from time to time are fixed and allowed by the board of directors. Meetings of the Board 19. The newly elected board may meet without notice for the purpose of organization or otherwise immediately following the annual meeting of the stockholders or at such place and time as shall be fixed by resolution of the board. 20. Regular meetings of the board may be held without notice at such time and place as shall from time to time be determined by resolution of the board. 21. Special meetings of the board may be called by the chairman of the board or the president on two days' written notice mailed to each director, or on not less than 24 hours' notice delivered to each director personally, telephonically or by telegram or telecopy at such number as has been provided by the director; special meetings shall be called by the chairman of the board, the president or secretary in like manner and on like notice on the written request of a majority of the directors then in office. A special meeting may be held without notice if all the directors are present or, if those not present waive notice of the meeting in writing, either before or after such meeting. 22. At all meetings of the board, four directors, but not less than one-third of the total number of directors, shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the board of directors, except as may be otherwise provided by statute or by the Certificate of Incorporation or by these Bylaws. Officers 23. The officers of this corporation shall be chosen by the directors and shall be a president, one or more vice presidents, a secretary, controller, and such assistant secretaries as the board of directors may designate. The board may also elect a chairman of the board and in that - 9 - event, shall designate whether he or the president shall be the chief executive officer of the corporation. 24. The board of directors, at its first meeting after each annual meeting of stockholders, shall elect the corporate officers. 25. The board may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. 26. The salaries of the officers of the corporation shall be fixed from time to time by the board of directors; provided that in the case of officer members of the board of directors their salaries may be fixed from time to time by either of the following additional methods: (I) by a salary committee of not less than three members appointed, by a resolution passed by a majority of the whole board of directors, from among the members of the board of directors who are not officers of the corporation, or (ii) by a salary committee composed of all members of the board of directors who are not officers of the corporation, such committee to act by a majority of its members. None of the officers of the corporation shall be prevented from receiving a salary by reason of the fact that he is also a member of the board of directors; but an officer who shall also be a member of the board of directors shall not have any vote in a determination by the board of directors of the amount of salary that shall be paid to him. 27. The officers of the corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. Chairman of the Board of Directors 28. Whenever a chairman of the board of directors has been elected by the board, he shall preside at all meetings of the board of directors and of the stockholders. If no chairman of the board is elected, the president shall act as the chairman of the board and shall assume the powers and duties of the chairman. President 29. (a) The president shall be the chief executive officer of the corporation unless a chairman of the board has been elected and designated as such officer. Subject to the authority of the chairman of the board in such event, the president shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board are carried into effect. In the absence or disability of the chairman of the board, where that office has been filled by election of the - 10 - board, the powers and duties of the chairman shall be assumed by the president. (b) He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation. (c) He shall be ex-officio a member of all standing committees, and shall have the general powers and duties of supervision and management usually vested in the office of president of the corporation. Vice President 30. The board of directors may elect one or more vice presidents and may designate one or more of the vice presidents to be executive vice presidents. Subject to the succession provided for in Bylaw 29(a), in the absence or disability of the CEO, the executive vice presidents, or the vice presidents in the event none have been designated "Executive", in the order designated, (or in the absence of any designation, then in the order of their election) shall perform the duties and exercise the powers of the CEO. The vice president(s) shall perform such other duties as the board of directors may prescribe. Secretary 31. The secretary shall attend all sessions of the board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized. He shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. Treasurer 32. (a) The treasurer shall, under the general direction of the Chief Financial Officer, be responsible for the planning and directing of corporate finance activities. He shall have the custody of corporate funds and securities and shall deposit all moneys, and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. (b) He shall disburse the funds of the Corporation as may be - 11 - ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President and the directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer. (c) He shall give the Corporation a bond if required by the Board of Directors in a sum, and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Chief Financial Officer 33. The Chief Financial Officer of the corporation shall have the general responsibility for the financial operations of the corporation and for all receipts and disbursements of the funds of the corporation. Controller 34. The controller shall be the chief accounting officer of the corporation. Assistant Secretary 35. The assistant secretaries in the order of their seniority shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary, and shall perform such other duties as the board of directors shall prescribe. Assistant Treasurer 36. Repealed. Vacancies and Newly Created Directorships 37. If the office of any officer or agent becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, such vacancy may be filled by the board of directors. Vacancies in the board of directors and newly created directorships resulting from any increase in the authorized number of directors may be - 12 - filled by a majority of the directors then in office, though less than a quorum, and the directors so chosen shall hold office until the expiration of the term of the class to which they have been chosen and until their successors are duly elected and qualified. This second paragraph of Section 37 may not be amended or rescinded except by the affirmative vote of the holders of at least two-thirds of the stock of the corporation issued and outstanding and entitled to vote, at any regular or special meeting of the stockholders if notice of the proposed alteration or amendment be contained in the notice of the meeting. Duties of Officers May be Delegated 38. In case of the absence of any officer of the corporation, or for any other reason that the board may deem sufficient, the board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director, provided a majority of the entire board concur therein. Certificates of Stock 39. The certificates of stock of the corporation shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the president or a vice president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary. Transfers of Stock 40. Transfers of stock shall be made on the books of the corporation only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. 41. The board of directors shall have power to appoint one or more transfer agents and/or one or more registrars of transfers and may provide that the issuance of certificates of stock of this corporation shall not be valid unless signed by such transfer agent or transfer agents and/or registrar of transfers or registrars of transfers, and if such certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. Record Dates 42. In order that the corporation may determine the stockholders - 13 - entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any such other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business of the day next preceding the day on which notice is given, and the record date for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Registered Stockholders 43. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. Lost Certificate 44. Any person claiming a certificate of stock to be lost, stolen or destroyed, shall make an affidavit or affirmative of the fact and advertise the same in such manner as the board of directors may require, and shall if the directors so require give the corporation a bond of indemnity, sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new replacement certificate, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost, stolen or destroyed. Inspection of Books 45. The directors shall determine from time to time whether and, if allowed, when and under what conditions and regulations the accounts and books of the corporation (except such as may by statute be specifically open to inspection) or any of them shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be - 14 - restricted and limited accordingly. Checks 46. All checks or demands for money and notes of the corporation, shall be signed by such officer or officers, employee or employees as the board of directors may from time to time designate. Fiscal Year 47. The fiscal year shall begin the first day of January in each year. Directors' Annual Statement 48. The board of directors shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation. Notices 49. Except as otherwise provided in these Bylaws, whenever under the provisions of these Bylaws notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by telecopy as provided in Bylaw 21, by mail, by depositing the same in the post office or letter box, in a postpaid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the corporation, or, in default of other address, to such director, officer or stockholder at the General Post Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, director, or officer may waive any notice required to be given under these Bylaws, either before or after the event for which such notice was required. Incentive Payments 50. Repealed. 51. Unless otherwise provided by resolution adopted by the board of - 15 - directors, the president or any vice president or the secretary may from time to time appoint an attorney or attorneys, or an agent or agents, to exercise in the name and on behalf of the company the powers and rights which it may have as the holder of stock or other securities in any other corporation or membership in any organization, to vote or consent in respect of such stock or other securities or membership, and the president, or any vice president or the secretary may execute or cause to be executed in the name and on behalf of the company and under its corporate seal, or otherwise all such written proxies or other instruments as he may deem necessary or proper in order that the company may exercise its powers and rights. Amendments 52. Except as otherwise provided in these Bylaws, these Bylaws may be altered or amended by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, at any regular or special meeting of the stockholders, if notice of the proposed alteration or amendment be contained in the notice of the meeting, or (except as otherwise provided in these Bylaws) by the affirmative vote of a majority of the board of directors at a regular or special meeting of the board. * * * * * I, E. James Bennett, Secretary of MAYTAG CORPORATION, a corporation organized and existing under the laws of the State of Delaware, do hereby certify that as such Secretary, I have custody and possession of the records and corporate seal of said corporation, and that the foregoing is a full, true and correct copy of the Bylaws of said corporation in my custody and possession; and that the seal hereto affixed is the common or corporate seal of said corporation so in my custody and possession. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary and affixed the corporate seal of said corporation this 12th day of November, A.D., 1998. /s/ E. James Bennett Secretary EX-10 3 EXECUTIVE SEVERANCE AGREEMENT - 3YR MAYTAG CORPORATION Exhibit 10(b) Executive Severance Agreements. The following executives are covered under this severance agreement: Len Hadley Lloyd Ward Jerry Pribanic Ed Graham John Dupuy Jon Nicholas Dave Urbani Bill Beer Larry Blanford Ron Caldwell Kent Baker Keith Minton Bob Downing Carl Moe Glenn Kelsey Change of Control Agreement THIS AGREEMENT is made this _____________ day of _____________, 1998 (the "Effective Date"), by and between Maytag Corporation, a Delaware corporation (the "Company"), and ---------- (the "Executive"), and shall continue in effect for three full calendar years (through the year 2001 (the Initial Term ). The Initial Term of this agreement automatically shall be extended for one additional year on the first anniversary of the Effective Date, and then again on each anniversary thereafter (each such one-year period following the Initial Term a "Successive Period"). In the event that a "Change of Control" of the Company occurs (as such term is hereinafter defined) during the Initial Term or any Successive Period, upon the effective date of such Change of Control, the term of this agreement shall automatically and irrevocably be renewed for a period of thirty-six (36) full calendar months from the effective date of such Change of Control. This agreement shall thereafter automatically terminate following the thirty-six (36) month Change-of-Control renewal period. Further, this agreement shall be assigned to, and shall be assumed by the purchaser in such Change of Control, as further provided herein in paragraph D5 of the section titled "Agreements." RECITALS A. The Board of Directors of the Company has approved the Company entering into severance agreements with such executives of the Company and its subsidiaries as is determined by the Chairman and Chief Executive Officer. B. Should the Company receive or learn of any proposal by a third person about a possible business combination with the Company or the acquisition of its equity securities, the Board considers it imperative that the Company be able to rely upon the Executive to continue in his or her position. This to the end that the Company be able to receive and rely upon the Executive's advice concerning the best interests of the Company and its stockholders, without concern that person might be distracted by the personal uncertainties and risks created by such a proposal. C. Should the Company receive any such proposals, in addition to the Executive's regular duties, he or she may be called upon to assist in the assessment of such proposals, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate. AGREEMENT NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of that person's advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree that the Executive Severance Agreement described above be amended and restated in its entirety as follows: A. Should a third person, in order to effect a change of control (as defined), begin a tender or exchange offer, circulate a proxy to stockholders or take other steps, the Executive agrees that he or she will not voluntarily leave the employ of the Company, and will render the services contemplated in the recitals to this agreement, until the third person has abandoned or terminated his efforts to effect a change of control or until a change of control has occurred. B. Should the Executive's employment with the Company or its subsidiaries terminate for any reason (either voluntary or involuntary), other than because of death, disability, Cause, or Normal Retirement within three (3) years after a change of control of the Company, or in the event a successor company refuses to accept its obligations under this agreement as required by paragraph D5 herein, the following will be provided: 1. Lump Sum Cash Payment. On or before the Executive's last day of employment with the Company or its subsidiaries, or as soon thereafter as possible, the Company will pay to the Executive as compensation for services rendered, a lump sum cash amount (subject to the usual withholding taxes) equal to (A) three times the sum of (1) the Executive's annual salary at the rate in effect immediately prior to the change of control and (2) the then-current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control) plus (B) an amount equal to the compensation (at the Executive's rate of pay in effect immediately prior to the change of control) payable for any period for which the Executive could have, immediately prior to the date of his termination of employment, been on vacation and received such compensation, for unused and accrued vacation benefits determined under the Company's vacation pay plan or program covering the Executive immediately prior to the change of control. 2. Salaried and Supplemental Executive Retirement Plans. The Executive shall be paid a monthly retirement benefit, in addition to any benefits received under the Salaried Retirement Plans maintained by the Company or its subsidiaries, including The Maytag Corporation Salaried Retirement Plan and any Supplemental Executive Retirement Plan, such benefit to commence on the first to occur of (a) the commencement of payment of benefits under the Maytag Corporation Salaried Retirement Plan or (b) attainment of age 65, but not prior to three (3) years following the date of termination of employment or age 65, whichever first occurs, such benefit to be an amount equal to the excess of (i) the aggregate benefits under such Salaried Retirement Plans to which the Executive would be entitled if he or she remained employed by the Company or its subsidiaries, for an additional period of three (3) years, at the rate of annual compensation specified herein; over (ii) the benefits to which the Executive is actually entitled under such Salaried Retirement Plans. The source of payment of these benefits shall be the general assets of the Company unless the payment of such amounts is otherwise permissible from the corresponding qualified plan trust without violating any governmental regulations or statutes. 3. Life, Dental, Vision, Health and Long-Term Disability Coverage. The Executive's participation in, and entitlement to, benefits under: (i) the life insurance plan of the Company; (ii) all the health insurance plan or plans of the Company or its subsidiaries, including but not limited to those providing major medical and hospitalization benefits, dental benefits and vision benefits; and (iii) the Company's long-term disability plan or plans; as all such plans existed immediately prior to the change of control shall continue as though he or she remained employed by the Corporation or its subsidiaries for an additional period of three (3) years. The applicable COBRA health insurance benefit continuation period shall begin at the end of this three (3) year period. To the extent such participation or entitlement is not possible for any reason whatsoever, equivalent benefits shall be provided. The providing of these benefits by the Company shall be discontinued prior to the end of the three (3) year continuation period in the event that the Executive becomes covered under the insurance programs of a subsequent employer and, with respect to all health insurance plans, provided that such subsequent employer's health insurance plans do not contain any exclusion or limitation with respect to any preexisting condition of the Executive or the Executive's eligible dependents. For purposes of enforcing this offset provision, the Executive shall have a duty to inform the Company as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment. The Executive shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same. 4. Participation in Employee Benefit Plans. Unless otherwise provided, the Executive's participation in any other savings, capital accumulation, retirement, incentive compensation, profit sharing, stock option, and/or stock appreciation rights plans of the Company or any of its subsidiaries shall continue only through the last day of his or her employment. Any terminating distributions and/or vested rights under such plans shall be governed by the terms of those respective plans. Furthermore, the Executive's participation in any insurance plans of the Company and rights to any other fringe benefits shall, except as otherwise specifically provided in such plans or Company policy, terminate as of the close of the Executive's last day of employment, except to the extent specifically provided to the contrary in this agreement. 5. Incentive Plans. In addition to the payments required by paragraph 1 of this Section, the Company shall pay to the Executive as compensation for services rendered cash in an amount equal to the then-current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs, adjusted on a pro rata basis based on the number of days the Executive was actually employed during such bonus plan year (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control). In the case of long-term stock incentive awards represented by restricted shares of stock of the Company, made to Executive under the Maytag Corporation Employee Stock Incentive Plan (any prior plan, or successor plan) in lieu of stock under such stock incentive awards the Executive shall receive a cash payment equal to the aggregate value of the maximum number of shares for which the Executive holds outstanding awards, with share value determined at the closing price as of the date of the change of control. Any payment due pursuant to this paragraph 5 shall be paid at the same time as the amounts payable pursuant to paragraph 1 of this Section. 6. Excise Tax-Additional Payment. (a) Notwithstanding anything in this agreement or any written or unwritten policy of the Company or its subsidiaries to the contrary, (i) if it shall be determined that any payment or distribution by the Company or its subsidiaries to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this agreement, any other agreement between the Company or its subsidiaries and the Executive or otherwise (a "Payment"), would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or (ii) if the Executive shall otherwise become obligated to pay the Excise Tax in respect of a Payment, then the Company shall pay to the Executive an additional payment in an amount to cover the full cost of any Excise Tax and the Executive's state and federal income and employment taxes on this additional payment (cumulatively, the "Gross-Up Payment"). (b) All determinations and computations required to be made under this section B6, including whether a Gross-Up Payment is required under clause (ii) of paragraph B6(a) above, and the amount of any Gross-Up Payment, shall be made by the Company's regularly engaged independent certified public accountants (the "Accounting Firm"). The Company shall cause the Accounting Firm to provide detailed supporting calculations both to the Company and the Executive within 15 business days after such determination or computation is requested by the Executive. Any initial Gross-Up Payment determined pursuant to this paragraph B6 shall be paid by the Company or the subsidiary to the Executive within 5 days of the receipt of the Accounting Firm's determination. A determination that no Excise Tax is payable by the Executive shall not be valid or binding unless accompanied by a written opinion of the Accounting Firm to the Executive that the Executive has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company, its subsidiaries and the Executive, except to the extent the Executive becomes obligated to pay an Excise Tax in respect of a Payment. In the event that the Company or the subsidiary exhausts or waives its remedies pursuant to subparagraph B6(c) and the Executive thereafter shall become obligated to make a payment of any Excise Tax, and if the amount thereof shall exceed the amount, if any, of any Excise Tax computed by the Accounting Firm pursuant to this subparagraph (b) in respect to which an initial Gross-Up Payment was made to the Executive, the Accounting Firm shall within 15 days after Notice thereof determine the amount of such excess Excise Tax and the amount of the additional Gross-Up Payment to the Executive. All expenses and fees of the Accounting Firm incurred by reason of this paragraph B6 shall be paid by the Company. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph B6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company or the subsidiary shall determine; provided, however, that if the Company or the subsidiary directs the Executive to pay such claim and sue for a refund, the Company or the subsidiary shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided, that any extension of the statue of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, control of the contest by the Company or the subsidiary shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to compliance with the requirements of paragraph B6 by the Company or the subsidiary) promptly pay to the Company or the subsidiary the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall off-set, to the extent thereof, the amount of Gross-Up Payment required to be paid. C. Definitions. 1. "Cause." For purposes of this agreement, Cause shall be determined by the Board of Directors, in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (a) A demonstrably willful and deliberate act or failure to act by the Executive (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith, without reasonable belief that such action or inaction is in the best interests of the Company, which causes actual material financial injury to the Company and which act or inaction is not remedied within fifteen (15) business days of written notice from the Company; or (b) The Executive's conviction for committing an act of fraud, embezzlement, theft, or any other act constituting a felony involving moral turpitude or causing material harm, financial or otherwise, to the Company. 2. Change of Control. For purposes of this agreement, "change of control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the Outstanding Company Common Stock ) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below; or (b) Individuals who, as of the date hereof, constitute the Board (the Incumbent Board ) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of a least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Normal Retirement. For purposes of this agreement, "Normal Retirement" shall have the same meaning as provided in the Maytag Corporation Salaried Retirement Plan; provided, however, that "Normal Retirement" shall not include terminations of the Executive by the Company without Cause. 4. Subsidiary. For purposes of this agreement, a "Subsidiary" shall mean any domestic or foreign corporation at least 20% of whose shares normally entitled to vote in electing directors is owned directly or indirectly by the Company or by other subsidiaries. D. General Provisions. 1. No Guaranty of Employment. Nothing in this agreement shall be deemed to entitle the Executive to continued employment with the Company or its subsidiaries, and the rights of the Company to terminate the employment of the Executive shall continue as fully as if this agreement were not in effect, provided that any such termination of employment within three (3) years following a change of control shall entitle the Executive to the benefits herein provided. 2. Confidentiality. The Executive shall retain in confidence any confidential information known to him concerning the Company and its business so long as such information is not publicly disclosed. 3. Payment Obligation Absolute. The Company's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against him, her or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final and the Company shall not seek to recover all or any part of such payment from the Executive or from whoever may be entitled thereto, for any reason whatsoever. In the event that the cash payment due the Executive under Paragraph B1 or B5 herein is not paid to the Executive within thirty (30) calendar days of the Executive's employment termination, such amount due shall accrue interest (compounded monthly) beginning on the date of employment termination at a rate equal to the prevailing Prime Rate as determined by Harris Bank of Chicago, or the Company's then-current primary banking institution. Further, to the extent this additional amount would be subject to the Excise Tax, the Company shall pay to the Executive a Gross-Up Payment, as such terms are described in Paragraph B6 herein. 4. Dispute Resolution. (a) The Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in good faith by the Executive as a result of the Company's refusal to provide the benefits to which the Executive becomes entitled under this agreement, or as a result of the Company's (or any third party's) contesting the validity, enforceability, or interpretation of the agreement, or as a result of any conflict between the parties pertaining to this agreement. (b) The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his or her job with the Company, in accordance with the rules of the American Arbitration Association then in effect. The Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and the Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company. 5. Successors. This agreement shall be binding upon and inure to the benefit of the Executive and his or her estate, and the Company and any successor of the Company, but neither this agreement nor any rights arising hereunder may be assigned or pledged by the Executive. 6. Severability. Any provision in this agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7. Entire Agreement. With respect to the subject matter hereof, this agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto and contains the entire understanding of the Company and the Executive. 8. Controlling Law. This agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have executed this agreement on the date set out above. MAYTAG CORPORATION By_____________________ Chairman & CEO Leonard A. Hadley EX-10 4 EXECUTIVE SEVERANCE AGREEMENT - 2YR The following executives are covered under this Change of Control agreement: Steven H. Wood Terry A. Carlson Edward C. Wojciechowski Arthur B. Learmonth Jerome L. Davis Thomas A. Briatico Fredrick P. Foltz Victor Lawrence Change of Control Agreement THIS AGREEMENT is made this ___________ day of ____________, 1998 (the "Effective Date"), by and between Maytag Corporation, a Delaware corporation (the "Company"), and ______ (the "Executive"), and shall continue in effect for two full calendar years (through the year 2000) (the "Initial Term"). The Initial Term of this agreement automatically shall be extended for one additional year on the first anniversary of the Effective Date, and then again on each anniversary thereafter (each such one-year period following the Initial Term a "Successive Period"). In the event that a "Change of Control" of the Company occurs (as such term is hereinafter defined) during the Initial Term or any Successive Period, upon the effective date of such Change of Control, the term of this agreement shall automatically and irrevocably be renewed for a period of twenty-four (24) full calendar months from the effective date of such Change of Control. This agreement shall thereafter automatically terminate following the twenty-four (24) month Change-of-Control renewal period. Further, this agreement shall be assigned to, and shall be assumed by the purchaser in such Change of Control, as further provided herein in paragraph D5 of the section titled "Agreements." RECITALS A. The Board of Directors of the Company has approved the Company entering into severance agreements with such executives of the Company and its subsidiaries as is determined by the Chairman and Chief Executive Officer. B. Should the Company receive or learn of any proposal by a third person about a possible business combination with the Company or the acquisition of its equity securities, the Board considers it imperative that the Company be able to rely upon the Executive to continue in his or her position. This to the end that the Company be able to receive and rely upon the Executive's advice concerning the best interests of the Company and its stockholders, without concern that person might be distracted by the personal uncertainties and risks created by such a proposal. C. Should the Company receive any such proposals, in addition to the Executive's regular duties, he or she may be called upon to assist in the assessment of such proposals, advise management and the Board as to whether such proposals would be in the best interests of the Company and its stockholders, and to take such other actions as the Board might determine to be appropriate. AGREEMENT NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of that person's advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree that the Executive Severance Agreement described above be amended and restated in its entirety as follows: A. Should a third person, in order to effect a change of control (as defined), begin a tender or exchange offer, circulate a proxy to stockholders or take other steps, the Executive agrees that he or she will not voluntarily leave the employ of the Company, and will render the services contemplated in the recitals to this agreement, until the third person has abandoned or terminated his efforts to effect a change of control or until a change of control has occurred. B. Should the Executive's employment with the Company or its subsidiaries terminate for any reason (either voluntary or involuntary), other than because of death, disability, Cause, or Normal Retirement within two (2) years after a change of control of the Company, or in the event a successor company refuses to accept its obligations under this agreement as required by paragraph D5 herein, the following will be provided: 1. Lump Sum Cash Payment. On or before the Executive's last day of employment with the Company or its subsidiaries, or as soon thereafter as possible, the Company will pay to the Executive as compensation for services rendered, a lump sum cash amount (subject to the usual withholding taxes) equal to (A) two times the sum of (1) the Executive's annual salary at the rate in effect immediately prior to the change of control and (2) the then-current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control) plus (B) an amount equal to the compensation (at the Executive's rate of pay in effect immediately prior to the change of control) payable for any period for which the Executive could have, immediately prior to the date of his termination of employment, been on vacation and received such compensation, for unused and accrued vacation benefits determined under the Company's vacation pay plan or program covering the Executive immediately prior to the change of control. 2. Salaried and Supplemental Executive Retirement Plans. The Executive shall be paid a monthly retirement benefit, in addition to any benefits received under the Salaried Retirement Plans maintained by the Company or its subsidiaries, including The Maytag Corporation Salaried Retirement Plan and any Supplemental Executive Retirement Plan, such benefit to commence on the first to occur of (a) the commencement of payment of benefits under the Maytag Corporation Salaried Retirement Plan or (b) attainment of age 65, but not prior to two (2) years following the date of termination of employment or age 65, whichever first occurs, such benefit to be an amount equal to the excess of (i) the aggregate benefits under such Salaried Retirement Plans to which the Executive would be entitled if he or she remained employed by the Company or its subsidiaries, for an additional period of two (2) years, at the rate of annual compensation specified herein; over (ii) the benefits to which the Executive is actually entitled under such Salaried Retirement Plans. The source of payment of these benefits shall be the general assets of the Company unless the payment of such amounts is otherwise permissible from the corresponding qualified plan trust without violating any governmental regulations or statutes. 3. Life, Dental, Vision, Health and Long-Term Disability Coverage. The Executive's participation in, and entitlement to, benefits under: (i) the life insurance plan of the Company; (ii) all the health insurance plan or plans of the Company or its subsidiaries, including but not limited to those providing major medical and hospitalization benefits, dental benefits and vision benefits; and (iii) the Company's long-term disability plan or plans; as all such plans existed immediately prior to the change of control shall continue as though he or she remained employed by the Corporation or its subsidiaries for an additional period of two (2) years. The applicable COBRA health insurance benefit continuation period shall begin at the end of this two (2) year period. To the extent such participation or entitlement is not possible for any reason whatsoever, equivalent benefits shall be provided. The providing of these benefits by the Company shall be discontinued prior to the end of the two (2) year continuation period in the event that the Executive becomes covered under the insurance programs of a subsequent employer and, with respect to all health insurance plans, provided that such subsequent employer's health insurance plans do not contain any exclusion or limitation with respect to any preexisting condition of the Executive or the Executive's eligible dependents. For purposes of enforcing this offset provision, the Executive shall have a duty to inform the Company as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment. The Executive shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same. 4. Participation in Employee Benefit Plans. Unless otherwise provided, the Executive's participation in any other savings, capital accumulation, retirement, incentive compensation, profit sharing, stock option, and/or stock appreciation rights plans of the Company or any of its subsidiaries shall continue only through the last day of his or her employment. Any terminating distributions and/or vested rights under such plans shall be governed by the terms of those respective plans. Furthermore, the Executive's participation in any insurance plans of the Company and rights to any other fringe benefits shall, except as otherwise specifically provided in such plans or Company policy, terminate as of the close of the Executive's last day of employment, except to the extent specifically provided to the contrary in this agreement. 5. Incentive Plans. In addition to the payments required by paragraph 1 of this Section, the Company shall pay to the Executive as compensation for services rendered cash in an amount equal to the then- current maximum cash bonus opportunity established under the annual incentive plan for the bonus plan year in which termination occurs, adjusted on a pro rata basis based on the number of days the Executive was actually employed during such bonus plan year (but in no event shall such maximum cash bonus be less than that in effect for the period immediately prior to the change of control). In the case of long-term stock incentive awards represented by restricted shares of stock of the Company, made to Executive under the Maytag Corporation Employee Stock Incentive Plan (any prior plan, or successor plan) in lieu of stock under such stock incentive awards the Executive shall receive a cash payment equal to the aggregate value of the maximum number of shares for which the Executive holds outstanding awards, with share value determined at the closing price as of the date of the change of control. Any payment due pursuant to this paragraph 5 shall be paid at the same time as the amounts payable pursuant to paragraph 1 of this Section. 6. Excise Tax-Additional Payment. (a) Notwithstanding anything in this agreement or any written or unwritten policy of the Company or its subsidiaries to the contrary, (i) if it shall be determined that any payment or distribution by the Company or its subsidiaries to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this agreement, any other agreement between the Company or its subsidiaries and the Executive or otherwise (a "Payment"), would be subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), or (ii) if the Executive shall otherwise become obligated to pay the Excise Tax in respect of a Payment, then the Company shall pay to the Executive an additional payment in an amount to cover the full cost of any Excise Tax and the Executive's state and federal income and employment taxes on this additional payment (cumulatively, the "Gross- Up Payment"). (b) All determinations and computations required to be made under this section B6, including whether a Gross-Up Payment is required under clause (ii) of paragraph B6(a) above, and the amount of any Gross-Up Payment, shall be made by the Company's regularly engaged independent certified public accountants (the "Accounting Firm"). The Company shall cause the Accounting Firm to provide detailed supporting calculations both to the Company and the Executive within 15 business days after such determination or computation is requested by the Executive. Any initial Gross-Up Payment determined pursuant to this paragraph B6 shall be paid by the Company or the subsidiary to the Executive within 5 days of the receipt of the Accounting Firm's determination. A determination that no Excise Tax is payable by the Executive shall not be valid or binding unless accompanied by a written opinion of the Accounting Firm to the Executive that the Executive has substantial authority not to report any Excise Tax on his federal income tax return. Any determination by the Accounting Firm shall be binding upon the Company, its subsidiaries and the Executive, except to the extent the Executive becomes obligated to pay an Excise Tax in respect of a Payment. In the event that the Company or the subsidiary exhausts or waives its remedies pursuant to subparagraph B6(c) and the Executive thereafter shall become obligated to make a payment of any Excise Tax, and if the amount thereof shall exceed the amount, if any, of any Excise Tax computed by the Accounting Firm pursuant to this subparagraph (b) in respect to which an initial Gross-Up Payment was made to the Executive, the Accounting Firm shall within 15 days after Notice thereof determine the amount of such excess Excise Tax and the amount of the additional Gross-Up Payment to the Executive. All expenses and fees of the Accounting Firm incurred by reason of this paragraph B6 shall be paid by the Company. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive knows of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty- day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subparagraph B6(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company or the subsidiary shall determine; provided, however, that if the Company or the subsidiary directs the Executive to pay such claim and sue for a refund, the Company or the subsidiary shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided, that any extension of the statue of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, control of the contest by the Company or the subsidiary shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d)If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to compliance with the requirements of paragraph B6 by the Company or the subsidiary) promptly pay to the Company or the subsidiary the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company or the subsidiary pursuant to subparagraph B6(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall off-set, to the extent thereof, the amount of Gross-Up Payment required to be paid. C.Definitions. 1. "Cause." For purposes of this agreement, Cause shall be determined by the Board of Directors, in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (a) A demonstrably willful and deliberate act or failure to act by the Executive (other than as a result of incapacity due to physical or mental illness) which is committed in bad faith, without reasonable belief that such action or inaction is in the best interests of the Company, which causes actual material financial injury to the Company and which act or inaction is not remedied within fifteen (15) business days of written notice from the Company; or (b) The Executive's conviction for committing an act of fraud, embezzlement, theft, or any other act constituting a felony involving moral turpitude or causing material harm, financial or otherwise, to the Company. 2. Change of Control. For purposes of this agreement, "change of control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) below; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of a least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Normal Retirement. For purposes of this agreement, "Normal Retirement" shall have the same meaning as provided in the Maytag Corporation Salaried Retirement Plan; provided, however, that "Normal Retirement" shall not include terminations of the Executive by the Company without Cause. 4. Subsidiary. For purposes of this agreement, a Subsidiary shall mean any domestic or foreign corporation at least 20% of whose shares normally entitled to vote in electing directors is owned directly or indirectly by the Company or by other subsidiaries. D. General Provisions. 1. No Guaranty of Employment. Nothing in this agreement shall be deemed to entitle the Executive to continued employment with the Company or its subsidiaries, and the rights of the Company to terminate the employment of the Executive shall continue as fully as if this agreement were not in effect, provided that any such termination of employment within two (2) years following a change of control shall entitle the Executive to the benefits herein provided. 2. Confidentiality. The Executive shall retain in confidence any confidential information known to him concerning the Company and its business so long as such information is not publicly disclosed. 3. Payment Obligation Absolute. The Company's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against him, her or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final and the Company shall not seek to recover all or any part of such payment from the Executive or from whoever may be entitled thereto, for any reason whatsoever. In the event that the cash payment due the Executive under Paragraph B1 or B5 herein is not paid to the Executive within thirty (30) calendar days of the Executive's employment termination, such amount due shall accrue interest (compounded monthly) beginning on the date of employment termination at a rate equal to the prevailing Prime Rate as determined by Harris Bank of Chicago, or the Company's then-current primary banking institution. Further, to the extent this additional amount would be subject to the Excise Tax, the Company shall pay to the Executive a Gross-Up Payment, as such terms are described in Paragraph B6 herein. 4. Dispute Resolution. (a) The Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses which are incurred in good faith by the Executive as a result of the Company's refusal to provide the benefits to which the Executive becomes entitled under this agreement, or as a result of the Company's (or any third party's) contesting the validity, enforceability, or interpretation of the agreement, or as a result of any conflict between the parties pertaining to this agreement. (b) The Executive shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his or her job with the Company, in accordance with the rules of the American Arbitration Association then in effect. The Executive's election to arbitrate, as herein provided, and the decision of the arbitrators in that proceeding, shall be binding on the Company and the Executive. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company. 5. Successors. This agreement shall be binding upon and inure to the benefit of the Executive and his or her estate, and the Company and any successor of the Company, but neither this agreement nor any rights arising hereunder may be assigned or pledged by the Executive. 6. Severability. Any provision in this agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 7. Entire Agreement. With respect to the subject matter hereof, this agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto and contains the entire understanding of the Company and the Executive. 8. Controlling Law. This agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of Delaware. IN WITNESS WHEREOF, the parties have executed this agreement on the date set out above. MAYTAG CORPORATION By Chairman & C.E.O. Leonard A. Hadley EX-12 5 RATIO OF EARNINGS TO FIXED EXPENSES MAYTAG CORPORATION Exhibit 12 Ratio of Earnings to Fixed Charges MAYTAG CORPORATION Exhibit 12 Computation of Ratio of Earnings to Fixed Charges (Amounts in thousands of dollars except ratios) Year Ended December 31 1998 1997 1996 1995 1994 Consolidated pretax income from continuing operations before minority interest, extraordinary item and cumulative effect of accounting changes $ 470,885 $ 300,555 $ 228,237 $ 59,804 $ 241,337 Interest expense 62,765 58,995 43,006 52,087 74,077 Depreciation of capitalized interest 2,952 2,530 1,553 1,695 1,772 Interest portion of rental expense 7,764 6,989 6,448 8,789 10,722 Earnings $ 544,366 $ 369,069 $ 279,244 $ 122,375 $ 327,908 Interest expense $ 62,765 $ 58,995 $ 43,006 $ 52,087 $ 74,077 Interest capitalized 17 4,191 8,905 2,534 547 Interest portion of rental expense 7,764 6,989 6,448 8,789 10,722 Fixed charges $ 70,546 $ 70,175 $ 58,359 $ 63,410 $ 85,346 Ratio of earnings to fixed charges 7.72 5.26 4.78 1.93 3.84 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, 1998. State or Country Corporate Name of Organization Maytag Appliances Sales Company Delaware D.N. Holdings, Inc. Delaware Dixie-Narco, Inc. West Virginia Blodgett Holdings, Inc. Delaware G.S. Blodgett Corporation Vermont G.S. Blodgett International Limited Barbados Pitco Frialator, Inc. New Hampshire Frialator International Limited England MagiKitch'n Inc. Pennsylvania Cloverleaf Properties, Inc. Vermont 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 Limited Canada Maytag Worldwide N.V. The Netherlands Antilles AERA LIMITED Hong Kong AERA (Hong Kong) PTE LTD Singapore Maytag International Investments, Inc. Delaware Maytag I.I., Inc. Delaware Maytag International Investments B.V. Netherlands Hefei Rongshida Co. Ltd. (50.5%) China Chongqing General Washing Machine Factory China Anvil Technologies LLC (33.77%) Delaware 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 Ernst & Young LLP 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 February 2, 1999, 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, 1998. Ernst & Young LLP Chicago, Illinois March 17, 1999 EX-27 8 FDS
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 28,642 0 495,284 22,305 383,753 968,862 1,954,263 988,669 2,587,663 790,697 446,505 0 0 146,438 361,126 2,587,663 4,069,290 4,069,290 2,887,663 2,887,663 0 14,807 62,765 470,885 176,100 294,785 0 (5,900) 0 280,610 3.05 2.99
EX-27 9 RESTATED '97 FDS
5 1,000 12-MOS DEC-31-1997 DEC-31-1997 27,991 0 510,127 36,386 350,209 934,717 1,816,209 874,937 2,514,154 566,638 549,524 0 0 146,438 469,371 2,514,154 3,407,911 3,407,911 2,471,623 2,471,623 0 26,212 58,995 300,555 109,800 190,755 0 (3,200) 0 180,290 1.87 1.84
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