WHR

Whirlpool Corp. 10-Q Summary: Quarter Ended September 30, 2002

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2002, and the nine months ended on that date. Whirlpool Corporation is a global manufacturer of home appliances. The reporting period is significantly impacted by the adoption of new accounting standards (SFAS No. 142) regarding goodwill, which resulted in a massive non-cash impairment charge recorded as a cumulative effect of a change in accounting principle.

Key Financial Metrics

Note: Total Debt calculated as Notes Payable ($518M) + Current Maturities ($209M) + Long-term Debt ($1,085M).

Material Changes vs. Prior Period

• Accounting Change Impact: The nine-month net loss of $364 million is primarily driven by a one-time, non-cash goodwill impairment charge of $613 million (after-tax) recorded due to the adoption of SFAS No. 142. Without this charge, the company would have reported net earnings.
• Revenue Growth: Net sales increased 6.4% for the quarter and 4.9% year-to-date compared to 2001. This growth was driven by volume increases in North America and Europe, as well as the acquisitions of Vitromatic (Mexico) and Polar (Poland).
• Operating Profit: Operating profit for the nine months improved significantly to $571 million from $169 million in the prior year. This improvement is largely due to the absence of the $300 million product recall charge recorded in Q3 2001 and reduced restructuring costs.
• Cash Flow: Cash provided by operating activities declined to $235 million from $647 million in the prior year, attributed to reduced net working capital cash flows and taxes paid on a swap gain in the prior year.

Guidance, Outlook, and Risks

• Outlook: Management expects full-year 2002 appliance industry shipments to be up approximately 5% in North America, down 1-2% in Europe, down 8% in Latin America, and flat in Asia.
• Restructuring: The company is executing a global restructuring plan expected to result in pre-tax charges of $300-$350 million and annualized savings of over $200 million. Approximately 5,700 positions are expected to be eliminated, with 4,600 already departed as of September 30.
• Pension Obligations: Due to declining interest rates and market volatility, the company estimates it may need to make voluntary cash contributions of up to $200 million to U.S. pension plans in Q4 2002 or record a non-cash charge to equity.
• Discontinued Operations Risk: Approximately $68 million of aircraft lease assets (from the discontinued Whirlpool Financial Corp.) are leased to United Airlines. Continued airline industry problems could reduce the value of these assets, though all payments are currently current.
• Product Recalls: The company is fulfilling commitments for two major recalls (microwave hoods and dehumidifiers) initiated in 2001. The remaining liability was $5 million as of September 30, 2002, down from $239 million at year-end 2001.

Investor Verification Checklist

• Goodwill Impairment: Verify the $613 million non-cash charge related to SFAS 142 adoption and its impact on the reported net loss.
• Core Earnings: Review "Core Earnings" (non-GAAP) which excludes one-time charges; reported as $307 million for the nine months ended Sep 30, 2002.
• Pension Funding: Monitor Q4 2002 results for potential $200 million cash contribution or equity charge related to pension plan underfunding.
• United Airlines Exposure: Track the status of the $68 million aircraft lease assets held in discontinued operations.
• Acquisition Integration: Assess the financial contribution of the newly acquired Vitromatic (Mexico) and Polar (Poland) entities.