Whirlpool 2002 Annual Report Download - page 26

2002 Annual Report 49 Notes to Consolidated Financial Statements
48
Stock-Based Employee Compensation
Stock option and incentive plans are accounted for under the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The company
has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and
Disclosure” but has not adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation,” as amended. Had the company elected to adopt the recognition provisions of SFAS No. 123, pro forma
net earnings (loss) and diluted net earnings (loss) per share would be as follows:
Year ended December 31 – Millions of dollars, except per share data 2002 2001 2000
Compensation cost included in earnings as reported (net of tax benefits) $ 12 $ 16 $ 1
Pro forma total fair value compensation cost (net of tax benefits) $ 25 $ 29 $ 13
Net earnings (loss)
As reported $ (394) $ 21 $ 367
Pro forma (407) 8 355
Basic net earnings (loss) per share
As reported $ (5.79) $ 0.31 $ 5.24
Pro forma (5.99) 0.12 5.06
Diluted net earnings (loss) per share
As reported $ (5.68) $ 0.31 $ 5.20
Pro forma (5.87) 0.12 5.03
Net Earnings Per Common Share (in thousands)
Diluted net earnings per share of common stock includes the dilutive effect of stock options and stock based compensation
plans. For the year ended December 31, 2002, 2001 and 2000, a total of 1,885 options, 619 options, and 4,820 options,
respectively, were excluded from the calculation of diluted earnings per share because their exercise prices would
render them anti-dilutive.
Reclassifications
Certain reclassifications have been made to prior year data to conform to the current year presentation which had no
effect on net income reported for any period.
>02 NEW ACCOUNTING STANDARDS
In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The Interpretation
includes additional disclosure provisions as well as recognition and measurement provisions which require a liability
to be recorded for certain guarantees at fair value. The disclosure requirements of this interpretation have been adopted
by the company at December 31, 2002. The recognition and measurement provisions became effective for the company
on January 1, 2003, and are not expected to have a material effect on the company.
>03 GOODWILL AND OTHER INTANGIBLES
Goodwill
The company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,”
on January 1, 2002.
The following table provides comparative net earnings (loss) and net earnings (loss) per share had the non-amortization
provisions of SFAS No. 142 been adopted for all periods presented:
Millions of dollars, except per share data 2002 2001 2000
Reported net earnings (loss) $ (394) $ 21 $ 367
Goodwill amortization –27 27
Adjusted net earnings (loss) $ (394) $ 48 $ 394
Basic earnings per share
Reported net earnings (loss) $ (5.79) $ .31 $ 5.24
Goodwill amortization –.40 .38
Adjusted net earnings (loss) $ (5.79) $ .71 $ 5.62
Diluted earnings per share
Reported net earnings (loss) $ (5.68) $ .31 $ 5.20
Goodwill amortization –.40 .38
Adjusted net earnings (loss) $ (5.68) $ .71 $ 5.58
The company completed the transitional goodwill impairment review of its reporting units and recorded a non-cash
after-tax charge of $613 million, or $8.84 per diluted share, as a cumulative effect of a change in accounting principle in
2002. An additional impairment of $9 million, after tax, was recognized as a charge to operations during the fourth
quarter of 2002 relating to goodwill acquired in Asia (see Note 4).
The following table summarizes the impairment charges by reporting unit as well as the changes in the carrying
amount of goodwill for the year ended December 31, 2002:
Beginning Impairment End
Reporting Unit – Millions of dollars of Year Charges Acquisitions of Year
North America $ 68 $ –$ 89 $ 157
Europe 367 (367) ––
Latin America 64 (60) – 4
Asia 186 (195) 9 –
Total $ 685 $ (622) $ 98 $ 161
The goodwill in Europe was related primarily to the company’s acquisition in 1989 (53%) and 1991 (47%) of the major
appliance business of Philips Electronics N.V. The Latin American goodwill was mainly generated by the company’s
majority ownership expansion in 1997 of its Brazilian affiliates. Within the Asian business segment, the majority of
goodwill arose in 1995 due to the acquisition of a majority interest in Kelvinator of India, Ltd., and expansion into China.
The company determined the fair value of each reporting unit using a discounted cash flow approach taking into
consideration projections based on the individual characteristics of the reporting units, historical trends and market
multiples for comparable businesses. The resulting impairment was primarily attributable to a change in the evaluation
criteria for goodwill utilized under previous accounting guidance to the fair value approach stipulated in SFAS No. 142.
External factors such as increased regional competition and global economic conditions also negatively impacted the
value of these acquisitions.