Whirlpool 2002 Annual Report Download - page 28

2002 Annual Report 53 Notes to Consolidated Financial Statements
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During the second quarter of 2001, the company wrote off a portion of WFC’s investment in securitized aircraft leases.
The write-off, due primarily to the softening aircraft leasing industry, resulted in a loss from discontinued operations of
$35 million, or $21 million after-tax.
>06 INVENTORIES
December 31 –Millions of dollars 2002 2001
Finished products $ 928 $ 949
Work in process 71 58
Raw materials 226 239
1,225 1,246
Less excess of FIFO cost over LIFO cost (136) (136)
Total inventories $ 1,089 $ 1,110
LIFO inventories represent approximately 33% and 39% of total inventories at December 31, 2002 and 2001, respectively.
>07 ASSET IMPAIRMENT
The company recorded a $22 million after-tax impairment charge in the second quarter of 2002 related to its minority
investments in and advances to a European business. The company acquired its initial investment in this entity with
its purchase of the appliance operations of Philips Electronics N.V. in 1989. Continued deterioration in the marketplace
led to overcapacity in the wood cabinet industry, which resulted in the business revising its estimated future cash
flows. These circumstances prompted the company to conduct an impairment review, resulting in the above charge,
which is reflected in equity earnings (loss) in the consolidated statement of operations.
>08 FINANCING ARRANGEMENTS
Notes Payable and Debt
At December 31, 2002, the company had committed unsecured revolving lines of credit available from banks totaling
$1.2 billion. The lines of credit are comprised of a committed $800 million credit agreement, which expires in June
2006, and a committed $400 million 364-day credit agreement maturing in May 2003. These committed lines support
the company’s commercial paper programs and other liquidity needs. The interest rate for borrowing under the credit
agreements is generally based on the London Interbank Offered Rate plus a spread that reflects the company’s debt
rating. The credit agreements require that the company maintain a maximum debt to EBITDA ratio and a minimum
interest coverage ratio. At December 31, 2002, the company was in compliance with its financial covenants. The credit
agreements provide the company with access to adequate and competitive funding under unusual market conditions.
During 2002, there were no borrowings outstanding under the credit agreements.
Notes payable consist of the following:
December 31 –Millions of dollars 2002 2001
Payable to banks $ 208 $ 139
Commercial paper 13 9
Total notes payable $ 221 $ 148
The fair value of the company’s notes payable approximates the carrying amount due to the short maturity of these
obligations. The weighted average interest rate on notes payable was 5.7% and 7.6% at December 31, 2002 and 2001.
Long-term debt consists of the following:
December 31 –Millions of dollars 2002 2001
Debentures – 9% due 2003 $ 200 $ 200
Eurobonds (EUR 300 million) – 5.875% due 2006 310 264
Debentures – 9.1% due 2008 125 125
Notes – 8.6% due 2010 325 325
Debentures – 7.75% due 2016 243 243
Other (various interest rates with maturities of 2002-2012) 100 157
$ 1,303 $ 1,314
Less current maturities 211 19
Total long-term debt, net of current maturities $ 1,092 $ 1,295
Annual maturities of long-term debt in the next five years are $211 million, $15 million, $5 million, $318 million and $8
million.
The company paid interest on short-term and long-term debt totaling $141 million, $151 million and $181 million in
2002, 2001 and 2000, respectively.
The fair value of long-term debt (including current maturities) was $1,457 million and $1,348 million as of December 31,
2002 and 2001, and was estimated using discounted cash flow analyses based on incremental borrowing rates for similar
types of borrowing arrangements.
Preferred Stock
Although most of its assets have been divested, WFC remains a legal entity with assets consisting primarily of leveraged
leases (see Note 5). WFC also has 349,300 shares of Series B preferred stock outstanding as of December 31, 2002, with
a face value of $100 per share, an annual dividend of $6.55 per share and a mandatory redemption date of September 1,
2008. As of December 31, 2001, WFC had the above listed Series B preferred stock outstanding as well as 250,000
shares of Series C preferred stock outstanding with a face value of $100 per share, an annual dividend of $6.09 per share
and a mandatory redemption date of February 1, 2002. The Series C preferred stock was redeemed on the mandatory
redemption date. The preferred stock amounts are included within minority interests in the consolidated balance
sheets, and the carrying amounts approximate fair value.
The preferred stockholders are entitled to vote together on a share-for-share basis with WFC’s common stockholder,
Whirlpool Corporation. Preferred stock dividends are payable quarterly. At its option, WFC may redeem the Series B at
any time on or after September 1, 2003. The redemption price is $100 per share plus any accrued unpaid dividends and
the applicable redemption premium, if redeemed early. Commencing September 1, 2003, WFC must pay $1,750,000 per
year to a sinking fund for the benefit of the Series B preferred stockholders, with a final payment of $26,250,000 due on
or before September 1, 2008.
The company and WFC are parties to a support agreement. Pursuant to the agreement, if at the close of any quarter
WFC’s net earnings available for fixed charges (as defined) for the preceding 12 months is less than a stipulated
amount, the company is required to make a cash payment to WFC equal to the insufficiency within 60 days of the end
of the quarter. The company was not required to make any payments under this agreement during 2002, 2001 or 2000.
The support agreement may be terminated by either WFC or the company upon 30 days notice, provided that certain
conditions are met. The company has also agreed to maintain ownership of at least 70% of WFC’s voting stock.