Item 1. Business.
Maytag Corporation is a leading producer of home and commercial appliances. Its products are sold to customers throughout North America and in international markets. Maytag was organized as a Delaware corporation in 1925.
Maytag is among the top three major appliance companies in the North American market, offering consumers a full line of washers, dryers, dishwashers, refrigerators and ranges distributed through large and small retailers across the U.S. and Canada. Maytag also has a significant presence in the commercial laundry market. Maytag is the market leader in North America floor care products.
In commercial cooking appliances, Maytag owns Blodgett, one of the premier and oldest names in commercial appliances. Blodgett is a leading manufacturer of ovens, fryers, charbroilers and grills for the food service industry, serving customers such as McDonald's, KFC, Pizza Hut, and major hotel and restaurant chains. In 1999, Maytag acquired Jade Range, a leading manufacturer of premium- priced commercial ranges and refrigerators, and commercial-style ranges for the residential market.
Maytag also owns Dixie-Narco, one of the original brand names in the vending machine industry and today the leading manufacturer of soft drink can and bottle vending machines in the United States. Dixie-Narco venders are sold primarily to major soft drink bottlers such as Coca-Cola and Pepsico.
Maytag also is the majority owner in a joint venture in China, Rongshida-Maytag, that produces washing machines and refrigerators primarily for the Chinese market.
Since 1994, Maytag has made significant annual capital investments that have led directly to demonstrable and superior product innovations in its strongest brands. Superior product performance reinforces brand positioning; product and brand positioning drive average pricing and distribution.
The Company operates in three business segments: home appliances, commercial appliances and international appliances. Sales to Sears, Roebuck and Co. represented 11% of 2000 consolidated net sales and 10% of consolidated net sales in 1999 and 1998. Financial and other information relating to these reportable business segments is included in Part II, Item 7, Pages 10-14, and Item 8, Pages 41-43.
HOME APPLIANCES
The home appliances segment represented 87.4 percent of consolidated net sales in 2000.
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.
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.
The Company's home appliance business is generally not considered seasonal.
A portion of the Company's accounts receivable is concentrated among major 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 major appliances 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 40. 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 41.
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 December 31, 2000 was 17,163. Approximately 58 percent of these employees are covered by collective bargaining agreements. One collective bargaining agreement is scheduled for negotiation during 2001.
COMMERCIAL APPLIANCES
The commercial appliances segment represented 9.8 percent of consolidated net sales in 2000.
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.
Effective January 1, 1999, Maytag acquired all of the outstanding shares of Jade, a manufacturer of commercial ranges, refrigerators and residential ranges for $19.2 million. In connection with the purchase, Maytag retired debt and incurred transaction costs of $3.6 million and issued 289 thousand shares of Maytag common stock at a value of $15.6 million. Additional information regarding this acquisition is included in Part II, Item 8, Page 26.
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, PITCO FRIALATOR, JADE 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 40.
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 December 31, 2000 was 2,319.
INTERNATIONAL APPLIANCES
The international appliances segment represented 2.8 percent of consolidated net sales in 2000.
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.
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. 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 26.
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 40.
The number of employees of Rongshida-Maytag as of December 31, 2000 was 5,175.
Item 2.
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. The Company also has one facility in Mexico.
Major offices and manufacturing facilities in the United States related to the commercial appliances segment are located in: Williston, South Carolina; 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, commercial 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 2000, and the Company expects that such capacity will be adequate for planned production in 2001. The Company's major capital projects and planned capital expenditures for 2001 are described in Part II, Item 7, Page 14.
The Company also owns or leases sales offices and warehouses in many large metropolitan areas throughout the United States and Canada. Lease commitments are included in Part II, Item 8, Page 33.
Item 3.
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 41.
Item 4.
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 2000 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 as of March 1, 2001, the offices held by them, the year they became an officer of the Company and their ages:
Each of the executive officers has served the Company in various executive or administrative positions for at least the last five years except as noted above and except for:
Name Company/Position Period ---- ---------------- ------
Glenn B. Kelsey Oneida Ltd. (manufacturer and marketer of tabletop products) - Executive Vice 1981-1998 President and Chief Financial Officer
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Dividends Sale Price of Common Shares Per Share ---------------------------------------- --------------- 2000 1999 2000 1999 ----------------------------------------------------------------- Quarter High Low High Low - -------------------------------------------------------------------------------- First $ 47 3/4 $25 15/16 $ 66 $ 52 7/8 $.18 $.18 Second 41 7/16 31 13/16 74 13/16 59 9/16 .18 .18 Third 42 7/16 29 7/8 74 1/4 33 3/16 .18 .18 Fourth 31 3/4 25 50 1/4 31 1/4 .18 .18
The principal U.S. market in which the Company's common stock is traded is the New York Stock Exchange. As of March 1, 2001, the Company had 27,873 shareowners of record.
Item 6.
Item 6. Selected Financial Data.
(1) Operating income includes $49.2 million in special charges associated with discontinued business and product inititatives, asset write downs and severance costs related to management changes. The after-tax special charges of $31.2 million are included in Income from continuing operations. Income from continuing operations also includes a $17.6 million ($11.2 million after-tax) charge for loss on securities.
(2) Net sales include $20 million of sales from the Company's acquisition of
Jade, a manufacturer of commercial ranges and refrigerators and residential ranges in the first quarter of 1999.
(3) Excludes the extraordinary loss on the early retirement of debt.
(4) 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.
(5) 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 from continuing operations. Excludes the extraordinary loss on the early retirement of debt.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Comparison of 2000 with 1999
Maytag Corporation ("Maytag") has three reportable segments: home appliances, commercial appliances and international appliances. (See discussion and financial information about Maytag's reportable segments in Segment Reporting section of the Notes to Consolidated Financial Statements.)
Net Sales: Consolidated net sales for 2000 were $4.2 billion, a decrease of 2 percent from 1999.
Home appliances net sales, which include major appliances and floor care products, were up slightly compared to 1999 due to increased sales of floor care products and export sales partially offset by a decrease in major appliances sales. The sales growth in floor care products exceeded industry growth primarily due to the introduction of two lines of bagless upright cleaners. Floor care industry growth in 2001 is expected to be modest, relative to full year 2000 record level growth. The decrease in major appliances sales was due primarily to intense competition attributable to the loss of several key retail distribution channels and a decline in major appliances industry sales in the second half of 2000. Maytag's full year 2000 major appliances shipments were down compared to 1999, despite industry shipments setting a new one year record. For 2001, Maytag expects a challenging competitive environment and a continued softening in major appliances industry unit shipments, particularly in the first half of 2001, based on expected macroeconomic conditions.
Commercial appliances net sales, which include vending and foodservice equipment, decreased 15 percent in 2000 compared to 1999. The net sales decrease was due primarily to a softening of industry demand for vending equipment as well as a decline in foodservice sales. The decline in vending industry demand is expected to continue in 2001.
Net sales of international appliances, which consist of Maytag's 50.5 percent owned joint venture in China ("Rongshida-Maytag"), decreased 7 percent in 2000 compared to 1999. The net sales decrease was attributable to lower unit sales and lower selling prices as a result of competitive conditions. The competitive economic environment in China is expected to continue in 2001.
Gross Profit: Consolidated gross profit as a percent of sales decreased to
27 percent of sales in 2000 from 28.9 percent of sales in 1999. The decrease in gross margin was due primarily to the competitive pricing environment and lower sales volume as well as higher research and development and raw material costs. Maytag expects 2001 raw material prices to be relatively flat to slightly higher compared to 2000.
Selling, General and Administrative Expenses: Consolidated selling, general and administrative expenses were 16 percent of sales in 2000 compared to 15.6 percent of sales in 1999. The increase was due primarily to increased sales promotion expenses partially offset by lower incentive compensation expense. Maytag expects to increase advertising expense in 2001 to support new product introductions and increase brand awareness.
Special Charges: During the fourth quarter of 2000, the Company recorded in operating income, special charges of $49.2 million, or $31.2 million after-tax, associated with discontinued business and product initiatives, asset write downs and executive severance costs related to management changes. Of the $49.2 million special charges, $19.7 million, $9.3 million and $20.2 million were recorded in home appliances segment, commercial appliances segment and corporate, respectively. A major portion of the special charge reflected in the home and commercial appliances segments is related to rapid cook products developed in conjunction with TurboChef Technologies, Inc. These rapid cook products did not materialize beyond prototypes and limited pilot projects in 2000.
Operating Income: Consolidated operating income for 2000 was $418 million, or 9.8 percent of sales, compared to $575 million, or 13.3 percent of sales, in 1999. Excluding the special charges of $49.2 million, consolidated operating income for 2000 was $467 million, or 11 percent of sales. The decrease in operating margin was primarily due to the decrease in gross profit margin discussed above.
Home appliances operating income, excluding special charges of $19.7 million, decreased 11 percent in 2000 compared to 1999. Operating margin, excluding special charges, for 2000 was 13.4 percent of sales compared to 15.2 percent of sales in 1999. The decrease in operating margin was due primarily to the decrease in gross profit margins discussed above.
Commercial appliances operating income, excluding special charges of $9.3 million, decreased 59 percent in 2000 compared to 1999. Operating margin for 2000, excluding special charges, was 5.7 percent of sales compared to 11.9 percent of sales in 1999. The decrease in operating margin was due primarily to the decrease in sales discussed above as well as increased research and development expense and costs related to rapid cook product development.
International appliances reported an operating loss of $6.4 million in 2000 compared to an operating loss of $3.3 million in 1999. The unfavorable comparison to 1999 was due primarily to the competitive environment and lower unit sales volume.
Interest Expense: Interest expense for 2000 was 20 percent higher than 1999 due to higher average borrowings primarily associated with share repurchases partially offset by lower interest rates.
Loss on Securities: Maytag recorded losses on securities of $17.6 million, or $11.2 million after-tax, resulting from a lower market valuation of securities held in TurboChef Technologies, Inc. and investments in privately held Internet- related companies.
Income Taxes: The effective tax rate was 34.7 percent, a decrease from 36.8
percent for 1999. The decrease in the effective tax rate was due to benefits associated with additional research and development tax credits and financing transactions that established the Maytag Capital Trusts in the second half of 1999. The Company expects the effective tax rate in 2001 to be approximately 35 percent.
Minority Interest: Minority interest increased by $9 million in 2000 compared to 1999 primarily because of the financing transactions that established the Maytag Capital Trusts in the second half of 19 99.
Net Income: The following table summarizes the impact of special charges and loss on securities on reported net income and diluted earnings per share. The decrease in net income, excluding special items, was primarily due to the decrease in operating income and higher interest and minority interest expense. The decrease in diluted earnings per share, excluding special items, was due to the decrease in net income partially offset by the impact of lower shares outstanding as a result of Maytag's share repurchase program.
Year Ended December 31 ---------------------- Net income (in millions) 2000 1999 - ------------------------------------------------------------- Excluding special items $ 243.4 $ 328.5 Special charges (net of tax) (31.2) Loss on securities (net of tax) (11.2) -------- -------- Reported $ 201.0 $ 328.5 ======== ========
Year Ended December 31 ---------------------- Diluted earnings per common share 2000 1999 - ------------------------------------------------------------- Excluding special items $ 2.95 $ 3.66 Special charges (net of tax) (0.38) Loss on securities (net of tax) (0.13) -------- -------- Reported $ 2.44 $ 3.66 ======== ========
Comparison of 1999 with 1998
Net Sales: Consolidated net sales for 1999 were $4.3 billion, an increase of 6 percent from 1998.
Net sales of home appliances, which include major appliances and floor care products, increased 6 percent in 1999 compared to 1998. The net sales increase was due primarily to increased sales of Maytag Atlantis, Maytag Neptune, Maytag and Jenn-Air refrigerators, Maytag Gemini, Maytag Performa brand products, Hoover upright vacuum cleaners and Hoover upright deep carpet cleaners, partially offset by a decrease in sales of Magic Chef brand products. Net sales also benefited from favorable economic conditions that contributed to strong growth in industry shipments of major appliances and floor care products in 1999 compared to 1998.
Net sales of commercial appliances, which include vending and foodservice equipment, increased 7 percent in 1999 compared to 1998. The full year 1999 net sales included sales of Jade Products Company ("Jade"), a manufacturer of premium commercial ranges and refrigeration units and commercial-style residential ranges and outdoor grills acquired by Maytag effective January 1, 1999. Excluding Jade, 1999 net sales increased 3 percent from 1998.
Net sales of international appliances, which consists of Maytag's 50.5 percent owned joint venture in China ("Rongshida-Maytag"), decreased 2 percent in 1999 compared to 1998. The net sales decrease was attributable to lower unit sales and lower selling prices of home laundry products, partially offset by sales of the new line of refrigerators and the acquisition of another washer manufacturer in China in the fourth quarter of 1998.
Gross Profit: Consolidated gross profit as a percent of sales of 28.9 percent in 1999 was essentially the same as the 29.0 percent of sales realized in 1998. Favorable sales mix and lower raw material costs were offset by an increase in warranty and research and development costs.
Selling, General and Administrative Expenses: Consolidated selling, general and administrative expenses were 15.6 percent of sales in 1999 compared to 16.2 percent of sales in 1998 as a result of lower bad debt and stock based related compensation expense and leverage obtained on fixed expenses with the increase in net sales.
Operating Income: Consolidated operating income for 1999 increased 10 percent to $575 million, or 13.3 percent of sales, compared to $523 million, or 12.8 percent of sales, in 1998.
Home appliances operating income increased 11 percent in 1999 compared to 1998. Operating margin for 1999 was 15.2 percent of sales compared to 14.5 percent of sales in 1998. The increase in operating margin was due primarily to the decrease in selling, general and administrative expenses as a percent of sales discussed above.
Commercial appliances operating income increased 17 percent in 1999 compared to 1998. Operating margin for 1999 was 11.9 percent of sales compared to 10.9 percent of sales in 1998. The increase in operating margin was due primarily to favorable product mix and operating efficiencies partially offset by an increase in research and development expenses.
International appliances reported an operating loss of $3 million in 1999 compared to operating income of $6 million in 1998. The decrease in operating income was due to the decrease in net sales described above and an increase in provisions related to uncollectible accounts receivable and losses on inventories.
Interest Expense: Interest expense decreased 6 percent in 1999 compared to 1998 as higher average borrowings were more than offset by lower interest rates.
Income Taxes: The effective tax rate was 36.8 percent in 1999, which was slightly lower that the 37.4 percent effective tax rate in 1998. The decrease was primarily due to tax savings related to export sales and credits associated with research and development expenses.
Minority Interest: In 1999, minority interest of $7.2 million consisted of the income attributable to the noncontrolling interests of Anvil Technologies LLC of $7.5 million and Maytag Capital Trusts ("Maytag Trusts") of $3.7 million and the loss attributable to the noncontrolling interest of Rongshida-Maytag of $4 million. In 1998, minority interest of $8.3 million consisted of the income attributable to the noncontrolling interests of Anvil Technologies LLC of $7.5 million and Rongshida-Maytag of $0.8 million.
Extraordinary Item: In 1998, the Company retired $71.1 million of long-term debt at a cost of $5.9 million after-tax, or $0.06 per share.
Net Income: Net income in 1999 was $329 million compared to net income of $281 million in 1998. Net income in 1998 included a $5.9 million after-tax charge for the early retirement of debt. Excluding the special charge, net income was $287 million in 1998. The increase in net income was primarily due to the increase in operating income.
Diluted earnings per share amounted to $3.66 per share in 1999 compared to $2.99 per share in 1998. Excluding the special charge described above, diluted earnings per share in 1998 was $3.05. The increase in diluted
earnings per share in 1999 compared to 1998 was due to the increase in net income and the positive effect of $0.23 from the Company's share repurchase program due to lower shares outstanding.
Liquidity and Capital Resources
Maytag's primary sources of liquidity are cash provided by operating activities and borrowings. Detailed information on Maytag's cash flows is presented in the Consolidated Statements of Cash Flows.
Net Cash Provided by Operating Activities: Cash flow provided by operating activities consists primarily of net income adjusted for certain non-cash items, changes in working capital items, and changes in pension assets and liabilities and postretirement benefits. Non-cash items include depreciation and amortization and deferred income taxes. Working capital items consist primarily of accounts receivable, inventories, other current assets and other current liabilities.
Net cash provided by operating activities decreased due primarily to the decrease in net income and an increase in working capital in 2000 compared to 1999.
A portion of Maytag's accounts receivable is concentrated among major national retailers. A significant loss of business with any of these retailers could have an adverse impact on Maytag's ongoing operations.
Total Investing Activities: Maytag's capital expenditures represent continual investments in its businesses for new product designs, cost reduction programs, replacement of equipment, capacity expansion and government mandated product requirements.
Capital expenditures in 2000 were $163 million compared to $147 million in 1999. Maytag plans to invest approximately $190 million in capital expenditures in 2001.
Total Financing Activities: Dividend payments on Maytag's common stock in 2000 were $56 million, or $0.72 per share, compared to $62 million, or $0.72 per share in 1999.
During 2000, Maytag repurchased 6.5 million shares of common stock at a cost of $358 million. As of December 31, 2000, there were approximately 14.7 million shares which may be repurchased under existing board authorizations of which 5.7 million shares are committed to be repurchased under put option contracts, if such options are exercised. (See discussion of these put option contracts below.)
During 2000, Maytag settled a forward stock purchase contract, entered into in 1997, associated with four million shares before its maturity date for $9.6 million.
In connection with the share repurchase program, Maytag sold put options that give the purchaser the right to sell shares of Maytag's common stock to Maytag at specified prices upon exercise of the options. The put option contracts allow Maytag to determine the method of settlement. As of December 31, 2000, there were 1.3 million put options outstanding (all of which expire in 2001) with strike prices ranging from $37.00 to $73.06; the weighted-average strike price was $57.27.
As of December 31, 2000, there were 4.4 million put options outstanding associated with the financing transactions that established the Maytag Capital Trusts in 1999. The 4.4 million put options expire in 2002 and have a strike price of $45.
Any funding requirements for future investing and financing activities in excess of cash on hand and generated from operations will be supplemented by borrowings. Maytag's commercial paper program is supported by a credit
agreement with a consortium of banks which provides revolving credit facilities totaling $400 million. This agreement expires June 29, 2001 and includes covenants with respect to interest coverage and leverage which Maytag was in compliance with at December 31, 2000. Maytag had $300 million of commercial paper outstanding as of December 31, 2000. In 1999, Maytag filed a shelf registration statement with the Securities and Exchange Commission providing the ability to issue an aggregate of $400 million of debt securities of which $185 million was available as of December 31, 2000. Maytag expects to issue these securities over a non-specified period of time and expects to use the net proceeds from the sale of the securities for general corporate purposes, including the funding of share repurchases (including obligations for put options as discussed above), capital expenditures, working capital, repayment or reduction of long-term and short-term debt and the financing of acquisitions.
Maytag explores and may periodically implement arrangements to adjust its obligations under various stock repurchase arrangements, including the arrangements described above.
Market Risks
Maytag is exposed to foreign currency exchange risk related to its transactions, assets and liabilities denominated in foreign currencies. To manage certain foreign exchange exposures, Maytag enters into foreign currency forward and option contracts. Maytag's policy is to hedge a portion of its anticipated foreign currency denominated export sales transactions, which are denominated primarily in Canadian dollars, for periods not exceeding one year. At December 31, 2000, a uniform 10 percent strengthening of the U.S. dollar relative to the foreign currencies in which Maytag's sales are denominated would result in a decrease in net income of approximately $10 million for the year ending December 31, 2001. This sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in potential changes in sales levels or local currency prices.
Maytag also is exposed to commodity price risk related to Maytag's purchase of selected commodities used in the manufacture of its products. To reduce the effect of changing raw material prices for select commodities, Maytag has entered into commodity swap agreements to hedge a portion of its anticipated raw material purchases on selected commodities. At December 31, 2000, a uniform 10 percent increase in the price of commodities covered by commodity swap agreements would not result in a significant decrease in net income for the year ending December 31, 2001.
Maytag also is exposed to interest rate risk in its debt portfolio. Maytag uses interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. The swaps involve the exchange of fixed and variable rate payments without exchanging the notional principal amount. At December 31, 2000, a uniform 10 percent increase in interest rates would result in a decrease in net income of approximately $3 million for the year ending December 31, 2001.
Contingencies
Maytag has contingent liabilities arising in the normal course of business or from operations which have been discontinued or divested. (See discussion of these contingent liabilities in Contingencies section of the Notes to Consolidated Financial Statements.)
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 the terms: "expects," "intends," "may ------- ------- --- "impact," "plans," "should" or similar terms. 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 Maytag competes, including changes in economic conditions in the geographic areas where Maytag's operations exist or products are sold; timing, start-up and customer acceptance of newly designed products; shortages of manufacturing capacity; competitive factors, such as price competition and new product introductions; significant loss of business from a major national retailer; the cost and availability of raw materials and purchased components; union labor negotiations; 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.
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, page 15)
Item 8.
Item 8. Financial Statements and Supplementary Data.
Page ----
Report of Independent Auditors................................ 17
Consolidated Statements of Income--Years Ended December 31, 2000, 1999 and 1998............................ 18
Consolidated Balance Sheets-- December 31, 2000 and 1999.................................. 19
Consolidated Statements of Shareowners' Equity--Years Ended December 31, 2000, 1999 and 1998............................ 21
Consolidated Statements of Comprehensive Income-- December 31, 2000, 1999 and 1998............................ 22
Consolidated Statements of Cash Flows--Years Ended December 31, 2000, 1999 and 1998............................ 23
Notes to Consolidated Financial Statements.................... 24
Quarterly Results of Operations--Years 2000 and 1999.......... 43
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, 2000 and 1999, 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, 2000. Our audit 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. 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 January 23, 2001
Consolidated Statements of Income
See notes to consolidated financial statements.
Consolidated Balance Sheets
See notes to consolidated financial statements.
See notes to consolidated financial statements.
Consolidated Statements of Shareowners' Equity
See notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
See notes to consolidated financial statements.
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 78 percent and 77 percent of the Company's inventories at December 31, 2000 and 1999, 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 Financial Accounting Standards Board (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 20 to 40 years using the straight- line method and the carrying value is reviewed for impairment annually. If this review indicates that it is probable that the projected future undiscounted cash flows of the acquired assets are less than the carrying value of the goodwill, 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 3 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.
- - Revenue Recognition, Shipping and Handling and Product Warranty Costs: Revenue from sales of products is generally recognized upon shipment to customers. Shipping and handling fees charged to customers are included in net sales, and shipping and handling costs incurred by the Company are included in cost of sales. 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 a trading program of interest rate swap contracts outstanding which are marked to market each period. The payments made or received as well as the mark to market adjustment are recognized in interest expense.
The Company uses interest rate swaps to adjust the proportion of total debt that is subject to variable and fixed interest rates. Payments made or received are recognized in interest expense.
The Company uses commodity swap agreements for hedging purposes to reduce the effect of changing raw material prices. Gains and losses on the swap agreements are deferred until settlement and recorded as a component of cost of goods sold when settled.
The Company has a forward stock purchase contract outstanding in its own shares which requires net cash settlement. As such, the contract is considered an asset or liability and a change in its fair value is recognized in the Company's financial statements each period with the gains and losses included in income.
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.
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, although certain settlement options are considered not to be within the control of the Company. As such, the contracts are classified as temporary equity and the maximum potential obligation for these put option contracts has been reflected as a reduction of paid-in capital within shareowners' equity.
- - 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 are 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 and put options, into common stock.
- - Comprehensive Income: Comprehensive Income is calculated in accordance with FASB Statement No. 130, "Reporting Comprehensive Income." Statement 130 requires that unrealized losses on the Company's available-for-sale securities, minimum pension liability adjustments and foreign currency translation adjustments be included in accumulated other comprehensive income as a component of shareowners' equity.
- - Impact of Recently Issued Accounting Standards: FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" is effective January 1, 2001. Statement 133 will require the Company to recognize all derivatives on the consolidated balance sheet at fair value. The adoption of Statement 133 will not have a significant effect on its results of operations or financial position.
The FASB's Emerging Issues Task Force (EITF) 00-19, "Determination of Whether Share Settlement Is within the Contol of the Issuer for Purposes of Applying EITF Issue No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" is effective June 30, 2001. EITF 00-19 will require the Company to classify a portion of its outstanding put option contracts, currently classified as temporary equity representing the maximum potential obligation of the put option contracts, as assets and liabilities representing the fair value of the put option contracts. Each period the change in the fair value of the put option contracts will be included in income. The impact of this new accounting standard could have a material effect on the Company's results of operations and financial position as the contracts are currently structured.
Business Acquisitions
Effective January 1, 1999, the Company acquired all of the outstanding shares of a manufacturer of commercial ranges, and refrigerators and residential ranges for $19.2 million. In connection with the purchase, the Company retired debt and incurred transaction costs of $3.6 million and issued 289 thousand shares of Maytag common stock at a value of $15.6 million. The 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 $17 million and has been recorded as Other intangibles (goodwill) in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 20 years.
In the fourth quarter of 1998, the Company acquired all of the outstanding shares of a manufacturer of home laundry products in China. This business produces and markets home laundry equipment. In connection with the purchase, the Company, 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 (consisting only of 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.
Special Charges and Loss on Securities
During the fourth quarter of 2000, the Company recorded special charges and loss on securities totaling $66.8 million, or $42.4 million after-tax. Special charges of $49.2 million, or $31.2 million after-tax, were associated with discontinued business and product initiatives, asset write downs and executive severance costs related to management changes. Loss on securities of $17.6 million, or $11.2 million after-tax, resulted from a lower market valuation of securities of TurboChef Technologies, Inc. and investments in privately held Internet-related companies.
Of the $49.2 million special charges, $19.3 million involved cash expenditures related to executive severance costs ($7 million), contractual obligations associated with discontinued product inititatives and lease commitments, of which $1.3 million were expended in 2000 and $18 million are expected to be expended in 2001. The remaining $29.9 million of special charges involved noncash expenditures primarily related to the write down of fixed assets and inventory related to discontinued initiatives. The loss on securities charge of $17.6 million is noncash.
Inventories
Inventories consisted of the following:
December 31 --------------------- In thousands 2000 1999 - ---------------------------------------------------------------------------- Raw materials $ 62,556 $ 66,731 Work in process 67,535 72,162 Finished goods 359,376 335,844 Supplies 7,451 9,615 --------- --------- Total FIFO cost 496,918 484,352 Less excess of FIFO cost over LIFO 88,368 80,232 --------- --------- Inventories $ 408,550 $ 404,120 ========= =========
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 2000 1999 - ---------------------------------------------------------------------------- Deferred tax assets (liabilities): Property, plant and equipment $(69,724) $ (65,088) Postretirement benefit liability 181,511 178,015 Product warranty/liability accruals 37,988 36,381 Pensions and other employee benefits (4,085) 4,385 Advertising and sales promotion accruals 8,333 10,426 Interest rate swaps 9,146 9,023 Special charges 19,590 Other - net (6,995) (8,543) --------- --------- 175,764 164,599 Less valuation allowance for deferred tax assets 41,708 45,357 --------- --------- Net deferred tax assets $ 134,056 $ 119,242 ========= ========= Recognized in Consolidated Balance Sheets: Deferred tax assets - current $ 45,616 $ 35,484 Deferred tax assets - noncurrent 110,393 106,600 Deferred tax liabilities - noncurrent (21,953) (22,842) --------- --------- Net deferred tax assets $ 134,056 $ 119,242 ========= =========
Components of the provision (benefit) for income taxes consisted of the following:
Year Ended December 31 ----------------------------------- In thousands 2000 1999 1998 - ------------------------------------------------------------------------------ Current provision (benefit): Federal $ 119,800 $ 161,400 $ 157,900 State 10,200 13,200 21,500 Non-United States 2,000 (1,400) (100) --------- --------- --------- 132,000 173,200 179,300 --------- --------- --------- Deferred provision (benefit): Federal (16,900) 12,800 (2,800) State 200 9,200 (400) Non-United States (100) (100) --------- --------- --------- (16,800) 21,900 (3,200) --------- --------- --------- Provision for income taxes $ 115,200 $ 195,100 $ 176,100 ========= ========= =========
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 ----------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------ U.S. statutory rate applied to income before income taxes, minority interests and extraordinary item 35.0% 35.0% 35.0% Increase (reduction) resulting from: Tax credits (2.3) (0.6) (0.4) Difference due to minority interest (2.2) (0.8) (0.7) State income taxes, net of federal tax benefit 2.0 2.7 2.9 Other - net 2.2 0.5 0.6 ----- ------ ----- Effective tax rate 34.7% 36.8% 37.4% ===== ====== =====
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 $10 million at December 31, 2000), 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 2000, 1999 and 1998 were $135 million, $170 million and $154 million, respectively.
The tax effect of the minimum pension liability adjustment component of comprehensive income was $0.5 million and $2.6 million in 2000 and 1999, respectively. The tax effect of the foreign currency translation adjustment component of comprehensive income was recorded as a deferred tax asset with a corresponding valuation allowance.
Notes Payable
Notes payable at December 31, 2000 consisted of notes payable of the Company's joint venture in China, Rongshida-Maytag, of $58.8 million and commercial paper borrowings of $299.6 million. The weighted average interest rate on all notes payable and commercial paper borrowings was 6.7 percent at December 31, 2000. Notes payable at December 31, 1999 consisted of notes payable associated with Ronghsida-Maytag of $55.1 million and commercial paper borrowings of $77.9 million. The weighted average interest rate on all notes payable and commercial paper borrowings was 6.0 percent at December 31,
1999.
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, 2000.
Long-Term Debt
Long-term debt consisted of the following:
December 31 --------------------- In thousands 2000 1999 - ----------------------------------------------------------------------------- Notes payable with interest payable semiannually: Due May 15, 2002 at 9.75% $ 125,358 $ 125,358 Medium-term notes, maturing from 2001 to 2010, from 6% to 9.03% with interest payable semiannually 308,230 149,230 Medium-term note, maturing in 2001, with interest adjusted each quarter based on LIBOR and payable quarterly 40,000 185,000 Employee stock ownership plan notes payable semiannually through July 2, 2004 at 5.13% 28,240 35,300 Other 13,990 13,349 --------- --------- 515,818 508,237 Less current portion of long-term debt 64,482 170,473 --------- --------- Long-term debt $ 451,336 $ 337,764 ========= =========
The $125.4 million of notes payable and $84.2 million of 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 2000, 1999 and 1998 was $70.1 million, $63.1 million and $64 million, respectively. When applicable, the Company capitalizes interest incurred on funds used to construct property, plant and equipment. Interest capitalized during 2000, 1999 and 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): 2001--$64,482; 2002--$133,585; 2003--$193,269; 2004--$25,326; 2005--$3,365; thereafter--$95,791.
In 2000, the Company issued a $150 million medium-term note with a fixed interest rate of 7.61 percent due March 3, 2003. The Company also issued a $25 million medium-term note with a fixed interest rate of 8 percent due February 28, 2010. The Company entered into interest rate swap contracts to exchange the interest rate payments associated with these medium-term notes to variable rate payments based on LIBOR. For additional disclosures regarding the Company's interest rate swap contracts, see Financial Instruments section in the Notes to Consolidated Financial Statements.
In 1999, the Company issued a $24 million medium-term note with a fixed interest rate of 6 percent due January 26, 2009. The Company also entered into an interest rate swap contract to exchange the interest rate payments associated with this medium-term note to variable rate payments based on LIBOR. The Company also issued a $40 million medium-term note with a floating interest rate based on LIBOR with the interest rate reset quarterly due September 17, 2001. As of December 31, 2000, the floating interest rate based on LIBOR for the $40 million medium-term note was 6.66 percent.
Accrued Liabilities
Accrued liabilities consisted of the following:
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:
Assumptions used in determining net periodic pension cost for the plans in the United States consisted of the following:
For the valuation of projected benefit obligation at December 31, 2000 set forth in the table above, and for determining net periodic pension cost in 2001, the discount rate remained at 7.75 percent and the rate of increase in compensation remained at 5.25 percent. Assumptions for plans outside the United States are comparable to the above in all periods.
The actuarial gain of $41.4 million in the reconciliation of the 2000 projected benefit obligation primarily represents favorable 2000 actual experience compared to the 1999 assumptions used for mortality rates and retirement ages.
The Company amended its pension plans in 2000, 1999 and 1998 to include several benefit improvements for plans covering salaried and hourly employees.
The components of net periodic pension cost consisted of the following:
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 $1,188,080, $1,082,689 and $1,032,424, respectively, as of December 31, 2000, and $1,157,410, $1,078,711 and $1,022,275, respectively, as of December 31, 1999.
Postretirement Benefits
The Company provides postretirement health care and life insurance benefits for certain employee groups in the United States. Most of the postretirement plans are contributory and contain certain other cost sharing features such as deductibles and coinsurance. The plans are unfunded. Employees do not vest and these benefits are subject to change. Death benefits for certain retired employees are funded as part of, and paid out of, pension plans.
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:
Assumptions used in determining net periodic postretirement benefit cost consisted of the following:
(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, 2000 set forth in the table above, and for determining net postretirement benefit costs in 2001, the discount rate remained at 7.75 percent and the health care cost trend rates were assumed to be 5.0 percent for 2001 and thereafter.
The components of net periodic postretirement cost consisted of the following:
The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of a one-percentage change in assumed health care cost trend rates consisted of the following:
Leases
The Company leases buildings, machinery, equipment and automobiles under operating leases. Rental expense for operating leases amounted to $27.2 million, $25.8 million and $25.9 million for 2000, 1999 and 1998, respectively.
Future minimum lease payments for operating leases as of December 31, 2000 consisted of the following:
Financial Instruments
The Company uses foreign exchange forward and option contracts to manage certain foreign currency exchange exposure. The counterparties to the contracts are high credit quality international financial institutions. During 2000, 1999 and 1998, the Company used foreign exchange forward and option contracts to hedge the sale of appliances manufactured in the United States and sold to Canadian customers and to hedge amounts paid to employees in Mexico. Gains and losses recognized from these contracts were not significant. As of December 31, 2000 and 1999, the Company had open foreign currency forward contracts for the exchange of Canadian dollars and Mexican pesos, all having maturities less than twelve months, in the amount of U.S. $12.6 million and U.S. $68.4 million, respectively.
The Company has commodity swap agreements outstanding for hedging the effect of changing raw material prices. Gains and losses on the swap agreements are deferred until settlement and recorded as a component of cost of goods sold when settled. The notional amounts of the commodity swap agreements are based on anticipated raw material purchases and expire during 2001. The Company recognized gains of approximately $5.7 million in 2000, and gains and losses were not significant in 1999.
The Company has 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. The Company had five swap transactions outstanding which mature by 2003 with a total notional amount of $67.7 million as of December 31, 2000 and $74.1 million as of December 31, 1999. The fair value of the swap positions of $24.2 million at December 31,
2000 and $23.7 million at December 31, 1999 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, 2000 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. In 2000, 1999 and 1998 the Company incurred net interest expense of $1.5 million, $1.5 million and $1.9 million, repectively in connection with these swap transactions.
In 2000, the Company entered into two interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. The swaps involve the exchange of fixed and variable rate payments. At December 31, 2000, the Company had four outstanding interest rate swap agreements with notional amounts totalling $299 million. Under these agreements, the Company receives weighted average fixed interest rates of 7.08 percent and pays floating interest rates based on three month LIBOR rates, or a weighted average interest rate of 6.43 percent, as of December 31, 2000. The net interest expense associated with the interest rate swap contracts was not significant.
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. The Company also maintains credit insurance on a portion of its accounts receivable. 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, foreign currency contracts, commodity swaps, forward stock purchase contracts 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:
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 contracts and put option contracts, see Shareowners' Equity section in the Notes to Consolidated Financial Statements.
Company Obligated Manditorily Redeemable Preferred Capital Securities of Subsidiary Trust Holding Solely the Company's Debentures and Minority Interests
In 1999, the Company together with two newly established business trusts, issued units comprised of (a) a preferred security of each Maytag Trusts which provides for a 6.85 and 6.3 percent per annum distribution, respectively and (b) a purchase contract requiring the unitholder to purchase shares of Maytag common stock from the Company on November 15, 2002 and June 30, 2002, respectively. An outside investor purchased the units for a noncontrolling interest in the Maytag Trusts in the aggregate for $200 million. The Maytag Trusts used the proceeds from the sale of the units, in addition to $6 million aggregate capital contributions from the Company, to purchase $103 million of 6.85 percent Maytag debentures due November 15, 2004 and $103 million of 6.3 percent Maytag debentures due June 30, 2004. The terms of the debentures parallel the terms of the preferred securities issued by the Maytag Trusts. The applicable distribution rate on the preferred securities of the Maytag Trusts that remain outstanding after November 15, 2002 and June 30, 2002, respectively, will be reset to reflect changes in the market for such securities. Under the purchase contracts, the Company will pay the holder contract adjustment payments at a rate of 4.265 percent and 3.359 percent of the stated amount of units per annum, respectively. Under the purchase contracts, the Company will issue shares of Maytag common stock for a total purchase price of $200 million. The maximum number of shares the Company will be required to deliver to the holder, for the cumulative purchase price of $200 million, is approximately 4.4 million shares, reflecting a minimum issuance price of $45 per share. If the share price is above $45 per share at the time of settlement, Maytag will issue fewer shares. The Company's objective in this transaction was to raise low-cost, equity funds. For financial reporting purposes, the outside investor's noncontrolling interest in the Maytag Trust of $200 million is reflected in "Company obligated manditorily redeemable preferred capital securities of subsidiary trust holding solely the Company's debentures" in the Consolidated Balance Sheets. The income attributable to such noncontrolling interest is reflected in Minority Interests 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.
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 the final $7 million was contributed in 1998. The results of this majority-owned joint venture in China are included in the Company's consolidated financial statements.
The (income)/loss attributable to the noncontrolling interest reflected in Minority interests in the Consolidated Statements of Income consisted of the following:
The outside investors' noncontrolling interest reflected in Minority interests in the Consolidated Balance Sheets consisted of the following:
Stock Plans
In 2000, the shareowners approved the 2000 Employee Stock Incentive Plan which replaced the 1996 Employee Stock Incentive Plan. The plan authorizes the issuance of up to 3.9 million shares of common stock, of which no more than 0.5 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 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 2000 plan.
In 1998, the shareowners approved the 1998 Non-Employee Directors' Stock Option Plan which replaced the 1989 Non-Employee Directors' Stock Option Plan. The plan authorizes the issuance of up to 500,000 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 2,540,691 and 821,212 shares available for future stock grants at December 31, 2000 and 1999, 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:
For purposes of pro forma disclosures, the estimated fair value of options granted is amortized to expense over the options' vesting period. The Company's pro forma information consisted of the following:
Stock option activity consisted of the following:
Information with respect to stock options outstanding and stock options exercisable as of December 31, 2000 consisted of the following:
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 31,240 at December 31, 2000, 41,285 at December 31, 1999 and 69,465 at December 31, 1998.
The Company issued 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 the end of 2000, 1999 and 1998 were 120,966, 253,290 and 311,960, respectively. Restricted stock units outstanding at the end of 2000, 1999 and 1998 were 84,199, 175,016 and 217,186, respectively. The expense for the anticipated restricted stock and stock unit payout is amortized over the three-year vesting period and is adjusted based on actual performance compared to the pre-established financial objectives. The expense/(income) was $(2.2) million, $8.2 million and $11.8 million in 2000, 1999 and 1998, respectively. No restricted stock was granted in 2000 as the Company adopted a Performance Incentive Award Program with a cash payout that replaces the restricted stock program.
Employee Stock Ownership Plan The Company established an Employee Stock Ownership 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 United States employees except certain groups 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:
The components of the total contribution to the ESOP trust consisted of the following:
The components of expense recognized by the Company for the ESOP contribution consisted of the following:
Shareowners' Equity The share activity of the Company's common stock consisted of the following:
During 2000, the Company repurchased 6.5 million shares associated with its share repurchase program at a cost of $358 million. As of December 31, 2000, of the 14.7 million shares which may be repurchased under the existing board authorizations, the Company is contingently obligated to purchase 5.7 million shares under put option contracts, if such options are exercised. (See discussion of these put option contracts below.)
During the first quarter of 2000, the Company settled a forward stock purchase contract, entered into in 1997, associated with four million shares before its maturity date for $9.6 million.
In connection with the share repurchase program, the Company sold 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 on the designated expiration date. The put option contracts allow the Company to determine the method of settlement, however, a portion of the put option contracts associated with the financing transaction that established the Maytag Capital Trusts have certain settlement options which are considered not to be within the control of the Company. As such, the Company has established $200 million of Temporary equity, representing the maximum potential obligation for these put options, through a reduction in additional
paid-in capital. In 2000, the Company paid $1 million in premiums to extend put option terms and in 1999 and 1998, received $47 million and $30 million, respectively, in premium proceeds from the sale of put options. As of December 31, 2000, there were 1.3 million put options outstanding, expiring in 2001, with strike prices ranging from $37.00 to $73.06; the weighted-average strike price was $57.27. As of December 31, 2000, there were 4.4 million put options outstanding associated with the financing transactions that established the Maytag Capital Trusts in 1999 which expire in 2002 and have a strike price of $45. In the fourth quarter of 1999, the Company entered into forward stock purchase agreements to repurchase shares of Maytag stock in the first quarter of 2000 and 2001 at an average price of $39. These forward stock purchase contracts require a net cash settlement. The Company recorded losses of $3.1 million in 2000 and gains of $2.6 million in 1999 associated with these contracts in Other- net in the Consolidated Statements of Income 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 are not transferable apart from the Company's common stock. When exercisable, each Right entitles 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 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:
Earnings Per Share The computation of basic and diluted earnings per share consisted of the following:
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 put options and 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. 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 $12 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, 2000, the Company has outstanding commitments for capital expenditures of $43 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 sold primarily 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 sold primarily 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:
In 2000, the Company recorded special charges in operating income of $49.2 million. Of the $49.2 million special charges, $19.7 million, $9.3 million and $20.2 million were recorded in home appliances, commercial appliances and Corporate, respectively. For additional disclosures regarding the special charges, see "Special Charges and Loss on Securities" section in the Notes to Consolidated Financial Statements. Corporate assets includes such items as deferred tax assets, intangible pension assets and other assets.
The reconciliation of segment profit to consolidated income before income taxes and minority interests consisted of the following:
Financial information related to the Company's operations by geographic area consisted of the following:
Net sales are attributed to countries based on the location of customers. Long-lived assets consist of total property, plant and equipment. Sales to Sears, Roebuck and Co. represented 11% of 2000 consolidated net sales and 10% of consolidated net sales in 1999 and 1998.
Quarterly Results of Operations (Unaudited) The unaudited quarterly results of operations consisted of the following:
(1) The fourth quarter of 2000 includes $31.2 million after-tax special
charges associated with discontinued business and product initiatives, asset write downs and severance costs related to management changes and an $11.2 million after-tax special charge for loss on securities.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Information concerning directors and officers on pages 1 through 9 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.
Item 11. Executive Compensation.
Information concerning executive compensation on pages 20 through 30 of the Proxy Statement, is incorporated herein by reference; provided that the information contained in the Proxy Statement under the heading "Compensation Committee Report on Executive Compensation" is specifically not incorporated herein by reference. Information concerning director compensation on page 7-8 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The security ownership of certain beneficial owners and management is incorporated herein by reference from pages 6 through 8 of the Proxy Statement.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions is incorporated herein by reference from pages 2 through 4 of the Proxy Statement.
PART IV
Item 14.
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 47.
(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 48 through 51.
(b) The Company filed a Form 8-K dated November 13, 2000 that announced Lloyd D. Ward had resigned as Chairman, Chief Executive Officer and as a director.
The Company filed a Form 8-K dated December 14, 2000 that announced it experienced slower than expected sales of major appliances during October and November causing fourth quarter consolidated sales and earnings to be below previous expectations.
The Company filed a Form 8-K dated January 31, 2001 that announced William L. Beer was named president of the Corporation's major appliance division and that Roger K. Scholten had been named senior vice president and general counsel.
(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 48 through 51.
(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 47.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAYTAG CORPORATION ------------------------------------ (Registrant)
/s/ Leonard A. Hadley ------------------------------------ Leonard A. Hadley President and Chief Executive Officer Director
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ Steven H. Wood /s/ Vitas A. Stukas - ----------------------------------- ---------------------------------------- Steven H. Wood Vitas A. Stukas Executive Vice President and Vice President and Controller Chief Financial Officer /s/ Barbara R. Allen /s/ Howard L. Clark, Jr. - ----------------------------------- ---------------------------------------- Barbara R. Allen Howard L. Clark, Jr. Director Director /s/ Lester Crown - ----------------------------------- ---------------------------------------- Lester Crown Wayland R. Hicks Director Director /s/ William T. Kerr /s/ Bernard G. Rethore - ----------------------------------- ---------------------------------------- William T. Kerr Bernard G. Rethore Director Director /s/ W. Ann Reyonlds /s/ John A. Sivright - ----------------------------------- ---------------------------------------- W. Ann Reynolds John A. Sivright Director Director /s/ Neele E. Stearns, Jr. /s/ Fred G. Steingraber - ----------------------------------- ---------------------------------------- Neele E. Stearns, Jr. Fred G. Steingraber Director Director
- ------------------------------------ Carole J. Uhrich Director
Date: March 16, 2001
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, 2000
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:
The following consolidated financial statement schedule of Maytag Corporation and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts............... 52
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.
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.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Maytag Corporation Thousands of Dollars
Note 1 - Uncollectible accounts written off Note 2 - Effect of foreign currency translation Note 3 - Resulting from acquisition of Jade effective January 1, 1999. Note 4 - Resulting from acquisition of Three Gorges in the fourth quarter of 1998.